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SAN ONOFRE NUCLEAR GENERATING STATION
 9 Months Ended
Sep. 30, 2019
Regulated Operations [Abstract]  
San Onofre Nuclear Generating Station REGULATORY MATTERS
We discuss regulatory matters in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report, and provide updates to those discussions and information about new regulatory matters below.
REGULATORY ASSETS AND LIABILITIES
We show the details of regulatory assets and liabilities in the following table.
REGULATORY ASSETS (LIABILITIES)
(Dollars in millions)
 
September 30,
2019
 
December 31,
2018
 
 
SDG&E:
 
 
 
Fixed-price contracts and other derivatives
$
(136
)
 
$
(150
)
Deferred income taxes refundable in rates
(118
)
 
(236
)
Pension and other postretirement benefit plan obligations
186

 
186

Removal obligations
(1,999
)
 
(1,848
)
Environmental costs
26

 
28

Sunrise Powerlink fire mitigation
120

 
120

Regulatory balancing accounts(1)
 
 
 
Commodity – electric
142

 
(8
)
Gas transportation
17

 
45

Safety and reliability
76

 
70

Public purpose programs
(117
)
 
(62
)
2019 GRC retroactive impacts
81

 
—

Other balancing accounts
46

 
145

Other regulatory liabilities, net(2)
(152
)
 
(170
)
Total SDG&E
(1,828
)
 
(1,880
)
SoCalGas:
 

 
 

Pension and other postretirement benefit plan obligations
452

 
470

Employee benefit costs
49

 
49

Removal obligations
(754
)
 
(833
)
Deferred income taxes refundable in rates
(214
)
 
(336
)
Environmental costs
28

 
28

Regulatory balancing accounts(1)
 
 
 
Commodity – gas, including transportation
(85
)
 
196

Safety and reliability
310

 
332

Public purpose programs
(329
)
 
(325
)
2019 GRC retroactive impacts
286

 
—

Other balancing accounts
(30
)
 
(68
)
Other regulatory liabilities, net(2)
(115
)
 
(114
)
Total SoCalGas
(402
)
 
(601
)
Sempra Mexico:
 
 
 
Deferred income taxes recoverable in rates
81

 
81

Other regulatory assets
6

 
6

Total Sempra Energy Consolidated
$
(2,143
)
 
$
(2,394
)
(1) 
At September 30, 2019 and December 31, 2018, the noncurrent portion of regulatory balancing accounts – net undercollected for SDG&E was $117 million and $78 million, respectively, and for SoCalGas was $475 million and $185 million, respectively. 
(2)  
Includes regulatory assets earning a rate of return.
CALIFORNIA UTILITIES
CPUC General Rate Case
The CPUC uses GRC proceedings to set rates designed to allow the California Utilities to recover their reasonable operating costs and to provide the opportunity to realize their authorized rates of return on their investments.
2019 General Rate Case
On September 26, 2019, the CPUC issued a final decision in the 2019 GRC approving SDG&E’s and SoCalGas’ test year revenues for 2019 and attrition year adjustments for 2020 and 2021. This is the first GRC that includes revenues authorized for risk assessment mitigation phase activities.
The 2019 GRC FD adopts a test year 2019 revenue requirement of $1,990 million for SDG&E’s combined operations ($1,590 million for its electric operations and $400 million for its natural gas operations), which is $213 million lower than the $2,203 million that SDG&E had requested in its updated application. SDG&E’s adopted 2019 revenue requirement represents an increase of $107 million (5.70 percent) over its authorized 2018 revenue requirement.
The 2019 GRC FD adopts a test year 2019 revenue requirement of $2,770 million for SoCalGas, which is $167 million lower than the $2,937 million that SoCalGas had requested in its updated application. SoCalGas’ adopted 2019 revenue requirement represents an increase of $314 million (12.80 percent) over its authorized 2018 revenue requirement.
The 2019 GRC FD retains a three-year GRC cycle for both utilities, specifying the 2020 and 2021 revenue requirement increases. The increases include separately authorized components for O&M and capital-related costs, as follows:
AUTHORIZED REVENUE REQUIREMENT INCREASES FOR 2020 AND 2021
(Dollars in millions)
 
