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SDG&E's Power Buying Shifts to Department of Water Resources; Agreement Provides Customers With Immediate Access to State Power Purchases.

SAN DIEGO, Feb. 6 /PRNewswire/ --

San Diego Gas & Electric (SDG&E) announced today it has signed an agreement with the California Department of Water Resources (CDWR) that SDG&E officials say should reduce customer costs over time and also limit the growth of the utility's balancing account for undercollected power costs.

The agreement comes just days after California Gov. Davis signed into law AB 1X, state legislation that authorizes the CDWR to purchase power in long-term forward contracts on behalf of the state's electric utilities.

"We are very pleased that the CDWR, with the backing of Gov. Gray Davis and the State Legislature, has moved swiftly to begin procuring electricity on behalf of our 1.2 million customers," said Debra L. Reed, president of SDG&E. "This will immediately stem the growth of our undercollected power costs for customers."

Reed said that Ray Hart, deputy director of the CDWR, was instrumental in getting an agreement forged quickly: "Both parties worked together with a common goal of implementing the legislation immediately to provide the benefits to the customers of SDG&E."

The state, through the CDWR, should be able to secure electricity at more favorable prices from the wholesale market than the utilities, because the state will be able to negotiate longer-term fixed power contracts, up to 10 years in duration, with better credit terms, Reed said.

Under state law AB 265, enacted in September 2000, SDG&E has been required to purchase power for most customers at market rates that have risen as high as $2.50 a kilowatt-hour (kWh), while charging its customers only 6.5 cents per kWh. Over the past 30 days, the average spot-market wholesale price for electricity in California has been 26 cents per kWh.

The difference between the wholesale electricity costs SDG&E incurs and the capped rate of 6.5 cents per kWh that the company charges its residential and small-business customers is being recorded in a regulatory balancing account, or "IOU," for later payment after the mandated cap period ends in 2002 or 2003. As provided in AB 265, SDG&E is authorized to recover its prudently acquired electric commodity costs.

SDG&E's balancing account, originally estimated to reach $800 million by the end of the legislatively mandated cap period, recently was projected to reach $1.45 billion in 2003 -- resulting in estimated balloon payments totaling nearly $800 for the typical residential customer. At the end of December 2000, SDG&E's total undercollection stood at $447 million. Reed said the state's assumption of procurement responsibilities, as outlined in AB1X, should keep the balancing account from expanding significantly in the future, as long as the CDWR continues to procure for SDG&E's full power needs.

Under the agreement with the CDWR, SDG&E's power requirements will be met first with the utility's 20-percent share of the energy from the San Onofre Nuclear Generating Station and power contracts. The remaining needs will be purchased by the CDWR.

San Diego Gas & Electric is a regulated utility that provides service to 3 million consumers through 1.2 million electric meters and 740,000 natural gas meters in San Diego and southern Orange counties. SDG&E is a subsidiary of Sempra Energy (NYSE: SRE), a Fortune 500 energy services holding company based in San Diego.

This press release contains statements that are not historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words "estimates," "believes," "expects," "anticipates," "plans," "intends," "may" and "should" or similar expressions, or discussions of strategy or plans are intended to identify forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Future results may differ materially from those expressed in the forward-looking statements. Forward-looking statements are necessarily based upon various assumptions involving judgments with respect to the future and other risks, including, among others, local, regional, national and international economic, competitive, political, legislative and regulatory conditions and developments; actions by the CDWR, CPUC, the California legislature and the Federal Energy Regulatory Commission; the financial condition of other investor-owned utilities; capital market conditions, inflation rates and interest rates; energy markets, including the timing and extent of changes in commodity prices; weather conditions; business, regulatory and legal decisions; the pace of deregulation of retail natural gas and electricity delivery; the timing and success of business development efforts; and other uncertainties, all of which are difficult to predict and many of which are beyond the control of the company. Readers are cautioned not to rely unduly on any forward-looking statements and are urged to review and consider carefully the risks, uncertainties and other factors which affect the company's business described in this press release and other press releases filed by the company from time to time with the Securities and Exchange Commission.
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Publication:PR Newswire
Date:Feb 6, 2001
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