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Settlement Will Lead to Extensive Changes in Sempra Gas Utility Operations

In addition to the cash and financial consequences, substantial natural gas utility changes are coming at Sempra Energy's two California utilities as a result of the massive litigation settlement announced earlier this month. Within six months of the settlement being made final, new, consolidated approaches to intrastate transmission/storage, natural gas buying and a clearer separation of gas operations and gas buying will be put in effect at the Sempra utilities, according to the company's filing with Securities and Exchange Commission last Thursday.

All of the major changes will require review and approvals from the California Public Utilities Commission, which is not a signatory to the settlement. The settlement also acknowledged that the utilities cannot use the agreement to get around future state and federal regulations and laws impacting these natural gas utility operations.

Southern California Gas Co. and San Diego Gas and Electric Co. effectively will merge their backbone transmission/storage into one system, with the two Sempra utilities, which combined represent the largest distribution utility operation in the nation, seeking a single rate for use of the combined facilities that will be subject to a biannual cost-adjustment process (BCAP).

An SEC filing attachment spells out eight specific changes in the combined transmission/storage, changes in the information on the SoCalGas electronic bulletin board, and specified expansion of transmission receipt points through an open season held "no less frequently than every three years."

It further lists 12 changes in natural gas procurement, and five specific ways that the combined gas operations and buying functions will be "operationally and physically separate," including a "limiting of communications and information-sharing" between gas operations and gas acquisition functions.

"All gas market rules, tariffs, and provisions affecting SoCalGas and SDG&E not addressed in this settlement will remain the same, to the extent they do not conflict with the stated requirements of this settlement," the settlement attachment states. Another caveat is that the settlement will not permit the utilities to "disregard or oppose" actions by the Federal Energy Regulatory Commission, CPUC or state/federal laws.

Ultimately, what all of this spells out is combined gas utility transmission/storage operations with cost-based tariffs that are reviewed biannually; continuing current revenue balancing mechanisms; firm, tradable receipt point rights for access to the combined utilities' transmission system and storage; a secondary market for firm receipt point access rights and storage capacity rights; an imbalance trading program; and the utilities in combination will recover "all reasonable costs" of developing and maintaining this new system.

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