SEMPRA ENERGY 8-K 2016
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Item 8.01 Other Events
This Current Report on Form 8-K of Sempra Energy and Southern California Gas Company (the Company), an indirect subsidiary of Sempra Energy, (1) provides a status update regarding the leaking well at the Companys Aliso Canyon natural gas storage facility, and (2) summarizes the recent order dated January 6, 2016 by the Governor of the State of California proclaiming a state of emergency to exist in Los Angeles County due to the natural gas leak.
Status Update Regarding the Companys Aliso Canyon Natural Gas Storage Facility
On October 23, 2015, the Company discovered a leak at one of its injection and withdrawal wells, SS25, at its Aliso Canyon natural gas storage facility, located in the northern part of the San Fernando Valley in Los Angeles County. The Aliso Canyon facility, which has been operated by the Company since 1972, is situated in the Santa Susana Mountains. SS25 is more than one mile away and 1,200 feet above the closest homes. It is one of more than 100 injection and withdrawal wells at the storage facility. The leak is currently not impacting the Companys natural gas service levels.
The Company has been working closely with several of the worlds leading experts to stop the leak. Since discovering the leak, the Company has made seven attempts to plug SS25 by pumping fluids down the well shaft. The Company has been unable to stop the leak using this approach and is now working to stop the leak through a relief well.
On December 4, 2015, the Company commenced drilling a relief well that is designed to stop the leak by plugging SS25 at its base. The Company currently estimates that the relief well will be completed between the end of February and the end of March. The Company is also preparing to drill a back-up relief well as a precautionary measure. At the same time, the Company is actively working with leading experts to engineer technologies for reducing the natural gas emissions from SS25, as well as reducing the impact of the odorant that is required to be added to the natural gas for safety purposes.
In order to reduce the pressure of the gas in storage and the amount of gas emitted by SS25, the Company continues to withdraw gas and has not injected natural gas into the Aliso Canyon natural gas storage facility since October 25, 2015. The Company estimates that as of December 31, 2015, approximately 33 billion cubic feet (Bcf) of natural gas has been delivered to customers or moved to other gas storage facilities from an initial starting point of approximately 77 Bcf of gas in storage on October 23, 2015 at the Aliso Canyon facility. Based on information from the California Air Resources Board (CARB), gathered by fly-overs of the site, the leak rate and estimated level of methane emissions appear to have declined significantly since CARB began providing preliminary estimates in November 2015. Once the gas leak is terminated, the Company will conduct an objective measurement of natural gas lost from the leak and will provide that information to the relevant regulatory bodies.
According to the Los Angeles County Department of Public Health (LA County DPH), mercaptans, the odorant in the gas at Aliso Canyon, are not associated with long-term health effects. Mercaptans may, however, cause eye, nose and throat irritation, coughing and nasal congestion, shortness of breath, nausea, stomach discomfort, dizziness and headaches. A number of the residents of the nearby Porter Ranch community have reported experiencing one or more of these symptoms. These symptoms may recur on a daily basis as long as the odors remain. According to the LA County DPH, methane levels in the Porter Ranch neighborhood do not pose a long-term health concern.
The Company has been providing temporary relocation support to homeowners in the Porter Ranch community who request it. As of January 3, 2016, approximately 2,500 households have been temporarily relocated, with another approximately 1,460 requests pending. On December 24, 2015, by stipulation and order, the Company agreed to implement a formal plan for assisting residents of the Porter Ranch community to temporarily relocate, as well as to pay for additional overtime and costs associated with extra Los Angeles Police Department security patrols, among other things. Pursuant to the order, the Company also worked with representatives from the Los Angeles City Attorneys office to establish a mediation process to resolve disputes between individuals requesting temporary relocation or other services under this plan and the Company. In addition, the Company is providing air filtration and purification systems to those Porter Ranch residents requesting them.
Various governmental agencies, including the California Division of Oil, Gas and Geothermal Resources (DOGGR), the LA County DPH, the South Coast Air Quality Management District, the CARB, the California Public Utilities Commission (CPUC), the U.S. Environmental Protection Agency, the Los Angeles District Attorneys Office and the California Attorney Generals Office, are investigating this incident. Some agencies have issued notices to the Company directing it to stop the leak and control the release of natural gas into the air, and the Company may face fines or other penalties as a result of this incident. The Company has been working in close cooperation with these agencies. Additionally, hearings in the state legislature as well as with various regulatory agencies have been or are expected to be scheduled.
