Business Context and Reporting Period
This Form 8-K, dated December 19, 2024, reports on regulatory decisions affecting Sempra's California utility subsidiaries: San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company (SoCalGas). The filing details the California Public Utilities Commission's (CPUC) final decision on the 2024 General Rate Case (GRC) and a Federal Energy Regulatory Commission (FERC) order regarding transmission rates.
Key Financial Metrics and Regulatory Authorizations
2024 Revenue Requirements (Test Year)
- SDG&E: Authorized combined revenue requirement of $2,699 million ($2,193 million electric; $506 million gas). This represents a $189 million (7.5%) increase over 2023.
- SoCalGas: Authorized revenue requirement of $3,806 million. This represents a $324 million (9.3%) increase over 2023.
Future Revenue Adjustments (Attrition Years)
- SDG&E: Increases of $147 million (2025), $119 million (2026), and $122 million (2027) over the preceding year.
- SoCalGas: Increases of $190 million (2025), $116 million (2026), and $120 million (2027) over the preceding year.
Accounting Impacts and Charges
- Retroactive Revenue: SDG&E and SoCalGas will record retroactive revenue impacts effective January 1, 2024, in the fourth quarter of 2024.
- FERC Charge: A charge of approximately $120 million ($89 million after-tax) will be recorded in Q4 2024 due to the loss of the California ISO adder on transmission rates.
Material Changes Versus Prior Period
- Rate Increases: Both utilities secured significant revenue requirement increases for 2024 and subsequent years, net of tax benefits passed through to customers ($68 million for SDG&E; $202 million for SoCalGas).
- Cost of Capital: Future revenue requirements (2025-2027) will be updated to reflect authorized rate of return adjustments to 7.45% for SDG&E and 7.49% for SoCalGas.
- Aliso Canyon Storage: The CPUC closed the SB 380 investigation, affirming the necessity of the Aliso Canyon facility and authorizing a maximum working gas storage level of 68.6 billion cubic feet (bcf).
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Cost Recovery Mechanisms: The GRC decision provides mechanisms for future cost recovery of wildfire mitigation plans (Track 2 and Track 3), pipeline safety enhancements, and specific capital projects (e.g., Moreno and Honor Rancho compressor stations).
- Appeals: SDG&E intends to appeal the FERC order regarding the California ISO adder in the first quarter of 2025.
- Future Filings: The companies anticipate filing advice letters and separate applications for cost recovery of mobile home park programs and advanced metering infrastructure.
- Regulatory Risk: Future cost recovery requests remain subject to CPUC approval and reasonableness reviews.
- Wildfire Liability: Ongoing risks related to California wildfires, including potential liability for damages and insurance recovery limitations.
- Operational Risks: Risks include cybersecurity threats, natural disasters, and volatility in capital markets and interest rates.
- Verify the timing and magnitude of the Q4 2024 retroactive revenue recognition for SDG&E and SoCalGas.
- Confirm the impact of the $120 million FERC-related charge on Q4 2024 earnings and non-GAAP adjustments.
- Monitor the status of the SDG&E appeal regarding the California ISO adder in Q1 2025.
- Track upcoming CPUC decisions on Track 2 and Track 3 wildfire mitigation cost recovery requests.
- Review the implementation of the new cost of capital rates (7.45% and 7.49%) in 2025 rate filings.