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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 |
FORM 10-K
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(Mark One) |
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended | December 31, 20202021 |
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| or |
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from | | to | |
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Commission File No. | Exact Name of Registrants as Specified in their Charters, Address and Telephone Number | | | State of Incorporation | I.R.S. Employer Identification Nos. |
1-14201 | SEMPRA ENERGY | | | | California | 33-0732627 |
| 488 8th Avenue | | | | |
| San Diego, California 92101 | | | | |
| (619) 696-2000 | | | | |
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1-03779 | SAN DIEGO GAS & ELECTRIC COMPANY | | | | California | 95-1184800 |
| 8326 Century Park Court | | | | |
| San Diego, California 92123 | | | | |
| (619) 696-2000 | | | | |
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1-01402 | SOUTHERN CALIFORNIA GAS COMPANY | | | | California | 95-1240705 |
| 555 West Fifth Street | | | | |
| Los Angeles, California 90013 | | | | |
| (213) 244-1200 | | | | |
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: | | |
Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
SEMPRA ENERGY: | | |
Common Stock, without par value | SRE | New York Stock Exchange |
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6.75% Mandatory Convertible Preferred Stock, Series B, $100 liquidation preference | SREPRB | New York Stock Exchange |
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5.75% Junior Subordinated Notes Due 2079, $25 par value | SREA | New York Stock Exchange |
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SAN DIEGO GAS & ELECTRIC COMPANY: | | |
None | | |
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SOUTHERN CALIFORNIA GAS COMPANY: | | |
None | | |
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: |
Title of Each Class |
SEMPRA ENERGY: |
None |
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SAN DIEGO GAS & ELECTRIC COMPANY: |
None |
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SOUTHERN CALIFORNIA GAS COMPANY: |
6% Preferred Stock, $25 par value |
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6% Preferred Stock, Series A, $25 par value |
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. |
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Sempra Energy | Yes ☒ | No ☐ |
San Diego Gas & Electric Company | Yes☐ | No ☒ |
Southern California Gas Company | Yes☐ | No☒ |
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. |
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Sempra Energy | Yes☐ | No☒ |
San Diego Gas & Electric Company | Yes ☐ | No ☒ |
Southern California Gas Company | Yes ☐ | No ☒ |
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Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. |
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| Yes ☒ | No ☐ |
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Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrants were required to submit such files). |
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| Yes ☒ | No ☐ |
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. |
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Sempra Energy: | | | | |
☒ Large Accelerated Filer | ☐Accelerated Filer | ☐ Non-accelerated Filer | ☐ Smaller Reporting Company | ☐Emerging Growth Company |
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San Diego Gas & Electric Company: | | | |
☐ Large Accelerated Filer | ☐ Accelerated Filer | ☒ Non-accelerated Filer | ☐ Smaller Reporting Company | ☐ Emerging Growth Company |
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Southern California Gas Company: | | | |
☐ Large Accelerated Filer | ☐ Accelerated Filer | ☒ Non-accelerated Filer | ☐ Smaller Reporting Company | ☐ Emerging Growth Company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. |
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Sempra Energy | | ☐ |
San Diego Gas & Electric Company | | ☐ |
Southern California Gas Company | | ☐ |
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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that prepared or issued its audit report. |
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Sempra Energy | | ☒ |
San Diego Gas & Electric Company | | ☒ |
Southern California Gas Company | | ☒ |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |
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Sempra Energy | Yes ☐ | No☒ |
San Diego Gas & Electric Company | Yes ☐ | No ☒ |
Southern California Gas Company | Yes ☐ | No ☒ |
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Aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2020:2021: |
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Sempra Energy | $34.341.7 billion (based on the price at which the common equity was last sold as of the last business day of the most recently completed second fiscal quarter) |
San Diego Gas & Electric Company | $0 |
Southern California Gas Company | $0 |
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Common Stock outstanding, without par value, as of February 22, 2021:18, 2022: |
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Sempra Energy | 302,591,374315,653,893 shares |
San Diego Gas & Electric Company | Wholly owned by Enova Corporation, which is wholly owned by Sempra Energy |
Southern California Gas Company | Wholly owned by Pacific Enterprises, which is wholly owned by Sempra Energy |
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SAN DIEGO GAS & ELECTRIC COMPANY MEETS THE CONDITIONS OF GENERAL INSTRUCTIONS I(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS REPORT WITH A REDUCED DISCLOSURE FORMAT AS PERMITTED BY GENERAL INSTRUCTION I(2). |
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DOCUMENTS INCORPORATED BY REFERENCE: |
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Portions of the Sempra Energy proxy statement to be filed for its May 20212022 annual meeting of shareholders are incorporated by reference into Part III of this annual report on Form 10-K. |
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Portions of the Southern California Gas Company information statement to be filed for its June 20212022 annual meeting of shareholders are incorporated by reference into Part III of this annual report on Form 10-K. |
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SEMPRA ENERGY FORM 10-K |
SAN DIEGO GAS & ELECTRIC COMPANY FORM 10-K |
SOUTHERN CALIFORNIA GAS COMPANY FORM 10-K |
TABLE OF CONTENTS |
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PART I | | |
Item 1. | | |
Item 1A. | | |
Item 1B. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
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PART II | | |
Item 5. | | |
Item 6. | | |
Item 7. | | |
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Item 7A. | | |
Item 8. | | |
Item 9. | | |
Item 9A. | | |
Item 9B. | | |
Item 9C. | | |
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PART III | |
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Item 10. | | |
Item 11. | | |
Item 12. | | |
Item 13. | | |
Item 14. | | |
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PART IV | | |
Item 15. | | |
Item 16. | | |
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This combined Form 10-K is separately filed by Sempra Energy doing business as Sempra, San Diego Gas & Electric Company and Southern California Gas Company. Information contained herein relating to any one of these individual reporting entities is filed by such entity on its own behalf. Each entity makes statements herein only as to itself and its consolidated subsidiaries and makes no statement whatsoever as to any other entity.
You should read this report in its entirety as it pertains to each respective reporting entity. No one section of the report deals with all aspects of the subject matter. SeparateA separate Part II – Items 6 andItem 8 areis provided for each reporting entity, except for the Notes to Consolidated Financial Statements in Part II – Item 8. The Notes to Consolidated Financial Statements for all of the reporting entities are combined. All Items other than Part II – Items 6 andItem 8 are combined for the three reporting entities.
The following terms and abbreviations appearing in this report have the meanings indicated below. | | | | | |
GLOSSARY |
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2016 GRC FD | final decision in the California Utilities’ 2016 General Rate Case |
2019 GRC FD | final decision in the California Utilities’SDG&E’s and SoCalGas’ 2019 General Rate Case |
AB | California Assembly Bill |
ADIA | Black Silverback ZC 2022 LP (assignee of Black River B 2017 Inc.), a wholly owned affiliate of Abu Dhabi Investment Authority |
AFUDC | allowance for funds used during construction |
AMP | Arrearage Management Payment Plan |
AOCI | accumulated other comprehensive income (loss) |
ARO | asset retirement obligation |
ASC | Accounting Standards Codification |
ASEA | Agencia de Seguridad, Energía y Ambiente (Mexico’s National Agency for Industrial Safety and Environmental Protection) |
ASR | accelerated share repurchase |
ASU | Accounting Standards Update |
Bay Gas | Bay Gas Storage Company, Ltd. |
Bcf | billion cubic feet |
Bechtel | Bechtel Oil, Gas and Chemicals, Inc. |
Blade | Blade Energy Partners |
bps | basis points |
Cal PA | California Public Advocates Office |
CalGEM | California Geologic Energy Management Division (formerly known as Division of Oil, Gas, and Geothermal Resources or DOGGR) |
California Utilities | San Diego Gas & Electric Company and Southern California Gas Company, collectively |
Cameron LNG JV | Cameron LNG Holdings, LLC |
CARB | California Air Resources Board |
CCA | Community Choice Aggregation |
CCC | California Coastal Commission |
CCM | cost of capital adjustment mechanism |
CEC | California Energy Commission |
CENACE | Centro Nacional de Control de Energía (Mexico’s National Center for Energy Control) |
CENAGAS | Centro Nacional de Control de Gas |
CFE | Comisión Federal de Electricidad (Mexico’s Federal Electricity Commission) |
CFIN | Cameron LNG FINCO, LLC, a wholly owned and unconsolidated affiliate of Cameron LNG JV |
Chilquinta Energía | Chilquinta Energía, S.A. and its subsidiaries |
CNBV | Comisión Nacional Bancaria y de Valores (Mexico’s National Banking and Securities Commission) |
COFECE | Comisión Federal de Competencia Económica (Mexico’s Competition Commission) |
COVID-19 | coronavirus disease 2019 |
CPUC | California Public Utilities Commission |
CRE | Comisión Reguladora de Energía (Mexico’s Energy Regulatory Commission) |
CRR | congestion revenue right |
DA | Direct Access |
DEN | Ductos y Energéticos del Norte, S. de R.L. de C.V. |
DOE | U.S. Department of Energy |
DOT | U.S. Department of Transportation |
DWR | California Department of Water Resources |
ECA LNG | ECA LNG Phase 1 and ECA LNG Phase 2, collectively |
ECA LNG Phase 1 | ECA LNG Holdings B.V. |
ECA LNG Phase 2 | ECA LNG II Holdings B.V. |
ECA Regas Facility | Energía Costa Azul, S. de R.L. de C.V. LNG regasification facility |
Ecogas | Ecogas México, S. de R.L. de C.V. |
Edison | Southern California Edison Company, a subsidiary of Edison International |
EFH | Energy Future Holdings Corp. (renamed Sempra Texas Holdings Corp.) |
Eletrans | Eletrans S.A., Eletrans II S.A. and Eletrans III S.A., collectively |
EMA | energy management agreement |
Enova | Enova Corporation |
EPA | U.S. Environmental Protection Agency |
EPC | engineering, procurement and construction |
EPS | earnings per common share |
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GLOSSARY (CONTINUED) |
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EPS | earnings (losses) per common share |
ERCOT | Electric Reliability Council of Texas, Inc., the independent system operator and the regional coordinator of various electricity systems within Texas |
ERR | eligible renewable energy resource |
ESJ | Energía Sierra Juárez, S. de R.L. de C.V. |
ETR | effective income tax rate |
Exchange Act | Securities Exchange Act of 1934, as amended |
FERC | Federal Energy Regulatory Commission |
Fitch | Fitch Ratings |
FTA | Free Trade Agreement |
Gazprom | Gazprom Marketing & Trading MexicoMéxico S. de R.L. de C.V. |
GCIM | Gas Cost Incentive Mechanism |
GHG | greenhouse gas |
GRC | General Rate Case |
HMRC | UnitedHer Majesty’s Revenue and Customs (United Kingdom’s Revenue and Customs DepartmentDepartment) |
IEnova | Infraestructura Energética Nova, S.A.B. de C.V., renamed Infraestructura Energética Nova, S.A.P.I. de C.V. on November 1, 2021 |
IEnova Pipelines | IEnova Pipelines, S. de R.L. de C.V. |
IMG JV | Infraestructura Marina del Golfo |
InfraREIT | InfraREIT, Inc. |
IOU | investor-owned utility |
IRC | U.S. Internal Revenue Code of 1986 (as amended) |
IRS | U.S. Internal Revenue Service |
ISFSI | independent spent fuel storage installation |
ISO | Independent System Operator |
JV | joint venture |
KKR | KKR Pinnacle Investor L.P. (as successor-in-interest to KKR Pinnacle Aggregator L.P.), an affiliate of Kohlberg Kravis Roberts & Co. L.P. |
kV | kilovolt |
kW | kilowatt |
kWh | kilowatt hour |
LA Storage | LA Storage, LLC |
LA Superior Court | Los Angeles County Superior Court |
Leak | the leak at the SoCalGas Aliso Canyon natural gas storage facility injection-and-withdrawal well, SS25, discovered by SoCalGas on October 23, 2015 |
LIBOR | London Interbank Offered Rate |
LNG | liquefied natural gas |
LPG | liquid petroleum gas |
LTIP | long-term incentive plan |
Luz del Sur | Luz del Sur S.A.A. and its subsidiaries |
MD&A | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Mexican Stock Exchange | Bolsa Mexicana de Valores, S.A.B. de C.V., or BMV |
Mississippi Hub | Mississippi Hub, LLC |
MMBtu | million British thermal units (of natural gas) |
MMcf | million cubic feet |
Moody’s | Moody’s Investors Service Inc. |
MOU | Memorandum of Understanding |
Mtpa | million tonnes per annum |
MW | megawatt |
MWh | megawatt hour |
NAV | net asset value |
NCI | noncontrolling interest(s) |
NDT | nuclear decommissioning trusts |
NEIL | Nuclear Electric Insurance Limited |
NEM | net energy metering |
NOL | net operating loss |
NRC |
Nuclear Regulatory Commission | NYSE | New York Stock Exchange |
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GLOSSARY (CONTINUED) | |
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NRC | Nuclear Regulatory Commission |
NYSE | New York Stock Exchange |
O&M | operation and maintenance expense |
OCI | other comprehensive income (loss) |
OEIS | Office of Energy Infrastructure Safety |
OII | Order Instituting Investigation |
OIR | Order Instituting a Rulemaking |
OMEC | Otay Mesa Energy Center |
OMEC LLC | Otay Mesa Energy Center LLC |
Oncor | Oncor Electric Delivery Company LLC |
Oncor Holdings | Oncor Electric Delivery Holdings Company LLC |
OSC | Order to Show Cause |
Otay Mesa VIE | OMEC LLC VIE |
PBOP | postretirement benefits other than pension |
PE | Pacific Enterprises |
PEMEX | Petróleos Mexicanos (Mexican state-owned oil company) |
PG&E | Pacific Gas and Electric Company |
PHMSA | Pipeline and Hazardous Materials Safety Administration |
PP&E | property, plant and equipment |
PPA | power purchase agreement |
PRP | Potentially Responsible Party |
PSEP | Pipeline Safety Enhancement Plan |
PUCT | Public Utility Commission of Texas |
PURA | Texas Public Utility Regulatory Act |
PXiSE | PXiSE Energy Solutions, LLC |
RBS | The Royal Bank of Scotland plc |
RBS SEE | RBS Sempra Energy Europe |
RBS Sempra Commodities | RBS Sempra Commodities LLP |
REC | renewable energy certificate |
ROE | return on equity |
ROU | right-of-use |
RPS | Renewables Portfolio Standard |
RSU | restricted stock unit |
S&P | Standard & Poor’sS&P Global Ratings, a division of S&P Global Inc. |
Saavi Energía | Saavi Energía S. de R.L. de C.V. |
SB | California Senate Bill |
SCAQMD | South Coast Air Quality Management District |
SDG&E | San Diego Gas & Electric Company |
SDTSSDSRA | Sharyland Distribution & Transmission Services, L.L.C. (a subsidiary of InfraREIT)Senior Debt Service Reserve Account |
SEC | U.S. Securities and Exchange Commission |
SED | Safety and Enforcement Division of the CPUC |
SEDATU | Secretaría de Desarrollo Agrario, Territorial y Urbano (Mexican(Mexico’s agency in charge of agriculture, land and urban development) |
Sempra | Sempra Energy doing business as Sempra, together with its consolidated entities unless otherwise stated or indicated by the context |
Sempra California | San Diego Gas & Electric Company and Southern California Gas Company, collectively |
Sempra Global | holding company for most of Sempra Energy’s subsidiaries not subject to California or Texas utility regulationGlobal, which was renamed Sempra Infrastructure Partners, LP on September 30, 2021 |
SENER | Secretaría de Energía de México (Mexico’s Ministry of Energy) |
series A preferred stock | 6% mandatory convertible preferred stock, series A |
series B preferred stock | 6.75% mandatory convertible preferred stock, series B |
series C preferred stock | Sempra Energy’sSempra’s 4.875% fixed-rate reset cumulative redeemable perpetual preferred stock, series C |
Sharyland Holdings | Sharyland Holdings, L.P. |
Sharyland Utilities | Sharyland Utilities, L.L.C. |
Shell Mexico | Shell México Gas Natural, S. de R.L. de C.V. |
SI Partners | Sempra Infrastructure Partners, LP, the holding company for most of Sempra’s subsidiaries not subject to California or Texas utility regulation, which was formerly named Sempra Global before September 30, 2021 |
SoCalGas | Southern California Gas Company |
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GLOSSARY (CONTINUED) | |
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SONGS | San Onofre Nuclear Generating Station |
SONGS OII | CPUC’s Order Instituting Investigation into the SONGS Outage |
STIH | Sempra Texas Intermediate Holding Company LLC |
Support Agreement | support agreement, dated July 28, 2020 betweenand amended on June 29, 2021, among Sempra Energy and Sumitomo Mitsui Banking Corporation |
TAG JV | TAG Norte Holding, S. de R.L. de C.V. |
Tangguh PSC | Tangguh PSC Contractors |
TC Energy | TC Energy Corporation (formerly known as TransCanada Corporation) |
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GLOSSARY (CONTINUED) | |
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TCJA | Tax Cuts and Jobs Act of 2017 |
TdM | Termoeléctrica de Mexicali |
TechnipFMCTechnip Energies | TP Oil & Gas Mexico, S. De R.L. De C.V., an affiliate of TechnipFMC plcTechnip Energies N.V. |
Tecnored | Tecnored S.A. |
Tecsur | Tecsur S.A. |
TO4 | Electric Transmission Owner Formula Rate, effective through DecemberMay 31, 20182019 |
TO5 | Electric Transmission Owner Formula Rate, new application |
TTHC | Texas Transmission Holdings Corporationeffective June 1, 2019 |
TTI | Texas Transmission Investment LLC |
TURN | The Utility Reform Network |
U.S. GAAP | generally accepted accounting principles generally accepted in the United States of America |
USMCA | United States-Mexico-Canada Agreement |
VaR | value at risk |
VAT | value-added tax |
Ventika | Ventika, S.A.P.I. de C.V. and Ventika II, S.A.P.I. de C.V., collectively |
VIE | variable interest entity |
Wildfire Fund | the fund established pursuant to AB 1054 |
Wildfire Legislation | AB 1054 and AB 111 |
References in this report to “we,” “our,” “us,” “our company” and “Sempra Energy Consolidated”“Sempra” are to Sempra Energy and its consolidated entities, collectively, unless otherwise stated or indicated by the context. We sometimes refer to SDG&E and SoCalGas collectively as theSempra California, Utilities, which dodoes not include the utilities in our Sempra Texas Utilities or Sempra MexicoInfrastructure segments or the utilities in our former South American businesses included in discontinued operations. All references in this report to our reportable segments are not intended to refer to any legal entity with the same or similar name.
Throughout this report, we refer to the following as Consolidated Financial Statements and Notes to Consolidated Financial Statements when discussed together or collectively:
▪the Consolidated Financial Statements and related Notes of Sempra Energy and its subsidiaries and VIEs;
▪the Consolidated Financial Statements and related Notes of SDG&E and its VIE (until deconsolidation of the VIE in August 2019); and
▪the Financial Statements and related Notes of SoCalGas.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
We make statements in this report that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on assumptions with respect to the future, involve risks and uncertainties, and are not guarantees. Future results may differ materially from those expressed in any forward-looking statements. 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.
Forward-looking statements can be identified by words such as “believes,” “expects,” “intends,” “anticipates,” “plans,” “estimates,” “projects,” “forecasts,” “should,” “could,” “would,” “will,” “confident,” “may,” “can,” “potential,” “possible,” “proposed,” “in process,” “under construction,” “in development,” “opportunity,” “target,” “outlook,” “maintain,” “continue,” “goal,” “aim,” “commit,” or similar expressions, or when we discuss our guidance, priorities, strategy, goals, vision, mission, opportunities, projections, intentions or expectations.
Factors, among others, that could cause actual results and events to differ materially from those described in any forward-looking statements include risks and uncertainties relating to:
▪California wildfires, including the risks that we may be found liable for damages regardless of fault and that we may not be able to recover all or a substantial portion of costs from insurance, the Wildfire Fund, or in rates from customers or a combination thereof
▪decisions, investigations, regulations, issuances or revocations of permits and other authorizations, renewals of franchises, and other actions by (i) the CFE, CPUC, CRE, DOE, FERC, PUCT, and other regulatory and governmental bodies and (ii) states, counties, cities and other jurisdictions in the U.S., Mexico and other countries in which we do business
▪the success of business development efforts, construction projects and major acquisitions and divestitures, including risks in (i) the ability to make a final investment decision, (ii) completing construction projects or other transactions on schedule and budget, (iii) the ability to realize anticipated benefits from any of these efforts if completed, and (iv) obtaining the consent or approval of partners or other third parties, including governmental entities and regulatory bodies
▪the resolution of civil and criminal litigation, regulatory inquiries, investigations and proceedings, arbitrations, and arbitrations,property disputes, including among others, those related to the Leak
▪changes to laws, including proposed changes to the impactMexican constitution that could materially limit access to the electric generation market and changes to Mexico’s trade rules that could materially limit our ability to import, export, transport and store hydrocarbons
▪failure of the COVID-19 pandemic on our capital projects, regulatory approval processes, supply chain, liquidityforeign governments and execution of operationsstate-owned entities to honor their contracts and commitments
▪actions by credit rating agencies to downgrade our credit ratings or to place those ratings on negative outlook and our ability to borrow on favorable terms and meet our substantial debt service obligations
▪movesthe impact of energy and climate policies, legislation and rulemaking, as well as related goals set, and actions taken, by companies in our industry, including actions to reduce or eliminate reliance on natural gas generally and any deterioration of or increased uncertainty in the political or regulatory environment for California natural gas distribution companies and the impactrisk of volatilitynonrecovery for stranded assets
▪the pace of oil prices onthe development and adoption of new technologies in the energy sector, including those designed to support governmental and private party energy and climate goals, and our businessesability to timely and development projectseconomically incorporate them into our business
▪weather, natural disasters, pandemics, accidents, equipment failures, explosions, acts of terrorism, computerinformation system outages andor other events that disrupt our operations, damage our facilities and systems, cause the release of harmful materials, cause fires andor subject us to liability for property damage or personal injuries, fines and penalties, some of which may not be covered by insurance, (including costs in excess of applicable policy limits), may be disputed by insurers or may otherwise not be recoverable through regulatory mechanisms or may impact our ability to obtain satisfactory levels of affordable insurance
▪the availability of electric power and natural gas and natural gas storage capacity, including disruptions caused by failures in the transmission grid or limitations on the withdrawal of natural gas from storage facilities
▪the impact of the COVID-19 pandemic, including potential vaccination mandates, on capital projects, regulatory approvals and equipment failuresthe execution of our operations
▪cybersecurity threats to the energy grid, storage and pipeline infrastructure, the information and systems used to operate our businesses, and the confidentiality of our proprietary information and the personal information of our customers and employees, including ransomware attacks on our systems and the systems of third-party vendors and other parties with which we conduct
business, all of foreign governmentswhich may become more pronounced in the event of geopolitical events and state-owned entities to honor their contracts, and property disputesother uncertainties, such as the conflict in Ukraine
▪the impact at SDG&E on competitive customer rates and reliability due to the growth in distributed and local power generation, including from departing retail load resulting from customers transferring to DACCA and CCA,DA, and the risk of nonrecovery for stranded assets and contractual obligations
▪Oncor’s ability to eliminate or reduce its quarterly dividends due to regulatory and governance requirements and commitments, including by actions of Oncor’s independent directors or a minority member director
▪volatility in foreign currency exchange, inflation and interest rates and commodity prices, including inflationary pressures in the U.S., and our ability to effectively hedge these risks and with respect to inflation and interest rates, the impact on SDG&E’s and SoCalGas’ cost of capital and the affordability of customer rates
▪changes in tax and trade policies, laws and regulations, including tariffs and revisions to international trade agreements that may increase our costs, reduce our competitiveness, or impair our ability to resolve trade disputes
▪other uncertainties, some of which may be difficult to predict and are beyond our control
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 herein and in other reports that we file with the SEC.
SUMMARY OF RISK FACTORS
There are a number of risks that you should understand before making an investment decision in our securities or the securities of our subsidiaries. This summary is not intended to be complete and should only be read together with the information set forth in “Risk“Part I – Item 1A. Risk Factors” in this report. If any of these risks occur, Sempra Energy’soccurs, Sempra’s and its subsidiaries’ businesses, cash flows, financial condition, results of operations, financial condition, cash flows and/or prospects could be materially and adversely affected, and the trading pricesprice of Sempra Energy’sSempra’s securities and those of its subsidiaries could substantially decline. These risks include among others, the following:
Risks Related to Sempra Energy
▪Sempra Energy’sSempra’s cash flows, ability to pay dividends and ability to meet its debt obligations largely depend on the performance of its subsidiaries and entities that are accounted for as equity method investments such as Oncor Holdings and Cameron LNG JV.
▪The economic interest, voting rights and market value of our outstanding common and preferred stock may be adversely affected by any additional equity securities we may issue and, with respect to our common stock, by our outstanding preferred stock.
Risks Related to All Sempra Energy Businesses
▪Severe weather, conditions, natural disasters pandemics, accidents, equipment failures, explosions or acts of terrorismand other similar events could materially adversely affect us.us
▪The substantialOur debt service obligations of Sempra Energy, SDG&E and SoCalGas could have a material adverse effect onexpose us to risks, and with respect to Sempra, Energy, could require additional equity securities issuances.issuances
▪The availability and cost of debt or equity financing could be adverselynegatively affected by conditions in the financial marketsmarket and economic conditions generally, as well asand other factors, and any such negative effects could materially adversely affect us.us
▪Certain creditCredit rating agencies may downgrade our credit ratings or place those ratings on negative outlook.outlook
▪Our businesses require numerous permits, licenses, franchises and other approvals from various governmental agencies, and the failure to obtain or maintain any of them could materially adversely affect us
▪Our businesses are facing climate change concerns and have environmental compliance costs, which could have a material adverse effect on us
▪Our businesses are subject to complexnumerous governmental regulations and complex tax and accounting requirements and may be materially adversely affected by these regulations or requirements or any changes to them.
▪Our businesses require numerous permits, licenses, franchises, and other approvals and agreements from various federal, state, local and foreign governmental agencies, and the failure to obtain or maintain any of them could materially adversely affect us.
Risks Related to theSempra California Utilities
▪Wildfires in California pose a significant riskrisks to theSempra California Utilities (particularly SDG&E) and Sempra Energy.
▪The electricity industry is undergoing significant change, including increased deployment of distributed energy resources, technological advancements, and political and regulatory developments.developments
▪Natural gas and natural gas storage have increasingly been the subject of political and public scrutiny, including a desire by some to substantially reduce or eliminate reliance on natural gas as an energy source.
▪The California Utilities are subject to extensive regulation by state, federal and local legislative and regulatory authorities, which may materially adversely affect us.source
▪SoCalGas has incurred and may continue to incur significant costs, expenses and other liabilities related to the Leak, a substantial portion of which may not be recoverable through insurance.insurance
Risks Related to Our Interest in OncorSempra Texas Utilities
▪Certain ring-fencing measures, governance mechanisms and commitments limit our ability to influence the management, operations and policies of Oncor.Oncor
▪Changes in the regulation or operation of the electric utility industry including changes in regulation ofand/or the ERCOT market could materially adversely affect Oncor, which could materially adversely affect us.us
Risks Related to Our Businesses Other Than the California Utilities and Our Interest in OncorSempra Infrastructure
▪Project development activities may not be successful, and projects under construction may not commence operation as scheduled, be completed on schedule or within budget, orand completed projects may not operate at expected levels, any of which could have a material adverse effect on us.materially adversely affect us
▪
We may not be able to enter into, maintain, extend or replace long-term supply, sales or capacity agreements▪Our businesses depend on the performance of counterparties, including with respect to long-term supply, sales and capacity agreements, and any failureperformance failures by these parties to perform could result in substantial expenses and business disruptions and exposure to commodity price risk and volatility, any of whichcounterparties could materially adversely affect us.us
▪Our international businesses and operations expose us to increased legal, regulatory, tax, economic, geopolitical, management oversight, foreign currency and inflation risks and challenges.
Risks Related to Our Proposed IEnova Exchange Offer and Our Proposed Transaction Related to Sempra Infrastructure Partners
▪Our ability to complete our proposed IEnova exchange offer is subject to various conditions and other risks and uncertainties that could cause the transaction to be abandoned, delayed or restructured, which could materially adversely affect us.challenges
▪We expect to issue shares of our common stock in the proposed exchange offer, which would dilute the voting interests and could dilute the economic interests of our current shareholders and may adversely affect the market value of our common stock and preferred stock.
▪The proposed exchange offer, if completed, would subject us to additional regulation and liability in Mexico.
▪Our proposed transaction related to Sempra Infrastructure Partners is subject to a number of risks and uncertainties.
PART I.
ITEM 1. BUSINESS
OVERVIEW
We are a California-based holding company with energy infrastructure investments in North America. Our businesses invest in, develop and operate energy infrastructure, and provide electric and gas services to customers through regulated public utilities.
Sempra Energy was formed in 1998 through a business combination of Enova and PE, the holding companies of our regulated public utilities in California: SDG&E, which began operations in 1881, and SoCalGas, which began operations in 1867. We have since expanded our regulated public utility presence into Texas through our 80.25% interest in Oncor and 50% interest in Sharyland Utilities.
We have had a strong and growing presence in Mexico through IEnova. IEnova has a diverse portfolio of energy infrastructure projects and assets serving Mexico’s growing energy needs. Our energy infrastructure footprint also includes our 50.2% interest in Cameron LNG JV, which is a natural gas liquefaction export facility operating in Louisiana, and construction and development of LNG projects and assets on the Gulf Coast and Pacific Coast of North America.
In the fourth quarter of 2021, we formed Sempra Infrastructure, a new segment that includes the operating companies of our subsidiary, SI Partners, as well as a holding company and certain services companies. Through an internal reorganization, we consolidated the assets of our LNG business (previously included in our Sempra LNG segment) and our ownership of IEnova (previously included in our Sempra Mexico segment) under Sempra Global (previously included in Parent and other), which was renamed SI Partners. This reorganization simplifies Sempra’s ownership and management of its non-utility, energy infrastructure assets in North America by consolidating them under a single platform. As a result, the Sempra LNG and Sempra Mexico segments no longer exist. Our historical segment disclosures have been restated to conform with the current presentation, so that all segment discussions reflect the revised segment information of our four separate reportable segments.
In 2018, we announced a multi-phase portfolio optimization initiative designed to sharpen our strategic focus on North America. We have since executed on that initiative by completing the sales of our renewables businesses and our non-utility natural gas storage assets in the U.S., and by completing the sales of our businesses in South America. We present the South American businesses as discontinued operations throughout this report.
Business Strategy
Our mission is to be North America’s premier energy infrastructure company. We are primarily focused on transmission and distribution investments, among other areas, that we believe are capable of producing stable cash flows and improved earnings visibility, with the goal of delivering safe and reliable energy to our customers and increasing shareholder value.
DESCRIPTION OF BUSINESS BY SEGMENT
Our business activities are organized under the following reportable segments:
▪SDG&E
▪SoCalGas
▪Sempra Texas Utilities
▪Sempra Mexico
▪Sempra LNGInfrastructure
SDG&E
SDG&E is a regulated public utility that provides electric services to a population of, at December 31, 2020,2021, approximately 3.73.6 million and natural gas services to approximately 3.43.3 million of that population, covering a 4,100 square mile service territory in Southern California that encompasses San Diego County and an adjacent portion of Orange County.
SDG&E’s assets at December 31, 20202021 covered the following territory:
Electric Utility Operations
Electric Transmission and Distribution System. Service to SDG&E’s customers is supported by its electric transmission and distribution system, which includes substations and overhead and underground lines. These electric facilities are primarily in the San Diego, Imperial and Orange counties of California, and in Arizona and Nevada and consisted of 2,1292,148 miles of transmission lines, 23,92623,829 miles of distribution lines and 183160 substations at December 31, 2020. Periodically,2021. Occasionally, various areas of the service territory require expansion to accommodate customer growth and maintain reliability and safety.
SDG&E’s 500-kV Southwest Powerlink transmission line, which is shared with Arizona Public Service Company and Imperial Irrigation District, extends from Palo Verde, Arizona to San Diego, California. SDG&E’s share of the line is 1,162 MW, although it can be less under certain system conditions. SDG&E’s Sunrise Powerlink is a 500-kV transmission line constructed and operated by SDG&E with import capability of 1,000 MW of power.
Mexico’s Baja California transmission system is connected to SDG&E’s system via two 230-kV interconnections with combined capacity of up to 600 MW in the north-to-south direction and 800 MW in the south-to-north direction, although it can be less under certain system conditions.
Edison’s transmission system is connected to SDG&E’s system via five 230-kV transmission lines.
Electric Resources. To meet customer demand, SDG&E supplies power from its own electric generation facilities and procures power on a long-term basis from other suppliers for resale through CPUC-approved purchased-power contracts or through purchases on athe spot basis.market. SDG&E does not earn any return on commodity sales volumes. SDG&E’s supply at December 31, 20202021 was as follows:
| SDG&E – ELECTRIC RESOURCES(1) | SDG&E – ELECTRIC RESOURCES(1) | SDG&E – ELECTRIC RESOURCES(1) |
| | | Contract | Net operating | | | Contract | Net operating | |
| | expiration date | capacity (MW) | % of total | | expiration date | capacity (MW) | % of total |
Owned generation facilities, natural gas(2) | Owned generation facilities, natural gas(2) | | 1,204 | | 23 | % | Owned generation facilities, natural gas(2) | | 1,204 | | 24 | % |
Purchased-power contracts: | Purchased-power contracts: | | Purchased-power contracts: | |
Renewables: | Renewables: | | Renewables: | |
Wind | Wind | 2023 to 2035 | 1,131 | | 22 | | Wind | 2023 to 2035 | 1,131 | | 22 | |
Solar | Solar | 2030 to 2041 | 1,326 | | 26 | | Solar | 2030 to 2042 | 1,350 | | 26 | |
Other | Other | 2022 and thereafter | 203 | | 4 | | Other | 2022 and thereafter | 168 | | 3 | |
Tolling and other | Tolling and other | 2022 to 2042 | 1,292 | | 25 | | Tolling and other | 2022 to 2042 | 1,292 | | 25 | |
Total | Total | | 5,156 | | 100 | % | Total | | 5,145 | | 100 | % |
(1) Excludes approximately 107.5128 MW of batteryenergy storage owned and approximately 174164 MW of batteryenergy storage contracted.
(2) SDG&E owns and operates four natural gas-fired power plants, three of which are in California and one of which is in Nevada.
Charges under contracts with suppliers are based on the amount of energy received or are tolls based on available capacity. Tolling contracts are purchased-power contracts under which SDG&E provides natural gas for generation to the energy supplier.
SDG&E procures natural gas under short-term contracts for its owned generation facilities and for certain tolling contracts associated with purchased-power arrangements. Purchases are from various southwestern U.S. suppliers and are primarily priced based on published monthly bid-week indices.
SDG&E is a participant in the Western Systems Power Pool, which includes an electric-power and transmission-rate agreement that allows access to power trading with more than 300 member utilities, power agencies, energy brokers and power marketers located throughout the U.S. and Canada. Participants can make power transactions on standardized terms, including market-based rates, preapproved by the FERC. Participation in the Western Systems Power Pool is intended to assist members in managing power delivery and price risk.
Customers and Demand. SDG&E provides electric services through the generation, transmission and distribution of electricity to the following customer classes:
| SDG&E – ELECTRIC CUSTOMER METERS AND VOLUMES | | | | Customer meter count | | Volumes(1) (millions of kWh) | | Customer meter count | | Volumes(1) (millions of kWh) |
| | December 31, | | Years ended December 31, | | December 31, | | Years ended December 31, |
| | 2020 | | 2020 | 2019 | 2018 | | 2021 | | 2021 | 2020 | 2019 |
Residential | Residential | 1,317,080 | | | 6,606 | | 5,982 | | 6,336 | | Residential | 1,282,331 | | | 5,657 | | 6,606 | | 5,982 | |
Commercial | Commercial | 151,210 | | | 5,873 | | 6,295 | | 6,539 | | Commercial | 72,216 | | | 4,128 | | 5,873 | | 6,295 | |
Industrial | Industrial | 370 | | | 1,842 | | 2,044 | | 2,169 | | Industrial | 683 | | | 1,398 | | 1,842 | | 2,044 | |
Street and highway lighting | Street and highway lighting | 2,090 | | | 77 | | 76 | | 81 | | Street and highway lighting | 3,487 | | | 115 | | 77 | | 76 | |
| | 1,470,750 | | | 14,398 | | 14,397 | | 15,125 | | | 1,358,717 | | | 11,298 | | 14,398 | | 14,397 | |
CCA and DA | CCA and DA | 12,480 | | | 3,482 | | 3,549 | | 3,628 | | CCA and DA | 137,098 | | | 5,916 | | 3,482 | | 3,549 | |
Total | Total | 1,483,230 | | | 17,880 | | 17,946 | | 18,753 | | Total | 1,495,815 | | | 17,214 | | 17,880 | | 17,946 | |
(1) Includes intercompany sales.
SDG&E currently provides procurement service for most of its customer load. However, some customers can receive procurement service from a load-serving entity other than SDG&E through programs such as CCA and DA. In such cases, SDG&E no longer procures energy for this departing load. Accordingly, SDG&E’s CCA and DA customers receive primarily transportation and distribution services from SDG&E.
CCA is only available if the customer’s local jurisdiction (city) offers such a program and DA is currently limited by a cap based on gigawatt hours. A number of jurisdictions in SDG&E’s territory, including the City and County of San Diego and 14 other
municipalities, have implemented, are implementing or are considering implementing CCA. Based on our current expectations, SDG&E could procure energy for less than half of its current customer load by December 31, 2022.
SDG&E’s historical energy procurement may exceed the needs of its bundled customers as customers elect CCA and DA service. Accordingly, the associated costs of the utility’s procured resources could then be borne by SDG&E’s remaining bundled procurement customers. To help achieve the goal of ratepayer indifference (whether or not customers’ energy is procured by SDG&E or by CCA or DA), the CPUC revised the Power Charge Indifference Adjustment framework. SDG&E implemented the framework on January 1, 2019, by adopting several refinements designed to more equitably share energy procurement costs among customers served by SDG&E and customers served by CCA and DA.
San Diego’s mild climate and SDG&E’s robust energy efficiency programs contribute to lower consumption by our customers. Rooftop solar installations continue to reduce residential and commercial volumes sold by SDG&E. At December 31, 2021, 2020 2019 and 2018,2019, the residential and commercial rooftop solar capacity in SDG&E’s territory totaled 1,620 MW, 1,423 MW 1,233 MW and 1,0231,233 MW, respectively.
Demand for electricity is dependent on the health and expansion of the Southern California economy, prices of alternative energy products, consumer preference, environmental regulations, legislation, renewable power generation, the effectiveness of energy efficiency programs, demand-side management impact and distributed generation resources. California’s energy policy supports
increased electrification, particularly electrification of vehicles, which could result in significant increases in sales volumes in the coming years. Other external factors, such as the price of purchased power, the use of hydroelectric power, the use of and further development of renewable energy resources and energy storage, development of new natural gas supply sources, demand for natural gas and general economic conditions, can also result in significant shifts in the market price of electricity, which may in turn impact demand. Demand for electricity is also impacted by seasonal weather patterns (or “seasonality”), tending to increase in the summer months to meet cooling load and in the winter months to meet heating load.
Competition.SDG&E faces competition to serve its customer load from the growth in distributed and local power generation, including rooftop solar installationsinstallations. In addition, the electric industry is undergoing rapid technological change, and batterythird-party energy storage alternatives and the corresponding decreaseother technologies may increasingly compete with SDG&E’s traditional transmission and distribution infrastructure in demand for power from departing retail load from customers transferringdelivering electricity to load serving entities other than SDG&E. Whileconsumers. However, SDG&E currently provides procurement service for the majority of its customer load, customers do have the ability to receive procurement service from a load serving entity other than SDG&E through programs such as DA and CCA. DA is currently limited by a cap baseddoes not earn any return on gigawatt hours and CCA is only available if the customer’s local jurisdiction (city) offers such a program. Several local jurisdictions, including the City and County of San Diego and other municipalities, have implemented, are implementing or are considering implementing CCA, which could result in SDG&E providing procurement service for less than half of its current customer load as early as December 31, 2021. When customers are served by another load serving entity, SDG&E no longer procures electricity for this departing load and the associated costs of the utility’s procured resources could then be borne by SDG&E’s remaining bundled procurement customers. To help achieve the goal of ratepayer indifference (whether or not customers are served by DA or CCA), the CPUC revised the Power Charge Indifference Adjustment framework by adopting several refinements designed to equitably share costs among customers served by SDG&E and customers served by DA and CCA, which SDG&E implemented on January 1, 2019.commodity sales.
Natural Gas Utility Operations
We describe SDG&E’s natural gas utility operations below in “California Utilities’“Sempra California’s Natural Gas Utility Operations.”
SoCalGas
SoCalGas is a regulated public utility that owns and operates a natural gas distribution, transmission and storage system that supplies natural gas to a population of, at December 31, 2020,2021, approximately 22 million, covering a 24,000 square mile service territory that encompasses Southern California and portions of central California (excluding San Diego County, the City of Long Beach and the desert area of San Bernardino County).
SoCalGas’ assets at December 31, 20202021 covered the following territory:
Natural Gas Utility Operations
We describe SoCalGas’ natural gas utility operations below in “California Utilities’“Sempra California’s Natural Gas Utility Operations.”
California Utilities’Sempra California’s Natural Gas Utility Operations
Natural Gas Procurement and Transportation
At December 31, 2020,2021, SoCalGas’ natural gas facilities included 3,0593,047 miles of transmission and storage pipelines, 51,36751,724 miles of distribution pipelines, 48,49248,549 miles of service pipelines and nine transmission compressor stations, and SDG&E’s natural gas facilities consisted of 178176 miles of transmission pipelines, 8,9719,058 miles of distribution pipelines, 6,6156,686 miles of service pipelines and one compressor station.
SoCalGas’ and SDG&E’s gas transmission pipelines interconnect with four major interstate pipeline systems: El Paso Natural Gas, Transwestern Pipeline, Kern River Pipeline Company, and Mojave Pipeline Company, allowing customers to bring gas supplies into the SoCalGas gas transmission pipeline system from the various out-of-state gas producing basins. Additionally, an interconnection with PG&E’s intrastate gas transmission pipeline system allows gas to flow into SoCalGas’ gas transmission pipeline system. SoCalGas’ gas transmission pipeline system also has an interconnect with a Mexican gas pipeline company at Otay Mesa on the California/Mexico border that allows gas to not only flow south from the gas producing basins in the southwestern U.S., but to also flow north into SoCalGas’ gas transmission pipeline system from LNG-sourced supplies in Mexico. There are also several in-state gas interconnections allowing for delivery of California-produced gas, including a number of direct connections from renewable natural gas producers.
SoCalGas purchases natural gas under short-term and long-term contracts for the California Utilities’SDG&E’s and SoCalGas’ core customers. SoCalGas purchases natural gas from various sources, including from Canada, the U.S. Rockies and the southwestern regions of the U.S. Purchases of natural gas are primarily priced based on published monthly bid-weekbid week indices.
To support the delivery of natural gas supplies to its distribution system and to meet the seasonal and annual needs of customers, SoCalGas has firm interstate pipeline capacity contracts that require the payment of fixed reservation charges to reserve firm transportation rights.
Energy companies, primarily El Paso Natural Gas Company, Transwestern Pipeline Company and Kern River Gas Transmission Company, provide transportation services into SoCalGas’ intrastate transmission system for supplies purchased by SoCalGas from outside of California and its transportation customers.SoCalGas.
Natural Gas Storage
SoCalGas owns four natural gas storage facilities with a combined working gas capacity of 137 Bcf and over 150135 injection, withdrawal and observation wells that provide natural gas storage services for core, noncore and non-end-use customers. SoCalGas’ and SDG&E’s core customers are allocated a portion of SoCalGas’ storage capacity. SoCalGas offersuses the remaining storage capacity for saleload balancing services for all customers and, if available, to others, including SDG&E for its non-core customer requirements. Natural gas withdrawn from storage is important to help maintain service reliability during peak demand periods, including consumer heating needs in the winter, as well as peak electric generation needs in the summer. The Aliso Canyon natural gas storage facility has a storage capacity of 86 Bcf and, subject to the CPUC limitations described below, represents 63% of SoCalGas’ natural gas storage capacity. SoCalGas
discovered a natural gas leak at one of its wells at the Aliso Canyon natural gas storage facility in October 2015 and permanently sealed the well in February 2016. SoCalGas was subsequently authorized to make limited withdrawals and injections of natural gas at the Aliso Canyon natural gas storage facility and, on an interim basis, has been directed by the CPUC to maintain up to 3441.16 Bcf of working gas at the facility to help achieve reliability for the region at reasonable rates as determined by the CPUC. To help maintain system reliability, the CPUC issued a protocol authorizing withdrawals of natural gas from the facility if available gas supply and gas prices reach defined thresholds for SoCalGas’ system, as determined by the protocol. We discuss the Leak in Note 16 of the Notes to Consolidated Financial Statements, in “Part I – Item 1A. Risk Factors” and in “Part II – Item 7. MD&A – Capital Resources and Liquidity – SoCalGas.”
Customers and Demand
SoCalGas and SDG&E sell, distribute and transport natural gas. SoCalGas purchases and stores natural gas for its core customers in its territory and SDG&E’s territory on a combined portfolio basis. SoCalGas also offers natural gas transportation and storage services for others.
| CALIFORNIA UTILITIES – NATURAL GAS CUSTOMER METERS AND VOLUMES | |
SEMPRA CALIFORNIA – NATURAL GAS CUSTOMER METERS AND VOLUMES | | SEMPRA CALIFORNIA – NATURAL GAS CUSTOMER METERS AND VOLUMES |
| | | Customer meter count | | Volumes (Bcf)(1) | | Customer meter count | | Volumes (Bcf)(1) |
| | December 31, | | Years ended December 31, | | December 31, | | Years ended December 31, |
| | 2020 | | 2020 | 2019 | 2018 | | 2021 | | 2021 | 2020 | 2019 |
SDG&E: | SDG&E: | | SDG&E: | |
Residential | Residential | 869,520 | | | Residential | 874,460 | | |
Commercial | Commercial | 28,690 | | | Commercial | 29,060 | | |
Electric generation and transportation | Electric generation and transportation | 2,870 | | | Electric generation and transportation | 2,630 | | |
Natural gas sales | Natural gas sales | | 43 | | 45 | | 40 | | Natural gas sales | | 46 | | 43 | | 45 | |
Transportation | Transportation | | 40 | | 26 | | 28 | | Transportation | | 38 | | 40 | | 26 | |
Total | Total | 901,080 | | | 83 | | 71 | | 68 | | Total | 906,150 | | | 84 | | 83 | | 71 | |
SoCalGas: | SoCalGas: | | SoCalGas: | |
Residential | Residential | 5,792,600 | | | Residential | 5,823,610 | | |
Commercial | Commercial | 248,720 | | | Commercial | 248,560 | | |
Industrial | Industrial | 24,880 | | | Industrial | 24,660 | | |
Electric generation and wholesale | Electric generation and wholesale | 40 | | | Electric generation and wholesale | 40 | | |
Natural gas sales | Natural gas sales | | 312 | | 329 | | 297 | | Natural gas sales | | 314 | | 312 | | 329 | |
Transportation | Transportation | | 572 | | 547 | | 553 | | Transportation | | 568 | | 572 | | 547 | |
Total | Total | 6,066,240 | | | 884 | | 876 | | 850 | | Total | 6,096,870 | | | 882 | | 884 | | 876 | |
(1) Includes intercompany sales.
For regulatory purposes, end-use customers are classified as either core or noncore customers. Core customers are primarily residential and small commercial and industrial customers.
Most core customers purchase natural gas directly from SoCalGas or SDG&E. While core customers are permitted to purchase directlytheir natural gas supplies from producers, marketers or brokers, the California UtilitiesSoCalGas and SDG&E are obligated to provide reliable supplies of natural gasmaintain adequate delivery capacity to serve the requirements of all their core customers.
Noncore customers at SoCalGas consist primarily of electric generation, wholesale, and large commercial and industrial customers. A portion of SoCalGas’ noncore customers are non-end-users. SoCalGas’ non-end-users, which include wholesale customers consisting primarily
of other utilities, including SDG&E, or municipally owned natural gas distribution systems. Noncore customers at SDG&E consist primarily of electric generation and large commercial customers.
Noncore customers are responsible for the procurement ofprocuring their natural gas requirements, as the regulatory framework does not allow usSoCalGas and SDG&E to recover the cost of natural gas procured and delivered to noncore customers.
Demand for natural gas largely depends on the health and expansion of the Southern California economy, prices of alternative energy products, consumer preference, environmental regulations, legislation, California’s energy policy supporting increased electrification and renewable power generation, and the effectiveness of energy efficiency programs. Other external factors such as weather, the price of, and demand for, electricity, the useand supply sources of hydroelectric power,electricity, the use of and further development of renewable energy resources and energy storage, development of new natural gas supply sources, demand for natural gas outside
California, and general economic conditions can also result in significant shifts in market price, which may in turn impact demand.
One of the larger sources for natural gas demand is electric generation. Natural gas-fired electric generation within Southern California (and demand for natural gas supplied to such plants) competes with electric power generated throughout the western U.S. Natural gas transported for electric generating plant customers may be affected by the overall demand for electricity, growth in self-generation from rooftop solar, the addition of more efficient gas technologies, new energy efficiency initiatives, and the degree to which regulatory changes in electric transmission infrastructure investment divert electric generation from the California Utilities’ respectiveSoCalGas’ and SDG&E’s service areas. The demand for natural gas may also fluctuate due to volatility in the demand for electricity due to seasonality, weather conditions and other impacts, and the availability of competing supplies of electricity, such as hydroelectric generation and other renewable energy sources. Given the significant quantity of natural gas-fired generation, we believe natural gas is a dispatchable fuel that can help provide electric reliability in our California service territories.
The natural gas distribution business is subject to seasonality, and cash provided by operating activities generally is greater during and immediately following the winter heating months. As is prevalent in the industry, but subject to current regulatory limitations, SoCalGas usuallytypically injects natural gas into storage during the summer months (Aprilof April through October), which reduces cash provided by operating activities during this period,October, and usually withdraws natural gas from storage during the winter months (Novemberof November through March). Cash provided by operating activities during the winter months generally increases, when customer demand is higher.March.
Sempra Texas Utilities
Sempra Texas Utilities is comprised of our equity method investments in Oncor Holdings which we acquired in March 2018, and Sharyland Holdings, which we acquired in May 2019. We discuss these acquisitions in Note 5 of the Notes to Consolidated Financial Statements.Holdings. Oncor Holdings which is an indirect, wholly owned entity of Sempra Energy,that owns an 80.25% interest in Oncor. TTI owns the remaining 19.75% interest in Oncor. Sempra Energy owns an indirect, 50% interest in Sharyland Holdings, which owns a 100% interest in Sharyland Utilities.
Sempra Texas Utilities’ assets at December 31, 20202021 covered the following territory:
Oncor
Oncor is a regulated electricelectricity transmission and distribution utility that operates in the north-central, eastern, western and panhandle regions of Texas. Oncor delivers electricity to end-use consumers through its transmission and distributionelectrical systems, and also provides transmission grid connections to merchant generation facilities and interconnections to other transmission grids in Texas. Oncor’s transmission and distribution assets are located in over 120 counties and more than 400 incorporated municipalities, including the cities of Dallas and Fort Worth and surrounding suburbs, as well as Waco, Wichita Falls, Odessa, Midland, Tyler, Temple, Killeen and Round Rock, among others. Most of Oncor’s power lines have been constructed over lands of others pursuant to easements or along public highways, streets and rights-of-way as permitted by law.
At December 31, 2020,2021, Oncor had 4,3964,537 employees, including 767772 employees covered under a collective bargaining agreements.agreement.
Certain ring-fencing measures, governance mechanisms and commitments, which we describe in “Part I – Item 1A. Risk Factors,” are in effect and are intended to enhance Oncor Holdings’ and Oncor’s separateness from their owners and to mitigate the risk that these entities would be negatively impacted by the bankruptcy of, or other adverse financial developments affecting, their owners. Sempra Energy does not control Oncor Holdings or Oncor, and the ring-fencing measures, governance mechanisms and commitments limit our ability to direct the management, policies and operations of Oncor Holdings and Oncor, including the deployment or disposition of their assets, declarations of dividends, strategic planning and other important corporate issues and actions, including limited representation on the Oncor Holdings and Oncor boards of directors. Because Oncor Holdings and Oncor are managed independently (i.e., ring-fenced), we account for our 100% ownership interest in Oncor Holdings as an equity method investment. See Note 6 of the Notes to Consolidated Financial Statements for information about our equity method investment in Oncor Holdings.
Electricity Transmission. Oncor’s electricity transmission business is responsible for the safe and reliable operations of its transmission network and substations. These responsibilities consist of the construction and maintenance of transmission facilities and substations and the monitoring, controlling and dispatching of high-voltage electricity over its transmission facilities in coordination with ERCOT, which we discuss below in “Regulation – Utility Regulation – ERCOT Market.”
At December 31, 2020,2021, Oncor’s transmission system included approximately 18,12718,249 circuit miles of transmission lines, 336a total of 1,174 transmission stations and 806 distribution substations, which are interconnectedand interconnection to 115130 third-party generation facilities totaling 41,98645,403 MW.
Transmission revenues are provided under tariffs approved by either the PUCT or, to a small degree related to limited interconnection to other markets, the FERC. Network transmission revenues compensate Oncor for delivery of electricity over transmission facilities operating at 60 kV and above. Other services offered by Oncor through its transmission business include system impact studies, facilities studies, transformation service and maintenance of transformer equipment, substations and transmission lines owned by other parties.
Electricity Distribution. Oncor’s electricity distribution business is responsible for the overall safe and reliable operation of distribution facilities, including electricity delivery, power quality and system reliability. These responsibilities consist of the ownership, management, construction, maintenance and operation of the electricity distribution system within its certificated service area. Oncor’s distribution system receives electricity from the transmission system through substations and distributes electricity to end-users and wholesale customers through 3,6603,679 distribution feeders.
Oncor’s distribution system included more than 3.73.8 million points of delivery at December 31, 20202021 and consisted of 121,129122,441 miles of overhead and underground lines.
Distribution revenues from residential and small business users are based on actual monthly consumption (kWh) and distribution revenues from large commercial and industrial users are based on, depending on size and annual load factor, either actual monthly demand (kW) or the greater of actual monthly demand (kW) or 80% of peak monthly demand during the prior eleven months.
Customers and Demand. Oncor operates the largest transmission and distribution system in Texas. Oncor deliversTexas, delivering electricity to more than 3.73.8 million homes and businesses, operating more than 140,000 miles of transmission and distribution lines as of December 31, 2021 in a territory with an estimated population in excess of 10 million and operates more than 139,000 miles of transmission and distribution lines at December 31, 2020.approximately 13 million. The consumers of the electricity Oncor delivers are free to choose their electricity supplier from retail electric providers who compete for their business. Accordingly, Oncor is not a seller of electricity, nor does it purchase electricity for resale. Rather, Oncor provides transmission services to its electricity distribution business as well as non-affiliated electricity distribution companies, cooperatives and municipalities and distribution services to retail electric providers that sell electricity to retail customers. At December 31, 2020,2021, Oncor’s distribution customers consisted of approximately 95 retail electric providers and certain electric cooperatives in its certificated service area.
Oncor’s transmission and distribution assets are located in over 120 counties and more than 400 incorporated municipalities, including Dallas/Fort Worth and surrounding suburbs, Waco, Wichita Falls, Odessa, Midland, Tyler, Temple, Killeen and Round Rock, among others. Most of Oncor’s power lines have been constructed over lands of others pursuant to easements or along public highways, streets and rights-of-way as permitted by law.
Oncor’s revenues and results of operations are subject to seasonality, weather conditions and other electricity usage drivers, with revenues being highest in the summer.
Competition. Oncor operates in certificated areas designated by the PUCT. The majority of Oncor’s service territory is single certificated, with Oncor as the only certificated electric transmission and distribution provider. However, in multi-certificated areas of Texas, Oncor competes with certain other utilities and rural electric cooperatives for the right to serve end-use customers. In addition, the electric industry is undergoing rapid technological change, and third-party distributed energy resources and other technologies may increasingly compete with Oncor’s traditional transmission and distribution infrastructure in delivering electricity to consumers.
Sharyland Utilities
Sharyland Utilities is a regulated electric transmission utility that owns and operates, at December 31, 2020,2021, approximately 63 miles of electric transmission lines in south Texas, including a direct current line connecting Mexico and assets in McAllen, Texas. Sharyland Utilities is responsible for providing safe, reliable and efficient transmission and substation services and investing to support infrastructure needs throughout the ERCOT grid,in its service territory, which we discuss below in “Regulation – Utility Regulation – ERCOT Market.” Transmission revenues are provided under tariffs approved by the PUCT.
Sempra MexicoInfrastructure
Our Sempra MexicoInfrastructure segment includes the operating companies of our subsidiary, IEnova,SI Partners, as well as a holding company and certain holding companiesservices companies. SI Partners is included within our Sempra Infrastructure reportable segment, but is not the same in its entirety as the reportable segment. Sempra Infrastructure develops, builds, operates and risk management activities. IEnova develops, owns and operates, or holds interestsinvests in energy infrastructure to help enable the energy transition in MexicoNorth American markets and globally.
Sempra Infrastructure owned an 80% interest in three key energy markets: gas, powerSI Partners at December 31, 2021, with the remaining 20% interest owned by KKR upon completion of its purchase of a NCI in SI Partners on October 1, 2021. On December 21, 2021, Sempra entered into a purchase and storage. IEnova’s gas business includes pipeline services for natural gas and ethane and associated or stand-alone compression assets, as well as its natural gas marketing business and natural gas distribution business. In its power business, IEnova operatessale agreement with ADIA, pursuant to which ADIA agreed to acquire a natural-gas-fired combined-cycle power plant and wind and solar power generation facilities, and10% NCI in SI Partners. The consummation of the ADIA transaction is constructing and developing additional wind and solar power generation facilities. IEnova’s storage business includes refined products storage, its LPG storage and pipeline systems, and its ECA Regas Facility. Currently, IEnova is constructing and developing marine and land terminals forsubject to the receipt storageof certain regulatory and deliverythird-party approvals, and other customary closing conditions. Following the closing of liquid fuels.the ADIA transaction, Sempra, KKR and ADIA would directly or
indirectly own 70%, 20%, and 10%, respectively, of the outstanding Class A Units of SI Partners. SI Partners has two authorized classes of limited partnership interests designated as “Class A Units” (which are common voting units) and “Sole Risk Interests” (which are only owned by Sempra, Energy beneficially owned 70.2%are non-voting and are not considered in the calculation of each limited partner’s respective ownership interests, subject to certain restrictions). We discuss KKR’s purchase and ADIA’s pending purchase of NCI in SI Partners, as well as SI Partners’ limited partnership agreement that governs the partners’ respective rights and obligations in respect of their ownership interests in SI Partners in Note 1 of the Notes to Consolidated Financial Statements.
SI Partners held a 100% ownership interest in Sempra LNG Holding, LP and a 99.9% ownership interest in IEnova at December 31, 2020, with the remaining shares held by NCI and traded on the Mexican Stock Exchange under the symbol IENOVA. The CNBV regulates the shares, which are registered with the Mexican National Securities Registry (Registro Nacional de Valores) maintained by the CNBV. On December 2, 2020, we announced a non-binding offer to acquire all outstanding publicly held shares of IEnova in exchange for shares of our common stock at a rate of 0.0313 shares of our common stock for each one IEnova ordinary share, which exchange ratio remains subject to approval by the Sempra Energy board of directors and, if successful, would increase Sempra Energy’s ownership interest in IEnova to 100% assuming that all IEnova public shareholders tender their shares. On December 1, 2020, we filed an application with the CNBV and on January 12, 2021, we filed a registration statement with the SEC, in each case in connection with the exchange offer. As partfollowing completion of the exchange offer Sempra Energy intendsand cash tender offer to listacquire the publicly owned shares of IEnova, which we discuss in Note 1 of the Notes to Consolidated Financial Statements. SI Partners simplifies Sempra’s ownership and management of its common stock on the Mexican Stock Exchange. We expect to complete this transactionnon-utility, energy infrastructure assets in North America by consolidating them under a single platform. These assets include LNG and natural gas infrastructure in the second quarterU.S. and Mexico, and renewable energy, LPG and refined products infrastructure in Mexico.
At December 31, 2021, Sempra Infrastructure owned or held interests in the following assets:
LNG and Net-Zero Solutions
Sempra Infrastructure’s LNG and Net-Zero Solutions business line is comprised of 2021,a natural gas liquefaction portfolio in operation, construction or development, and is focused on energy diversification and the clean energy transition in markets that our customers serve.
Cameron LNG JV. Sempra Infrastructure owns 50.2% of Cameron LNG JV, while an affiliate of TotalEnergies SE, an affiliate of Mitsui & Co., Ltd., and Japan LNG Investment, LLC (a company jointly owned by Mitsubishi Corporation and Nippon Yusen Kabushiki Kaisha) each own 16.6% of Cameron LNG JV. We account for our ownership interest in Cameron LNG JV under the equity method. No single owner controls or can unilaterally direct significant activities of Cameron LNG JV.
Cameron LNG JV owns Cameron LNG JV Phase 1, a natural gas liquefaction, export, regasification and import facility with three natural gas pre-treatment, processing and liquefaction trains. Cameron LNG JV Phase 1 is located in Hackberry, Louisiana, along the Calcasieu Ship Channel, which handles significant industrial shipping, including large oil and LNG tankers, and is well
positioned to supply the Atlantic and Pacific markets. Cameron LNG JV Phase 1 achieved commercial operations of Train 1, Train 2 and Train 3 in August 2019, February 2020 and August 2020, respectively. The three liquefaction trains have a combined nameplate capacity of 13.9 Mtpa of LNG with an export capacity of 12 Mtpa of LNG, or approximately 1.7 Bcf of natural gas per day. Cameron LNG JV has 20-year liquefaction and regasification tolling capacity agreements in place with affiliates of TotalEnergies SE, Mitsubishi Corporation and Mitsui & Co., Ltd., which collectively subscribe for the full nameplate capacity of the three trains at the facility.
ECA Regas Facility. Sempra Infrastructure owns and operates the ECA Regas Facility in Baja California, Mexico, which is capable of processing one Bcf of natural gas per day and has a storage capacity of 320,000 cubic meters in two tanks of 160,000 cubic meters each.
The ECA Regas Facility generates revenues from firm storage service fees under firm storage service agreements and nitrogen injection service agreements with Shell Mexico and Gazprom that expire in 2028, which permit them to collectively use 50% of the terminal’s capacity, with the remaining 50% of the capacity available for Sempra Infrastructure’s use. Shell Mexico and Gazprom have commenced binding arbitration to terminate these agreements and seek other relief. The land on which the ECA Regas Facility and the proposed ECA LNG liquefaction projects is situated as well as land adjacent to those properties are the subject of litigation. We discuss the ECA Regas Facility arbitration and land litigation in Note 16 of the Notes to authorization by the SEC, CNBVConsolidated Financial Statements and Mexican Stock Exchange and other closing conditions. The proposed exchange offer is subject to a number of risks that are discussed in “Part I – Item 1A. Risk Factors.”
Sempra Infrastructure uses its 50% capacity at the ECA Regas Facility to satisfy its obligation under an LNG sale and purchase agreement with Tangguh PSC through 2029, which we discuss below, and ECA LNG Phase 1 will be the sole user of this capacity thereafter.
Asset and Supply Optimization. Sempra Infrastructure has an LNG sale and purchase agreement through 2029 with Tangguh PSC for the supply of the equivalent of 500 MMcf of natural gas per day at a price based on the SoCal Border index for natural gas. The LNG sale and purchase agreement allows Tangguh PSC to divert certain LNG volumes to other global markets in exchange for payments of diversion fees. Sempra Infrastructure may also enter into short-term supply agreements to purchase LNG to be received, stored and regasified at the ECA Regas Facility for sale to other parties. Sempra Infrastructure uses the natural gas produced from this LNG to supply a contract for the sale of natural gas to the CFE at prices that are based on the SoCal Border index. If LNG volumes received from Tangguh PSC are not sufficient to satisfy the commitment to the CFE, Sempra Infrastructure may purchase natural gas in the market to satisfy such commitment.
Sempra Infrastructure purchases, transports and sells natural gas, and has customers in both the U.S. and Mexico, including the CFE. Sempra Infrastructure may also purchase natural gas from other Sempra affiliates. Natural gas purchases and transportation arrangements are substantially backed by long-term, U.S. dollar-based contracts for the sale of natural gas to third parties (both U.S. sourced and derived from imported LNG), LNG offtake and natural gas storage and pipeline capacity.
ECA LNG Phase 1. Sempra Infrastructure owns an 83.4% interest in ECA LNG Phase 1, and an affiliate of TotalEnergies SE owns the remaining 16.6% interest. ECA LNG Phase 1 is constructing a one-train natural gas liquefaction facility at the site of Sempra Infrastructure’s existing ECA Regas Facility with a nameplate capacity of 3.25 Mtpa and an initial offtake capacity of 2.5 Mtpa. We expect ECA LNG Phase 1 to begin producing LNG by the end of 2024.
ECA LNG Phase 1 has definitive 20-year LNG sale and purchase agreements with an affiliate of TotalEnergies SE for approximately 1.7 Mtpa of LNG and Mitsui & Co., Ltd. for approximately 0.8 Mtpa of LNG.
The construction of the ECA LNG Phase 1 project is subject to numerous risks and uncertainties. For a discussion of these risks and uncertainties, see “Part I – Item 1A. Risk Factors” and “Part II – Item 7. MD&A – Capital Resources and Liquidity – Sempra Infrastructure.”
Additional Potential LNG and Net-Zero Solutions’ Projects. Sempra Infrastructure is evaluating the following development opportunities:
▪Cameron LNG JV Phase 2 project, an expansion of Cameron LNG JV’s liquefaction export facility
▪ECA LNG Phase 2 project, a large-scale natural gas liquefaction export project to be located at the site of Sempra Infrastructure’s existing ECA Regas Facility in Baja California, Mexico
▪Port Arthur LNG, a large-scale natural gas liquefaction export project and associated infrastructure on a greenfield site in the vicinity of Port Arthur, Texas located along the Sabine-Neches waterway
▪Vista Pacifico LNG, a mid-scale natural gas liquefaction export project and associated infrastructure in the vicinity of Topolobampo in Sinaloa, Mexico
▪Baja Sur LNG, an early-stage regasification facility in La Paz, Baja California Sur, Mexico
▪Hackberry Carbon Storage, a carbon capture and sequestration project that is intended to reduce emissions at Cameron LNG JV
No final investment decision has been reached for any of these potential projects. The development of these projects is subject to numerous risks and uncertainties. For a discussion of these proposed projects and their risks, see “Part I – Item 1A. Risk Factors” and “Part II – Item 7. MD&A – Capital Resources and Liquidity – Sempra Infrastructure.”
Demand and Competition. North America benefits from numerous competitive advantages as a potential supplier of LNG to world markets, including (but not limited to) the following:
▪high levels of developed and undeveloped natural gas resources, including unconventional natural gas and tight oil relative to domestic consumption levels
▪flexible and elastic markets in gas and oil drilling and production resulting in efficient unit costs of gas production
▪availability of extensive pre-existing natural gas pipeline transmission systems and natural gas storage capacity with proximity to production locations
Brownfield liquefaction projects also benefit from the particular competitive advantage of the proximity of pre-existing infrastructure, such as LNG tankage and berths.
Global LNG competition may limit North American LNG exports, as international liquefaction projects attempt to match North American LNG production costs and customer contractual rights such as volume and destination flexibility. It is expected that North American LNG exports will increase competition for current and future global natural gas demand, and thereby facilitate additional growth of a global commodity market for natural gas and LNG.
Additionally, our Cameron LNG JV co-owners and customers compete globally to market and sell LNG to end users, including gas and electric utilities located in LNG-importing countries around the world. By providing liquefaction services, Cameron LNG JV and future LNG export development projects compete indirectly with liquefaction projects currently operating and those under development in the global LNG market. In addition to the U.S., these competitors are located in the Middle East, Southeast Asia, Africa, South America, Australia and Europe.
The LNG regasification business is impacted by worldwide LNG market prices. High LNG prices in markets outside the market in which Sempra Infrastructure’s ECA Regas Facility operates have resulted and could continue to result in lower-than-expected deliveries of LNG cargoes to the ECA Regas Facility, which could increase costs if Sempra Infrastructure is instead required to obtain LNG in the open market at prevailing prices. Any inability to obtain expected LNG cargoes could also impact Sempra Infrastructure’s ability to maintain the minimum level of LNG required to keep the ECA Regas Facility in operation at the proper temperature. Prices in international LNG markets through which Sempra Infrastructure must purchase natural gas to meet its contractual obligations to deliver natural gas to customers may also affect how Sempra Infrastructure optimizes its assets and supply, which could have an adverse impact on its earnings.
Energy Networks
Sempra Infrastructure’s Energy Networks business line is comprised of a natural gas transportation and distribution network.
Cross-Border Interconnections and In-Country Pipelines. Sempra Infrastructure develops, builds, operates and invests in systems for the receipt, transportation, compression and delivery of natural gas and ethane. At December 31, 2020, Sempra Mexico’s assets covered the following territory:
Gas Business
Pipelines and Related Assets. At December 31, 2020, IEnova’s pipeline and related assets2021, these systems consisted of 1,850 miles of natural gas transmission pipelines 15plus 124 miles in development, 16 natural gas compression stations (two of which are under construction)plus one in development, and 139 miles of ethane pipelines in Mexico. TheseThe design capacity of these pipeline assets had design capacity ofis over 16,400 MMcf per day of natural gas, 204 MMcf per day of ethane gas and 106,000 barrels per day of ethane liquid. IEnova’s pipelineCapacity on Sempra Infrastructure’s pipelines and related assets areis substantially contracted under long-term, U.S. dollar-based agreements with major industry participants such as the CFE, CENAGAS, PEMEX, Shell Mexico, Gazprom Saavi Energía and other similar counterparties. Some of these pipeline assets are affected by disputes related to the property on which the pipelines are located, which we discuss in Note 16 of the Notes to Consolidated Financial Statements and “Part I – Item 1A. Risk Factors.”