To date, 25 complaints have been filed against the Company, some of which have also named Sempra Energy, asserting causes of action for negligence, nuisance, and trespass, among other things, and additional litigation may be filed against the Company in the future related to this incident. Many of these complaints seek class action status, compensatory and punitive damages and attorneys fees. The Los Angeles City Attorney has also filed a complaint against the Company for public nuisance and violation of the California Unfair Competition Law. That complaint seeks an order to abate the public nuisance and impose civil penalties. All of these complaints are currently being reviewed by the Company and outside legal counsel. The cost of defending the lawsuits, and any damages, if awarded, could be significant.
Through December 31, 2015, the Company estimates that it has spent approximately $50 million addressing the leak and mitigating environmental and community impacts, including temporary relocation, and drilling the relief well and attempts to stop or mitigate the emissions. The Company will continue to incur these types of costs at least until the well is capped. The Company also intends to mitigate the environmental impact of the actual natural gas released from the leak.
The Company has at least four types of insurance policies that it believes will cover many of the current and expected claims, losses and litigation (collectively, Claims) associated with the natural gas leak at Aliso Canyon. The total combined limit available under all of these policies is in excess of $1 billion. The Company has put these insurers on notice about the leak, the nature of potential losses and the filing of lawsuits and is actively pursuing coverage with these carriers. These policies are subject to various policy limits depending on the type of Claim and are subject to various exclusions and other coverage limitations. The Company does not anticipate that the payment of deductibles on these policies will be material.
The Companys top priority is to safely and expeditiously stop the leak, mitigate environmental and community impacts and reduce the amount of natural gas being emitted into the environment. Mitigation of the local community impact includes temporary relocation of certain impacted customers as directed by the LA County DPH and in response to claims made in civil lawsuits described above.
Governors Order Proclaiming a State of Emergency to Exist in Los Angeles County
On January 6, 2016, Edmund G. Brown Jr., Governor of the State of California, issued an order proclaiming a state of emergency to exist in Los Angeles County due to the natural gas leak at the Companys Aliso Canyon natural gas storage facility. A copy of the Press Release announcing the Governors order and containing the full text of the proclamation of a state of emergency (the Proclamation) is attached hereto as Exhibit 99.1.
The Proclamation implements the following orders, among other things:
As described above under the heading Status Update Regarding the Companys Aliso Canyon Natural Gas Storage Facility, the Company is currently addressing a number of the actions required by the Proclamation, including discontinuing injections of natural gas, maximizing to the extent practical its withdrawals of natural gas, and engineering technologies designed to reduce the impact of the odorants, while at the same time continuing to predictably supply natural gas to its customers. In addition, the Company continues to work in close cooperation with the Governors Office and the State agencies described in the Proclamation. The full text of the Proclamation is included in Exhibit 99.1 and is incorporated herein by reference.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
We make statements in this report that are not historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are necessarily based upon assumptions with respect to the future, involve risks and uncertainties, and are not guarantees of performance. These forward-looking statements represent our estimates and assumptions only as of the filing date of this report. We assume no obligation to update or revise any forward-looking statement as a result of new information, future events or other factors.
In this report, when we use words such as believes, expects, anticipates, plans, estimates, projects, forecasts, contemplates, intends, depends, should, could, would, will, confident, may, potential, possible, proposed, target, pursue, goals, outlook, maintain, or similar expressions, or when we discuss our guidance, strategy, plans, goals, opportunities, projections, initiatives, objectives or intentions, we are making forward-looking statements.
Factors, among others, that could cause our actual results and future actions to differ materially from those described in forward-looking statements include
We caution you not to rely unduly on any forward-looking statements. You should review and consider carefully the risks, uncertainties and other factors that affect our business as described in this report and in our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on a combined basis for Sempra Energy, SDG&E and the Company.
Item 9.01 Financial Statements and Exhibits
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned hereunto duly authorized.
SOUTHERN CALIFORNIA GAS COMPANY