Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. SEMPRA ENERGY (1032208) 10-K published on Feb 28, 2017 at 3:12 pm
Reporting Period: Dec 30, 2016
SoCalGas owns four natural gas storage facilities. The facilities have a combined working gas capacity of 137 billion cubic feet (Bcf) and have over 200 injection, withdrawal and observation wells. Natural gas withdrawn from storage is important for ensuring service reliability during peak demand periods, including heating needs in the winter, as well as peak electric generation needs in the summer. The Aliso Canyon natural gas storage facility represents 63 percent of SoCalGas’ natural gas storage capacity. SoCalGas discovered a natural gas leak at one of its wells at the Aliso Canyon facility in October 2015, and permanently sealed the well in February 2016. SoCalGas has not injected natural gas into Aliso Canyon since October 25, 2015, pursuant to orders from DOGGR and the Governor, and Senate Bill (SB) 380, all discussed in Note 15 of the Notes to Consolidated Financial Statements in the Annual Report. Limited withdrawals of natural gas from Aliso Canyon have been made in 2017 to augment natural gas supplies during critical demand periods. SoCalGas completed its measurement of the natural gas lost from the leak and calculated that approximately 4.62 Bcf of natural gas was released from the Aliso Canyon natural gas storage facility as a result of the leak. In November 2016, SoCalGas submitted a request to DOGGR seeking authorization to resume injection operations at the Aliso Canyon storage facility. In accordance with SB 380, DOGGR held public meetings on February 1 and 2, 2017 to receive public comment on DOGGR’s findings from its gas storage and well safety review and proposed pressure limits for the Aliso Canyon natural gas storage facility. The public comment period has expired. It remains for DOGGR to issue its safety determination, after which the CPUC must concur with DOGGR’s determination, before injections at the facility can resume. We discuss the Aliso Canyon natural gas storage facility gas leak in “Risk Factors” below and in Note 15 of the Notes to Consolidated Financial Statements in the Annual Report.
As of February 27, 2017, 250 lawsuits, including over 14,000 plaintiffs, have been filed against SoCalGas, some of which have also named Sempra Energy. These various lawsuits assert causes of action for negligence, negligence per se, strict liability, property damage, fraud, public and private nuisance (continuing and permanent), trespass, inverse condemnation, fraudulent concealment, unfair business practices and loss of consortium, among other things. A complaint alleging violations of Proposition 65 was also filed. Many of these complaints seek class action status, compensatory and punitive damages, civil penalties, injunctive relief, costs of future medical monitoring and attorneys’ fees.
In addition to the lawsuits described above, a federal securities class action alleging violation of the federal securities laws has been filed against Sempra Energy and certain of its officers and directors, and four shareholder derivative actions alleging breach of fiduciary duties have been filed against certain officers and directors of Sempra Energy and/or SoCalGas. Three complaints have also been filed by public entities, including the California Attorney General, the SCAQMD and the County of Los Angeles. These complaints seek various remedies, including injunctive relief, abatement of the public nuisance, civil penalties, payment of the cost of a longitudinal health study, and money damages, as well as punitive damages and attorneys’ fees. In February 2017, SoCalGas entered into a settlement agreement with the SCAQMD under which SoCalGas will pay $8.5 million and SCAQMD will dismiss its complaint and petition for dismissal of a stipulated abatement order issued by its Hearing Board. Separately, in February 2016, the Los Angeles County District Attorney’s Office filed a misdemeanor criminal complaint against SoCalGas seeking penalties and other remedies for alleged failure to provide timely notice of the leak and for allegedly violating certain California Health and Safety Code provisions. On November 29, 2016, the court approved a settlement between SoCalGas and the District Attorney’s Office whereby SoCalGas agreed to plead no contest to a misdemeanor for the alleged failure to provide timely notice of the leak and to spend approximately $4.3 million on reimbursement of government agency expenses, operational commitments, and fines and penalties, in exchange for the dismissal of the remaining counts. Certain individuals residing near Aliso Canyon who objected to the settlement have filed a notice of appeal of the judgment, as well as a petition asking the Superior Court to set aside the November 29, 2016 order and grant them restitution.