Sempra Infrastructure owns a 40-mile natural gas pipeline in south Louisiana, the Cameron Interstate Pipeline, which links the Cameron LNG JV Phase 1 facility in Cameron Parish in Louisiana, to five interstate pipelines that offer access to major feed gas supply basins in Texas and the northeast, midcontinent and southeast regions of the U.S. The majority of transportation capacity on the Cameron Interstate Pipeline is under long-term transportation service agreements with shippers for delivery to Cameron LNG JV Phase 1.
Natural Gas Distribution. IEnova’sSempra Infrastructure’s natural gas distribution regulated utility, Ecogas, operates in three separate distribution zones in Mexico withMexicali, Chihuahua and La Laguna-Durango, Mexico. At December 31, 2021, Ecogas had approximately 2,7292,842 miles of distribution pipeline, and had approximately 136,000143,000 customer meters (servingserving more than 441,000489,000 residential, commercial and industrial consumers)consumers with sales volume of approximately eight10 MMcf per day in 2020.
2021. Ecogas relies on supply and transportation services from Sempra LNGInfrastructure, SoCalGas and SoCalGasPEMEX for the natural gas it distributes to its customers. If
LPG Storage and Associated Systems. Sempra Infrastructure owns and operates the TDF, S. de R. L. de C. V. (TDF) pipeline system and the Guadalajara LPG terminal. At December 31, 2021, the TDF pipeline system consisted of approximately 118 miles of 12-inch diameter LPG pipeline with a design capacity of 34,000 barrels per day and associated storage and dispatch facilities. The TDF pipeline system runs from PEMEX’s Burgos facility in the state of Tamaulipas, Mexico to Sempra Infrastructure’s delivery facility near the city of Monterrey, Mexico and is fully contracted to PEMEX on a firm basis through 2027. Sempra Infrastructure’s Guadalajara LPG terminal is an 80,000-barrel LPG storage facility near Guadalajara, Mexico, with associated loading and dispatch facilities, and serves the LPG needs of Guadalajara. The Guadalajara LPG terminal is fully contracted to PEMEX on a firm basis through 2028. Both contracts are U.S. dollar-denominated or referenced and are periodically adjusted for inflation.
Refined Products Storage. Sempra Infrastructure’s refined products storage business develops, constructs and operates systems for the receipt, storage and delivery of refined products, principally gasoline, diesel and jet fuel, throughout the Mexico states of Baja California, Colima, Puebla, Sinaloa, Veracruz and Valle de México for private companies. The Veracruz marine terminal reached commercial operations in March 2021 and the inland terminal in the vicinity of Mexico City reached commercial operations in July 2021. The two terminals have a combined storage capacity of more than 2.7 million barrels. Our customer contracts for our refined products storage business are structured as long-term, U.S. dollar-denominated, firm capacity storage agreements with counterparties including Chevron Corporation, Marathon Petroleum Corporation and Valero Energy Corporation. The contracted rate under these affiliates failcontracts is independent from each terminal’s regulated rate as determined by the CRE.
At December 31, 2021, Sempra Infrastructure had marine and inland terminals under development and construction, with a projected storage capacity of approximately 5 million barrels. We expect the Topolobampo marine terminal to performreach commercial operations in the first half of 2022. The inland terminal in the vicinity of Puebla has been temporarily shut down during the pendency of an industrywide investigation initiated by the CRE to enforce Mexico’s fuel procurement laws and its storage permit may be at risk due to a separate CRE administrative proceeding. We discuss this investigation and other risks and uncertainties related to the construction of these projects in “Part I – Item 1A. Risk Factors” and “Part II – Item 7. MD&A – Capital Resources and Liquidity – Sempra Infrastructure.”
Demand and Competition.Ecogas is unable to obtain suppliesfaces competition from other distributors of natural gas from alternate sources, Ecogas could lose customers and sales volume and could also be exposed to commodity price risk and volatility.
Natural Gas Marketing. IEnova’s natural gas marketing business, IEnova Marketing, S. de R.L. de C.V. (IEnova Marketing), purchases LNG for storage and regasification at the ECA Regas Facility and sells natural gas to affiliates and third-party customers. This business also purchases natural gas from Sempra Energy affiliates in order to sell it to IEnova customers in Baja California, including the CFE, which purchases such natural gas to powereach of its plants in Rosarito, Baja California, and IEnova’s TdM combined-cycle power plant. IEnova Marketing also supplies natural gas purchased from Sempra Energy affiliates to third-party industrial customersthree distribution zones in Mexicali, Chihuahua Torreón and Durango. At December 31, 2020, IEnova Marketing served over 150 customers.La Laguna-Durango, Mexico as other distributors of natural gas build or consider building natural gas distribution systems. Sempra Infrastructure’s pipeline and storage facilities businesses compete with other regulated and unregulated pipeline and storage facilities. They compete primarily on the basis of price (in terms of storage and transportation fees), available capacity and interconnections to downstream markets. The overall demand for natural gas distribution services increases during the winter months, while the overall demand for power increases during the summer months.
Clean Power
Sempra Infrastructure’s Clean Power Businessbusiness line consists of a renewable energy infrastructure portfolio and a natural gas-fired power plant in Mexico.
Renewable Power Generation. IEnovaSempra Infrastructure develops, builds, invests in and operates renewable energy generation facilities that have long-term PPAs to sell the electricity they generate to their customers, which are generally load serving entities, as well as industrial and other customers. Load serving entities sell electric service to their end-users and wholesale customers upon receipt of power delivery from these energy generation facilities, while industrial and other customers consume the electricity to run their facilities. At December 31, 2020, IEnova2021, Sempra Infrastructure had a fully contracted, total nameplate capacity of 1,0411,044 MW related to its wind and solar power generation facilities that were either fully operating or under construction. Some of these facilities are impacted by regulatory actions by the Mexican government and related litigation, which we discuss in Note 16 of the Notes to Consolidated Financial Statements.Statements, “Part I – Item 1A. Risk Factors” and “Part II – Item 7. MD&A – Capital Resources and Liquidity – Sempra Infrastructure.”
| | | | | | | | | | | |
IENOVA – RENEWABLE POWER GENERATION |
| | | |
| Location | Contract expiration date | Nameplate capacity (MW) |
Wind power generation facilities: | | | |
ESJ – first phase(1) | Tecate, Baja California | 2035 | 155 | |
ESJ – second phase(1)(2) | Tecate, Baja California | 2041 | 108 | |
Ventika(3) | Nuevo León | 2036 | 252 | |
Solar power generation facilities: | | | |
Border(4) | Chihuahua | 2032 and 2037 | 150 | |
Don Diego | Sonora | 2036 and 2037 | 125 | |
Pima | Sonora | 2039 | 110 | |
Rumorosa | Baja California | 2034 | 41 | |
Tepezalá | Aguascalientes | 2034 | 100 | |
Total | | | 1,041 | |
| | | | | | | | | | | |
SEMPRA INFRASTRUCTURE – RENEWABLE POWER GENERATION |
| | | |
| Location | Contract expiration date | Nameplate capacity (MW) |
Wind power generation facilities: | | | |
ESJ – first phase | Tecate, Baja California | 2035 | 155 | |
ESJ – second phase(1) | Tecate, Baja California | 2042 | 108 | |
Ventika | Nuevo León, Mexico | 2036 | 252 | |
Solar power generation facilities: | | | |
Border Solar | Ciudad Juarez, Chihuahua | 2032 and 2037 | 150 | |
Don Diego Solar | Benjamin Hill, Sonora | 2034 and 2037 | 125 | |
Pima Solar | Caborca, Sonora | 2038 | 110 | |
Rumorosa Solar | Tecate, Baja California | 2034 | 44 | |
Tepezalá Solar | Aguascalientes | 2034 | 100 | |
Total | | | 1,044 | |
(1) Includes 100% of the nameplate capacity, in which IEnova owns a 50% interest.
(2) We expect to startCommenced commercial operations in late 2021 or in the first quarter ofJanuary 2022.
(3) Two adjacent wind power generation facilities.
(4) We expect to start commercial operations in the first half of 2021.
Natural Gas-Fired Generation. Generation. Sempra Infrastructure owns and operates the TdM power plant in the vicinity of Mexicali, Baja California, adjacent to the Mexico-U.S. border. TdM is a 625-MW natural gas-fired, combined-cycle power plant locatedthat commenced commercial operations in Mexicali,June 2003. The power plant is connected to our Gasoducto Rosarito pipeline system, which enables it to receive regasified LNG from the ECA Regas Facility as well as continental gas supplied from the U.S. on the North Baja California, Mexico thatpipeline. TdM generates revenue from selling electricity and/orand resource adequacy to the California ISO and to governmental, public utility and wholesale power marketing entities. It also has an EMA with Sempra LNG for energy marketing, scheduling and other related services to support its sales of generated power into the California electricity market. Under the EMA, TdM pays fees to Sempra LNG for these revenue-generating services. TdM also purchases fuel from Sempra LNG. IEnova records revenue for the sale of power generated by TdM and records cost of sales for the purchases of natural gas and energy management services provided by Sempra LNG.
Storage Business
LNG Regasification. IEnova operates its ECA Regas Facility in Baja California, Mexico. The ECA Regas Facility is capable of processing one Bcf of natural gas per day and has a storage capacity of 320,000 cubic meters in two tanks of 160,000 cubic meters each. The facility generates revenues from reservation and usage fees under terminal capacity agreements and nitrogen injection service agreements with Shell Mexico and Gazprom, expiring in 2028, that permit them, together, to use one-half of the terminal’s capacity. The land on which the ECA Regas Facility is situated is the subject of litigation, and Shell Mexico and Gazprom have commenced binding arbitration to terminate these agreements and seek other relief, both of which we discuss in Note 16 of the
Notes to Consolidated Financial Statements, in “Part I – Item 1A. Risk Factors” and in “Part II – Item 7. MD&A – Capital Resources and Liquidity.”
Sempra LNG has an agreement with IEnova to supply LNG to the ECA Regas Facility. In connection with Sempra LNG’s purchase agreement with Tangguh PSC, IEnova purchases from Sempra LNG the LNG delivered by Tangguh PSC to the ECA Regas Facility. IEnova uses the natural gas produced from this LNG and natural gas purchased in the market or through Sempra LNG’s marketing operations to supply a contract for the sale of natural gas to the CFE at prices that are based on the SoCal Border index. If LNG volumes received from Tangguh PSC are not sufficient to satisfy the commitment to the CFE, IEnova may purchase natural gas from Sempra LNG’s marketing operations.
Although the LNG purchase agreement with Tangguh PSC specifies a number of cargoes to be delivered annually, actual cargoes delivered have been significantly lower than the maximum specified under the agreement. As a result, Sempra LNG is contractually required to make monthly indemnity payments to IEnova for failure to deliver the contracted LNG.
IEnova entered into an agreement to assign its contracted capacity at the ECA Regas Facility to ECA LNG Phase 1. Both parties will make use of the capacity through the expiration of the LNG purchase agreement with Tangguh PSC in 2029, and ECA LNG Phase 1 will be the sole user of this capacity thereafter.
LPG Storage and Associated Systems. IEnova owns and operates the TDF, S. de R. L. de C. V. (TDF) pipeline system and the Guadalajara LPG terminal. At December 31, 2020, the TDF pipeline system consisted of approximately 118 miles of a 12-inch diameter LPG pipeline with a design capacity of 34,000 barrels per day and associated storage and dispatch facilities. The TDF pipeline system runs from PEMEX’s Burgos facility in the state of Tamaulipas to IEnova’s delivery facility near the city of Monterrey, Nuevo León. IEnova’s Guadalajara LPG terminal is an 80,000-barrel LPG storage facility near Guadalajara, Jalisco, with associated loading and dispatch facilities, and serves the LPG needs of Guadalajara, Mexico.
Refined Products Storage. IEnova’s refined products storage business develops systems for the receipt, storage and delivery of refined products, principally gasoline, diesel and jet fuel, throughout the states of Baja California, Colima, Puebla, Sinaloa, Veracruz, Valle de México and Jalisco for private companies. At December 31, 2020, IEnova had marine and inland terminals under development and construction, with a projected storage capacity of approximately 8,000,000 barrels, which may be expanded. We expect the inland terminals in the vicinity of Mexico City and Puebla and the Veracruz and Topolobampo marine terminals to reach commercial operations in various dates in 2021.
Demand and Competition
IEnovaCompetition. Sempra Infrastructure competes with Mexican and foreign companies for certain new energy infrastructure projects in Mexico. Some of its competitors (including public or state-operated companies and their affiliates) may have better access to capital and greater financial and other resources, which could give them a competitive advantage in bidding for such projects.
Ecogas faces competition from other distributors of natural gas in each of its three distribution zones in Mexicali, Chihuahua and La Laguna-Durango as other distributors of natural gas build or consider building natural gas distribution systems. IEnova’s pipeline and storage facilities businesses compete with other regulated and unregulated pipeline and storage facilities. They compete primarily on the basis of price (in terms of storage and transportation fees), available capacity and interconnections to downstream markets.
The overall demand for natural gas distribution services increases during the winter months, while the overall demand for power increases during the summer months.
Generation from IEnova’sSempra Infrastructure’s renewable energy assets is susceptible to fluctuations in naturally occurring conditions such as wind, inclement weather and hours of sunlight. Because IEnovaSempra Infrastructure sells power that it generates at its ESJ wind power generation facility into California, IEnova’sSempra Infrastructure’s future performance and the demand for renewable energy may be impacted by U.S. state mandated requirements to deliver a portion of total energy load from renewable energy sources. The rules governing these requirements in California are generally known as the RPS Program. In California, certification of a generation project by the CEC as an ERR allows the purchase of output from such generation facility to be counted towards fulfillment of the RPS Program requirements, if such purchase meets the provisions of SB X1-2, the California Renewable Energy Resources Act. The RPS Program may affect the demand for output from renewablesrenewable energy projects developed by IEnova,Sempra Infrastructure, particularly the demand from California’s utilities. We expect to pursueThe first phase of ESJ, a wind power generation facility that delivers energy into California, has been certified by the CEC and is in compliance with the RPS Program as of December 31, 2021. Sempra Infrastructure is pursuing ERR certification for all our IEnova renewable facilities providing power to California as they become operational.the second phase of ESJ.
TdM competes daily with other generating plants that supply power into the California electricity market. Several of the wholesale markets supplied by merchant power plants have experienced significant pricing declines due to the imbalance between
supply and demand. IEnovaSempra Infrastructure manages commodity price risk at TdM by using a mix of day ahead sales of energy, energy spreads hedging, ancillary services, and short-term to medium-term capacity sales.
The LNG regasification business is impacted by worldwide LNG market prices. High LNG prices in markets outside the market in which IEnova’s ECA Regas Facility operates have resulted and could continue to result in lower than expected deliveries of LNG cargoes to the ECA Regas Facility, which could increase costs if IEnova is instead required to obtain LNG in the open market at prevailing prices. Any inability to obtain expected LNG cargoes could also impact IEnova’s ability to maintain the minimum level of LNG required to keep the ECA Regas Facility in operation at the proper temperature. Prices in international LNG markets through which IEnova must purchase natural gas to meet its contractual obligations to deliver natural gas to customers may also affect IEnova Marketing’s operations, which could have an adverse impact on its earnings, but may be mitigated in part by the indemnity payments from Sempra LNG.
Sempra LNG
Sempra LNG develops, builds, operates and invests in natural gas liquefaction export facilities, including natural gas pipelines and infrastructure, and buys, sells and transports natural gas through its marketing operations, all within North America.
At December 31, 2020, Sempra LNG owned or held interests in the following assets:
Natural Gas Liquefaction
Cameron LNG JV. Sempra LNG and three project co-owners (TOTAL SE, Mitsui & Co., Ltd., and Japan LNG Investment, LLC, a company jointly owned by Mitsubishi Corporation and Nippon Yusen Kabushiki Kaisha) hold interests in Cameron LNG JV, which owns and operates a three-train natural gas liquefaction export facility (Phase 1) in Hackberry, Louisiana. Sempra LNG accounts for its 50.2% equity interest in Cameron LNG JV under the equity method.
Cameron LNG JV achieved commercial operations of Train 1, Train 2 and Train 3 in Phase 1 under its tolling agreements in August 2019, February 2020 and August 2020, respectively. The three liquefaction trains have a combined nameplate capacity of 13.9 Mtpa of LNG with an export capacity of 12 Mtpa of LNG, or approximately 1.7 Bcf per day. Cameron LNG JV has 20-year liquefaction and regasification tolling capacity agreements in place with affiliates of TOTAL SE, Mitsubishi Corporation and Mitsui & Co., Ltd., which subscribe for the full nameplate capacity of the three trains at the facility. We discuss Cameron LNG JV in Note 6 of the Notes to Consolidated Financial Statements.
ECA LNG Phase 1. Sempra LNG, IEnova and an affiliate of TOTAL SE hold interests in ECA LNG Phase 1, which is constructing a one-train natural gas liquefaction facility at the site of IEnova’s existing ECA Regas Facility in Baja California, Mexico with a nameplate capacity of 3.25 Mtpa. We reached a final investment decision in November 2020. ECA LNG Phase 1 has a definitive 20-year LNG sale and purchase agreement with Mitsui & Co., Ltd. and an affiliate of TOTAL SE for approximately 0.8 Mtpa of LNG and 1.7 Mtpa of LNG, respectively.
Additional Potential LNG Export Projects. Sempra LNG is evaluating the following additional potential LNG export development opportunities:
▪an expansion of Cameron LNG JV’s liquefaction export facility (Phase 2)
▪a natural gas liquefaction export project by ECA LNG Phase 2, also located at the site of IEnova’s existing ECA Regas Facility in Baja California, Mexico
▪a natural gas liquefaction export project (Port Arthur LNG) and associated infrastructure on a greenfield site in the vicinity of Port Arthur, Texas located along the Sabine-Neches waterway
We have not reached a final investment decision for any of these potential projects. The development of these projects is subject to numerous other risks and uncertainties. For a discussion of these proposed projects and their risks, see “Part I – Item 1A. Risk Factors” and “Part II – Item 7. MD&A – Capital Resources and Liquidity – Sempra LNG.”
Midstream
Sempra LNG has a 40-mile natural gas pipeline in south Louisiana. The Cameron Interstate Pipeline links the Cameron LNG JV facility in Cameron Parish in Louisiana, to five interstate pipelines that offer access to major feed gas supply basins in Texas and the northeast, midcontinent and southeast regions of the U.S.
Marketing Operations
Sempra LNG provides natural gas marketing, trading and risk management services through the utilization and optimization of natural gas supply and transportation, including natural gas transport capacity in support of liquefaction projects in development. Additionally, it sells electricity under short-term and long-term contracts and into the spot market and other competitive markets.
Sempra LNG’s marketing operations have an LNG sale and purchase agreement with Tangguh PSC for the supply of the equivalent of 500 MMcf of natural gas per day from Tangguh PSC’s Indonesian liquefaction facility with delivery to IEnova’s ECA Regas Facility at a price based on the SoCal Border index for natural gas. The LNG purchase agreement allows Tangguh PSC to divert certain LNG volumes to other global markets in exchange for cash differential payments to Sempra LNG. Sempra LNG may also enter into short-term supply agreements to purchase LNG to be received, stored and regasified at the ECA Regas Facility for sale to other parties.
Sempra LNG is contracted to sell LNG or, if deliveries of LNG cargoes are not sufficient, natural gas, to Sempra Mexico that allows Sempra Mexico to satisfy its obligation under supply agreements with the CFE, TdM and other customers. These revenues are adjusted for indemnity payments and profit sharing, as discussed in “Sempra Mexico – Storage Business – LNG Regasification” above.
Sempra LNG also has an EMA with Sempra Mexico’s TdM to provide energy marketing, scheduling and other related services to TdM power plant to support TdM’s sales of generated power into the California electricity market. We discuss the EMA in “Sempra Mexico – Power Business – Natural Gas-Fired Generation” above.
Demand and Competition
North America is one of the most competitive locations for potential LNG supply in the world, resulting from many factors, including:
▪high levels of developed and undeveloped North American unconventional natural gas and tight oil resources relative to domestic consumption levels
▪increasing gas and oil drilling productivity and decreasing unit costs of gas production
▪low breakeven prices of marginal North American unconventional gas production
▪proximity to ample existing gas transmission pipeline and underground gas storage capacity
Brownfield liquefaction is particularly competitive due to existing LNG tankage and berths.
Global LNG competition may limit North American LNG exports, as international liquefaction projects attempt to match North American LNG production costs and customer contractual rights such as volume and destination flexibility. It is expected that North American LNG exports will increase competition for current and future global natural gas demand, and thereby facilitate development of a global commodity market for natural gas and LNG.
Additionally, our Cameron LNG JV co-owners and customers compete globally to market and sell LNG to end users, including gas and electric utilities located in LNG-importing countries around the world. By providing liquefaction services, Cameron LNG JV competes indirectly with liquefaction projects currently operating and those under development in the global LNG market. In addition to the U.S., these competitors are located in the Middle East, Southeast Asia, Africa, South America, Australia and Europe.
Sempra LNG’s pipeline business competes with other regulated and unregulated pipelines, primarily on the basis of price (in terms of transportation fees), available capacity and interconnections to downstream markets.
Discontinued Operations
In January 2019,We completed the sales of our board of directors approved a plan to sellequity interests in our Peruvian businesses in April 2020 and our Chilean businesses in June 2020. These South American businesses. These businesses included our former 100% interest in Chilquinta Energía (an electric distribution utility in Chile), our former 83.6% interest in Luz del Sur (an electric distribution utility in Peru) and our former interests in two energy-services companies, Tecnored and Tecsur, which provide electric construction and infrastructure services to Chilquinta Energía and Luz del Sur, respectively, as well as third parties. These businesses and certain activities associated with these businesses are presented as discontinued operations in this report. We completed the sales of our equity interests in our Peruvian businesses in April 2020 and our Chilean businesses in June 2020.
We provide further information about discontinued operations in Note 5 of the Notes to Consolidated Financial Statements.
REGULATION
We discuss the material effects of compliance with all government regulations, including environmental regulations, on our capital expenditures, earnings and competitive position in “Part II – Item 7. MD&A” and Note 16 of the Notes to Consolidated Financial Statements.
Utility Regulation
California
The California UtilitiesSDG&E and SoCalGas are principally regulated at the state level by the CPUC, CEC and CARB.
The CPUC:
▪consists of five commissioners appointed by the Governor of California for staggered, six-year terms;
▪regulates, among other things, SDG&E’s and SoCalGas’ customer rates and conditions of service, sales of securities, rates of return, capital structure, rates of depreciation, and long-term resource procurement, except as described below in “U.S. Federal;”
▪has jurisdiction over the proposed construction of major new electric generation, transmission and distribution, and natural gas storage, transmission and distribution facilities in California;
▪conducts reviews and audits of utility performance and compliance with regulatory guidelines and conducts investigations related to various matters, such as safety, reliability and planning, deregulation, competition and the environment; and
▪regulates the interactions and transactions of the California UtilitiesSDG&E and SoCalGas with Sempra Energy and its other affiliates.
The CPUC also oversees and regulates other energy-related products and services, including solar and wind energy, bioenergy, alternative energy storage and other forms of renewable energy. In addition, the CPUC’s safety and enforcement role includes inspections, investigations and penalty and citation processes for safety and other violations.
The CEC publishes electric demand forecasts for the state and for specific service territories. Based on these forecasts, the CEC:
▪determines the need for additional energy sources and conservation programs;
▪sponsors alternative-energy research and development projects;
▪promotes energy conservation programs to reduce demand for natural gas and electricity within California;
▪maintains a statewide plan of action in case of energy shortages; and
▪certifies power-plant sites and related facilities within California.
The CEC conducts a 20-year forecast of available supplies and prices for every market sector that consumes natural gas in California. This forecast includes resource evaluation, pipeline capacity needs, natural gas demand and wellhead prices, and costs of transportation and distribution. This analysis is one of many resource materials used to support the California Utilities’SDG&E’s and SoCalGas’ long-term investment decisions.
California requires certain of its electric retail sellers, including SDG&E, to deliver a significant percentage of their retail energy sales from renewable energy sources. The rules governing this requirement, administered by both the CPUC and the CEC, are generally known as the RPS Program.
AB 32, the California Global Warming Solutions Act of 2006, assigns responsibility to CARB for monitoring and establishing policies for reducing GHG emissions. The law requires CARB to develop and adopt a comprehensive plan for achieving real, quantifiable and cost-effective GHG emissions reductions, including a statewide GHG emissions cap, mandatory reporting rules, and regulatory and market mechanisms to achieve reductions of GHG emissions. CARB is a department within the California Environmental Protection Agency, an organization that reports directly to the Governor’s Office. Sempra LNG and Sempra Mexico areInfrastructure is also subject to the rules and regulations of CARB.
The operation and maintenance of SoCalGas’ natural gas storage facilities are regulated by CalGEM and the CPUC, as well as various other state and local agencies.
Texas
Oncor’s and Sharyland Utilities’ rates are regulated at the state level by the PUCT and, in the case of Oncor, at the city level by certain cities. The PUCT has original jurisdiction over electricwholesale transmission rates and distributionservices and retail rates and services in unincorporated areas and in those municipalities that have ceded original jurisdiction to the PUCT, and has exclusive appellate jurisdiction to review the retail rate and service orders and ordinances of municipalities. Generally, the Texas PURA prohibits the collection of any rates or charges by a public utility (as defined by PURA) that do not have the prior approval of the appropriate regulatory authority (i.e., the PUCT or the municipality with original jurisdiction).
At the state level, PURA requires utility owners or operators of electric transmission facilities to provide open-access wholesale transmission services to third parties at rates and terms that are nondiscriminatory and comparable to the rates and terms of the utility’s own use of its system. The PUCT has adopted rules implementing the state open-access requirements for all utilities that are subject to the PUCT’s jurisdiction over electric transmission services, including Oncor.
U.S. Federal
The California UtilitiesSDG&E and SoCalGas are also regulated at the federal level by the FERC, the NRC, the EPA, the DOE and the DOT.DOT, and for SDG&E the NRC.
The FERC regulates the California Utilities’SDG&E’s and SoCalGas’ interstate sale and transportation of natural gas. In the case of SDG&E, theThe FERC also regulates theSDG&E’s transmission and wholesale sales of electricity in interstate commerce, transmission access, rates of return on transmission investment, rates of depreciation, electric rates involving sales for resale and the application of the uniform system of accounts. The U.S. Energy Policy Act governs procedures for requests for electric transmission service. The California IOUs’ electric transmission facilities are under the operational control of the California ISO. As member utilities, Oncor and Sharyland Utilities operate within the ERCOT market, which we discuss below. To a small degree related to limited interconnections to other markets, Oncor’s electric transmission revenues are provided under tariffs approved by the FERC.
The NRC oversees the licensing, construction, operation and decommissioning of nuclear facilities in the U.S., including SONGS, in which SDG&E owns a 20% interest and which was permanently retired in 2013. The NRC and various state regulations require extensive review of the safety, radiological and environmental aspects of these facilities. We provide further discussion of SONGS matters, including the closure and decommissioning of the facility, in Note 15 of the Notes to Consolidated Financial Statements.
The EPA implements federal laws to protect human health and the environment, including federal laws on air quality, water quality, wastewater discharge, solid waste management, and hazardous waste disposal and remediation. The EPA also sets national environmental standards that state and tribal governments implement through their own regulations. The California Utilities,SDG&E, SoCalGas, Oncor and Sharyland Utilities are therefore subject to an interrelated framework of environmental laws and regulations.
The DOT, through PHMSA, has established regulations regarding engineering standards and operating procedures, including procedures intended to manage cybersecurity risks, applicable to the California Utilities’SDG&E’s and SoCalGas’ natural gas transmission and distribution pipelines, as well as natural gas storage facilities. The DOT has certified the CPUC to administer oversight and compliance with these regulations for the entities they regulate in California.
ERCOT Market
As member utilities, Oncor and Sharyland Utilities operate within the ERCOT market, which represents approximately 90% of the electricity consumption in Texas. ERCOT is the regional reliability coordinating organization for member electricity systems in Texas and the ISO of the interconnected transmission grid for those systems. ERCOT is subject to oversight by the PUCT and the Texas Legislature. ERCOT is responsible for ensuring reliability, adequacy and security of the electric systems, as well as nondiscriminatory access to transmission service by all wholesale market participants, in the ERCOT region. ERCOT’s membership consists of corporate and associate members, including electric cooperatives, municipal power agencies, independent generators, independent power marketers, transmission service providers, distribution services providers, independent retail electric providers and consumers.
The PUCT has primary jurisdiction over the ERCOT market to ensure the adequacy and reliability of power supply across Texas’ main interconnected electric transmission grid. Oncor and Sharyland Utilities, along with other owners of electric transmission and distribution facilities in Texas, assistparticipate with the ERCOT ISO and other member utilities in its operations. Each of these Texas utilities has planning, design, construction, operation and maintenance responsibility for the portion of the transmission grid and for the load-serving substations it owns, primarily within its certificated distribution service area. Each participates with the ERCOT ISO and other ERCOT utilities in obtaining regulatory approvals and planning, designing, constructing and upgrading transmission lines in order to remove any existing constraints and interconnect energy generation on the ERCOT transmission grid. These transmission line projects are necessary to meet reliability needs, support energy production and increase bulk power transfer capability.
Oncor and Sharyland Utilities are subject to reliability standards adopted and enforced by the Texas Reliability Entity, Inc., an independent organization that develops reliability standards for the ERCOT region and monitors and enforces compliance with the standards of the North American Electric Reliability Corporation, including critical infrastructure protection, and ERCOT protocols.
Other U.S. State and Local Territories Regulation
The SCAQMDSouth Coast Air Quality Management District is the air pollution control agency responsible for regulating stationary sources of air pollution in the South Coast Air Basin in Southern California. The district’s territory covers all of Orange County and the urban portions of Los Angeles, San Bernardino and Riverside counties.
SDG&E has electric franchises with the two counties and the 27 cities in or adjoining its electric service territory, and natural gas franchises with the one county and the 18 cities in its natural gas service territory. These franchises allow SDG&E to locate, operate and maintain facilities for the transmission and distribution of natural gas and/or electricity. Most of the franchises have indefinite lives with no expiration dates. Some of SDG&E’s natural gas and electric franchises have fixed expiration dates that range from 20212028 to 2035, including its franchise agreements with2035. In June 2021, the City of San Diego which was scheduledapproved ordinances granting to expire in January 2021. SDG&E participated in the City’s competitive bid process for the franchises, which the City subsequently canceled. In December 2020, the City of San Diego and SDG&E agreed to extend the natural gas and electric franchises until June 1, 2021.for the city. These franchise agreements provide SDG&E the opportunity to serve the City of San Diego for the next 20 years, consisting of 10-year agreements that will automatically renew for an additional 10 years unless the City Council voids the automatic renewal with a supermajority vote. The extension is intended to provide newly elected City officials time to seek public input and additional information. The City has announced its plans to start a new competitive bid processagreements went into effect in the first quarter ofJuly 2021.
SoCalGas has natural gas franchises with the 12 counties and the 223 cities in its service territory. These franchises allow SoCalGas to locate, operate and maintain facilities for the transmission and distribution of natural gas. Most of the franchises have indefinite lives with no expiration date. Some franchises have fixed expiration dates, ranging from 20212023 to 2069, including its franchise agreements with the City of Los Angeles and Los Angeles County franchise, which areis scheduled to expire in December 2021 and June 2023, respectively.2023.
Other U.S. Regulation
The FERC regulates certain Sempra LNGInfrastructure assets pursuant to the U.S. Federal Power Act and Natural Gas Act, which provide for FERC jurisdiction over, among other things, sales of wholesale power in interstate commerce, transportation of natural gas in interstate commerce, and siting and permitting of LNG facilities.
The FERC may regulate rates and terms of service based on a cost-of-service approach or, in geographic and product markets determined by the FERC to be sufficiently competitive, rates may be market-based. FERC-regulated rates at Sempra LNG are:
▪Infrastructure are market-based for wholesale electricity sales;
▪sales, cost-based for the transportation of natural gas;gas, and
▪market-based for the purchase and sale of LNG and natural gas.
Sempra LNG’sInfrastructure’s investment in Cameron LNG JV is subject to regulations of the DOE regarding the export of LNG. Sempra LNG’sInfrastructure’s other potential natural gas liquefaction export projects would, if completed, be subject to similar regulation.
The California Utilities, Sempra LNGSDG&E and SoCalGas and businesses that Sempra LNGInfrastructure invests in are subject to the DOT rules and regulations regarding pipeline safety. PHMSA, acting through the Office of Pipeline Safety, is responsible for administering the DOT’s national regulatory program to help ensure the safe transportation of natural gas, petroleum and other hazardous materials by pipelines, including pipelines associated with natural gas storage, and develops regulations and other approaches to risk management to help ensure safety in design, construction, testing, operation, maintenance and emergency response of pipeline facilities. The California Utilities, Sempra LNGSDG&E, SoCalGas and Sempra MexicoInfrastructure are also subject to regulation by the U.S. Commodity Futures Trading Commission.
Foreign Regulation
Operations and projects in our Sempra MexicoInfrastructure segment are subject to regulation by the CRE, the Mexican Safety, Energy and Environment Agency (Agencia de Seguridad, Energía y Ambiente), SENER, the Mexican Ministry of Environment and Natural Resources of Mexico (Secretaría del Medio Ambiente y Recursos Naturales), and other labor and environmental agencies of city, state and federal governments in Mexico. New energy infrastructure projects may also require a favorable opinion from COFECEComisión Federal de Competencia Económica (Mexico’s Competition Commission) in order to be constructed and operated.
Licenses and Permits
Our utilities in California and Texas obtain numerous permits, authorizations and licenses for, as applicable, the transmission and distribution of natural gas and electricity and the operation and construction of related assets, including electric generation and natural gas storage facilities, some of which may require periodic renewal.
Sempra MexicoInfrastructure obtains numerous permits, authorizations and licenses for its electric and natural gas distribution, generation and transmission systems from the local governments where these services are provided. The permits for generation, transportation, storage and distribution operations at Sempra MexicoInfrastructure are generally for 30-year terms, with options for renewal under certain regulatory conditions.
Sempra Mexico and Sempra LNG obtainInfrastructure obtains licenses and permits for the construction, operation and expansion of LNG facilities and for the import and export of LNG and natural gas. Sempra MexicoInfrastructure also obtains licenses and permits for the construction and operation of facilities for the receipt, storage and delivery of liquid fuels.
Sempra LNGInfrastructure obtains permits, authorizations and licenses for the construction and operation of natural gas storage facilities and pipelines, and in connection with participation in the wholesale electricity market.
Most of the permits and licenses associated with Sempra LNG’sInfrastructure’s construction and operations are for periods generally in alignment with the construction cycle or expected useful life of the asset and in many cases are greater than 20 years.
RATEMAKING MECHANISMS
SempraCalifornia Utilities
General Rate Case Proceedings
A CPUC GRC proceeding is designed to set sufficient base rates to allow the California UtilitiesSDG&E and SoCalGas to recover their reasonable forecasted operating costs and to provide the opportunity to realize their authorized rates of return on theirits investment. The proceeding generally establishes the test year revenue requirements, which authorizes how much the California UtilitiesSDG&E and SoCalGas can collect from their customers, and provides for attrition, or annual increases in revenue requirements, for each year following the test year.
We discuss the GRC in Note 4 of the Notes to Consolidated Financial Statements.
Cost of Capital Proceedings
A CPUC cost of capital proceeding determines a utility’s authorized capital structure and authorized return on rate base, which is a weighted-average of the authorized returns on debt, preferred stockequity and common equity (referred to as return on equity or ROE), weighted on a basis consistent with the authorized capital structure. The authorized return on rate base approved by the CPUC is the rate that the California UtilitiesSDG&E and SoCalGas use to establish customer rates to finance investments in CPUC-regulated electric distribution and generation, natural gas distribution, transmission and storage assets, as well as general plant and information technology systems investments to support operations.
A cost of capital proceeding also addresses the CCM, which applies in interim years between cost of capital proceedings and considers changes in the cost of capital based on changes in interest rates based on the applicable 12-month average Moody’s utility bond index. The index applicable to each utility is based on each utility’s credit rating. The CCM was reauthorized in the 2020 cost of capital proceeding and will continue through 2022, after which the CCM is subject to reauthorization in the next cost of capital proceeding. The CCM benchmark rates for SDG&E and SoCalGas are the basis of comparison to determine if future measurement periods “trigger” the CCM. The trigger occurs if the change in the applicable average Moody’s utility bond index relative to the CCM benchmark is larger than plus or minus 100 bps. The CCM, if triggered, would automatically update the authorized cost of debt based on actual costs and update the authorized ROE upward or downward by one-half of the difference between the CCM benchmark and the applicable 12-month average Moody’s utility bond index. Inindex, unless the CPUC accepts a utility’s interim application to have its cost of capital assessed between regular cost of capital proceedings based on an extraordinary or catastrophic event that materially impacts the utility’s cost of capital and affects utilities differently than the market as a CCM triggerwhole. SDG&E filed such an interim application in August 2021 due to the CCM benchmark is also reestablished, and these adjustments would become effective in authorized rates on January 1, 2022.ongoing effects of the COVID-19 pandemic.
We discuss the cost of capital and CCM in Note 4 of the Notes to Consolidated Financial Statements and in “Part I – Item 1A. Risk Factors.”
Transmission Rate Cases
SDG&E files separately with the FERC for its authorized ROE on FERC-regulated electric transmission operations and assets. The proceeding establishes a ROE and a formulaic rate whereby rates are determined using (1) a base period of historical costs and a forecast of capital investments, and (2) a true-up period, similar to balancing account treatment, that is designed to provide earnings equal to SDG&E’s actual cost of service including its authorized return on investment. SDG&E makes annual information filings with the FERC in December to update rates for the following calendar year. SDG&E may also file for ROE incentives that might apply under FERC rules. SDG&E’s debt-to-equity ratio is set annually based on the actual ratio at the end of each year.
We discuss SDG&E’s TO5 filing with the FERC in Note 4 of the Notes to Consolidated Financial Statements.
Incentive Mechanisms
The CPUC applies certain performance-based measures and incentive mechanisms to all California IOUs, under which the California UtilitiesSDG&E and SoCalGas have earnings potential above authorized CPUC base operating margin if they achieve or exceed specific performance and operating goals. Generally, for performance-based awards,measures, if performance is above or below specific benchmarks, the utility is eligible for financial awards or subject to financial penalties.
Other Cost-Based Recovery
The CPUC, and the FERC as it relates to SDG&E, authorize the California UtilitiesSDG&E and SoCalGas to collect revenue requirements from customers for operating costs and capital related costs (such as depreciation, taxes and return on rate base), including:
▪costs to purchase natural gas and electricity;
▪costs associated with administering public purpose, demand response, and customer energy efficiency programs;
▪other programmatic activities, such as gas distribution, gas transmission, gas storage integrity management and wildfire mitigation; and
▪costs associated with third-party liability insurance premiums.
Authorized costs are recovered as the commodity or service is delivered. To the extent authorized amounts collected vary from actual costs, the differences are generally recovered or refunded within a subsequent period based on the nature of the balancing account mechanism. In general, the revenue recognition criteria for balanced costs billed to customers are met at the time the costs are incurred. Because these costs are substantially recovered in rates through a balancing account mechanism, changes in these costs are reflected as changes in revenues. The CPUC and the FERC may impose various review procedures before authorizing recovery or refund for programs authorized, including limitations on the total cost of the program, revenue requirement limits or reviews of costs for reasonableness. These procedures could result in disallowances of recovery from ratepayers.
Sempra Texas Utilities
Rates and Cost Recovery
Oncor’s and Sharyland Utilities’ rates are each regulated at the state level by the PUCT and, in the case of Oncor, at the city level by certain cities, and are subject to regulatory rate-setting processes and annual earnings oversight. This regulatory treatment does not provide any assurance as to achievement of earnings levels.levels or recovery of actual costs. Instead, their rates are regulated based on an analysis of each utility’s costs and capital structure in a designated test year, as reviewed and approved in regulatory proceedings. Rate regulation is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. However, there is no assurance that the PUCT will judge all of the Texas utilities’ costs to have been prudently incurred and therefore fully recoverable. The approved levels of recovery could be significantly less than requested levels. There can also be no assurance that the PUCT will not reduce the amount of invested capital includedapprove other items proposed in the capital structure upon which the Texas utilities’ rates are based,any rate proceeding or that the regulatory process in which rates are determined will necessarily result in rates that produce full recovery of the Texas utilities’ actual post-test year costs and/or that their authorized ROE will not be reduced.the return on invested capital allowed by the PUCT.
The PURA allowsPUCT’s substantive rules allow Texas electric utilities providing wholesale or retail distribution service to file, under certain circumstances, once per year and up to four rate adjustments between comprehensive base rate proceedings to recover distribution-related investments on an interim basis. The PUCT’s substantive rules also allow the Texas utilities to update their transmission rates periodically on an interim basis to reflect changes in invested capital. These “capital tracker” provisions are intended to encourage investment in the electric system to help ensure reliability and efficiency by allowing for timely recovery of and return on new transmission and distribution investments.
Capital Structure and Return on Equity
Oncor has a PUCT-authorized ROE of 9.8% and an authorized regulatory capital structure of 57.5% debt to 42.5% equity. On May 10, 2021, Oncor filed an application with the PUCT requesting to extend its base rate review filing deadline from October 1, 2021 to June 1, 2022. On July 29, 2021, the PUCT approved an order granting the extension. As a result, Oncor’s next base rate review must be filed on or before June 1, 2022.
Sharyland Utilities’ PUCT-authorized ROE is 9.7%9.38% and its authorized regulatory capital structure is 55% debt to 45% equity. Sharyland Utilities filed its 2020 rate case with the PUCT in December 2020. Oncor is required to file a base rate review2020 and received PUCT approval on or before October 1,July 15, 2021.
Sempra MexicoInfrastructure
Ecogas’ revenues are derived from service and distribution fees charged to its customers in Mexican pesos. The price Ecogas pays to purchase natural gas, which is based on international price indices, is passed through directly to its customers. The service and distribution fees charged by Ecogas are regulated by the CRE, which performs a review of rates every five years and monitors prices charged to end-users. In the fourth quarter of 2020, Ecogas filed its rate case for the period 2021 through 2025. Ecogas expects to receive a decision in 2021.the first half of 2022. The tariffs operate under a return-on-asset-base model. In the annual tariff adjustment, rates are adjusted to account for inflation or fluctuations in exchange rates, and inflation indexing includes separate U.S. and Mexican cost components so that U.S. costs can be included in the final distribution rates.
ENVIRONMENTAL MATTERS
We discuss environmental issues affecting us in Note 16 of the Notes to Consolidated Financial Statements and “Part I – Item 1A. Risk Factors.” You should read the following additional information in conjunction with those discussions.
Hazardous Substances
The CPUC’s Hazardous Waste Collaborative mechanism allows California’s IOUs to recover hazardous waste cleanup costs for certain sites, including those related to certain Superfund sites. This mechanism permits the California UtilitiesSDG&E and SoCalGas to recover in rates 90% of hazardous waste cleanup costs and related third-party litigation costs, and 70% of related insurance-litigation expenses. In addition, the California UtilitiesSDG&E and SoCalGas have the opportunity to retain a percentage of any recoveries from insurance carriers and other third parties to offset the cleanup and associated litigation costs not recovered in rates.
We record estimated liabilities for environmental remediation when amounts are probable and estimable. In addition, we record amounts authorized to be recovered in rates under the Hazardous Waste Collaborative mechanism as regulatory assets.
Air and Water Quality
The natural gas and electric industries are subject to increasingly stringent air quality and GHG emissions standards, such as those established by CARB and SCAQMD. The California Utilitiesthe South Coast Air Quality Management District. SDG&E and SoCalGas generally recover in rates the costs to comply with these standards. We discuss GHG emissions standards and credits further in Note 1 of the Notes to Consolidated Financial Statements.
We discuss environmental matters concerning the Leak in Note 16 of the Notes to Consolidated Financial Statements and in “Part I – Item 1A. Risk Factors.”
OTHER MATTERS
Information About Our Executive Officers
| | | | | | | | | | | |
INFORMATION ABOUT EXECUTIVE OFFICERS AT SEMPRA ENERGY | |
| | | |
Name | Age(1) | Positions held over last five years | Time in position |
Jeffrey W. Martin | 5960 | Chairman | December 2018 to present |
| | Chief Executive Officer | May 2018 to present |
| | President | March 2020 to present |
| | Executive Vice President and Chief Financial Officer | January 2017 to AprilMay 2018 |
| | Chairman, SDG&E | November 2015 to December 2016 |
| | President, SDG&E | October 2015 to December 2016 |
| | Chief Executive Officer, SDG&E | January 2014 to December 2016 |
| | | |
Kevin C. Sagara | 5960 | Executive Vice President and Group President | June 2020 to present |
| | Chief Executive Officer, SDG&E | September 2018 to June 2020 |
| | President, Sempra Renewables | October 2013 to September 2018 |
| | | |
Trevor I. Mihalik | 5455 | Executive Vice President and Chief Financial Officer | May 2018 to present |
| | Senior Vice President | December 2013 to April 2018 |
| | Controller and Chief Accounting Officer | July 2012 to April 2018 |
| | | |
Peter R. Wall | 4950 | Senior Vice President | April 2020 to present |
| | Controller and Chief Accounting Officer | May 2018 to present |
| | Vice President | May 2018 to April 2020 |
| | Vice President and Chief Financial Officer, Sempra Infrastructure | January 2017 to April 2018 |
| | | |
Karen L. Sedgwick | 55 | Chief Administrative Officer and Chief Human Resources Officer | December 2021 to present |
| | Senior Vice President and Chief FinancialHuman Resources Officer Sempra U.S. Gas & Power | March 2015September 2020 to December 20162021 |
| | Chief Human Resources Officer and Chief Administrative Officer, SDG&E | April 2019 to September 2020 |
| | Vice President and Treasurer | August 2018 to April 2019 |
| | Vice President, Audit Services | January 2014 to August 2018 |
(1) Ages are as of February 25, 2021.2022.
| | | | | | | | | | | |
INFORMATION ABOUT EXECUTIVE OFFICERS AT SDG&E | |
| | | |
Name | Age(1) | Positions held over last five years | Time in position |
Caroline A. Winn | 5758 | Chief Executive Officer | August 2020 to present |
| | Chief Operating Officer | January 2017 to July 2020 |
| | Chief Energy Delivery Officer | June 2015 to December 2016 |
| | | |
Bruce A. Folkmann | 5354 | President | August 2020 to present |
| | Chief Financial Officer | March 2015 to present |
| | Senior Vice President | August 2019 to July 2020 |
| | Controller, Chief Accounting Officer and Treasurer | March 2015 to August 2020 |
| | Vice President | March 2015 to August 2019 |
| | Vice President, Controller, Chief Financial Officer, Chief Accounting Officer and Treasurer, SoCalGas | March 2015 to June 2019 |
| | | |
Valerie A. Bille | 4243 | Vice President, Controller, Chief Accounting Officer and Treasurer | August 2020 to present |
| | Assistant Controller, Sempra Energy | June 2019 to August 2020 |
| | Assistant Controller | June 2018 to June 2019 |
| | Director, Utility Financial Reporting | June 2017 to June 2018 |
| | Director, Financial Systems and Business Controls | August 2015 to June 2017 |
| | | |
Diana L. Day | 5657 | Senior Vice President and General Counsel | August 2020 to present |
| | Chief Risk Officer | August 2019 to present |
| | Vice President and General Counsel | January 2019 to August 2020 |
| | Acting General Counsel | September 2017 to January 2019 |
| | Vice President of Enterprise Risk Management and Compliance, SDG&E and SoCalGas | June 2014 to January 2019 |
(1) Ages are as of February 25, 2021.2022.
| | | | | | | | | | | |
INFORMATION ABOUT EXECUTIVE OFFICERS AT SOCALGAS | |
| | | |
Name | Age(1) | Positions held over last five years | Time in position |
Scott D. Drury | 5556 | Chief Executive Officer | August 2020 to present |
| | President, SDG&E | January 2017 to July 2020 |
| | Chief Energy Supply Officer, SDG&E | June 2015 to December 2016 |
| | | |
Maryam S. Brown | 4546 | President | March 2019 to present |
| | Vice President of Federal Government Affairs, Sempra Energy | September 2016 to March 2019 |
| | Senior Energy and Environment Counsel, Office of the Speaker of the U.S. House of Representatives | December 2012 to September 2016 |
| | | |
Jimmie I. Cho | 5657 | Chief Operating Officer | January 2019 to present |
| | Senior Vice President of Customer Services and Gas Distribution Operations | April 2018 to January 2019 |
| | Senior Vice President of Gas Distribution Operations, SDG&E | April 2018 to January 2019 |
| | Senior Vice President of Gas Engineering and Distribution Operations, SoCalGas and SDG&E | October 2017 to April 2018 |
| | Senior Vice President of Gas Operations and System Integrity, SoCalGas and SDG&E | June 2014 to October 2017 |
| | | |
Mia L. DeMontigny | 4849 | Vice President and Chief Financial Officer, Controller, Chief Accounting Officer and Treasurer | June 2019 to present |
| | Vice President | June 2019 to August 2021 |
| | Assistant Controller, Sempra Energy | August 2015 to June 2019 |
| | | |
David J. Barrett | 5657 | Vice President and General Counsel | January 2019 to present |
| | Associate General Counsel of Gas Infrastructure, Sempra Energy | June 2018 to January 2019 |
| | Assistant General Counsel of Gas Infrastructure, Sempra Energy | February 2017 to June 2018 |
| | Assistant General Counsel of Real Estate and Environmental, SDG&E | October 2010 to February 2017 |
| | | |
Jeffery L. Walker | 6061 | Senior Vice President, Chief Administrative and Diversity Officer | November 2020 to present |
| | Vice President, Customer Solutions | March 2019 to November 2020 |
| | Director of Special Projects | January 2019 to March 2019 |
| | Director, SoCalGas Advanced Meter | January 2014 to January 2019 |
(1) Ages are as of February 25, 2021.2022.
Human Capital
Our ability to advance our mission to be North America’s premier energy infrastructure company largely depends on the safety, engagement, and responsible actions of our employees.
Safety is foundational at Sempra Energy and its subsidiaries. We strive to foster a strong safety culture and reinforce this culture through training programs, benchmarking, review and analysis of safety trends, and sharing lessons learned from safety incidents across our businesses. Our businesses also engage in safety-related scenario planning and simulation, develop and implement operational contingency plans, and review safety plans and procedures with work crews regularly. We also participate in emergency planning and preparedness in the communities we serve and train critical employees in emergency management and response each year. The Safety, Sustainability and Technology committee of the Sempra Energy board of directors assists the board in overseeing the corporation’s oversight programs and performance related to safety.safety, and our executives’ annual incentive compensation is based in part on safety metrics established by the Compensation and Talent Development Committee of the Sempra board of directors.
Our overall culture is another important aspect of our ability to advance our mission. We embrace diversity in our workforce and strive to create a high-performing, inclusive and supportive workplace where employees of all backgrounds and experiences can feel valued and respected. We invest in recruiting, developing and retaining high-potential employees who represent the communities we serve, and we provide a range of programs to advance those objectives, including internal and external mentoring and leadership training, workshops and a tuition reimbursement program. We also invest in internal communications programs, including in-person and virtual learning and networking opportunities as well as regular executive communications. In addition, we offer a variety of in-person and virtual employee community service opportunities and, at our U.S. operations, we support employees’ personal volunteering and charitable giving through Sempra Energy’sSempra’s charitable matching program. Employees participate in annual ethics and compliance training, each year, which includes a review of Sempra Energy’sSempra’s Code of Conduct as well as resources such as the Sempra Energy’sSempra’s ethics and compliance hotline. We measure culture and employee engagement
through a variety of channels including pulse surveys, suggestion boxes and a biannual engagement survey administered by a third party. Sempra Energy’sSempra’s board of directors is chartered with overseeing our culture.
The table below shows the number of employees for each of our registrants at December 31, 2020,2021, as well as the percentage of those employees represented by labor unions under various collective bargaining agreements that generally cover wages, benefits, working conditions and other terms and conditions of employment. We did not experience any major work stoppages in 20202021 and we maintain constructive relations with our labor unions.
| NUMBER OF EMPLOYEES | NUMBER OF EMPLOYEES | NUMBER OF EMPLOYEES |
| | | Number of employees | | % of employees covered under collective bargaining agreements | | % of employees covered under collective bargaining agreements expiring within one year | | Number of employees | | % of employees covered under collective bargaining agreements | | % of employees covered under collective bargaining agreements expiring within one year |
Sempra Energy Consolidated(1) | 14,706 | | | 41 | % | | 32 | % | |
Sempra(1) | | Sempra(1) | 15,390 | | | 37 | % | | 9 | % |
SDG&E | SDG&E | 4,595 | | | 29 | % | | — | % | SDG&E | 4,676 | | | 30 | % | | 30 | % |
SoCalGas | SoCalGas | 7,851 | | | 59 | % | | 59 | % | SoCalGas | 8,178 | | | 53 | % | | — | % |
(1) Excludes employees of equity method investees.
COMPANY WEBSITES
Company website addresses are:
▪Sempra Energy – www.sempra.com
▪SDG&E – www.sdge.com
▪SoCalGas – www.socalgas.com
We make available free of charge on the Sempra Energy website, and for SDG&E and SoCalGas, via a hyperlink on their websites, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.
The references to our websites in this report are not active hyperlinks and the information contained on, or that can be accessed through, the websites of Sempra, Energy, SDG&E and SoCalGas is not part of this report or any other report that we file with or furnish to the SEC and is not incorporated herein by reference.
ITEM 1A. RISK FACTORS
When evaluating our company and its subsidiaries and any investment in our or their securities, you should carefully consider carefully the following risk factors and all other information contained in this report and in the other documents we file with the SEC, including in documents we file subsequent to this report. These risk factors could materially adversely affect our actual results and cause such results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. We also may also be materially harmed by risks and uncertainties not currently known to us or that we currently deem to beconsider immaterial. If any of these risks occurs, our businesses, cash flows, results of operations, financial condition, cash flows and/or prospects could be materially adversely affected, our actual results could differ materially from those expressed in any forward-looking statements made by us or on our behalf, and the trading pricesprice of our securities and those of our subsidiaries could substantially decline. These risk factors are not prioritized in order of importance or materiality, and they should be read in conjunction with the other information concerning our company set forth in or attached as an exhibit to this report, including among other things, the information set forth in the Consolidated Financial Statements and in “Part II – Item 7. MD&A.”
Risks Related to Sempra EnergyRISKS RELATED TO SEMPRA
Operational and Structural Risks
Sempra Energy’sSempra’s cash flows, ability to pay dividends and ability to meet its debt obligations largely depend on the performance of its subsidiaries and entities that are accounted for as equity method investments, such as Oncor Holdings and Cameron LNG JV.investments.
We are a holding company and substantially all our assets are owned by our subsidiaries or entities we do not control, which includeincluding equity method investments such as Oncor Holdings and Cameron LNG JV.investments. Our ability to pay dividends and to meet our debt and other obligations largely depends on cash flows from our subsidiaries and equity method investments. Cash flows from our subsidiaries and equity method investments, which in turn depend on their ability to successfully execute their business strategies and generate cash flows in excess of their own expenditures, common and preferred dividends (if any), and debt and other obligations. In addition, the entities accounted for as equity method investments, which we do not control, and our subsidiaries are all separate and distinct legal entities that are not obligated to pay dividends or make loans or distributions to us and could be precluded from paying any such dividends or making any such loans or distributions under certain circumstances, including, among other things, as a result ofdoing so by legislation, regulation, court order or contractual restrictions, or in times of financial distress.distress or in other circumstances. The inability to access capital from our subsidiaries and entities accounted for as equity method investments could have a material adverse effect on our results of operations, financial condition, cash flows financial condition and/or prospects.
Sempra Energy’sSempra’s rights to the assets of its subsidiaries and equity method investments are structurally subordinated to the claims of thateach entity’s creditors, including trade and other creditors. In addition, to the extentif Sempra Energy is a creditor of any such entity, its rights as a creditor would be effectively subordinated to any security interest in the entity’s assets of that entity and any indebtedness of the entity senior to that held by Sempra. Sempra Energy.may elect to make capital contributions to its subsidiaries. Unlike a loan, there is no obligation for a subsidiary to repay a capital contribution to its parent, which cannot be accessed by the parent and becomes structurally subordinated to claims by creditors of the applicable subsidiary.
Sempra Energy has substantial investments in and obligations arising from businesses that it does not control or manage or in which it shares control.
We have and make investments in entities thatbusinesses we do not control or manage or in which we share control, which include Sempra Energy’s direct or indirectincluding as a result of sales of a portion of our ownership interest in Oncor, Cameron LNG JV and RBS Sempra Commodities; SDG&E’s interest in SONGS; and IEnova’s indirect interest in the Sur de Texas-Tuxpan natural gas marine pipeline in Mexico, among others.some of our businesses. In some cases, we engage in other arrangements with or for these entitiesbusinesses that could expose us to risks in addition to our investment.investment, including guarantees, indemnities and loans. For example, Sempra Energy has provided guarantees in support of financing agreements related to Cameron LNG JV, Sempra Energy is subject to certain indemnities with respect to RBS Sempra Commodities, and Sempra Mexico has provided loans to JVs in which it has investments. We discuss the guarantees in Note 6, indemnities in Note 16, and affiliate loans in Note 1 of the Notes to Consolidated Financial Statements.
Where we share control with other equity owners, any disagreements among the owners of these businesses with respect to material issues, including strategy, financial, operational or transactional matters, could have a material adverse effect on the ability of that business to move forward with key initiatives or projects or take other actions, and could also negatively affect the long-term relationships among the business owners and the ability of the entity to function efficiently and effectively. Any such circumstance could materially adversely affect our business, financial condition, cash flows, result of operations and/or prospects.
With respect to ventures and other businesses over which we do not exercise control, we are subject to the decisions of others, which may not always be in our interest and could negatively affect us. In addition, irrespective of whether or not we control these businesses, we could be responsible for significant liabilities or losses related to the businesses or elect to make capital contributions to these businesses such as our investment in RBS Sempra Commodities where we recorded $100 million in equity losses representing our estimated obligations to settle outstanding tax matters and related legal costs, and where we could be subject to further losses upon final resolutionduring times of these matters. In addition to other risks inherent in these businesses, if their management were to fail to perform adequately, the other investors in the businesses were unable or otherwise failed to perform their obligations to provide capital and credit support for these businesses, business decisions were made with which we do not agree or other factors were to result in liabilities or losses at these entities, itfinancial distress that could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects. We discuss ourthese investments further in Notes 5, 6 and 16 of the Notes to Consolidated Financial Statements.
When we share control of a business with other owners, any disagreements among the owners about strategy, financial, operational, transactional or other important matters could hinder the business from moving forward with key initiatives or taking other actions and could negatively affect the relationships among the owners and the efficient functioning of the business. Any such circumstance could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
Our business could be negatively affected as a result ofby actions of activist shareholders.
Activist shareholders may from time to time, engage in proxy solicitations, advance shareholder proposals or otherwise attempt to effect changes andin or assert influence on our board of directors and management. In taking these steps, activist shareholders could seek to acquire significant amounts of our capital stock, which in high volumes could threaten our ability to use some or all of our NOL carryforwards if any such attempt were to resultit results in our corporation undergoing an “ownership change” under applicable tax rules. Responding to activist shareholders wouldcould require us to incur significant legal and advisory fees, proxy solicitation expenses (in
the case of a proxy contest) and administrative and associated costs and require significant time and attention by our board of directors and management, diverting their attention from the pursuit of our business strategy.strategies.
Any perceived uncertainties as toabout our future direction andor control, our ability to execute on our strategy,strategies, or the composition of our board of directors or senior management team arising from a proxy contest or increased ownershipactivist shareholder attention or other interest in our company from activist shareholdersaction could lead to thea perception of instability or a change in the direction of our business, or instability, which could be exploited by our competitors and/or other activist shareholders, result in the loss of business opportunities, and make it more difficult to pursue our strategic initiatives or attract and retain qualified personnel and business partners, any of which could have a material adverse effect on our business, operating results of operations, financial condition, cash flows and/or prospects. Further, any such actions could cause significant fluctuations in the trading prices of our common stock, preferred stock and debt securities based on temporary or speculative market perceptions or other factors that may not reflect the underlying fundamentals and prospects of our business.factors.
Financial and Capital Stock-Related Risks
Any impairment of our assets or investments could negatively impact our consolidated results of operations and net worth.us.
We could experience a reduction in the fair value of our assets, including our long-lived assets, intangible assets or goodwill, and/or our investments that we account for under the equity method upon the occurrence of many of the risks discussed in these risk factors.factors and elsewhere in this report, including any closure of the Aliso Canyon natural gas storage facility without adequate cost recovery, any inability to operate our existing facilities or develop new projects in Mexico due to proposed changes to existing laws or regulations or other circumstances affecting the energy sector or our assets in that country, and more generally any loss of permits or approvals that requires us to adjust or cease certain operations and any investment in capital projects that do not receive required approvals or are changed, abandoned or otherwise not completed. Any such reduction in the fair value of our assets or investments could result in an impairment loss that could materially adversely affect our results of operations for the period in which suchthe charge is recorded. We discuss our impairment testing of long-lived assets and goodwill and the factors considered in such testing in “Part II – Item 7. MD&A – Critical Accounting Policies and Estimates” and in Note 1 of the Notes to Consolidated Financial Statements.
The economic interest, voting rights and market value of our outstanding common and preferred stock may be adversely affected by any additional equity securities we may issue and, with respect to our common stock, by our outstanding preferred stock.issue.
At February 25, 2021,18, 2022, we have 6,650,000 shares of preferred stock outstanding, 5,750,000 of which constitute our series B preferred stock and are scheduled to convert into315,653,893 shares of our common stock on July 15, 2021, and the remaining 900,000 shares of which constitute our non-convertible series C preferred stock and are not convertible. We also issued 13,781,025 shares of our common stock on January 15, 2021 upon the mandatory conversion of our former series A preferred stock in accordance with the terms of those securities.outstanding. We may seek to raise capital by issuing additional shares of commonequity or preferred stock,convertible debt securities, which together with the conversion of the series B preferred stock into our common stock, may materially dilute the voting rights and economic interests of holders of our outstanding common and preferred stock and materially adversely affect the trading price of our common and preferred stock.
Dividend requirements associated with our preferred stock subject us to certain risks.
Any future cash dividends we pay on our series B preferred stock and series C preferred stock will depend on, among other things, our financial condition, capital requirements and results of operations, the ability of our subsidiaries and equity method investees to distribute cash to us, and other factors that our board of directors may consider relevant. Any failure to pay scheduled dividends on our series C preferred stock when due would have a material adverse impact on the market price of our preferred stock, our common stock and our debt securities and would prohibit us, under the terms of ourthe preferred stock, from paying cash dividends on or repurchasing shares of our common stock (subject to limited exceptions) until such time as we have paid all accumulated and unpaid dividends on the preferred stock.
The Additionally, the terms of the series B preferred stock and series C preferred stock generally provide that if dividends on any shares of the preferred stock have not been declared and paid or have been declared but not paid for six or more quarterly dividend periods for the series B preferred stock and three or more semi-annual dividend periods, for the series C preferred stock, whether or not for consecutive, dividend periods, the holders of the preferred stock voting together as a single class, willwould be entitled to elect a total of two additional members to our board of directors, subject to certain terms and limitations.
Risks RelatedOur common stock is listed on the Mexican Stock Exchange and registered with the CNBV, which subjects us to Alladditional regulation and liability in Mexico.
In addition to being listed for trading on the NYSE, our common stock is listed for trading on the Mexican Stock Exchange and registered with the CNBV. Such listing and registration subjects us to filing and other requirements in Mexico that could increase costs and increase performance risk of personnel given additional responsibilities. In addition, the CNBV, as the Mexican securities market regulator, has the authority to make inspections of Sempra’s business, primarily in the form of requests for information and documents; impose fines or other penalties on Sempra Energy Businessesand its directors and officers for violations of Mexican
securities laws and regulations; and seek criminal liability for certain actions conducted or with effects in Mexico. The occurrence of any of these risks could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
RISKS RELATED TO ALL SEMPRA BUSINESSES
Operational Risks
Our businesses are subject to risks arising from their infrastructure and information systems.
Our businesses own and operate electric transmission, distribution and storage facilities, natural gas transmission, distribution, regasification, liquefaction and storage facilities and other energy infrastructure, which are, in many cases, interconnected and/or managed by information technology systems. Even though our businesses undertake capital investment projects to construct, replace, maintain, improve and upgrade their respective facilities and information systems, there is a risk of, among other things, potential breakdown or failure of equipment or processes due to aging infrastructure and systems; human error; shortages of or delays in obtaining equipment, materials or labor; operational restrictions resulting from environmental requirements or governmental interventions; inability to enter into, maintain, extend or replace long-term supply contracts; and performance below expected levels, and these risks could be amplified while capital investment projects are in process. Because our transmission facilities are interconnected with those of third parties, the operation of our facilities could also be adversely affected by these or similar events occurring on the systems of such third parties, some of which may be unanticipated or uncontrollable by us.
Additional risks associated with the ability of our businesses to safely and reliably operate, maintain, improve and upgrade their respective facilities and systems, many of which are beyond our businesses’ control, include:
▪failure to meet customer demand for electricity and/or natural gas, including electrical blackout, curtailments or gas outages
▪natural gas surges into homes or other properties
▪the release of hazardous or toxic substances into the air, water or soil, including gas leaks
▪inadequate emergency preparedness plans and the failure to respond effectively to catastrophic events
The occurrence of any of these events could affect demand for electricity, natural gas or other forms of energy, cause unplanned outages, damage our businesses’ assets and/or operations, damage the assets and/or operations of third parties on which our businesses rely, damage property owned by customers or others, and cause personal injury or death. Any such outcome could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
Our businesses face risks related to the COVID-19 pandemic.
The COVID-19 pandemic ishas been materially impacting communities, supply chains, economies and markets around the world. The U.S. economy is experiencing a significant slowdown and claims for unemployment have substantially increased.world since March 2020. To date, the COVID-19 pandemic has not had a material impact on our results of operations. However, we are conductingSempra and some or all its businesses have been and could continue to be impacted by this pandemic or any future pandemic in a number of ways, including:
▪Implementing protocols and processes to comply with applicable government mandates related to virus exposure, testing and vaccination
▪Conducting business with substantial modifications to employee travel employeeand work locations and virtualization or cancellation of certain business activities, among other modifications. If thesewhich could result in increased employee turnover or other similar measures were to increase or continue for an extended period, we could experience employee absenteeism, decreased efficiency and productivity by our workforce and other similar impactsaffects that could increase operating costs and jeopardize our ability to sustain operations and satisfy compliance requirements and sustain operations
▪Disruption in the capital markets, which has affected and could resultfurther affect liquidity, strategic initiatives and prospects, including in higher operating costs. We alsosome cases a slowdown of planned capital spending
▪Customer-protection measures implemented by SDG&E and SoCalGas, including suspending service disconnections due to nonpayment for all customers (except for SoCalGas’ noncore customers), waiving late payment fees, offering flexible payment plans and automatically enrolling residential and small business customers with past-due balances in long-term repayment plans, which have observed other companies, includingcollectively resulted in a reduction in payments from SDG&E and SoCalGas’ customers and an increase in uncollectible accounts that could become material and may not be fully recoverable
▪Precautionary, preemptive and responsive actions taken by our current and prospective counterparties, customers and partners, as well as many governments, including our regulators and other governing bodies that affect our businesses, taking precautionary, preemptivewhich have affected and responsive actions to address the effects of the COVID-19 pandemic, and they may takecould further actions that alter their normal operations. These actions by third parties could materially impactaffect our operations, results, liquidity and ability to pursue capital projects and strategic initiatives. For example, the CPUC has required that all energy companies under its jurisdiction take action to implement several emergency customer protection measures to support California customers. The measures currently apply to all residential and small business customers affected by the COVID-19 pandemic and include suspending service disconnections due to nonpayment, waiving late payment fees, and offering flexible payment plans to customers experiencing difficulty paying their electric or gas bills. These actions have resulted in a reduction in payments received from our customers and an increase in uncollectible accounts, which could become material, and any inability or delay in recovering all or a substantial portioninitiatives
Any of these costsimpacts could have a material adverse effect on the cash flows, financial condition andour results of operations, for Sempra Energy, SDG&E and SoCalGas. As an additional example, we reached a final investment decision with respect to ECA LNG Phase 1 in November 2020, the timing of which was delayed in part by the COVID-19 pandemic. If this financial condition, cash flows and/or other projects under development are further delayed due to continuing or worsening conditions caused by the COVID-19 pandemic or other related factors, the performance and prospects of our LNG export business could be materially adversely affected.
Although Sempra Energy, SDG&E and SoCalGas are not currently constrained in their ability to borrow money at reasonable rates, these circumstances could change if the COVID-19 pandemic worsens or continues for an extended period and adversely affects conditions in the capital markets, which could have a material negative effect on our liquidity, results of operations, strategic initiatives and prospects. The COVID-19 pandemic could result in an increased slowdown of certain of our capital spending if conditions deteriorate or fail to improve in the near term, which could have a material adverse effect on Sempra Energy’s, SDG&E’s and SoCalGas’ results of operations and prospects.
We will continue to actively monitor the effects of the COVID-19 pandemic and may take further actions that alter our
business operations as may be required by federal, state or local authorities, or that we determine are innecessary for the best interestssafety of our employees, customers, partners and suppliers.suppliers and, generally, the communities we serve. However, we cannot at this time predict the extent to which the COVID-19 pandemic willmay further impact our liquidity, financial condition, results of operations and prospects.businesses.
Severe weather, conditions, natural disasters pandemics, accidents, equipment failures, explosions or acts of terrorismand other similar events could materially adversely affect our businesses, financial condition, results of operations, cash flows and/or prospects.us.
