Sempra CFO touts California's new 4-year general rate case cycle as company reports $2.1B earnings - Utility Dive

Dive Brief:

• California’s new four-year general rate case (GRC) cycle is a "very constructive development" that provides utilities with more visibility into the future, Sempra Energy Executive Vice President and Chief Financial Officer Trevor Mihalik said on the company’s earnings call Thursday.

• Sempra Energy, parent company of San Diego Gas & Electric (SDG&E) and Southern California Gas Company (SoCalGas) among others, reported full-year 2019 earnings of $2.1 billion — compared to $924 million last year —​ making it "one of the strongest in our company’s history," Chairman and CEO Jeffrey Martin said in a press release.

• The California Public Utilities Commission (CPUC) in January adopted a decision changing the three-year GRC cycle to four years, with utilities filing their applications two years prior to the test year.

Dive Insight:

The CPUC allows utilities to recover capital as well as operation and maintenance costs from ratepayers through their GRC proceedings, which so far have taken place on a three-year cycle —​ with one test year, followed by two attrition years. The new four-year cycle would have utilities file their application on May 15, two years before the test year, and provide the agency’s Public Advocates Office with more time to review the filings.

A four-year cycle has some benefits, according to the commission: utilities will have more time to implement new risk-mitigation and accountability requirements, rather than litigate their rate case applications, and the agency can focus on monitoring costs closer to real-time. With the change, SDG&E and SoCalGas’ current GRC cycles will extend through 2023 as a transitional step, before migrating to the four-year cycle. The decision "should benefit all stakeholders as we implement a robust capital program around safety and reliability," Mihalik said on the call. 

SDG&E and SoCalGas received final approval of their 2019-2021 GRCs last year, and will soon file petitions for modification to extend their GRC cycle by two more years, according to Mihalik.

The modified GRC cycle allows utilities a longer revenue trajectory and the ability to plan for an extra year, Mike Florio, energy consultant and former commissioner at the CPUC told Utility Dive.

"I think from the commission’s standpoint, the big benefit is reducing the workload a little bit, because they’re so overloaded right now. These decisions are massive and I’m not sure they really get the attention that they deserve, and one case gets pancaked on top of the other," he said.

Sempra’s 2019 earnings on an adjusted basis came in at $1.9 billion —​ or $6.78 per share. The company reported earnings of $447 million for the fourth quarter of the year. 

The company also gave analysts a preview of its five-year capital plan, which has increased from $25 billion to $32 billion since March 2019 —​ the highest in the company’s history. 

But SDG&E faces risks —​ including liability from wildfires, the company said in its annual 10-K filing with the U.S. Securities and Exchange Commission. California last year implemented a new wildfire fund to provide electric utilities liquidity to pay out claims, but that fund might not have sufficient insurance coverage for the utilities.The fund could be "completely exhausted" by fires, caused either by SDG&E or other electric utilities, in which case SDG&E will lose protection, Sempra said. 

Sempra has also experienced more expensive, less accessible wildfire insurance coverage for SDG&E’s operations, and the CPUC might now allow recovery of either uninsured losses or increased insurance premiums, according to the filing. For instance, the agency in 2017 denied SDG&E’s application to recover costs connected to the 2007 wildfires in Southern California.

Additionally, SoCalGas could continue to face significant costs related to its Aliso Canyon natural gas storage facility, where the utility discovered a leak in October 2015. The utility could also face fines, penalties and damages liabilities related to the incident, it said.

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Sempra CFO touts California's new 4-year general rate case cycle as company reports $2.1B earnings - Utility Dive
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