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California Utility Regulation 'Back on Track,' Says Sempra's Felsinger

California Utility Regulation 'Back on Track,' Says Sempra's Felsinger

Recent actions by the California Public Utilities Commission (CPUC) to beef up electric reserve margins and establish multiple receipt points for liquefied natural gas (LNG) imports represent close to $1 billion in increased rate base in the coming years for Sempra Energy's two utilities, according to Sempra COO Don Felsinger, speaking Tuesday at the Banc of America Securities Energy & Power Conference in Las Vegas.

"The state has been working itself out of the energy problems of the past four or five years," Felsinger said. "So we are now starting to see the additions of infrastructure that are allowing the utilities to have rate-base growth."

Felsinger said the CPUC members are now "starting to get ahead of the curve" regarding natural gas, moving forward with several proceedings that he thinks allow the utilities -- including Sempra's two -- to "rebalance" their capacity portfolios in looking for gas supplies coming into California.

"The utilities are rethinking and giving notice to transmission companies about capacity agreements as the CPUC has acknowledged that LNG will be a reality in California," said Felsinger, citing the regulators' establishment of three new receipt points for LNG (central California, Southern California and along the U.S.-Mexico border). "In order to get substantial quantities of LNG into [California], the market will require both utilities to have to build infrastructure to facilitate the movement of gas. There will be the need from 'replumbing' of the gas system to accommodate LNG."

In the ratemaking arena, Felsinger said he expects the CPUC before the end of the year to approve a settlement in the cost-of-service rate cases for both Southern California Gas Co. and San Diego Gas and Electric Co. He thinks a compromise proposal by Commissioner Geoffrey Brown, among three outstanding ones before the CPUC, will be approved at one of the regulatory commission's remaining three meetings this year.

"All total, with generation and transmission upgrades on the electric side, there is about $650 million growth in SDG&E that I didn't see a couple of years ago," Felsinger told financial analysts at the conference. "With the reserve requirement going forward, all of the California utilities are going to be trying to figure out how they will fill that need (for a 15% reserve margin) and there is the requirement for 20% of the power coming from renewables, so there are a couple of RFPs (requests for proposals) on the street right now."

All of this is going to require "significant" amounts of new transmission to get added power to the marketplace, he said.

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