Insurance and Estimated Costs
Excluding directors and officers liability insurance, we have four kinds of insurance policies that together provide between $1.2 billion to $1.4 billion in insurance coverage, depending on the nature of the claims. These policies are subject to various policy limits, exclusions and conditions. We have been communicating with our insurance carriers, and we have received $169 million of insurance proceeds for control of well expenses and temporary relocation costs. We intend to pursue the full extent of our insurance coverage for the costs we have incurred or may incur. Our recorded estimate as of December 31, 2016 of $780 million of certain costs in connection with the Aliso Canyon storage facility leak may rise significantly as more information becomes available. In addition, any costs not included in the $780 million estimate could be material. The $780 million estimate does not include unsettled damage claims, restitution, or civil, administrative or criminal fines, costs and other penalties. In addition, such estimate excludes the costs to clean additional homes pursuant to the DPH Directive, future legal costs to defend litigation and other potential costs that we currently do not anticipate incurring or that we cannot reasonably estimate. There can be no assurance that we will be successful in obtaining insurance coverage for these costs under the applicable policies, and to the extent we are not successful in obtaining coverage, or if such costs are not covered by insurance (including any costs in excess of applicable policy limits), or if there were to be significant delays in receiving insurance recoveries, such costs could have a material adverse effect on SoCalGas’ and Sempra Energy’s cash flows, financial condition and results of operations.
SDG&E provides bundled electric procurement service through various resources that are typically procured on a long-term basis. While SDG&E provides such procurement service for the majority of its customer load, customers do have the ability to receive procurement service from a load serving entity other than SDG&E, through programs such as Direct Access and Community Choice Aggregation (CCA). Direct Access is currently closed, but utility customers have the ability to receive procurement through CCA, if the customer’s local jurisdiction (city) offers such a program. A number of cities in our service territory have expressed interest in CCA, which, if widely adopted, could result in substantial reductions in the load we are required to serve. When customers are served by another load serving entity, SDG&E no longer serves this departing load and the associated costs of the utility’s procured resources are borne by its remaining bundled procurement customers. This issue is addressed by rate mechanisms that attempt to ensure bundled ratepayer indifference in the event of departing load, but these existing mechanisms may not be sufficient to address the full extent of the potential cost shift in the event of significant departing load, and SDG&E bears some risk that its procured resources become stranded and the associated costs are not recoverable.
In addition, the FERC has adopted changes that have opened transmission development to competition from independent developers, allowing such developers to compete with incumbent utilities for the construction and operation of transmission facilities. These changes could materially adversely affect SDG&E’s business and prospects.
IEnova’s completed acquisitions of the remaining 50-percent interest in the Gasoductos de Chihuahua joint venture and of the Ventika wind power generation facilities will subject IEnova to integration challenges and risks.
IEnova’s completed acquisitions of the remaining 50-percent interest in the Gasoductos de Chihuahua joint venture from Pemex TRI and of the Ventika I and Ventika II wind power facilities from Fisterra Energy and certain minority shareholders will subject IEnova to substantial integration challenges and risks. IEnova’s expectations for the operating performance of the existing projects and the projects under construction by Gasoductos de Chihuahua are based on assumptions and estimates derived from its prior experience in the development of joint venture projects with Pemex TRI, and IEnova’s expectations regarding the results of operations of the Ventika wind power generation facilities are based on its due diligence and assumptions and estimates regarding the future productivity of those assets. The ability of these entities to achieve their expected results is subject to the risks inherent in the development, construction and management of energy projects generally. Following these acquisitions, Gasoductos de Chihuahua and/or the Ventika wind power generation facilities may not perform as expected, and the revenues generated by such acquisitions may prove insufficient to support the financing utilized to acquire such entities or to maintain such acquisitions. Furthermore, the successful integration and consolidation of any acquisition requires significant human, financial and other resources, which may distract the attention of IEnova’s management from IEnova’s existing projects, give rise to disruptions in such projects or result in an acquisition not being adequately integrated. IEnova may be unsuccessful at integrating either of these businesses with its own, or may experience difficulties in connection with the integration of their operations and systems (including IT, accounting, financial, control, risk management and safety systems). Any failure by IEnova to achieve the expected results, synergies and/or economies of scale from the integration of these businesses could have a material adverse effect on IEnova’s business, financial condition, results of operations, cash flows, and/or prospects.