 
2020 increase from 2019
 
2021 increase from 2020
 
Revenue increase
 
Percent increase
 
Revenue increase
 
Percent increase
SDG&E:
 
 
 
 
 
 
 
O&M
$
20

 
2.64
%
 
$
19

 
2.47
%
Capital-related costs
114

 
9.74

 
83

 
6.47

Total increase
$
134

 
6.74

 
$
102

 
4.83

SoCalGas:
 
 
 
 
 
 
 
O&M
$
36

 
2.64
%
 
$
34

 
2.40
%
Capital-related costs
184

 
14.36

 
116

 
7.93

Total increase
$
220

 
7.92

 
$
150

 
5.00


We expect the adopted revenue requirements associated with the period from January 1, 2019 through September 30, 2019 to be recovered in rates through December 2021. At September 30, 2019, SDG&E recorded an associated regulatory asset of $81 million, with $51 million as noncurrent, and SoCalGas recorded an associated regulatory asset of $286 million, with $179 million as noncurrent.
The 2019 GRC FD approves for the California Utilities the establishment of two-way liability insurance premium balancing accounts, including wildfire insurance premium costs based on a specific level of coverage. The 2019 GRC FD also permits the California Utilities to seek recovery of additional liability insurance coverage.
As we discuss in Notes 4 and 8 of the Notes to Consolidated Financial Statements in the Annual Report, pursuant to the 2016 GRC FD, SDG&E and SoCalGas each established a two-way income tax expense memorandum account to track, among other items, certain revenue variances resulting from certain differences between the income tax expense forecasted in the GRC and the income tax expense incurred from 2016 through 2018. SDG&E and SoCalGas recorded regulatory liabilities associated with the 2016 through 2018 tracked forecasting differences of $86 million and $88 million, respectively. The 2019 GRC FD clarifies that forecasting differences, which we previously included in this tracked activity, are not subject to tracking in the income tax expense memorandum account. However, its disposition is unclear. Final resolution of the scope of the two-way income tax expense memorandum account for the 2016 through 2018 period could impact the disposition of these regulatory liabilities.
The 2016 GRC FD revenue requirement was authorized using a federal income tax rate of 35 percent. As a result of the TCJA, the federal income tax rate of 21 percent became effective January 1, 2018. Since SDG&E and SoCalGas continued to collect authorized revenues based on a 35 percent tax rate, SDG&E and SoCalGas recorded regulatory liabilities of $88 million and $75 million, respectively. The 2019 GRC FD instructs SDG&E and SoCalGas to refund these balances to customers in future rates. SDG&E also recorded a $79 million regulatory liability at September 30, 2019, relating to its FERC jurisdictional rates, in anticipation of amounts that will benefit customers in future rates for the decrease in the federal income tax rate.
The California Utilities recorded revenues in the first six months of 2019 based on levels authorized for 2018 under the 2016 GRC FD because a final decision in the 2019 GRC was not issued by June 30, 2019. Since the 2019 GRC FD is effective retroactive to January 1, 2019, the California Utilities recorded the retroactive impacts in the third quarter of 2019. For SDG&E and SoCalGas, these amounts include an incremental earnings impact of $92 million ($66 million after tax) and $181 million ($130 million after tax), respectively, related to the first six months of 2019.
CPUC Cost of Capital
In April 2019, SDG&E and SoCalGas filed separate applications with the CPUC to update their cost of capital effective January 1, 2020. SDG&E proposed to adjust its authorized capital structure by increasing the amount of its common equity from 52 percent to 56 percent. SDG&E also proposed to increase its authorized ROE from 10.2 percent to 14.3 percent (with the aggregate ROE proposal including a quantified premium for wildfire liability risk), and to increase its authorized return on rate base from 7.55 percent to 10.03 percent. On August 1, 2019, SDG&E filed supplemental testimony to update its ROE request to reflect the impacts of AB 1054 and AB 111. In that supplementary testimony, SDG&E modified its proposal to increase its authorized ROE from 10.2 percent to 12.38 percent, including a revised premium for wildfire liability risk, and its authorized return on rate base from 7.55 percent to 8.95 percent. SoCalGas proposed to adjust its authorized capital structure by increasing the amount of its common equity from 52 percent to 56 percent. SoCalGas also proposed to increase its authorized ROE from 10.05 percent to 10.7 percent and to increase its authorized return on rate base from 7.34 percent to 7.85 percent. Intervenors are proposing a ROE for SDG&E ranging from 8.49 percent to 9.65 percent and for SoCalGas ranging from 8.49 percent to 9.63 percent. Intervenors have also proposed authorized returns on rate base for SDG&E ranging from 6.62 percent to 7.22 percent and for SoCalGas ranging from 6.45 percent to 6.72 percent. Intervenors also propose that the common equity levels remain authorized at 52 percent at both SDG&E and SoCalGas. The schedule for the proceeding indicates a final decision in the fourth quarter of 2019.
SDG&E
FERC Formulaic Rate Filing
In October 2018, SDG&E submitted its TO5 filing to the FERC. This proceeding establishes the transmission revenue requirement, including rate of return, for SDG&E’s FERC-regulated electric transmission operations and assets. SDG&E’s TO5 filing proposed, among other items, an increase to SDG&E’s current authorized FERC ROE from 10.05 percent to 11.2 percent. On December 31, 2018, the FERC issued its order accepting and suspending SDG&E’s TO5 filing and established hearing and settlement procedures. In the order, the FERC suspended the TO5 filing for five months, during which the existing TO4 rates remained in effect. The suspension period ended on June 1, 2019, when the proposed TO5 rates took effect, subject to refund and the outcome of the rate filing. As a result, until a new ROE is authorized, the current ROE of 10.05 percent is the basis of SDG&E’s FERC-related revenue recognition. In July 2019, the settlement judge reported that SDG&E and the parties engaged in settlement negotiations had reached an impasse and directed the matter forward to hearings, which does not preclude continued settlement discussions among SDG&E and settling parties.
