VI. SDG&E's Self-Dealing with SEMPRA is costing San Diego Consumers

SDG&E is controlled by Sempra Energy, an integrated holding company. Its interests are in maximizing its profits. Most of its activities are not regulated. It has substantial influence over the energy policy of the region. It has used this influence to discourage new competitors from entering San Diego and to position itself to profit at the expense of the region's customers. Plans by SDG&E to build transmission, to price natural gas at inflated prices, to impose fees and costs on new generators, and to expand SDG&E's role, all work to enhance Sempra's bottom line and push local electric rates up.

While SDG&E must continue to be involved in energy policy, its motivations are more suspect than ever.

Sempra Holding Company
(source: Sempra Web site)

The infrastructure and competition constraints discussed in the previous section are compounded by the fact that San Diego energy policy is highly influenced by the holding company that serves it: Sempra Energy. Sempra and its affiliates control the natural gas pipeline that serves San Diego, and own all of the electric transmission lines leading into the region. State regulators have stood by and allowed this holding company and its affiliate - SDG&E - to use its quasi-monopoly status to take advantage of San Diego consumers in a manner reminiscent of the turn-of-the-century abuses of the Southern Pacific Railroad. Those abuses, of course, triggered the creation of the modern CPUC at the turn of the century. 13
SDG&E's economic self-interest is to build more transmission and to limit entry to competing transmission into the system.

It is currently administering a controversial transmission planning process that would cause the construction of massive new transmission lines out of San Diego. "Coincidentally", Sempra is constructing El Dorado Generation Station, a 480-megawatt merchant power plant just outside of Las Vegas to sell power into California. The new ratepayer-financed power lines will be used to connect SDG&E's new power plant to San Diego customers.

For example, the company engaged in an unprecedented lobbying crush on the Public Utilities Commission in May 1999 to overturn an Administrative Law Judge's decision so that it could boost its profits by increasing the amount of electricity sold on its system. The effort gave SDG&E a strong economic incentive to build more power lines and to discourage customers from generating their own power or reducing their power consumption.

To discourage new local electric generation, Sempra recently attempted to discourage gas transmission competition by seeking to exempt its transmission line from the public goods charges paid by all other California gas transmission lines. (SB 418 - Polanco). This bill was justified as a preemptive strike against a competing pipeline being built that could serve San Diego. Similarly, SDG&E sought approval for specially discounted rates for the Mexico-based power plants that it is building in Rosarito, again on the basis that the potential for competing gas pipelines dictated a discounted gas rate.

Sempra has also announced that it is providing a complete energy supply package for the Presidente Ju�rez power plant in Rosarito to expand the plant's output by 1,300 megawatts. With this project SDG&E effectively corners the Southwest Corner market in electricity generation. Sempra Energy International will own, design, construct and operate a 23-mile pipeline from the U.S.-Mexico border to the plant, which also will serve as the trunk line for a future natural gas distribution system in Tijuana, one of Mexico's fastest-growing urban centers. Sempra also owns the gas line, which will lead into the 23-mile border pipeline. In an era in which electricity and gas deregulation was supposed to bring increased competition, lower prices and better service, SDG&E is moving to re-monopolize old markets and conquer new ones.

In other preemptive moves, SDG&E has proposed expensive transmission upgrade costs be charged to any company seeking to place generation in the San Diego region. For example, it seeks to push over $60 to $90 million in transmission upgrade costs on a proposed natural gas-powered turbine plant to in Otay Mesa.

And, it has sought an expansive role for its regulated gas and electric distribution services. SDG&E is seeking authorization to extend its existing monopoly powers to enter into the business of providing "distributed" generation, i.e. use of small, localized generation technologies such as fuel cells, photovoltaic cells and microturbines. These emerging technologies pose a direct threat to the profitability of SDG&E's electric distribution system and should be free of control by the monopoly.

Critics jokingly refer to SDG&E "core business" as influencing the regulatory system. Suffice it to say, SDG&E enjoys a better understanding of how to use the regulatory system to its advantage than many of its competitors and has positioned itself and its parent company to profit at the expense of San Diego customers.