Like other capital intensive businesses, ourOur facilities and infrastructure, including projects in development and under construction, may be damaged by severe weather, conditions and natural disasters, such as fires, earthquakes, tornadoes, hurricanes, other storms, tsunamis, heat waves, rising sea levels, floods, mudslides, drought, solar events and electromagnetic events; pandemics; accidents; equipment failures; explosions;accidents, explosions or acts of terrorism, vandalism, war or criminality. Because we are in the business of using, storing, transporting and disposing of highly flammable, and explosive materials, as well asand radioactive materials and operating highly energized equipment, the risks such incidents may pose to our facilities and infrastructure, as well as the risks to the surrounding communities for which we could be held responsible, are substantially greater than the risks such incidents may pose to a typical business. The facilities and infrastructure that we own or in which we have interests that may be subject to such incidents include, among others:
▪natural gas, propane and ethane pipelines, storage and compressor facilities
▪electric transmission, distribution and battery storage equipment
▪power generation plants, including renewable energy and natural gas-fired generation
▪marine and inland ethane and liquid fuels, LNG and LPG facilities, terminals and storage
▪nuclear power facilities and nuclear fuel and nuclear waste storage facilities (through SDG&E’s minority interest in SONGS, which is currently being decommissioned)
Such incidents could result in severe business disruptions; prolongedand project development disruptions, power outages;outages, property damage, injuries orand loss of life for which our businesseswe could be liable; significant decreases inliable and could cause secondary incidents that also may have these or other negative effects, such as fires; leaks of natural gas, natural gas odorant, propane, ethane, other GHG emissions or radioactive material; spills or other damage to natural resources; or other nuisances to affected communities. Any of these occurrences could decrease revenues and earnings;earnings and/or other significant additionalincrease costs, to us, including as a result of higher maintenance costs or restoration expenses, amounts to compensate third parties,associated with claims against us, and regulatory
fines, penalties and disallowances. In some cases, we may be liable for damages even though we are not at fault, such as when the doctrine of inverse condemnation applies, which we discuss further below under “Risks Related to Sempra California – Operational Risks.” For our regulated utilities, these liabilities or increased costs may not be recoverable in rates. Insurance coverage for these costs may increase or become prohibitively expensive, be disputed by insurers, or become unavailable for certain of these risks or at sufficient levels, and any insurance proceeds may be insufficient to cover our losses or liabilities due to limitations, exclusions, high deductibles, failure to comply with procedural requirements or other factors. Such incidents that do not directly affect our facilities may impact our business partners, supply chains and transportation, which could negatively impact construction projects and our ability to provide electricity and natural gas and electricity to our customers. Moreover, weather-related incidents have become more prevalent, unpredictable and severe as a result of climate change or other factors, and we are currently in the midst ofexperiencing a severe global pandemic, any of which could have a greater impact on our businesses than is currently anticipated and, for our regulated utilities, rates may not be adequately or timely adjusted to reflect any such increased impact. Any such incident could have a material adverse effect on our businesses, financial condition, results of operations, financial condition, cash flows and/or prospects.
Depending onWe seek growth opportunities in the naturemarket organically and locationinorganically, including through the acquisition of, or partnerships in, operating companies.
We diligently analyze the financial viability of each acquisition, partnership and JV we pursue. However, our diligence may prove to be insufficient, and there could be difficulties in integrating acquired assets to our standards or in a timely manner or latent unforeseen defects. In addition, we may not realize all of the facilitiesanticipated benefits from future acquisitions, partnerships or JVs such as increased earnings, cost savings, or revenue enhancements, for various reasons, including difficulties integrating operations and infrastructure affected, any such incident also could cause catastrophic fires; natural gas, natural gas odorant, propane or ethane leaks; releases of other GHG emissions; radioactive releases; explosions, spills or other significant damage to natural resources or property belonging to third parties; or personal injuries, health impacts or fatalities, or could present a nuisance to impacted communities.personnel, higher and unexpected acquisition and operating costs, unknown liabilities, and fluctuations in markets. Any of these consequences could lead to significant claims against us. In some cases, we may be liable for damages even though we are not at fault, such as in cases in which the doctrine of inverse condemnation applies. We discuss how the application of this doctrine in California imposes strict liability on an electric utility whose equipment is determined to be a cause of a fire (meaning the utility may be found liable regardless of fault) below under “Risks Related to the California Utilities – Operational Risks.” Insurance coverage may significantly increase in cost or become prohibitively expensive, may be disputed by the insurers, or may become unavailable for certain of these risks or at sufficient levels, and any insurance proceeds we receive may be insufficient to cover our losses or liabilities due to the existence of limitations, exclusions, high deductibles, failure to comply with procedural requirements, and other factors, whichoutcomes could materially adversely affect our businesses,results of operations, financial condition, cash flows and/or prospects.
Increasing activities and projects intended to advance new energy technologies could introduce new risks to our businesses.
We may periodically undertake or become involved in research and development projects and other activities designed to develop new technologies in the energy space, including those related to hydrogen, energy storage, carbon sequestration, grid modernization and others. These activities and projects can involve significant employee time, as well as substantial capital resources that may not be recoverable in rates or, with respect to our non-regulated utility businesses, may not be able to be passed through to customers. In addition, the timing to complete these activities and projects is inherently uncertain and may require significantly more time and funding than we initially anticipate. Moreover, many of these technologies are in the early stage of development, and the applicable activities and projects may not be completed or the applicable technologies may not prove economically and technically feasible. If any of these circumstances occurs, we may not recover or receive an adequate or any return on our investment and other resources invested in these activities and our results of operations, financial condition, cash flows and/or prospects as well as the trading prices of our common stock, preferred stock and debt securities.could be materially adversely affected.
The operation of our facilities depends on good labor relations with our employees.
Several of our businesses have entered into and have in place collective bargaining agreements with different labor unions. Our collective bargaining agreementsunions, which are generally negotiated on a company-by-company basis. Any failure to negotiate and reach an agreement on new labor contracts or to negotiate these labor contracts mightcould result in strikes, boycotts or other labor disruptions. Labor disruptions, strikesAny such labor disruption or significant negotiated wage andor benefit increases, whether due to
union activities, employee turnover or otherwise, could have a material adverse effect on our businesses, results of operations, financial condition, cash flows and/or cash flows.prospects.
In addition to general information risks and cyber risks that all large corporations face, (e.g. malware, general cyber- or phishing-attacks by outsiders, malicious intent by insiders and inadvertent disclosure of sensitive information), we face evolving cybersecurity risks associated with protecting sensitive and confidential customer and employee information smartand energy grid, infrastructure, and natural gas pipeline, storage and storageother infrastructure.
In the ordinary course of business, Sempra Energy and its subsidiariesOur businesses collect and retain sensitive information, including personal identification information about customers and employees, customer energy usage and other information, and our operations rely on complex, interconnected networks of generation, transmission, distribution, storage, control, and communication technologies and systems. ExistingOur use of business technologies, and theincluding deployment of any new business technologies, representrepresents a large-scale opportunity for attacks on or other failures to protect our information systems, and confidential information as well as on the integrity of theand energy grid and our natural gas infrastructure. In particular, various private and public entities have noted that cyber- and other attacks targeting utility systems and other energy infrastructures, as well as the impacts of these attacks on companies and their communities, are increasing in sophistication, magnitude and frequency.frequency and may further increase in the event of geopolitical events and other uncertainties, such as the conflict in Ukraine. Additionally, the California UtilitiesSDG&E and SoCalGas are increasingly required to disclose large amounts of data (including customer energy usage and personal information regardingabout customers) to support changes to California’s electricity market related to grid modernization and customer choice, increasing the risks of inadvertent disclosure or other unauthorized access of sensitive information. Further, the virtualization of many business activities as a result ofduring the COVID-19 pandemic increases cyber risk, and generally there generally has been an associated increase in targeted cyber-attacks. Moreover, all of our businesses operating in California are subject to enhanced state privacy laws, that have recently taken effect, which require companies that collect information onabout California residents to, among other things, make new disclosures to consumers about their data collection, use and sharing practices,practices; allow consumers to opt out of certain data sharing with third partiesparties; and providebe liable under a new cause of action for breaches of certain highly sensitive categories of personal information, resulting from a failure to reasonably secure them, and other states in which we do business could adopt similar laws in the future.laws.
Addressing cyber risks is the subject of significant ongoing activities across Sempra Energy’s businesses, including investingAlthough we invest in risk management and information security measures for the protection of our systems and information.information, these measures could be insufficient or otherwise fail. The costcosts and operational consequences of implementing, maintaining and enhancing systemthese protection measures are significant, and they could materially increase to address increasingly intense complex and sophisticatedcomplex cyber risks. Despite our efforts, our businesses are not fully insulated from cyber-attacks or system disruptions. In addition, weWe often rely on third-party vendors to deploy new business
technologies and maintain, modify and update our systems, including systems that manage sensitive information, and these third parties could fail to establishmay not have adequate risk management and information security measures with respect to thesetheir systems. Any attackcyber-attack, including ransomware attacks, on our or our vendors’ information systems or the integrity of the energy grid, our pipelines or our distribution, storage and distribution and storageother infrastructure, or one of our facilities, or unauthorized access, damage or improper disclosure of confidential customer or employee information, or other sensitive data, could result in disruptions to our business operations, regulatory compliance failures, inabilities to produce accurate and timely financial statements, energy delivery service failures, financial and reputational loss, violationscustomer dissatisfaction, litigation, violation of privacy laws and fines or penalties, customer dissatisfaction and litigation, any of which could in turn have a material adverse effect on our businesses, cash flows, financial condition, results of operations, financial condition, cash flows and/or prospects. Although Sempra Energy currently maintains cyber liability insurance, this insurance is limited in scope and subject to exceptions, conditions and coverage limitations and may not cover any or even a substantial portion of the costs associated with the consequences of any compromise of our information systems or confidential information, and there is no guarantee that the insurance we currently maintain will continue to be available at rates that we believe are commercially reasonable.
Further, as seen with recent cyber-attacks around the world, the goal of a cyber-attack may be primarily to inflict large-scale harm on a company and the places where it operates. Any such cyber-attack could cause widespread destruction of or disruption to our operating, financial and administrative systems that could materially adversely affect our business operations and the integrity of the power grid, our pipelines and distribution and storage infrastructure or one of our related facilities, negatively impact our ability to produce accurate and timely financial statements or comply with ongoing disclosure obligations or other regulatory requirements, and/or release confidential information about our company and our customers, employees and other constituents, any of which could lead to sanctions or negatively affect the general perception of our business in the financial markets and which could have a material adverse effect on our businesses, cash flows, financial condition, results of operations and/or prospects.
Financial Risks
The substantialOur debt service obligations ofexpose us to risks, and with respect to Sempra, Energy, SDG&E and SoCalGascould require additional equity securities issuances.
Our businesses have debt service obligations, which could have a material adverse effect on our results of operations, cash flows, financial condition, and/or prospects, and with respect to Sempra Energy, could require additional equity securities issuances.
The substantial debt service obligations of Sempra Energy, SDG&E and SoCalGas could have a material adverse effect on our results of operations, cash flows financial condition and/or prospects by, among other things:
▪making it more difficult and costly for each of these companiesbusinesses to service, pay or refinance itstheir debts as they become due, particularly during adverse economic or industry conditions
▪limiting flexibility to pursue other strategic opportunities or react to business developments or changes in each of our businesses and the industry sectors in which they operate
▪requiring a substantial portion of available cash to be used for debt service payments, including interest and potential redemptions, thereby reducing the availability of cash to fund working capital, capital expenditures, development projects, acquisitions, dividend payments andavailable for other general corporate purposes
▪causing lenders to require additional materially adverse terms conditions or covenants in the debt instruments for new debt, which might includesuch as restrictions on uses of proceeds or other assets or limitations on the ability to incurincurring additional debt, createcreating liens, paypaying dividends, redeem or repurchaserepurchasing stock, makemaking investments or receivereceiving distributions from subsidiaries or equity method investments
Sempra’s goal is committed to maintainingmaintain or improvingimprove its current credit ratings.ratings, but it may not be able to do so. To maintain these credit ratings, we may seek to reduce the amount of our outstanding indebtedness with the proceeds from the issuanceissuances of additional shares of commonequity securities. We may not be able to complete equity issuances on terms we consider acceptable or preferred stock. Additionalat all, and any new equity issuanceswe do issue may dilute the voting rights and economic interests of existing holders of Sempra Energy’sSempra’s common andand/or preferred stock. There is no assurance that, should we elect to do so, we would be able to issue additional shares of Sempra Energy’s common or preferred stock with terms that we consider acceptable or at all or reduce the amount of our outstanding indebtedness to a level that allows us to maintain our investment grade credit ratings, which mayAny such outcome could have a material adverse effect on Sempra Energy’s cash flows, financial condition,Sempra’s results of operations, financial condition, cash flows and/or prospects.
The availability and cost of debt or equity financing could be adverselynegatively affected by conditions in the financial marketsmarket and economic conditions generally, as well asand other factors, and any such negative effects could materially adversely affect us.
Our businesses are capital intensive andcapital-intensive. In general, we rely on long-term debt to fund a significant portion of our capital expenditures and repay outstanding debt and on short-term borrowings to fund a significant portion of day-to-day business operations. Sempra Energy may also seek to raise capital by issuing additional equity.
equity or selling equity interests in our subsidiaries or investments.Limitations on the availability of credit, increases in interest rates or credit spreads or other negative effects on the terms of any debt or equity financing we may pursue could materially adversely affect our businesses, cash flows, results of operations, financial condition and/or prospects, as well as our ability to meet contractual and other commitments. In difficult market environments, we may find it necessarycause us to fund our operations and capital expenditures at a higher cost or we may be unablefail to raise as muchour targeted amount of funding, as we needwhich could negatively impact our ability to support new or ongoing business activities. This could cause us to reducemeet contractual and other commitments, pursue development projects, make non-safety related capital expenditures and sustain operations. Any of these outcomes could increasematerially adversely affect our costresults of servicing debt, both of which could significantly reduce our short-termoperations, financial condition, cash flows and/or prospects.
In addition to market and long-term profitability.
Othereconomic conditions, factors that can affect the availability and cost of capital for our businesses in addition to the terms of debt and equity financing, including, among others:include:
▪adverse changes to economic and financial market conditions and laws and regulations, including the recent and proposed changes to the regulation of the energy market in the jurisdictions in which we operate or do businessMexico
▪the overall health of the energy industry
▪volatility in electricity or natural gas or electricity prices
▪for Sempra, EnergySDG&E and SDG&E,SoCalGas, risks related to California wildfires and any failure by the State of California to adequately address the financial and operational wildfire-related risks facing California electric IOUs
▪thefor Sempra, SDG&E and SoCalGas, any deterioration of or uncertainty in the political or regulatory environment for local natural gas distribution companies operating in California
▪credit ratings downgrades
We are subject to additional risks due to uncertainty relating to the calculation of LIBOR and its scheduled discontinuance.
Certain of our financial and commercial agreements, including those for variable rate indebtedness, and credit facilities, as well as interest rate derivatives, incorporate LIBOR as a benchmark for establishing certain rates. The Financial Conduct Authority (FCA) inAs directed by the United Kingdom, which regulates LIBOR, has emphasizedU.S. Federal Reserve, banks ceased making new LIBOR-based issuances at the need for market participants to transition away from LIBOR. ICE Benchmark Administration, LIBOR’s administrator, with the supportend of the FCA, has indicated it will cease2021, and publication of certain key U.S. dollar LIBOR tenors in mid-2023 for existing loans. Additionally, the U.S. Federal Reserve has issued a statement advising banksloans is expected to stop making new LIBOR-based issuances by the end of 2021.cease in mid-2023. These events could cause LIBOR to perform differently than it has performed historically pending any discontinuance or modification and after any modification. The adoptionhistorically. Use of the Secured Overnight Financing Rate (SOFR), which has been identified as the replacement benchmark rate for LIBOR, may result in interest payments that are higher than expected or that do not otherwise correlate over time with the payments that would have been made on such indebtedness if the applicable LIBOR rate was available in its current form.using LIBOR. Changes to or the discontinuance of LIBOR, any further uncertainty regarding the implementation of such changes or discontinuance, and uncertainties regarding the performance and characteristics of alternative benchmark rates, could have a material adverse effect onnegatively affect our existing and future variable rate indebtedness and/or borrowings, our existing and future interest rate hedges and the cost of doing business under our commercial agreements that incorporate LIBOR, and could require us to seek to amend the terms of the relevant indebtedness or agreements, which may be on terms materially worse than existing terms. The occurrence of any of these risks could have a material adverse effect on our results of operations, financial condition, cash flows and/or results of operations.prospects.
Certain creditCredit rating agencies may downgrade our credit ratings or place those ratings on negative outlook.
Credit rating agencies routinely evaluate Sempra, EnergySDG&E, SoCalGas and the California Utilities,SI Partners and certain of our other businesses and their ratings are based on a number of factors, including the increased risk of wildfires in California; perceived supportiveness offactors described below and the regulatory environment affecting utility operations, including delays and difficulties in obtaining recovery, or the denial of recovery, for wildfire-related or other costs; the deterioration of, or uncertainty in, the political or regulatory environment for local natural gas distribution companies operating in California; ability to generate cash flows; level of indebtedness; overall financial strength, including credit metrics;strength; specific transactions or events, such as share repurchases; diversification beyond the regulated utility business (in the case of Sempra Energy);repurchases and significant litigation; the status of certain capital projects, as well as other factors beyond our control, such asprojects; and the state of the economy and our industry generally. Downgrades and factors causing downgrades of one or both of the California Utilities can have a material impact on Sempra Energy’s credit ratings. Downgrades, as well as the factors causing such downgrades, of Sempra Energy’sThese credit ratings can also have a material impact on the credit ratings of the California Utilities.
While the current Moody’s, S&P and Fitch (collectively, the Rating Agencies) issuer credit ratings for Sempra Energy, SDG&E and SoCalGas are investment grade, some of these ratings have experienced downgrades or have been moved to negative outlook in 2020 and there is no assurance that these credit ratings will notcould be further downgraded. In that regard, S&P has Sempra Energy, SDG&E and SoCalGas on negative outlook, and these negative outlooks could result in downgrades,downgraded, or other negative credit
rating actions could occur at any time. We discuss these credit ratings further in “Part II – Item 7. MD&A – Capital Resources and Liquidity.”
For Sempra, Energy,Moody’s, S&P and Fitch (collectively, the Rating AgenciesAgencies) have noted that the following events, among other things,others, could lead to negative ratings actions:
▪Sempra Energy’s failureexpansion of natural gas liquefaction projects or other unregulated businesses in a manner inconsistent with its present level of credit quality
▪Sempra’s consolidated financial measures do not improve, or it fails to meet certain financial credit metrics
▪Table of Contentsinvesting disproportionally in unregulated or uncontracted business and the impact on business mix and financial credit metrics over time▪catastrophic wildfires caused by SDG&E, or catastrophic wildfires caused by any California electric IOUs that participate in the Wildfire Fund, which could exhaust the fund considerably earlier than expected
▪a ratings downgrade at SDG&E, SoCalGas and/or SoCalGas
▪continuing to acquire shares under a share repurchase programSI Partners
For SDG&E, the Rating Agencies have noted that the following events, among other things,others, could lead to negative ratings actions:
▪SDG&E’s failure to meet certain financial credit metrics
▪the CPUC does not effectively implement the more supportive prudency standard for determining wildfire liability associated with the Wildfire Legislation
▪catastrophic wildfires caused by SDG&E or catastrophic wildfires caused by anyother California electric IOUs that participate
▪a consistent weakening of SDG&E’s financial metrics or a deterioration in the Wildfire Fund, which could exhaust the fund considerably earlier than expectedregulatory environment
▪a ratings downgrade at Sempra
For SoCalGas, the Rating Agencies have noted that the following events, among other things,others, could lead to negative ratings actions:
▪SoCalGas’ financial measures consistently weaken, or it fails to meet certain financial credit metrics
▪SoCalGas experiences increased business risk, including a deterioration in the regulatory environment, leading to weakening of its stand-alone business risk profile
▪a ratings downgrade at Sempra
For SI Partners, the Rating Agencies have noted that the following events, among others, could lead to negative ratings actions:
▪SI Partners’ failure to meet certain financial credit metrics
▪the conclusion of the CPUC’s pending regulatory proceedings where key elements of SoCalGas’ credita deterioration in SI Partners’ business risk profile, are negatively impacted
▪deterioration of,including incremental construction risk or uncertaintyadverse changes in the political or regulatoryoperating environment for local natural gas distribution companies operating in CaliforniaMexico
▪a ratings downgrade at Sempra Energy
A downgrade of Sempra Energy’s or eitherany of the California Utilities’our businesses’ credit ratings or ratings outlooks, as well as the reasons for such downgrades, may materially and adversely affect the market prices of our equity and debt securities, the interest rates at which borrowings arecan be made and debt securities and commercial paper are issued, and the various fees on credit facilities. This could make it significantly more costly for Sempra Energy, SDG&E, SoCalGas and Sempra Energy’s other subsidiariesthe affected businesses to borrow money, to issue equity or debt securities and commercial paper and toand/or raise other types of capital, and/or complete additional financings, any of which could materially and adversely affect our ability to pay the principal of and interest on our debt securities and meet our other debt obligations and contractual commitments, and our cash flows, results of operations, financial condition, cash flows and/or financial condition.prospects.
We cannot and do not attempt to fully hedge our assets or contract positions against changes in commodity prices, and for those contract positions that are hedged, our hedging procedures may not mitigate our risk as planned.expected.
To reduceWe may use forward contracts, physical purchase and sales contracts, futures, financial exposure related to commodity price fluctuations, we may enter into contractsswaps and/or options, among others, to hedge our known or anticipated purchase and sale commitments, inventories of natural gas and LNG, natural gas storage and pipeline capacity and electric generation capacity. As part of this strategy, we may use forward contracts, physical purchase and sales contracts, futures,capacity to try to reduce our financial swaps and options.exposure related to commodity price fluctuations. We do not hedge the entire exposure to market price volatility of our assets or our contract positions, and the extent of the coverage to these exposures varies over time. To the extent we have unhedged positions, or if our hedging strategies do not work as planned,expected, fluctuating commodity prices could have a material adverse effect on our results of operations, financial condition, cash flows and/or financial condition.prospects. Certain of the contracts we may use for hedging purposes are subject to fair value accounting, which may result in gains or losses in earnings for those contracts. In certain cases, these gains or lossescontracts that may not reflect the associated lossesgains or gainslosses of the underlying position being hedged.hedged and could result in fluctuations of our results from period to period.
Risk management procedures may not prevent or mitigate losses.losses.
Although we have in place risk management and control systems designed to quantify and manage risk, these systems may not prevent material losses. Risk management procedures may not always be followed as intended or may not workfunction as planned.expected. In addition, daily value-at-risk and loss limits, which are primarily based on historic price movements. Ifmovements and which we discuss further in “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk,” may not protect us from losses if prices significantly or persistently deviate
from historic prices, the limits may not protect us from significant losses.prices. As a result of these and other factors, there is no assurance that our risk management procedures and systems willmay not prevent or mitigate losses that could materially adversely affect our results of operations, financial condition, cash flows and/or financial condition.prospects.
Market performance or changes in other assumptions could require significant unplanned contributions to pension and other postretirement benefit plans.
Sempra, Energy, SDG&E and SoCalGas provide defined benefit pension plans and other postretirement benefits to eligible employees and retirees. The cost of providing these benefits is affected by many factors, including the market value of plan assets and the other factors described in Note 9 of the Notes to Consolidated Financial Statements. A decline in the market value of plan assets may increase the funding requirements for these plans. In addition, the cost of providing pension and other postretirement benefits is affected by other factors, including the assumed rate of return on plan assets, mortality tables, employee demographics, discount rates used in determining future benefit obligations, rates of increase in health care costs, levels of assumed interest rates and future governmental regulation. Anor an adverse change in any of these other factors could cause a material increase in our funding obligations for these plans, which could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects.
Legal and Regulatory Risks
Our businesses are subject to governmental regulations and tax and accounting requirements and may be materially adversely affected by these regulations or requirements or any changes to them.
The electric power and natural gas industries are subject to governmental regulations, and our businesses are also subject to complex accounting and tax requirements. The regulations and requirements that affect us may, from time to time, undergo significant changes on the federal, state, local and foreign levels, including in response to economic or political conditions. Compliance with these regulations and requirements, including in the event of changes to these regulations and requirements or how they are implemented or interpreted, could materially and adversely affect how we conduct our business and increase our operating costs. New tax legislation, regulations or interpretations in the U.S. and other countries in which we operate or do business could materially adversely affect our tax expense and/or tax balances, and changes in tax policies could materially adversely impact our businesses. Any failure to comply with these regulations and requirements could subject us to significant fines and penalties, including criminal penalties in some cases, and result in the temporary or permanent shutdown of certain facilities and operations. The occurrence of any of these risks could have a material adverse effect on our businesses, cash flows, financial condition, results of operations and/or prospects.
Our operations are subject to rules relating to transactions among the California Utilities and other Sempra Energy businesses. These rules are commonly referred to as “affiliate rules,” which primarily impact commodity and commodity-related transactions. These businesses could be materially adversely affected by changes in these rules or to their interpretations, or by additional CPUC or FERC rules that further restrict our ability to sell natural gas or electricity to, or to trade with, the California Utilities and with each other. Affiliate rules also restrict these businesses from entering into any such transactions with the California Utilities. Any such restrictions on or approval requirements for transactions among affiliates could materially adversely affect the LNG facilities, natural gas pipelines, electric generation facilities, or other operations of our subsidiaries, which could have a material adverse effect on our businesses, cash flows, financial condition, results of operations and/or prospects.
Our businesses require numerous permits, licenses, franchises and other approvals and agreements from various federal, state, local and foreign governmental agencies, and the failure to obtain or maintain any of them could materially adversely affect our businesses, cash flows, financial condition, results of operations and/or prospects.us.
Our businesses and operations require numerous permits, licenses, rights-of-way, franchise agreements,franchises, certificates and other approvals and agreements from federal, state, local and foreign governmental agencies. These approvals may not be granted in a timely manner or at all or may be modified, rescinded or fail to be extended by onefor a variety of reasons. Obtaining or more of the governmental agencies and authorities that oversee our businesses or as a result of litigation. For example, SoCalGas’ franchise agreements with the City of Los Angeles and Los Angeles County are due to expire in December 2021 and June 2023, respectively, and SDG&E’s franchise agreement with the City of San Diego was scheduled to expire in January 2021. SDG&E participated in the City’s competitive bid process for the franchises, which the City subsequently canceled. In December 2020, the City of San Diego and SDG&E agreed to extend the natural gas and electric franchises to June 1, 2021. The extension is intended to provide newly elected City officials time to seek public input and additional information. The City has announced its plan to start a new competitive bid process in the first quarter of 2021. Successfully obtaining, maintaining or renewing any or all of these approvals could result in higher costs or the imposition of conditions or restrictions on the manner in which we operate our businesses. Furthermore, our permitsoperations. Further, these approvals require compliance by us and may require compliance by our underlying customers. Failure by us or our customers, to comply with permit, license, right-of-way or franchise requirementswhich could result in these approvalsmodification, suspension or rescission and agreements being modified, suspended
or rescinded and could subject us to significant fines and penalties.penalties if these requirements are not complied with. If one or more of these approvals or agreements were to be suspended, rescinded or otherwise terminated, including due to expiration or belegal or regulatory changes, or modified in a manner that makes our continued operation of the applicable business prohibitively expensive or otherwise undesirable or impossible, we may be required to adjust or temporarily or permanently cease certain of our operations, sell the associated assets or remove them from service and/or construct new assets intended to bypass the impacted area, or any combination of the foregoing, in which case we may lose a significant portionsome of our rate base or other revenue generatingrevenue-generating assets, our prospectsdevelopment projects may be materially adverselynegatively affected and we may incur significant impairment charges or other costs that may not be recoverable. The occurrence of any of these events could materially adversely affect our businesses financial condition, results of operations, financial condition, cash flows and/or prospects.
We may invest significant amounts of moneyfunds in major capital projects prior to receiving all regulatory approval.approvals. If there is a delay in obtaining required regulatorythese approvals; if any regulatory approval is conditioned on major changes or other requirements that increase costs or impose restrictions on our existing or planned operations; if we fail to obtain or maintain requiredthese approvals or to comply with them or other applicable laws or regulations; if we are involved in litigation that adversely impacts any required approvalsapproval or rights to the applicable property; or if management decides not to proceed with a project, we may be unable to recover any or all amounts invested in that project. Any such occurrence could cause our operations and prospects to materially decline and our costs to materially increase, result in material impairments, and otherwise materially adversely affect our businesses, financial condition, results of operations, financial condition, cash flows and/or prospects.
Our businesses are facing climate change concerns and have significant environmental compliance costs, and future environmental compliance costswhich could have a material adverse effect on our cash flows and/or results of operations.us.
Climate change and the costs that may be associated with its impacts have the potential to affect our businesses in many ways, including increasing the costs we incur in providing our services and the energy we transmit, impacting the demand for and consumption of our services and the energy we transmit (due to changes in both costs and weather patterns), and affecting the economic health of the regions in which we operate. Energy customers are also increasingly indicating preferences for carbon-neutral and renewable sources of energy.
Our businesses are subject to extensive federal, state, local and foreign statutes, orders, rules and regulations relating to environmental protection including air quality, water quality and usage, wastewater discharge, solid waste management, hazardous waste disposal and remediation, conservation of natural resources, wetlands and wildlife, renewable energy resources, climate change and GHG emissions, among others.change. To comply with these legal requirements, we must spend significant amounts on environmental monitoring and surveillance, pollution control equipment, mitigation costs and emissions fees, and these amounts could increase as a result of various factors that we may not control, including if these legal requirements change, enforcement of requirements increases, permits are not issued, renewed or amended as anticipated, energy demands increase or our mix of energy supplies changes. Our regulated utilities may be materially adversely affected if these additional costs are not recoverable in rates. In addition, we may be ultimately responsible for all on-site liabilities associated with the environmental and site condition of our projects and properties, in each case regardless of when the liabilities arose and whether they are known or unknown, which exposes us to risks arising from contamination at our existing and former or existing facilities or with respect toand off-site waste disposal sites that have been used in our operations. In the case ofFor our regulated utilities, some of these costs may not be recoverable in rates. Our facilities, including those of our JVs, are subject to laws and regulations that have been the subject of increased enforcement activity with respect to power generation facilities. Failure to comply with applicable environmental laws and regulations may subject our businesses to substantialfines and penalties, and fines, including criminal penalties in some cases, and/or significant curtailments of our operations, whichoperations. Any of these outcomes could materially adversely affect our results of operations, financial condition, cash flows and/or results of operations.prospects.
Increasing international, national, regional and state-level environmental concerns as well asand related new or proposed legislation and regulation or changes to existing legislation or regulation, such as increased requirements for monitoring and surveillance, pollution monitoring and control equipment, safety practices, emission fees, taxes, penalties or other obligations or restrictions, may have material negative effects on our operations, operating costs, corporate planning and the scope and economics of proposed expansions, infrastructure projects or other capital expenditures, which could have a material adverse effect on our results of operations, cash flows and/or prospects.expenditures. In particular, existing and potential state, national and internationalnew or amended legislation and regulation relating to the control and reduction of GHG emissions and climate change may materially restrict our operations, negatively impact demand for our services and/or the energy we transmit, limit development opportunities, force costly or otherwise burdensome changes to our operations or otherwise materially adversely affect us. For example, SB 100 requires each California electric utility, including SDG&E, to procure at least 50% of its annual electric energy requirements from renewable energy sources by 2026, and 60% by 2030. SB 100 also creates the policy of meeting all of California’s retail
electricity supply with a mix of RPS Program-eligible and zero-carbon resources by 2045. The law also includes stipulations that this policy not increase carbon emissions elsewhere in the western grid and not allow resource shuffling, and requires that the CPUC, CEC, CARB and other state agencies incorporate this policy into all relevant planning. In addition to signing SB 100 into law, the then-Governor of California also signed an executive order establishing a new statewide goal to achieve carbon neutrality as soon as possible, and no later than 2045, and achieve and maintain net negative emissions thereafter. The executive order calls on CARB to address this goal in future scoping plans, which affect several major sectors of California’s economy, including transportation, agriculture, development, industrial and others. California recentlyhas issued new climate initiatives in line with this statewide goal, including two executive orders requiring sales of all passenger vehicles to be zero-emission by 2035.
Moreover, shifts in investor sentiment regarding fossil fuels is leading some to reduce investment in or divest from the sector completely. Maintaining investor confidence and attracting capital will be dependent on successfully demonstrating our ability to reduce emissions associated with our operations and the energy we transmit, consistent with our aim to have net-zero emissions by 2050. Our California Utilities and anyability to reach net-zero emissions by 2050 depends on many factors, some of our other businesses impacted by similar futurewhich we do not control, including supportive energy laws and regulationspolicies, development and availability of alternative fuels, successful research and development efforts focused on low-carbon technologies that are economically and technically feasible, cooperation from our partners, financing sources and commercial counterparties, and customer participation in conservation and energy efficiency programs. Although we have developed interim targets and various plans designed to support California in reaching its GHG emissions mandates, including SB 100, and our own energy goals, we may not be materially adversely affected if these additionalsuccessful.
We will need to continue to make capital expenditures and incur costs areto develop and deploy new technologies and modernize grid systems in our efforts to achieve our climate targets and those mandated by applicable authorities, which may not be recoverable in rates or, with respect to our non-regulated utility businesses, if such costs aremay not be able to be passed through to customers. Even if such costs are recoverable, the effects of existing and proposed GHG emission reduction standards may causeresulting rates or other costs to customers tomay increase to levels that substantially reduce customer demand and growth, which may have a material adverse effect on the cash flows, performance, businesses and/or prospects of the
California Utilitiesgrowth. SDG&E and any of our other affected businesses. SDG&E,SoCalGas, as well as any of our other businesses affected by similarGHG emissions mandates, in the future, may also be subject to significantfines and penalties and fines if certain mandated renewable energy goals are not met.
In addition, existingmet, and future laws, orders and regulations regarding mercury, nitrogen and sulfur oxides, particulates, methaneall of our businesses could suffer reputational harm if we do not meet or otherscale back our GHG emissions goals or interpretations or revisions tothere are negative views about our environmental practices generally. Any of these laws, orders and regulations,outcomes could result in requirements for additional monitoring, pollution monitoring and control equipment, safety practices, other operational changes to satisfy new mandates or emission fees, taxes or penalties, any of which could materially adversely affecthave a material adverse effect on our results of operations, financial condition, cash flows and/or cash flows.prospects.
Our businesses are subject to numerous governmental regulations and complex tax and accounting requirements and may be materially adversely affected by these regulations or requirements or any changes to them.
The electric power and natural gas industries are subject to numerous governmental regulations, and our businesses are also subject to complex tax and accounting requirements. These regulations and requirements may undergo changes at the federal, state, local and foreign levels, including in response to economic or political conditions. Compliance with these regulations and requirements, including in the event of changes to them or how they are implemented, interpreted or enforced, could increase our operating costs and materially adversely affect how we conduct our business. New tax legislation, regulations or interpretations or changes in tax policies in the U.S. or other countries in which we operate or do business could negatively affect our tax expense and/or tax balances and our businesses generally. Any failure to comply with these regulations and requirements could subject us to fines and penalties, including criminal penalties in some cases, and result in the temporary or permanent shutdown of certain facilities or operations. The occurrence of any of these risks could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects.
Our operations are subject to rules relating to transactions among SDG&E, SoCalGas and other Sempra businesses. These rules are commonly referred to as “affiliate rules,” and they primarily impact transmission supply, capacity, and marketing activities, including restricting our ability to sell natural gas or electricity to, or trade with, SDG&E and SoCalGas and its ability to effect these transactions with each other. These rules, as well as any changes to these rules or their interpretations or additional more restrictive CPUC or FERC rules related to transactions with affiliates, could materially adversely affect our operations and, in turn, our results of operations, financial condition, cash flows and/or prospects.
We may be materially adversely affected by the outcome of litigation or other proceedings in which we are involved.
Sempra Energy and its subsidiariesOur businesses are defendantsinvolved in a number of lawsuits, binding arbitrations and regulatory proceedings, including in connection with the Aliso Canyon natural gas storage facility natural gas leak that we discuss in further detail below under “Risks Related to the California Utilities – Legal and Regulatory Risks.”proceedings. We discuss material pending proceedings in Note 16 of the Notes to Consolidated Financial Statements. We have spent, and continue to spend, substantial amounts of money, time and employee and management focus defendingon these lawsuits and other proceedings and on related investigations and regulatory proceedings.matters. The uncertainties inherent in lawsuits arbitrations and other legal proceedings make it difficult to estimate with any degree of certainty the timing, costs and ranges of costs and effects of resolving these matters. In addition, juries have demonstrated a willingness to grant large awards, including punitive damages, in personal injury, product liability, property
damage and other claims. Accordingly, actual costs incurred may differ materially from insured or reserved amounts and may not be recoverable, in whole or in part, by insurance or in rates from our customers. Any of the foregoing could cause significant reputational damage and materially adversely affect our businesses, results of operations, financial condition and/or cash flows.
Risks Related to the California Utilities
Operational Risks
The California Utilities are subject to risks arising from the operation, maintenance and upgrade of their natural gas and electricity infrastructure and information technology systems, which, if they materialize, could materially and adversely affect Sempra Energy’s and the California Utilities’ financial results.
The California Utilities own and operate electric transmission and distribution facilities and natural gas transmission, distribution and storage facilities, which are, in many cases, interconnected and/or managed by information technology systems. Even though the California Utilities undertake substantial capital investment projects to construct, replace, maintain, improve and upgrade these facilities and systems, there is a risk of, among other things, potential breakdown or failure of equipment or processes due to aging infrastructure and information technology systems, human error in operations or maintenance, shortages of or delays in obtaining equipment, material and labor, operational restrictions resulting from environmental requirements and governmental interventions, and performance below expected levels, and these risks could be amplified while capital investment projects are in process. Because our transmission facilities are interconnected with those of third parties, the operation of our facilities could also be adversely affected by events occurring on the systems of such third parties, some of which may be unanticipated or uncontrollable by us.
Additional risks associated with the ability of the California Utilities to safely and reliably operate, maintain, improve and upgrade their facilities and systems, many of which are beyond the California Utilities’ control, include, among others:
▪failure to meet customer demand for natural gas and/or electricity, curtailments, controlled or uncontrolled gas outages, or gas surges back into homes that could cause serious personal injury or loss of life
▪a prolonged widespread electrical black-out that results in damage to the California Utilities’ equipment or damage to property owned by customers or other third parties
▪the release of hazardous or toxic substances into the air, water or soil, including gas leaks
▪severe weather events or natural disasters, pandemics, or attacks by third parties such as cyber-attacks, acts of terrorism, vandalism or war, the effects of which we discuss above under “Risks Related to All Sempra Energy Businesses – Operational Risks”
▪inadequate emergency preparedness plans and the failure to respond effectively to catastrophic events that could lead to public or employee harm or extended outages
The occurrence of any of these events could affect demand for natural gas or electricity, cause unplanned outages, damage the California Utilities’ assets and/or operations, damage the assets and/or operations of third parties on which the California Utilities rely, damage property owned by customers or others, and cause personal injury or death. Any such events could materially adversely affect Sempra Energy’s and one or both of the California Utilities’ financial condition, cash flows and/or results of operations.prospects.
RISKS RELATED TO SEMPRACALIFORNIA
Operational Risks
Wildfires in California pose a significant riskrisks to theSempra California Utilities’ (particularly SDG&E’s)&E) and Sempra Energy’s business, financial condition, results of operations and/or cash flows.Sempra.
Potential for Increased and More Severe Wildfires
In 2020,Over the past few years, California experiencedhas been experiencing some of the largest wildfires (measured by acres burned) in its history. Frequent and more severe drought conditions, inconsistent and extreme swings in precipitation, changes in vegetation, caused by these precipitation swings or other factors, unseasonably warm temperatures, very low humidity, and stronger winds and other factors have increased the duration of the wildfire season and the intensity and prevalence of wildfires in California, including in SDG&E’s and SoCalGas’ service territories, and have made these wildfires increasingly difficult to predictprevent and contain. Changing weather patterns, including as a result of climate change, could cause these conditions to become even more extreme and unpredictable. These wildfires could placejeopardize third-party property and the California Utilities’SDG&E’s and SoCalGas’ electric and natural gas infrastructure in jeopardy and reduce the availability of hydroelectric generators, and these wildfires and the associated weather conditions could result in temporary power shortages in SDG&E’s and SoCalGas’ service territories. In addition, certainCertain of California’s local land use policies and forestry management practices have been relaxed to allow for the construction and development of residential and commercial projects in high-risk fire areas, that may not have the infrastructure or contingency plans necessary to address wildfire risks, which could lead to increased third-party claims and greater losses in the event of fires in these areas for which SDG&E or SoCalGas may be liable. We discuss the effectsAny such wildfires or other natural disasters could have on our businesses, including the ways in which theySDG&E’s and SoCalGas’ territories could materially adversely affect the California Utilities’SDG&E’s, SoCalGas’ and Sempra Energy’s business, financial condition,Sempra’s results of operations, financial condition, cash flows and/or cash flows,prospects, which we discuss further in this risk factor below and above under “Risks Related to All Sempra Energy Businesses – Operational Risks.”
The Wildfire Legislation
In July 2019, the Governor of California signed the Wildfire Legislation was signed into law, which addresses certain important issues relatedwe discuss in further detail in Note 1 of the Notes to catastrophic wildfires inConsolidated Financial Statements. The Wildfire Legislation’s revised legal standard for the Staterecovery of California and their impact on electric IOUs (investor-owned gas distribution utilities such as SoCalGas arewildfire costs may not covered by this legislation). The issues addressed include wildfire mitigation, cost recovery standards and requirements, a wildfire fund, abe implemented effectively or applied consistently, we may not be eligible for the Wildfire Legislation’s cap on wildfire-related liability if SDG&E fails to maintain a valid annual safety certifications,certification from the OEIS, and/or the Wildfire Fund could be exhausted due to claims against the fund by SDG&E or other participating IOUs as a result of fires in their respective service territories, any of which could have a material adverse effect on Sempra’s and SDG&E’s results of operations, financial condition, cash flows and/or prospects. PG&E has indicated that it will seek reimbursement from the establishment of aWildfire Fund for losses associated with the Dixie fire, which burned from July 2021 through October 2021 and was reported to be the largest single wildfire safety board. The(measured by acres burned) in California history. In addition, the Wildfire Legislation did not change the doctrine of inverse condemnation, which imposes strict liability (meaning that liability is imposed regardless of fault) on a utility whose equipment, such as its electric distribution and transmission lines, is determined to be a cause of a fire. In such an event, the utility would be responsible for the costs of damages, including potential business interruption losses, as well asand interest and attorneys’ fees, even if the utility has not been found negligent. The doctrine of inverse condemnation also is not exclusive of other theories of liability, including if the utility were found negligent, in which case additional liabilities, such as fire suppression, clean-up and evacuation costs, medical expenses, and personal injury, punitive and other damages, could be imposed. The Wildfire Legislation established a revised legal standard for the recovery of wildfire costs (Revised Prudent Manager Standard) and established the Wildfire Fund designed to provide liquidity to participating California electric IOUs to pay wildfire-related claims against a participating IOU in the event that the governmental agency responsible for determining causation determines such IOU’s equipment caused the ignition of a wildfire, primary insurance coverage is exceeded and certain other conditions are satisfied. However, the standards prescribed by the Wildfire Legislation may not be effectively implemented or applied consistently by the State of California or the Wildfire Fund could be completely exhausted due to fires in other California IOUs’ service territories, by fires in SDG&E’s service territory or by a combination thereof, which could impact our ability to timely access capital necessary to address, in whole or in part, inverse condemnation and other liabilities. Although SDG&E is not aware of any claims made against the Wildfire Fund by any participating IOU, there is no assurance that one or more participating IOUs will not submit claims against the Wildfire Fund in connection with any past or future wildfires. As a result, weWe are unable to predict whetherthe impact of the Wildfire Legislation will be effectively implemented or consistently applied or its impact on SDG&E’s ability to recover certain costs and expenses in the event that SDG&E’s equipment is determined to be a cause of a fire, and specifically in the context of the application of inverse condemnation. If a major fire is determined to be caused by SDG&E’s equipment, or if a major fire is determined to be caused by another California electricparticipating IOU, and the Wildfire Fund is depleted as a result, Sempra Energy’sSempra’s and SDG&E’s business, financial condition, results of operations, financial condition, cash flows and/or cash flowsprospects could be materially adversely affected.
Cost Recovery Through Insurance or Rates
We have experienced increased costs and difficulties in obtaining insurance coverage for wildfires that could be caused by the California Utilities’ operations, particularly SDG&E’s operations, and these conditions could continue or worsen. As a result of the strict liability standard applied to electric IOU-caused wildfires in California, substantial recent losses recorded by insurance companies, and the risk of an increase in the number and size of wildfires, obtaining insurance coverage for wildfires that could be caused by SDG&E or SoCalGas, particularly SDG&E, has become increasingly difficult and costly. If these conditions continue or worsen, insurance for wildfire liabilities may not be availablebecome unavailable or may become prohibitively expensive and we may be available only at rates that are prohibitively expensive.challenged or unsuccessful when we seek recovery of increases in the cost of insurance through the regulatory process. In addition, the insurance that has been obtained for wildfire liabilities and the insurance for these liabilities that may be available in the future, if any, may not be sufficient to cover all losses that we may incur, or it may not be
available in sufficient amounts to meet the $1 billion of primary insurance required by the Wildfire Legislation. Uninsured losses may not be recoverable in customer rates and increases in the cost of insurance may be challenged when we seek cost recovery through the regulatory process. We are unable to predict whether we would be allowedable to recover in rates or from the Wildfire Fund the costsamount of any uninsured losses. A loss whichthat is not fully insured, is not sufficiently covered by the Wildfire Fund and/or cannot be recovered in customer rates, such as the CPUC decision denying SDG&E’s recovery of costs related to wildfires in its service territory in 2007, could materially adversely affect Sempra Energy’sSempra’s and one or both of the California Utilities’SDG&E’s and SoCalGas’ results of operations, financial condition, cash flows and/or results of operations.prospects.
Wildfire Mitigation Efforts
Although we spend significant resources on measures designed to mitigate wildfire risks, there is no assurance that these measures willmay not be successful or effective in preventing wildfires or reducing our wildfire-related losses, or thatand their costs willmay not be fully recoverable in rates. The California Utilities areSDG&E is required by applicable California law to submit annual wildfire mitigation plans for approval by the Wildfire Safety Division of the CPUCOEIS and could be subject to increased risks if these plans are not approved in a timely manner and fines or penalties for any failure to comply with the approved plans. One of our wildfire mitigation and safety tools is to de-energize certain of our facilities when certain weather conditions become extreme and there is elevated wildfire ignition risk, in an effort to help mitigate this safety risk to the public. Suchrisk. These “public safety power shutoffs” have been subject to significant scrutiny by various stakeholders, including customers, regulators and law makers, thatlawmakers, which could lead to legislation or rulemaking that increases the risk of penalties and liability for damages associated with these events. Such costs may not be recoverable in rates. Unrecoverable costs, adverse legislation or rulemaking, scrutiny by key stakeholders, ineffective wildfire mitigation measures or other negative effects associated with wildfire mitigationthese efforts could materially adversely affect Sempra Energy’sSempra’s and SDG&E’s results of operations, financial condition, cash flows and/or results of operations.prospects.
The electricity industry is undergoing significant change, including increased deployment of distributed energy resources, technological advancements, and political and regulatory developments.
Electric utilities in California are experiencing increasing deployment of distributed energy resources (DERs), such as solar generation, energy storage, energy efficiency and demand response technologies, and California’s environmental policy objectives are accelerating the pace and scope of these industry changes. This growth of distributed energy resourcesDERs will require modernization of the electric distribution grid to, among other things, accommodate increasing two-way flows of electricity and increase the grid’s capacity to interconnect distributed energythese resources. Moreover,In addition, enabling California’s clean energy goals will require sustained investments in grid modernization, renewable integration projects, energy efficiency programs, energy storage options and electric vehicle infrastructure. The growth of the third-party energy storage alternatives and other technologies may increasingly compete with SDG&E’s traditional transmission and distribution infrastructure in delivering electricity to consumers. The CPUC is conducting proceedings to:to evaluate various projects and pilots; implement changes to the planning and operation of the electric distribution grid in order to prepare for higher penetration of distributed energy resources;DERs; consider future grid modernization and grid reinforcement investments; evaluate if traditional grid investments can be deferred by distributed energy resources;DERs; determine what, if any, compensation would be feasible and appropriate; and clarify the role of the electric distribution grid operator. These proceedings and the broader changes in California’s electricity industry could result in new regulations, policies and/or operational changes that could materially adversely affect SDG&E’s and Sempra Energy’s businesses, cash flows, financial condition,Sempra’s results of operations, financial condition, cash flows and/or prospects.
SDG&E provides bundled electric procurement service through various resources that are typically procured on a long-term basis. While SDG&E currently provides such procurement service for most of its customer load, some customers do have the ability tocan receive procurement service from a load servingload-serving entity other than SDG&E through programs such as DACCA and CCA. DA is currently limited by a cap based on gigawatt hours andDA. In such cases, SDG&E no longer procures energy for this departing load. CCA is only available if a customer’s local jurisdiction (city) offers such a program. Several localprogram and DA is currently limited by a cap based on gigawatt hours. A number of jurisdictions in SDG&E’s territory, including the City and County of San Diego and 14 other municipalities, have implemented, are implementing or are considering implementing CCA, whichCCA. Based on our current expectations, SDG&E could result in SDG&E providing procurement serviceprocure energy for less than half of its current customer load as early asby December 31, 2021. When2022. SDG&E’s historical energy procurement may exceed the needs of its bundled customers are served by another load serving entity, SDG&E no longer procures electricity for this departing loadas customers elect CCA and DA service. Accordingly, the associated costs of the utility’s procured resources could then be borne by SDG&E’s remaining bundled procurement customers. Existing state law requires that customers opting to havehaving CCA and DA procure their electricity must absorb the cost of above-market electricity procurement commitments already made by SDG&E on their behalf, which requirements are designed to equitably share costs among customers served by SDG&E and
customers served by DACCA and CCA.DA. If adequate mechanisms are not implemented to help ensure compliance with statethis law, if the law changes, or if statethe law changes,does not function as intended to achieve ratepayer indifference, remaining bundled customers of SDG&E could potentially experience large increases in rates for commodity costs under commitments made on behalf of CCA and DA customers prior to their departure or, if all such costs are not recoverable in rates, SDG&E could experience material increases in its unrecoverable commodity costs. If legislative, regulatory or legal action is taken that has the effect of preventing or delaying recoveryAny of these procurement costs or if mechanisms are not in place to help ensure compliance with state law, the unrecovered costsoutcomes could have a material adverse effect on SDG&E’s and Sempra Energy’sSempra’s results of operations, financial condition, cash flows financial condition and/or resultsprospects.
Natural gas and natural gas storage have increasingly been the subject of political and public scrutiny, including a desire by some to substantially reduce or eliminate reliance on natural gas as an energy source.
Certain California legislators and stakeholder, advocacy and activist groups have expressed a desire to further limit or eliminate reliance on natural gas as an energy source by advocating increased use of renewable electricity and electrification in lieu of the use of natural gas. Reducing methane emissions also has become a major focus of certain U.S. legislators and the current U.S. Administration. Certain California state agencies and city governments have recently proposed public policies that wouldor passed ordinances to prohibit or restrict the use and consumption of natural gas for example in new buildings, and appliances and certain local city governments have passed ordinances restricting use of natural gas connections in newly constructed buildings.other applications. These proposalspolicies and ordinances and any other similar regulatory action could have the effect of reducing natural gas use over time. In addition,The CPUC has initiated an OIR to, among other things, implement a long-term planning strategy to manage the state’s transition away from natural gas-fueled technologies in an effort to meet California’s decarbonization goals. CARB, California’s primary regulator for GHG emissionemissions reduction programs, has publishedcontinues to pursue plans for reducing GHG emissions in line with California’s climate goals that include proposals to reduce natural gas demand, including more aggressive energy efficiency programs, to reduce natural gas end use, increased renewable generation in the electric sector reducing noncore gas load,generation and replacement of natural gas appliances with electric appliances. CARB’s plans also propose that some conventional natural gas be displaced with above-market renewable natural gas, which could result in increased costs that may not be fully recoverable in rates, and CARB is currently considering updates to its GHG reduction plans, which are due to be finalized in 2022, that could further reduce natural gas demand. The CPUC has initiated an OIR to update gas reliability standards, determine the regulatory changes necessary to improve coordination between natural gas utilities and natural gas-fired electric generators, and implement a long-term planning strategy to manage the state’s transition away from natural gas-fueled technologies to meet California’s decarbonization goals. The OIR will be conducted in two phases, the first of which is addressing reliability standards and coordination between natural gas utilities and natural gas-fired electric generators, and the second of which will implement a long-term planning strategy. A substantial reduction in, or the elimination of, natural gas as an energy source in California could lead to certainhave a material adverse effect on SoCalGas’, SDG&E’s and Sempra’s results of operations, financial condition, cash flows and/or prospects, including impairment of some or all of SoCalGas’ and SDG&E’s natural gas infrastructure assets no longer meeting CPUC standardsif they were not permitted to recover costs and earn an associated rate of return, thus potentially causing our substantial investment in the value of these gas assetsbe repurposed for alternative fuels, required to be depreciated on an accelerated basis or become stranded, without adequate recovery of and could otherwise have a material adverse effect on SoCalGas’, SDG&E’s and Sempra Energy’s cash flows, financial condition and/or results of operations.the investments.
SDG&E may incur substantialsignificant costs and liabilities as a result offrom its partial ownership of a nuclear facility that is being decommissioned.
SDG&E has a 20% ownership interest in SONGS, formerly a 2,150-MW nuclear generating facility near San Clemente, California, that iswhich we discuss further in Note 15 of the process of being decommissioned by Edison, the majority owner of SONGS.Notes to Consolidated Financial Statements. SDG&E and each of the other owners of SONGS is responsible for financing its share of the facility’s expenses and capital expenditures, including those related to decommissioning activities. Although the facility is being decommissioned, SDG&E’s ownership interest in SONGS continues to subject it to the risks, of owning a partial interest in a nuclear generation facility, which include, among other things:including:
▪the potential release of a radioactive material including from a natural disaster, that could cause catastrophic harm to human health and the environment
▪the potential harmful effects on the environment and human health resulting from the priorformer operation of nuclear facilities and the storage, handling and disposal of radioactive materialsfacility
▪limitations on the amounts and types of insurance commercially available to cover losses that might arise in connectionassociated with operationsoperating and the decommissioning of the facility
▪uncertainties with respect to the technological and financial aspects of decommissioning the facility
In addition, SDG&E maintains NDTsthe SONGS NDT to provide funds for providing funds to decommission SONGS.nuclear decommissioning. Trust assets have been generally invested in equity and debt securities, which are subject to significant market fluctuations. A decline in the market value of trust assets, an adverse change in the law regarding funding requirements for decommissioning trusts, or changes in assumptions or forecasts related to decommissioning dates, technology and the cost of labor, materials and equipment could increase the funding requirements for these trusts, which costs in each case may not be fully recoverable in rates. Furthermore,In addition, CPUC approval is required in order to make withdrawals from these trusts.the NDT, and CPUC approval for certain expenditures may be denied altogether if the CPUC determines that the expenditures are unreasonable. In addition, decommissioning may be materially more expensive than
we currently anticipate and therefore decommissioning costs may exceed the amounts in the trust funds.SONGS NDT. Rate recovery for overruns would require CPUC approval, which may not occur.
The occurrence of any of these events could result in a substantial reduction in our expected recovery and have a material adverse effect on SDG&E’s and Sempra Energy’s businesses, cash flows, financial condition,Sempra’s results of operations, financial condition, cash flows and/or prospects.
We discuss SONGS further in Note 15 of the Notes to Consolidated Financial Statements.
Legal and Regulatory Risks
The California UtilitiesSDG&E and SoCalGas are subject to extensive regulation by federal, state federal and local legislative and regulatory authorities, which may materially adversely affect us.Sempra, SDG&E and SoCalGas.
Rates and Other Capital-RelatedFinancial Matters
The CPUC regulates the California Utilities’SDG&E’s and SoCalGas’ customer rates, except for SDG&E’s electric transmission rates whichthat are regulated by the FERC.FERC, and conditions of service, as well as its sales of securities, rates of return, capital structure, rates of depreciation, long-term resource procurement and other financial matters in various ratemaking proceedings. The CPUC also regulates, among other matters, the California Utilities’:
▪conditions of service
▪sales of securities
▪rates of return
▪capital structure
▪rates of depreciation
▪long-term resource procurement
The CPUC periodically approves the California Utilities’SDG&E’s and SoCalGas’ customer rates based on authorized capital expenditures, operating costs, including income taxes, and an authorized rate of return on investments while incorporating a risk-based decision-making framework, as well as settlements with third parties, while incorporating a risk-based decision-making framework.parties. The outcome of ratemaking proceedings can be affected by various factors, many of which are not in our control, including among others, the level of opposition by intervening parties; any rejection by the CPUC of settlements with third
parties; potential rate impacts; increasing levels of regulatory review; changes in the political, regulatory, or legislative environments; and the opinions of applicable regulators, consumer and other stakeholder organizationsgroups and customers about the California Utilities’ ability to provide safe, reliable, and affordable electric and gas services.customers. These ratemaking proceedings include decisions about major programs in which SoCalGas and SDG&E and SoCalGas make significant investments under an approved CPUC framework, but which investments may remain subject to a CPUC filing or reasonableness review or filingwith unclear standards that couldmay result in the disallowance of a portion of the incurred costs. The California UtilitiesSDG&E and SoCalGas also may be required to incur costs and make investments to comply with proposed legislative and regulatory requirements and initiatives, such asincluding those relatingrelated to the development of a state-wide electric vehicle charging infrastructure, the deployment of distributed energy resources, implementation of demand responseCalifornia’s climate goals and customer energy efficiency programs, energy storagepolicies, and renewable energy targets, gas distribution and transmission safety and integrity, and underground gas storage, among others. The California Utilities’its ability to recover these costs and investments depends in partmay depend on the final form of the legislative or regulatory requirements and the ratemaking mechanisms associated with them, and couldthem. Recovery can also be impactedaffected by the timing and process of the ratemaking mechanism in which there iscan be a potentially significant time lag between when costs are incurred and when those costs are recovered in customers’ rates and there could be potentially material differences between the forecasted orand authorized costs embedded in rates (which are set on a prospective basis) and the amount of actual costs incurred. The cash flows, results of operations, financial condition and/or prospects of Sempra Energy and each of the California UtilitiesCPUC may be materially adversely affected by their rates, which can be impacted by, among other things:
▪also experience delays by the CPUCin its decisions on decisions regarding recovery
▪the results of after-the-fact reasonableness reviews with unclear standards
▪finalization of legislative and regulatory requirements and initiatives in an unexpected manner
▪rejection of settlements with third parties
▪decisions denying recovery or authorizing less than fullmay deny recovery altogether on the basis that costs were not reasonably or prudently incurred or for other reasons
▪actual capital expenditures reasons. Any of these outcomes could materially adversely affect SDG&E’s and SoCalGas’ rates and its and Sempra’s results of operations, financial condition, cash flows and/or operating costs exceeding the amounts approved by the CPUCprospects.
In addition, under the CPUC’s cost of capital framework, SDG&E and SoCalGas are required to file new cost of capital applications every three years. SDG&E’s and SoCalGas’ cost of capital are then assessed in the intervening years through the CCM. The CCM, if triggered by changes in key benchmark interest rates, may trigger automatic adjustment mechanisms that determine the California Utilities’automatically updates SDG&E’s or SoCalGas’, as applicable, authorized rates of return. Specifically, the CCM considers changes in interest rates based on the applicable 12-month average Moody’s utility bond index. If triggered, the CCM would automatically update the California Utilities’ authorized cost of debt based on actual costs and authorized ROE upward or downward by one-half of the difference between the CCM benchmark
and the applicable 12-month average Moody’s utility bond index.return for that year. For the 12-months ended September 30, 2020,2021, SoCalGas did not trigger the CCM, while SDG&E exceeded its benchmark rate, which would trigger the CCM. The CPUC alternatively provides that SDG&E and SoCalGas were closeeach has the right to their respective benchmark rates but didhave its cost of capital assessed through an application based on an extraordinary or catastrophic event that materially impacts its cost of capital and affect utilities differently than the market as a whole. If the CPUC finds that the conditions are met to file such an application, the CCM would not triggerapply. SDG&E has filed an application to have its cost of capital for 2022 assessed through a cost of capital proceeding based on the CCM. Interest rates referenced in the applicable Moody’s utility bond indices have been more than 100 bps below the benchmark since the beginningextraordinary events of the current measurement period.COVID-19 pandemic, rather than have the CCM applied. The CPUC has established a proceeding to determine if SDG&E’s cost of capital was impacted by an extraordinary event. If these interest rates remain at current levels through the remainder ofCPUC finds that there was not an extraordinary event, the current measurement period, a triggering eventCCM trigger for SDG&E and SoCalGas could occur. A trigger of the CCM in 2021 that requires a downward adjustment could materially adversely affect the results of operations, andfinancial condition, cash flows and/or prospects of Sempra Energy and depending onSDG&E. If the CPUC finds that there was an extraordinary event, it will then determine whether to suspend the CCM that is triggered,for 2022 and preserve SDG&E and SoCalGas, beginning January 1,&E’s current authorized cost of capital or hold a second phase of the proceeding to set a new cost of capital for 2022. We further discuss the CCM, furtherincluding the impact of SDG&E’s trigger of the CCM in the most recent measurement period, in “Part I – Item 1. Business – Ratemaking Mechanisms – Sempra California Utilities – Cost of Capital Proceedings”Proceedings,” and in Note 4 of the Notes to Consolidated Financial Statements.
The FERC regulates electric transmission rates, the transmission and wholesale sales of electricity in interstate commerce, transmission access, the rates of return on investments in electric transmission assets, and other similar matters involving SDG&E. These ratemaking mechanisms are subject to many risks similar to those described above regarding the CPUC.
CPUC Authority Over Operational Matters
The CPUC has regulatory authority related to utility operations, safety standards and practices, competitive conditions, reliability and planning, affiliate relationships and a wide range of other operational matters, including citation programs concerning matters such as safety activity, disconnection and billing practices, resource adequacy and environmental compliance. For example, in June 2019, the CPUC opened an OII to determine whether SoCalGas’ and Sempra’s organizational culture and governance prioritize safety. Phase 1 of the OII involved a CPUC consultant producing a report that evaluates organizational culture, governance, policies, practices, and accountability metrics in relation to operations, including record of safety incidents. In January 2022, the CPUC issued a ruling initiating Phase 2 activities and entering the Phase 1 consultant’s report into the record. Consistent with the recommendations of the Phase 1 consultant’s report, the ruling indicates that Phase 2 will focus on constructive, forward-looking actions intended to improve safety outcomes in the future. Many of these standards and programs are becoming more stringent and could impose severe penalties. For example, SDG&E and SoCalGas are subject to a safetypenalties, including enforcement program developed byprograms under which the CPUC pursuant to SB 291staff can issue citations that includes procedures for monitoring, data tracking and analysis, and investigations, and delegates citation authority to CPUC staff under the direction of the CPUC Executive Director.in some cases can impose substantial fines. The CPUC staff has authority to issue citations up to an administrative limit of $8 million per citation under this program, and penalties issued by the CPUC under the program can exceed this administrative limit, having exceeded $1.5 billion in one instance for an unrelated third party. The CPUC conducts various reviews and audits of the matters under its authority including compliance with CPUC regulations, and could launch investigations or open proceedings at any time on any issuesuch matter it deems appropriate, the results of which could lead to citations, disallowances, fines and penalties. Any such citations, disallowances, fines or penalties, for noncompliance with any CPUC regulations, programs or standards, as well as any corrective or mitigation actions required to become in compliance ifaddress any noncompliance that may not be sufficiently funded in customer rates or at all. Any such occurrence could have a material adverse effect on Sempra Energy’sSempra’s, SDG&E’s and the California Utilities’SoCalGas’ results of operations, financial condition, cash flows and/or prospects.
We discuss various CPUC proceedings relating to the California Utilities’ rates, costs, incentive mechanismsSDG&E and performance-based regulationSoCalGas in Notes 4, 15 and 16 of the Notes to Consolidated Financial Statements.
Influence of Other Organizations and Potential Regulatory Changes
The California UtilitiesSDG&E, SoCalGas and Sempra Energy may be materially adversely affected by revisions or reinterpretations of existing or new legislation, regulations, decisions, orders or interpretations of the CPUC, the FERC or other regulatory bodies, any of which could change how the California UtilitiesSDG&E and SoCalGas operate, affect their ability to recover various costs through rates or adjustment mechanisms, or require them to incur substantial additional expenses.expenses or otherwise materially adversely affect their and Sempra’s results of operations, financial condition, cash flows and/or prospects.
The California UtilitiesSDG&E and SoCalGas are also affected by the activities of organizations such as Cal PA, TURN,numerous advocacy groups, including California Public Advocates Office, The Utility Reform Network, Utility Consumers’ Action Network and the Sierra Club and other stakeholder, advocacy and activist groups. To the extent thatClub. Any success by any of these groups are successful in directly or indirectly influencing the California Utilities’regulatory bodies with authority over our operations this could have a material adverse effect on the California Utilities’SDG&E’s, SoCalGas’ and Sempra Energy’s businesses, cash flows,Sempra’s results of operations, financial condition, cash flows and/or prospects.
SoCalGas has incurred and may continue to incur significant costs, expenses and other liabilities related to the Leak, a substantial portion of which may not be recoverable through insurance.
From October 23, 2015 through February 11, 2016, SoCalGas experienced a natural gas leak from one of the injection-and-withdrawal wells, SS25, at its Aliso Canyon natural gas storage facility in Los Angeles County. As further described in Note 16 of the Notes to Consolidated Financial Statements, numerous lawsuits, investigations and regulatory proceedings have been initiated in response to the Leak, resulting in significant costs.
Civil and Criminal Litigation
As of February 22, 2021, 39518, 2022, approximately 390 lawsuits, including approximately 36,000 plaintiffs, two consolidated class action complaints, claims for violations of Proposition 65 and shareholder derivative actions are pending against SoCalGas related to the Leak, some of which have also named Sempra Energy.and/or certain officers and directors of SoCalGas and Sempra. Additional litigation, including by public entities, or criminal complaints may be filed against us related to the Leak or our responses to it. All thesepending cases other than a matter brought by the Los Angeles County District Attorney and the federal securities class action discussed below, are coordinated before a single court in the LA Superior Court for pretrial management. The initial trial previously scheduled for June 2020 forMost of the lawsuits are the subject of an agreement entered into in September 2021 that would result in dismissal of the claims therein and releases by all participating plaintiffs of SoCalGas, Sempra and their respective affiliates from all claims related to the Leak. However, this agreement is subject to various conditions to effectiveness, including a small number of randomly selected individual plaintiffs was postponed, with a new trial date yet to be determinedminimum participation rate by the court.
Four shareholder derivative actions were filed alleging breach of fiduciary duties against certain officersapplicable plaintiffs and certain directors of Sempra Energy and/or SoCalGas. Three of the actions were joined in an Amended Consolidated Shareholder Derivative Complaint, which was dismissed with prejudice in January 2021. The remaining action was also dismissed but plaintiffs were given leave to amend their complaint.
A misdemeanor criminal complaint was filed by the Los Angeles County District Attorney’s office, as to which SoCalGas entered a settlement that was approvedapprovals by the LA Superior Court; challengesCourt, which may not be satisfied. If these conditions are not satisfied, then the agreement will not become effective and all lawsuits subject to the agreement will remain pending. If these conditions are satisfied, then SoCalGas will be required to make payments of up to $1.8 billion to the participating plaintiffs. The two class action complaints are the subject of agreements also entered into in September 2021 that would result in dismissal of the claims therein and releases by certain residents have been rejectedplaintiffs and class members. One of these agreements requires approvals by the California Supreme Court.
Additional litigation, including by public entities,LA Superior Court, which may not be satisfied, in which case the complaint will remain pending. If the settlement is approved, then SoCalGas will be required to pay $40 million to a class of property owners. Sempra elected to make an $800 million equity contribution to SoCalGas in September 2021 and criminal complaints may be filed against uselect to make additional equity contributions in the future that are intended to maintain SoCalGas’ approved capital structure in connection with the accruals related to these agreements. Such amounts, as well as the Leak or our responses thereto.
The costs of defending against or settling or otherwise resolving the civil and criminalremaining pending lawsuits, including any lawsuits filed by plaintiffs or class or putative class members who do not agree to settle under or opt out of the agreements described above, and any compensatory, statutory or punitive damages, restitution, and civil, administrative and criminal fines, penalties and other costs, if awarded or imposed, as well as the costscould materially adversely affect SoCalGas’ and Sempra’s results of mitigating the actual natural gas released, could be significant.operations, financial condition, cash flows and/or prospects. We discuss these risks further above under “Risks Related to All Sempra Energy Businesses – Legal and Regulatory Risks” and in this risk factor below under “Insurance and Estimated Costs.”
Governmental Investigations, Orders and Additional Regulation
In January 2016, CalGEM and the CPUC selected Blade to conduct, under their supervision, an independent analysis of the technical root cause of the Leak, to be funded by SoCalGas. The root cause analysis was released in May 2019 and did not identify any instances of non-compliance by SoCalGas and concluded that SoCalGas’ compliance activities conducted prior to the Leak did not find indications of a casing integrity issue, but also opined that there were measures, though not required by gas storage regulations at the time, that could have been taken to aid in the early identification of corrosion and that, in Blade’s opinion, would have prevented or mitigated the Leak.
In June 2019, the CPUC opened an OII to consider penalties against SoCalGas for the Leak. The first phase will consider, among other things, whether SoCalGas violated applicable laws, CPUC orders or decisions, rules or requirements and whether SoCalGas engaged in unreasonable and/or imprudent practices with respect to its operation and maintenance of the Aliso Canyon natural gas storage facility or its related record-keeping practices, whether SoCalGas cooperated sufficiently with thepractices. The SED and Blade during the pre-formal investigation, and whether anyhas alleged hundreds of the mitigation proposed by Blade should be implemented to the extent not already done. In November 2019, the SED, based largely on the Blade report, alleged a total of 330 violations in this first phase, asserting that SoCalGas violated California Public Utilities Code Section 451 and failed to cooperate in the investigation and to keep proper records. Hearings on a subset of issues are scheduled to begin in March 2021. The second phase will consider whether SoCalGas should be sanctioned for the Leak and what damages, fines or other penalties, or sanctions, if any, should be imposed for any violations, unreasonable or imprudent practices, or failure to sufficiently cooperate with the SED as determined by the CPUC in the first phase. In addition, the second phase will determine the amounts of various costs incurred by SoCalGas and other parties in connection with the Leak and the ratemaking treatment or other disposition of such costs incurred by SoCalGas in connection with the Leak, which could result in little or no recovery of such costs by SoCalGas.costs. SoCalGas has engaged in settlement discussions with the SED in connection with this proceeding.