In September 2019, the settlement judge issued an order suspending the hearing schedule for 60 days in anticipation of a settlement between the parties. In October 2019, SDG&E and settling parties reached an agreement on all issues set for hearing in the proceeding. The agreement provides for a ROE of 10.60 percent, consisting of a base ROE of 10.10 percent plus an additional 50 bps for participation in the California ISO. SDG&E will refund the California ISO additional 50 bps of ROE as of the refund effective date (June 1, 2019) in this proceeding if the FERC issues an order ruling that California IOUs are no longer eligible for the additional California ISO ROE. The agreement also includes the collection of additional FERC revenues of $17 million to conclude a rate base matter, net of certain refunds to be paid to CPUC-jurisdictional customers. We expect a FERC order on the settlement terms in the first half of 2020.
When we receive a final decision, SDG&E expects to record the cumulative earnings effect of retroactive application to June 1, 2019 for any difference between the current ROE and the approved ROE.
SOCALGAS
Billing Practices OII
In May 2017, the CPUC issued an OII to determine whether SoCalGas violated any provisions of the California Public Utilities Code, General Orders, CPUC decisions, or other requirements pertaining to billing practices from 2014 through 2016. The CPUC examined the timeliness of monthly bills, extending the billing period for customers, and issuing estimated bills, including an examination of SoCalGas’ gas tariff rules. In January 2019, the CPUC ordered SoCalGas to pay $8 million in penalties, including $3 million that was paid in July 2019 to California’s general fund and $5 million to be credited to customers that received delayed bills (greater than 45 days) in the form of a $100 bill credit. SoCalGas filed an appeal of the CPUC’s conclusions in the order, which, in April 2019, the CPUC denied. SoCalGas filed a rehearing request on May 28, 2019, which is pending before the CPUC. The CPUC granted SoCalGas’ request to delay distribution of the $100 bill credit to customers until a final decision on the rehearing.SAN ONOFRE NUCLEAR GENERATING STATION
We provide below updates to ongoing matters related to SONGS, a nuclear generating facility near San Clemente, California that ceased operations in June 2013, and in which SDG&E has a 20 percent ownership interest. We discuss SONGS further in Note 15 of the Notes to Consolidated Financial Statements in the Annual Report.
NUCLEAR DECOMMISSIONING AND FUNDING
As a result of Edison’s decision to permanently retire SONGS Units 2 and 3, Edison began the decommissioning phase of the plant. The majority of the dismantlement work is expected to take 10 years after receipt of the required permits. The coastal development permit was issued in October 2019 and we expect major decommissioning work to begin in 2020. Decommissioning of Unit 1, removed from service in 1992, is largely complete. The remaining work for Unit 1 will be completed once Units 2 and 3 are dismantled and the spent fuel is removed from the site. The spent fuel is currently being stored on-site, until the DOE identifies a spent fuel storage facility and puts in place a program for the fuel’s disposal, as we discuss below. SDG&E is responsible for approximately 20 percent of the total contract price.
In accordance with state and federal requirements and regulations, SDG&E has assets held in the NDT to fund its share of decommissioning costs for SONGS Units 1, 2 and 3. The amounts collected in rates for SONGS’ decommissioning are invested in the NDT, which is comprised of externally managed trust funds. Amounts held by the NDT are invested in accordance with
CPUC regulations. SDG&E classifies debt and equity securities held in the NDT as available-for-sale. The NDT assets are presented on the Sempra Energy and SDG&E Condensed Consolidated Balance Sheets at fair value with the offsetting credits recorded in noncurrent Regulatory Liabilities.
Except for the use of funds for the planning of decommissioning activities or NDT administrative costs, CPUC approval is required for SDG&E to access the NDT assets to fund SONGS decommissioning costs for Units 2 and 3. SDG&E has received authorization from the CPUC to access NDT funds of up to $455 million for 2013 through 2019 (2019 forecasted) SONGS decommissioning costs. This includes up to $93 million authorized by the CPUC in January 2019 to be withdrawn from the NDT for forecasted 2019 SONGS Units 2 and 3 costs as decommissioning costs are incurred.
In December 2016, the IRS and the U.S. Department of the Treasury issued proposed regulations that clarify the definition of “nuclear decommissioning costs,” which are costs that may be paid for or reimbursed from a qualified trust fund. The proposed regulations state that costs related to the construction and maintenance of independent spent fuel management installations are included in the definition of “nuclear decommissioning costs.” The proposed regulations will be effective prospectively once they are finalized; however, the IRS has stated that it will not challenge taxpayer positions consistent with the proposed regulations for taxable years ending on or after the date the proposed regulations were issued. SDG&E is awaiting the adoption of, or additional refinement to, the proposed regulations before determining whether the proposed regulations will allow SDG&E to access the NDT funds for reimbursement or payment of the spent fuel management costs incurred in 2017 and subsequent years. Further clarification of the proposed regulations could enable SDG&E to access the NDT to recover spent fuel management costs before Edison reaches final settlement with the DOE regarding the DOE’s reimbursement of these costs. Historically, the DOE’s reimbursements of spent fuel storage costs have not resulted in timely or complete recovery of these costs. We discuss the DOE’s responsibility for spent nuclear fuel below. The IRS held public hearings on the proposed regulations in October 2017. It is unclear when clarification of the proposed regulations might be provided or when the proposed regulations will be finalized.
The following table shows the fair values and gross unrealized gains and losses for the securities held in the NDT. We provide additional fair value disclosures for the NDT in Note 9.
NUCLEAR DECOMMISSIONING TRUSTS
(Dollars in millions)
 
Cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Estimated
fair
value
At September 30, 2019:
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
Debt securities issued by the U.S. Treasury and other
 
 
 
 
 
 
 
U.S. government corporations and agencies(1)
$
51

 
$
—

 
$
—

 
$
51

Municipal bonds(2)
278

 
13

 
—

 
291

Other securities(3)
228

 
9

 
(1
)
 
236

Total debt securities
557

 
22

 
(1
)
 
578

Equity securities
170

 
309

 
(9
)
 
470

Cash and cash equivalents
1

 
—

 
—

 
1

Total
$
728

 
$
331

 
$
(10
)
 
$
1,049

At December 31, 2018:
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
Debt securities issued by the U.S. Treasury and other
 
 
 
 
 
 
 
U.S. government corporations and agencies
$
52

 
$
1

 
$
—

 
$
53

Municipal bonds
266

 
4

 
(1
)
 
269

Other securities
238

 
1

 
(5
)
 
234

Total debt securities
556

 
6

 
(6
)
 
556

Equity securities
168

 
253

 
(10
)
 
411

Cash and cash equivalents
7

 
—

 
—

 
7

Total
$
731

 
$
259

 
$
(16
)
 
$
974

(1) 
Maturity dates are 2021-2050.
(2) 
Maturity dates are 2020-2056.
(3) 
Maturity dates are 2019-2060.

