SEMPRA ENERGY 8-K 2017
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Item 8.01 Other Events
MHI Arbitration Decision
On March 13, 2017, Sempra Energy’s subsidiary, San Diego Gas & Electric Company (“SDG&E”) received a decision from the International Chamber of Commerce (“ICC”) International Court of Arbitration (“Tribunal”) on claims against Mitsubishi Heavy Industries, Ltd., and a related company (collectively “MHI”) regarding the failure of the replacement steam generators (“RSGs”) that MHI supplied for the San Onofre Nuclear Generating Station (“SONGS”), which is co-owned by Southern California Edison (“SCE”), SDG&E and the City of Riverside (“Riverside”). The arbitration was initiated in October 2013 by SCE as the operating agent for SONGS, and, subsequently, SDG&E and Riverside joined and became claimants in the arbitration. SDG&E holds a 20% interest in SONGS.
The Tribunal found MHI liable for breach of contract, subject to a contractual limitation of liability, and rejected claimants’ other claims. Accordingly, the Tribunal awarded $125 million in damages to the SONGS co-owners (the “Damage Award”). The Tribunal rejected MHI’s counterclaims. In addition, the Tribunal determined that MHI was the prevailing party and awarded it 95% of its arbitration costs. The Damage Award is offset by these costs, resulting in a net award of approximately $66.9 million in favor of the SONGS co-owners. SDG&E’s specific allocation of the Damage Award is $25 million reduced by costs awarded to MHI of approximately $11.6 million, resulting in a net amount of $13.4 million. The earnings impact of recording this arbitration decision is expected to be immaterial to both Sempra Energy and SDG&E. The amount of damages, however, may be adjusted subject to future agreement among the SONGS co-owners.
The decision is final from the ICC’s perspective, but may be challenged in court on limited grounds. Pursuant to the arbitration agreement governing the dispute, if a party refuses to comply with an award within 20 days after the date of receipt of notice of the award, enforcement proceedings may be initiated immediately before any court of competent jurisdiction. The award bears interest pursuant to the parties’ contract.
Allocation of Award between Ratepayers and Shareholders
Allocation of SDG&E's share of any recoveries from MHI is addressed under the settlement agreement that resolved the California Public Utilities Commission ("CPUC") investigation of the RSG failures ("OII Settlement Agreement"). SCE and SDG&E agreed to allow the CPUC to review the documentation of the final resolution of the MHI dispute and the legal costs incurred in pursuing claims against MHI to ensure such costs are not exorbitant in relation to the recovery obtained. The OII Settlement Agreement contemplates that SDG&E’s share of recoveries from MHI will first reimburse SDG&E’s legal costs incurred in pursuit of the recoveries, with remaining amounts to be allocated 50% to ratepayers, and 50% to SDG&E’s shareholders. The OII Settlement Agreement is currently the subject of ongoing proceedings before the CPUC, including petitions to modify, an application for rehearing of the decision approving the OII Settlement Agreement, and a CPUC ruling requiring parties to “meet and confer” to determine whether the original OII Settlement Agreement should be modified. The ruling directs the parties to consider various issues, including the division between ratepayers and shareholders of any future MHI arbitration award.
Release of Full Tribunal Decision
As required pursuant to the protective order in the arbitration, the parties are conferring regarding the treatment of potentially confidential information in the decision. Subject only to redaction for confidential information, SDG&E expects to make the decision public when the parties reach agreement on redactions. If the parties are unable to reach agreement, the tribunal will resolve any differences, and the redacted decision will be released following the Tribunal’s decision.
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 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,” “assumes,” “depends,” “should,” “could,” “would,” “will,” “confident,” “may,” “potential,” “possible,” “proposed,” “target,” “pursue,” “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 the risks, uncertainties and other factors that affect our business as described in this report and other reports that we file with the Securities and Exchange Commission.
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.