This OII and other investigations into the Leak could result in findings of violations of laws, orders, rules or regulations as well as fines and penalties, any of which could involve substantial costs and cause reputational damage. In addition, SoCalGas may incur higher operating costs and additional capital expenditures incurred by SoCalGas as a result of these investigations or new laws, orders, rules and regulations arising out of this incident, or our responses thereto, could be significant andwhich may not be recoverable through insurance or in customer rates. In addition, any of these investigations could result in findings of violations of laws, orders, rules or regulations as well as fines and penalties, any of which could cause significant reputational damage. The occurrence of any of these risks could materially adversely affect SoCalGas’ and Sempra Energy’sSempra’s results of operations, financial condition, cash flows financial condition and/or results of operations.prospects.
Natural Gas Storage Operations and Reliability
Natural gas withdrawn from storage is important for service reliability during peak demand periods, including peak electric generation needs in the summer and consumer heating needs in the winter. The Aliso Canyon natural gas storage facility is the largest SoCalGas storage facility and an important element of SoCalGas’ delivery system. As a result of the Leak, SoCalGas suspended injection of natural gas into the Aliso Canyon natural gas storage facility beginning in October 2015 and, following a comprehensive safety review and authorization by CalGEM and the CPUC’s Executive Director, resumed injection operations in July 2017 based on limited operating ranges for the field. In February 2017, the CPUC opened a proceeding pursuant to SB 380 OII to determine the feasibility of minimizing or eliminating the use of the Aliso Canyon natural gas storage facility while still maintaining energy and electric reliability for the region, including considering alternative means for meeting or avoiding the demand for the facility’s services if it were eliminated.
If the Aliso Canyon natural gas storage facility were to be permanently closed, or if future cash flows from its operation were otherwise insufficient to recover its carrying value, it could result in an impairment of the facility and significantlycould be impaired, higher than expected operating costs could be incurred and/or additional capital expenditures may be required, any or all of which may not be recoverable in rates, and natural gas reliability and electric generation could be jeopardized. At December 31, 2020, the Aliso Canyon natural gas storage facility had a net book value of $821 million. Any significant impairment of this asset, or higher operating costs and additional capital expenditures incurred by SoCalGas that may not be recoverable in customer rates,such outcome could have a material adverse effect on SoCalGas’ and Sempra Energy’sSempra’s results of operations, financial condition, cash flows and/or cash flows.prospects.
Insurance and Estimated Costs
At December 31, 2020,2021, SoCalGas estimates certain costs related to the Leak are $1,627$3,221 million (the cost estimate), which includes the $1,279 million of costs recovered or probable of recovery from insurance. This cost estimate may increase significantly as more information becomes available. A substantial portion of the cost estimate has been paid, and $451$1,983 million is accrued as Reserve for Aliso Canyon Costs as ofat December 31, 20202021 on SoCalGas’ and Sempra Energy’sSempra’s Consolidated Balance Sheets.
The actionscivil litigation against us related to the Leak as described in this risk factor above under “Civil and Criminal Litigation” seekseeks compensatory, statutory and punitive damages, restitution, and civil administrative and criminaladministrative fines, penalties and other costs. In addition, weWe also could be subject to damages, fines or other penalties or sanctions as a result of the pending regulatory investigations and other matters described in this risk factor above under “Governmental Investigations, Orders and Additional Regulation.”related to the Leak. Except for the amounts paid or estimated to settle certain actions,legal and regulatory matters as described in this risk factor above, under “Civil and Criminal Litigation,” the cost estimate does not include litigation, regulatory proceedings or regulatory costsother matters to the extent it is not possible to predict at this time the outcome of these actions or reasonably estimate the possible costs to defend or resolve the actions or the amounta range of possible costs for damages, restitution, civil or civil, administrative fines or criminal fines, sanctions, penalties, defense, settlement or other costs or remedies that may be imposed or incurred. The cost estimate also does not include certain other costs incurred by Sempra Energy associated with defending against shareholder derivative lawsuits and other potential costs that we currently do not anticipate incurring or that we cannot reasonably estimate. Further, we are not able to reasonably estimate the possible loss or a range of possible losses in excess of the amounts accrued. These costs or losses not included in the cost estimate could be significant and could have a material adverse effect on SoCalGas’ and Sempra Energy’sSempra’s results of operations, financial condition, cash flows financial condition and results of operations.and/or prospects.
We have received insurance payments for many of the categories of costs included in the cost estimate, and we intend to pursue the full extent of our insurance coverage for all otherthe costs we have incurred. Other than insurance for certain future defense costs we may incur as well as directors’ and officers’ liability, we have exhausted all of our insurance in this matter. We continue to pursue other sources of insurance coverage for costs related to this matter, but we may not be successful in obtaining additional insurance recovery for any of these costs. If we are not able to secure additional insurance recovery, if any costs we have recorded as an insurance receivable are not collected, if there are delays in receiving insurance recoveries, or if the insurance recoveries are subject to income taxes while the associated costs are not tax deductible, such amounts, which could be significant, could have a material adverse effect on SoCalGas’ and Sempra Energy’sSempra’s results of operations, financial condition, cash flows financial condition and results of operations.and/or prospects.
Additional Information
We discuss Aliso Canyon natural gas storage facility matters further in Note 16 of the Notes to Consolidated Financial Statements.
TheAny failure by the CPUC to adequately reform SDG&E’s rate structure including the implementation of charges independent of consumption volume and measures to reduce NEM rate subsidies, could have a material adverse effect on SDG&E’s&E and Sempra Energy’s business, cash flows, financial condition, results of operations and/or prospects.Sempra.
The NEM program is an electric billing tariff mechanism designed to promote the installation of on-site renewable generation (primarily solar installations) for residential and business customers. Under the current mechanism, NEM qualifying customer-generatorscustomers receive a full retail rate for the energy they generate but do not use that is fed to the utility’s power grid. This occurs during times when the customer’s generation exceeds their own energy usage. Under this structure, NEMgrid, which results in these customers do not paypaying their proportionate share of the cost of maintaining and operating the electric transmission and distribution system, subject to certain exceptions, while theybut still receivereceiving electricity from the system when their self-generation is inadequate to meet their electricity needs. The unpaid NEM costs are subsidized by customers not participating in NEM. Accordingly, asAs more electric-use customers and higher electric-use residential customers switch to NEM and self-generate energy, the burden on remaining non-NEM customers, who effectively subsidize the remaining customersunpaid NEM costs, increases, which in turn encourages more self-generation and further increasingincreases rate pressure on existingremaining non-NEM customers.
The current electric residential rate structure in California is primarily based on consumption volume, which places a higher rate burden on customers with higher electric use while subsidizing lower use customers. In July 2015,As of December 31, 2021, the CPUC adopted a decision that provided a framework for rates that could be more transparent, fair and sustainable. The framework provides for a minimum
monthly bill, fewer rate tiers and a gradual reduction in the differences between the tiered rates, and directs the utilitieshas declined to pursue expanded time-of-use rates. Most elements of the framework were implemented in 2020 and should result in some relief for higher-use customers and a rate structure that better aligns rates with actual costs to serve customers. The decision also established a process for electric utilities to seek implementation ofadopt a fixed charge independent of consumption volume for residential customers, subject to certain conditions; however, in March 2020, the CPUC adopted a decision rejecting electric utilities’ requests to establish a fixed residential charge. The decision allowscustomers. However, it has advised the utilities to renew their requests for a fixed charge at a later date if such proposals include an adequate customer outreach and communications plan. In August 2020, the CPUC initiated a rulemaking to further develop a successor to the existing NEM tariff. We expectIn December 2021, a proposed decision establishing a successor tariff to bewas issued in the fourth quarter of 2021, with implementationrecommending substantial reform of the successor tariffNEM program through the establishment of a new Net Billing Tariff that would apply to new net metered customers. The new Net Billing Tariff is intended to provide for the payment by January 2022.new net metered customers of their proportionate share of maintaining and operating the electric transmission and distribution system, which, if the proposed decision is adopted, should reduce the cost-shifting burden from new net metered customers to non-NEM customers. The timing of the final decision is uncertain. Depending on the structure and functionality of such a successor tariff,the Net Billing Tariff, which is uncertain, the current risks associated with the existing NEM tariff could continue or increase.
SDG&E believes the establishment of a charge independent of consumption volume for residential customers is critical to help ensuredistribute rates are distributed among all customers that rely on the electric transmission and distribution system, including those participating in the NEM program. In addition, distributed energy resources and energy efficiency initiatives could generally reduce delivered volumes, increasing the importance of a fixed charge. The absence of a charge independent of consumption volume coupled with the continuing increase of solar installation and other forms of self-generation, as well as the progression of distributed energy resources and energy efficiency initiatives that could also reduce delivered volumes, could adversely impact electricity rates and the reliability of the electric transmission and distribution system, whichsystem. Any such impact could subject SDG&E to higher levels ofincreased customer dissatisfaction, increased likelihood of noncompliance with CPUC or other safety or operational standards and increased risks attendant to any such noncompliance, as we discuss above, under “Risks Related to the California Utilities – Legal and Regulatory Risks,” and also could increase SDG&E’sas well as increased costs, including power procurement, operating orand capital costs, and increase the likelihood ofpotential disallowance of recovery for these costs.
If the CPUC fails to adequately reform SDG&E’s rate structure to better achieve reasonable, cost-based electric rates that are competitive with alternative sources of power and adequate to maintain the reliability of the electric transmission and distribution system, such failure could have a material adverse effect on SDG&E’s and Sempra Energy’s business, cash flows, financial condition,Sempra’s results of operations, financial condition, cash flows and/or prospects.
RISKS RELATED TO SEMPRA TEXAS UTILITIES
Operational and Structural Risks Related to Our Interest in Oncor
Certain ring-fencing measures, governance mechanisms and commitments limit our ability to influence the management, operations and policies of Oncor.
Various “ring-fencing” measures, governance mechanisms and commitments are in place to enhance Oncor’s separateness from its owners and to mitigate the risk that Oncor would be negatively impacted in the event of a bankruptcy or other adverse financial developments affecting its owners. This ring-fence creates bothcreate legal and financial separation between Oncor Holdings, Oncor and their subsidiaries, on the one hand, and Sempra Energy and its affiliates and subsidiaries, on the other hand.
In accordance with These measures are designed to enhance Oncor’s separateness from its owners and mitigate the ring-fencingrisk that Oncor would be negatively impacted by a bankruptcy or other adverse financial development affecting its owners. These measures governance mechanismssubject us and commitments we established in connection with our acquisition of an 80.25% indirect interest in Oncor in March 2018, we and Oncor are subject to various restrictions, including, among others:including:
▪seven members of Oncor’s 13-person board of directors willmust be independent directors in all material respects under the rules of the NYSE in relation to Sempra Energy and its subsidiaries and affiliated entitiesaffiliates and any other direct or indirect owners of Oncor, and also willmust have no material relationship with Sempra Energy andor its subsidiaries and affiliated entitiesaffiliates or any other direct or indirect owners of Oncor currently or within the previous 10 years. With respect toyears; of the six remaining directors, two willmust be designated by Sempra, Energy, two willmust be designated by Oncor’s minority owner, TTI, and two willmust be current or former Oncor officers
▪Oncor will not pay any dividends or other distributions (except for contractual tax payments) if a majority of its independent directors or any of the directors appointed by TTI determines that it is in the best interestsinterest of Oncor to retain such amounts to meet expected future requirements
▪Oncor will not pay dividends or other distributions (except for contractual tax payments) if that payment would cause its debt-to-equity ratio to exceed the debt-to-equity ratio approved by the PUCT
▪if Oncor’s senior secured debt credit rating by any of the three major rating agenciesRating Agencies falls below BBB (or Baa2 for Moody’s), Oncor will suspend dividends and other distributions (except for contractual tax payments), unless otherwise allowed by the PUCT
▪there must be maintained certain “separateness measures” thatmaintained to reinforce the legal and financial separation of Oncor from Sempra, Energy, including a requirement that dealings between Oncor and Sempra Energy or Sempra Energy’sSempra’s affiliates (other than Oncor Holdings and its subsidiaries) must be on an arm’s-length basis, limitations on affiliate transactions and a prohibition on pledging Oncor assets or stock for any entity other than Oncor
▪a majority of Oncor’s independent directors and the directors designated by TTI that are present and voting (of which(with at least one mustrequired to be present and voting) must approve any annual or multi-year budget if the aggregate amount of capital expenditures or O&M in such budget is more than a 10% increase or decrease from the corresponding amounts of such expenditures in the budget for the preceding fiscal year or multi-year period, as applicable
▪Sempra Energy willmust continue to hold indirectly at least 51% of the ownership interests in Oncor Holdings and Oncor until at least March 9, 2023, unless otherwise specifically authorized by the PUCT
As a result of these measures, we do not control Oncor Holdings or Oncor, and we have limited ability to direct the management, policies and operations of Oncor Holdings and Oncor, including the deployment or disposition of their assets, declarations of dividends, strategic planning and other important corporate issues and actions.matters. We have limited representation on the Oncor Holdings and Oncor boards of directors, which are each controlled by independent directors. Moreover, all directors of Oncor, including thosethe directors we have appointed, have considerable autonomy and as described in our commitments, have a duty to act in the best interest of Oncor consistent with the approved ring-fence and Delaware law, which may in certain cases be contrary to our best interests or be in opposition to our preferred strategic direction for Oncor.interests. To the extent that the directors approve or Oncor otherwise pursues actions that are not in our interests, the financial condition,our results of operations, financial condition, cash flows and/or prospects of Sempra Energy may be materially adversely affected.
Industry-Related Risks
Changes in the regulation or operation of the electric utility industry including changes in regulation ofand/or the ERCOT market could materially adversely affect Oncor’s results of operations, cash flows, financial condition and/or prospects,Oncor, which could materially adversely affect us.
Oncor operates in the electric utility sectorindustry and, is subject to various legislative requirements and regulations by U.S., Texas and regional and local authorities. Asas a result, it is subject to many of the same or similar risks as ourSempra California Utilities as we describe above under “Risks Related to the California Utilities.Sempra California.” TheIn particular, the costs and burdens associated with complying with thesethe various legislative and regulatory requirements to which Oncor is subject at the federal, state, and local levels and adjusting Oncor’s business and operations in response to legislative and regulatory developments, including changes in ERCOT, and any fines or penalties that could result from any noncompliance, may have a material adverse effect on Oncor. In addition, Oncor operates in the ERCOT market and, as a result, any economic weakness or reduced electricity demand in ERCOT could materially adversely affect Oncor. Moreover, potential legislative, regulatory, or market or industry changes may jeopardize the predictability of utility earnings generally. In February 2021, following extreme winter weather, the PUCT issued a moratorium on customer disconnections due to nonpayment and could take other similar measures to address financial challenges experienced by other ERCOT market participants, whichactivities could adversely impact Oncor’s collections and cash flows and in turn, could adversely impact us. Also in February 2021, ERCOT required transmission companies,jeopardize the predictability of utility earnings, including Oncor, to significantly reduce demandtemporary measures such as the approximately four-month long moratorium on the gridcustomer disconnections due to insufficient electricity generation caused by extreme winter weather, resultingnonpayment that was in power outages throughout ERCOT. The Governor of Texas has declared reform of ERCOT asplace following an emergency item for the current Texas Legislative session. Various regulatory and governmental entities have indicated an intent to investigate the operation of the ERCOT grid during this extreme winter weather event and additional inquiries could also arise. Any significant changes relatingresulting power outages in February 2021, other actions taken by governmental authorities, customers or other third parties to address financial challenges following this event or other similar events, legislation affecting the ERCOT market to address issues with its operation during this event or other similar events or to improve grid reliability generally, or the growth of third-party distributed energy resources and other technologies that impactmay increasingly compete with Oncor’s traditional transmission and distribution utilities as a result of such proceedings or otherwise could materially adversely impact Oncor.infrastructure in delivering electricity to consumers. If Oncor does not successfully respond to these changes and any other legislative, regulatory, or market or industrysuch changes applicable to it, Oncor could suffer a deterioration in its results of operations, financial condition, cash flows and/or prospects, which could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
Financial Risks
Oncor’s operations are capital intensivecapital-intensive, and it could have liquidity needs that necessitate additional investments in Oncor.investments.
Oncor’s business is capital intensive,capital-intensive, and it relies on external financing as a significant source of liquidity for its capital requirements. In the past, Oncor has financed a substantial portionmuch of its cash needs from operations and with proceeds from indebtedness, but these sources of capital may not be adequate or available in the future. OurBecause our commitments to the PUCT prohibit us from making loans to Oncor. As a result,Oncor, we may elect to make additional capital contributions if Oncor fails to meet its capital requirements or if Oncor is unable to access sufficient capital to finance its ongoing needs, we may elect to make additional capital contributions to Oncor.needs. Any such investments could be substantial, and would reduce the cash available to us for other purposes, and could increase our indebtedness, andany of which could ultimately materially adversely affect our results of operations, financial condition, cash flows financial condition and/or prospects.
Sempra Energy could incur substantial tax liabilities if EFH’s 2016 spin-off of Vistra from EFH is deemed to be taxable.
As part of its ongoing bankruptcy proceedings, in 2016, EFH distributed all the outstanding shares of common stock of its subsidiary Vistra Energy Corp. (formerly TCEH Corp. and referred to herein as Vistra) to certain creditors of TCEH LLC (the spin-off), and Vistra became an independent, publicly traded company. Vistra’s spin-off from EFH was intended to qualify for partially tax-free treatment to EFH and its shareholders under Sections 368(a)(1)(G), 355 and 356 of the IRC (collectively referred to as the Intended Tax Treatment). In connection with and as a condition to the spin-off, EFH received a private letter ruling from
the IRS regarding certain issues relating to the Intended Tax Treatment, of the spin-off, as well as tax opinions from counsel to EFH and Vistra regarding certain aspects of the spin-off not covered by the private letter ruling.
In connection with the signing and closing of the merger of EFH with an indirect subsidiary of Sempra Energy, with EFH continuing as the surviving company and as an indirect, wholly owned subsidiary of Sempra Energy (the Merger), EFH sought and received a supplemental private letter ruling from the IRS and Sempra Energy and EFH received tax opinions from their respective counsels that generally provide that the Merger will not affect the conclusions reached in, respectively, the IRS private letter ruling and tax opinions issued with respect to the spin-off described above. Similar to the IRS private letter ruling and opinions issued with respect to the spin-off, the supplemental private letter ruling is generally binding on the IRS and any opinions issued with respect to the Merger are based on factual representations and assumptions, as well as certain undertakings, made by Sempra Energy and EFH, now Sempra Texas Holdings Corp. and a subsidiary of Sempra Energy.Sempra. If such representations and assumptions are untrue or incomplete, any such undertakings are not complied with, or the facts upon which the IRS supplemental private letter ruling or tax opinions (which will not impact the IRS position on the transactions) are based are different from the actual facts relating to the Merger, the tax opinions and/or supplemental private letter ruling may not be valid and as a result, could be challenged by the IRS. Even though Sempra Texas Holdings Corp. would have administrative appeal rights if the IRS were to invalidate its private letter ruling and/or supplemental private letter ruling, including the right to challenge any adverse IRS position in court, any such appeal would be subject to significant uncertainties and could fail. If it is ultimately determined that the Merger caused the spin-off not to qualify for the Intended Tax Treatment, Sempra, Energy, through its ownership of Sempra Texas Holdings Corp., could incur substantial tax liabilities, which would materially reduce and potentially eliminate the value associated with our indirect investment in Oncor and could have a material adverse effect on theSempra’s results of operations, financial condition, cash flows and/or prospects of Sempra Energy and on the market value of ourits common stock, preferred stock and debt securities.
Risks Related to Our Businesses Other Than the California Utilities and Our Interest in OncorRISKS RELATED TO SEMPRA INFRASTRUCTURE
Operational Risks
Project development activities may not be successful, and projects under construction may not commence operation as scheduled, be completed on schedule or within budget, orand completed projects may not operate at expected levels, any of which could have a material adverse effect on our businesses, financial condition, cash flows, results of operations and/or prospects.materially adversely affect us.
All Energy Infrastructure Projects
We are involved in a number of energy infrastructure projects, including natural gas liquefaction facilities; marine and inland ethane and liquid fuels and LPG terminals and storage; natural gas, propane and ethane pipelines and distribution and storage facilities; electric generation, transmission and distribution infrastructure; and other projects. The acquisition, development, construction and expansion of these projects involvewhich subject us to numerous risks.
We may be required to spend significant sums for preliminary engineering, permitting, fuel supply, infrastructure development, legal and other expenses before we can determine whether a project is feasible, economically attractive, or capable of being built. If the project is not completed, we may have to impair or write off amounts that we have invested in project development and never receive any return on these preliminary investments.
Success in developing such a project is contingent upon, among other things:
▪our financial condition and cash flows and other factors that impact our ability to invest sufficient funds into the project, including for preliminary matters that may need to be accomplished before we can determine whether the project is feasible or economically attractive
▪project assessment and design and our ability to foresee and incorporate new and developing trends and technologies in the energy industry, such as our pursuit of projects and design solutions to help enable our and our customers’ climate goals
▪our ability to reach a final investment decision or otherwise make progress with respect to any project,meet other milestones, which may be dependent on our financial condition and cash flows and may be influenced by a number of external factors outside our control, including the global economy and global energy and financial markets, actions by regulators, achieving necessary internal and external approvals, including, as applicable, by all project partners, and many of the other factors described in this risk factor
▪negotiation of satisfactory EPC agreements, including any renegotiation of total contract price and other terms that may be required in the event of delays in final investment decisions or other failures to meet specified deadlines with respect to a project
▪if we intendprogressing relationships from MOUs or similar arrangements, which are nonbinding and generally do not impose obligations on any of the parties, to have equity partnersexecution of definitive agreements and participation in the project identification of suitable partners and negotiation of satisfactory equity agreements
▪identification of suitable partners, customers, suppliers and other necessary counterparties, negotiation of satisfactory LNG offtake orequity, purchase, sale, supply, transportation and other customer agreements
▪negotiation of satisfactory supply, natural gas and LNG sales agreements or firm capacity serviceappropriate commercial agreements, and PPAssatisfaction of any conditions to effectiveness of such agreements, including reaching a final investment decision within agreed timelines
▪timely receipt and maintenance of required governmental permits, licenses and other authorizations that do not impose material conditions and are otherwise granted under terms we find reasonable as well as maintenance of these authorizations
▪our project partners’, contractors’ and other counterparties’ willingness and financial or other ability to make their required investments or fulfill their contractual commitments on a timely basis
▪our contractors and other counterparties’ willingness and financial or other ability to fulfill their contractual commitments
▪timely, satisfactory and on-budget completion of construction, which could be negatively affected by engineering problems, adverse weather conditions or other natural disasters, pandemics, cyber- or other attacks by third parties, work stoppages, equipment unavailability, contractor performance shortfalls and a variety of other factors, many of which we discuss above under “Risks Related to All Sempra Energy Businesses – Operational Risks” and elsewhere in this risk factor below
▪implementation of new or changes to existing laws or regulations that impact our infrastructure or the energy sector generally
▪obtaining adequate and reasonably priced financing for the project
▪the absence of hidden defects or inherited environmental liabilities for any brownfield project construction
▪fast and cost-effective resolution of any litigation or unsettled property rights affecting athe project
▪geopolitical events and other uncertainties, such as the conflict in Ukraine
Any failures with respect to the above factors or other factors material to any particular project could involve significant additional costs to us and otherwise materially adverselynegatively affect our ability to successfully complete the successful completion of aproject and force us to impair or write off amounts we have invested in the project. If we are unable to complete a development project, if we experience substantial delays, or if construction, financing or other project costs exceed our estimated budgets and we are required to make additional capital contributions, we may never recover or receive an adequate or any return on our businesses,investment and other resources invested in the project and our results of operations, financial condition, cash flows results of operations and/or prospects could be materially adversely affected.
The operation of existing facilities such as Cameron LNG JV’s Phase 1 facility, and any future projects we are able to complete involves many risks, including among others, the potential for unforeseen design flaws, engineering challenges, equipment failures or the breakdown for other reasons of liquefaction, regasification and storage facilities, electric generation, transmission and distribution infrastructure or other equipment or processes; labor disputes; fuel interruption; environmental contamination; and operating performance below expected levels. In addition, weather-related incidents andthe other natural disasters, pandemics, cyber- or other attacks by third parties and other similar events can disrupt liquefaction, generation, regasification, storage, transmission and distribution systems and have other impactsoperational risks that we discuss above under “Risks Related to All Sempra Energy Businesses – Operational Risks.” The occurrence of anyAny of these events could lead to our facilities being idle for an extended period of time or our facilities operating below expected capacity levels, which may result in lost revenues or increased expenses, including higher maintenance costs and penalties. Any such occurrence could materially adversely affect our businesses,results of operations, financial condition, cash flows results of operations and/or prospects.
LNG Export Projects
In addition to the risks described above that are applicable to all our energy infrastructure projects, we are exposed to additional risks in connection with our LNG export projects, including Cameronthe ECA LNG JV’s Phase 1 project under construction and our potential development of additional LNG export facilities. Sempra LNG is in discussions with the co-owners of Cameron LNG JV regarding the potential expansion of the facility in Phase 2 to include up to two additional liquefaction trains, is developing a proposed natural gas liquefaction export project near Port Arthur, Texas, and, through a JV agreement with IEnova, is developing a proposed natural gas liquefaction export project at IEnova’s existing ECA Regas Facility in Baja California, Mexico to be developed in two phases (a mid-scale project referred to as ECA LNG Phase 1 and a large-scale project referred to as ECA LNG Phase 2). These projects are at various stages of development, and we have only reached a final investment decision with respect to ECA LNG Phase 1, which occurred in the fourth quarter of 2020. We discuss each of our LNG export projects further in “Part II – Item 7. MD&A – Capital Resources and Liquidity – Sempra LNG.Infrastructure.”
Each of these projects faces numerous risks and must overcome significant hurdles.risks. Our ability to reach a final investment decision for each project and, if such a decision is reached and a project is completed, the overall success of suchthe project are dependent on global energy markets, including natural gas and oil supply, demand and pricing. In general, a shiftdepressed natural gas and LNG prices in the markets we intend to serve due to shifts in supply of natural gasor other factors could depress LNG pricesreduce the pricing and the cost advantages of exporting domestically produced natural gas and LNG, from the U.S.which could lead to decreased demand. In addition, global oil prices and their associated current and forward projections could reduce the demand for natural gas and LNG in some sectors and cause a corresponding reduction in projected global demand for LNG. Such asectors. A reduction in natural gas demand could also occur from higher penetration of alternative fuels in new power generation, or as a result of calls by some to limit or eliminate reliance on natural gas as an energy source globally. Any of these developments could result in increased or decreased competition and impact prospects for developing projects in an environment of declining LNG demand, and could negatively affect the performance and prospects of any of our projects that are or become operational. Moreover, if and as our development projects become operational, such projects could become competitive against each other, which would harm the overall success of our LNG export strategy. At certain moderate levels, oilOil prices could also make LNG projects in other parts of the world more feasible and competitive with LNG projects in North America, thus increasing supply and competition for theany available LNG demand. A decline in natural gas prices outside the U.S. (which in many foreign countries are based on the priceAny of crude oil) may also materially adverselythese developments could impact competition and prospects for developing LNG export projects and negatively affect the relative pricing advantage that has existed in recent years in favorperformance and prospects of domestic natural gas (based on Henry Hub pricing), which could further decrease demand for domestic LNG and increase competition among LNG project developers.
There are a numberany of potential new LNGour projects in addition to ours that are under construction or in the process of development by various project developers in North America, and given the projected global demand for LNG and the inherent risks of these projects, the vast majority of these projects likely will not be completed. become operational.
Our proposed projects may face distinct disadvantages relative to some of the other LNG projects under construction or in development. For example:
▪Our Port Arthur, Texasdevelopment by other project is a greenfield site, and therefore it does not have some of the advantages often associated with brownfield sites. Some of these disadvantages include increased costs and time to construct, which could materially adversely affect the development of this project.developers, including:
▪The proposed expansion of the Cameron LNG JV facility (Phase 2) is subject to certain restrictions and conditions under the project financing agreements for Phase 1 of the project including, among others, timing restrictions unless appropriate prior consent is obtained from the project lenders, and requires unanimous consent of all JV partners, including with respect to the equity investment obligations of each partner. There is no assurance thatWe may not be able to satisfy these conditions and requirements, can be satisfied, in which case our ability to develop the Phase 2 project would be jeopardized.
▪Our Port Arthur, Texas project is a greenfield site and therefore is subject to disadvantages relative to brownfield sites, including increased time and costs to develop and construct the project.
▪The ECA Regas Facility, the ECA LNG Phase 1 liquefaction export project under construction and the potential ECA LNG Phase 2 liquefaction export project in Mexicoprojects are subject to ongoing land and permit disputes that could make findingobstruct efforts to find or maintainingmaintain suitable partners, customers and customers, difficult,financing arrangements and could also hinder or halt construction and, if the project isprojects are completed, operations. We discuss these risks further below and under “Risks Related to Our Businesses Other Than the California Utilities and Our Interest in OncorSempra Infrastructure – Legal and Regulatory Risks.” In addition, while we have completed the Mexican regulatory process for this LNG export facility in the U.S., the regulatory process in Mexico and the overlay of U.S. regulations for natural gas exports to an LNG export facilityfacilities in Mexico are not well developed. We experienced significantdeveloped, which, among other factors, contributed to delays obtaining a necessary export permit from the Mexican government and reaching a final investment decision for the ECA LNG Phase 1 liquefaction export project, due in part to government closures as a result of the COVID-19 pandemic, which resulted in material delays in our ability to reach a final investment decision for this project and we could experiencecause similar delays or face other hurdles in obtaining, renewing or maintaining all necessary permitsthe future and other approvals from the Mexican government for projects in the future. As a result, there is no assurance that the proposed ECA LNG Phase 2 project will be constructed and operated without facing significant regulatory challenges and uncertainties, or at all, which in turn could make project financing, as well aslead to difficulties finding or maintaining suitable partners, customers and customers forfinancing arrangements. We have entered into contracts with affiliates and third parties, subject to certain conditions, to supply and transport gas to and across the U.S.-Mexico border to meet the requirements of the ECA LNG Phase 21 project difficult.if and when it becomes operational. If affiliates or third parties experience any delays or fail to obtain and maintain necessary permits and arrangements to provide such supply or transportation service or if we fail to maintain adequate gas supply and transportation agreements to support the project fully, it
could cause additional costs or delays to the ECA LNG Phase 1 project. Finally, although we have planned measures to not disrupt operations at the ECA Regas Facility with the construction or operation of the ECA LNG Phase 1 project. However, this is not the case with respect to theproject, we expect construction of the proposed ECA LNG Phase 2 project which we expect maywould conflict with the current operations at the ECA Regas Facility. The ECA Regas Facility currently has long-term regasification contracts for 100% of the regasification facility’s capacity through 2028,operations, making the decision on whether and how to pursue the ECA LNG Phase 2 project dependent in part on whether the investment in athis large-scale liquefaction export facility would, over the long term, be more beneficial than continuing to supplyprovide regasification services under existing contracts for 100% of the ECA Regas Facility’s capacity through 2028.
Development of additional trains and liquefaction facilities will depend on the ability of our existing contracts.pipeline interconnections to be expanded or the ability to permit and construct new pipeline facilities, each of which may require us to enter into additional pipeline interconnection agreements with third-party pipelines. We and third parties may not be able to successfully develop and construct such new pipeline facilities, or we may not be able to secure such additional pipeline interconnections on commercially reasonable terms or at all.
In connection with certain of theseThe capital requirements for natural gas liquefaction and LNG export development opportunities,projects that we have entered intodecided, or may enter into Heads of Agreements, Interim Project Participation Agreements, MOUs and/or similar arrangements, all of which are or will be nonbinding and do not or will not obligate any ofin the parties to execute any definitive agreements or participate in any such opportunities. Any decisions by Sempra Energy or our potential counterpartiesfuture decide, to proceed with a final investment decision (except with respect to the ECA LNG Phase 1 project, for which a final investment decision has been reached) or binding agreements with respect tocan be significant. In addition, our proposed liquefaction export projects will require, among other things, obtaining or maintaining binding customer commitments to purchase LNG, completion of project assessments and achieving other necessary internal and external approvals of each party. In addition, all our proposed LNG export projects are subject to a number of risks and uncertainties, including, among others, the receipt and maintenance of a number of permits and approvals; finding or maintaining suitable partners and customers; obtaining or maintaining financing and incentives; negotiating and completing or maintaining suitable commercial agreements, including equity acquisition and governance agreements, natural gas supply and transportation agreements, LNG sale and purchase agreements and construction contracts (including new EPC contracts for certain projects); and, except for ECA LNG Phase 1, reaching a final investment decision.
There is no assurance that our proposed LNG export facilities willmay not be completed in accordance with estimated timelines andor budgets or at all as a result of the above or other factors, and delays, cost overruns or our inability to complete one or more of these facilities or significant delays or cost overruns could have a material adverse effect on our future cash flows, results of operations, financial condition, cash flows and/or prospects, including the recoverability of all or a substantial portion of the capital costs invested in these projects to date.prospects.
Financing Arrangements
We may become involved in various financing arrangements with respect to any of our energy infrastructure projects, some of whichsuch as guarantees, indemnities or loans. These arrangements could expose us to additional risks. For example, Sempra Energy has provided guarantees for its share of Cameron LNG JV’s financing obligations related to its Phase 1 facility for a maximum amount of up to $4.0 billion, which terminate upon Cameron LNG JV achieving “financial completion” of the initial three-train liquefaction project,risks, including all three trains achieving commercial operation and meeting certain operational performance tests. Although these performance tests are
currently underway and we anticipate financial completion will be achieved and the guarantees will be terminated in the first half of 2021, this timing could be delayed, perhaps substantially, if these operational performance tests are not completed due to weather-related events, or other events or factors beyond our control. Any failure to achieve financial completion by September 30, 2021 (unless such date is extended in the event of force majeure) would result in an event of default under Cameron LNG JV’s financing agreements and a potential demand on Sempra Energy’s guarantees. Further, pursuant to the financing agreements, Cameron LNG JV is restricted from making distributions to its project owners, including Sempra LNG, from January 1, 2021 until the earlier of September 30, 2021 and the achievement of financial completion. A delay could materially adversely impact our results of operations and cash flows until financial completion is achieved.
Sempra Energy also has provided a separate guarantee with a maximum exposure to loss of $979 million under the Support Agreement for the benefit of CFIN in connection with a separate financing arrangement intended to return equity to the Cameron LNG JV project owners. This guarantee terminates upon full repayment of the guaranteed debt by 2039, and the holders of the guarantee are permitted to put the $753 million of guaranteed debt to Sempra Energy on an annual basis andlosses upon the occurrence of certain specified events including ifrelated to the guaranteed debt is not paid in accordance with its terms, and may determine to transfer somedevelopment, construction, operation or allfinancing of the guaranteed debt to Sempra Energy at certain specified times.
The loan and other financing agreements related to all of these guarantees contain events of default customary for such financings, and the occurrence of any such default could result in a demand on these guarantees. If we are required to pay some or all of the amounts under these guarantees (or, with respect to the guarantee under the Support Agreement, the guaranteed debt becomes a direct financial obligation as a result of any put or call), any such paymentsapplicable projects, that could have a material adverse effect on our business,future results of operations, financial condition, cash flows financial condition and/or prospects.
DomesticWe are dependent on the equipment provided by third parties to operate Cameron LNG JV’s Phase 1 project and international hydraulicthe failure of such equipment may adversely impact our business and performance.
Cameron LNG JV has experienced operating issues with equipment provided by certain third-party vendors, which have caused reductions in operating capacity and the declaration of force majeure events by Cameron LNG JV under its tolling agreements. Certain of Cameron LNG JV’s customers have raised objections regarding these force majeure declarations, and Cameron LNG JV’s customers may raise objections in the future regarding these declarations or other force majeure declarations for similar operating issues. Cameron LNG JV’s customers have rights under their tolling agreements to obtain certain future quantities of excess LNG production in connection with these and certain other force majeure events, and future force majeure events may also lead to the additional accrual of similar rights. The requirement to deliver excess LNG production to these customers in connection with these force majeure events has had, and in the future could have, an adverse impact to Sempra Infrastructure’s and our business and cash flows as Cameron LNG JV loses fees related to the excess production.
These and other operational issues arising from equipment or facilities provided by third-party vendors may require us to undertake remediation, repair or equipment replacement activities in the future that could result in reductions or cessations in production from our facilities. Although we are seeking to enforce warranty and other claims against our EPC contractors and other equipment vendors and suppliers, we may face challenges in successfully enforcing these claims against these third parties. Any such occurrence could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects.
Hydraulic fracturing operations areis subject to political, economic and other uncertainties that could increase the costs of doing business, impose additional operating restrictions or delays, and adversely affect production of LNG and reduce or eliminate LNG export opportunities and demand.uncertainties.
Domestic and international hydraulic fracturing operations face political and economic risks and other uncertainties. Several states have adoptedimposed or are considering adopting regulations to imposeimposing more stringent permitting, public disclosure and well construction requirements, on hydraulic fracturing operations. In addition to state laws,and some local municipalities have adopted or are considering adopting land use restrictions such as city ordinances, that may restrict the performance of or prohibit well drilling in general and/or hydraulic fracturing in particular. We cannot predict whether additional federal, state, local or international laws or regulations applicable to hydraulic fracturing will be enacted in the future and, if so, what actions any such laws or regulations would require or prohibit. The current U.S. Administration may have a negative view of hydraulic fracturing, practices, which could increase the risk of regulation that negatively affectingaffects these operations. If additional levels of regulation or permitting requirements wereare imposed on domestic hydraulic fracturing operations, natural gas prices in North America could rise which in turn could materially adversely affectand the relative pricing advantage that has existed in recent years in favor of domestic natural gas (based on Henry Hub pricing) and impact the supply of natural gas to Cameron LNG JV’s Phase 1 project and our other LNG export projects currently in development. Increased regulation or difficulty in permitting of hydraulic fracturing, and any corresponding increase in domestic natural gas prices,could decline, which could materially adversely affect demand for LNG exports and our ability to develop commercially viable LNG export facilities beyond Cameron LNG JV’sJV Phase 1 facility currently in operation and ECA LNG Phase 1 currently in construction.(which are fully contracted). Any such occurrence could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
When our businesses enter into fixed-price
Fixed-price long-term contracts to providefor services or commodities they are exposedexpose our businesses to inflationary pressures such as rising commodity prices and interest rate risks.pressures.
Sempra Mexico and Sempra LNG generally endeavorInfrastructure seeks to secure long-term contracts with customers for services and commodities in an effort to optimize the use of theirits facilities, reduce volatility in earnings and support the construction of new infrastructure. However, ifIf these contracts are at fixed prices, thetheir profitability of the contract may be materially adverselynegatively affected by inflationary pressures, including rising operational costs, costs ofincreased labor, materials, equipment, commodities and commodities,other operational costs, rising interest rates that affect financing costs and changes in applicable exchange rates. We may try to mitigate these risks by, among other things, using variable pricing tied to market indices, anticipating anand providing for cost escalation in costs when bidding on projects, providing for cost escalation, providingcontracting for direct pass-through of operating costs and/or entering into hedges. However, these measures if implemented, may not fully or substantially offset any increases in operating expenses and/or financing costs caused by inflationary pressures and using these measurestheir use could introduce additional risks. The failure to fully or substantially offset these increasesrisks, any of which could have a material adverse effect on our results of operations, financial condition, cash flows and/or results of operations.prospects.
Increased competition could materially adversely affect us.
The markets in which we operate are characterized by numerous strong and capable competitors, many of whom have extensive and diversified development and/or operating experience (including both domestically and internationally)internationally and financial resources
similar to or greater than ours. Further, in recent years,In particular, the natural gas pipeline, storage and LNG market segments recently have been characterized by strong and increasing competition both with respect tofor winning new development projects and acquiring existing assets. In Mexico, despite the commissioning of many new energy infrastructure projects by the CFE and other governmental agencies, competition for recent pipeline projects has been intense with numerous bidders competing aggressively for these projects. In addition, Sempra Mexico’sour Mexican natural gas distribution business faces increased competition now that its former exclusivity period with respect to its distribution zones has expired and other distributors are legally permitted to build and operate natural gas distribution systems and compete to attract customers in the locations where it operates. There is no assurance that we will be successful in bidding for new development opportunities in the U.S. or Mexico. These competitive factors could have a material adverse effect on our business, results of operations, financial condition, cash flows and/or prospects.
We may not be able to enter into, maintain, extend or replace expiring long-term supply, and sales agreements or long-term firm capacity agreements for our projects.agreements.
The ECA Regas Facility has long-term capacity agreements with a limited number of counterparties. Under these agreements, customers pay capacity reservationcounterparties, and usage fees to receive, store and regasify the customers’ LNG. We also may enter into short-term and/or long-term supply agreements to purchase LNG to be received, stored and regasified for sale to other parties. TheIn addition, Cameron LNG JV has long-term supplyliquefaction and regasification tolling capacity agreements are intended to reduce our exposure to changes in natural gas prices through corresponding natural gas sales agreements or by tying LNG supply prices to prevailing natural gas market price indices. However,with three counterparties that collectively subscribe for the full nameplate capacity of its Phase 1 facility. The long-term nature of these agreements alsoand the small number of customers at each of these facilities exposes us to risks, including increased risk if these counterparties fail to meet their contractual obligations on a timely basis, increased credit risks, that we discuss below under “Risks Related to Our Businesses Other Thanand risks associated with the California Utilities and Our Interestlong-term nature of our relationships with these counterparties. We are currently engaged in Oncor – Operational Risks.” In addition, in 2020,a legal dispute with the two third-party capacity customers, Shell Mexico and Gazprom, at the ECA Regas Facility Shell Mexico and Gazprom, asserted ainvolving breach of contract by IEnova and a force majeure event, seeking to terminate these capacity agreements and recover damages. One of these two customers has stopped making payments under its long-term capacity agreement (and IEnova has drawn on the customer’s letter of credit provided as payment security), has submitted a request for arbitration of the dispute and has filedclaims, a constitutional challenge relatedof the CRE’s approval of the general terms and conditions for service at the facility, and proceedings seeking to the dispute, and although the other customer is presently making regular payments under its agreement, it has joined the arbitration proceedings related to the dispute. In addition, one of these customers has commenced legal proceedings in Mexican court seeking modificationmodify or rescission ofrevoke certain material permits forneeded by the facility and the proposed ECA Regas Facility and ECA LNG. An unfavorable decision with respectLNG projects. We discuss this dispute in Note 16 of the Notes to all or any part of theseConsolidated Financial Statements. These challenges and proceedings or any similar or other issues that arise with respect to these or our other long-term contracts, including the potential for an extended dispute,conflict in Ukraine, could lead to significant legal and other costs, and could materiallyresult in cancelation of certain key contracts or otherwise adversely affect our relationships with these long-term customers, suppliers or partners, and could negatively impact the reliability of revenues from the ECA Regas Facility.applicable projects and the prospects for any implicated development projects. Any such event could have a material adverse effect on our financial condition, results of operations, cash flows and/or prospects.
For certain of our potential liquefaction export projects, definitive sale and purchase agreements have been secured for some of the anticipated nameplate capacity of the applicable facility. These agreements contain conditions of effectiveness, including, for example, our final investment decision for the applicable project within agreed timelines. If these conditions are not satisfied or if these agreements cease to be effective for other reasons, we could be subject to significant competition in securing replacement customers for these projects and we may not be able to do so under favorable terms, in a timely manner or at all. Moreover, some of the anticipated capacity for these potential projects is not currently subject to definitive customer agreements, and we may not be able to identify suitable customers or negotiate satisfactory sale and purchase agreements for all or a portion of this anticipated capacity in a timely manner or at all. Any such outcome could jeopardize our ability to develop these potential projects and receive an acceptable return on our investments in the projects, which could materially adversely affect our financial condition, results of operations, cash flows and/or prospects.
Sempra Mexico’s and Sempra LNG’sInfrastructure’s ability to enter into new or replace existing long-term firm capacity agreements for theirits natural gas pipeline operations areis dependent on, among other factors, demand for and supply of LNG and/or natural gas from theirits transportation customers, which may include our LNG export facilities. A significant sustained decrease in demand for andor supply of LNG and/or natural gas from such customers or the occurrence of other events that hinder Sempra Infrastructure from maintaining such agreements or establishing new ones could have a material adverse effect on our businesses, results of operations, financial condition, cash flows and/or prospects.
The electric generation and wholesale power sales industries are highly competitive. As more plants are built, supplies of energy and related products may exceed demand, and competitive pressures may increase and wholesale electricity prices may decline or become more volatile. Without the benefit of long-term power sales agreements, our revenues may be subject to increased price volatility, and we may be unable to sell the power that Sempra Mexico’sInfrastructure’s facilities are capable of producing or to sell it at favorable prices, any of which could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
Our businesses depend on the performance of counterparties, including with respect to long-term supply, sales and capacity agreements, and any failureperformance failures by these parties to perform could result in substantial expenses and business
disruptions and exposure to commodity price risk and volatility, any of whichcounterparties could materially adversely affect our businesses, financial condition, cash flows, results of operations and/or prospects.us.
Our businesses and the businesses we invest in depend on business partners, customers, suppliers and other counterparties who owe money or commodities as a result of market transactions or other long-term agreements or arrangements to perform their obligations in accordance with such agreements or arrangements. Should they fail to perform, we may be requiredneed to enter into alternative arrangements or to honor theour underlying commitmentcommitments at then-currentthen-
current market prices. In such an event, weprices, which may incurresult in additional losses to us to the extent of amounts already paid to such counterparties. Any efforts to enforce the terms of these agreements or arrangements through legal or other available means could involve significant time and costs and would be unpredictable and susceptible to failure.may not be successful. In addition, many such agreements and arrangements, including theour relationships with the applicable counterparties, are important for the conduct and growth of our businesses. We also may not be able to secure replacement agreements with other partners, customers or suppliers at all or on terms at least as favorable to the original terms if any of these agreements terminate. Further, we often extend credit to counterpartiescustomers and customersother counterparties and, although we perform significant credit analyses prior to extending credit, we may not be able to collect the amounts owed to us.us, which presents an increased risk for our long-term supply, sales and capacity contracts. The failure of any of our counterparties to perform in accordance with their agreements or arrangements with us could materially adversely affect our businesses, results of operations, cash flows, financial condition, and/or prospects.
Our long-term supply, sales and firm capacity contracts increase our credit risk if our counterparties fail to perform or become unable to meet their contractual obligations. For example, if the counterparties, customers or suppliers to one or more of the key agreements for the ECA Regas Facility or Sempra Mexico’s other long-term capacity agreements for the transportation of natural gas and LPG were to fail to perform or become unable to meet their contractual obligations on a timely basis, it could have a material adverse effect on our results of operations, cash flows and/or prospects. In addition, for Cameron LNG JV’s Phase 1 project, Cameron LNG JV has 20-year liquefaction and regasification tolling capacity agreements in place with affiliates of TOTAL SE, Mitsubishi Corporation and Mitsui & Co., Ltd. that collectively subscribe for the full nameplate capacity of the facility. If the counterparties to these tolling agreements were to fail to perform or become unable to meet their contractual obligations to Cameron LNG JV on a timely basis, it could have a material adverse effect on our results of operations, cash flows and/or prospects.
Certain past assertions made by the CFE and Mexican government, coupled with past arbitration requests and other statements and actions by the CFE, raise serious concerns over whether the terms of Sempra Mexico’s gas pipeline contracts will be honored or disputed in arbitration. The failure by the CFE or other customers to honor the terms of Sempra Mexico’s gas pipeline contracts and the inability to enter into gas pipeline contracts in the future could have a material adverse effect on Sempra Energy’s cash flows, financial condition, results of operations and/or prospects.
Sempra Mexico’s and Sempra LNG’sInfrastructure’s obligations and those of theirits LNG suppliers for LNG are contractually subject to suspension or termination for “force majeure” events, which generally are beyond the control of the parties, and substantial limitations of remedies for other failures to perform, including limitations on damages to amounts that could be substantially less than those necessary to provide fullmay prohibit recovery of all costs incurred for any breach of the agreements, which in each casean agreement. Any such occurrence could have a material adverse effect on our results of operations, financial condition, cash flows financial condition and/or prospects.
Sempra Mexico and Sempra LNG engageInfrastructure engages in JVs or investand invests in companies in which other equity partners may have or share with us control over the applicable project or investment. We discuss the risks related to these arrangements above under “Risks Related to Our Businesses Other Than the California UtilitiesSempra – Operational and Our Interest in Oncor – OperationalStructural Risks.”
We rely on transportation assets and services, much of which we do not own or control, to deliver natural gas and electricity.
We depend on electric transmission lines, natural gas pipelines and other transportation facilities and services owned and operated by third parties to, among other things:
▪deliver the natural gas, andLNG, electricity and LPG we sell to wholesale marketscustomers or that we use for our natural gas liquefaction export facilities
▪supply natural gas to our gas storage and electric generation facilities
▪provide retail energy services to customers
Sempra Mexico and Sempra LNG also depend on natural gas pipelines to interconnect with the ultimate source or customers of the commodities they are transporting, and also on specialized ships to transport LNG. Sempra Mexico’s subsidiaries also rely on transmission lines to sell electricity to their customers. If transportation is disrupted, if the construction of new or modified interconnecting infrastructure is not completed on schedule or if capacity is inadequate, we may not be able to move forward with our projects on schedule, we may be unable to sell and deliver our commodities, electricity and other services to some or all of our customers. As a result,customers, we may be responsible for damages incurred by ourthese customers, such as the additional cost of acquiring alternative electricity, natural gas, LNG or LPG supplies at then-current spot market rates, orand we could lose customers that may be difficult to replace in competitive market conditions, any of whichconditions. Any such occurrence could have a material adverse effect on our businesses,results of operations, financial condition, cash flows results of operations and/or prospects.
Foreign OperationsFinancial Risks
Our international businesses and operations expose us to legal, tax, economic, geopolitical, management oversight, foreign currency and inflation risks and challenges.risks.
Overview
In Mexico, we own or have interests in natural gas distribution and transportation assets, LPG storage and transportation facilities, ethane transportation assets, electricity generation facilities, LNG facilities and ethane and liquid fuels marine and inland terminals. We also do business with companies based in foreign markets, including particularly our LNG export operations. Developing infrastructure projects, owning energy assets, operating businesses and contracting with companies in foreign jurisdictions subjects us to significant and complex management, security, political, legal, economic and financial risks that vary by country, many of which may differ from and potentially be greater than those associated with our wholly domestic businesses, including, among others:
▪changes in foreign laws and regulations, including tax, trade and environmental laws and regulations, and U.S. laws and regulations that are related to foreign operations or doing business internationally, including U.S. trade and related policies as we discuss below
▪actions by local regulatory bodies, including setting of rates and tariffs that may be earned by our businesses
▪adverse changes in economic or market conditions, limitations on ownership in foreign countries and inadequate enforcement of regulations
▪risks related to currency exchange and convertibility, including vulnerability to appreciation and depreciation of foreign currencies against the U.S. dollar, as we discuss below
▪permitting and regulatory compliance
▪adverse rulings by foreign courts or tribunals, challenges to or difficulty obtaining permits or approvals, difficulty enforcing contractual and property rights, differing legal standards for lawsuits or other proceedings, and unsettled property rights and titles in Mexico
▪energy policy reform, including that which may result in adverse changes to and/or difficulty enforcing existing contracts or challenges completing and operating our renewable energy facilities in Mexico, as we discuss below
▪expropriation or theft of assets
▪adverse changes in the stability of the governments or the economies in the countries in which we operate or do business
▪violence, criminality, or social or political instability
▪compliance with the U.S. Foreign Corrupt Practices Act and similar laws
▪with respect to our non-utility international business activities, changes in the priorities and budgets of international customers, which may be driven by many of the factors listed above, among others
Mexican Government Influence on Economic and Energy Matters
The Mexican government has exercised, and continues to exercise, significant influence over the Mexican economy and energy landscape. Mexican governmental actions concerning the economy, energy laws and policies and certain governmental agencies, including the CFE, could have a significant impact on Mexican private sector entities in general and on IEnova’s operations in particular. For example, the CFE and the Mexican government took certain actions in 2019 that raised serious concerns over whether the terms of Sempra Mexico’s gas pipeline contracts would be honored or disputed in arbitration. IEnova and other affected natural gas pipeline developers joined the CFE and the President of Mexico’s representatives in negotiations and were able to resolve the dispute, but we cannot predict whether similar disputes may arise and/or whether such disputes will be resolved on favorable terms to us, if at all. In addition, in 2020, certain Mexican governmental agencies issued orders and regulations that would reduce or limit the renewable energy sector’s participation in the country’s energy market. Although many of these measures have been stayed temporarily as a result of legal complaints filed with applicable Mexican courts, an unfavorable final decision on these complaints, or the potential for an extended dispute, could impact our ability to successfully complete construction of our facilities in Mexico, or to complete them in a timely manner and within expected budgets, may impact our ability to operate our facilities already in service in Mexico and may adversely affect our ability to develop new renewable energy projects in Mexico. Moreover, electricity prices in Mexico are currently subsidized by the Mexican federal government, which could place certain of IEnova’s renewable energy projects at a competitive disadvantage. Additionally, the President of Mexico presented on February 1, 2021 an initiative of amendment of the electrical industry law to include some public policies that are being challenged in court (such as establishing priority of dispatch for CFE plants over privately owned plants) and other threats to renewable energy. On February 3, 2021, Mexico’s Supreme Court invalidated sections of the Policy for Reliability, Safety, Continuity and Quality of the National Electric System. We cannot predict the impact that the political, social, and judicial
landscape, including multiparty rule and trial resolutions, will have on the Mexican economy and our business in Mexico. Such circumstances may materially adversely affect our cash flows, financial condition, results of operations and/or prospects in Mexico, which could have a material adverse effect on Sempra Energy’s consolidated financial statements. We discuss these matters further in Note 16 of the Notes to Consolidated Financial Statements.
Foreign Currency and Inflation
We have significant foreignOur operations in Mexico which pose material foreign currency and inflation risks. Exchange and inflation rates with respect to the Mexican peso and fluctuations in those rates may have an impact on ourthe revenue, costs orand cash flows from our international operations, which could materially adversely affect our financial condition, results of operations, financial condition, cash flows and/or cash flows. Our Mexican subsidiary, IEnova, has U.S. dollar-denominated monetary assets and liabilities that give rise to Mexican currency exchange rate movements for Mexican income tax purposes. It also has significant deferred income tax assets and liabilities, which are denominated in the Mexican peso and must be translated to U.S. dollars for financial reporting purposes. In addition, monetary assets and liabilities and certain nonmonetary assets and liabilities are adjusted for Mexican inflation for Mexican income tax purposes.prospects. We may attempt to hedge material cross-currency transactions and earnings exposure through various means, including financial instruments and short-term investments, but these hedges may not successfully achieve our objectives of mitigating earnings volatility that would otherwise occur due to exchange rate fluctuations. Because we do not hedge our net investments in foreign countries, we are susceptible to volatility in OCI caused by exchange rate fluctuations for entities whose functional currencies are not the U.S. dollar. Moreover, Mexico has experienced periods of high inflation and exchange rate instability in the past, and severe devaluation of the Mexican peso could result in governmental intervention to institute restrictive exchange control policies, as has occurred before in Mexico and other Latin American countries. We discuss our foreign currency exposure at our Mexican subsidiaries in “Part II – Item 7. MD&A” and “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”
U.S. Foreign Policy, including Trade and Related Matters
All our international business activities are sensitive to geo-political uncertainties and related factors, including U.S. foreign policy and the current U.S. position with respect to trade relations and related matters. The last U.S. Administration made substantial changes to or withdrew from trade agreements that affect our operations. For example, the USMCA, which replaced the North American Free Trade Agreement as the principal trade agreement between the U.S., Mexico and Canada, went into force in July 2020, and its long-term impact on our operations remains uncertain. With the current U.S. Administration having taken power in January 2021, the status of U.S. trade policy and U.S. involvement in international trade agreements going forward remains to be determined and could drastically shift in a manner that increases or mitigates adverse effects on our businesses. The last U.S. Administration also implemented changes to U.S. immigration policy and other policies that impact trade, including increasing tariffs, and the current U.S. Administration has taken steps to reverse some of these changes and could take other material action with respect to these matters. Such policy changes or other actions could adversely affect imports and exports between Mexico and the U.S. and negatively impact the U.S., Mexican and other economies and the companies with whom we conduct business, which could materially adversely affect our business, financial condition, results of operations, cash flows and/or prospects.
Financial Risks
Our businesses are exposed to market risks, including fluctuations in commodity prices, and our businesses, financial condition, results of operations, cash flows and/or prospects may bethat could materially adversely affected by these risks.affect us.
We buy energy-related commodities from time to time for pipeline operations, LNG facilities or power plants to satisfy contractual obligations with customers. The regional and other markets in which we purchase these commodities are competitive and can be subject to significant pricing volatility.volatility as a result of many factors, including adverse weather conditions, supply and demand changes, availability of competitively priced alternative energy sources, commodity production levels and storage
capacity, energy and environmental legislation and regulations, and economic and financial market conditions. Our revenues, results of operations, financial condition, cash flows and/or cash flowsprospects could be materially adversely affected if the prevailing market prices for natural gas, LNG, electricity or other commodities that we buy change in a direction or manner not anticipated and for which we have not provided adequately through purchase or sale commitments or other hedging transactions. Unanticipated changes in market prices for energy-related commodities can result from multiple factors, such as adverse weather conditions, change in supply and demand, availability of competitively priced alternative energy sources, commodity production levels and storage capacity, energy and environmental regulations and legislation, and economic and financial market conditions, among other things.
Legal and Regulatory Risks
Our international businesses and operations expose us to increased legal, regulatory, tax, economic, geopolitical and management oversight risks and challenges.
Overview
We own or have interests in a variety of energy infrastructure assets in Mexico, and we do business with companies based in foreign markets, including particularly our LNG export operations. Conducting these activities in foreign jurisdictions subjects us to complex management, security, political, legal, economic and financial risks that vary by country, many of which may differ from and potentially be greater than those associated with our wholly domestic businesses, and the occurrence of any of these risks could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects. These risks include the following and the other risks discussed in this risk factor below:
▪tax, trade, environmental and other foreign laws and regulations and compliance with them, including legal limitations on ownership in some foreign countries and inadequate or inconsistent enforcement of regulations
▪actions by local regulatory bodies, including setting rates and tariffs that may be earned by or charged to our businesses
▪adverse changes in social, political, economic or market conditions or the stability of foreign governments
▪adverse rulings by foreign courts or tribunals; challenges to or difficulty obtaining, maintaining and complying with permits or approvals; difficulty enforcing contractual and property rights; differing legal standards for lawsuits or other proceedings; and unsettled property rights and titles in Mexico
▪expropriation or theft of assets
▪with respect to our non-utility international business activities, changes in the priorities and budgets of international customers, which may be driven by many of the factors listed above, among others
Mexican Government Influence on Economic and Energy Matters
The Mexican government has exercised, and continues to exercise, significant and increasing influence over the Mexican economy and energy sector and is proposing additional changes that, in each case, could fundamentally impact private investment in this sector.
With respect to the electricity market, the Mexican legislature is currently considering proposed constitutional reform that would, among other things, make the CFE the only entity allowed to commercialize electric energy in Mexico, thereby eliminating the wholesale electricity market entirely. This reform would also limit the overall capacity and types of plants eligible to generate electricity for the CFE to commercialize, resulting in the cancelation of electricity generation permits and contracts for the sale of electricity to the CFE, including permits at all of Sempra Infrastructure’s operational power generation facilities. Recent Mexican governmental actions in the electricity market also include resolutions, orders, decrees, regulations and proposed amendments to Mexican law that could, among other things, threaten the prospects for private-party renewable energy generation in the country; limit the ability to dispatch renewable energy and receive or maintain operational permits; and increase costs of electricity for legacy renewables and cogeneration energy contract holders.
With respect to midstream and downstream activities, recent governmental actions include amendments in June, October, and November of 2021 to Mexico’s General Foreign Trade Rules that establish additional requirements for obtaining authorizations for the import and export of hydrocarbons, refined products, petrochemicals, and biofuels through channels other than those authorized (LDA authorizations). The ECA Regas Facility and the Veracruz terminal have LDA authorizations that are valid through 2023, although the ability to subsequently renew these authorizations may be limited by these amended rules. We are assessing the effect of these amended rules on our operations and development of future projects, including those in the vicinity of Topolobampo, Manzanillo and Ensenada, as well as the proposed ECA LNG liquefaction projects. In addition, amendments to Mexico’s Hydrocarbons Law that give SENER and the CRE additional powers to suspend and revoke permits were published in May 2021. While the courts have enjoined enforcement of these amendments pending a final disposition in the case of several of our projects, the amendments provide that suspension of permits will be determined by SENER or the CRE when a danger to national security, energy security, or the national economy is foreseen, and also provide new grounds for the revocation of permits under certain circumstances. Additionally, in the case of existing permits, the amendments direct authorities to revoke permits that
fail to comply with the minimum storage requirements established by SENER or fail to comply with requirements or violate provisions established by the amended Hydrocarbons Law.
Finally, as part of an industrywide audit and investigative process initiated by the CRE to enforce fuel procurement laws, federal prosecutors conducted inspections at several refined products terminals, including Sempra Infrastructure’s refined products terminal in Puebla, to confirm that the gasoline and/or diesel in storage were legally imported. During the inspection of the Puebla terminal in September 2021, a federal prosecutor took samples from all the train and storage tanks in the terminal and ordered that the facility be temporarily shut down during the pendency of the analysis of the samples and investigation, while leaving the terminal in Sempra Infrastructure’s custody. In addition, in November 2021, the CRE notified Sempra Infrastructure of the commencement of an administrative proceeding for revoking the storage permit at the Puebla terminal due to alleged breach of its terms and conditions. We cannot predict when the investigation will be completed, the outcome of the administrative proceeding or whether and/or when the facility will be able to commence commercial operations.
We discuss these Mexican governmental actions further in Note 16 of the Notes to Consolidated Financial Statements. We cannot predict whether proposed changes like the constitutional reform to the electricity market or other similar governmental actions will ultimately be passed or otherwise become effective in their current forms, nor can we predict the nature or level of impact of this constitutional reform on non-electric segments of the energy sector. We also cannot predict whether actions to enjoin enforcement or suspend or overturn existing laws and other governmental actions will be successful. More generally, we cannot predict the impact that the political, social, and judicial landscape in Mexico will have on that country’s economy and energy sector and our business in Mexico. If any of the recent Mexican governmental actions are passed or otherwise become effective, if efforts to enjoin their enforcement or suspend or overturn them fail, or if other similar moves by the Mexican government are taken to curb private-party participation in the energy sector, including the passage of additional laws or regulations or increased investigative and enforcement activities, this could materially impact our ability to operate our facilities at existing levels or at all, may result in increased costs for Sempra Infrastructure and its customers, may adversely affect our ability to develop new projects, and may negatively impact our ability to recover the carrying values of our investments in Mexico, any of which may have a material adverse effect on our business, results of operations, financial condition, cash flows and/or prospects.
U.S. and Mexican Laws and Foreign Policy, including Trade and Related Matters
Our international business activities are subject to U.S. and Mexican laws and regulations related to foreign operations or doing business internationally, including the U.S. Foreign Corrupt Practices Act, the Mexican Federal Anticorruption Law in Public Contracting (Ley Federal Anticorrupción en Contrataciones Públicas) and similar laws, and are sensitive to U.S. and Mexican foreign policy, trade policy and other geopolitical factors. The current and the last U.S. Administrations have taken different stances with respect to international trade agreements, tariffs, immigration policy and other matters of foreign policy that impact trade and foreign relations. Shifts in foreign policy could increase the adverse effects on our businesses and create uncertainty, making it difficult to predict the impact these policies could have on our businesses. Violations or alleged violations of the laws referred to above, as well as foreign policy positions that adversely affect imports and exports between the U.S., Mexican and other economies and foreign companies with whom we conduct business, could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
Our businesses are subject to various legal actions challenging our property rights and permits, and our properties in Mexico could be subject to expropriation by the Mexican government.
We are engaged in disputes regarding our title to the property in Mexico where our ECA Regas Facility is situated and our proposed ECA LNG liquefaction export projects are expected to be situated, aswhich we discuss in Note 16 of the Notes to Consolidated Financial Statements. In addition, we may have or seek to obtain long-term leases or rights-of-way from governmental agencies or other third parties to operate our energy infrastructure located on land we do not own for a specific period of time. If we are unable to defend and retain title to the properties we own on which our current and proposed facilities are located, or if we are unable to obtain or retain rights to construct and operate our existing or proposed facilities on the properties we do not own on reasonable financial and other terms, we could lose our rights to occupy and use these properties and the related facilities, which could delay or derail proposed projects, increase our development costs, and result in breaches of one or more permits or contracts related to the affected facilities that could lead to legal costs, fines or penalties. In addition, disputes regarding any of these properties could make project financing andlead to difficulties finding or maintaining suitable partners, customers and customers difficultproject financing arrangements and could hinder or halt our ability to construct and, if completed, operate the affected facilities or proposed projects. If we are unable to occupy and use the properties and related facilities on which our existing or proposed infrastructure projects are located, itAny of these outcomes could have a material adverse effect on our businesses, financial condition, results of operations, financial condition, cash flows and/or prospects.
In addition, IEnova’s business and
Sempra Infrastructure’s energy infrastructure assets in energy generation, storage, transportation and distribution may be considered by the Mexican government to be a public service or essential for the provision of a public service, in which case these assets and the related businessbusinesses could be subject to expropriation or nationalization, loss of concessions, renegotiation or annulment of existing contracts, and other similar risks. Any such occurrence could materially adversely affect our businesses, financial condition, results of operations, financial condition, cash flows and/or prospects.
Risks Related to Our Proposed IEnova Exchange Offerand Our Proposed Transaction Related to Sempra Infrastructure Partners
Our ability to complete our proposed IEnova exchange offer is subject to various conditions and other risks and uncertainties that could cause the transaction to be abandoned, delayed or restructured, which could materially adversely affect us.
In December 2020, we announced our intention to launch a stock-for-stock exchange offer to acquire all outstanding publicly held shares of IEnova. The completion of this transaction is subject to governmental and regulatory consents, approvals and rulings, including from the SEC, CNBV and Mexican Stock Exchange, and other closing conditions. These and other governmental and regulatory authorities may not provide the consents, approvals and rulings that are needed to complete this transaction or could seek to block or challenge the transaction. In addition, other closing conditions to consummate the proposed transaction may not be satisfied. For example, the completion of the exchange offer is subject to the condition that the IEnova shares validly tendered and not withdrawn, together with all IEnova shares that we directly or indirectly own, represent no less than 95% of all of IEnova’s outstanding ordinary shares, determined on the basis of all outstanding ordinary shares and on a fully diluted basis. Although we have the right to waive this condition, there is no assurance that we would do so, and we have no control over the level of participation in the exchange offer by IEnova’s public shareholders. As a result, we may decide not to complete the exchange offer if this condition is not satisfied. If the required consents, approvals and rulings are not received or the other closing conditions are not satisfied or waived, or if any of the foregoing is not achieved in a timely manner or on satisfactory terms, then the proposed exchange offer may be abandoned and our results of operations, cash flows, financial condition and/or prospects could be materially adversely affected.
Our ability to complete the proposed exchange offer is subject to a number of other risks and uncertainties, many of which are not in our control, including, among others, if another party were to offer to acquire the publicly held shares of IEnova on terms that are more favorable than the terms we offer, as well as industry and market conditions. These risks and uncertainties could alter the proposed structure of the transaction or negatively affect our ability to complete the transaction in a timely manner or at all.
The occurrence of any of the foregoing risks individually or in combination could lead to the abandonment, delay or restructuring of the proposed exchange offer, in which case we would not be able to realize the potential benefits of the transaction but would still be required to pay the substantial costs incurred in connection with pursuing it, which could materially adversely affect our results of operations, cash flows, financial condition and/or prospects and the market value of our common stock, preferred stock and debt securities.
The proposed exchange offer, if completed, may not have the positive effects we anticipate, which may negatively affect the market price of our common stock, preferred stock and debt securities.
We anticipate that the proposed exchange offer, if completed on the currently contemplated terms, will, over the long-term, have a positive impact on our cash flows, results of operations and financial condition. This expectation is based on current market conditions and is subject to a number of assumptions, estimates, projections and other uncertainties, including assumptions about the results of operations of IEnova after the proposed transaction and the costs to us to complete the transaction. If the transaction is completed, we may find that IEnova does not perform in accordance with our expectations for a number of reasons, including those we discuss above under “Risks Related to Our Businesses Other Than the California Utilities and Our Interest in Oncor.” In addition, we may fail to realize some or any of the benefits we expect from the transaction, we may incur material additional transaction costs, and we may be subject to other factors that cause our preliminary estimates to be incorrect. As a result, there is no assurance that the proposed exchange offer will positively impact our cash flows, results of operations, financial condition or other aspects of our performance, and it is possible that the transaction may have an adverse effect, which could be material, on our results of operations, cash flows, financial condition and/or prospects, any of which could materially adversely affect the market price of our common stock, preferred stock and debt securities.
We expect to issue shares of our common stock in the proposed exchange offer, which would dilute the voting interests and could dilute the economic interests of our current shareholders and may adversely affect the market value of our common stock and preferred stock.
In the proposed transaction, we intend to offer to acquire up to 100% of the publicly held shares of IEnova in exchange for shares of our common stock at an exchange ratio of 0.0313 shares of our common stock for each one IEnova ordinary share, which exchange ratio remains subject to approval by the Sempra Energy board of directors. If all publicly held shares of IEnova are validly tendered into and not withdrawn from this exchange offer, and no IEnova shares are issued after February 22, 2021, then up to 13,560,497 shares of our common stock would be issued in the exchange offer. Although the exact number of shares of our common stock we may issue is uncertain and subject to a number of factors, many of which are beyond our control, and we may in fact issue fewer shares than anticipated, the issuance of a substantial number of additional shares of our common stock in this exchange offer would dilute the voting interests of our shareholders. In addition, the issuance of additional shares of our common stock without a commensurate increase in our consolidated earnings would decrease our EPS. Any of the foregoing may have a material adverse effect on the market value of our common stock.
The proposed exchange offer, if completed, would subject us to additional regulation and liability in Mexico.