The following table shows the proceeds from sales of securities in the NDT and gross realized gains and losses on those sales.
SALES OF SECURITIES IN THE NDT
 
 
 
 
(Dollars in millions)
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2019
 
2018
 
2019
 
2018
Proceeds from sales
$
231

 
$
216

 
$
728

 
$
703

Gross realized gains
5

 
3

 
18

 
32

Gross realized losses
(1
)
 
(1
)
 
(4
)
 
(6
)


Net unrealized gains and losses, as well as realized gains and losses that are reinvested in the NDT, are included in noncurrent Regulatory Liabilities on Sempra Energy’s and SDG&E’s Condensed Consolidated Balance Sheets. We determine the cost of securities in the trusts on the basis of specific identification.
ASSET RETIREMENT OBLIGATION AND SPENT NUCLEAR FUEL
SDG&E’s ARO related to decommissioning costs for the SONGS units was $614 million at September 30, 2019. That amount includes the cost to decommission Units 2 and 3, and the remaining cost to complete the decommissioning of Unit 1, which is substantially complete. The ARO for all three units is based on a cost study prepared in 2017 that is pending CPUC approval. The ARO for Units 2 and 3 reflects the acceleration of the start of decommissioning of these units as a result of the early closure of the plant. SDG&E’s share of total decommissioning costs in 2019 dollars is approximately $834 million.
U.S. DEPARTMENT OF ENERGY NUCLEAR FUEL DISPOSAL
Spent nuclear fuel from SONGS is currently stored on-site in an ISFSI licensed by the NRC or temporarily in spent fuel pools. In October 2015, the California Coastal Commission approved Edison’s application for the proposed expansion of the ISFSI at SONGS. The ISFSI expansion began construction in 2016 and the transfer of the spent nuclear fuel from Units 2 and 3 to the ISFSI began in 2018. Edison suspended this transfer in August 2018 due to an incident that was subsequently resolved to the NRC’s satisfaction according to the NRC’s supplemental inspection report released in July 2019. Edison resumed spent fuel transfer operations in July 2019. The ISFSI will operate until 2049, when it is assumed that the DOE will have taken custody of all the SONGS spent fuel. The ISFSI would then be decommissioned, and the site restored to its original environmental state. Until then, SONGS owners are responsible for interim storage of spent nuclear fuel at SONGS.
The Nuclear Waste Policy Act of 1982 made the DOE responsible for accepting, transporting, and disposing of spent nuclear fuel. However, it is uncertain when the DOE will begin accepting spent nuclear fuel from SONGS. This delay will lead to increased costs for spent fuel storage. SDG&E will continue to support Edison in its pursuit of claims on behalf of the SONGS co-owners against the DOE for its failure to timely accept the spent nuclear fuel. However, it is unclear whether Edison will enter into a new settlement with the DOE or pursue litigation claims for spent fuel management costs incurred on or after January 1, 2017.
NUCLEAR INSURANCE
SDG&E and the other owners of SONGS have insurance to cover claims from nuclear liability incidents arising at SONGS. Currently, this insurance provides $450 million in coverage limits, the maximum amount available, including coverage for acts of terrorism. In addition, the Price-Anderson Act provides an additional $110 million of coverage. If a nuclear liability loss occurs at SONGS and exceeds the $450 million insurance limit, this additional coverage would be available to provide a total of $560 million in coverage limits per incident.
The SONGS owners, including SDG&E, also maintain nuclear property damage insurance at $1.5 billion, with a $500 million property damage sublimit on the ISFSI, which exceeds the minimum federal requirements of $1.06 billion. This insurance coverage is provided through NEIL. The NEIL policies have specific exclusions and limitations that can result in reduced or eliminated coverage. Insured members as a group are subject to retrospective premium assessments to cover losses sustained by NEIL under all issued policies. SDG&E could be assessed up to $10.4 million of retrospective premiums based on overall member claims.
The nuclear property insurance program includes an industry aggregate loss limit for non-certified acts of terrorism (as defined by the Terrorism Risk Insurance Act) of $3.24 billion. This is the maximum amount that will be paid to insured members who suffer losses or damages from these non-certified terrorist acts.