If we are able to complete the proposed exchange offer, we intend to list our common stock for trading on the Mexican Stock Exchange and register our common stock with the CNBV. Such listing and registration would subject us to additional filing and other requirements in Mexico that could involve significant costs and materially distract our personnel from their other responsibilities. In addition, if we become an issuer with stock registered in Mexico, the CNBV, as the Mexican securities market regulator, would have surveillance authority over Sempra Energy. This means that the CNBV would have the authority to make inspections of Sempra Energy’s business, primarily in the form of requests for information and documents; impose fines or other penalties or sanctions for violations of Mexican securities laws and regulations; and seek criminal liability for actions conducted or with effects in Mexico. In addition, Sempra Energy’s directors and officers would be subject to additional liability and trading restrictions with respect to their shares of Sempra Energy common stock under the securities laws and regulations in Mexico, which could make it more difficult to attract, recruit and retain qualified people for these positions. The occurrence of any of these risks could materially adversely affect our business, results of operations, cash flows, financial condition and/or prospects.
In addition, although we intend to delist IEnova’s shares from the Mexican Stock Exchange and cancel the registration of these shares with the CNBV if the proposed exchange offer is completed, such delisting and deregistration are subject to a number of requirements under applicable Mexican law and regulations, including the affirmative vote of no less than 95% of IEnova’s ordinary shares at a shareholders’ meeting held for that purpose. If we are not able to acquire sufficient shares in the exchange offer to satisfy this threshold, then we likely would not be able to obtain the votes necessary to effect such delisting and deregistration. In that case, both Sempra Energy and IEnova would be subject to regulation and liability as listed companies under Mexican securities laws after the exchange offer is completed, which would involve significant burdens on both companies that could negatively affect our businesses, results of operations, cash flows and/or financial condition.
Our proposed transaction related to Sempra Infrastructure Partners is subject to a number of risks and uncertainties.
In December 2020, we announced our intention to sell NCI in Sempra Infrastructure Partners, which represents the combined businesses of Sempra LNG and IEnova. Our ability to complete this transaction is subject to a number of risks, including, among others, the ability to identify a suitable partner to purchase such NCI; negotiate the terms of equity sale, shareholder and other governance agreements with such partner; and obtain governmental, regulatory and third-party consents and approvals and satisfy any other closing conditions to complete this transaction. Although the structure and terms of this transaction remain to be
determined, the governmental and regulatory authorities with jurisdiction over the transaction could seek to block or challenge it or could impose requirements or obligations as conditions to its approval. If any of these circumstances were to occur, or if we are not able to achieve all of the foregoing in a timely manner or on satisfactory terms, then the proposed transaction may be abandoned and our prospects could be materially adversely affected.
Moreover, even if we are able to complete this transaction, it may not result in the benefits we presently anticipate. Although we expect that this transaction could, over the long-term, have a positive impact on our cash flows, results of operations and financial condition, this expectation is based on a number of assumptions, estimates, projections and other uncertainties about, among other things, the terms of the sale of NCI in Sempra Infrastructure Partners, the identity of the buyer of such NCI, the shareholder and other governance arrangements we make with such buyer, the costs to us to complete this transaction, the results of operations of Sempra LNG and IEnova after the proposed transaction, and other factors beyond our control. In light of the early stage of this proposed transaction, there are significant uncertainties regarding its ultimate impact on our businesses, and our current expectations about the potential benefits of this transaction could turn out to be wrong.
The proposed sale of NCI in Sempra Infrastructure Partners will reduce our ownership interest in Sempra Infrastructure Partners. Any decrease in our ownership of Sempra Infrastructure Partners would also decrease our share of the cash flows, profits and other benefits these businesses currently or may in the future produce, which could materially adversely affect our results of operations, cash flows, financial condition and/or prospects.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We own or lease land, warehouses, offices, operating and maintenance centers, shops and service facilities and equipment necessary to conduct our businesses. Each of our operating segments currently has adequate space and, if we needed more space, we believe it is readily available. We discuss properties related to our electric, natural gas and energy infrastructure operations in “Part I – Item 1. Business” and Note 1 of the Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
We are not party to, and our property is not the subject of, any material pending legal proceedings (other than ordinary routine litigation incidental to our businesses) except for the matters described in Notes 15 and 16 of the Notes to Consolidated Financial Statements, “Part I – Item 1A. Risk Factors” and “Part II – Item 7. MD&A – Capital Resources and Liquidity.&A.”
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
Sempra Energy Common Stock
Our common stock is traded on the NYSE under the tickertrading symbol SRE.SRE and the Mexican Stock Exchange under the trading symbol SRE.MX. At February 22, 2021,18, 2022, there were approximately 23,34522,180 record holders of our common stock.
SoCalGas and SDG&E Common Stock
Information concerning dividend declarations for SoCalGas and SDG&E is included in their Statements“Part II – Item 7. MD&A – Capital Resources and Liquidity – Sources and Uses of Changes in Shareholders’ Equity and Statements of Changes in Equity, respectively, set forth in the consolidated financial statements.Cash – Dividends.”
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
On July 6, 2020, our board of directors authorized the repurchase of shares of our common stock at any time and from time to time in an aggregate amount not to exceed the lesser of $2 billion or amounts spent to purchase no more than 25 million shares. This repurchase authorization was publicly announced on August 5, 2020 and has no expiration date. No
The following table sets forth information about our common stock repurchase activity for the three months ended December 31, 2021:
| | | | | | | | | | | | | | |
PURCHASES OF EQUITY SECURITIES |
(Dollars in millions, except per share amounts) |
| Total number of shares purchased(1) | Average price paid per share(1)(2) | Total number of shares purchased as part of publicly announced plans or programs(1) | Maximum dollar value of shares that may yet be purchased under the plans or programs |
November 1, 2021 - November 30, 2021 | 1,525,000 | | $ | 123.91 | | 1,525,000 | | $ | 1,811 | |
December 1, 2021 - December 31, 2021 | 897,758 | | $ | 123.69 | | 897,758 | | $ | 1,700 | |
Total | 2,422,758 | | $ | 123.83 | | 2,422,758 | | $ | 1,700 | |
(1) All share purchases were made through open market repurchases.
(2) The price per share reflects the weighted-average price paid per share during the applicable period, and excludes amounts paid for broker fees, commissions and other similar costs.
In addition on January 11, 2022, we entered into an ASR program under which we prepaid $200 million to repurchase shares have been repurchasedof our common stock in a share forward transaction. A total of 1,472,756 shares were purchased under this authorization.program, which was determined by dividing the $200 million purchase price by the arithmetic average of the volume-weighted average trading prices of shares of our common stock during the valuation period of January 12, 2022 through February 11, 2022, minus a fixed discount. The ASR program was completed on February 11, 2022. As of February 25, 2022, a maximum of $1.5 billion and no more than 21,104,486 shares may yet be purchased under the repurchase authorization that was publicly announced on August 5, 2020.
We may also, from time to time, purchase shares of our common stock to which participants would otherwise be entitled from LTIP participants who elect to sell a sufficient number of shares in connection with the vesting of RSUs and stock options in order to satisfy minimum statutory tax withholding requirements.
ITEM 6. SELECTED FINANCIAL DATA(RESERVED)
FIVE-YEAR SUMMARIESNot applicable.
The following tables present selected financial data of Sempra Energy, SDG&E and SoCalGas for the five years ended December 31, 2020. The data is derived from the audited consolidated financial statements of each company. You should read this information in conjunction with “Part II – Item 7. MD&A” and the consolidated financial statements and notes contained in this annual report on Form 10-K.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA – SEMPRA ENERGY CONSOLIDATED |
(In millions, except per share amounts) |
| At December 31 or for the years then ended |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
Revenues: | | | | | | | | | |
Utilities | | | | | | | | | |
Natural gas | $ | 5,411 | | | $ | 5,185 | | | $ | 4,540 | | | $ | 4,361 | | | $ | 4,050 | |
Electric | 4,614 | | | 4,263 | | | 3,999 | | | 3,929 | | | 3,748 | |
Energy-related businesses | 1,345 | | | 1,381 | | | 1,563 | | | 1,350 | | | 829 | |
Total revenues | $ | 11,370 | | | $ | 10,829 | | | $ | 10,102 | | | $ | 9,640 | | | $ | 8,627 | |
| | | | | | | | | |
Income from continuing operations, net of income tax | $ | 2,255 | | | $ | 1,999 | | | $ | 938 | | | $ | 382 | | | $ | 1,292 | |
Income (loss) from discontinued operations, net of income tax | 1,850 | | | 363 | | | 188 | | | (31) | | | 227 | |
Net income | 4,105 | | | 2,362 | | | 1,126 | | | 351 | | | 1,519 | |
Earnings attributable to noncontrolling interests | (172) | | | (164) | | | (76) | | | (94) | | | (148) | |
Preferred dividends | (168) | | | (142) | | | (125) | | | — | | | — | |
Preferred dividends of subsidiary | (1) | | | (1) | | | (1) | | | (1) | | | (1) | |
Earnings attributable to common shares | $ | 3,764 | | | $ | 2,055 | | | $ | 924 | | | $ | 256 | | | $ | 1,370 | |
| | | | | | | | | |
Basic EPS: | | | | | | | | | |
Earnings from continuing operations | $ | 6.61 | | | $ | 6.22 | | | $ | 2.86 | | | $ | 1.25 | | | $ | 4.66 | |
Earnings (losses) from discontinued operations | $ | 6.32 | | | $ | 1.18 | | | $ | 0.59 | | | $ | (0.23) | | | $ | 0.82 | |
Earnings | $ | 12.93 | | | $ | 7.40 | | | $ | 3.45 | | | $ | 1.02 | | | $ | 5.48 | |
Diluted EPS: | | | | | | | | | |
Earnings from continuing operations | $ | 6.58 | | | $ | 6.13 | | | $ | 2.84 | | | $ | 1.24 | | | $ | 4.65 | |
Earnings (losses) from discontinued operations | $ | 6.30 | | | $ | 1.16 | | | $ | 0.58 | | | $ | (0.23) | | | $ | 0.81 | |
Earnings | $ | 12.88 | | | $ | 7.29 | | | $ | 3.42 | | | $ | 1.01 | | | $ | 5.46 | |
| | | | | | | | | |
Dividends declared per common share | $ | 4.18 | | | $ | 3.87 | | | $ | 3.58 | | | $ | 3.29 | | | $ | 3.02 | |
Effective income tax rate | 14 | % | | 18 | % | | (10) | % | | 73 | % | | 22 | % |
| | | | | | | | | |
Weighted-average rate base: | | | | | | | | | |
SDG&E | $ | 11,109 | | | $ | 10,467 | | | $ | 9,619 | | | $ | 8,549 | | | $ | 8,019 | |
SoCalGas | $ | 8,228 | | | $ | 7,401 | | | $ | 6,413 | | | $ | 5,493 | | | $ | 4,775 | |
| | | | | | | | | |
AT DECEMBER 31 | | | | | | | | | |
Current assets | $ | 4,511 | | | $ | 3,339 | | | $ | 3,645 | | | $ | 3,341 | | | $ | 3,110 | |
Total assets | $ | 66,623 | | | $ | 65,665 | | | $ | 60,638 | | | $ | 50,454 | | | $ | 47,786 | |
Current liabilities | $ | 6,839 | | | $ | 9,150 | | | $ | 7,523 | | | $ | 6,635 | | | $ | 5,927 | |
Short-term debt(1) | $ | 2,425 | | | $ | 5,031 | | | $ | 3,668 | | | $ | 2,790 | | | $ | 2,542 | |
Long-term debt and finance leases (excludes current portion)(2) | $ | 21,781 | | | $ | 20,785 | | | $ | 20,903 | | | $ | 15,829 | | | $ | 13,865 | |
Sempra Energy shareholders’ equity | $ | 23,373 | | | $ | 19,929 | | | $ | 17,138 | | | $ | 12,670 | | | $ | 12,951 | |
Common shares outstanding | 288.5 | | | 291.7 | | | 273.8 | | | 251.4 | | | 250.2 | |
Book value per common share | $ | 70.11 | | | $ | 60.58 | | | $ | 54.35 | | | $ | 50.40 | | | $ | 51.77 | |
(1) Includes long-term debt due within one year and current portion of finance lease obligations. Excludes discontinued operations.
(2)Excludes discontinued operations.
In 2020, SoCalGas recorded charges of $307 million ($233 million after tax) in Aliso Canyon Litigation and Regulatory Matters on the SoCalGas and Sempra Energy Consolidated Statements of Operations related to settlement discussions in connection with civil litigation and regulatory matters. We discuss these matters in Note 16 of the Notes to Consolidated Financial Statements.
In 2020, we completed the sale of our equity interests in our Peruvian businesses for cash proceeds of $3,549 million, net of transaction costs and as adjusted for post-closing adjustments, and recorded a pretax gain of $2,271 million ($1,499 million after tax) in discontinued operations. Also in 2020, we completed the sale of our equity interests in our Chilean businesses for cash proceeds of $2,216 million, net of transaction costs and as adjusted for post-closing adjustments, and recorded a pretax gain of $628 million ($248 million after tax) in discontinued operations. We discuss discontinued operations in Note 5 of the Notes to Consolidated Financial Statements.
In 2020, we recorded a charge of $100 million in Equity Earnings on Sempra Energy’s Consolidated Statement of Operations for losses from our investment in RBS Sempra Commodities. We discuss the charge further in Note 16 of the Notes to Consolidated Financial Statements.
In 2020, Sempra Energy completed a registered public offering of our series C preferred stock. This offering provided net proceeds of $889 million. We used the net proceeds for working capital and other general corporate purposes, including the repayment of indebtedness.
In 2020, Sempra Energy entered into and completed an ASR program under which we paid $500 million to repurchase 4,089,375 shares of our common stock at an average price of $122.27 per share.
In 2019, Sempra Renewables completed the sale of its remaining U.S. wind assets and investments and recognized a pretax gain on sale of $61 million ($45 million after tax and NCI). In 2018, Sempra Renewables completed the sale of its U.S. operating solar assets, solar and battery storage development projects, as well as an interest in one wind facility, and recognized a pretax gain on sale of $513 million ($367 million after tax). We discuss the sales and related gains in Note 5 of the Notes to Consolidated Financial Statements.
In 2018, we recorded impairment charges of $1.1 billion ($629 million after tax and NCI) at Sempra LNG, $200 million ($145 million after tax) at Sempra Renewables and $65 million at Parent and other. We discuss the impairments in Notes 5, 6 and 12 of the Notes to Consolidated Financial Statements.
In 2018, Sempra Energy completed registered public offerings of our common stock (including shares offered pursuant to forward sale agreements), series A preferred stock, series B preferred stock and long-term debt. These offerings, including settlement of the forward sale agreements, provided total net proceeds of approximately $4.5 billion in equity and $4.9 billion in debt. A portion of these proceeds were used to partially fund the acquisition of an indirect, 100% interest in Oncor Holdings, which we account for as an equity method investment. We discuss the acquisition and equity method investment further in Notes 5 and 6 of the Notes to Consolidated Financial Statements.
In 2017, Sempra Energy’s income tax expense included $870 million related to the impact of the TCJA.
In 2017, we recorded a charge of $208 million (after tax) for the write-off of SDG&E’s wildfire regulatory asset.
In 2017 and 2016, Sempra Mexico recognized impairment charges of $47 million (after NCI) and $90 million (after tax and NCI), respectively, related to assets held for sale at TdM.
In 2016, we recorded a $350 million (after tax and NCI) noncash gain associated with the remeasurement of Sempra Mexico’s equity interest in IEnova Pipelines.
In 2016, IEnova completed a private offering in the U.S. and outside of Mexico and a concurrent public offering in Mexico of common stock.
We discuss litigation and other contingencies in Note 16 of the Notes to Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
FIVE-YEAR SUMMARIES OF SELECTED FINANCIAL DATA – SDG&E AND SOCALGAS |
(Dollars in millions) |
| At December 31 or for the years then ended |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
SDG&E: | | | | | | | | | |
Statement of Operations Data: | | | | | | | | | |
Operating revenues | $ | 5,313 | | | $ | 4,925 | | | $ | 4,568 | | | $ | 4,476 | | | $ | 4,253 | |
Operating income | 1,373 | | | 1,313 | | | 1,010 | | | 709 | | | 976 | |
| | | | | | | | | |
Earnings attributable to common shares | 824 | | | 767 | | | 669 | | | 407 | | | 570 | |
| | | | | | | | | |
Balance Sheet Data: | | | | | | | | | |
Total assets | $ | 22,311 | | | $ | 20,560 | | | $ | 19,225 | | | $ | 17,844 | | | $ | 17,719 | |
Short-term debt(1) | 611 | | | 136 | | | 372 | | | 473 | | | 191 | |
Long-term debt and finance leases (excludes current portion) | 6,866 | | | 6,306 | | | 6,138 | | | 5,335 | | | 4,658 | |
SDG&E shareholder’s equity | 7,730 | | | 7,100 | | | 6,015 | | | 5,598 | | | 5,641 | |
SoCalGas: | | | | | | | | | |
Statement of Operations Data: | | | | | | | | | |
Operating revenues | $ | 4,748 | | | $ | 4,525 | | | $ | 3,962 | | | $ | 3,785 | | | $ | 3,471 | |
Operating income | 785 | | | 956 | | | 591 | | | 627 | | | 551 | |
Dividends on preferred stock | 1 | | | 1 | | | 1 | | | 1 | | | 1 | |
Earnings attributable to common shares | 504 | | | 641 | | | 400 | | | 396 | | | 349 | |
| | | | | | | | | |
Balance Sheet Data: | | | | | | | | | |
Total assets | $ | 18,460 | | | $ | 17,077 | | | $ | 15,389 | | | $ | 14,159 | | | $ | 13,424 | |
Short-term debt(1) | 123 | | | 636 | | | 259 | | | 617 | | | 62 | |
Long-term debt and finance leases (excludes current portion) | 4,763 | | | 3,788 | | | 3,427 | | | 2,485 | | | 2,982 | |
SoCalGas shareholders’ equity | 5,144 | | | 4,748 | | | 4,258 | | | 3,907 | | | 3,510 | |
(1)Includes long-term debt due within one year and current portion of finance lease obligations.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
In 2018, we set out to simplify Sempra Energy’sSempra’s business model and sharpen our focus on our mission to be North America’s premier energy infrastructure company. Our 20202021 operational and financial results reflect our focus on executing this strategy:
▪We completed the salesconsolidation of our South American businessesnon-utility, energy infrastructure assets in North America under SI Partners
▪We achieved full commercial operations at Cameron LNG JV Phase 1completed the sale of a 20% NCI in SI Partners to KKR
▪We reached a final investment decision for ECA LNG Phase 1entered into an agreement to sell an additional 10% NCI in SI Partners to ADIA
▪We executedinvested $5.6 billion in capital expenditures and investments
In the fourth quarter of 2021, we formed Sempra Infrastructure, a new segment that includes the operating companies of our subsidiary, SI Partners, as well on our planned capital expendituresas a holding company and certain services companies. Sempra Infrastructure develops, builds, operates and invests in energy infrastructure to help enable the energy transition in North American markets and globally.
Our former South American businesses and certain activities associated with those businesses are presented as discontinued operations for all periods presented.operations. Nominal activities that are not classified as discontinued operations have been subsumed into Parent and other. We completed the sales of these businesses in the second quarter of 2020. Our discussions below exclude discontinued operations, unless otherwise noted.
RESULTS OF OPERATIONS
We discuss the following in Results of Operations:
▪Overall results of operations of Sempra Energy Consolidated;Sempra;
▪Segment results;
▪Significant changes in revenues, costs and earnings; and
▪Impact of foreign currency and inflation rates on our results of operations.
OVERALL RESULTS OF OPERATIONS OF SEMPRA ENERGY CONSOLIDATED
In 2020 compared to 2019, our earnings increased by $1,709 million to $3,764 million and our diluted EPS increased by $5.59 to $12.88. In 2019 compared to 2018, our earnings increased by $1,131 million to $2,055 million and our diluted EPS increased by $3.87 to $7.29. The change in diluted EPS for 2020 and 2019 included decreases of $(0.46) and $(0.33), respectively, attributable to an increase in weighted-average common shares outstanding. | | | | | | | | |
OVERALL RESULTS OF OPERATIONS OF SEMPRA |
(Dollars, except per share amounts; shares in millions) |
Our earnings and diluted EPS were impacted by variances discussed below in “Segment Results” below.Results.”
SEGMENT RESULTS
This section presents earnings (losses) by Sempra Energy segment, as well as Parent and other and discontinued operations, and a related discussion of the changes in segment earnings (losses). Throughout the MD&A, our reference to earnings represents earnings attributable to common shares. Variance amounts presented are the after-tax earnings impact (based on applicable statutory tax rates), unless otherwise noted, and before NCI, where applicable.
| SEMPRA ENERGY EARNINGS (LOSSES) BY SEGMENT | |
SEMPRA EARNINGS (LOSSES) BY SEGMENT | | SEMPRA EARNINGS (LOSSES) BY SEGMENT |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
SDG&E | SDG&E | $ | 824 | | | $ | 767 | | | $ | 669 | | SDG&E | $ | 819 | | | $ | 824 | | | $ | 767 | |
SoCalGas | SoCalGas | 504 | | | 641 | | | 400 | | SoCalGas | (427) | | | 504 | | | 641 | |
Sempra Texas Utilities | Sempra Texas Utilities | 579 | | | 528 | | | 371 | | Sempra Texas Utilities | 616 | | | 579 | | | 528 | |
Sempra Mexico | 259 | | | 253 | | | 237 | | |
Sempra LNG | 320 | | | (6) | | | (617) | | |
Sempra Infrastructure | | Sempra Infrastructure | 682 | | | 580 | | | 247 | |
Sempra Renewables | Sempra Renewables | — | | | 59 | | | 328 | | Sempra Renewables | — | | | — | | | 59 | |
Parent and other(1) | Parent and other(1) | (562) | | | (515) | | | (620) | | Parent and other(1) | (436) | | | (563) | | | (515) | |
Discontinued operations | Discontinued operations | 1,840 | | | 328 | | | 156 | | Discontinued operations | — | | | 1,840 | | | 328 | |
Earnings attributable to common shares | Earnings attributable to common shares | $ | 3,764 | | | $ | 2,055 | | | $ | 924 | | Earnings attributable to common shares | $ | 1,254 | | | $ | 3,764 | | | $ | 2,055 | |
(1) Includes intercompany eliminations recorded in consolidation and certain corporate costs.
SDG&E
The increasedecrease in earnings of $57$5 million (7%(1%) in 20202021 compared to 20192020 was primarily due to:
▪$62 million decrease due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account, which we discuss in Note 4 of the Notes to Consolidated Financial Statements;
▪$10 million lower electric transmission margin, including the following favorable impacts in 2020 from the March 2020 FERC-approved TO5 settlement proceeding:
◦$18 million to conclude a rate base matter, and
◦$9 million from the retroactive application of the final TO5 settlement for 2019; and
▪$6 million higher income tax expense primarily from flow-through items, net of associated regulatory revenues; offset by
▪$44 million charge in 2020 for amounts to be refunded to customers and a fine related to the Energy Efficiency Program inquiry, which we discuss in Note 4 of the Notes to Consolidated Financial Statements; and
▪$31 million higher CPUC base operating margin, net of operating expenses and favorable resolution of regulatory matters in 2020.
The increase in earnings of $57 million (7%) in 2020 compared to 2019 was primarily due to:
▪$62 million increase due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account;
▪$52 million higher electric transmission margin, including an increase in authorized ROE and the following favorable impacts in 2020 from the March 2020 FERC-approved TO5 settlement:
◦$18 million to conclude a rate base matter, and
◦$9 million favorable impact from the retroactive application of the final TO5 settlement for 2019;
▪$23 million higher AFUDC equity; and
▪$16 million higher income tax benefits from flow-through items; offset by
▪$44 million expectedcharge in 2020 for amounts to be refunded to customers and a fine related to the Energy Efficiency Program inquiry, which we discuss in Note 4 of the Notes to Consolidated Financial Statements;inquiry;
▪$31 million income tax benefit in 2019 from the release of a regulatory liability established in connection with 2017 tax reform for excess deferred income tax balances that the CPUC directed to be allocated to shareholders in a January 2019 decision;
▪$13 million higher amortization and accretion of the Wildfire Fund asset and liability, respectively; and
▪$12 million higher net interest expense.
The increaseSoCalGas
Losses of $427 million in 2021 compared to earnings of $98$504 million (15%) in 2019 compared to 20182020 was primarily due to:
▪$71915 million increase in charges related to civil litigation and regulatory matters pertaining to the Leak comprised of $1,148 million in 2021 compared to $233 million in 2020; and
▪$64 million decrease due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account; offset by
▪$23 million higher income tax benefits from flow-through items; and
▪$21 million higher CPUC base operating margin, authorized for 2019, net of operating expenses;expenses.
▪$31 million income tax benefit from the release of a regulatory liability established in connection with 2017 tax reform for excess deferred income tax balances that the CPUC directed to be allocated to shareholders in a January 2019 decision; and
▪$11 million higher margin from electric transmission operations, net of a FERC formulaic rate adjustment benefit in 2018; offset by
▪$10 million amortization of the Wildfire Fund asset.
SoCalGas
The decrease in earnings of $137 million (21%) in 2020 compared to 2019 was primarily due to:
▪$233 million from impacts associated with Aliso Canyon natural gas storage facilityin 2020 related to civil litigation and regulatory matters;matters pertaining to the Leak;
▪$38 million income tax benefit in 2019 from the impact of the January 2019 CPUC decision allocating certain excess deferred income tax balances to shareholders; and
▪$12 million higher net interest expense; offset by
▪$64 million increase due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense forecasting differences;memorandum account;
▪$29 million higher CPUC base operating margin, authorized for 2020, net of operating expenses;
▪$21 million impairment of non-utility native gas assets in 2019;
▪$10 million higher income tax benefits from flow-through items; and
▪$8 million in penalties in 2019 related to the SoCalGas billing practices OII.
The increase in earnings of $241$37 million (6%) in 20192021 compared to 20182020 was primarily due to:
▪$216 millionto higher CPUC baseequity earnings from Oncor Holdings driven by increased revenues from rate updates to reflect increases in invested capital and customer growth, offset by increased operating margin authorized for 2019, net of operating expenses;
▪$38 million income tax benefit from the impact of the January 2019 CPUC decision allocating certain excess deferred income tax balancescosts and expenses attributable to shareholders;
▪$22 million from impacts associated with Aliso Canyon natural gas storage facility litigation in 2018; and
▪$14 million higher income tax benefits from flow-through items; offset by
▪$21 million impairment of non-utility native gas assets in 2019;
▪$18 million higher net interest expense; and
▪$8 million penalties in 2019 related to the SoCalGas billing practices OII.
Sempra Texas Utilitiesinvested capital.
The increase in earnings of $51 million (10%) in 2020 compared to 2019 was primarily due to higher equity earnings from Oncor Holdings driven by:
▪increased revenues from rate updates to reflect increases in invested capital and customer growth;
▪the impact of Oncor’s acquisition of InfraREIT in May 2019; and
▪higher AFUDC equity; offset by
▪unfavorable weather and increased operating costs and expenses attributable to invested capital.
Sempra MexicoInfrastructure
Because Ecogas, our natural gas distribution utility in Mexico, uses the local currency as its functional currency, its revenues and expenses are translated into U.S. dollars at average exchange rates for the period for consolidation in Sempra Energy’sSempra’s results of operations. Prior year amounts used in the variances discussed below are as adjusted for the difference in foreign currency translation rates between years. We discuss these and other foreign currency effects below in “Impact of Foreign Currency and Inflation Rates on Results of Operations.”
The increase in earnings of $6$102 million (2%(18%) in 2021 compared to 2020 was primarily due to:
▪$133 million higher equity earnings from Cameron LNG JV primarily due to the three-train liquefaction project achieving full commercial operations in August 2020;
▪$55 million higher earnings from asset and supply optimization primarily driven by changes in natural gas prices and higher volumes;
▪$23 million primarily due to the start of commercial operations of the Veracruz terminal in the first quarter of 2021;
▪$20 million favorable U.S. tax impact from converting SI Partners from a corporation to a partnership in October 2021;
▪$147 million earnings attributable to NCI in 2021 compared to $163 million in 2020, including a decrease of $87 million from the increase in our ownership interest in IEnova, offset by an increase of $98 million from the sale of a 20% NCI in SI Partners to KKR, which we discuss in Note 1 of the Notes to Consolidated Financial Statements; and
▪$13 million selling profit on a sales-type lease relating to the commencement of a rail facility lease at the Veracruz terminal in the third quarter of 2021; offset by
▪$76 million higher net interest expense primarily due to:
◦$37 million in charges associated with hedge termination costs and a write-off of unamortized debt issuance costs from the early redemptions of debt in October 2021, which we discuss in Note 7 of the Notes to Consolidated Financial Statements,
◦$19 million higher interest expense from IEnova’s issuance of senior unsecured notes in September 2020, and
◦$8 million lower net interest income from lower intercompany balances with Parent and other; and
▪$58 million unfavorable impact from foreign currency and inflation effects, net of foreign currency derivatives effects, comprised of a $47 million unfavorable impact in 2021 compared to an $11 million favorable impact in 2020.
The increase in earnings of $333 million in 2020 compared to 2019 was primarily due to:
▪$69284 million higher equity earnings from Cameron LNG JV primarily due to the three-train liquefaction project achieving full commercial operations in August 2020;
▪$68 million favorable impact from foreign currency and inflation effects, net of foreign currency derivatives effects, comprised of:of an $11 million favorable impact in 2020 compared to a $57 million unfavorable impact in 2019;
◦▪$44 million higher earnings from asset and supply optimization primarily driven by changes in 2020, $51 million favorable foreign currency and inflation effects, offset by a $39 million loss from foreign currency derivatives, and
◦in 2019, $86 million unfavorable foreign currency and inflation effects, offset by a $29 million gain from foreign currency derivatives;natural gas prices; and
▪$33 million higher earnings primarily due to the start of commercial operations of the Sur de Texas-Tuxpan marine pipeline at IMG JV in September 2019; offset by
▪$165163 million earnings attributable to NCI at IEnova in 2020 compared to $122$121 million earnings in 2019;
▪$22 million higher net interest expense;
▪$21 million lower earnings at the Guaymas-El Oro segment of the Sonora pipeline primarily from force majeure payments that ended in August 2019; and
▪$13 million lower earnings at TdM primarily due to scheduled major maintenance in the fourth quarter of 2020.
The increase in earnings of $16 million (7%) in 2019 compared to 2018 was primarily due to:
▪$18 million primarily due to the start of commercial operations of the Sur de Texas-Tuxpan marine pipeline at IMG JV in the third quarter of 2019;
▪$16 million lower income tax expense in 2019 primarily from a two-year tax abatement that expired in 2020; and
▪$122 million earnings attributable to NCI at IEnova in 2019 compared to $132 million earnings in 2018; offset by
▪$20 million lower earnings primarily from force majeure payments that ended on August 22, 2019 with respect to the Guaymas-El Oro segment of the Sonora pipeline; and
▪$17 million unfavorable impact from foreign currency and inflation effects, net of foreign currency derivatives effects, comprised of:
◦in 2019, $88 million unfavorable foreign currency and inflation effects, offset by a $29 million gain from foreign currency derivatives, offset by
◦in 2018, $43 million unfavorable foreign currency and inflation effects, offset by a $1 million gain from foreign currency derivatives.
Sempra LNG
Earnings of $320 million in 2020 compared to losses of $6 million in 2019 were primarily due to:
▪$284 million higher equity earnings from Cameron LNG JV primarily due to commencement of Phase 1 commercial operations; and
▪$41 million higher earnings from Sempra LNG’s marketing operations primarily driven by changes in natural gas prices.
The decrease in losses of $611 million in 2019 compared to 2018 was primarily due to:
▪$665 million net impairment of certain non-utility natural gas storage assets in the southeast U.S. in 2018, including $801 million impairment in the second quarter of 2018, offset by a $136 million reduction to the impairment in the fourth quarter of 2018;
▪$17 million higher equity earnings from Cameron LNG JV, including:
◦$36 million increase primarily due to Train 1 commencing commercial operation under its tolling agreements in August 2019, offset by
◦$19 million decrease due to the write-off of unamortized debt issuance costs and associated fees related to Cameron LNG JV’s debt refinancing; and
▪$9 million unfavorable adjustment in 2018 to TCJA provisional amounts recorded in 2017 related to the remeasurement of deferred income taxes; offset by
▪$36 million losses attributable to NCI in 2018 related to the net impairment discussed above; and
▪$28 million higher liquefaction project development costs and operating costs.
Sempra Renewables
As we discuss in Note 5 of the Notes to Consolidated Financial Statements, Sempra Renewables sold its remaining wind assets and investments in April 2019 upon which date the segment ceased to exist. Earnings of $59 million in 2019 included a $45 million gain on such sale.
Parent and Other
The decrease in earningslosses of $269$127 million (23%) in 20192021 compared to 20182020 was primarily due to:
▪$36750 million gain on the sale of all Sempra Renewables’ operating solar assets, solar and battery storage development projects and its 50% interestequity earnings in a wind power generation facility in December 2018; and
▪$92 million lower earnings from assets sold in December 2018 and April 2019, net of lower general and administrative and other costs due to the wind-down of this business; offset by
▪$145 million other-than-temporary impairment of certain U.S. wind equity method investments in 2018; and
▪$45 million gain on sale of Sempra Renewables’ remaining wind assets in 2019.
Parent and Other
The increase in losses of $47 million (9%) in 20202021 compared to 2019 was primarily due to:
▪$100$100 million equity losses fromin 2020 related to our investment in RBS Sempra Commodities to settle pending taxVAT matters and related legal costs, which we discuss in Note 16 of the Notes to Consolidated Financial Statements;
▪$105 million lower preferred dividends as a result of $124 million lower dividends due to the mandatory conversion of all series A preferred stock and series B preferred stock in January 2021 and July 2021, respectively, offset by $19 million higher dividends due to the issuance of series C preferred stock in June 2020;
▪$59 million lower net interest expense;
▪$26 million gain on the sale of PXiSE in December 2021, which we discuss in Note 5 of the Notes to Consolidated Financial Statements; and
▪$14 million lower operating costs retained at Parent and other; offset by
▪$92 million in charges in 2021 associated with make-whole premiums and a write-off of unamortized discount and debt issuance costs from the early redemptions of debt in December 2021, which we discuss in Note 7 of the Notes to Consolidated Financial Statements;
▪$72 million net income tax expense related to the utilization of a deferred income tax asset upon completing the sale of a 20% NCI in SI Partners to KKR in October 2021;
▪$9 million income tax expense in 2021 compared to $26 million income tax benefit in 2020 due to changes in a valuation allowance against certain tax credit carryforwards; and
▪$31 million income tax benefit in 2020 for repatriation of foreign earnings due to extension of federal tax law.
The increase in losses of $48 million (9%) in 2020 compared to 2019 was primarily due to:
▪$100 million equity losses in 2020 related to our investment in RBS Sempra Commodities to settle pending VAT matters and related legal costs;
▪$26 million higher preferred dividends due to the issuance of series C preferred stock in June 2020;
▪$24 million consolidated California state income tax expense in 2020 associated with income from our investments in Sempra Infrastructure entities;
▪$10 million income tax benefit in 2019 from a reduction in a valuation allowance against certain NOL carryforwards as a result of our decision to sell our South American businesses; and
▪$9 million lower net investment gains on dedicated assets in support of our employee nonqualified benefit plan and deferred compensation obligations, net of deferred compensation expenses; offset by
▪$36 million lower net interest expense;
▪$18 million higher income tax benefit primarily due to:
◦$26 million income tax benefit in 2020 compared to $7 million income tax expense in 2019 from changes to a valuation allowance against certain tax credit carryforwards, andcarryforwards;
◦▪$11 million income tax benefit in 2020 compared to $2 million income tax expense in 2019 related to share-based compensation, offset by
◦$24 million consolidated California state income tax expense in 2020 associated with income from our investments in Sempra LNG entities,compensation; and
◦$10 million income tax benefit in 2019 from a reduction in a valuation allowance against certain NOL carryforwards as a result of our decision to sell our South American businesses; and
▪$8 million decrease in losses from foreign currency derivatives used to hedge exposure to fluctuations in the Peruvian sol and Chilean peso related to the sale of our South American businesses.
The decrease in losses of $105 million (17%) in 2019 compared to 2018 was primarily due to:
▪$65 million impairment of the RBS Sempra Commodities equity method investment in 2018;
▪$48 million higher investment gains in 2019 on dedicated assets in support of our employee nonqualified benefit plan obligations, net of deferred compensation expenses;
▪$32 million income tax expense in 2018 to adjust provisional amounts recorded in 2017 related to the TCJA; and
▪$10 million income tax benefit in 2019 to reduce a valuation allowance against certain NOL carryforwards as a result of our decision to sell our South American businesses; offset by
▪$17 million increase in preferred dividends primarily from the issuance of series B preferred stock in July 2018;
▪$11 million increase primarily related to settlement charges from our nonqualified pension plan; and
▪$11 million loss from foreign currency derivatives used to hedge exposure to fluctuations in the Peruvian sol related to the sale of our operations in Peru.
Discontinued Operations
Discontinued operations that were previously in our Sempra South American Utilities segment include our former 100% interest in Chilquinta Energía in Chile, our former 83.6% interest in Luz del Sur in Peru and our former interests in two energy-services companies, Tecnored and Tecsur, which provide electric construction and infrastructure services to Chilquinta Energía and Luz del Sur, respectively, as well as third parties. Discontinued operations also include activities, mainly income taxes related to the South American businesses, that were previously included in the holding company of the South American businesses at Parent and other.
As we discuss in Note 5 of the Notes to Consolidated Financial Statements, we completed the sales of our South American businesses in the second quarter of 2020. InOn April 24, 2020, we sold our equity interests in our Peruvian businesses, including our 83.6% interest in Luz del Sur and ourits interest in Tecsur, for cash proceeds of $3,549 million, net of transaction costs and as adjusted for post-closing adjustments, and inon June 24, 2020, we sold our equity interests in our Chilean businesses, including our 100% interest in Chilquinta Energía and Tecnored and our 50% interest in Eletrans, for cash proceeds of $2,216 million, net of transaction costs and as adjusted for post-closing adjustments.
Earnings from discontinued operations of $1,840 million in 2020 included:
▪$1,499 million gain on the sale of our Peruvian businesses;
▪$248 million gain on the sale of our Chilean businesses;
▪$98 million operational earnings prior to the sale of our Peruvian and Chilean businesses; and
▪$7 million income tax benefit related to changes in outside basis differences from earnings and foreign currency effects.
The increase in earnings from our discontinued operations of $1,512 million in 2020 compared to 2019 was primarily due to:
▪$1,499 million after-tax gain on the sale of our Peruvian businesses;
▪$248 million after-tax gain on the sale of our Chilean businesses; and
▪$7 million income tax benefit in 2020 compared to $51 million income tax expense in 2019 related to changes in outside basis differences from earnings and foreign currency effects since the January 25, 2019 approval of our plan to sell our South American businesses; offset by
▪$201 million lower operational earnings mainly as a result of the sales of our Peruvian and Chilean businesses; and
▪$89 million income tax benefit in 2019 related to outside basis differences existing as of January 25, 2019.
The increase in earnings of $172 million in 2019 compared to 2018 was primarily due to:
▪$91 million higher earnings from South American operations mainly from higher rates, lower cost of purchased power at Peru, and including $38 million lower depreciation expense due to assets classified as held for sale;
▪$89 million income tax benefit in 2019 from outside basis differences in our South American businesses primarily related to the change in our indefinite reinvestment assertion from our decision on January 25, 2019 to hold those businesses for sale and a change in the anticipated structure of the sale; and
▪$44 million income tax expense in 2018 to adjust TCJA provisional amounts recorded in 2017 primarily related to withholding tax on our expected future repatriation of foreign undistributed earnings; offset by
▪$51 million income tax expense related to the increase in outside basis differences from 2019 earnings since January 25, 2019.
SIGNIFICANT CHANGES IN REVENUES, COSTS AND EARNINGS
This section contains a discussion of the differences between periods in the specific line items of the Consolidated Statements of Operations for Sempra, Energy, SDG&E and SoCalGas.
Utilities Revenues and Cost of Sales
Our utilities revenues include natural gas revenues at our California UtilitiesSoCalGas and SDG&E and Sempra Mexico’sInfrastructure’s Ecogas and electric revenues at SDG&E. Intercompany revenues included in the separate revenues of each utility are eliminated in the Sempra EnergySempra’s Consolidated Statements of Operations.
SoCalGas and SDG&E currently operate under a regulatory framework that permits:
▪The cost of natural gas purchased for core customers (primarily residential and small commercial and industrial customers) to be passed through to customers in rates substantially as incurred. However, SoCalGas’ GCIM provides SoCalGas the opportunity to share in the savings and/or costs from buying natural gas for its core customers at prices below or above monthly market-based benchmarks. This mechanism permits full recovery of costs incurred when average purchase costs are within a price range around the benchmark price. Any higher costs incurred or savings realized outside this range are shared between the core customers and SoCalGas.
▪SDG&E to recover the actual cost incurred to generate or procure electricity based on annual estimates of the cost of electricity supplied to customers. The differences in cost between estimates and actual are recovered or refunded in subsequent periods through rates.
▪The California UtilitiesSoCalGas and SDG&E to recover certain program expenditures and other costs authorized by the CPUC, or “refundable programs.”
Because changes in SoCalGas’ and SDG&E’s cost of natural gas and/or electricity are recovered in rates, changes in these costs are offset in the changes in revenues and therefore do not impact earnings. In addition to the changes in cost or market prices, natural gas or electric revenues recorded during a period are impacted by customer billing cycles causing athe difference between customer billings and recorded or authorized costs.CPUC-authorized amounts. These differences are required to be balanced over time, resulting in over- and undercollected regulatory balancing accounts. We discuss balancing accounts and their effects further in Note 4 of the Notes to Consolidated Financial Statements in this report.
The table below summarizes utilities revenues and cost of sales.
| UTILITIES REVENUES AND COST OF SALES | UTILITIES REVENUES AND COST OF SALES | UTILITIES REVENUES AND COST OF SALES |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Natural gas revenues: | Natural gas revenues: | | | | | | Natural gas revenues: | | | | | |
SoCalGas | SoCalGas | $ | 4,748 | | | $ | 4,525 | | | $ | 3,962 | | SoCalGas | $ | 5,515 | | | $ | 4,748 | | | $ | 4,525 | |
SDG&E | SDG&E | 694 | | | 658 | | | 565 | | SDG&E | 838 | | | 694 | | | 658 | |
Sempra Mexico | 58 | | | 73 | | | 78 | | |
Sempra Infrastructure | | Sempra Infrastructure | 81 | | | 58 | | | 73 | |
Eliminations and adjustments | Eliminations and adjustments | (89) | | | (71) | | | (65) | | Eliminations and adjustments | (101) | | | (89) | | | (71) | |
Total | Total | 5,411 | | | 5,185 | | | 4,540 | | Total | 6,333 | | | 5,411 | | | 5,185 | |
Electric revenues: | Electric revenues: | | Electric revenues: | |
SDG&E | SDG&E | 4,619 | | | 4,267 | | | 4,003 | | SDG&E | 4,666 | | | 4,619 | | | 4,267 | |
Eliminations and adjustments | Eliminations and adjustments | (5) | | | (4) | | | (4) | | Eliminations and adjustments | (8) | | | (5) | | | (4) | |
Total | Total | 4,614 | | | 4,263 | | | 3,999 | | Total | 4,658 | | | 4,614 | | | 4,263 | |
Total utilities revenues | Total utilities revenues | $ | 10,025 | | | $ | 9,448 | | | $ | 8,539 | | Total utilities revenues | $ | 10,991 | | | $ | 10,025 | | | $ | 9,448 | |
Cost of natural gas(1): | Cost of natural gas(1): | | | | | | Cost of natural gas(1): | | | | | |
SoCalGas | SoCalGas | $ | 783 | | | $ | 977 | | | $ | 1,048 | | SoCalGas | $ | 1,369 | | | $ | 783 | | | $ | 977 | |
SDG&E | SDG&E | 162 | | | 176 | | | 152 | | SDG&E | 242 | | | 162 | | | 176 | |
Sempra Mexico | 12 | | | 14 | | | 21 | | |
Sempra Infrastructure | | Sempra Infrastructure | 24 | | | 12 | | | 14 | |
Eliminations and adjustments | Eliminations and adjustments | (32) | | | (28) | | | (13) | | Eliminations and adjustments | (38) | | | (32) | | | (28) | |
Total | Total | $ | 925 | | | $ | 1,139 | | | $ | 1,208 | | Total | $ | 1,597 | | | $ | 925 | | | $ | 1,139 | |
Cost of electric fuel and purchased power(1): | Cost of electric fuel and purchased power(1): | | Cost of electric fuel and purchased power(1): | |
SDG&E | SDG&E | $ | 1,191 | | | $ | 1,194 | | | $ | 1,370 | | SDG&E | $ | 1,069 | | | $ | 1,191 | | | $ | 1,194 | |
Eliminations and adjustments | Eliminations and adjustments | (4) | | | (6) | | | (12) | | Eliminations and adjustments | (59) | | | (4) | | | (6) | |
Total | Total | $ | 1,187 | | | $ | 1,188 | | | $ | 1,358 | | Total | $ | 1,010 | | | $ | 1,187 | | | $ | 1,188 | |
(1) Excludes depreciation and amortization, which are presented separately on the Sempra, Energy, SDG&E and SoCalGas Consolidated Statements of Operations.
Natural Gas Revenues and Cost of Natural Gas
The table below summarizes the average cost of natural gas sold by theSempra California Utilities and included in Costcost of Natural Gas on the Consolidated Statements of Operations.natural gas. The average cost of natural gas sold at each utility is impacted by market prices, as well as transportation, tariff and other charges.
| CALIFORNIA UTILITIES AVERAGE COST OF NATURAL GAS | |
SEMPRA CALIFORNIA AVERAGE COST OF NATURAL GAS | | SEMPRA CALIFORNIA AVERAGE COST OF NATURAL GAS |
(Dollars per thousand cubic feet) | (Dollars per thousand cubic feet) | (Dollars per thousand cubic feet) |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
SoCalGas | SoCalGas | $ | 2.59 | | | $ | 3.07 | | | $ | 3.58 | | SoCalGas | $ | 4.53 | | | $ | 2.59 | | | $ | 3.07 | |
SDG&E | SDG&E | 3.74 | | | 3.91 | | | 3.81 | | SDG&E | 5.30 | | | 3.74 | | | 3.91 | |
In 2021 compared to 2020, our natural gas revenues increased by $922 million (17%) to $6.3 billion primarily due to:
▪$767 million increase at SoCalGas, which included:
◦$586 million increase in cost of natural gas sold, which we discuss below,
◦$129 million higher CPUC-authorized revenues,
◦$81 million higher revenues from incremental and balanced capital projects, and
◦$53 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M, offset by
◦$84 million decrease due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account, and
◦$15 million lower non-service component of net periodic benefit cost in 2021, which fully offsets in Other Income (Expense), Net;
▪$144 million increase at SDG&E, which included:
◦$80 million increase in cost of natural gas sold, which we discuss below,
◦$24 million higher CPUC-authorized revenues,
◦$20 million higher revenues primarily associated with the Pipeline Safety Enhancement Plan, and
◦$15 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M, offset by
◦$6 million decrease due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account;and
▪$23 million increase at Sempra Infrastructure primarily due to a higher residential customer rate and cost of natural gas sold.
In 2020 compared to 2019, our natural gas revenues increased by $226 million (4%) to $5.4 billion primarily due to:
▪$223 million increase at SoCalGas, which included:
◦$198 million higher CPUC-authorized revenues,
◦$144 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M, and
◦$84 million increase due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense forecasting differences,memorandum account, offset by
◦$194 million decrease in cost of natural gas sold, which we discuss below, and
◦$19 million lower non-service component of net periodic benefit cost in 2020, which fully offsets in Other Income (Expense) Income,, Net; and
▪$36 million increase at SDG&E, which included:
◦$23 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M,
◦$15 million higher CPUC-authorized revenues, and
◦$6 million increase due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense forecasting differences,memorandum account, offset by
◦$14 million decrease in cost of natural gas sold, which we discuss below; offset by
▪$15 million decrease at Sempra MexicoInfrastructure primarily due to foreign currency effects and a regulatory rate adjustment.
In 2019Our cost of natural gas increased by $672 million to $1.6 billion in 2021 compared to 2018, our natural gas revenues increased by $645 million (14%) to $5.2 billion2020 primarily due to:
▪$563586 million increase at SoCalGas which included:
◦$383 millionprimarily from higher CPUC-authorized revenue in 2019,
◦$105 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M,
◦$62 million higher non-service component of net periodic benefit cost in 2019, which fully offsets in Other (Expense) Income, Net,
◦$29 million charges in 2018 associated with tracking the income tax benefit from flow-through items in relation to forecasted amounts in the 2016 GRC FD, and
◦$16 million higher net revenues from PSEP, offset by
◦$71 million decrease in the cost ofaverage natural gas sold, which we discuss below;prices; and
▪$9380 million increase at SDG&E which included:
◦$68 millionprimarily from higher authorized revenue in 2019, and
◦$24 million increase in the cost ofaverage natural gas sold, which we discuss below.prices.
Our cost of natural gas decreased by $214 million (19%) to $925 million in 2020 compared to 2019 primarily due to:
▪$194 million decrease at SoCalGas, including $143 million from lower average natural gas prices and $51 million from lower volumes driven primarily by weather; and
▪$14 million decrease at SDG&E, including $7 million from lower average natural gas prices and $7 million from lower volumes driven primarily by weather.
Our cost of natural gas decreased by $69 million (6%) to $1.1 billion in 2019 compared to 2018 primarily due to:
▪$71 million decrease at SoCalGas, including $164 million due to lower average natural gas prices, offset by $93 million from higher volumes driven by weather; and
▪$15 million increase in intercompany eliminations primarily associated with sales between Sempra LNG and SoCalGas; offset by
▪$24 million increase at SDG&E, including $19 million from higher volumes driven by weather and $5 million from higher average natural gas prices.
Electric Revenues and Cost of Electric Fuel and Purchased Power
OurIn 2021 compared to 2020, our electric revenues, substantially all of which are at SDG&E, increased by $44 million (1%) to $4.7 billion primarily due to:
▪$87 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M;
▪$51 million charge in 2020 for amounts to be refunded to customers related to the Energy Efficiency Program inquiry;
▪$49 million higher CPUC-authorized revenues;
▪$41 million higher revenues associated with SDG&E’s wildfire mitigation plan;
▪$14 million higher revenues associated with a new customer information system;
▪$13 million higher revenues associated with lower income tax benefits from flow-through items; and
▪$6 million higher revenues from transmission operations, including the following favorable impacts in 2020 from the March 2020 FERC-approved TO5 settlement proceeding:
◦$26 million to settle a rate base matter, and
◦$12 million from the retroactive application of the final TO5 settlement for 2019; offset by
▪$122 million lower cost of electric fuel and purchased power, which we discuss below;
▪$77 million decrease due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account; and
▪$22 million lower revenues due to favorable resolution of regulatory matters in 2020.
In 2020 compared to 2019, our electric revenues, substantially all of which are at SDG&E, increased by $351 million (8%) to $4.6 billion in 2020 compared to 2019 primarily due to:
▪$242 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M;
▪$112 million higher revenues from transmission operations, including an increase in authorized ROE and the following favorable impacts related toin 2020 from the March 2020 FERC-approved TO5 settlement:settlement proceeding:
◦$26 million to settle a rate base matter, and
◦$12 million favorable impact from the retroactive application of the final TO5 settlement for 2019;
▪$77 million increase due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense forecasting differences;memorandum account;
▪$35 million higher CPUC-authorized revenues; and
▪$19 million higher revenues associated with SDG&E’s wildfire mitigation plan; offset by
▪$55 million lower cost of electric fuel and purchased power, which we discuss below; and
▪$51 million expectedcharge in 2020 for amounts to be refunded to customers related to the Energy Efficiency Program inquiry.
In 2019 compared to 2018, our electric revenues increased by $264 million (7%) to $4.3 billion, primarily attributable to SDG&E, primarily due to:
▪$121 million higher authorized revenue in 2019, including $108 million of revenues to cover liability insurance premium costs that are now balanced and offset in O&M;
▪$40 million higher revenues from transmission operations, net of a FERC formulaic rate adjustment benefit in 2018;
▪$34 million higher recovery of costs associated with refundable programs, excluding 2019 liability insurance premium costs, which revenues are offset in O&M;
▪$27 million higher finance lease costs, offset by lowerOur utility cost of electric fuel and purchased power which we discuss below;includes utility-owned generation and power purchased from third parties, net of sales to the California ISO. The cost of electric fuel and purchased power decreased by $177 million (15%) to $1.0 billion in 2021 compared to 2020 primarily due to:
▪$122 million at SDG&E primarily from higher sales to the California ISO due to higher market prices and lower customer demand; and
▪$2155 million charges in 2018higher intercompany eliminations associated with trackingsales between SDG&E and Sempra Infrastructure due to the income tax benefit from certain flow-through itemsacquisition of ESJ in relation to forecasted amounts in the 2016 GRC FD.March 2021.
Our utility cost of electric fuel and purchased power, substantially all of which is at SDG&E, decreased by $1 million remaining at $1.2 billion in 2020 compared to 2019 primarily due to:
▪$55 million lower recoverable cost of electric fuel and purchased power primarily due to a decrease in residential demand mainly from an increase in rooftop solar adoption; offset by
▪$52 million associated with Otay Mesa VIE, which we deconsolidated in August 2019.
Our utility cost of electric fuel and purchased power decreased by $170 million (13%) to $1.2 billion in 2019 compared to 2018, primarily attributable to SDG&E, primarily due to:
▪$103 million of finance lease costs for PPAs in 2018. Similar amounts are now included in Interest Expense and Depreciation and Amortization Expense as a result of the 2019 adoption of the lease standard; and
▪$73 million decrease primarily from lower electricity market cost, offset by an increase primarily due to an additional capacity contract.
Energy-Related Businesses: Revenues and Cost of Sales
The table below shows revenues and cost of sales for our energy-related businesses.
| ENERGY-RELATED BUSINESSES: REVENUES AND COST OF SALES | ENERGY-RELATED BUSINESSES: REVENUES AND COST OF SALES | ENERGY-RELATED BUSINESSES: REVENUES AND COST OF SALES |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
REVENUES | REVENUES | | | | | | REVENUES | | | | | |
Sempra Mexico | $ | 1,198 | | | $ | 1,302 | | | $ | 1,298 | | |
Sempra LNG | 374 | | | 410 | | | 472 | | |
Sempra Infrastructure | | Sempra Infrastructure | $ | 1,916 | | | $ | 1,342 | | | $ | 1,381 | |
Sempra Renewables | Sempra Renewables | — | | | 10 | | | 124 | | Sempra Renewables | — | | | — | | | 10 | |
Parent and other(1) | Parent and other(1) | (227) | | | (341) | | | (331) | | Parent and other(1) | (50) | | | 3 | | | (10) | |
Total revenues | Total revenues | $ | 1,345 | | | $ | 1,381 | | | $ | 1,563 | | Total revenues | $ | 1,866 | | | $ | 1,345 | | | $ | 1,381 | |
COST OF SALES(2) | COST OF SALES(2) | | | | | | COST OF SALES(2) | | | | | |
Sempra Mexico | $ | 283 | | | $ | 373 | | | $ | 363 | | |
Sempra LNG | 218 | | | 299 | | | 313 | | |
Sempra Infrastructure | | Sempra Infrastructure | $ | 608 | | | $ | 275 | | | $ | 342 | |
Parent and other(1) | Parent and other(1) | (225) | | | (328) | | | (319) | | Parent and other(1) | 3 | | | 1 | | | 2 | |
Total cost of sales | Total cost of sales | $ | 276 | | | $ | 344 | | | $ | 357 | | Total cost of sales | $ | 611 | | | $ | 276 | | | $ | 344 | |
(1) Includes eliminations of intercompany activity.
(2) Excludes depreciation and amortization, which are presented separately on the Sempra EnergySempra’s Consolidated Statements of Operations.
RevenuesIn 2021 compared to 2020 revenues from our energy-related businesses, substantially all of which are at Sempra Infrastructure, increased by $521 million (39%) to $1.9 billion primarily due to:
▪$355 million increase in revenues from asset and supply optimization, contracts to sell natural gas to third parties and LNG offtake, including:
◦$309 million higher natural gas sales primarily from higher natural gas prices and volumes offset by higher unrealized losses on commodity derivatives, and
◦$46 million higher diversion revenues due to higher natural gas prices;
▪$74 million higher revenues from the Veracruz and Mexico City terminals placed in service in March and July of 2021, respectively, including a $18 million selling profit on a sales-type lease relating to the commencement of a rail facility lease at the Veracruz terminal in the third quarter of 2021;
▪$63 million higher revenues from TdM mainly due to higher power prices and volumes; and
▪$41 million increase from the renewables business primarily due to the acquisition of ESJ in March 2021 and renewable assets placed in service in December 2020 and March 2021.
In 2020 compared to 2019, revenues from our energy-related businesses decreased by $36 million (3%) to $1.3 billion in 2020 compared to 2019 primarily due to:
▪$104 million decrease at Sempra Mexico primarily due to:
◦$59 million from the marketing business primarily due to lower natural gas prices and volumes,
◦$3725 million lower revenues from TdM mainly due to lower volumes, offset by higher power prices, andprices;
◦▪$21 million lower transportation revenues primarily from force majeure payments that ended in August 2019 with respect to the Guaymas-El Oro segment of the Sonora pipeline; and
▪$36 million decrease at Sempra LNG primarily due to:
◦$87 million decrease in revenues from LNG marketing operations primarily from lower natural gas sales to Sempra Mexico mainly as a result of lower volumes and natural gas prices, and from lower diversion revenues due to lower natural gas prices, and
◦$18 million lower revenues from the expiration of capacity release contracts in the fourth quarter of 2019,2019; offset by
▪$23 million increase in revenues from asset and supply optimization, contracts to sell natural gas to third parties and LNG offtake, including:
◦$44 million lower unrealized losses on commodity derivatives offset by lower natural gas sales primarily from lower natural gas prices and volumes, offset by
◦$70 million increase from natural gas marketing operations primarily due to changes in natural gas prices; offset by
▪$114 million increase primarily from lower intercompany eliminations associated with sales between Sempra LNG and Sempra Mexico.
In 2019 compared to 2018, revenues from our energy-related businesses decreased by $182 million (12%) to $1.4 billion primarily due to:
▪$114 million decrease at Sempra Renewables primarily due to the sale of assets in December 2018 and April 2019; and
▪$62 million decrease at Sempra LNG primarily due to:
◦$4521 million lower natural gas storagediversion revenues primarilyand turnback revenues due to the sale of storage assets in February 2019,
◦$15 million from the marketing business due to lower turnback cargo revenues, and
◦$12 million from LNG sales to Cameron LNG JV in January 2018, offset by
◦$14 million from natural gas marketing activities primarily due to changes in natural gas prices; offset by
▪$4 million increase at Sempra Mexico primarily due to:
◦$23 million from the marketing business, including an increase in volumes due to new regulations that went into effect on March 1, 2018 that require high consumption end users (previously serviced by Ecogas and other natural gas utilities) to procure their natural gas needs from natural gas marketers, such as Sempra Mexico’s marketing business, offset by lower natural gas prices and
◦$6 million increase primarily due to renewable assets placed in service in 2019, offset by
◦$27 million lower revenues primarily from force majeure payments that ended on August 22, 2019 with respect to the Guaymas-El Oro segment of the Sonora pipeline. volumes.
The cost of sales for our energy-related businesses, substantially all of which are at Sempra Infrastructure, increased by $335 million to $611 million in 2021 compared to 2020. The increase is primarily from higher natural gas purchases related to asset and supply optimization and higher natural gas prices and volumes at TdM.
The cost of sales for our energy-related businesses, substantially all of which are at Sempra Infrastructure, decreased by $68 million (20%) to $276 million in 2020 compared to 2019 primarily due to:
▪$90 million2019. The decrease at Sempra Mexico mainly associated with lower revenues from the marketing business and from TdM as a result of lower volumes and natural gas prices; and
▪$81 million decrease at Sempra LNG mainly from natural gas marketing activitiesis primarily due to lower natural gas purchases; offset by
▪$103 million increase primarily from lower intercompany eliminations associated with sales between Sempra LNGprices and Sempra Mexico.
The cost of sales for our energy-related businesses in 2019 was comparablevolumes related to 2018.asset and supply optimization.
Operation and Maintenance
In the table below, we provide O&M by segment.
| OPERATION AND MAINTENANCE | OPERATION AND MAINTENANCE | OPERATION AND MAINTENANCE |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
SDG&E(1) | SDG&E(1) | $ | 1,454 | | | $ | 1,175 | | | $ | 1,058 | | SDG&E(1) | $ | 1,585 | | | $ | 1,454 | | | $ | 1,175 | |
SoCalGas | SoCalGas | 2,029 | | | 1,780 | | | 1,613 | | SoCalGas | 2,180 | | | 2,029 | | | 1,780 | |
Sempra Mexico | 279 | | | 256 | | | 239 | | |
Sempra LNG | 159 | | | 156 | | | 123 | | |
Sempra Texas Utilities | | Sempra Texas Utilities | 6 | | | — | | | — | |
Sempra Infrastructure | | Sempra Infrastructure | 549 | | | 427 | | | 410 | |
Sempra Renewables | Sempra Renewables | — | | | 18 | | | 89 | | Sempra Renewables | — | | | — | | | 18 | |
Parent and other(2) | Parent and other(2) | 19 | | | 81 | | | 28 | | Parent and other(2) | 18 | | | 30 | | | 83 | |
Total operation and maintenance | Total operation and maintenance | $ | 3,940 | | | $ | 3,466 | | | $ | 3,150 | | Total operation and maintenance | $ | 4,338 | | | $ | 3,940 | | | $ | 3,466 | |
(1) Excludes impairment losses which we discuss below.of $2, $1, and $6 in 2021, 2020, and 2019, respectively.
(2) Includes eliminations of intercompany activity.
Our O&M increased by $398 million (10%) to $4.3 billion in 2021 compared to 2020 primarily due to:
▪$151 million increase at SoCalGas, primarily due to:
◦$98 million higher non-refundable operating costs, and
◦$53 million higher expenses associated with refundable programs, which costs incurred are recovered in revenue;
▪$131 million increase at SDG&E, primarily due to:
◦$102 million higher expenses associated with refundable programs, which costs incurred are recovered in revenue, and
◦$29 million higher non-refundable operating costs; and
▪$122 million increase at Sempra Infrastructure primarily due to:
◦$46 million higher expenses associated with the growth in the business and certain non-capitalized expenses at ECA LNG Phase 1 in 2021, which reached a final investment decision in November 2020,
◦$24 million from the renewables business, including the acquisition of ESJ in March 2021,
◦$17 million from the start of commercial operations of the Veracruz and Mexico City terminals in March and July of 2021, respectively, and
◦$7 million from expected credit losses on a guarantee.
Our O&M increased by $474 million (14%) to $3.9 billion in 2020 compared to 2019 primarily due to:
▪$279 million increase at SDG&E, primarily due to:
◦$265 $265 million higher expenses associated with refundable programs, for which costs incurred are recovered in revenue, (refundable program expenses), and
◦$18 $18 million higher amortization in 2020 of the Wildfire Fund asset and accretion of the Wildfire Fund obligation; and
▪$249 $249 million increase at SoCalGas, primarily due to:
◦$144 $144 million higher expenses associated with refundable programs, which costs incurred are recovered in revenue, and
◦$105 $105 million higher non-refundable operating costs, including labor, purchased materials and services, and administrative and support costs; offset by
▪$62 $53 million decrease at Parent and other primarily from lower deferred compensation expense and retained operating costs; and
▪$18 $18 million decrease at Sempra Renewables primarily due to lower general and administrative and other costs due to the wind-down of the business in 2019.
Our O&M increased by $316 million (10%) to $3.5 billion in 2019 compared to 2018 primarily due to:
▪$167 million increase at SoCalGas, primarily due to:
◦$105 million higher expenses associated with refundable programs, and
◦$57 million higher non-refundable operating costs, including labor, contract services and administrative and support costs;
▪$117 million increase at SDG&E, primarily due to:
◦$147 million higher expenses associated with refundable programs, including $112 million of 2019 liability insurance premium costs that are now balanced in revenue, and
◦$13 million amortization of the Wildfire Fund asset and accretion of the Wildfire Fund obligation, offset by
◦$46 million lower non-refundable operating costs, including $87 million decrease from liability insurance premium costs for 2018 that were not balanced, offset by $41 million of higher operating costs;
▪$53 million increase at Parent and other primarily from higher deferred compensation expense;
▪$33 million increase at Sempra LNG primarily from higher liquefaction development project costs and higher operating costs; and
▪$17 million increase at Sempra Mexico primarily due to expenses associated with growth in the business and operating lease costs in 2019; offset by
▪$71 million decrease at Sempra Renewables primarily due to lower general and administrative and other costs due to the wind-down of the business.
Aliso Canyon Litigation and Regulatory Matters
In 2020,2021, SoCalGas recorded a chargecharges of$1,593 million compared to $307 million in Aliso Canyon Litigation and Regulatory Matters2020 related to settlement discussions in connection with civil litigation and regulatory matters associated withpertaining to the Leak, which weLeak. We describe these charges in Note 16 of the Notes to Consolidated Financial Statements.
Impairment Losses
In September 2019, SoCalGas recognized a $29 million impairment loss related to non-utility native gas assets. In SeptemberAlso in 2019, SDG&E and SoCalGas recognized impairment losses of $6 million and $8 million, respectively, for certain disallowed capital costs in the 2019 GRC FD. In 2018, Sempra LNG recognized a $1.1 billion net impairment loss for certain non-utility natural gas storage assets in the southeast U.S.
Gain (Loss) on Sale of Assets
In April2021, Parent and Other recognized a $36 million gain on the sale of PXiSE, which we discuss in Note 5 of the Notes to Consolidated Financial Statements. In 2019, Sempra Renewables recognized a $61 million gain on the sale of its remaining wind assets and investments. In December 2018, Sempra Renewables recognized a $513 million gain on the sale of all its operating solar assets, solar and battery storage development projects and its 50% interest in a wind power generation facility.
Other Income (Expense) Income,, Net
As part of our central risk management function, we may enter into foreign currency derivatives to hedge Sempra Mexico parent’sSI Partners’ exposure to movements in the Mexican peso from its controlling interest in IEnova. The gains/losses associated with these derivatives are included in Other Income (Expense) Income,, Net, as described below, and partially mitigate the transactional effects of foreign currency and inflation included in Income Tax (Expense) Benefit for Sempra Mexico’sSI Partners’ consolidated entities and in Equity Earnings for Sempra Mexico’sSI Partners’ equity method investments. We also utilized foreign currency derivatives in 2020 and 2019 to hedge exposure to fluctuations in the Peruvian sol and Chilean peso related to the sales of our operations in Peru and Chile, respectively. We discuss policies governing our risk management below in “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”
Other income, net, was $58 million in 2021 compared to other expense, net, of $48 million in 2020. The change was primarily due to:
▪$46 million lower net losses in 2021 from impacts associated with interest rate and foreign exchange instruments and foreign currency transactions primarily due to:
◦$36 million lower losses on foreign currency derivatives and cross-currency swaps as a result of fluctuation of the Mexican peso, and
◦$19 million lower foreign currency losses on a Mexican peso-denominated loan to IMG JV, which is offset in Equity Earnings, offset by
◦$11 million lower net gains in 2021 on other foreign currency transactional effects;
▪$35 million lower non-service component of net periodic benefit cost in 2021;
▪$9 million higher investment gains in 2021 on dedicated assets in support of our executive retirement and deferred compensation plans;
▪$7 million higher AFUDC equity at SoCalGas;
▪$6 million fine at SDG&E in 2020 related to the Energy Efficiency Program inquiry; and
▪$5 million reversal of penalties in 2021 related to the SoCalGas billing practices OII; offset by
▪$8 million total decrease in regulatory interest at SDG&E and SoCalGas due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account.
Other expense, net, was $48 million in 2020 compared to other income, net, of $77 million in 2019. The change was primarily due to:
▪$92 million net losses in 2020 from interest rate and foreign exchange instruments and foreign currency transactions compared to net gains of $55 million in 2019 primarily due to:
◦$53 million losses in 2020 on foreign currency derivatives compared to $40 million gains in 2019 on foreign currency derivatives as a result of fluctuation of the Mexican peso, and
◦$42 million losses in 2020 compared to $30 million gains in 2019 on a Mexican peso-denominated loan to IMG JV, which is offset in Equity Earnings; offset by
◦$17 million gains in 2020 compared to $9 million losses in 2019 on other foreign currency transactional effects;
▪$20 million lower investment gains in 2020 on dedicated assets in support of our executive retirement and deferred compensation plans; and
▪$6 million fine at SDG&E in 2020 related to the Energy Efficiency Program inquiry; offset by
▪$34 million higher AFUDC equity, including $23 million at SDG&E and $7 million at SoCalGas;
▪$30 million lower non-service component of net periodic benefit cost in 2020;
▪$8 million total increase in regulatory interest at the California UtilitiesSDG&E and SoCalGas due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense forecasting differences;memorandum account; and
▪$8 million in penalties in 2019 related to the SoCalGas billing practices OII.
In 2019 compared to 2018, other income, net, increased by $19 million (33%) to $77 million primarily due to:
▪$61 million investment gains in 2019 compared to $6 million investment losses in 2018 on dedicated assets in support of our executive retirement and deferred compensation plans; and
▪$54 million higher net gains from interest rate and foreign exchange instruments and foreign currency transactions primarily due to:
◦$37 million higher gains in 2019 on foreign currency derivatives as a result of fluctuation of the Mexican peso, and
◦$30 million foreign currency gains in 2019 compared to $3 million foreign currency losses in 2018 on a Mexican peso-denominated loan to IMG JV, which is offset in Equity Earnings, offset by
◦$15 million losses in 2019 on foreign currency derivatives used to hedge exposure to fluctuations in the Peruvian sol related to the sale of our operations in Peru; offset by
▪$97 million higher non-service component of net periodic benefit cost in 2019, including $14 million at SDG&E and $62 million at SoCalGas.
We provide further details of the components of other (expense) income, net, in Note 1 of the Notes to Consolidated Financial Statements.
Interest Expense
Interest expense increased by $117 million (11%) to $1.2 billion in 2021 compared to 2020 primarily due to:
▪$88 million increase at Parent and other primarily due to $126 million in charges associated with make-whole premiums and a write-off of unamortized discount and debt issuance costs from the early redemptions of debt securities in December 2021, offset by lower long-term debt balances due to scheduled maturities in 2021; and
▪$31 million increase at Sempra Infrastructure primarily due to $54 million in charges associated with hedge termination costs and a write-off of unamortized debt issuance costs from the early redemptions of debt in October 2021, offset by lower intercompany debt with Parent and other.
Income Taxes
The table below shows the income tax expense (benefit) and ETRs for Sempra, Energy Consolidated, SDG&E and SoCalGas.
| INCOME TAX EXPENSE (BENEFIT) AND EFFECTIVE INCOME TAX RATES | INCOME TAX EXPENSE (BENEFIT) AND EFFECTIVE INCOME TAX RATES | INCOME TAX EXPENSE (BENEFIT) AND EFFECTIVE INCOME TAX RATES |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated: | | |
Income tax expense (benefit) from continuing operations | $ | 249 | | | $ | 315 | | | $ | (49) | | |
Sempra: | | Sempra: | |
Income tax expense from continuing operations | | Income tax expense from continuing operations | $ | 99 | | | $ | 249 | | | $ | 315 | |
| Income from continuing operations before income taxes and equity earnings | Income from continuing operations before income taxes and equity earnings | $ | 1,489 | | | $ | 1,734 | | | $ | 714 | | Income from continuing operations before income taxes and equity earnings | $ | 219 | | | $ | 1,489 | | | $ | 1,734 | |
Equity earnings (losses), before income tax(1) | 294 | | | 30 | | | (236) | | |
Equity earnings, before income tax(1) | | Equity earnings, before income tax(1) | 614 | | | 294 | | | 30 | |
Pretax income | Pretax income | $ | 1,783 | | | $ | 1,764 | | | $ | 478 | | Pretax income | $ | 833 | | | $ | 1,783 | | | $ | 1,764 | |
| Effective income tax rate | Effective income tax rate | 14 | % | | 18 | % | | (10) | % | Effective income tax rate | 12 | % | | 14 | % | | 18 | % |
SDG&E: | SDG&E: | | SDG&E: | |
Income tax expense | Income tax expense | $ | 190 | | | $ | 171 | | | $ | 173 | | Income tax expense | $ | 201 | | | $ | 190 | | | $ | 171 | |
Income before income taxes | Income before income taxes | $ | 1,014 | | | $ | 945 | | | $ | 849 | | Income before income taxes | $ | 1,020 | | | $ | 1,014 | | | $ | 945 | |
Effective income tax rate | Effective income tax rate | 19 | % | | 18 | % | | 20 | % | Effective income tax rate | 20 | % | | 19 | % | | 18 | % |
SoCalGas: | SoCalGas: | | SoCalGas: | |
Income tax expense | $ | 96 | | | $ | 120 | | | $ | 92 | | |
Income before income taxes | $ | 601 | | | $ | 762 | | | $ | 493 | | |
Income tax (benefit) expense | | Income tax (benefit) expense | $ | (310) | | | $ | 96 | | | $ | 120 | |
(Loss) income before income taxes | | (Loss) income before income taxes | $ | (736) | | | $ | 601 | | | $ | 762 | |
Effective income tax rate | Effective income tax rate | 16 | % | | 16 | % | | 19 | % | Effective income tax rate | 42 | % | | 16 | % | | 16 | % |
(1) We discuss how we recognize equity earnings in Note 6 of the Notes to Consolidated Financial Statements.
Sempra Energy Consolidated
Sempra Energy’sSempra’s income tax expense decreased in 2021 compared to 2020 primarily due to:
▪$445 million income tax benefit in 2021 compared to $74 million income tax benefit in 2020 associated with charges related to civil litigation and regulatory matters pertaining to the Leak; and
▪$22 million income tax benefit in 2021 from the remeasurement of certain deferred income taxes; offset by
▪$72 million net income tax expense related to the utilization of a deferred income tax asset upon completing the sale of a 20% NCI in SI Partners to KKR in October 2021;
▪$4 million income tax expense in 2021 compared to $59 million income tax benefit in 2020 from foreign currency and inflation effects and associated derivatives;
▪$9 million income tax expense in 2021 compared to $26 million income tax benefit in 2020 due to changes in valuation allowances against certain tax credit carryforwards;
▪$31 million income tax benefit in 2020 for repatriation of foreign earnings due to extension of federal tax law;
▪$10 million lower income tax benefit related to share-based compensation; and
▪lower income tax benefits from flow-through items.
Sempra’s income tax expense decreased in 2020 compared to 2019 primarily due to a lower ETR. The change in ETR was primarily due to:
▪$4459 million income tax benefit in 2020 compared to $71$77 million income tax expense in 2019 from foreign currency and inflation effects primarily as a result of fluctuation of the Mexican peso;and associated derivatives;
▪$26 million income tax benefit in 2020 compared to $7 million income tax expense in 2019 from changes to a valuation allowance against certain tax credit carryforwards; and
▪$19 million income tax benefit in 2020 compared to $4 million income tax expense in 2019 related to share-based compensation; offset by
▪$69 million total income tax benefits in 2019 from the release of regulatory liabilities at SDG&E and SoCalGas established in connection with 2017 tax reform for excess deferred income tax balances that the CPUC directed be allocated to shareholders in a January 2019 decision; and
▪$10 million income tax benefit in 2019 from a reduction in a valuation allowance against certain NOL carryforwards as a result of our decision to sell our South American businesses.
Sempra Energy’s income tax expense in 2019 compared to an income tax benefit in 2018 was due to higher pretax income and a higher ETR. Pretax income in 2018 was impacted by the impairments at our Sempra LNG and Sempra Renewables segments offset by the gain from sale of assets at Sempra Renewables. The change in ETR was primarily due to:
▪$131 million income tax benefit in 2018 resulting from the reduced outside basis difference in Sempra LNG as a result of the impairment of certain non-utility natural gas storage assets; and
▪$45 million higher income tax expense in 2019 from foreign currency and inflation effects primarily as a result of fluctuation of the Mexican peso; offset by
▪$69 million total income tax benefits in 2019 from the release of regulatory liabilities at SDG&E and SoCalGas established in connection with 2017 tax reform for excess deferred income tax balances that the CPUC directed be allocated to shareholders in a January 2019 decision;
▪$41 million income tax expense in 2018 to adjust provisional estimates recorded in 2017 for the effects of tax reform;
▪$21 million income tax expense in 2018 associated with Aliso Canyon natural gas storage facility litigation; and
▪$10 million income tax benefit in 2019 from a reduction in a valuation allowance against certain NOL carryforwards as a result of our decision to sell our South American businesses.
We report as part of our pretax results the income or loss attributable to NCI. However, we do not record income taxes for a portion of this income or loss, as some of our entities with NCI are currently treated as partnerships for income tax purposes, and
thus we are only liable for income taxes on the portion of the earnings that are allocated to us. Our pretax income, however, includes 100% of these entities. If our entities with NCI grow, and if we continue to invest in such entities, the impact on our ETR may become more significant.
We discuss the impact of foreign currency exchange rates and inflation on income taxes below in “Impact of Foreign Currency and Inflation Rates on Results of Operations.” See Notes 1 and 8 of the Notes to Consolidated Financial Statements for further details about our accounting for income taxes and items subject to flow-through treatment.
SDG&E
SDG&E’s income tax expense increased in 2021 compared to 2020 primarily due to lower income tax benefits in 2021 from flow-through items.
SDG&E’s income tax expense increased in 2020 compared to 2019 primarily due to:
▪higher pretax income; and
▪$31 million income tax benefit in 2019 from the release of a regulatory liability established in connection with 2017 tax reform for excess deferred income tax balances that the CPUC directed be allocated to shareholders in a January 2019 decision; offset by
▪higher income tax benefits in 2020 from flow-through deductions.items.
SDG&E’sSoCalGas
SoCalGas’ income tax benefit in 2021 compared to an income tax expense decreased in 2019 compared to 2018 due to a lower ETR offset by higher pretax income. The change in ETR2020 was primarily due to a $31to:
▪$445 million income tax benefit in 2019 from the release of a regulatory liability established in connection with 2017 tax reform for excess deferred2021 compared to $74 million income tax balances thatbenefit in 2020 associated with charges related to civil litigation and regulatory matters pertaining to the CPUC directed be allocated to shareholdersLeak; and
▪higher income tax benefits in a January 2019 decision.
SoCalGas2021 from flow-through items.
SoCalGas’ income tax expense decreased in 2020 compared to 2019 primarily due to:
▪lower pretax income; and
▪higher income tax benefits in 2020 from flow-through deductions;items; offset by
▪$38 million income tax benefit in 2019 from the release of a regulatory liability established in connection with 2017 tax reform for excess deferred income tax balances that the CPUC directed be allocated to shareholders in a January 2019 decision.
SoCalGas’ income tax expense
Equity Earnings
Equity earnings increased by $328 million (32%) to $1.3 billion in 20192021 compared to 2018 due to higher pretax income offset by a lower ETR. The change in ETR was2020 primarily due to:
▪$3850 million income tax benefitequity earnings in 2019 from the release of a regulatory liability established2021 compared to $100 million equity losses in connection with 2017 tax reform for excess deferred income tax balances that the CPUC directed be allocated2020 related to shareholdersour investment in a January 2019 decision;RBS Sempra Commodities to settle pending VAT matters and related legal costs; and
▪$21136 million higher equity earnings at Sempra Infrastructure, which included:
◦$168 million higher equity earnings at Cameron LNG JV primarily due to the three-train liquefaction project achieving full commercial operations in August 2020, offset by
◦$20 million lower equity earnings at IMG JV, primarily due to foreign currency effects, including $19 million lower foreign currency gains on IMG JV’s Mexican peso-denominated loans from its JV owners, which is fully offset in Other Income (Expense), Net, and
◦$9 million lower equity earnings at TAG JV primarily due to higher income tax expense in 2018 associated with the Aliso Canyon natural gas storage facility litigation.2021; and
Equity Earnings▪$40 million higher equity earnings at Oncor Holdings primarily due to increased revenues from rate updates to reflect increases in invested capital and customer growth, offset by increased operating costs and expenses attributable to invested capital.
Equity earnings increased by $435 million to $1.0 billion in 2020 compared to 2019 primarily due to:
▪$487 million higher equity earnings at Sempra Infrastructure, which included:
◦$367 million higher equity earnings from Cameron LNG JV primarily due to commencement of Phase 1the three-train liquefaction project achieving full commercial operations;operations in August 2020,
▪◦$94 million higher equity earnings at IMG JV, primarily due to higher revenues from the start of commercial operations of the Sur de Texas-Tuxpan marine pipeline and foreign currency effects, including $42 million foreign currency gains in 2020 compared to $30 million foreign currency losses in 2019 on IMG JV’s Mexican peso-denominated loans from its JV owners, which is fully offset in Other (Expense) Income, Net, offset by lower AFUDC equity;equity, and
◦$23 million higher equity earnings at TAG JV primarily due to lower income tax expense in 2020; and
▪$51 million higher equity earnings at Oncor Holdings primarily due to higher revenues from rate updates and customer growth, the acquisition of InfraREIT in May 2019 and higher AFUDC equity, offset by unfavorable weather and increased operating costs; and
▪$23 million higher equity earnings at TAG JV primarily due to lower income tax expense in 2020; offset by
▪$100 million equity losses atin 2020 related to our investment in RBS Sempra Commodities in 2020, which represents an estimate of our obligations to settle pending taxVAT matters and related legal costs at our equity method investment.costs.
Equity earnings increased by $405Earnings Attributable to Noncontrolling Interests
Earnings attributable to NCI were $145 million to $580 million in 2019for 2021 compared to 2018$172 million for 2020. The decrease of $27 million (16%) was primarily due to:
▪$17487 million decrease from the increase at Sempra Renewables, including $200 million other-than-temporary impairmentin our ownership interest in IEnova as a result of certain wind equity method investments in 2018;
▪$155 million higher equity earnings, netthe exchange offer and subsequent cash tender offer to acquire the publicly owned shares of income tax, from our investment in Oncor Holdings, which we acquired in March 2018;
▪$65 million impairment of our RBS Sempra Commodities equity method investment in 2018;IEnova; and
▪$24 million higher equity earnings from Cameron LNG JV including:
◦$50 million increase primarily due to Train 1 commencing commercial operation under its tolling agreements in August 2019, offset by
◦$2628 million decrease due to the write-off of unamortized debt issuance costsmainly from foreign currency and inflation effects and associated fees related to the JV’s debt refinancing;derivatives; offset by
▪$2098 million lower equity earnings, netincrease due to the increase in NCI as a result of income tax, from IMG JV, including $30 million foreign currency lossesthe sale of a 20% NCI in 2019 comparedSI Partners to $3 million foreign currency gainsKKR in 2018 on its Mexican peso-denominated loans from its JV owners, which is fully offset in Other Income, Net.October 2021.
Earnings Attributable to Noncontrolling Interests
Earnings attributable to NCI were $172 million for 2020 compared to $164 million for 2019. The net change of $8 million (5%) was primarily due to an increase in earnings attributable to NCI at Sempra MexicoInfrastructure mainly from foreign currency effects as a result of fluctuation of the Mexico peso, offset by a decrease due to the sales of our Peruvian businesses in April 2020 and Chilean businesses in June 2020.
Earnings attributablePreferred Dividends
Preferred dividends decreased by $105 million to NCI were $164$63 million for 2019in 2021 compared to $76 million for 2018. The net change of $88 million included:
▪$1 million earnings attributable to NCI at Sempra Renewables in 2019 compared to $58 million losses in 20182020 primarily due to the salesconversion of our tax equity investmentsall series A preferred stock and series B preferred stock in December 2018January 2021 and April 2019; and
▪$36 million losses attributable to NCI at Sempra LNGJuly 2021, respectively, offset by the issuance of series C preferred stock in 2018 due to the net impairment of certain non-utility natural gas storage assets.
Preferred DividendsJune 2020.
Preferred dividends increased by $26 million (18%) to $168 million in 2020 compared to 2019 primarily due to dividends associated with our series C preferred stock, which was issued in June 2020.
Preferred dividends increased by $17 million (14%) to $142 million in 2019 compared to 2018 primarily due to dividends associated with our series B preferred stock, which was issued in July 2018.
IMPACT OF FOREIGN CURRENCY AND INFLATION RATES ON RESULTS OF OPERATIONS
Because our natural gas distribution utility in Mexico, Ecogas, uses its local currency as its functional currency, revenues and expenses are translated into U.S. dollars at average exchange rates for the period for consolidation in Sempra Energy Consolidated’sSempra’s results of operations. Prior to the sales of our South American businesses in 2020, our operations in South America used their local currency as their functional currency.
Foreign Currency Translation
Any difference in average exchange rates used for the translation of income statement activity from year to year can cause a variance in Sempra Energy’sSempra’s comparative results of operations. Changes in foreign currency translation rates between years were negligible in 2021 compared to 2020 and resulted in $9 million lower earnings in 2020 compared to 2019 and $8 million lower earnings in 2019 compared to 2018.2019.
Transactional Impacts
Although the financial statements of most of our Mexican subsidiaries and JVs have the U.S. dollar as the functional currency, some transactions may be denominated in the local currency; such transactions are remeasured into U.S. dollars. This remeasurement creates transactional gains and losses that are included in Other Income (Expense), Net, for our consolidated subsidiaries and in Equity Earnings for our JVs.
We utilize cross-currency swaps that exchange our Mexican peso-denominated principal and interest payments into the U.S. dollar and swap Mexican fixed interest rates for U.S. fixed interest rates. The impacts of these cross-currency swaps are offset in OCI and are reclassified from AOCI into earnings through Other Income (Expense), Net and Interest Expense as settlements occur.
Certain of our Mexican pipelines (namely Los Ramones I at IEnova Pipelines and Los Ramones Norte at TAG JV) generate revenue based on tariffs that are set by government agencies in Mexico, with contracts denominated in Mexican pesos that are indexed to the U.S. dollar, adjusted annually for inflation and fluctuation in the exchange rate. The resultant gains and losses from remeasuring the local currency amounts into U.S. dollars and the offsetting settlement of foreign currency forwards and swaps related to these contracts are included in Revenues: Energy-Related Businesses or Equity Earnings.
Income statement activities at our foreign operations and their JVs are also impacted by transactional gains and losses, a summary of which is shown in the table below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
TRANSACTIONAL (LOSSES) GAINS FROM FOREIGN CURRENCY AND INFLATION |
(Dollars in millions) |
| Total reported amounts | | Transactional (losses) gains included in reported amounts |
| Years ended December 31, |
| 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 |
Other (expense) income, net | $ | (48) | | | $ | 77 | | | $ | 58 | | | $ | (92) | | | $ | 55 | | | $ | (1) | |
Income tax (expense) benefit | (249) | | | (315) | | | 49 | | | 44 | | | (71) | | | (26) | |
Equity earnings | 1,015 | | | 580 | | | 175 | | | 43 | | | (47) | | | (14) | |
Income from continuing operations, net of income tax | 2,255 | | | 1,999 | | | 938 | | | 8 | | | (70) | | | (41) | |
Income from discontinued operations, net of income tax | 1,850 | | | 363 | | | 188 | | | 15 | | | 2 | | | 6 | |
Earnings attributable to common shares | 3,764 | | | 2,055 | | | 924 | | | (1) | | | (39) | | | (21) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
TRANSACTIONAL (LOSSES) GAINS FROM FOREIGN CURRENCY AND INFLATION EFFECTS AND ASSOCIATED DERIVATIVES |
(Dollars in millions) |
| Total reported amounts | | Transactional (losses) gains included in reported amounts |
| Years ended December 31, |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Other income (expense), net | $ | 58 | | | (48) | | | 77 | | | $ | (46) | | | (92) | | | 55 | |
Income tax expense | (99) | | | (249) | | | (315) | | | (4) | | | 59 | | | (77) | |
Equity earnings | 1,343 | | | 1,015 | | | 580 | | | 2 | | | 41 | | | (49) | |
Income from continuing operations, net of income tax | 1,463 | | | 2,255 | | | 1,999 | | | (48) | | | 8 | | | (71) | |
Income from discontinued operations, net of income tax | — | | | 1,850 | | | 363 | | | — | | | 15 | | | 2 | |
Earnings attributable to noncontrolling interests | (145) | | | (172) | | | (164) | | | 4 | | | (24) | | | 30 | |
Earnings attributable to common shares | 1,254 | | | 3,764 | | | 2,055 | | | (44) | | | (1) | | | (39) | |
Foreign Currency Exchange Rate and Inflation Impacts on Income Taxes and Related Hedging Activity
Our Mexican subsidiaries have U.S. dollar-denominated cash balances, receivables, payables and debt (monetary assets and liabilities) that are affected by Mexican currency exchange rate movements for Mexican income tax purposes. They also have deferred income tax assets and liabilities, which are significant, denominated in the Mexican peso that must be translated to U.S. dollars for financial reporting purposes. In addition, monetary assets and liabilities and certain nonmonetary assets and liabilities are adjusted for Mexican inflation for Mexican income tax purposes. As a result, fluctuations in both the currency exchange rate for the Mexican peso against the U.S. dollar and Mexican inflation may expose us to fluctuations in Income Tax Expense, Other Income (Expense) Income,, Net and Equity Earnings. We may use foreign currency derivatives as a means to help manage exposure to the currency exchange rate on our monetary assets and liabilities, and this derivative activity impacts Other Income (Expense) Income,, Net. However, we generally do not hedge our deferred income tax assets and liabilities, which makes us susceptible to volatility in income tax expense caused by exchange rate fluctuations and inflation.
We also utilized foreign currency derivatives in 2020 and 2019 to hedge exposure to fluctuations in the Peruvian sol and Chilean peso related to the sales of our operations in Peru and Chile in discontinued operations.
Other Transactions
Although the financial statements of most of our Mexican subsidiaries and JVs have the U.S. dollar as the functional currency, some transactions may be denominated in the local currency; such transactions are remeasured into U.S. dollars. This
remeasurement creates transactional gains and losses that are included in Other (Expense) Income, Net, for our consolidated subsidiaries and in Equity Earnings for our JVs.
We utilize cross-currency swaps that exchange our Mexican peso-denominated principal and interest payments into the U.S. dollar and swap Mexican variable interest rates for U.S. fixed interest rates. The impacts of these cross-currency swaps are offset in OCI and are reclassified from AOCI into earnings through Other (Expense) Income, Net and Interest Expense as settlements occur.
Certain of our Mexican pipelines (namely Los Ramones I at IEnova Pipelines and Los Ramones Norte at TAG JV) generate revenue based on tariffs that are set by government agencies in Mexico, with contracts denominated in Mexican pesos that are indexed to the U.S. dollar, adjusted annually for inflation and fluctuation in the exchange rate. The resultant gains and losses from remeasuring the local currency amounts into U.S. dollars and the settlement of foreign currency forwards and swaps related to these contracts are included in Revenues: Energy-Related Businesses or Equity Earnings.
CAPITAL RESOURCES AND LIQUIDITY
OVERVIEW
Sempra Energy Consolidated
Impact of the COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a pandemic. The U.S. government officially declared a national emergency on March 13, 2020, and the Mexican government announced a national state of sanitary emergency on March 30, 2020. The COVID-19 pandemic is materially impacting the economy, including a surge in unemployment claims and, at times, substantial volatility in financial markets, and has resulted in action by governments and other authorities to help address these effects. For example:
▪The CPUC required that all energy companies under its jurisdiction, including the California Utilities, take action to implement several emergency customer protection measures to support California customers. The measures currently apply to all residential and small business customers affected by the COVID-19 pandemic and include suspending service disconnections due to nonpayment, waiving late payment fees, and offering flexible payment plans to all customers experiencing difficulty paying their electric or gas bills. The CPUC approved a resolution authorizing each of the California Utilities to track and request recovery of incremental costs associated with complying with residential and small business customer protection measures implemented by the CPUC related to the COVID-19 pandemic, including costs associated with suspending service disconnections and uncollectible expenses that arise from these customers’ failure to pay. Although we are tracking these costs in various regulatory mechanisms, recovery is not assured. The continuation of these circumstances could result in a further reduction in payments received from the California Utilities’ customers and a further increase in uncollectible accounts, which could become material, and any inability or delay in recovering all or a substantial portion of these costs could have a material adverse effect on the cash flows, financial condition and results of operations of Sempra Energy, SDG&E and SoCalGas. We discuss regulatory mechanisms in Note 4 of the Notes to Consolidated Financial Statements.
▪In Texas, the PUCT issued orders creating the COVID-19 Electricity Relief Program and suspending service disconnections due to nonpayment for customers enrolled in the program through September 30, 2020. The COVID-19 Electricity Relief Program created a fund through which transmission and distribution utilities and retail electric providers in Texas may seek to recover certain costs (including transmission and distribution utility electricity delivery charges) of providing uninterrupted services to customers facing financial hardship due to the effects of the COVID-19 pandemic. Financial assistance under the program was available to enrolled residential customers for electricity bills issued on or after March 26, 2020 through September 30, 2020. The PUCT has also authorized the use of a regulatory asset accounting mechanism and a subsequent process through which regulated utility companies may seek future recovery of other expenses resulting from the effects of the COVID-19 pandemic. Rate regulation is premised on the full recovery of prudently incurred costs. The regulatory assets established with respect to COVID-19 pandemic costs are subject to PUCT review for reasonableness and possible disallowance. Any inability to recover these costs could have an adverse effect on the cash flows, financial condition and results of operations of Sempra Energy.
▪On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted and signed into law in response to the COVID-19 pandemic. Among other things, the CARES Act contains significant business tax provisions, including a delay of payment of employer payroll taxes and an acceleration of refunds of corporate alternative minimum tax (AMT) credits. Sempra Energy, SDG&E and SoCalGas have deferred payment of the employer’s share of payroll taxes through the end of 2020, with half of such taxes to be paid by the end of 2021 and the other half to be paid by the end of 2022. In 2020, Sempra Energy filed and received a refund claim for its corporate AMT credits, rather than receiving it in installments through 2021.
Our businesses that invest in, develop and operate energy infrastructure and provide electric and gas services to customers have been identified as critical or essential services in the U.S. and Mexico and have continued to operate throughout the COVID-19 pandemic. As our businesses continue to operate, our priority is the safety of our employees, customers, partners and the communities we serve. We and other companies, including our partners, are taking steps to try to protect the health and well-being of our employees and other stakeholders. For example, we have activated our business continuity plans andWe continue to work closely with local, state and federal authorities in an effort to provide essential services with minimum interruption to customers and in accordance with applicable shelter-in-place and other orders. We have implemented precautionary measures across our businesses,orders, including requiring employees to work remotely when possible, restricting non-essential business travel, increasing facility sanitization and communicating proper health and safety protocols to employees. We also have engaged an infectious disease expert to advise us during this public health crisis. Throughout 2020, these actions have not required significant outlays of capital and have not had a material impact on our results of operations, but these or other measures that we may implement in the future could have a material adverse effect on our liquidity, cash flows, financial position and results of operations if circumstances related to the COVID-19 pandemic worsen or continue for an extended period of time.
The COVID-19 pandemic and its widespread effects also have impacted our capital plans, liquidity and asset values, as we discuss with respect to each of our segments below. We perform recovery testing of our recorded asset values when market conditions indicate that such values may not be recoverable. Given the current environment (including the decline in the price of our common stock, financial market volatility, high unemployment rates, reduction in customer collections that could become material, inability to secure permits and other authorizations due to government closures, and governments pursuing new laws or policies that modify pre-existing contract terms or alter operations), we evaluated whether these events or changes in circumstances resulted in an impairment of our long-lived assets, intangible assets or goodwill in 2020 and concluded that no such impairment was warranted. However, as the effects of the COVID-19 pandemic evolve, we will continue to periodically assess the need to perform interim impairment tests. A significant impairment charge related to our long-lived assets, intangible assets or goodwill would have a material adverse effect on our results of operations in the period in which it is recorded.potential vaccination mandates.
For a further discussion of risks and uncertainties related to the COVID-19 pandemic, see below in “Part I – Item 1A. Risk Factors.”
Liquidity
We expect to meet our cash requirements through cash flows from operations, unrestricted cash and cash equivalents, proceeds from recent asset sales, borrowings under our credit facilities, issuances of debt, distributions from our equity method investments, issuances of debt, project financing and partnering in JVs.funding from minority interest owners. We believe that these cash flow sources, combined with available funds, will be adequate to fund our current operations in both the short-term and long-term, including to:
▪finance capital expenditures
▪repay long-term debt
▪fund dividends
▪meet liquidity requirements
▪fund dividends
▪fund new business or asset acquisitions or start-ups
▪fund capital contribution requirements
▪repay long-term debt
▪fund expenditures related to the natural gas leak at SoCalGas’ Aliso Canyon natural gas storage facility
▪repurchase shares of our common stock
▪fund new business or asset acquisitions or start-ups
Sempra, EnergySDG&E and the California UtilitiesSoCalGas currently have reasonable access to the money markets and capital markets and are not currently constrained in their ability to borrow money at reasonable rates from commercial banks, under existing revolving credit facilities or through public offerings registered with the SEC. However, the money markets and capital markets in general, including particularly the commercial paper markets, and the availability of financing from commercial banks have experienced distress at times during 2020 due to the COVID-19 pandemic, and our ability to access the money markets and capital markets or obtain credit from commercial banks outside of our committed revolving credit facilities could become materially constrained if changing economic conditions and disruptions to the money markets and capital markets due to the COVID-19 pandemic or otherwise, worsen. In addition, our financing activities and actions by credit rating agencies, as well as many other factors, could
negatively affect the availability and cost of both short-term and long-term financing. Also, cash flows from operations may be impacted by the timing of commencement and completion, and potentially cost overruns, of large projects.projects and other material events, such as significant outflows resulting from the agreements expected to resolve certain material litigation related to the Leak. If cash flows from operations were to be significantly reduced or we were unable to borrow under acceptable terms, we would likely first reduce or postpone discretionary capital expenditures (not related to safety) and investments in new businesses. We monitor our ability to finance the needs of our operating, investing and financing activities in a manner consistent with our intentiongoal to maintain our investment-grade credit ratingsratings.
Postretirement Benefits
Sempra, SDG&E and capital structure.
WeSoCalGas have significant investments in several trusts to provide for future payments of pensions and other postretirement benefits and nuclear decommissioning. Changesbenefits. The trusts’ ability to make ongoing required benefit payments have not been materially adversely affected by changes in asset values, which are dependent on activity in the equitymarket fluctuations, contributions and fixed income markets, have not materially and adversely affected the trust funds’ abilities to make required payments.withdrawals. However, changes in theseasset values or other factors in future periods, such as changes to discount rates, assumed rates of return, mortality tables and regulations, may impact funding requirements for pension and other postretirement benefits plans. Funding requirements forAdditionally, contributions to our plans are based on our funding policy, which generally limits payments from exceeding plan assets of 110% of the projected benefit obligation, which are subject to maximum income tax deduction limitations. Sempra, SDG&E’s NDT could also be impacted by&E and SoCalGas expect to contribute $236 million, $53 million and $153 million, respectively, to pension and other postretirement benefit plans in 2022 and $2.2 billion, $393 million and $1.6 billion, respectively, in the timingnine years thereafter. At SDG&E and amount of SONGS decommissioning costs. At the California Utilities,SoCalGas, funding requirements are generally recoverable in rates. We discuss our employee benefit plans and SDG&E’s NDT, including our investment allocation strategies for assetsexpected contributions to those plans in these trusts, in NotesNote 9 and 15, respectively, of the Notes to Consolidated Financial Statements.
Available Funds
Our committed lines of credit provide liquidity and support commercial paper. As we discuss in Note 7 of the Notes to Consolidated Financial Statements, Sempra, Energy, Sempra Global, SDG&E and SoCalGas each have five-year credit agreements expiring in 2024. In addition, Sempra Mexico2024, SI Partners has a three-year credit agreement expiring in 2024 and IEnova has committed lines of credit that expire in 20212023 and 20242024. In addition, IEnova and anECA LNG Phase 1 have uncommitted revolving credit facilityfacilities that expiresexpire in 2023. The table below shows the amount of available funds at December 31, 2020, including available unused credit on these primary U.S.2022 and foreign lines of credit.2023.
| AVAILABLE FUNDS AT DECEMBER 31, 2020 | |
AVAILABLE FUNDS AT DECEMBER 31, 2021 | | AVAILABLE FUNDS AT DECEMBER 31, 2021 |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Sempra Energy Consolidated | | SDG&E | | SoCalGas | | Sempra | | SDG&E | | SoCalGas |
Unrestricted cash and cash equivalents(1) | Unrestricted cash and cash equivalents(1) | $ | 960 | | | $ | 262 | | | $ | 4 | | Unrestricted cash and cash equivalents(1) | $ | 559 | | | $ | 25 | | | $ | 37 | |
Available unused credit(3)(2) | Available unused credit(3)(2) | 7,700 | | | 1,500 | | | 637 | | Available unused credit(3)(2) | 6,909 | | | 1,099 | | | 365 | |
(1) Amounts at Sempra Energy Consolidated include $295 million$205 held in non-U.S. jurisdictions. We discuss repatriation in Note 8 of the Notes to Consolidated Financial Statements.
(2) Available unused credit is the total available on Sempra Energy’s, Sempra Global’s, SDG&E’s, SoCalGas’the committed and Sempra Mexico’suncommitted lines of credit facilities that we discuss in Note 7 of the Notes to Consolidated Financial Statements.
(3) Because our commercial paper programs are supported by these lines, we reflect the amount of commercial paper outstanding as a reduction to the available unused credit.
Short-Term Borrowings
We use short-term debt primarily to meet liquidity requirements, fund shareholder dividends, and temporarily finance capital expenditures, acquisitions or start-ups. Our California UtilitiesSDG&E and SoCalGas use short-term debt primarily to meet working capital needs. Due to volatility in commercial paper markets shortly following the start of the COVID-19 pandemic, commercial paper borrowing at that time became less desirable and, in some cases, not competitive or unavailable. To secure sufficient sources of liquidity during this period, Sempra Energy, Sempra Global, SDG&E, SoCalGas and IEnova each drew amounts under their respective credit facilities and Sempra Energy and SDG&E each also obtained short-term term loans, much of which has been subsequently repaid. Revolving lines of credit, term loans and commercial paper and a term loan at SDG&E were our primary sources of short-term debt funding in 2020.2021.
We discuss our short-term debt activities in Note 7 of the Notes to Consolidated Financial Statements.Statements and below in “Sources and Uses of Cash.”
The following table shows selected statistics for our commercial paper borrowings.
| COMMERCIAL PAPER STATISTICS | COMMERCIAL PAPER STATISTICS | | COMMERCIAL PAPER STATISTICS |
(Dollars in millions) | (Dollars in millions) | | (Dollars in millions) |
| | Sempra Energy Consolidated | SDG&E | SoCalGas | | Sempra | SDG&E | SoCalGas |
| | December 31, | | December 31, | December 31, |
| | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 |
Amount outstanding at period end | Amount outstanding at period end | $ | 113 | | $ | 2,334 | | $ | — | | $ | 80 | | $ | 113 | | $ | 630 | | Amount outstanding at period end | $ | 2,026 | | $ | 113 | | $ | 2,334 | | $ | 401 | | $ | — | | $ | 80 | | $ | 385 | | $ | 113 | | $ | 630 | |
Weighted-average interest rate at period end | Weighted-average interest rate at period end | 0.14 | % | 2.06 | % | — | % | 1.97 | % | 0.14 | % | 1.86 | % | Weighted-average interest rate at period end | 0.34 | % | 0.14 | % | 2.06 | % | 0.47 | % | — | % | 1.97 | % | 0.21 | % | 0.14 | % | 1.86 | % |
Daily weighted-average outstanding balance | Daily weighted-average outstanding balance | $ | 2,282 | | $ | 2,774 | | $ | 198 | | $ | 288 | | $ | 373 | | $ | 322 | | Daily weighted-average outstanding balance | $ | 1,107 | | $ | 649 | | $ | 2,246 | | $ | 168 | | $ | 47 | | $ | 126 | | $ | 118 | | $ | 30 | | $ | 196 | |
Daily weighted-average yield | Daily weighted-average yield | 1.61 | % | 2.48 | % | 1.50 | % | 2.65 | % | 0.44 | % | 2.23 | % | Daily weighted-average yield | 0.16 | % | 0.75 | % | 2.53 | % | 0.12 | % | 0.45 | % | 1.50 | % | 0.07 | % | 0.17 | % | 1.95 | % |
Maximum daily amount outstanding | Maximum daily amount outstanding | $ | 2,495 | | $ | 3,243 | | $ | 263 | | $ | 417 | | $ | 635 | | $ | 642 | | Maximum daily amount outstanding | $ | 2,824 | | $ | 2,495 | | $ | 3,243 | | $ | 473 | | $ | 263 | | $ | 417 | | $ | 580 | | $ | 635 | | $ | 642 | |
Long-Term Debt Activities
Major issuances of and payments on long-term debt in 20202021 included the following:
| | | | | | | | | | | | | | |
LONG-TERM DEBT ISSUANCES AND PAYMENTS |
(Dollars in millions) | | | | |
Issuances: | | Amount at issuance | | Maturity |
SDG&E variable rate 364-day term loan | | $ | 200 | | | 2021 |
SDG&E variable rate revolving line of credit | | 200 | | | 2024 |
SDG&E 1.70% first mortgage bonds | | 800 | | | 2030 |
SDG&E 3.32% first mortgage bonds | | 400 | | | 2050 |
SoCalGas senior unsecured variable rate notes | | 300 | | | 2023 |
SoCalGas 2.55% first mortgage bonds | | 650 | | | 2030 |
Sempra Mexico 2.38% bank loans | | 100 | | | 2034 |
Sempra Mexico 2.90% bank loans | | 241 | | | 2034 |
Sempra Mexico 4.75% senior unsecured notes | | 800 | | | 2051 |
Sempra LNG variable rate notes | | 17 | | | 2025 |
| | | | |
Payments: | | Payments | | Maturity |
Sempra Energy 2.4% notes | | $ | 500 | | | 2020 |
Sempra Energy 2.4% notes | | 500 | | | 2020 |
Sempra Energy 2.85% notes | | 400 | | | 2020 |
Sempra Energy variable rate notes | | 700 | | | 2021 |
SDG&E 1.914% amortizing first mortgage bonds | | 36 | | | 2020 |
SDG&E variable rate revolving line of credit | | 200 | | | 2024 |
SDG&E 5.875% first mortgage bonds | | 176 | | | 2034 |
SDG&E 4% first mortgage bonds | | 75 | | | 2039 |
Sempra Mexico amortizing variable rate notes | | 41 | | | 2020 |
Sempra Mexico amortizing fixed and variable rate bank loans | 25 | | | 2020 |
| | | | | | | | | | | | | | |
LONG-TERM DEBT ISSUANCES AND PAYMENTS |
(Dollars in millions) | | | | |
Issuances: | | Amount at issuance | | Maturity |
Sempra 4.125% junior subordinated notes | | $ | 1,000 | | | 2052 |
SDG&E 2.95% green first mortgage bonds | | 750 | | | 2051 |
Sempra Infrastructure variable rate notes | | 324 | | 2025 |
| | | | |
Payments: | | Payments | | Maturity |
Sempra 2.875% notes | | $ | 500 | | | 2022 |
Sempra 2.9% notes | | 500 | | | 2023 |
Sempra 4.05% notes | | 500 | | | 2023 |
Sempra 3.55% notes | | 500 | | | 2024 |
Sempra 3.75% notes | | 350 | | | 2025 |
Sempra variable rate notes | | 850 | | | 2021 |
SDG&E 3% first mortgage bonds | | 350 | | | 2021 |
SDG&E 1.914% amortizing first mortgage bonds | | 36 | | | 2021 |
SDG&E variable rate 364-day term loan | | 200 | | | 2021 |
Sempra Infrastructure amortizing variable rate notes | | 45 | | | 2021 |
Sempra Infrastructure variable rate loan | | 183 | | | 2033 |
Sempra Infrastructure amortizing fixed and variable rate bank loans | | 396 | | 2032 |
SDG&EIn December 2021, Sempra redeemed, at respective make-whole redemption prices, an aggregate principal amount of $2.35 billion of senior unsecured notes prior to scheduled maturities in 2022 through 2025. Upon the early redemptions, we recognized $126 million ($92 million after tax) in charges associated with the make-whole premiums and a write-off of unamortized discount and debt issuance costs.
In October 2021, Sempra Infrastructure used the proceeds from its long-term debt offerings to repay first mortgage bonds, commercial paperborrowings against IEnova’s committed and lineuncommitted lines of credit borrowings, for working capitalto fully repay $550 million of outstanding principal plus accrued and for other general corporate purposes.unpaid interest on the ESJ and Ventika loans prior to their scheduled maturity dates through 2033 and recognized $54 million ($30 million after tax and NCI) in charges associated with hedge termination costs and a write-off of unamortized debt issuance costs.
As we discuss in Note 7 of the Notes to Consolidated Financial Statements, on January 11, 2022, SI Partners completed a private offering of $400 million in aggregate principal amount of 3.25% senior notes due January 15, 2032. The notes were issued at 98.903% of the principal amount and require semi-annual interest payments in January and July, commencing July 15, 2022. Sempra Infrastructure intends to use the net proceeds from its long-term debt offerings to repay commercial paper andof $390 million for general corporate purposes.purposes, which may include the repayment of certain indebtedness of its subsidiaries.
On February 18, 2022, SDG&E entered into a $400 million, two-year term loan with a maturity date of February 18, 2024. SDG&E may request up to three borrowings for an aggregate amount of $400 million through May 18, 2022. On February 18, 2022, SDG&E borrowed $200 million. The borrowing bears interest at benchmark rates plus 62.5 bps. The margin is based on SDG&E’s long-term senior unsecured credit rating.
At December 31, 2021, Sempra Mexico used the proceeds from its issuances ofexpects to make interest payments on long-term debt totaling $15.7 billion, of which $793 million is expected to financebe paid in 2022 and $14.9 billion is expected to be paid in subsequent years through 2079. At December 31, 2021, SDG&E expects to make interest payments on long-term debt totaling $4.4 billion, of which $244 million is expected to be paid in 2022 and $4.2 billion is expected to be paid in subsequent years through 2051. At December 31, 2021, SoCalGas expects to make interest payments on long-term debt totaling $2.8 billion, of which $167 million is expected to be paid in 2022 and $2.6 billion is expected to be paid in subsequent years through 2050. We calculate expected interest payments using the construction of solar generation projects, to repay line of credit borrowingsstated interest rate for fixed-rate obligations, including floating-to-fixed interest rate swaps and cross-currency swaps. We calculate expected interest payments for other general corporate purposes.variable-rate obligations based on forecasted rates in effect at December 31, 2021.
We discuss our long-term debt activities, including the use of proceeds on long-term debt issuances, and maturities in Note 7 of the Notes to Consolidated Financial Statements.
Credit Ratings
The credit ratings of Sempra, Energy, SDG&E and SoCalGas remained at investment grade levels in 2020. On January 29, 2021, Moody’s placed the long-term debt ratings of SDG&E on review for upgrade.
| | | | | | | | | | | | | | | | | |
CREDIT RATINGS AT DECEMBER 31, 2020 | | | | 2021 |
| | | | | |
| Sempra Energy | | SDG&E | | SoCalGas |
Moody’s | Baa2 with a stable outlook | | Baa1A3 with a positivestable outlook | | A2 with a stable outlook |
S&P | BBB+ with a negative outlook | | BBB+ with a negativestable outlook | | A with a negative outlook |
Fitch | BBB+ with a stable outlook | | BBB+ with a stable outlook | | A with a stable outlook |
A downgrade of Sempra Energy’sSempra’s or any of its subsidiaries’ credit ratings or rating outlooks may, depending on the severity, result in a requirement for collateral to be posted in the case of certain financing arrangements and may materially and adversely affect the market prices of their equity and debt securities, the rates at which borrowings are made and commercial paper is issued, and the various fees on their outstanding credit facilities. This could make it more costly for Sempra, SDG&E, SoCalGas and Sempra’s other subsidiaries to issue debt securities, to borrow under credit facilities and to raise certain other types of financing. We provide additional information about our credit ratings at Sempra, Energy, SDG&E and SoCalGas in “Part I – Item 1A. Risk Factors.”
Sempra Energy has agreed that, if the credit rating of Oncor’s senior secured debt by any of the three major rating agencies falls below BBB (or the equivalent), Oncor will suspend dividends and other distributions (except for contractual tax payments), unless otherwise allowed by the PUCT. Oncor’s senior secured debt was rated A2, A+ and A at Moody’s, S&P and Fitch, respectively, at December 31, 2020.2021.
Sempra, Energy, SDG&E and SoCalGas have committed lines of credit to provide liquidity and to support commercial paper. Borrowings under these facilities bear interest at benchmark rates plus a margin that varies with market index rates and each borrower’s credit rating. Each facility also requires a commitment fee on available unused credit that may be impacted by each borrower’s credit rating. Depending on the severity of theFor example, assuming a one-notch downgrade:
▪If Sempra Energy were to experience a ratings downgrade from its current level, the rate at which borrowings bear interest would increase by 25 to 50 bps. The commitment fee on available unused credit would also increase 5 to 10 bps.
▪If SDG&E were to experience a ratings downgrade from its current level, the rate at which borrowings bear interest would increase by 25 to 5012.5 bps. The commitment fee on available unused credit would also increase 5 to 10 bps.
▪If SoCalGas were to experience a ratings downgrade from its current level, the rate at which borrowings bear interest would increase by 12.5 bps. The commitment fee on available unused credit would also increase 2.5 bps.
Sempra Energy’sSempra’s, SDG&E’s and SDG&E’sSoCalGas’ credit ratings also may affect their respective credit limits related to derivative instruments, as we discuss in Note 11 of the Notes to Consolidated Financial Statements.
Loans to/from Affiliates
At December 31, 2020,2021, Sempra Energy had $780$637 million in loans due from unconsolidated affiliates and $275$287 million in loans due to unconsolidated affiliates.
Note Receivable
As we discuss in Note 1 of the Notes to Consolidated Financial Statements, in November 2021, Sempra loaned $300 million to KKR in exchange for an interest-bearing promissory note and reimbursed $5 million of loan-related transaction costs incurred by KKR. The promissory note is due to be repaid in full no later than October 1, 2029 and bears compound interest at 5% per annum.
SempraCalifornia Utilities
SDG&E’s and SoCalGas’ operations have historically provided relatively stable earnings and liquidity. Their future performance and liquidity will depend primarily on the ratemaking and regulatory process, environmental regulations, economic conditions, actions by the California legislature, litigation and the changing energy marketplace, as well as other matters described in this report.
SDG&E and SoCalGas expect that the available unused credit from their credit facilities described above, cash flows from operations, and debt issuances will continue to be adequate to fund their respective current operations and planned capital expenditures. The California UtilitiesAdditionally, as we discuss below, Sempra elected to make an equity contribution to SoCalGas in 2021 and may elect to make additional equity contributions in the future that are continuingintended to monitormaintain SoCalGas’ approved capital structure in connection with the impactsaccruals related to the Leak. We describe SDG&E’s and SoCalGas’ commitments related to construction projects, operating and finance leases, and purchase obligations related to the procurement of power and natural gas in Note 16 of the COVID-19 pandemic on cash flowsNotes to Consolidated Financial Statements. SDG&E and results of operations. Some customers are experiencing a diminished ability to pay their electric or gas bills, leading to slower payments and higher levels of nonpayment than has been the case historically. These impacts could become significant and could require modifications to our financing plans. The California UtilitiesSoCalGas manage their capital structurestructures and pay dividends when appropriate and as approved by their respective boards of directors.
As we discuss in Note 4 of the Notes to Consolidated Financial Statements, changes in balancing accounts for significant costs at SDG&E and SoCalGas, particularly a change between over- and undercollected status, may have a significant impact on cash flows. These changes generally represent the difference between when costs are incurred and when they are ultimately recovered or refunded in rates through billings to customers.
Disconnection OIRCOVID-19 Pandemic Protections
SDG&E and SoCalGas are continuing to monitor the impacts of the COVID-19 pandemic on cash flows and results of operations. Some customers have experienced and continue to experience a diminished ability to pay their electric or gas bills, leading to slower payments and higher levels of nonpayment than has been the case historically. These impacts could become significant and could require modifications to our financing plans.
In connection with the COVID-19 pandemic and at the direction of the CPUC, SDG&E and SoCalGas implemented certain measures to assist customers, including suspending service disconnections due to nonpayment for all customers (except for SoCalGas’ noncore customers), waiving late payment fees, and offering flexible payment plans. At the CPUC’s direction, SDG&E and SoCalGas are automatically enrolling residential and small business customers with past-due balances in long-term repayment plans.
In 2021, SDG&E and SoCalGas applied, on behalf of their customers, for financial assistance from the California Department of Community Services and Development under the California Arrearage Payment Program, which provided funds of $63 million and $79 million for SDG&E and SoCalGas, respectively. In the first quarter of 2022, SDG&E and SoCalGas received and will apply the amounts directly to eligible customer accounts to reduce past due balances.
SDG&E and SoCalGas have been authorized to track and request recovery of incremental costs associated with complying with customer protection measures implemented by the CPUC related to the COVID-19 pandemic, including costs associated with suspending service disconnections and uncollectible expenses that arise from customers’ failure to pay. SDG&E and SoCalGas expect to pursue recovery of small and medium-large commercial and industrial customers’ tracked costs in rates in future CPUC proceedings, which recovery is not assured. Uncollectible expenses related to residential customers are recorded in a two-way balancing account as we discuss below.
The continuation of these circumstances could result in a further reduction in payments received from SDG&E’s and SoCalGas’ customers and a further increase in uncollectible accounts, which could become material, and any inability or delay in recovering all or a substantial portion of these costs could have a material adverse effect on the results of operations, financial condition, cash flows and/or prospects of Sempra, SDG&E and SoCalGas. We discuss regulatory mechanisms in Note 4 of the Notes to Consolidated Financial Statements.
Disconnection OIR
In June 2020, the CPUC issued a decision addressing residential service disconnections that, among other things, allows SDG&E and SoCalGas to each of the California Utilities to establish a two-way balancing account to record the uncollectible expenses associated with residential customers’ inability to pay their electric or gas bills. This decision, which became effective in February 2021, also directs the California UtilitiesSDG&E and SoCalGas to each establish an AMP that provides successfully participating, income-qualified residential customers with relief from outstanding utility bill amountsamounts. SDG&E and is effective as of February 2021. The California UtilitiesSoCalGas have recorded increaseschanges in their allowances for uncollectible accounts at December 31, 20202021 primarily related to expected forgiveness of outstanding bill amounts for customers eligible under the AMP. The AMP could result in a further reduction in payments received from the California Utilities’SDG&E’s and SoCalGas’ customers and a further increase to uncollectible accounts, which could become material, and any inability to recover these costs could have a material adverse effect on the cash flows, financial condition and results of operations, financial condition, cash flows and/or prospects of Sempra, Energy, SDG&E and SoCalGas.
Pipeline Safety Enhancement Plan
In November 2018, SoCalGas and SDG&E filed a joint application with the CPUC for a reasonableness review of PSEP project costs totaling $941 million for 83 pipeline safety enhancement projects. SoCalGas and SDG&E subsequently entered into a settlement agreement for cost recovery of $935 million ($806 million for SoCalGas and $129 million for SDG&E). A final decision was approved in August 2020, granting the proposed settlement agreement as well as the amortization schedule for recovery of costs. The final decision was implemented in rates on October 1, 2020.
CCM
A CPUC cost of capital proceeding determines a utility’s authorized capital structure and authorized return on rate basebase. In December 2019, the CPUC approved the cost of capital and addressesrate structures for SDG&E and SoCalGas that became effective on January 1, 2020 and will remain in effect through December 31, 2022, subject to the CCM.
The CCM applies in the interim years between required cost of capital applications and considers changes in the cost of capital based on changes in interest rates based on the applicable utility bond index published by Moody’s (the CCM benchmark rate) for each 12-month period ending September 30 (the measurement period). The CCM benchmark rate is the basis of comparison to determine if the CCM is triggered, which occurs if the change in the applicable Moody’s utility bond index relative to the CCM benchmark rate is larger than plus or minus 1.000% at the end of the measurement period. The index applicable to SDG&E and SoCalGas is based on each utility’s credit rating. SDG&E’s CCM benchmark rate is 4.498% based on Moody’s Baa- utility bond index, and SoCalGas’ CCM benchmark rate is 4.029% based on Moody’s A- utility bond index. Alternatively, under the CCM, SDG&E and SoCalGas are permitted to file a cost of capital application in an interim year in which an extraordinary or catastrophic event materially impacts its cost of capital and affects utilities differently than the market as a whole.
For the measurement period ended September 30, 2021, the CCM would trigger for SDG&E because the average Moody’s Baa- utility bond index between October 1, 2020 and September 30, 2021 was 1.17% below SDG&E’s CCM benchmark rate of 4.498%. In August 2021, SDG&E filed an application with the CPUC to update its cost of capital effective January 1, 2022 due to the ongoing effects of the COVID-19 pandemic rather than have the CCM apply. In this application, SDG&E proposed to adjust its authorized capital structure by increasing its common equity ratio from 52% to 54%. SDG&E also proposed to increase its authorized ROE from 10.20% to 10.55% and decrease its authorized cost of debt from 4.59% to 3.84%. As a result, SDG&E’s proposed return on rate base would decrease from 7.55% to 7.46% if such application is approved by the CPUC as filed. SDG&E filed a joint motion with PG&E and Edison to consolidate all three utilities’ cost of capital applications given the overlapping issues of law and fact, which joint motion was granted in October 2021. In December 2021, the CPUC established a proceeding to determine if SDG&E’s cost of capital was impacted by an extraordinary event. If the CPUC finds that there was not an extraordinary event, the CCM would be effective retroactive to January 1, 2022 and would automatically update the California Utilities’adjust SDG&E’s authorized ROE from 10.20% to 9.62% and adjust its authorized cost of debt based on actual coststo reflect the then current embedded cost and updateprojected interest rate. If the California Utilities’CPUC finds that there was an extraordinary event, it will then determine whether to suspend the CCM for 2022 and preserve SDG&E’s current authorized ROE. A triggercost of capital or hold a second phase of the CCM that requiresproceeding to set a downward adjustment beginningnew cost of capital for 2022. SDG&E expects a final decision in the second half of 2022. In December 2021, the CPUC granted SDG&E the establishment of memorandum accounts effective January 1, 2022 could materially adversely affectto track any differences in revenue requirement resulting from the resultsinterim cost of operations and cash flows of Sempra Energy and, depending oncapital decision expected in 2022.
For the measurement period ended September 30, 2021, the CCM that iswas not triggered for SoCalGas. SDG&E and SoCalGas.SoCalGas are required to file their next cost of capital applications in April 2022 for a January 1, 2023 effective date. We further discuss the CCM further in “Part I – Item 1. Business – Ratemaking Mechanisms – California Utilities – Cost of Capital Proceedings,” “Part I – Item 1A. Risk Factors” and in Note 4 of the Notes to Consolidated Financial Statements.Factors.”
SDG&E
Wildfire Fund
In 2019,The carrying value of SDG&E recorded a&E’s Wildfire Fund asset for committedtotals $360 million at December 31, 2021. We describe the Wildfire Legislation, related accounting treatment and SDG&E’s commitment to make annual shareholder contributions to the Wildfire Fund. We describe the Wildfire Legislation and related accounting treatmentFund through 2028 in Note 1 of the Notes to Consolidated Financial Statements.
SDG&E is exposed to the risk that the participating California electric IOUs may incur third-party wildfire claimscosts for which they will seek recovery from the Wildfire Fund.Fund with respect to wildfires that have occurred since enactment of the Wildfire Legislation
in July 2019. In such a situation, SDG&E may recognize a reduction of its Wildfire Fund asset and record aan impairment charge against earnings in the period when there is a reduction of the available coverage due to recoverable claims from any of the participating IOUs. As a result, ifPG&E has indicated that it will seek reimbursement from the Wildfire Fund for losses associated with the Dixie Fire, which burned from July 2021 through October 2021 and was reported to be the largest single wildfire (measured by acres burned) in California history. If any California electric IOU’s equipment is determined to be a cause of a fire, it could have a material adverse effect on SDG&E’s and Sempra Energy’sSempra’s financial condition and results of operations up to the carrying value of our Wildfire Fund asset, with additional potential material exposure if SDG&E’s equipment is determined to be a cause of a fire. In addition, the Wildfire Fund could be completely exhausted due to fires in the other California electric IOUs’ service territories, by fires in SDG&E’s service territory or by a combination thereof. In 2020, California experienced some of the largest wildfires in its history (measured by acres burned), including fires in SDG&E’s service territory. Although SDG&E is not aware of any claims made against the Wildfire Fund by any participating IOU, there is no assurance that the equipment of a California electric IOU will not be determined to be a cause of one or more of these fires. In the event that the Wildfire Fund is materially diminished, exhausted or terminated, SDG&E will lose the protection afforded by the Wildfire Fund, and as a consequence, a fire in SDG&E’s service territory could causehave a material adverse effect on SDG&E’s and Sempra Energy’s cash flows,Sempra’s results of operations, financial condition, cash flows and/or prospects.
Wildfire Cost Recovery Mechanism
In July 2021, SDG&E filed a request with the CPUC to establish an interim cost recovery mechanism that would recover in rates 50% of its wildfire mitigation plan regulatory account balance as of January 1 of each year. Such potential recovery would be incremental to wildfire costs authorized in its GRC and financial condition.would be subject to reasonableness review. We expect the CPUC to issue a final decision in the first half of 2022.
SONGS Decommissioning
SDG&E has significant investments in the SONGS NDT to provide for future payments of nuclear decommissioning. The NDT’s ability to make ongoing required payments have not been materially or adversely affected by changes in asset values, which are dependent on market fluctuations, contributions and withdrawals. However, asset values could be materially and adversely affected by future activity in the equity and fixed income markets, and changes in the estimated decommissioning costs, or in the assumptions and judgments made by management underlying these estimates, could cause revisions to the estimated total cost associated with retiring the assets. Funding requirements are generally recoverable in rates. We discuss SDG&E’s NDT and its expected SONGS decommissioning payments in Note 15 of the Notes to Consolidated Financial Statements.
Off-Balance Sheet Arrangements
SDG&E has entered into PPAs and tolling agreements that are variable interests in unconsolidated entities. We discuss variable interests in Note 1 of the Notes to Consolidated Financial Statements.
SoCalGas
SoCalGas’ future performance and liquidity will be impacted by the resolution of legal, regulatory and other matters concerning the Leak, which we discuss below, in Note 16 of the Notes to Consolidated Financial Statements, and in “Part I – Item 1A. Risk Factors.”
Aliso Canyon Natural Gas Storage Facility Gas Leak
From October 23, 2015 through February 11, 2016, SoCalGas experienced a natural gas leak from one of the injection-and-withdrawal wells, SS25, at its Aliso Canyon natural gas storage facility located in Los Angeles County. In February 2016, CalGEM confirmed that the well was permanently sealed.
Cost Estimates,Estimate, Accounting Impact and Insurance. At December 31, 2020,2021, SoCalGas estimates certain costs related to the Leak are $1,627$3,221 million (the cost estimate). This cost estimate may increase significantly as more information becomes available. A substantial portion of the cost estimate has been paid, and $451$1,983 million is accrued as Reserve for Aliso Canyon Costs at December 31, 2021 on SoCalGas’ and Sempra Energy’sSempra’s Consolidated Balance Sheets. Sempra elected to make an $800 million equity contribution to SoCalGas in September 2021 and may elect to make additional equity contributions in the future that are intended to maintain SoCalGas’ approved capital structure in connection with the accruals related to these agreements. Sempra does not expect to issue common equity to fund any such equity contributions.
Except for the amounts paid or estimated to settle certain actions,legal and regulatory matters, the cost estimate does not include litigation(i) any amounts necessary to resolve claims of Individual Plaintiffs who do not agree to participate in the settlement of the Individual Actions or regulatory costsmembers of the Property Class Action who opt out of that settlement or (ii) the matters that we describe in “Civil Litigation – Unresolved Litigation” and “Regulatory Proceedings” in Note 16 of the Notes to Consolidated Financial Statements to the extent it is not possible to predict at this time the outcome of these actions or reasonably estimate the possible costs to defend or resolve the actions or the amounta range of possible costs for damages, restitution, civil or civil, administrative fines or criminal fines, sanctions, penalties, defense, settlement or other costs or remedies that may be imposed or incurred. The cost estimate also does not include certain other costs incurred by Sempra Energy
associated with defending against shareholder derivative lawsuits and other potential costs that we currently do not anticipate incurring or that we cannot reasonably estimate. Further, we are not able to reasonably estimate the possible loss or a range of possible losses in excess of the amounts accrued. These costs or losses not included in the cost estimate could be significant and could have a material adverse effect on SoCalGas’ and Sempra Energy’sSempra’s results of operations, financial condition, cash flows financial condition and results of operations.and/or prospects.
We have received insurance payments for many of the categories of costs included in the cost estimate, including temporary relocation and associated processing costs, control-of-well expenses, costs of the government-ordered response to the Leak, certain legal costs and lost gas. As of December 31, 2020,2021, we recorded the expected recovery of the cost estimate related to the Leak of $445$360 million as Insurance Receivable for Aliso Canyon Costs on SoCalGas’ and Sempra Energy’sSempra’s Consolidated Balance Sheets. This amount is exclusive of insurance retentions and $834$919 million of insurance proceeds we received through December 31, 2020.2021. We intend to pursue the full extent of our insurance coverage for the costs we have incurred. Other than insurance for certain future defense costs we may incur as well as directors’ and officers’ liability, we have exhausted all of our insurance in this matter. We continue to pursue other sources of insurance coverage for costs related to this matter, but we may not be successful in obtaining additional insurance recovery for any of these costs. If we are not able to secure additional insurance recovery, if any costs we have recorded as an insurance receivable are not collected, if there are delays in receiving insurance recoveries, or if the insurance recoveries are subject to income taxes while the associated costs are not tax deductible, such amounts, which could be significant, could have a material adverse effect on SoCalGas’ and Sempra Energy’sSempra’s results of operations, financial condition, cash flows financial condition and results of operations.and/or prospects.
Natural Gas Storage Operations and Reliability. Natural gas withdrawn from storage is important for service reliability during peak demand periods, including peak electric generation needs in the summer and consumer heating needs in the winter. The Aliso Canyon natural gas storage facility is the largest SoCalGas storage facility and an important elementcomponent of SoCalGas’ delivery system. As a result of the Leak, the CPUC has issued a series of directives to SoCalGas suspended injectionspecifying the range of naturalworking gas intoto be maintained in the Aliso Canyon natural gas storage facility beginning in October 2015 and, following a comprehensive safety review and authorization by CalGEM and the CPUC’s Executive Director, resumed injection operations in July 2017 based on limited operating rangesas well as protocols for the field.withdrawal of gas, to support safe and reliable natural gas service. In February 2017, the CPUC opened a proceeding pursuant to the SB 380 OII to determine the feasibility of minimizing or eliminating the use of the Aliso Canyon natural gas storage facility while still maintaining energy and electric reliability for the region, including considering alternative means for meeting or avoiding the demand for the facility’s services if it were eliminated.
The CPUC has issued a series of directives to SoCalGas specifying the range of working gas to be maintained inAt December 31, 2021, the Aliso Canyon natural gas storage facility as well as protocols for the withdrawalhad a net book value of gas, to support safe and reliable natural gas service. Withdrawals of natural gas from the facility were made in 2018, 2019 and 2020 to augment natural gas supplies to meet consumer demand, including for electric generation needs.
$883 million. If the Aliso Canyon natural gas storage facility were to be permanently closed or if future cash flows from its operation were otherwise insufficient to recover its carrying value, it could result inwe may record an impairment of the facility, and significantlyincur higher than expected operating costs and/or be required to make additional capital expenditures (any or all of which may not be recoverable in rates), and natural gas reliability and electric generation could be jeopardized. At December 31, 2020, the Aliso Canyon natural gas storage facility had a net book value of $821 million. Any significant impairment of this asset, or higher operating costs and additional capital expenditures incurred by SoCalGas that may not be recoverable in customer rates,such outcome could have a material adverse effect on SoCalGas’ and Sempra Energy’sSempra’s results of operations, financial condition, cash flows and/or prospects.
Labor Relations
Field, technical and cash flows.most clerical employees at SoCalGas are represented by the Utility Workers Union of America or the International Chemical Workers Union Council. On October 1, 2021, a new collective bargaining agreement for these employees, covering wages, hours, working conditions, and medical and other benefits, went into effect through September 2024.
OSCs – Energy EfficiencyFranchise Agreement
SoCalGas’ natural gas franchise agreement with the City of Los Angeles expired on December 31, 2021. In December 2021, the Los Angeles City Council awarded SoCalGas a new, 21-year natural gas franchise following an invitation for bids, which was approved and Advocacy
As we discusssigned by the City of Los Angeles mayor in Note 4January 2022. The 21-year term consists of an initial 13-year term from the effective date, followed by an 8-year term that the City of Los Angeles has the option to terminate. Among other conditions, the new franchise agreement is subject to CPUC approval of the Notesrates and surcharges therein for it to Consolidated Financial Statements,become effective, which SoCalGas filed for in October 2019,February 2022. In the CPUC issued an OSCinterim, SoCalGas continues to determine whether SoCalGas should be sanctioned for violationserve customers located in the City of certain CPUC code sections and orders related to energy efficiency codes and standards advocacy activities undertakenLos Angeles in accordance with the expired agreement by SoCalGas in 2018. In December 2019, the CPUC issued a second OSC to determine whether SoCalGas is entitled to the energy efficiency program’s shareholder incentives for codes and standards advocacy in 2016 and 2017, whether its shareholders should bear the costsoperation of those advocacy activities, and to address whether any other remedies are appropriate. The scope of this second OSC was later expanded to include energy efficiency program years 2014 and 2015, and SoCalGas’ engagement with local governments on proposed reach codes. If the CPUC were to assess fines or penalties on SoCalGas associated with these OSCs, they could have a material adverse effect on SoCalGas’ andlaw.
Sempra Energy’s results of operations, financial condition and cash flows. We expect CPUC decisions on these OSCs in the first half of 2021.
Sempra Texas Utilities
Oncor relies on external financing as a significant source of liquidity for its capital requirements. In the past, Oncor has financed a substantial portion of its cash needs from operations and with proceeds from indebtedness. In the event that Oncor fails to meet its capital requirements or is unable to access sufficient capital to finance its ongoing needs, we may elect to make additional capital contributions to Oncor (as our commitments to the PUCT prohibit us from making loans to Oncor), which could be substantial and which would reduce the cash available to us for other purposes, could increase our indebtedness and could ultimately materially adversely affect our results of operations, liquidity, financial condition, andcash flows and/or prospects.
Oncor’s ability to pay dividends may be limited by factors such as its credit ratings, regulatory capital requirements, increases in its capital plan, debt-to-equity ratio approved by the PUCT and other restrictions.restrictions and considerations. In addition, Oncor will not pay dividends if a majority of Oncor’s independent directors or any minority member director determines it is in the best interests of Oncor to retain such amounts to meet expected future requirements.
Winter Weather Event
In February 2021, ERCOT required electric distribution companies, including Oncor, to significantly reduce demand on the grid because electricity generation was insufficient to meet demand due to extreme winter weather. As a result of the load shedding events and state-wide power outages, the PUCT, other governmental authorities or third parties, including Oncor’s customers, have taken or could take other measures to address financial challenges experienced as a result of the event, which could adversely impact Oncor’s collections and cash flows and, in turn, could adversely impact Sempra. The Texas Legislature has passed, and the Governor of Texas has signed, various legislation affecting the ERCOT market, which addresses matters including certain weatherization requirements and fines of up to $1 million per day for failures to comply with such requirements, enabling ERCOT to finance certain amounts owed by ERCOT market participants relating to the winter weather event, creation of the Texas Energy Reliability Council, identification of gas facilities that are critical to electric-generator fuel supplies, coordination between the gas and electric industries, and changes in the composition of the PUCT and the ERCOT board of directors. In addition, various regulatory and governmental entities have also commenced investigations or indicated an intent to investigate the operation of the ERCOT grid during this extreme winter weather event and potential future actions to improve grid reliability. Any significant changes relating to the ERCOT market that impact transmission and distribution utilities as a result of such proceedings or otherwise could materially adversely impact Oncor. If Oncor does not successfully respond to these changes and any other legislative, regulatory, or market or industry developments applicable to it, Oncor could suffer a deterioration in its results of operations, financial condition, cash flows and/or prospects, which could materially adversely affect Sempra’s results of operations, financial condition, cash flows and/or prospects.
Off-Balance Sheet Arrangement
Our investment in Oncor Holdings is a variable interest in an unconsolidated entity. We discuss variable interests in Note 1 of the Notes to Consolidated Financial Statements.
Sempra Mexico
Construction Projects and Related Regulatory MattersInfrastructure
Sempra Mexico is currently constructing additional terminals for the receipt, storage, and delivery of liquid fuels in the vicinity of Mexico City, Puebla, Veracruz and Topolobampo. Sempra Mexico is also constructing a new solar facility (Border Solar) in Juárez, Chihuahua, through which it intendsInfrastructure expects to supply renewable energy to several private companies. Sempra Mexico is currently developing additional terminals for the receipt, storage, and delivery of liquid fuels in the vicinity of Manzanillo, Guadalajara and Ensenada. We expect to fund these capital expenditures, investments and operations at IEnovain part with available funds, including credit facilities, and funds internally generated bycash flows from operations of the Sempra Mexico businesses, as well as funds from project financing, sales of securities, interim funding from the parent or affiliates, and partnering in JVs. We expect the projects under construction to commence commercial operations on various dates in 2021. However, expected commencement dates could be delayed by worsening or extended disruptions of project construction or development caused by the COVID-19 pandemic or other factors outside our control. Sempra Mexico is continuing to monitor the impacts of the COVID-19 pandemic on cash flows and results of operations. See “Part I – Item 1A. Risk Factors.”
As we discuss in Note 16 of the Notes to Consolidated Financial Statements, in the second quarter of 2020, certain Mexican governmental agencies issued orders and regulations that would reduce or limit the renewable energy sector’s participation in the country’s energy market. Those orders would, among other things, create barriers for renewable energy facilities to enter the wholesale electricity market, prevent renewable energy projects currently in construction from reaching operations and increase grid fees for legacy renewables and cogeneration energy contract holders. IEnova and other companies affected by such measures, certain non-governmental environmental organizations or advocacy groups, and COFECE, Mexico’s antitrust regulator, have filed legal complaints with the respective Mexican courts to prevent such measures from going into effect. In most cases, the courts have sided with the complainants and such measures have been stayed temporarily. The court-ordered injunctions provide relief until Mexico’s Federal District Court ultimately resolves the amparo claims (constitutional protection lawsuits).
An unfavorable final decision on these amparo challenges, or the potential for an extended dispute, could impact our ability to successfully complete construction of our Border Solar project, which is not yet commercially operating, or to complete such construction in a timely manner and within expected budgets, may impact our ability to operate our wind and solar facilities already in service at existing levels or at all, and may adversely affect our ability to develop new projects, any of which may have a material adverse impact on our results of operations and cash flows and our ability to recover the carrying values of our renewable energy investments in Mexico.
The ability to successfully complete major construction projects is subject to a number of risks and uncertainties. For a discussion of these risks and uncertainties, see “Part I – Item 1A. Risk Factors.”
Other Legal and Regulatory Matters
As we discuss in Note 16 of the Notes to Consolidated Financial Statements, IEnova received force majeure payments for the Guaymas-El Oro segment of the Sonora pipeline from August 2017 to August 2019. Under an agreement between IEnova and the CFE, the CFE will resume making payments only when the damaged section of the Guaymas-El Oro segment of the Sonora pipeline is repaired. If the pipeline is not repaired by March 14, 2021 and the parties do not agree on a new service start date, IEnova retains the right to terminate the contract and seek to recover its reasonable and documented costs and lost profits. If IEnova is unable to make such repairs (which have not commenced) and resume operations in the Guaymas-El Oro segment of
the Sonora pipeline or if IEnova terminates the contract and is unable to obtain recovery, there may be a material adverse impact on Sempra Energy’s results of operations and cash flows and our ability to recover the carrying value of our investment. At December 31, 2020, the Guaymas-El Oro segment of the Sonora pipeline had a net book value of $447 million. The Sasabe-Puerto Libertad-Guaymas segment of the Sonora pipeline remains in full operation and is not impacted by these developments.
In May 2020, the two third-party capacity customers at the ECA Regas Facility, Shell Mexico and Gazprom, asserted that a 2019 update of the general terms and conditions for service at the facility, as approved by the CRE, resulted in a breach of contract by IEnova and a force majeure event. Citing these circumstances, the customers subsequently stopped making payments of amounts due under their respective LNG storage and regasification agreements. IEnova has rejected the customers’ assertions and has drawn (and expects to continue to draw) on the customers’ letters of credit provided as payment security. The parties engaged in discussions under the applicable contractual dispute resolution procedures without coming to a mutually acceptable resolution. In July 2020, Shell Mexico submitted a request for arbitration of the dispute and although Gazprom has joined the proceeding, Gazprom has replenished the amounts drawn on its letter of credit and has resumed making regular monthly payments under its LNG storage and regasification agreement. IEnova intends to avail itself of its available claims, defenses, rights and remedies in the arbitration proceeding, including seeking dismissal of the customers’ claims. In addition to the arbitration proceeding, Shell Mexico also filed a constitutional challenge to the CRE’s approval of the update to the general terms and conditions. In October 2020, Shell Mexico’s request to stay CRE’s approval was denied and, subsequently, Shell Mexico filed an appeal of that decision.
Potential Acquisition of ESJ
As we discuss in Note 5 of the Notes to Consolidated Financial Statements, in February 2021, IEnova agreed to acquire Saavi Energía’s 50% interest in ESJ for approximately $83 million. At December 31, 2020, IEnova owned a 50% interest in ESJ, which is accounted for as an equity method investment. Upon completion of the acquisition, IEnova will own 100% of ESJ and will consolidate it. We expect to complete the acquisition in the first half of 2021, subject to various closing conditions, including authorizations from the FERC and COFECE.
ESJ is constructing a second wind power generation facility, which we expect will be completed in late 2021 or in the first quarter of 2022 and will have a nameplate capacity of 108 MW.
Exchange Offer
On December 2, 2020, we announced a non-binding offer to acquire up to 100% of the publicly held shares of IEnova in exchange for shares of our common stock at an exchange ratio of 0.0313 shares of our common stock for each one IEnova ordinary share, which exchange ratio remains subject to approval by the Sempra Energy board of directors. We expect to complete this transaction in the second quarter of 2021, subject to authorization by the SEC, CNBV and Mexican Stock Exchange and other closing conditions. This proposed transaction is subject to a number of risks that we discuss in “Part I – Item 1A. Risk Factors.”
IEnova Common Stock Repurchase Fund
In April 2020, IEnova’s shareholders approved an increase to a previously approved fund for IEnova to repurchase shares of its common stock for a maximum amount of $500 million, increased from $250 million. As of February 25, 2021, IEnova has repurchased 81,742,780 shares of its outstanding common stock held by NCI for approximately $248 million since the inception of the fund in 2018, increasing Sempra Energy’s ownership interest in IEnova from 66.6% to 70.2% over this period. IEnova does not intend to repurchase shares of its common stock during the pendency of the exchange offer described above. Following the completion of the exchange offer, IEnova may repurchase shares under the existing program from time-to-time at the discretion of management.
Sempra LNG
Sempra LNG is pursuing development of additional LNG export facilities on the Gulf Coast and Pacific Coast of North America through its proposed Cameron LNG JV Phase 2 liquefaction expansion project in Louisiana, ECA LNG liquefaction export projects in Mexico, and Port Arthur LNG liquefaction export project in Texas.Infrastructure businesses. We expect Sempra LNG toInfrastructure will require additional funding for the development and expansion of its portfolio of projects, which may be financed through a combination of operating cash flows, funding from the parent and minority interest owners, bank financing, issuances of debt, project financing and participatingpartnering in JVs.
Cameron LNG JV Three-Train Liquefaction Project (Phase 1)
We describe Sempra LNG, through its 50.2% interestInfrastructure’s commitments related to construction and development projects in Cameron LNG JV, operates a three-train natural gas liquefaction facility with an export capacity of 12 Mtpa of LNG, which we refer to as Phase 1. The majorityNote 16 of the construction was project-financed at the JV, with most or all of the remainder of the capital requirements provided by the project partners, including Sempra Energy,
through equity contributions under the project equity agreements. Cameron LNG JV achieved commercial operations of Train 1, Train 2 and Train 3 under its tolling agreements in August 2019, February 2020 and August 2020, respectively.Notes to Consolidated Financial Statements.
As we discuss below in “Off-Balance Sheet Arrangements” and in Note 61 of the Notes to Consolidated Financial Statements, in October 2021, Sempra Energy has guaranteedInfrastructure completed the sale of a maximum20% NCI in SI Partners to KKR for cash proceeds of $4.0$3.2 billion, relatedincluding post-closing adjustments and net of $173 million in transaction costs. We used the proceeds from the sale to Cameron LNG JV’s project financingKKR to partially fund the early redemption of $2.35 billion of Sempra’s long-term debt, which we discuss above in “Long-Term Debt Activities,” and financing-related agreementsto help fund capital investments in support of incremental growth at Sempra California and Sempra Texas Utilities.
In December 2021, we entered into an agreement to sell a 10% NCI in SI Partners to ADIA for cash proceeds of $1.8 billion, subject to adjustments. We expect the Phase 1 project. These guarantees terminate upon Cameron LNG JV achieving “financial completion”transaction will close in the summer of 2022. We intend to use the Phase 1 three-train liquefaction export project, including all three trains achievingexpected proceeds from the sale to ADIA to help fund incremental capital expenditures at Sempra California and Sempra Texas Utilities, to repay commercial operationpaper borrowings used to repurchase $500 million in shares of our common stock ($300 million of which was completed in the fourth quarter of 2021 and meeting certain operational performance tests, which are currently underway. Cameron LNG JV’s financing agreements contain events of default customary for such financings, including a failure to achieve financial completion of the project by a deadline of September 30, 2021 (with up to an additional 365 days extension beyond such date permitted in cases$200 million of force majeure). Pursuant to the financing agreements, Cameron LNG JV is restricted from making distributions to its project owners, including Sempra LNG, from January 1, 2021 until the earlier of September 30, 2021 and the achievement of financial completion, at which time any deferred distributions will be released. A delay that results in a failure to achieve financial completion by September 30, 2021 would result in an event of default under Cameron LNG JV’s financing agreements and a potential demand on Sempra Energy’s guarantees. We anticipate that the guarantees will be terminatedwas completed in the first halfquarter of 2021, but this timing could be delayed, perhaps substantially, if2022), and further strengthen our balance sheet. Our ability to complete the operational performance tests requiredADIA transaction is subject to achieve financial completiona number of risks, including, among others, the ability to obtain regulatory and third-party approvals and satisfy other customary closing conditions. If we are not completed dueable to weather-related events,obtain these approvals and satisfy all other eventsclosing conditions in a timely manner or other factors beyondon satisfactory terms, then the
proposed transaction may be abandoned and/or our control. If, due to Cameron LNG JV’s failure to satisfy the financial completion criteria by the applicable deadline, we are required to repay some or all of the $4.0 billion under our guarantees, any such repayments could have a material adverse effect on our business,prospects for Sempra Infrastructure and, in turn, Sempra’s results of operations, financial condition, cash flows and/or prospects could be materially adversely affected.
Following the closing of the ADIA transaction, Sempra, KKR and ADIA would directly or indirectly own a 70%, 20%, and 10%, interest, respectively, in SI Partners. The sale of NCI in SI Partners to KKR has reduced and the agreed sale of NCI in SI Partners to ADIA would further reduce our ownership interest in SI Partners, and these sales require us to share control over certain business decisions with the minority partners, which introduces a number of risks associated with sharing business control. Moreover, the decrease in our ownership of SI Partners also decreases our share of the cash flows, profits and other benefits these businesses currently or may in the future produce, which could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
For a discussion of our investment in Cameron LNG JV, JV financing, Sempra Energy guarantees, the risks discussed above and other risks relating to the Cameron LNG JV Phase 1 liquefaction export project that could adversely affect our future performance, see “Part I – Item 1A. Risk Factors.”Net-Zero Solutions
Cameron LNG JV Liquefaction Expansion Project (Phase 2)
. Cameron LNG JV has received the major permits and FTA and non-FTA approvals necessary to expandassociated with the expansion of the current configuration of the Cameron LNG JV liquefaction project beyond Phase 1. TheThose permits obtained for the Phase 2 project includeincluded up to two additional liquefaction trains and up to two additional full containment LNG storage tanks (onetanks. In January 2022, Cameron LNG JV filed an amendment, subject to approval by the FERC, to modify the permits to allow the use of electric drives, instead of gas turbine drives, which was permittedwould reduce overall emissions. We expect the proposed expansion project will initially have one train with offtake capacity of approximately 6.75 Mtpa, with the ability to increase capacity with debottlenecking of the existing trains, and the site can accommodate additional trains beyond Phase 1 three-train project).2.
Sempra Energy has entered into MOUs with TOTALTotalEnergies SE, Mitsui & Co., Ltd. and Mitsubishi Corporation that provide a framework for cooperation for the development of and 100% of the offtake from the potential Cameron LNG JV Phase 2 project. The ultimate participation of and offtake by TOTALTotalEnergies SE, Mitsui & Co., Ltd. and Mitsubishi Corporation remains subject to negotiation and finalization of definitive agreements, among other factors, and TOTALTotalEnergies SE, Mitsui & Co., Ltd. and Mitsubishi Corporation have no commitment to participate in, or enter into offtake agreements with respect to, the Phase 2 project untilunless such definitive agreements are established.
Expansion of the Cameron LNG JV liquefaction facility beyond the first three trains is subject to certain restrictions and conditions under the JV project financing agreements, including among others, timing restrictions on expansion of the project unless appropriate prior consent is obtained from the Phase 1 project lenders. Under the Cameron LNG JV equity agreements, the expansion of the project requires the unanimous consent of all the partners, including with respect to the equity investment obligation of each partner. Discussions among all the Cameron LNG JV partners have been taking place regarding how an expansion may be structured, including a facility design utilizing electric drives, and we expect that discussions will continue. ThereAlthough we are working towards making a final investment decision in the first half of 2023, the timing of when or if Cameron LNG JV will receive approval to amend the permits is uncertain, and there is no assurance that the Cameron LNG JV members will unanimously agree in a timely manner or at all on an expansion structure, which, if not accomplished, would materially and adversely impact the development of the Phase 2 expansion project. In light of this and other considerations, we are unable to predict whether or when Cameron LNG JV might be able to move forward on the Phase 2 expansion of the Cameron LNG JV liquefaction facility beyond the first three trains.
The development of the potential Cameron LNG JV Phase 2 expansion project is subject to numerous other risks and uncertainties, including securing binding customer commitments; reaching unanimous agreement with our partners to proceed; obtaining and maintaining a number of permits and regulatory approvals; securing financing; negotiating and completing suitable commercial agreements, including a definitive EPC contract, equity acquisition and governance agreements; reaching a positive final investment decision; and other factors associated with this potential investment. For a discussion of these risks, see “Part I – Item 1A. Risk Factors.”
ECA LNG Liquefaction Export Projects
Projects. Sempra LNG and IEnova areInfrastructure is developing two natural gas liquefaction export projects at IEnova’sits existing ECA Regas Facility. The liquefaction export projects, which are planned for development in two phases (a mid-scale project referred to asby ECA LNG Phase 1 that is under construction and a proposed large-scale project referred to asby ECA LNG Phase 2), are being developed to provide buyers with direct access to North American west coast LNG supplies. We do not expect the construction or operation of the ECA LNG Phase 1 project to disrupt operations at the ECA Regas Facility.Facility, but have planned measures to limit disruption of operations should any arise. However, construction of the proposed ECA LNG Phase 2 project would conflict with the current operations at the ECA Regas Facility, which currently has long-term regasification contracts for 100% of the regasification facility’s capacity through 2028, making the decisions on whether and how to pursue the ECA LNG Phase 2 project dependent in part on whether the investment in a large-scale liquefaction facility would, over the long term, be more beneficial financially than continuing to supply regasification services under our existing contracts. We have planned measures to not disrupt operations at the ECA Regas Facility with the construction of the ECA LNG Phase 1 project.
In March 2019, ECA LNG received two authorizations from the DOE to export U.S.-produced natural gas to Mexico and to re-export LNG to non-FTA countries from its ECA LNG Phase 1 project, which is a one-train natural gas liquefaction facility with a
nameplate capacity of 3.25 Mtpa and initial offtake capacity of approximately 2.5 Mtpa that is under construction, and its proposed ECA LNG Phase 2 project that is in development.
In April 2020, ECA LNG Phase 1 executed definitive 20-year LNG sale and purchase agreements with Mitsui & Co., Ltd. for approximately 0.8 Mtpa of LNG and with an affiliate of TOTALTotalEnergies SE for approximately 1.7 Mtpa of LNG. In December 2020, an affiliate of TOTALTotalEnergies SE acquired a 16.6% ownership interest in ECA LNG Phase 1, with Sempra LNG and IEnova eachInfrastructure retaining a 41.7%an 83.4% ownership interest. Our MOU with Mitsui & Co., Ltd. provides a framework for Mitsui & Co., Ltd.’s potential offtake of LNG from, and potential acquisition of an equity interest in, ECA LNG Phase 2.
In February 2020, we entered into an EPC contract with TechnipFMCTechnip Energies for the engineering, procurement and construction of the ECA LNG Phase 1 project. Since reaching a positive final investment decision with respect to the project in November 2020, we released TechnipFMCTechnip Energies to commence work to construct the ECA LNG Phase 1 project. The total price of the EPC contract is estimated at approximately $1.5 billion. We estimate that capital expenditures will approximate $2.0 billion, including capitalized interest and project contingency. The actual cost of the EPC contract and the actual amount of these capital expenditures may differ, perhaps substantially, from our estimates. We expect ECA LNG Phase 1 to begin producing LNG by the end of 2024.
In December 2020, ECA LNG Phase 1 entered into a five-year loan agreement for an aggregate principal amount of up to $1.6 billion, of which $17$341 million was outstanding at December 31, 2020.2021. Proceeds from the loan are being used to finance the cost of construction of the ECA LNG Phase 1 project. We discuss the details of this loan in Note 7 of the Notes to Consolidated Financial Statements.
The construction of the ECA LNG Phase 1 project and the development of the potential ECA LNG Phase 2 project are subject to numerous risks and uncertainties. For Phase 1, these include maintaining permits and regulatory approvals; construction delays; securing and maintaining commercial arrangements, such as gas supply and transportation agreements; the impact of recent and proposed changes to the law in Mexico; and other factors associated with the project and its construction. For Phase 2, these include obtaining binding customer commitments; the receipt of a number of permits and regulatory approvals; obtaining financing; negotiating and completing suitable commercial agreements, including a definitive EPC contract, equity acquisition and governance agreements, LNG sales agreements and gas supply and transportation agreements; reaching a positive final investment decision; the impact of recent and proposed changes to the law in Mexico; and other factors associated with this potential investment. In addition, as we discuss in Note 16 of the Notes to Consolidated Financial Statements, an unfavorable decision on certain property disputes or permit challenges, an unfavorable judgment that does not allow Sempra Infrastructure to secure new or renew existing LDA authorizations, or an extended dispute with existing customers at the ECA Regas Facility, could materially and adversely affect the development and construction of these projects and Sempra Energy’s financial condition,Sempra’s results of operations, financial condition, cash flows andand/or prospects, including the impairment of all or a substantial portion of the capital costs invested in the projects to date. For a discussion of these risks, see “Part I – Item 1A. Risk Factors.”
Port Arthur LNG Liquefaction Export Project
Project. Sempra LNGInfrastructure is developing a proposed natural gas liquefaction export project on a greenfield site that it owns in the vicinity of Port Arthur, Texas, located along the Sabine-Neches waterway. Sempra LNGInfrastructure received authorizations from the DOE in August 2015 and May 2019 that collectively permit the LNG to be produced from the proposed Port Arthur LNG project to be exported to all current and future FTA and non-FTA countries. In February 2020, Sempra Infrastructure filed an application with the DOE to permit LNG produced from a second phase of the proposed Port Arthur LNG facility to be exported to all current and future FTA and non-FTA countries.
In April 2019, the FERC approved the siting, construction and operation of the proposed Port Arthur LNG liquefaction facility, along with certain natural gas pipelines, including the Louisiana Connector and Texas Connector Pipelines, that could be used to supply feed gas to the liquefaction facility assumingif and when the project is completed. In February 2020, Sempra LNGInfrastructure filed a FERC application for the siting, construction and operation of a second phase atof the proposed Port Arthur LNG facility, including the potential addition of two liquefaction trains.
In February 2020, we entered into an EPC contract with Bechtel for the proposed Port Arthur LNG liquefaction project. The EPC contract contemplates the construction of two liquefaction trains with a nameplate capacity of approximately 13.5 Mtpa, two LNG storage tanks, a marine berth and associated loading facilities and related infrastructure necessary to provide liquefaction services. We have no obligation to move forward on the EPC contract, and we may release Bechtel to perform portions of the work pursuant to limited notices to proceed. We plan to fully release Bechtel to perform all of the work to construct the Port Arthur LNG liquefaction export project only after we reach a final investment decision with respect to the project and after certain other conditions are met, including obtaining project financing. In December 2020, we amended and restated the EPC contract to reflect an estimated price of approximately $8.7 billion, depending on the timing ofbillion. Since we did not issue a full notice to proceed which, if not issued by July 15, 2021, will require renegotiationagreement by both parties on an amendment to the EPC contract is necessary to proceed. Such amendment may adjust the EPC contract price and the EPC schedule and could potentially include other changes to the work and terms and conditions of the EPC contract. Any changes to the EPC contract will require the agreement ofon such an amendment by both parties whichor on favorable terms to Sempra cannot be assured.
In December 2018, Polish Oil & Gas Company (PGNiG) and Port Arthur LNG entered into a definitive 20-year agreement for the sale and purchase of 2 Mtpa of LNG per year from the Port Arthur LNG liquefaction export project. UnderIn July 2021, the agreement LNG purchases bywas terminated and PGNiG from Port Arthur LNG will be madeand Sempra Infrastructure entered into an MOU to cooperate on a free-on-board basis, with PGNiG responsible for shipping the LNG from the Port Arthur facility to the final destination. Port Arthur LNG will manage the gas pipeline transportation, liquefaction processing and cargo loading. The agreement is subject to certain conditions precedent, including Port Arthur LNG making a positive final investment decision within certain agreed timelines. The failure of these conditions precedent to be satisfied or waived within the agreed timelines could result in the terminationtransition of the agreement.2 Mtpa to Sempra Infrastructure’s portfolio of other projects.
In May 2019, Aramco Services Company and Sempra LNGInfrastructure signed a Heads of Agreement for the negotiation of a definitive 20-year LNG sale and purchase agreement for 5 Mtpa of LNG offtake from the Port Arthur LNG liquefaction export project. The Heads of Agreement also includesincluded the negotiation of a potential 25% equity investment in the project. In January 2020, Aramco Services Company and Sempra LNGInfrastructure signed an Interim Project Participation Agreement which sets forth certain mechanisms forrelated to the partiesproposed project. In June 2021, Aramco Services Company and Sempra Infrastructure agreed to work towards receipt of corporate approvals to enter into and proceed withallow the transaction, execution of the transaction agreements and the fulfillment or waiver of the conditions precedent contemplated by these agreements, making a final investment decision and other pre-final investment decision activities. The Heads of Agreement and Interim Project Participation Agreement do not obligate the parties to ultimately execute any agreements or participate in the project.
In November 2019, Port Arthur LNG commenced the relocation and upgrade of approximately three miles of highway where the Port Arthur LNG liquefaction export project would be located.expire.
We continue work to work on completing all necessary milestones so that we are prepared to make a final investment decision forprogress development of the proposed Port Arthur LNG liquefaction export project when appropriate. The impact of the COVID-19 pandemic on the global economy and uncertaintyare evaluating design changes that could reduce overall emissions, including electric drives, renewable power sourcing and other technological solutions. Given uncertainties in the energy markets, including real-time developments of new technologies that could impact the design, scale and financial markets, among other reasons, have delayedstructure of the expectedproject, we continue to evaluate the timing of oura final investment decision until 2021.decision.
Development of the Port Arthur LNG liquefaction export project is subject to a number of risks and uncertainties, including obtaining additional customer commitments; identifying suitable project partners; completing the required commercial agreements, such as equity acquisitionsacquisition and governance agreements, LNG sales agreements and gas supply and transportation agreements; completing construction contracts;contracts, including an amendment to the EPC contract with Bechtel; securing and maintaining all necessary permits and approvals; obtaining financing and incentives; reaching a positive final investment decision; and other factors associated with the potential investment. An unfavorable outcome with respect to any of these factors could have a material adverse effect on Sempra Energy’s financial condition,Sempra’s results of operations, andfinancial condition, cash flows and/or prospects, including the impairment of all or a substantial portion of the capital costs invested in the project to date. For a discussion of these risks, see “Part I – Item 1A. Risk Factors.”
ProposedVista Pacifico LNG Liquefaction Export Project. Sempra Infrastructure Partners Transaction
is developing Vista Pacifico LNG, a potential natural gas liquefaction, storage, and mid-scale export facility proposed to be located in the vicinity of Topolobampo in Sinaloa, Mexico, under an MOU with the CFE that contemplates the negotiation of definitive agreements that would cover development of Vista Pacifico LNG, as well as a separate natural gas regasification project in La Paz Baja California Sur, and the potential re-routing of a portion of the Guaymas-El Oro segment of the Sonora pipeline and resumption of its operations through mutual agreements between the CFE and the Yaqui tribe. The proposed LNG terminal would be supplied with U.S. natural gas and would use excess natural gas and pipeline capacity on existing pipelines in Mexico with the intent of helping to meet growing demand for natural gas and LNG in the Mexican and Pacific markets. In DecemberNovember 2020, we announced our intention to sell NCI in Sempra Infrastructure Partners, which representsfiled an application with the combined businessesDOE to permit the export of Sempranatural gas to Mexico and for LNG and IEnova. We expect to complete this transaction in the second quarter of 2021. We intend to use the expected proceedsproduced from the proposed sale of NCIVista Pacifico LNG facility to fund capital investmentsbe re-exported to support additional growth opportunitiesall current and strengthen our balance sheet by reducing debt.future FTA and non-FTA countries. In April 2021, the DOE granted Vista Pacifico’s LNG export authorization application for FTA countries.
The development of the potential Vista Pacifico LNG project (as well as the other projects discussed above) is subject to numerous risks and uncertainties, including securing binding customer commitments; obtaining and maintaining a number of permits and regulatory approvals; securing financing; identifying suitable project partners; negotiating and completing suitable commercial agreements, including a definitive EPC contract, equity acquisition and governance agreements, LNG sales agreements and gas supply and transportation agreements; reaching a positive final investment decision; the impact of recent and proposed salechanges to the law in Mexico; and other factors associated with this potential investment. For a discussion of NCIthese risks, see “Part I – Item 1A. Risk Factors.”
Hackberry Carbon Sequestration Project. Sempra Infrastructure is developing the potential Hackberry carbon capture and sequestration project in Hackberry, Louisiana. This proposed project in development is a carbon dioxide storage facility with the intended capability of permanently sequestering carbon dioxide from Cameron LNG JV. In the third quarter of 2021, Sempra Infrastructure filed an application with the EPA for a Class VI carbon injection well to advance this project.
The development of the potential Hackberry carbon capture and sequestration project is subject to numerous risks and uncertainties, including securing binding customer commitments; identifying suitable project partners; obtaining and maintaining a number of permits and regulatory approvals; securing financing; negotiating and completing suitable commercial agreements, including a definitive EPC contract, and equity acquisition and governance agreements; reaching a positive final investment decision; and other factors associated with this potential investment. For a discussion of these risks, see “Part I – Item 1A. Risk Factors.”
Off-Balance Sheet Arrangements. Our investment in Cameron LNG JV is a variable interest in an unconsolidated entity. We discuss variable interests in Note 1 of the Notes to Consolidated Financial Statements.
In June 2021, Sempra provided a promissory note, which constitutes a guarantee, for the benefit of Cameron LNG JV with a maximum exposure to loss of $165 million. The guarantee will terminate upon full repayment of Cameron LNG JV’s debt, scheduled to occur in 2039, or replenishment of the amount withdrawn by Sempra Infrastructure from the SDSRA. We discuss this guarantee in Note 6 of the Notes to Consolidated Financial Statements.
In July 2020, Sempra entered into a Support Agreement, which contains a guarantee and represents a variable interest, for the benefit of CFIN with a maximum exposure to loss of $979 million. The guarantee will terminate upon full repayment of the guaranteed debt by 2039, including repayment following an event in which the guaranteed debt is put to Sempra. We discuss this guarantee in Notes 1, 6 and 9 of the Notes to Consolidated Financial Statements.
Energy Networks
Construction Projects. Sempra Infrastructure began commercial operations of its new terminals for the receipt, storage and delivery of refined fuel products in the new port of Veracruz on March 19, 2021 and in Mexico City on July 2, 2021. The two terminals have a combined storage capacity of more than 2.7 million barrels. The storage capacity for both terminals is contracted with Valero Energy Corporation.
Sempra Infrastructure is currently constructing additional terminals for the receipt, storage, and delivery of liquid fuels in the vicinity of Puebla and Topolobampo. As part of an industrywide audit and investigative process initiated by the CRE to enforce fuel procurement laws, federal prosecutors conducted inspections at several refined products terminals, including Sempra Infrastructure’s refined products terminal in Puebla, to confirm that the gasoline and/or diesel in storage were legally imported. During the inspection of the Puebla terminal in September 2021, a federal prosecutor took samples from all the train and storage tanks in the terminal and ordered that the facility be temporarily shut down during the pendency of the analysis of the samples and investigation, while leaving the terminal in Sempra Infrastructure Partners will reduce our ownership interestInfrastructure’s custody. In addition, in November 2021, the CRE notified Sempra Infrastructure Partners. Any decrease in our ownership of the commencement of an administrative proceeding for revoking the storage permit at the Puebla terminal due to alleged breach of its terms and conditions. Although Sempra Infrastructure Partners would also decrease our sharefiled an amparo lawsuit against the closure and has submitted proof of the cash flows, profits and other benefits these businesses currentlylegal origin of the products to the prosecutor’s office, we are unable to predict when the investigation will be completed, the outcome of the administrative proceeding or may inwhether the future produce, which could materially adversely affect ourfacility will be able to commence commercial operations. If the terminal were to be shut down, storage permits were to be revoked or commissioning operations significantly curtailed for an extended period of time, Sempra’s results of operations, financial condition, cash flows financial condition and/or prospects.
Our ability to complete this transaction is subject to a number of risks, including, among others, the ability to identify a suitable partner to purchase such NCI; negotiate the terms of equity sale, shareholder and other governance agreements with such partner; and obtain governmental, regulatory and third-party consents and approvals and satisfy any other closing conditions to complete
this transaction. Although the structure and terms of this transaction remain to be determined, the governmental and regulatory authorities with jurisdiction over the transaction could seek to block or challenge it or could impose requirements or obligations as conditions to its approval. If any of these circumstances were to occur, or if we are not able to achieve all of the foregoing in a timely manner or on satisfactory terms, then the proposed transaction may be abandoned and our prospects could be materially adversely affected. This transactionWe expect the Topolobampo project to commence commercial operations in the first half of 2022. The ability to successfully complete major construction projects is subject to a number of risks and uncertainties. For a discussion of these risks and uncertainties, that we discuss further insee “Part I – Item 1A. Risk Factors.”
Sempra Infrastructure is also developing terminals for the receipt, storage, and delivery of liquid fuels in the vicinity of Manzanillo and Ensenada.
Discontinued OperationsExpected commencement dates could be delayed by worsening or extended disruptions of project construction caused by the COVID-19 pandemic or other factors outside our control. Sempra Infrastructure is continuing to monitor the impacts of the COVID-19 pandemic on cash flows and results of operations.
Clean Power
Construction Projects. Sempra Infrastructure completed construction and began commercial operations of a new 150-MW solar power generation facility (Border Solar) in Ciudad Juárez, Chihuahua on March 25, 2021. Border Solar is fully contracted by third-party companies under long-term PPAs expiring in 2032 and 2037, though it requires an amendment to its self-supply permit granted by the CRE in order to supply its customers. The energy production is currently being sold in the open market at variable rates.
ESJ completed construction and began commercial operations of a second, 108-MW wind power generation facility on January 15, 2022. This second wind power generation facility is fully contracted by SDG&E under a long-term PPA expiring in 2042.
Acquisition of ESJ.As we discuss in Note 5 of the Notes to Consolidated Financial Statements, in March 2021, Sempra Infrastructure increased its ownership interest in ESJ from 50% to 100% by acquiring Saavi Energía’s 50% equity interest in ESJ.
Legal and Regulatory Matters
See Note 16 of the Notes to Consolidated Financial Statements for discussions of the following legal and regulatory matters affecting our operations in Mexico:
Energía Costa Azul
One or more unfavorable final decisions on these land and customer disputes or environmental and social impact permit challenges could materially adversely affect our existing natural gas regasification operations and proposed natural gas liquefaction projects at the site of the ECA Regas Facility and have a material adverse effect on Sempra’s business, results of operations, financial condition, cash flows and/or prospects.
Sonora Pipeline
Our investment in the Guaymas-El Oro segment of the Sonora pipeline could be subject to impairment if Sempra Infrastructure is unable to make certain repairs (which have not commenced) or re-route a portion of the pipeline (which has not been agreed to by the parties, but is subject to negotiation pursuant to a non-binding MOU, as described above) and resume operations in the Guaymas-El Oro segment of the Sonora pipeline or if Sempra Infrastructure terminates the contract and is unable to obtain recovery. In addition, the failure to stay the court judgment nullifying Sempra Infrastructure’s right-of-way easement for a portion of the Sasabe-Puerto Libertad-Guaymas segment of the Sonora pipeline pending the resolution of Sempra Infrastructure’s planned special judicial action or prevail in preserving the easement in the special judicial action could require us to modify the route of the pipeline and could require a temporary shutdown of this portion of the pipeline. Any such occurrence could have a material adverse effect on Sempra’s business, results of operations, financial condition, cash flows and/or prospects.
Regulatory and Other Actions by the Mexican Government
Sempra Infrastructure and other parties affected by these resolutions, orders, decrees, regulations and proposed amendments to Mexican law have challenged them by filing amparo and other claims, some of which have been granted injunctive relief. The court-ordered injunctions or suspensions provide temporary relief until Mexico’s federal district court or Supreme Court ultimately resolves the amparo and other claims. If passed in its current form, the proposed constitutional reform introduces significant changes to the legal and economic principles underlying the country’s energy reform of 2013, generating imminent risks for private investments in this sector. An unfavorable decision on one or more of these amparo or other challenges, the potential for extended disputes, or if passed in its current form, the proposed constitutional reform may impact our ability to operate our facilities at existing levels or at all, may result in increased costs for Sempra Infrastructure and its customers, may adversely affect our ability to develop new projects, and may negatively impact our ability to recover the carrying values of our investments in Mexico, any of which may have a material adverse effect on our business, results of operations, financial condition, cash flows and/or prospects.
Parent and Other
PXiSE
In April 2020, weDecember 2021, Parent and other completed the sale of our equity interestsits 80% interest in our Peruvian businessesPXiSE for total cash proceeds of $3,549$38 million, net of transaction costs totaling $4 million, and as adjusted for post-closing adjustments. In June 2020, we completed the salerecorded a $36 million ($26 million after tax) gain, which is included in Gain (Loss) on Sale of our equity interests in our Chilean businesses for cash proceedsAssets on Sempra’s Consolidated Statement of $2,216 million, net of transaction costs and as adjusted for post-closing adjustments.Operations.
Our utilities in South America historically provided relatively stable earnings and liquidity. We used a portion of the proceeds from the sales of these businesses to strengthen our balance sheet by repaying certain borrowings and repurchasing shares of our common stock, and we intend to use the remaining proceeds to focus on capital investment in North America to support additional growth opportunities. We expect the cash provided by earnings from our capital investments will exceed the absence of cash flows from these discontinued operations. However, there is no assurance that we will derive these anticipated benefits. Further, there is no assurance that we will be able to redeploy the capital that we obtained from such sales in a way that results in cash flows or earnings exceeding those historically generated by these businesses.
SOURCES AND USES OF CASH
The following tables include only significant changes in cash flow activities for each of our registrants.
Table of Contents | | | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES |
(Dollars in millions) |
Years ended December 31, | Sempra Energy Consolidated | SDG&E | | SoCalGas |
2020 | | $ | 2,591 | | | $ | 1,389 | | | $ | 1,526 | |
2019 | | 3,088 | | | 1,090 | | | 868 | |
Change | | $ | (497) | | | $ | 299 | | | $ | 658 | |
Change in intercompany activities with discontinued operations (including $403 dividends received from our South American businesses in 2019) | | $ | (378) | | | | | |
Net increase in Insurance Receivable for Aliso Canyon primarily due to $132 higher accruals and $94 lower insurance proceeds received | | (228) | | | | | $ | (228) | |
Change in accounts receivable | | (224) | | | $ | (119) | | | (28) | |
Release of a regulatory liability related to 2016-2018 income tax expense forecasting differences | | (175) | | | (86) | | | (89) | |
Change in bad debt regulatory assets | | (84) | | | (51) | | | (33) | |
TCJA revenue amortization | | (82) | | | (44) | | | (38) | |
Increase in prepaid insurance premiums | | | | (24) | | | |
Net increase in Reserves for Aliso Canyon Costs, current and noncurrent, due to $450 higher accruals and $129 lower payments | | 579 | | | | | 579 | |
Distributions of earnings from Cameron LNG JV in 2020 | | 365 | | | | | |
Change in net undercollected regulatory balancing accounts (including long-term amounts in regulatory assets) | | 352 | | | 29 | | | 323 | |
SDG&E’s initial shareholder contribution to the Wildfire Fund in September 2019 | | 323 | | | 323 | | | |
Decrease in funding for the Rabbi Trust | | 141 | | | | | |
Higher net margin posted at Sempra LNG’s marketing operations | | 109 | | | | | |
Change in income taxes receivable/payable, net | | 72 | | | 255 | | | 345 | |
Change in accounts payable | | 61 | | | | | 71 | |
Higher distributions of earnings from Oncor Holdings | | 39 | | | | | |
Higher (lower) net income, adjusted for noncash items included in earnings | | 39 | | | 35 | | | (258) | |
Other | | 35 | | | (19) | | | 14 | |
Change in net cash flows from discontinued operations primarily due to $1,161 income taxes paid related to the sale of our South American businesses | | (1,441) | | | | | |
| | $ | (497) | | | $ | 299 | | | $ | 658 | |
| | | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES |
(Dollars in millions) |
Years ended December 31, | Sempra | SDG&E | | SoCalGas |
2021 | | $ | 3,842 | | | $ | 1,376 | | | $ | 1,033 | |
2020 | | 2,591 | | | 1,389 | | | 1,526 | |
Change | | $ | 1,251 | | | $ | (13) | | | $ | (493) | |
Net increase in Reserve for Aliso Canyon Costs, current and noncurrent, due to $1,083 higher accruals and $14 lower payments | | $ | 1,097 | | | | | $ | 1,097 | |
Higher distributions received from Cameron LNG JV | | 258 | | | | | |
Net decrease in Insurance Receivable for Aliso Canyon primarily due to $193 lower accruals and $2 lower insurance proceeds | | 191 | | | | | 191 | |
Change in accounts payable | | 189 | | | $ | (24) | | | 117 | |
Release of a regulatory liability in 2020 related to 2016-2018 income tax expense forecasting differences | | 175 | | | 86 | | | 89 | |
Change in bad debt regulatory assets | | 101 | | | 63 | | | 38 | |
Change in income taxes receivable/payable, net | | 56 | | | (149) | | | (232) | |
Change in net undercollected regulatory balancing accounts (including long-term amounts in regulatory assets) | | (182) | | | (174) | | | (8) | |
Increase in purchases of GHG allowances | | (229) | | | (31) | | | (197) | |
Change in net margin posted at Sempra Infrastructure | | (266) | | | | | |
Change in accounts receivable | | (271) | | | 29 | | | (282) | |
(Lower) higher net income (loss), adjusted for noncash items included in earnings | | (979) | | | 160 | | | (1,291) | |
Other | | 60 | | | 27 | | | (15) | |
Change in net cash flows from discontinued operations primarily due to $1,161 income taxes paid related to the sale of our South American businesses | | 1,051 | | | | | |
| | $ | 1,251 | | | $ | (13) | | | $ | (493) | |
| | | | | | |
2020 | | $ | 2,591 | | | $ | 1,389 | | | $ | 1,526 | |
2019 | | 3,088 | | | 1,090 | | | 868 | |
Change | | $ | (497) | | | $ | 299 | | | $ | 658 | |
Change in intercompany activities with discontinued operations (including $403 dividends received from our South American businesses in 2019) | | $ | (378) | | | | | |
Net increase in Insurance Receivable for Aliso Canyon primarily due to $132 higher accruals and $94 lower insurance proceeds received | | (228) | | | | | $ | (228) | |
Change in accounts receivable | | (224) | | | $ | (119) | | | (28) | |
Release of a regulatory liability in 2020 related to 2016-2018 income tax expense forecasting differences | | (175) | | | (86) | | | (89) | |
Change in bad debt regulatory assets | | (84) | | | (51) | | | (33) | |
TCJA revenue amortization | | (82) | | | (44) | | | (38) | |
Increase in prepaid insurance premiums | | | | (24) | | | |
Net increase in Reserves for Aliso Canyon Costs, current and noncurrent, due to $450 higher accruals and $129 lower payments | | 579 | | | | | 579 | |
Distributions of earnings from Cameron LNG JV in 2020 | | 365 | | | | | |
Change in net undercollected regulatory balancing accounts (including long-term amounts in regulatory assets) | | 352 | | | 29 | | | 323 | |
SDG&E’s initial shareholder contribution to the Wildfire Fund in September 2019 | | 323 | | | 323 | | | |
Decrease in funding for the Rabbi Trust | | 141 | | | | | |
Change in net margin posted at Sempra Infrastructure | | 109 | | | | | |
Change in income taxes receivable/payable, net | | 72 | | | 255 | | | 345 | |
Change in accounts payable | | 61 | | | | | 71 | |
Higher distributions of earnings from Oncor Holdings | | 39 | | | | | |
Higher (lower) net income, adjusted for noncash items included in earnings | | 39 | | | 35 | | | (258) | |
Other | | 35 | | | (19) | | | 14 | |
Change in net cash flows from discontinued operations primarily due to $1,161 income taxes paid related to the sale of our South American businesses | | (1,441) | | | | | |
| | $ | (497) | | | $ | 299 | | | $ | 658 | |
| | | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES (CONTINUED) |
(Dollars in millions) |
Years ended December 31, | Sempra Energy Consolidated | SDG&E | | SoCalGas |
2019 | | $ | 3,088 | | | $ | 1,090 | | | $ | 868 | |
2018 | | 3,516 | | | 1,584 | | | 1,013 | |
Change | | $ | (428) | | | $ | (494) | | | $ | (145) | |
Change in net undercollected regulatory balancing accounts (including long-term amounts in regulatory assets) | | $ | (513) | | | $ | (254) | | | $ | (259) | |
SDG&E’s initial shareholder contribution to the Wildfire Fund in September 2019 | | (323) | | | (323) | | | |
Change in income taxes receivable/payable, net, primarily due to higher payments | | (254) | | | (149) | | | (170) | |
Net decrease in Reserve for Aliso Canyon Costs due to $119 higher payments and $81 lower accruals | | (200) | | | | | (200) | |
Deferred revenue due to the TCJA at the California Utilities in 2018 | | (123) | | | (62) | | | (61) | |
Cash payments for operating leases in 2019 | | (101) | | | (33) | | | (27) | |
Decrease in interest payable primarily due to higher payments | | (86) | | | | | |
Higher contributions to Rabbi Trust | | (81) | | | | | |
Higher net income, adjusted for noncash items included in earnings | | 442 | | | 266 | | | 336 | |
Change in intercompany activities with discontinued operations (including $334 higher dividends received from our South American businesses) | | 308 | | | | | |
Change in long-term GHG obligations | | 185 | | | | | 174 | |
Net decrease in Insurance Receivable for Aliso Canyon Costs due to $84 higher insurance proceeds received and $81 lower accruals | | 165 | | | | | 165 | |
Higher distributions of earnings from Oncor Holdings | | 97 | | | | | |
Change in accounts payable | | | | | | (78) | |
Lower (higher) purchases of GHG allowances | | | | 50 | | | (43) | |
Other | | (38) | | | 11 | | | 18 | |
Change in net cash flows from discontinued operations | | 94 | | | | | |
| | $ | (428) | | | $ | (494) | | | $ | (145) | |
| | | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES |
(Dollars in millions) |
Years ended December 31, | Sempra | SDG&E | | SoCalGas |
2021 | | $ | (5,508) | | | $ | (2,213) | | | $ | (1,984) | |
2020 | | 553 | | | (1,934) | | | (1,843) | |
Change | | $ | (6,061) | | | $ | (279) | | | $ | (141) | |
Distribution from Cameron LNG JV | | $ | (753) | | | | | |
Increase in capital expenditures | | (339) | | | $ | (278) | | | $ | (141) | |
Advance to note receivable with KKR | | (305) | | | | | |
Acquisition of 50% interest in ESJ in March 2021 for $79, net of $14 cash and cash equivalents acquired | | (65) | | | | | |
Higher proceeds from sale of assets | | 19 | | | | | |
Higher repayments of advances from unconsolidated affiliates | | 31 | | | | | |
Lower contributions to Oncor Holdings | | 66 | | | | | |
Lower advances to unconsolidated affiliates | | 84 | | | | | |
Distribution from Oncor Holdings 2021 | | 361 | | | | | |
Other | | 11 | | | (1) | | | |
Change in net cash flows from discontinued operations mainly due to $5,766 proceeds, net of transaction costs, offset by $502 cash sold from the sale of our South American businesses | | (5,171) | | | | | |
| | $ | (6,061) | | | $ | (279) | | | $ | (141) | |
| | | | |
2020 | | $ | 553 | | | $ | (1,934) | | | $ | (1,843) | |
2019 | | (4,593) | | | (1,522) | | | (1,438) | |
Change | | $ | 5,146 | | | $ | (412) | | | $ | (405) | |
Contributions to Oncor Holdings to fund Oncor’s purchase of InfraREIT in May 2019 | | $ | 1,067 | | | | | |
Distribution from Cameron LNG JV in 2020 | | 753 | | | | | |
Contributions to Peruvian businesses in discontinued operations in 2019 | | 583 | | | | | |
Contributions to Chilean businesses in discontinued operations in 2019 | | 394 | | | | | |
Acquisition of investment in Sharyland Holdings in May 2019 | | 95 | | | | | |
Increase in capital expenditures | | (968) | | | $ | (420) | | | $ | (404) | |
Dividends received from Peruvian businesses in discontinued operations in 2019 | | (583) | | | | | |
Net proceeds from the April 2019 sale of Sempra Renewables’ wind assets and investments | | (569) | | | | | |
Dividends received from Chilean businesses in discontinued operations in 2019 | | (394) | | | | | |
Net proceeds from the February 2019 sale of Sempra Infrastructure’s non-utility natural gas storage assets | | (322) | | | | | |
Loan to ESJ JV in 2020 | | (85) | | | | | |
Other | | (8) | | | 8 | | | (1) | |
Change in net cash flows from discontinued operations mainly due to $5,766 proceeds, net of transaction costs, offset by $502 cash sold from the sale of our South American businesses | | 5,183 | | | | | |
| | $ | 5,146 | | | $ | (412) | | | $ | (405) | |
| | | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES |
(Dollars in millions) |
Years ended December 31, | Sempra Energy Consolidated | SDG&E | | SoCalGas |
2020 | | $ | 553 | | | $ | (1,934) | | | $ | (1,843) | |
2019 | | (4,593) | | | (1,522) | | | (1,438) | |
Change | | $ | 5,146 | | | $ | (412) | | | $ | (405) | |
Contributions to Oncor Holdings to fund Oncor’s purchase of InfraREIT in May 2019 | | $ | 1,067 | | | | | |
Distribution from Cameron LNG JV in 2020 | | 753 | | | | | |
Contributions to Peruvian businesses in discontinued operations in 2019 | | 583 | | | | | |
Contributions to Chilean businesses in discontinued operations in 2019 | | 394 | | | | | |
Acquisition of investment in Sharyland Holdings in May 2019 | | 95 | | | | | |
Increase in capital expenditures | | (968) | | | $ | (420) | | | $ | (404) | |
Dividends received from Peruvian businesses in discontinued operations in 2019 | | (583) | | | | | |
Net proceeds from the April 2019 sale of Sempra Renewables’ wind assets and investments | | (569) | | | | | |
Dividends received from Chilean businesses in discontinued operations in 2019 | | (394) | | | | | |
Net proceeds from the February 2019 sale of Sempra LNG’s non-utility natural gas storage assets | | (322) | | | | | |
Loan to ESJ JV in 2020 | | (85) | | | | | |
Other | | (8) | | | 8 | | | (1) | |
Change in net cash flows from discontinued operations mainly due to $5,766 proceeds, net of transaction costs, offset by $502 cash sold from the sale of our South American businesses | | 5,183 | | | | | |
| | $ | 5,146 | | | $ | (412) | | | $ | (405) | |
| | | | |
2019 | | $ | (4,593) | | | $ | (1,522) | | | $ | (1,438) | |
2018 | | (12,470) | | | (1,542) | | | (1,531) | |
Change | | $ | 7,877 | | | $ | 20 | | | $ | 93 | |
Acquisition of investment in Oncor Holdings in March 2018 | | $ | 9,556 | | | | | |
Dividends received from Peruvian businesses in discontinued operations in 2019 | | 583 | | | | | |
Dividends received from Chilean businesses in discontinued operations in 2019 | | 394 | | | | | |
Net proceeds from sale of Sempra LNG’s non-utility natural gas storage assets | | 322 | | | | | |
Lower expenditures for investments in Cameron LNG JV and IMG JV | | 245 | | | | | |
Lower advances to unconsolidated affiliates | | 79 | | | | | |
Higher contributions to Oncor Holdings primarily to fund Oncor’s purchase of InfraREIT in May 2019 | | (1,357) | | | | | |
Lower net proceeds from sale of certain Sempra Renewables’ assets and investments ($569 in 2019 and $1,571 in 2018) | | (1,002) | | | | | |
Contributions to Peruvian businesses in discontinued operations in 2019 | | (583) | | | | | |
Contributions to Chilean businesses in discontinued operations in 2019 | | (394) | | | | | |
(Increase) decrease in capital expenditures | | (164) | | | $ | 20 | | | $ | 99 | |
Acquisition of investment in Sharyland Holdings in May 2019 | | (95) | | | | | |
Other | | 40 | | | | | (6) | |
Change in net cash flows from discontinued operations | | 253 | | | | | |
| | $ | 7,877 | | | $ | 20 | | | $ | 93 | |
| | | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES |
(Dollars in millions) |
Years ended December 31, | Sempra | SDG&E | | SoCalGas |
2021 | | $ | 1,260 | | | $ | 600 | | | $ | 984 | |
2020 | | (2,373) | | | 797 | | | 311 | |
Change | | $ | 3,633 | | | $ | (197) | | | $ | 673 | |
Change in borrowings and repayments of short-term debt, net | | $ | 3,672 | | | $ | 481 | | | $ | 789 | |
Proceeds from sale of NCI in KKR in 2021, net of $170 of transaction costs | | 3,199 | | | | | |
Lower payments on short-term debt greater than 90 days | | 2,125 | | | | | |
Lower repurchases of common stock | | 227 | | | | | |
Make-whole premium payments related to early redemptions of debt | | (121) | | | | | |
(Higher) lower common dividends paid | | (157) | | | (100) | | | 25 | |
(Lower) higher issuances of short-term debt with maturities greater than 90 days | | (655) | | | 375 | | | |
Net proceeds from issuance of series C preferred stock in 2020 | | (891) | | | | | |
Lower issuances of long-term debt | | (1,623) | | | (853) | | | (949) | |
Higher payments on long-term debt and finance leases | | (1,750) | | | (103) | | | |
Equity contribution from Sempra in connection with accruals related to the Leak | | | | | | 800 | |
Other | | 8 | | | 3 | | | 8 | |
Change in net cash flows from discontinued operations primarily from a $250 intercompany loan and $165 of net issuances of short-term debt in 2020 | | (401) | | | | | |
| | $ | 3,633 | | | $ | (197) | | | $ | 673 | |
| | | | | | |
2020 | | $ | (2,373) | | | $ | 797 | | | $ | 311 | |
2019 | | 1,475 | | | 405 | | | 562 | |
Change | | $ | (3,848) | | | $ | 392 | | | $ | (251) | |
Change in borrowings and repayments of short-term debt, net | | $ | (2,415) | | | $ | 131 | | | $ | (891) | |
Net proceeds from issuances of common stock from settlement of forward sale agreements in 2019 | | (1,794) | | | | | |
Higher payments for commercial paper and other short-term debt with maturities greater than 90 days | | (1,341) | | | | | |
Higher payments on long-term debt and finance leases | | (856) | | | (236) | | | (6) | |
Repurchases of common stock under ASR program in 2020 | | (500) | | | | | |
Higher repurchases of IEnova stock held by NCI | | (221) | | | | | |
Lower issuances of short-term debt with maturities greater than 90 days | | (213) | | | | | |
(Higher) lower common dividends paid | | (181) | | | (200) | | | 50 | |
Capital contribution from OMEC LLC in 2019 to repay OMEC’s loan | | (175) | | | (175) | | | |
Lower advances from unconsolidated affiliates | | (91) | | | | | |
Equity contribution from Sempra to fund initial shareholder contribution to the Wildfire Fund in September 2019 | | | | (322) | | | |
Higher issuances of long-term debt | | 1,968 | | | 1,198 | | | 600 | |
Net proceeds from issuance of series C preferred stock | | 891 | | | | | |
Change in intercompany activities with discontinued operations primarily related to intercompany loans in 2019 | | 266 | | | | | |
Other | | 21 | | | (4) | | | (4) | |
Change in net cash flows from discontinued operations primarily from a $250 intercompany loan and $60 net increase in short-term debt in 2020 and $977 equity contribution from Sempra, offset by $1,380 common dividends paid in 2019 | | 793 | | | | | |
| | $ | (3,848) | | | $ | 392 | | | $ | (251) | |
| | | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES |
(Dollars in millions) |
Years ended December 31, | Sempra Energy Consolidated | SDG&E | | SoCalGas |
2020 | | $ | (2,373) | | | $ | 797 | | | $ | 311 | |
2019 | | 1,475 | | | 405 | | | 562 | |
Change | | $ | (3,848) | | | $ | 392 | | | $ | (251) | |
Change in short-term debt, net | | $ | (2,415) | | | $ | 131 | | | $ | (891) | |
Net proceeds from issuances of common stock from settlement of forward sale agreements in 2019 | | (1,794) | | | | | |
Higher payments for commercial paper and other short-term debt with maturities greater than 90 days | | (1,341) | | | | | |
Higher payments on long-term debt and finance leases | | (856) | | | (236) | | | (6) | |
Repurchase of common stock under ASR program in 2020 | | (500) | | | | | |
Higher repurchases of IEnova stock held by NCI | | (221) | | | | | |
Lower issuances of short-term debt with maturities greater than 90 days | | (213) | | | | | |
(Higher) lower common dividends paid | | (181) | | | (200) | | | 50 | |
Capital contribution from OMEC LLC in 2019 to repay OMEC’s loan | | (175) | | | (175) | | | |
Lower advances from unconsolidated affiliates | | (91) | | | | | |
Equity contribution from Sempra Energy to fund initial shareholder contribution to the Wildfire Fund in September 2019 | | | | (322) | | | |
Higher issuances of long-term debt | | 1,968 | | | 1,198 | | | 600 | |
Net proceeds from issuance of series C preferred stock | | 891 | | | | | |
Change in intercompany activities with discontinued operations primarily related to intercompany loans in 2019 | | 266 | | | | | |
Other | | 21 | | | (4) | | | (4) | |
Change in net cash flows from discontinued operations primarily from a $250 intercompany loan and $60 net increase in short-term debt in 2020 and $977 equity contribution from Sempra Energy, offset by $1,380 common dividends paid in 2019 | | 793 | | | | | |
| | $ | (3,848) | | | $ | 392 | | | $ | (251) | |
| | | | | | |
2019 | | $ | 1,475 | | | $ | 405 | | | $ | 562 | |
2018 | | 8,850 | | | (34) | | | 528 | |
Change | | $ | (7,375) | | | $ | 439 | | | $ | 34 | |
Higher issuances of long-term debt in 2018, including increases at Sempra Energy Consolidated primarily to fund the March 2018 acquisition of investment in Oncor Holdings and at SDG&E from issuance of a new loan by OMEC LLC to partially repay OMEC’s project financing loan | | $ | (4,826) | | | $ | (218) | | | $ | (600) | |
Net proceeds from 2018 issuances of mandatory convertible preferred stock | | (2,258) | | | | | |
Lower net proceeds from issuances of common stock primarily related to settlements of forward sale agreements | | (442) | | | | | |
(Higher) lower payments on long-term debt and finance leases | | (217) | | | 218 | | | 494 | |
(Higher) lower common dividends paid | | (169) | | | 250 | | | (100) | |
Change in intercompany activities with discontinued operations primarily related to intercompany loans | | (157) | | | | | |
Higher payments for commercial paper and other short-term debt with maturities greater than 90 days | | (108) | | | | | |
Increase (decrease) in short-term debt, net | | 740 | | | (249) | | | 234 | |
Higher issuances of commercial paper and other short-term debt with maturities greater than 90 days | | 195 | | | | | |
Advances from unconsolidated affiliates | | 155 | | | | | |
Higher capital contributions from OMEC LLC to repay OMEC’s loan | | 110 | | | 110 | | | |
Equity contribution from Sempra Energy to fund initial shareholder contribution to the Wildfire Fund in September 2019 | | | | 322 | | | |
Other | | (31) | | | 6 | | | 6 | |
Change in net cash flows from discontinued operations primarily from $1,311 common dividends paid offset by $977 equity contributions received in 2019 | | (367) | | | | | |
| | $ | (7,375) | | | $ | 439 | | | $ | 34 | |
Expenditures for PP&E
We invest the majority of our capital expenditures in theSempra California, Utilities, primarily for transmission and distribution improvements, including pipeline and wildfire safety. The following table summarizes by segment capital expenditures for the last three years.
| | | | | | | | | | | | | | | | | |
EXPENDITURES FOR PP&E |
(Dollars in millions) |
| Years ended December 31, |
| 2020 | | 2019 | | 2018 |
SDG&E | $ | 1,942 | | | $ | 1,522 | | | $ | 1,542 | |
SoCalGas | 1,843 | | | 1,439 | | | 1,538 | |
Sempra Mexico | 611 | | | 624 | | | 368 | |
Sempra LNG | 268 | | | 112 | | | 31 | |
Sempra Renewables | — | | | 2 | | | 51 | |
Parent and other | 12 | | | 9 | | | 14 | |
Total | $ | 4,676 | | | $ | 3,708 | | | $ | 3,544 | |
| | | | | | | | | | | | | | | | | |
EXPENDITURES FOR PP&E |
(Dollars in millions) |
| Years ended December 31, |
| 2021 | | 2020 | | 2019 |
SDG&E | $ | 2,220 | | | $ | 1,942 | | | $ | 1,522 | |
SoCalGas | 1,984 | | | 1,843 | | | 1,439 | |
Sempra Infrastructure | 802 | | | 879 | | | 736 | |
Sempra Renewables | — | | | — | | | 2 | |
Parent and other | 9 | | | 12 | | | 9 | |
Total | $ | 5,015 | | | $ | 4,676 | | | $ | 3,708 | |
Expenditures for Investments and Acquisitions
In 2019 and 2018, we invested heavily in our Sempra Texas Utilities, which included our March 2018 acquisition of Oncor Holdings and subsequent contributions to Oncor Holdings, primarily to fund Oncor’s purchase of InfraREIT in May 2019. The following table summarizes by segment our investments in various JVs, as well as business and asset acquisitions.
| EXPENDITURES FOR INVESTMENTS AND ACQUISITIONS | EXPENDITURES FOR INVESTMENTS AND ACQUISITIONS | EXPENDITURES FOR INVESTMENTS AND ACQUISITIONS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Sempra Texas Utilities | Sempra Texas Utilities | $ | 648 | | | $ | 1,685 | | | $ | 9,457 | | Sempra Texas Utilities | $ | 566 | | | $ | 648 | | | $ | 1,685 | |
Sempra Mexico | — | | | — | | | 100 | | |
Sempra LNG | 4 | | | 110 | | | 275 | | |
Sempra Renewables | — | | | — | | | 5 | | |
Sempra Infrastructure | | Sempra Infrastructure | 67 | | | 4 | | | 110 | |
Parent and other | Parent and other | — | | | 2 | | | 331 | | Parent and other | — | | | — | | | 2 | |
Total | Total | $ | 652 | | | $ | 1,797 | | | $ | 10,168 | | Total | $ | 633 | | | $ | 652 | | | $ | 1,797 | |
Future Capital Expenditures and Investments
The amounts and timing of capital expenditures and certain investments are generally subject to approvals by various regulatory and other governmental and environmental bodies, including the CPUC, the FERC and the PUCT, and various other factors described in this MD&A and in “Part I – Item 1A. Risk Factors.” In 2021,2022, we expect to make capital expenditures and investments of approximately $5.8$6.2 billion (which excludes capital expenditures that will be funded by unconsolidated entities), as summarized by segment in the following table.
| | | | | |
FUTURE CAPITAL EXPENDITURES AND INVESTMENTS |
(Dollars in millions) |
| Year ended December 31, 20212022 |
SDG&E | $ | 2,4002,700 | |
SoCalGas | 2,0002,100 | |
Sempra Texas Utilities | 200 | |
Sempra Mexico | 400 | |
Sempra LNGInfrastructure | 8001,000 | |
Total | $ | 5,8006,200 | |
We expect the majority of our capital expenditures and investments in 20212022 will relate to transmission and distribution improvements at our regulated public utilities, and construction of the ECA LNG Phase 1 liquefaction export project at Sempra LNG and construction of liquid fuels terminals at Sempra Mexico.Infrastructure.
From 20212022 through 2025,2026, and subject to the factors described below, which could cause these estimates to vary substantially, Sempra Energy expects to make aggregate capital expenditures and investments of approximately $22.5$24.4 billion (which excludes
capital expenditures that will be funded by unconsolidated entities), as follows: $9.6$11.4 billion at SDG&E, $9.2$9.8 billion at SoCalGas, $0.6$1.1 billion at Sempra Texas Utilities $1.1and $2.1 billion at Sempra Mexico and $2.0 billion at Sempra LNG.Infrastructure. Capital expenditure amounts include capitalized interest and AFUDC related to debt.
Periodically, we review our construction, investment and financing programs and revise them in response to changes in regulation, economic conditions, competition, customer growth, inflation, customer rates, the cost and availability of capital, and safety and environmental requirements.
Our level of capital expenditures and investments in the next few years may vary substantially and will depend on, among other things, the cost and availability of financing, regulatory approvals, changes in U.S. federal tax law and business opportunities providing desirable rates of return. See “Part I – Item 1A. Risk Factors” for a discussion of other factors that could affect future
levels of our capital expenditures and investments. We intend to finance our capital expenditures in a manner that will maintain our investment-grade credit ratings and capital structure, but there is no guarantee that we will be able to do so.
Weighted-Average Rate Base
Rate base is the value of assets on which SDG&E and SoCalGas are permitted to earn a specified rate of return in accordance with rules set by regulatory agencies, including the CPUC and the FERC (for SDG&E), which is calculated using a 13-month average in accordance with CPUC methodology as adopted in rate-setting proceedings. The following table summarizes the weighted-average rate base for SDG&E and SoCalGas for the last three years.
| | | | | | | | | | | | | | | | | |
WEIGHTED-AVERAGE RATE BASE |
(Dollars in millions) |
| 2021 | | 2020 | | 2019 |
SDG&E | $ | 12,527 | | | $ | 11,109 | | | $ | 10,467 | |
SoCalGas | $ | 9,371 | | | $ | 8,228 | | | $ | 7,401 | |
The increase in weighted-average rate base reflects the significant capital investments that SDG&E and SoCalGas have made in transmission and distribution safety and reliability. We expect the weighted-average rate base to continue to increase in 2022 based on our expected capital investments.
Capital Stock Transactions
Sempra Energy
Cash provided by issuances of common and preferred stock was:
▪$5 million in 2021
▪$902 million in 2020
▪$1.8 billion in 2019
���$4.5 billion in 2018
Sempra Energy Series C Preferred Stock Offering.IEnova Exchange Offer and Cash Tender Offer. In June 2020,May 2021, we acquired 381,015,194 publicly owned shares of IEnova in exchange for 12,306,777 newly issued 900,000 shares of our series C preferredcommon stock upon completion of our exchange offer launched in the U.S. and Mexico, which increased our ownership interest in IEnova from 70.2% to 96.4%. In September 2021, we completed a registered public offering at a pricecash tender offer and acquired 51,014,545 publicly owned shares of IEnova for 4.0 billion Mexican pesos (approximately $202 million in U.S. dollars) in cash, which increased our ownership interest in IEnova from 96.4% to the public of $1,000 per share and received net proceeds of $889 million after deducting the underwriting discount and equity issuance costs of $11 million.99.9%. We used the net proceeds for working capital and other general corporate purposes, including the repayment of indebtedness. We provide additional discussion about this equity offeringdescribe these transactions in Note 131 of the Notes to Consolidated Financial Statements.
In addition to being traded on the New York Stock Exchange, Sempra’s common stock is also listed on the Mexican Stock Exchange under the trading symbol SRE.MX. IEnova’s shares were delisted from the Mexican Stock Exchange effective October 15, 2021. In connection with the delisting, we are maintaining a trust for the purpose of purchasing the 1,212,981 IEnova shares that remained publicly owned as of the completion of the cash tender offer for 78.97 Mexican pesos per share, the same price per share that was offered in our cash tender offer. The trust will be in place through the earlier of April 14, 2022 or the date on which we acquire all remaining publicly owned IEnova shares. As of February 16, 2022, an aggregate of 629,784 of the remaining publicly owned IEnova shares had been acquired by such trust.
Sempra Energy Common Stock Repurchase Program.Repurchases. As we discuss in Note 14 of the Notes to Consolidated Financial Statements, in 2020,November and December of 2021, we entered into and completed an ASRopen market repurchase program under which we paid $500$300 million to repurchase 4,089,3752,422,758 shares of our common stock at an averagea weighted-average purchase price of $122.27$123.83 per share.share, excluding commissions. We repurchased an additional 1,472,756 shares of our common stock for $200 million pursuant to an ASR program that was completed on February 11, 2022. These share repurchases were funded the $500 million share repurchasewith commercial paper borrowings that we plan to repay with a portion of the anticipated proceeds received from the sale of our South American businesses.NCI in SI Partners to ADIA, which we expect to close in the summer of 2022 subject to the receipt of certain regulatory and third-party approvals and other customary closing conditions.
Dividends
Sempra Energy
Sempra Energy paid cash dividends of:
▪$1,331 million for common stock and $99 million for preferred stock in 2021
▪$1,174 million for common stock and $157 million for preferred stock in 2020
▪$993 million for common stock and $142 million for preferred stock in 2019
▪$877 million for common stock and $89 million for preferred stock in 2018
On November 18, 2020, Sempra Energy declared a quarterly dividend of $1.045 per share of common stock, $1.50 per share of series A preferred stock and $1.6875 per share of series B preferred stock, all of which were paid on January 15, 2021.
Dividends declared on common stock have increased in each of the last three years due to an increase in the per-share quarterly dividends approved by our board of directors to $1.10 in 2021 ($4.40 annually) from $1.045 in 2020 ($4.18 annually) and from $0.9675 in 2019 ($3.87 annually) and from $0.895 in 2018 ($3.58 annually).
On February 23, 2021,24, 2022, our board of directors approved an increase in Sempra Energy’sSempra’s quarterly common stock dividend to $1.10$1.145 per share ($4.404.58 annually), the first of which is payable April 15, 2021.2022. In addition, on February 23, 2021,24, 2022, our board of directors declared quarterly dividends of $1.6875 per share on our series B preferred stock and semi-annual dividends of $24.375 per share on our series C preferred stock, both payable on April 15, 2021.2022. All declarations of dividends on our common stock and preferred stock are made at the discretion of the board of directors. While we view dividends as an integral component of shareholder return, the amount of future dividends will depend on earnings, cash flows, financial and legal requirements, and other relevant factors at that time. As a result, Sempra Energy’sSempra’s dividends on common stock declared on an annual historical basis, including recent historical increases and annualized dividends for the current fiscal year, may not be indicative of future declarations.
SDG&E
In 20202021 and 2018,2020, SDG&E paid common stock dividends to Enova and Enova paid corresponding dividends to Sempra Energy of $200$300 million and $250$200 million, respectively. SDG&E did not declare or pay common stock dividends in 2019. SDG&E’s dividends on common stock declared on an annual historical basis may not be indicative of future declarations and could be impacted over the next few years in order for SDG&E to maintain its authorized capital structure while managing its capital investment program.
Enova, a wholly owned subsidiary of Sempra, Energy, owns all of SDG&E’s outstanding common stock. Accordingly, dividends paid by SDG&E to Enova and dividends paid by Enova to Sempra Energy are eliminated in Sempra Energy’sSempra’s consolidated financial statements.
SoCalGas
In 2021, 2020 2019 and 2018,2019, SoCalGas paid common stock dividends to PE and PE paid corresponding dividends to Sempra Energy of $75 million, $100 million $150 million and $50$150 million, respectively. SoCalGas’ dividends on common stock declared on an annual historical basis may not be indicative of future declarations and could be impacted over the next few years in order for SoCalGas to maintain its authorized capital structure while managing its capital investment program.structure.
PE, a wholly owned subsidiary of Sempra, Energy, owns all of SoCalGas’ outstanding common stock. Accordingly, dividends paid by SoCalGas to PE and dividends paid by PE to Sempra Energy are eliminated in Sempra Energy’sSempra’s consolidated financial statements.
Dividend Restrictions
The board of directors for each of Sempra, Energy, SDG&E and SoCalGas has the discretion to determine whether to declare and, if declared, the amount of any dividends by each such entity. The CPUC’s regulation of SDG&E’s and SoCalGas’ capital structures limits the amounts that are available for loans and dividends to Sempra Energy.Sempra. At December 31, 2020,2021, based on these regulations, Sempra Energy could have received combined loans and dividends of approximately $717$798 million from SDG&E and $148$445 million from SoCalGas.
We provide additional information about dividend restrictions in “Restricted Net Assets” in Note 1 of the Notes to Consolidated Financial Statements.
Book Value Per Common Share
Sempra Energy’sSempra’s book value per common share on the last day of each of the last three fiscal years was as follows:
▪$79.17 in 2021
▪$70.11 in 2020
▪$60.58 in 2019
▪$54.35 in 2018
The increase in 2021 was primarily due to a fair value that was higher than carrying value related to the change in ownership, which did not result in a change of control, from the sale of NCI in SI Partners to KKR, the IEnova exchange offer and
subsequent cash tender offer, and the common shares issued from the conversion of series A preferred stock and series B preferred stock. In 2020, the increase was primarily due to comprehensive income exceeding dividends, offset by common stock repurchases. In 2019, the increase was primarily due to comprehensive income exceeding dividends and common stock issuances.
Capitalization
Our debt to capitalization ratio, calculated as total debt as a percentage of total debt and equity, was as follows:
| TOTAL CAPITALIZATION AND DEBT-TO-CAPITALIZATION RATIOS | TOTAL CAPITALIZATION AND DEBT-TO-CAPITALIZATION RATIOS | TOTAL CAPITALIZATION AND DEBT-TO-CAPITALIZATION RATIOS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| Sempra Energy | | |
| | Consolidated | | SDG&E | | SoCalGas | | Sempra | | SDG&E | | SoCalGas |
| | December 31, 2020 | | December 31, 2021 |
Total capitalization | Total capitalization | $ | 49,140 | | | $ | 15,207 | | | $ | 10,030 | | Total capitalization | $ | 52,064 | | | $ | 16,655 | | | $ | 10,611 | |
Debt-to-capitalization ratio | Debt-to-capitalization ratio | 49 | % | | 49 | % | | 49 | % | Debt-to-capitalization ratio | 47 | % | | 50 | % | | 49 | % |
| | December 31, 2019 | | December 31, 2020 |
Total capitalization | Total capitalization | $ | 47,621 | | | $ | 13,542 | | | $ | 9,172 | | Total capitalization | $ | 49,140 | | | $ | 15,207 | | | $ | 10,030 | |
Debt-to-capitalization ratio | Debt-to-capitalization ratio | 54 | % | | 48 | % | | 48 | % | Debt-to-capitalization ratio | 49 | % | | 49 | % | | 49 | % |
| | | December 31, 2019 |
Total capitalization | | Total capitalization | $ | 47,621 | | | $ | 13,542 | | | $ | 9,172 | |
Debt-to-capitalization ratio | | Debt-to-capitalization ratio | 54 | % | | 48 | % | | 48 | % |
Significant changes in 20202021 that affected capitalization included the following:
▪Sempra Energy Consolidated:Sempra: decrease in long-term debt, offset by an increase in short-term debt and increase in equity primarily from issuancesthe sale of common and preferred stock and comprehensive income exceeding dividends.NCI.
▪SDG&E: increase in short-term and long-term debt and increase in equity from comprehensive income exceeding dividends.
▪SoCalGas: increase in long-term debt and increasedecrease in equity from comprehensive incomeloss, offset by equity contributions from Sempra exceeding dividends.
COMMITMENTS
The following tables summarize undiscounted principal contractual commitments at December 31, 2020 for Sempra Energy Consolidated, SDG&E and SoCalGas. We provide additional information about commitments above and in Notes 1, 7, 9, 15 and 16 of the Notes to Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
UNDISCOUNTED PRINCIPAL CONTRACTUAL COMMITMENTS – SEMPRA ENERGY CONSOLIDATED |
(Dollars in millions) |
| 2021 | | 2022 and 2023 | | 2024 and 2025 | | Thereafter | | Total |
Long-term debt | $ | 1,504 | | | $ | 2,632 | | | $ | 1,875 | | | $ | 16,248 | | | $ | 22,259 | |
Interest on long-term debt(1) | 845 | | | 1,614 | | | 1,442 | | | 11,111 | | | 15,012 | |
Operating leases | 73 | | | 119 | | | 91 | | | 415 | | | 698 | |
Finance leases | 206 | | | 406 | | | 391 | | | 2,465 | | | 3,468 | |
Purchased-power contracts – fixed payments | 222 | | | 381 | | | 233 | | | 794 | | | 1,630 | |
Purchased-power contracts – estimated variable payments | 363 | | | 726 | | | 724 | | | 3,610 | | | 5,423 | |
Natural gas contracts(2) | 280 | | | 422 | | | 319 | | | 1,032 | | | 2,053 | |
LNG contract(3) | 320 | | | 811 | | | 776 | | | 1,452 | | | 3,359 | |
Construction commitments | 525 | | | 41 | | | 32 | | | 98 | | | 696 | |
SONGS decommissioning | 110 | | | 146 | | | 89 | | | 697 | | | 1,042 | |
Other asset retirement obligations | 66 | | | 146 | | | 154 | | | 11,768 | | | 12,134 | |
Sunrise Powerlink wildfire mitigation fund | 4 | | | 8 | | | 8 | | | 279 | | | 299 | |
Pension and other postretirement benefit obligations(4) | 251 | | | 461 | | | 477 | | | 922 | | | 2,111 | |
Wildfire Fund obligation | 13 | | | 26 | | | 26 | | | 38 | | | 103 | |
Environmental commitments(5) | 12 | | | 19 | | | 9 | | | 58 | | | 98 | |
Other | 70 | | | 44 | | | 24 | | | 98 | | | 236 | |
Total | $ | 4,864 | | | $ | 8,002 | | | $ | 6,670 | | | $ | 51,085 | | | $ | 70,621 | |
(1) We calculate expected interest payments using the stated interest rate for fixed-rate obligations, including floating-to-fixed interest rate swaps and cross-currency swaps. We calculate expected interest payments for variable-rate obligations based on forecast rates in effect at December 31, 2020.
(2)Includes $30 million of estimated variable payments.
(3) Sempra LNG has a sale and purchase agreement for the supply of LNG to the ECA Regas Facility. The commitment amount is calculated using a predetermined formula based on estimated forward prices of the index applicable from 2021 to 2029.
(4) Amounts represent expected company contributions to the plans for the next 10 years.
(5) Excludes amounts related to the Leak that are recorded in Reserve for Aliso Canyon Costs and that are not currently known or reasonably estimable.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
UNDISCOUNTED PRINCIPAL CONTRACTUAL COMMITMENTS – SDG&E |
(Dollars in millions) |
| 2021 | | 2022 and 2023 | | 2024 and 2025 | | Thereafter | | Total |
Long-term debt | $ | 585 | | | $ | 468 | | | $ | — | | | $ | 5,200 | | | $ | 6,253 | |
Interest on long-term debt(1) | 230 | | | 438 | | | 411 | | | 2,875 | | | 3,954 | |
Operating leases | 30 | | | 39 | | | 20 | | | 22 | | | 111 | |
Finance leases | 194 | | | 388 | | | 374 | | | 2,453 | | | 3,409 | |
Purchased-power contracts – fixed payments | 222 | | | 381 | | | 233 | | | 794 | | | 1,630 | |
Purchased-power contracts – estimated variable payments | 363 | | | 726 | | | 724 | | | 3,610 | | | 5,423 | |
Construction commitments | 2 | | | 2 | | | 2 | | | 19 | | | 25 | |
SONGS decommissioning | 110 | | | 146 | | | 89 | | | 697 | | | 1,042 | |
Other asset retirement obligations | 7 | | | 12 | | | 14 | | | 1,250 | | | 1,283 | |
Sunrise Powerlink wildfire mitigation fund | 4 | | | 8 | | | 8 | | | 279 | | | 299 | |
Pension and other postretirement benefit obligations(2) | 54 | | | 106 | | | 58 | | | 92 | | | 310 | |
Wildfire Fund obligation | 13 | | | 26 | | | 26 | | | 38 | | | 103 | |
Environmental commitments | 2 | | | 4 | | | 4 | | | 46 | | | 56 | |
Other | 4 | | | 7 | | | 7 | | | 48 | | | 66 | |
Total | $ | 1,820 | | | $ | 2,751 | | | $ | 1,970 | | | $ | 17,423 | | | $ | 23,964 | |
(1) SDG&E calculates expected interest payments using the stated interest rate for fixed-rate obligations. We calculate expected interest payments for variable-rate obligations based on forecast rates in effect at December 31, 2020.
(2) Amounts represent expected SDG&E contributions to the plans for the next 10 years.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
UNDISCOUNTED PRINCIPAL CONTRACTUAL COMMITMENTS – SOCALGAS |
(Dollars in millions) |
| 2021 | | 2022 and 2023 | | 2024 and 2025 | | Thereafter | | Total |
Long-term debt | $ | — | | | $ | 300 | | | $ | 850 | | | $ | 3,609 | | | $ | 4,759 | |
Interest on long-term debt(1) | 167 | | | 334 | | | 303 | | | 2,115 | | | 2,919 | |
Natural gas contracts | 175 | | | 249 | | | 171 | | | 359 | | | 954 | |
Operating leases | 19 | | | 30 | | | 20 | | | 8 | | | 77 | |
Finance leases | 12 | | | 18 | | | 17 | | | 12 | | | 59 | |
Environmental commitments(2) | 10 | | | 15 | | | 5 | | | 11 | | | 41 | |
Pension and other postretirement benefit obligations(3) | 158 | | | 306 | | | 378 | | | 731 | | | 1,573 | |
Asset retirement obligations | 59 | | | 134 | | | 140 | | | 10,240 | | | 10,573 | |
Other | 2 | | | 4 | | | 4 | | | 34 | | | 44 | |
Total | $ | 602 | | | $ | 1,390 | | | $ | 1,888 | | | $ | 17,119 | | | $ | 20,999 | |
(1) SoCalGas calculates expected interest payments using the stated interest rate for fixed-rate obligations. We calculate expected interest payments for variable-rate obligations based on forecast rates in effect at December 31, 2020.
(2) Excludes amounts related to the Leak.
(3) Amounts represent expected SoCalGas contributions to the plans for the next 10 years.
The tables above exclude contracts between consolidated affiliates, intercompany debt and employment contracts.
The tables also exclude income tax liabilities at December 31, 2020 of:
▪$99 million for Sempra Energy Consolidated
▪$13 million for SDG&E
▪$68 million for SoCalGas
These liabilities relate to uncertain tax positions and were excluded from the tables because we are unable to reasonably estimate the timing and amount of future payments due to uncertainties in the effective settlement of tax positions. We provide additional information about unrecognized income tax benefits in Note 8 of the Notes to Consolidated Financial Statements.
We have bilateral unsecured standby letter of credit capacity with select lenders that is uncommitted and supported by reimbursement agreements. At December 31, 2020, we had approximately $508 million in standby letters of credit outstanding under these agreements.
OFF-BALANCE SHEET ARRANGEMENTS
In August 2014 and December 2019, Sempra Energy provided guarantees for 50.2% of Cameron LNG JV’s financing obligations for a maximum amount of up to $4.0 billion. The guarantees will terminate upon satisfaction of certain conditions, including all three trains achieving financial completion by September 30, 2021 (with up to an additional 365-day extension beyond such date permitted in cases of force majeure). However, if Cameron LNG JV fails to satisfy the financial completion criteria, a demand could be made under the guarantee for Sempra Energy’s 50.2% share of Cameron LNG JV’s obligations under the financing arrangements then due and payable, which could have a material adverse impact on Sempra Energy’s liquidity. We discuss these guarantees above in “Overview – Sempra LNG – Cameron LNG JV Three-Train Liquefaction Project (Phase 1),” in Note 6 of the Notes to Consolidated Financial Statements and “Part I – Item 1A. Risk Factors.”
In July 2020, Sempra Energy entered into a Support Agreement, which contains a guarantee and represents a variable interest, for the benefit of CFIN with a maximum exposure to loss of $979 million. The guarantee will terminate upon full repayment of the guaranteed debt by 2039, including repayment following an event in which the guaranteed debt is put to Sempra Energy. We discuss this guarantee in Notes 1, 6 and 12 of the Notes to Consolidated Financial Statements.
SDG&E has entered into PPAs and tolling agreements that are variable interests. Our investments in Oncor Holdings and Cameron LNG JV are variable interests. Sempra Energy’s other businesses may also enter into arrangements that could include variable interests. We discuss variable interests in Note 1 of the Notes to Consolidated Financial Statements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management views certain accounting policiesestimates as critical because their application is the most relevant, judgmental and/or material to our financial position and results of operations, and/or because they require the use of material judgments and estimates.
We describe our significant accounting policies in Note 1 of the Notes to Consolidated Financial Statements. We discuss choices among alternativecritical accounting policiesestimates that are material to our financial statements and information concerning significant estimates with the Audit Committee of the Sempra EnergySempra’s board of directors.
CONTINGENCIES
Sempra, Energy, SDG&E, SoCalGas
We accrue losses for the estimated impacts of various conditions, situations or circumstances involving uncertain outcomes. For loss contingencies, we accrue the loss if an event has occurred on or before the balance sheet date and:and if:
▪information available through the date we file our financial statements indicates it is probable that a loss has been incurred, given the likelihood of uncertain future events
▪the amount of the loss or a range of possible losses can be reasonably estimated
We do not accrue contingencies that might result in gains. We continuously assess contingencies for litigation claims, environmental remediation and other events.
Actual amounts realized upon settlement of contingencies may be different than amounts recorded and disclosed and may affect our results of operations, financial condition and cash flows. Details of our issues in this area are discussed in Note 16 of the Notes to Consolidated Financial Statements.
REGULATORY ACCOUNTING
Sempra, Energy, SDG&E, SoCalGas
As regulated entities, the California Utilities’SDG&E’s and SoCalGas’ customer rates, as set and monitored by regulators, are designed to recover the cost of providing service and provide the opportunity to earn a reasonable return on their investments. The California Utilities record regulatory assets, which are generally costs that would otherwise be charged to expense, if it is probable that, through the ratemaking process, the utility will recover that asset from customers in future rates. Similarly, regulatory liabilities are recorded for amounts recovered in rates in advance or in excess of costs incurred. The California UtilitiesSDG&E and SoCalGas assess probabilities of future rate recovery associated with regulatory account balances at the end of each reporting period and whenever new and/or unusual events occur, such as:
▪changes in the regulatory and political environment or the utility’s competitive position
▪issuance of a regulatory commission order
▪passage of new legislation
To the extent that circumstances associated with regulatory balances change, the regulatory balances are evaluated and adjusted if appropriate.
Significant management judgment is required to evaluate the anticipated recovery of regulatory assets and plant investments, the recognition of incentives and revenues subject to refund, as well as the existence and amount of regulatory liabilities. Adverse legislativeregulatory or regulatorylegislative actions could materially impact the amounts of our regulatory assets and liabilities and could materially adversely impact our results of operations and financial statements. Detailscondition. Specifically, if future recovery of costs ceases to be probable, all or part of the California Utilities’associated regulatory assets and/or plant investments would need to be written off against current period earnings, or adverse regulatory or legislative actions could give rise to material new or higher regulatory liabilities. We discuss details of SDG&E’s and SoCalGas’ regulatory assets and liabilities and additional factors that management considers when assessing probabilities associated with regulatory balances are discussed in Notes 1, 4, 15 and 16 of the Notes to Consolidated Financial Statements.
INCOME TAXES
Sempra, Energy, SDG&E, SoCalGas
Our income tax expense and related balance sheet amounts involve significant management judgments and estimates. Amounts of deferred income tax assets and liabilities, as well as current and noncurrent accruals, involve judgments and estimates of the timing and probability of recognition of income and deductions by taxing authorities. When we evaluate the anticipated resolution of income tax issues, we consider:
▪past resolutions of the same issue or similar issueissues
▪the status of any income tax examination in progress
▪positions taken by taxing authorities with other taxpayers with similar issues
The likelihood of deferred income tax recovery is based on analyses of the deferred income tax assets and our expectation of future taxable income, based on our strategic planning. Should a change in facts or circumstances lead to a change in judgment about the ultimate realizability of a deferred tax asset, we would record or adjust the related valuation allowance in the period that the change in facts and circumstances occurs, along with a corresponding increase or decrease in the provision for income taxes.
Actual income taxes could vary from estimated amounts because of:
▪future impacts of various items, including changes in tax laws, regulations, interpretations and rulings
▪our financial condition in future periods
▪the resolution of various income tax issues between us and taxing and regulatory authorities
For an uncertain position to qualify for benefit recognition, the position must have at least a more-likely-than-not chance of being sustained (based on the position’s technical merits) upon challenge by the respective authorities. The term more-likely-than-not means a likelihood of more than 50%. If we do not have a more-likely-than-not position with respect to a tax position, then we do not recognize any of the potential tax benefit associated with the position. A tax position that meets the more-likely-than-not recognition is measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon the effective resolution of the tax position.
Unrecognized tax benefits involve management’s judgment regarding the likelihood of the benefit being sustained. The final resolution of uncertain tax positions could result in adjustments to recorded amounts and may affect our results of operations, financial positioncondition and cash flows.
We discuss details of our issues in this areathese matters and additional information related to accounting for income taxes, including uncertainty in income taxes, in Note 8 of the Notes to Consolidated Financial Statements.
DERIVATIVES AND HEDGE ACCOUNTING
Sempra, Energy, SDG&E SoCalGas
We record derivative instruments for which we do not apply a scope exception at fair value on the balance sheet. Depending on the purpose for the contract and the applicability of hedge or regulatory accounting, the changes in fair value of derivatives may be recorded in earnings, on the balance sheet, or in OCI.Consolidated Balance Sheets. We also use the normal purchase or sale exception for certain derivative contracts. Whenever possible, we use exchange quoted prices or other third-party pricing to estimate fair values; if no such datacontracts, which is available, we use internally developed models and other techniques. The assumed collectability of derivative assets considers events specific to a given counterparty, the counterparty’s credit worthiness, and the tenor of the transaction.
The application of hedge accounting and normal purchase or sale accounting for certain derivatives is determinedapplied on a contract-by-contract basis. Significant changes in assumptions in our cash flow hedges, such as the amount and/or timing of forecasted transactions, could cause unrealized gains or losses (mark-to-market) to be reclassified out of AOCI to earnings, which may
materially impact our results of operations. Additionally, changesChanges in assumed physical delivery on contracts for which we elected normal purchase or sale accounting may result in “tainting” of the election, which may (1) preclude us from making this election in future transactions, and (2) impact Sempra Energy’sthereby impacting Sempra’s and/or SDG&E’s results of operations. The impacts of derivatives and hedge accounting on the California Utilities’SDG&E’s results of operations are typically not significant because regulatory accounting principles generally apply to theirits contracts. We provide details of our derivative instruments and our fair value approaches in Notes 11 and 12, respectively, of the Notes to Consolidated Financial Statements.
PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Sempra, Energy, SDG&E, SoCalGas
To measure our pension and other postretirement benefit obligations, costs and liabilities, we rely on several assumptions. We consider current market conditions, including interest rates, in making these assumptions. We review these assumptions annually and update when appropriate.
The critical assumptions used to develop the required estimates include the following key factors:
▪discount rates
▪expected return on plan assets
▪health care cost trend rates
▪mortality rates
▪rate of compensation increases
▪termination and retirement rates
▪utilization of postretirement welfare benefits
▪payout elections (lump sum or annuity)
▪lump sum interest rates
The actuarial assumptions we use may differ materially from actual results due to:
▪return on plan assets
▪changing market and economic conditions
▪higher or lower withdrawal rates
▪longer or shorter participant life spans
▪more or fewer lump sum versus annuity payout elections made by plan participants
▪higher or lower retirement rates
These differences,Changes in the estimated costs or timing of pension and other than those related topostretirement benefits, or the California Utilities’ plans, whereassumptions and judgments used by management underlying these estimates (primarily the discount rate and assumed rate of return on plan assets), as well as changes in the circumstances associated with rate recovery, offsetscould have a material effect on the recorded expenses and liabilities. The following tables summarize the impact to our projected benefit obligation for pension, accumulated benefit obligation for PBOP, and projected benefit costs, in each case if the discount rate or assumed rate of return on plan assets were changed by 100 bps at December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
IMPACT DUE TO INCREASE/DECREASE IN DISCOUNT RATE |
(Dollars in millions) |
| Sempra | | SDG&E | | SoCalGas |
| Increase | Decrease | | Increase | Decrease | | Increase | Decrease |
Pension: | | | | | | | | |
(Decrease) increase to projected benefit obligation, net | $ | (432) | | $ | 493 | | | $ | (55) | | $ | 58 | | | $ | (356) | | $ | 411 | |
(Decrease) increase to net periodic benefit cost | (24) | | 25 | | | 3 | | (2) | | | (27) | | 27 | |
PBOP: | | | | | | | | |
(Decrease) increase to accumulated benefit obligation, net | (122) | | 157 | | | (24) | | 30 | | | (95) | | 123 | |
(Decrease) increase to net periodic benefit cost | (9) | | 10 | | | (2) | | 2 | | | (7) | | 8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
IMPACT DUE TO INCREASE/DECREASE IN RETURN ON PLAN ASSETS |
(Dollars in millions) |
| Sempra | | SDG&E | | SoCalGas |
| Increase | Decrease | | Increase | Decrease | | Increase | Decrease |
Pension: | | | | | | | | |
(Decrease) increase to net periodic benefit cost | $ | (27) | | $ | 27 | | | $ | (8) | | $ | 8 | | | $ | (17) | | $ | 17 | |
PBOP: | | | | | | | | |
(Decrease) increase to net periodic benefit cost | (13) | | 13 | | | (2) | | 2 | | | (10) | | 10 | |
For SDG&E and SoCalGas plans, the effects of the assumptions on earnings may resultare expected to be recovered in a significant impact to the amount of pensionrates and other postretirement benefit expense we record. For plans other than those at the California Utilities, the approximate annual effect on earnings of a 100 bps increase or decreasetherefore are offset in the assumed discount rate would be less than $1 million and the effect of a 100 bps increase or decrease in the assumed rate of return on plan assets would be less than $2 million.regulatory accounts. We provide details of our pension and other postretirement benefit plans in Note 9 of the Notes to Consolidated Financial Statements.
ASSET RETIREMENT OBLIGATIONS
Sempra, Energy, SDG&E
SDG&E’s legal AROs related to the decommissioning of SONGS are estimated based on a site-specific study performed no less than every three years. The estimate of the obligations includes:
▪estimated decommissioning costs, including labor, equipment, material and other disposal costs
▪inflation adjustment applied to estimated cash flows
▪discount rate based on a credit-adjusted risk-free rate
▪actual decommissioning costs, progress to date and expected duration of decommissioning activities
Changes in the estimated decommissioning costs, or in the assumptions and judgments made by management underlying these estimates, could cause revisions to the estimated total cost associated with retiring the assets. SDG&E’s nuclear decommissioning expenses are subject to rate recovery and, therefore, rate-making accounting treatment is applied to SDG&E’s nuclear
decommissioning activities. SDG&E recognizes a regulatory asset, or liability, to the extent that its SONGS ARO exceeds, or is less than, the amount collected from customers and the amount earned in SDG&E’s NDT.
SDG&E’s ARO related to the decommissioning of SONGS was $568 million as of December 31, 2021, based on the decommissioning cost study prepared in 2020. Changes in the estimated costs, execution strategy or timing of decommissioning, or in the assumptions and judgments by management underlying these estimates, could cause material revisions to the estimated total cost to decommission this facility, which could have a material effect on the recorded liability.
The following table illustrates the increase to SDG&E’s and Sempra’s ARO liability if the cost escalation rate was adjusted while leaving all other assumptions constant:
| | | | | |
INCREASE TO ARO AND REGULATORY ASSET |
(Dollars in millions) |
| December 31, 2021 |
Uniform increase in escalation percentage of 1 percentage point | $ | 91 | |
The increase in the ARO liability driven by an increase in the cost escalation rate would result in a decrease in the regulatory liability for recoveries in excess of ARO liabilities. We provide additional detail in Note 15 of the Notes to Consolidated Financial Statements.
IMPAIRMENT TESTING OF LONG-LIVED ASSETS
Sempra Energy
Whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable, we consider if the estimated future undiscounted cash flows are less than the carrying amount of the asset. If so, we estimate the fair value of the asset to determine the extent to which carrying value exceeds fair value. For such an estimate, we may consider data from multiple valuation methods, including data from market participants. We exercise judgment to estimate the future cash flows and the useful life of a long-lived asset and to determine our intent to use the asset. Our intent to use or dispose of a long-lived asset is subject to re-evaluation and can change over time.
Events or changes in circumstances that indicate that the carrying amount of a long-lived asset may not be recoverable may include:
▪significant decreases in the market price of an asset;
▪a significant adverse change in the extent or manner in which we use an asset or in its physical condition;
▪a significant adverse change in legal or regulatory factors or in the business climate that could affect the value of an asset;
▪a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection of continuing losses associated with the use of a long-lived asset; and
▪a current expectation that, more-likely-than-not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.
If an impairment test is required, the fair value of a long-lived asset can vary if differing estimates and assumptions are used in the valuation techniques applied as indicated by changing market or other conditions. Critical assumptions that affect our estimates of fair value may include:
▪consideration of market transactions
▪future cash flows
▪the appropriate risk-adjusted discount rate, including the impacts of country risk and entity risk
We discuss impairment of long-lived assets in Note 1 of the Notes to Consolidated Financial Statements.
IMPAIRMENT TESTING OF GOODWILL
Sempra Energy
On an annual basis or whenever events or changes in circumstances necessitate an evaluation, we consider whether goodwill may be impaired. For our annual goodwill impairment testing, we have the option to first make a qualitative assessment of whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount before applying the quantitative goodwill impairment test. If we elect to perform the qualitative assessment, we evaluate relevant events and circumstances, including but not limited to, macroeconomic conditions, industry and market considerations, cost factors, changes in key personnel and the overall financial performance of the reporting unit. If, after assessing these qualitative factors, we determine that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then we perform the quantitative goodwill impairment test. If, after performing the quantitative goodwill impairment test, we determine that goodwill is impaired, we record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the carrying amount of goodwill.
When determining if goodwill is impaired, the fair value of the reporting unit can vary if differing estimates and assumptions are used in the valuation techniques applied as indicated by changing market or other conditions. As a result, recognizing a goodwill impairment may or may not be required. When we perform the quantitative goodwill impairment test, we exercise judgment to develop estimates of the fair value of the reporting unit and compare that to its carrying value. Our fair value estimates are developed from the perspective of a knowledgeable market participant. We consider observable transactions in the marketplace for similar investments, if available, as well as an income-based approach such as a discounted cash flow analysis. A discounted cash flow analysis may be based directly on anticipated future revenues and expenses and may be performed based on free cash flows generated within the reporting unit. Critical assumptions that affect our estimates of fair value may include:
▪consideration of market transactions
▪future cash flows
▪projected revenue and expense growth rates
▪the appropriate risk-adjusted discount rate,
▪ including the impacts of country risk
▪ and entity risk
In 2021 and 2020, we performed a quantitative goodwill impairment test and determined that the estimated fair values of our reporting units in Mexico to which goodwill was allocated was substantially above their carrying valuesvalue for each year as of October 1, 2020, our goodwill impairment testing date. We discuss goodwill in Note 1 of the Notes to Consolidated Financial Statements.
CARRYING VALUE OF EQUITY METHOD INVESTMENTS
Sempra Energy
We generally account for investments under the equity method when we have significant influence over, but do not have control of, the investee.
We consider whether the fair value of each equity investment as a whole, not the underlying net assets, has declined and whether that decline is other than temporary. To help evaluate whether a decline in fair value below carrying value has occurred and if the decline is other than temporary, we may develop fair value estimates for the investment. Our fair value estimates are developed from the perspective of a knowledgeable market participant. In the absence of observable transactions in the marketplace for similar investments, we consider an income-based approach such as a discounted cash flow analysis or, with less weighting, the replacement cost of the underlying net assets. A discounted cash flow analysis may be based directly on anticipated future distributions from the investment, or may be performed based on free cash flows generated within the entity and adjusted for our ownership share total. For certain investments, critical assumptions may include, but are not limited to, transportation rates for natural gas, the appropriate risk-adjusted discount rate and the availability and costs of natural gas and LNG.
In addition, for our indirect investment in Oncor, critical assumptions may also include the effects of ratemaking, such as the results of regulator decisions on rates and recovery of regulated investments and costs. The risk assumptions applied by other market participants to value the investments could vary significantly or the appropriate approaches could be weighted differently. These differences could impact whether or not the fair value of the investment is less than its carrying value, and if so, whether that condition is other than temporary. This could result in an impairment charge and, in cases where an impairment charge has been recorded, additional loss or gain upon sale in the case of a sale transaction.
We provide additional details in Notes 6 and 12 of the Notes to Consolidated Financial Statements.
NEW ACCOUNTING STANDARDS
We discuss the relevantrecent accounting pronouncements that have recently had or may have a significant effect on our financial statements and/or disclosures in Note 2 of the Notes to Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of erosion of our cash flows, earnings, asset values or equity due to adverse changes in commodity market prices, interest rates and foreign currency and inflation rates.
RISK POLICIES
Sempra Energy has policies governing its market risk management and trading activities. Sempra, EnergySDG&E, SoCalGas and the California UtilitiesSempra Infrastructure maintain separate risk management committees, organizations and processes for the California Utilities and for all non-CPUC regulated affiliates to provide oversight of these activities.activities for their respective businesses. The committees consist of senior officers who establish policy, oversee energy risk management activities, and monitor the results of trading and other activities to help ensure compliance with our stated energy risk management and trading policies. These activities include, but are not limited to, monitoring of market positions that create credit, liquidity and market risk. The respective oversight organizations and committees are independent from energy procurement departments.
Along with other tools, we use VaR and liquidity metrics to measure our exposure to market risk associated with commodity portfolios. VaR is an estimate of the potential loss on a position or portfolio of positions over a specified holding period, based on normal market conditions and within a given statistical confidence interval. We use a variance-covariance VaR model at a 95% confidence level. A liquidity metric is intended to monitor the amount of financial resources needed for meeting potential margin calls as forward market prices move. VaR and liquidity risk metrics are independently verified by the respective risk management oversight organizations.
SDG&E and SoCalGas use power and natural gas derivatives to manage electric and natural gas price risk associated with servicing load requirements. The use of power and natural gas derivatives is subject to certain limitations imposed by company policy and is in compliance with risk management and trading activity plans that have been filed with and approved by the CPUC. We discuss revenue recognition in Note 3 and additional market-risk information regarding derivative instruments in Note 11 of the Notes to Consolidated Financial Statements.
We have exposure to changes in commodity prices, interest rates and foreign currency and inflation rates. The following discussion of these primary market-risk exposures as of December 31, 20202021 includes a discussion of how these exposures are managed.
COMMODITY PRICE RISK
Market risk related to physical commodities is created by volatility in the prices and basis of certain commodities. Our various subsidiaries are exposed, in varying degrees, to commodity price risk, primarily to prices in the natural gas and electricity markets. Our policy is to manage this risk within a framework that considers the specific markets and operating and regulatory environments of each subsidiary.
Sempra Mexico and Sempra LNG areInfrastructure is generally exposed to commodity price risk indirectly through theirits LNG, natural gas pipelines and storage, and power-generating assets. These segmentsThis segment may utilize commodity transactions in an effort to optimize these assets. These transactions are typically priced based on market indices, but may also include fixed price purchases and sales of commodities. Any residual exposure is monitored as described above. A hypothetical 10% unfavorable change in commodity prices would not have resulted in a material change in the fair value of our commodity-based natural gas and electricity derivatives for these segmentsof $3 million and $4 million at December 31, 2021 and 2020, or 2019.respectively. The impact of a change in energy commodity prices on our commodity-based derivative instruments at a point in time is not necessarily representative of the results that will be realized when the contracts are ultimately settled and does not typically include the generally offsetting impact of our underlying asset positions.
The California Utilities’SDG&E and SoCalGas separately manage risk within the parameters of their market risk management frameworks. In addition, their market-risk exposure is limited due to CPUC-authorized rate recovery of the costs of commodity purchases, interstate and intrastate transportation, and storage activity. However, SoCalGas may, at times, be exposed to market risk as a result of incentive mechanisms that rewardthe GCIM, which rewards or penalizepenalizes the utility for commodity costs below or above certain benchmarksbenchmarks. The one-day VaR for SDG&E and SoCalGas’ GCIM. If commodity pricespositions were to rise too rapidly, it is likely that volumes would decline. This decline would increase the per-unit fixed costs, which could lead to further volume declines. The California Utilities manage their risk within the parameters of their market risk management framework. As of$5 million and for the year ended$1 million, respectively, at December 31, 2020, the total VaR of the California Utilities’ natural gas2021 and electric positions was not material,$3 million and SDG&E’s power procurement activities were in compliance with the procurement plans filed with and approved by the CPUC.negligible, respectively, at December 31, 2020.
INTEREST RATE RISK
We are exposed to fluctuations in interest rates primarily as a result of our having issued short- and long-term debt. Subject to regulatory constraints, we periodically enter into interest rate swap agreements to moderate our exposure to interest rate changes and to lower our overall cost of borrowing.
The table below shows the nominal amount of our debt:
| NOMINAL AMOUNT OF DEBT(1) | NOMINAL AMOUNT OF DEBT(1) | NOMINAL AMOUNT OF DEBT(1) |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | December 31, 2020 | | December 31, 2019 | | December 31, 2021 | December 31, 2020 | December 31, 2019 |
| | Sempra Energy Consolidated | | SDG&E | | SoCalGas | | Sempra Energy Consolidated | | SDG&E | | SoCalGas | | Sempra | | SDG&E | | SoCalGas | Sempra | | SDG&E | | SoCalGas | Sempra | | SDG&E | | SoCalGas |
Short-term: | Short-term: | | | | Short-term: | | | | | |
California Utilities | $ | 113 | | | $ | — | | | $ | 113 | | | $ | 710 | | | $ | 80 | | | $ | 630 | | |
Sempra California | | Sempra California | $ | 1,161 | | | $ | 776 | | | $ | 385 | | $ | 113 | | | $ | — | | | $ | 113 | | $ | 710 | | | $ | 80 | | | $ | 630 | |
Other | Other | 772 | | | — | | | — | | | 2,798 | | | — | | | — | | Other | 2,310 | | | — | | | — | | 772 | | | — | | | — | | 2,798 | | | — | | | — | |
Long-term: | Long-term: | | | | Long-term: | | | | | |
California Utilities fixed-rate | $ | 10,512 | | | $ | 6,053 | | | $ | 4,459 | | | $ | 8,949 | | | $ | 5,140 | | | $ | 3,809 | | |
California Utilities variable-rate | 500 | | | 200 | | | 300 | | | — | | | — | | | — | | |
Sempra California fixed-rate | | Sempra California fixed-rate | $ | 10,876 | | | $ | 6,417 | | | $ | 4,459 | | $ | 10,512 | | | $ | 6,053 | | | $ | 4,459 | | $ | 8,949 | | | $ | 5,140 | | | $ | 3,809 | |
Sempra California variable-rate | | Sempra California variable-rate | 300 | | | — | | | 300 | | 500 | | | 200 | | | 300 | | — | | | — | | | — | |
Other fixed-rate | Other fixed-rate | 11,204 | | | — | | | — | | | 11,561 | | | — | | | — | | Other fixed-rate | 8,591 | | | — | | | — | | 11,204 | | | — | | | — | | 11,561 | | | — | | | — | |
Other variable-rate | Other variable-rate | 51 | | | — | | | — | | | 746 | | | — | | | — | | Other variable-rate | 341 | | | — | | | — | | 51 | | | — | | | — | | 746 | | | — | | | — | |
(1) After the effects of interest rate swaps. Before the effects of acquisition-related fair value adjustments and reductions for unamortized discount and debt issuance costs, and excluding finance lease obligations.
An interest rate risk sensitivity analysis measures interest rate risk by calculating the estimated changes in earnings that would result from a hypothetical change in market interest rates. Earnings are affected by changes in interest rates on short-term debt and
variable-rate long-term debt. If weighted-average interest rates on short-term debt outstanding at December 31, 20202021 increased or decreased by 10%, the change in earnings over the 12-month period ending December 31, 20212022 would be negligible.approximately $1 million. If interest rates increased or decreased by 10% on all variable-rate long-term debt at December 31, 2020,2021, after considering the effects of interest rate swaps, the change in earnings over the 12-month period ending December 31, 20212022 would be negligible.approximately $1 million.
We provide further information about debt and interest rate swap transactions in Notes 7 and 11, respectively, of the Notes to Consolidated Financial Statements.
We also are subject to the effect of interest rate fluctuations on the assets of our pension plans, other postretirement benefit plans, and SDG&E’s NDT. However, we expect the effects of these fluctuations, as they relate to theSempra California, Utilities, to be recoveredreflected in future rates.
FOREIGN CURRENCY AND INFLATION RATE RISK
We discuss our foreign currency and inflation exposures in “Part II – Item 7. MD&A – Impact of Foreign Currency and Inflation Rates on Results of Operations.”
The hypothetical effect for every 10% appreciation in the U.S. dollar against the Mexican peso, in which we have operations and investments, are as follows:
| | | | | |
HYPOTHETICAL EFFECTS FROM 10% STRENGTHENING OF U.S. DOLLAR (1) |
(Dollars in millions) |
| Hypothetical effects |
Translation of 20202021 earnings to U.S. dollars(2) | $ | (2)(3) | |
Transactional exposure(3) | 115148 | |
Translation of net assets of foreign subsidiaries and investment in foreign entities(4) | (17)(18) | |
(1) After the effects of foreign currency derivatives.
(2) Amount represents the impact to earnings for a change in the average exchange rate throughout the reporting period.
(3) Amount primarily represents the effects of currency exchange rate movement from December 31, 20202021 on monetary assets and liabilities and translation of non-U.S. deferred income tax balances at our Mexican subsidiaries.
(4) Amount represents the effects of currency exchange rate movement from December 31, 20202021 that would be recorded to OCI at the end of the reporting period.
Monetary assets and liabilities at our Mexican subsidiaries and JVs that are denominated in U.S. dollars may fluctuate significantly throughout the year. These monetary assets and liabilities and certain nonmonetary assets and liabilities are adjusted for Mexican inflation for Mexican income tax purposes. Based on a net monetary liability position of $4.4$4.8 billion, including those related to our investments in JVs, at December 31, 2020,2021, the hypothetical effect of a 10% increase in the Mexican inflation rate is
approximately $90$111 million lower earnings as a result of higher income tax expense for our consolidated subsidiaries, as well as lower equity earnings for our JVs.
We completed the sales of our South American businesses in 2020 and are no longer exposed to changes in foreign currency and inflation rates in Peru and Chile.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements are listed on the Index to Consolidated Financial Statements set forth on page F-1 of this annual report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Sempra, Energy, SDG&E, SoCalGas
Sempra, Energy, SDG&E and SoCalGas maintain disclosure controls and procedures designed to ensure that information required to be disclosed in their respective reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and is accumulated and communicated to the management of each company, including each respective principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. In designing and evaluating these controls and procedures, the management of each company recognizes that any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives; therefore, the management of each company applies judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Under the supervision and with the participation of the principal executive officers and principal financial officers of Sempra, Energy, SDG&E and SoCalGas, each such company’s management evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of December 31, 2020,2021, the end of the period covered by this report. Based on these evaluations, the principal executive officers and principal financial officers of Sempra, Energy, SDG&E and SoCalGas concluded that their respective company’s disclosure controls and procedures were effective at the reasonable assurance level as of such date.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Sempra, Energy, SDG&E, SoCalGas
The respective management of Sempra, Energy, SDG&E and SoCalGas is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f).
Under the supervision and with the participation of the principal executive officers and principal financial officers of Sempra, Energy, SDG&E and SoCalGas, each such company’s management evaluated the effectiveness of its internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on these evaluations, each company’s management concluded that its internal control over financial reporting was effective as of December 31, 2020.2021. Deloitte & Touche LLP audited the effectiveness of each company’s internal control over financial reporting as of December 31, 2020,2021, as stated in their reports, which are included in this annual report on Form 10-K.
ThereIn April 2021, SDG&E implemented a new customer information system to replace its legacy system. The system has been designed and implemented to provide customers an enhanced digital experience and enhance the overall system of internal control over financial reporting through further automation and integration of business processes, including revenue. In connection with the implementation, SDG&E performed pre-implementation planning, design and testing of internal controls that became effective in the second quarter of 2021. In the fourth quarter of 2021, SDG&E completed its post-implementation monitoring and process modifications in order to maintain an effective control framework. Other than these post-implementation activities in connection with SDG&E’s new customer information system, there have been no changes in any such company’sSempra’s, SDG&E’s or SoCalGas’ internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect any such company’s internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Sempra Energy:
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Sempra Energy and subsidiaries (“Sempra Energy”Sempra”) as of December 31, 2020,2021, based on criteria established in Internal Control – — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, Sempra Energy maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2021, based on criteria established in Internal Control –— Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements as of and for the year ended December 31, 20202021 of Sempra Energy and our report dated February 25, 20212022 expressed an unqualified opinion on those financial statements.
Basis for Opinion
Sempra Energy’sSempra’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on Sempra Energy’sSempra’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to Sempra Energy in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
February 25, 20212022
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholder and Board of Directors of San Diego Gas & Electric Company:
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of San Diego Gas & Electric Company (“SDG&E”) as of December 31, 2020,2021, based on criteria established in Internal Control –— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, SDG&E maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2021, based on criteria established in Internal Control –— Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements as of and for the year ended December 31, 20202021 of SDG&E and our report dated February 25, 20212022 expressed an unqualified opinion on those financial statements.statements.
Basis for Opinion
SDG&E’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on SDG&E’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to SDG&E in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
February 25, 20212022
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Southern California Gas Company:
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Southern California Gas Company (“SoCalGas”) as of December 31, 2020,2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, SoCalGas maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the financial statements as of and for the year ended December 31, 20202021 of SoCalGas and our report dated February 25, 20212022 expressed an unqualified opinion on those financial statements.
Basis for Opinion
SoCalGas’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on SoCalGas’ internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to SoCalGas in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
February 25, 20212022
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III.
Because SDG&E meets the conditions of General Instructions I(1)(a) and (b) of Form 10-K and is therefore filing this report with a reduced disclosure format as permitted by General Instruction I(2), the information required by Part III – Items 10, 11, 12 and 13 below is not required for SDG&E. We have, however, voluntarily provided the information required by Item 401 of SEC Regulation S-K, as required by Part III – Item 10 with respect to SDG&E’s executive officers in “Part I – Item 1. Business – Other Matters – Information About Our Executive Officers.”
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
We provide the information required by Part III – Item 10401 of SEC Regulation S-K, as required by this item, with respect to executive officers forof Sempra Energy (other than information required by Item 405 of SEC Regulation S-K) and SoCalGas in “Part I – Item 1. Business – Other Matters – Information About Our Executive Officers.” For Sempra Energy, allAll other information required by Part III – Item 10this item is incorporated by reference from “Corporate Governance,” “Share Ownership”Governance” and “Proposal 1: Election of Directors” in the proxy statement to be filed for itsthe May 20212022 annual meeting of shareholders. For SoCalGas, all other information required by Part III – Item 10 is incorporated by referenceshareholders for Sempra and from itsthe information statement to be filed for itsthe June 20212022 annual meeting of shareholders.shareholders for SoCalGas. In all cases, only the specific information that is expressly required by this item is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Part III – Item 11this item is incorporated by reference from “Corporate Governance” and “Executive Compensation,” including “Compensation Discussion and Analysis,” “Compensation and Talent Committee Report” and “Compensation Tables”Tables,” in the proxy statement to be filed for the May 20212022 annual meeting of shareholders for Sempra Energy and from the information statement to be filed for the June 20212022 annual meeting of shareholders for SoCalGas. In all cases, only the specific information that is expressly required by this item is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Sempra Energy has LTIPs that permit the grant of a wide variety of equity and equity-based incentive awards to directors, officers and key employees. At December 31, 2020,2021, outstanding awards consisted of stock options and RSUs held by 460425 employees.
The following table sets forth information regarding our equity compensation plans at December 31, 2020.2021.
| EQUITY COMPENSATION PLANS | EQUITY COMPENSATION PLANS | EQUITY COMPENSATION PLANS |
| Equity compensation plans approved by shareholders | Equity compensation plans approved by shareholders | Number of shares to be issued upon exercise of outstanding options, warrants and rights(1) | | Weighted-average exercise price of outstanding options, warrants and rights(2) | | Number of additional shares remaining available for future issuance(3) | Equity compensation plans approved by shareholders | Number of shares to be issued upon exercise of outstanding options, warrants and rights(1) | | Weighted-average exercise price of outstanding options, warrants and rights(2) | | Number of additional shares remaining available for future issuance(3) |
2013 LTIP | 2013 LTIP | 1,087,964 | | | $ | 106.76 | | | — | | 2013 LTIP | 568,935 | | | $ | 106.76 | | | — | |
2019 LTIP | 2019 LTIP | 514,969 | | | $ | 149.12 | | | 6,927,284 | | 2019 LTIP | 1,116,486 | | | $ | 132.77 | | | 5,986,241 | |
(1) The 2013 LTIP consists of 243,177192,506 options to purchase shares of our common stock, all of which were granted at an exercise price equal to 100% of the grant date fair market value of the shares subject to the option, 658,574334,492 performance-based RSUs and 186,21341,937 service-based RSUs. The 2019 LTIP consists of 122,218344,838 options to purchase shares of our common stock, all of which were granted at an exercise price equal to 100% of the grant date fair market value of the shares subject to the option, 235,387536,285 performance-based RSUs and 157,364235,363 service-based RSUs. Each performance-based RSU granted under the 2013 LTIP and the 2019 LTIP represents the right to receive from zero to 2.0 shares of our common stock if applicable performance conditions are satisfied. For purposes of this table, the number of shares of common stock shown to be subject to each performance-based RSU is 1.0 share, which assumes performance conditions are satisfied at the target level.
(2) Represents the weighted-average exercise price of the 243,177192,506 and 122,218344,838 outstanding options to purchase shares of our common stock under the 2013 LTIP and the 2019 LTIP, respectively.
(3) The number of shares available for future issuance is increased by the number of shares to which each participant would otherwise be entitled that are withheld or surrendered to satisfy the exercise price or to satisfy tax withholding obligations relating to any plan awards, and is also increased by the number of shares subject to awards that expire or are forfeited, canceled or otherwise terminated without the issuance of shares. No new awards may be granted under the 2013 LTIP.
We provide additional discussion of share-based compensation in Note 10 of the Notes to Consolidated Financial Statements.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The security ownership information required by Part III – Item 12403 of SEC Regulation S-K, as required by this item, is incorporated by reference from “Share Ownership” in the proxy statement to be filed for the May 20212022 annual meeting of shareholders for Sempra Energy and from the information statement to be filed for the June 20212022 annual meeting of shareholders for SoCalGas. In all cases, only the specific information that is expressly required by this item is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Part III – Item 13this item is incorporated by reference from “Corporate Governance” in the proxy statement to be filed for the May 20212022 annual meeting of shareholders for Sempra Energy and from the information statement to be filed for the June 20212022 annual meeting of shareholders for SoCalGas. In all cases, only the specific information that is expressly required by this item is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding principal accountant fees and services is presented below for Sempra, Energy, SDG&E and SoCalGas. The following table shows the fees paid to Deloitte & Touche LLP, the independent registered public accounting firm for Sempra, Energy, SDG&E and SoCalGas, for services provided for 2021, 2020 and 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
PRINCIPAL ACCOUNTANT FEES |
(Dollars in thousands) |
| Sempra Energy Consolidated | | | SDG&E | | | SoCalGas |
| Fees | | Percent of total | | | Fees | | Percent of total | | | Fees | | Percent of total |
2020: | | | | | | | | | | | | | |
Audit fees: | | | | | | | | | | | | | |
Consolidated financial statements, internal controls audits and subsidiary audits | $ | 9,145 | | | | | | $ | 2,469 | | | | | | $ | 3,023 | | | |
Regulatory filings and related services | 827 | | | | | | 100 | | | | | | 55 | | | |
Total audit fees | 9,972 | | | 82 | % | | | 2,569 | | | 86 | % | | | 3,078 | | | 90 | % |
Audit-related fees: | | | | | | | | | | | | | |
Employee benefit plan audits | 505 | | | | | | 183 | | | | | | 307 | | | |
Other audit-related services(1) | 1,494 | | | | | | 137 | | | | | | — | | | |
Total audit-related fees | 1,999 | | | 17 | | | | 320 | | | 11 | | | | 307 | | | 9 | |
Tax fees(2) | 156 | | | 1 | | | | 111 | | | 3 | | | | 32 | | | 1 | |
All other fees(3) | 22 | | | — | | | | — | | | — | | | | — | | | — | |
Total fees | $ | 12,149 | | | 100 | % | | | $ | 3,000 | | | 100 | % | | | $ | 3,417 | | | 100 | % |
2019: | | | | | | | | | | | | | |
Audit fees: | | | | | | | | | | | | | |
Consolidated financial statements, internal controls audits and subsidiary audits | $ | 10,568 | | | | | | $ | 2,804 | | | | | | $ | 2,789 | | | |
Regulatory filings and related services | 466 | | | | | | 45 | | | | | | 45 | | | |
Total audit fees | 11,034 | | | 87 | % | | | 2,849 | | | 89 | % | | | 2,834 | | | 91 | % |
Audit-related fees: | | | | | | | | | | | | | |
Employee benefit plan audits | 517 | | | | | | 162 | | | | | | 286 | | | |
Other audit-related services(1) | 883 | | | | | | 99 | | | | | | 10 | | | |
Total audit-related fees | 1,400 | | | 11 | | | | 261 | | | 8 | | | | 296 | | | 9 | |
Tax fees(2) | 74 | | | 1 | | | | 73 | | | 3 | | | | — | | | — | |
All other fees(3) | 74 | | | 1 | | | | 15 | | | — | | | | — | | | — | |
Total fees | $ | 12,582 | | | 100 | % | | | $ | 3,198 | | | 100 | % | | | $ | 3,130 | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
PRINCIPAL ACCOUNTANT FEES |
(Dollars in thousands) |
| Sempra | | | SDG&E | | | SoCalGas |
| Fees | | Percent of total | | | Fees | | Percent of total | | | Fees | | Percent of total |
2021: | | | | | | | | | | | | | |
Audit fees: | | | | | | | | | | | | | |
Consolidated financial statements, internal controls audits and subsidiary audits | $ | 10,166 | | | | | | $ | 2,753 | | | | | | $ | 3,486 | | | |
Regulatory filings and related services | 807 | | | | | | 60 | | | | | | — | | | |
Total audit fees | 10,973 | | | 81 | % | | | 2,813 | | | 87 | % | | | 3,486 | | | 91 | % |
Audit-related fees: | | | | | | | | | | | | | |
Employee benefit plan audits | 520 | | | | | | 184 | | | | | | 309 | | | |
Other audit-related services(1) | 1,840 | | | | | | 119 | | | | | | — | | | |
Total audit-related fees | 2,360 | | | 17 | | | | 303 | | | 9 | | | | 309 | | | 8 | |
Tax fees(2) | 272 | | | 2 | | | | 113 | | | 4 | | | | 33 | | | 1 | |
All other fees(3) | 13 | | | — | | | | — | | | — | | | | 8 | | | — | |
Total fees | $ | 13,618 | | | 100 | % | | | $ | 3,229 | | | 100 | % | | | $ | 3,836 | | | 100 | % |
2020: | | | | | | | | | | | | | |
Audit fees: | | | | | | | | | | | | | |
Consolidated financial statements, internal controls audits and subsidiary audits | $ | 9,145 | | | | | | $ | 2,469 | | | | | | $ | 3,023 | | | |
Regulatory filings and related services | 827 | | | | | | 100 | | | | | | 55 | | | |
Total audit fees | 9,972 | | | 82 | % | | | 2,569 | | | 86 | % | | | 3,078 | | | 90 | % |
Audit-related fees: | | | | | | | | | | | | | |
Employee benefit plan audits | 505 | | | | | | 183 | | | | | | 307 | | | |
Other audit-related services(1) | 1,494 | | | | | | 137 | | | | | | — | | | |
Total audit-related fees | 1,999 | | | 17 | | | | 320 | | | 11 | | | | 307 | | | 9 | |
Tax fees(2) | 156 | | | 1 | | | | 111 | | | 3 | | | | 32 | | | 1 | |
All other fees(3) | 22 | | | — | | | | — | | | — | | | | — | | | — | |
Total fees | $ | 12,149 | | | 100 | % | | | $ | 3,000 | | | 100 | % | | | $ | 3,417 | | | 100 | % |
2019: | | | | | | | | | | | | | |
Audit fees: | | | | | | | | | | | | | |
Consolidated financial statements, internal controls audits and subsidiary audits | $ | 10,568 | | | | | | $ | 2,804 | | | | | | $ | 2,789 | | | |
Regulatory filings and related services | 466 | | | | | | 45 | | | | | | 45 | | | |
Total audit fees | 11,034 | | | 87 | % | | | 2,849 | | | 89 | % | | | 2,834 | | | 91 | % |
Audit-related fees: | | | | | | | | | | | | | |
Employee benefit plan audits | 517 | | | | | | 162 | | | | | | 286 | | | |
Other audit-related services(1) | 883 | | | | | | 99 | | | | | | 10 | | | |
Total audit-related fees | 1,400 | | | 11 | | | | 261 | | | 8 | | | | 296 | | | 9 | |
Tax fees(2) | 74 | | | 1 | | | | 73 | | | 3 | | | | — | | | — | |
All other fees(3) | 74 | | | 1 | | | | 15 | | | — | | | | — | | | — | |
Total fees | $ | 12,582 | | | 100 | % | | | $ | 3,198 | | | 100 | % | | | $ | 3,130 | | | 100 | % |
(1) Other audit-related services in 2021 and 2019 primarily relate to statutory audits and agreed upon procedures. Other audit-related services in 2020 primarily relate to statutory audits, agreed upon procedures and permitted internal control advisory services. Other audit-related services in 2019 primarily relate to statutory audits and agreed upon procedures.
(2) Tax fees in 2021 and 2020 relate to tax consulting and compliance services. Tax fees in 2019 relate to tax consulting services.
(3) All other fees relate to training and conferences.
The Audit Committee of Sempra Energy’sSempra’s board of directors is directly responsible for the appointment, compensation, retention and oversight, including the oversight of the audit fee negotiations, of the independent registered public accounting firm for Sempra Energy and its subsidiaries, including SDG&E and SoCalGas. As a matter of good corporate governance, each of the Sempra, Energy, SDG&E and SoCalGas boards of directors reviewed the performance of Deloitte & Touche LLP and appointed them as the independent registered public accounting firm for each of Sempra, Energy, SDG&E and SoCalGas, respectively. Sempra Energy’sSempra’s board of directors has determined that each member of its Audit Committee is an independent director and is financially literate, and that Mr. Jack T. Taylor, who chairs the committee, and Ms. Cynthia L. Walker, who is a member of the committee, are audit committee financial experts as defined by the rules of the SEC.
Except where pre-approval is not required by SEC rules, Sempra Energy’sSempra’s Audit Committee pre-approves all audit, audit-related and permissible non-audit services provided by Deloitte & Touche LLP for Sempra Energy and its subsidiaries, including all services provided by Deloitte & Touche LLP for Sempra, Energy, SDG&E and SoCalGas in 2021, 2020 and 2019. The committee’s pre-approval policies and procedures provide for the general pre-approval of specific types of services and give detailed guidance to
management as to the services that are eligible for general pre-approval, and they require specific pre-approval of all other permitted services. For both types of pre-approval, the committee considers whether the services to be provided are consistent with maintaining the firm’s independence. The committee’s policies and procedures also delegate authority to the chair of the committee to address any requests for pre-approval of services between committee meetings, with any pre-approval decisions to be reported to the committee at its next scheduled meeting.
PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this report:
1. FINANCIAL STATEMENTS
Our consolidated financial statements are listed on the Index to Consolidated Financial Statements set forth on page F-1 of this annual report on Form 10-K.
2. FINANCIAL STATEMENT SCHEDULES
Schedule I is listed on the Index to Condensed Financial Information of Parent as set forth on page S-1 of this annual report on Form 10-K.
Any other schedule for which provision is made in SEC Regulation S-X is not required under the instructions contained therein, is inapplicable or the information is included in the Consolidated Financial Statements and Notes thereto in this annual report on Form 10-K.
3. EXHIBITS
EXHIBIT INDEX
The exhibits listed below relate to each registrant as indicated. Unless otherwise indicated, the exhibits that are incorporated by reference herein were filed under File Number 1-14201 (Sempra Energy), File Number 1-40 (Pacific Lighting Corporation), File Number 1-03779 (San Diego Gas & Electric Company) and/or File Number 1-01402 (Southern California Gas Company).
| | | | | | | | | | | | | | | | | | | | |
EXHIBIT INDEX |
| | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | Filed or Furnished Herewith | Form or Registration Statement No. | Exhibit or Appendix | Filing Date |
| | | | | | |
EXHIBIT 2 -- PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION |
| | | | | | |
Sempra Energy | | | | |
2.1 | | | | | 8-K | 2 | 09/20/18 |
| | | | | | |
2.2 | | | | | 8-K | 2.1 | 09/30/19 |
| | | | | | |
2.3 | | | | | 8-K | 2.2 | 09/30/19 |
| | | | | | |
2.4 | | | | | 8-K | 2.1 | 10/15/19 |
| | | | | | |
EXHIBIT 3 -- BYLAWS AND ARTICLES OF INCORPORATION |
| | | | | | |
Sempra Energy | | | | |
3.1 | | | | | 10-K | 3.1 | 02/27/20 |
| | | | | | |
3.2 | | | | | 8-K | 3.1 | 04/14/20 |
| | | | | | |
3.3 | | | | | 8-K | 3.1 | 01/09/18 |
| | | | | | |
3.4 | | | | | 8-K | 3.1 | 07/13/18 |
| | | | | | |
3.5 | | | | | 8-K | 3.1 | 06/15/20 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
EXHIBIT INDEX |
| | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | Filed or Furnished Herewith | Form or Registration Statement No. | Exhibit or Appendix | Filing Date |
| | | | | | |
EXHIBIT 2 -- PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION |
| | | | | | |
Sempra Energy | | | | |
2.1 | | | | | 8-K | 2.1 | 09/30/19 |
| | | | | | |
2.2 | | | | | 8-K | 2.2 | 09/30/19 |
| | | | | | |
2.3 | | | | | 8-K | 2.1 | 10/15/19 |
| | | | | | |
EXHIBIT 3 -- BYLAWS AND ARTICLES OF INCORPORATION |
| | | | | | |
Sempra Energy | | | | |
3.1 | | | | | 10-K | 3.1 | 02/27/20 |
| | | | | | |
3.2 | | | | | 8-K | 3.1 | 04/14/20 |
| | | | | | |
3.3 | | | | | 8-K | 3.1 | 01/09/18 |
| | | | | | |
3.4 | | | | | 8-K | 3.1 | 07/13/18 |
| | | | | | |
3.5 | | | | | 8-K | 3.1 | 06/15/20 |
| | | | | | |
San Diego Gas & Electric Company | | | | |
3.6 | | | | | 10-K | 3.4 | 02/26/15 |
| | | | | | |
3.7 | | | | | 10-Q | 3.1 | 11/02/16 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
EXHIBIT INDEX (CONTINUED) |
| | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | Filed or Furnished Herewith | Form or Registration Statement No. | Exhibit or Appendix | Filing Date |
| | | | | | |
San Diego Gas & Electric Company | | | | |
3.6 | | | | | 10-K | 3.4 | 02/26/15 |
| | | | | | |
3.7 | | | | | 10-Q | 3.1 | 11/02/16 |
| | | | | | |
Southern California Gas Company | | | | |
3.8 | | | | | 10-K | 3.01 | 03/28/97 |
| | | | | | |
3.9 | | | | | 8-K | 3.1 | 01/31/17 |
| | | | | | |
EXHIBIT 4 -- INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES |
Certain instruments defining the rights of holders of long-term debt instruments are not required to be filed or incorporated by reference herein pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. Each registrant agrees to furnish a copy of such instruments to the SEC upon request. |
| | | | | | |
Sempra Energy | | | | |
4.1 | | | | | 10-K | 3.1 | 02/27/20 |
| | | | | | |
4.2 | | | | X | | | |
| | | | | | |
4.3 | | | | | 8-K | 3.1 | 01/09/18 |
| | | | | | |
4.4 | | | | | 8-K | 3.1 | 07/13/18 |
| | | | | | |
4.5 | | | | | 8-K | 3.1 | 06/15/20 |
| | | | | | |
4.6 | | | | | S-3ASR 333-153425 | 4.1 | 09/11/08 |
| | | | | | |
4.7 | | | | | 8-K | 4.1 | 10/08/09 |
| | | | | | |
4.8 | | | | | 8-K | 4.1 | 09/24/12 |
| | | | | | |
4.9 | | | | | 8-K | 4.1 | 11/22/13 |
| | | | | | |
4.10 | | | | | 8-K | 4.1 | 06/13/14 |
| | | | | | |
4.11 | | | | | 8-K | 4.1 | 11/17/15 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
EXHIBIT INDEX (CONTINUED) |
| | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | Filed or Furnished Herewith | Form or Registration Statement No. | Exhibit or Appendix | Filing Date |
| | | | | | |
Southern California Gas Company | | | | |
3.8 | | | | | 10-K | 3.01 | 03/28/97 |
| | | | | | |
3.9 | | | | | 8-K | 3.1 | 01/31/17 |
| | | | | | |
EXHIBIT 4 -- INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES |
Certain instruments defining the rights of holders of long-term debt instruments are not required to be filed or incorporated by reference herein pursuant to Item 601(b)(4)(iii)(A) of SEC Regulation S-K. Each registrant agrees to furnish a copy of such instruments to the SEC upon request. |
| | | | | | |
Sempra Energy | | | | |
4.1 | | | | | 10-K | 3.1 | 02/27/20 |
| | | | | | |
4.2 | | | | X | | | |
| | | | | | |
4.3 | | | | | 8-K | 3.1 | 01/09/18 |
| | | | | | |
4.4 | | | | | 8-K | 3.1 | 07/13/18 |
| | | | | | |
4.5 | | | | | 8-K | 3.1 | 06/15/20 |
| | | | | | |
4.6 | | | | | S-3ASR 333-153425 | 4.1 | 09/11/08 |
| | | | | | |
4.7 | | | | | 8-K | 4.1 | 10/08/09 |
| | | | | | |
4.8 | | | | | 8-K | 4.1 | 06/09/17 |
| | | | | | |
4.9 | | | | | 8-K | 4.1 | 01/12/18 |
| | | | | | |
4.10 | | | | | 8-K | 4.2 | 06/26/19 |
| | | | | | |
4.11 | | | | | 8-K | 4.1 | 06/26/19 |
| | | | | | |
4.12 | | | | | 8-K | 4.1 | 11/19/21 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
EXHIBIT INDEX (CONTINUED) |
| | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | Filed or Furnished Herewith | Form or Registration Statement No. | Exhibit or Appendix | Filing Date |
| | | | | | |
4.12 | | | | | 8-K | 4.1 | 06/09/17 |
| | | | | | |
4.13 | | | | | 8-K | 4.1 | 10/13/17 |
| | | | | | |
4.14 | | | | | 8-K | 4.1 | 01/12/18 |
| | | | | | |
4.15 | | | | | 8-K | 4.2 | 06/26/19 |
| | | | | | |
4.16 | | | | | 8-K | 4.1 | 06/26/19 |
| | | | | | |
Southern California Gas Company | | | | |
4.17 | | | | | 10-K | 3.01 | 03/28/97 |
| | | | | | |
4.18 | | | | | 10-K | 4.9 | 02/27/20 |
| | | | | | |
Sempra Energy / San Diego Gas & Electric Company | | | | |
4.19 | | | Mortgage and Deed of Trust dated July 1, 1940. | | 2-4769 | B-3 | (1) |
| | | | | | |
4.20 | | | Second Supplemental Indenture dated as of March 1, 1948. | | 2-7418 | B-5B | (1) |
| | | | | | |
4.21 | | | Ninth Supplemental Indenture dated as of August 1, 1968. | | 333-52150 | 4.5 | (1) |
| | | | | | |
4.22 | | | Tenth Supplemental Indenture dated as of December 1, 1968. | | 2-36042 | 2-K | (1) |
| | | | | | |
4.23 | | | Sixteenth Supplemental Indenture dated August 28, 1975. | | 33-34017 | 4.2 | (1) |
| | | | | | |
4.24 | | | | | 8-K | 4.1 | 05/19/05 |
| | | | | | |
4.25 | | | | | 8-K | 4.1 | 06/08/06 |
| | | | | | |
4.26 | | | | | 8-K | 4.1 | 09/20/07 |
| | | | | | |
4.27 | | | | | 8-K | 4.1 | 05/15/09 |
| | | | | | |
4.28 | | | | | 8-K | 4.1 | 05/13/10 |
| | | | | | |
4.29 | | | | | 8-K | 4.1 | 08/26/10 |
| | | | | | |
4.30 | | | | | 8-K | 4.1 | 08/18/11 |
| | | | | | |
4.31 | | | | | 8-K | 4.1 | 11/17/11 |
| | | | | | |
4.32 | | | | | 8-K | 4.1 | 03/23/12 |
| | | | | | |
4.33 | | | | | 8-K | 4.1 | 09/09/13 |
| | | | | | |
4.34 | | | | | 8-K | 4.2 | 03/12/15 |
| | | | | | |
4.35 | | | | | 8-K | 4.1 | 05/19/16 |
| | | | | | |
4.36 | | | | | 8-K | 4.1 | 06/08/17 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
EXHIBIT INDEX (CONTINUED) |
| | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | Filed or Furnished Herewith | Form or Registration Statement No. | Exhibit or Appendix | Filing Date |
| | | | | | |
Southern California Gas Company | | | | |
| | | | | | |
4.13 | | | | | 10-K | 3.01 | 03/28/97 |
| | | | | | |
4.14 | | | | | 10-K | 4.9 | 02/27/20 |
| | | | | | |
Sempra Energy / San Diego Gas & Electric Company | | | | |
| | | | | | |
4.15 | | | Mortgage and Deed of Trust dated July 1, 1940. | | 2-4769 | B-3 | (1) |
| | | | | | |
4.16 | | | Second Supplemental Indenture dated as of March 1, 1948. | | 2-7418 | B-5B | (1) |
| | | | | | |
4.17 | | | Ninth Supplemental Indenture dated as of August 1, 1968. | | 333-52150 | 4.5 | (1) |
| | | | | | |
4.18 | | | Tenth Supplemental Indenture dated as of December 1, 1968. | | 2-36042 | 2-K | (1) |
| | | | | | |
4.19 | | | Sixteenth Supplemental Indenture dated August 28, 1975. | | 33-34017 | 4.2 | (1) |
| | | | | | |
4.20 | | | | | 8-K | 4.1 | 05/19/05 |
| | | | | | |
4.21 | | | | | 8-K | 4.1 | 06/08/06 |
| | | | | | |
4.22 | | | | | 8-K | 4.1 | 09/20/07 |
| | | | | | |
4.23 | | | | | 8-K | 4.1 | 05/15/09 |
| | | | | | |
4.24 | | | | | 8-K | 4.1 | 05/13/10 |
| | | | | | |
4.25 | | | | | 8-K | 4.1 | 08/26/10 |
| | | | | | |
4.26 | | | | | 8-K | 4.1 | 08/18/11 |
| | | | | | |
4.27 | | | | | 8-K | 4.1 | 11/17/11 |
| | | | | | |
4.28 | | | | | 8-K | 4.1 | 03/23/12 |
| | | | | | |
4.29 | | | | | 8-K | 4.1 | 09/09/13 |
| | | | | | |
4.30 | | | | | 8-K | 4.2 | 03/12/15 |
| | | | | | |
4.31 | | | | | 8-K | 4.1 | 05/19/16 |
| | | | | | |
4.32 | | | | | 8-K | 4.1 | 06/08/17 |
| | | | | | |
4.33 | | | | | 8-K | 4.1 | 05/17/18 |
| | | | | | |
4.34 | | | | | 8-K | 4.1 | 05/31/19 |
| | | | | | |
4.35 | | | | | 8-K | 4.1 | 04/07/20 |
| | | | | | |
4.36 | | | | | 8-K | 4.1 | 09/28/20 |
| | | | | | |
4.37 | | | | | 8-K | 4.1 | 08/13/21 |
| | | | | | |
(1) Exhibit is not available on the SEC’s website as it was filed in paper and predates the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) database.
| | | | | | | | | | | | | | | | | | | | |
EXHIBIT INDEX (CONTINUED) |
| | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | Filed or Furnished Herewith | Form or Registration Statement No. | Exhibit or Appendix | Filing Date |
| | | | | | |
4.37 | | | | 8-K | 4.1 | 05/17/18 |
| | | | | | |
4.38 | | | | 8-K | 4.1 | 05/31/19 |
| | | | | | |
4.39 | | | | 8-K | 4.1 | 04/07/20 |
| | | | | | |
4.40 | | | | 8-K | 4.1 | 09/28/20 |
| | | | | | |
Sempra Energy / Southern California Gas Company | | | | |
4.41 | | | First Mortgage Indenture of Southern California Gas Company to American Trust Company dated October 1, 1940. | | 2-4504 | B-4 | (1) |
| | | | | | |
4.42 | | | Supplemental Indenture of Southern California Gas Company to American Trust Company dated as of August 1, 1955. | | 2-11997 | 4.07 | (1) |
| | | | | | |
4.43 | | | | | 10-K | 4.09 | 02/23/07 |
| | | | | | |
4.44 | | | | | 10-K | 4.10 | 02/23/07 |
| | | | | | |
4.45 | | | Supplemental Indenture of Southern California Gas Company to Wells Fargo Bank, National Association dated as of August 1, 1972. | | 2-59832 | 2.19 | (1) |
| | | | | | |
4.46 | | | Supplemental Indenture of Southern California Gas Company to Wells Fargo Bank, National Association dated as of May 1, 1976. | | 2-56034 | 2.20 | (1) |
| | | | | | |
4.47 | | | Supplemental Indenture of Southern California Gas Company to Wells Fargo Bank, National Association dated as of September 15, 1981. | | 333-70654 | 4.24 | (1) |
| | | | | | |
4.48 | | | | | 8-K | 4.1 | 11/18/05 |
| | | | | | |
4.49 | | | | | 8-K | 4.1 | 11/18/10 |
| | | | | | |
4.50 | | | | | 8-K | 4.1 | 09/21/12 |
| | | | | | |
4.51 | | | | | 8-K | 4.1 | 03/13/14 |
| | | | | | |
4.52 | | | | | 8-K | 4.1 | 09/11/14 |
| | | | | | |
4.53 | | | | | 8-K | 4.2 | 06/18/15 |
| | | | | | |
4.54 | | | | | 8-K | 4.1 | 06/03/16 |
| | | | | | |
4.55 | | | | | 8-K | 4.1 | 05/15/18 |
| | | | | | |
4.56 | | | | | 8-K | 4.1 | 09/24/18 |
| | | | | | |
4.57 | | | | | 8-K | 4.1 | 06/04/19 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
EXHIBIT INDEX (CONTINUED) |
| | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | Filed or Furnished Herewith | Form or Registration Statement No. | Exhibit or Appendix | Filing Date |
| | | | | | |
Sempra Energy / Southern California Gas Company | | | | |
| | | | | | |
4.38 | | | First Mortgage Indenture of Southern California Gas Company to American Trust Company dated October 1, 1940. | | 2-4504 | B-4 | (1) |
| | | | | | |
4.39 | | | Supplemental Indenture of Southern California Gas Company to American Trust Company dated as of August 1, 1955. | | 2-11997 | 4.07 | (1) |
| | | | | | |
4.40 | | | | | 10-K | 4.09 | 02/23/07 |
| | | | | | |
4.41 | | | | | 10-K | 4.10 | 02/23/07 |
| | | | | | |
4.42 | | | Supplemental Indenture of Southern California Gas Company to Wells Fargo Bank, National Association dated as of August 1, 1972. | | 2-59832 | 2.19 | (1) |
| | | | | | |
4.43 | | | Supplemental Indenture of Southern California Gas Company to Wells Fargo Bank, National Association dated as of May 1, 1976. | | 2-56034 | 2.20 | (1) |
| | | | | | |
4.44 | | | Supplemental Indenture of Southern California Gas Company to Wells Fargo Bank, National Association dated as of September 15, 1981. | | 333-70654 | 4.24 | (1) |
| | | | | | |
4.45 | | | | | 8-K | 4.1 | 11/18/05 |
| | | | | | |
4.46 | | | | | 8-K | 4.1 | 11/18/10 |
| | | | | | |
4.47 | | | | | 8-K | 4.1 | 09/21/12 |
| | | | | | |
4.48 | | | | | 8-K | 4.1 | 03/13/14 |
| | | | | | |
4.49 | | | | | 8-K | 4.1 | 09/11/14 |
| | | | | | |
4.50 | | | | | 8-K | 4.2 | 06/18/15 |
| | | | | | |
4.51 | | | | | 8-K | 4.1 | 06/03/16 |
| | | | | | |
4.52 | | | | | 8-K | 4.1 | 05/15/18 |
| | | | | | |
4.53 | | | | | 8-K | 4.1 | 09/24/18 |
| | | | | | |
4.54 | | | | | 8-K | 4.1 | 06/04/19 |
| | | | | | |
4.55 | | | | | 8-K | 4.1 | 01/09/20 |
| | | | | | |
4.56 | | | Indenture, dated as of May 1, 1989, between Southern California Gas Company and Citibank, N.A., as trustee. | | 333-28260 | 4.1.1 | (1) |
| | | | | | |
(1) Exhibit is not available on the SEC’s website as it was filed in paper and predates the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) database.
| | | | | | | | | | | | | | | | | | | | |
EXHIBIT INDEX (CONTINUED) |
| | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | Filed or Furnished Herewith | Form or Registration Statement No. | Exhibit or Appendix | Filing Date |
| | | | | | |
4.57 | | | First Supplemental Indenture, dated as of October 1, 1992, between Southern California Gas Company and Citibank, N.A., as trustee. | | 8-K | 4.1.2 | (1) |
| | | | | | |
4.58 | | | Form of 5.670% Medium Term Note due 2028. | | 8-K | 4.2.1 | (1) |
| | | | | | |
4.59 | | | | | 8-K | 4.1 | 09/21/20 |
| | | | | | |
4.60 | | | | | 8-K | 4.2 | 09/21/20 |
| | | | | | |
EXHIBIT 10 -- MATERIAL CONTRACTS | | | | |
Sempra Energy |
10.1* | | | | 10-K | 10.1 | 02/25/21 |
| | | | | | |
Sempra Energy / San Diego Gas & Electric Company / Southern California Gas Company |
10.2 | | | | 8-K | 99.1 | 01/05/06 |
| | | | | | |
Sempra Energy / San Diego Gas & Electric Company |
| | | | | | |
10.3 | | | | 10-Q | 10.4 | 05/09/11 |
| | | | | | |
10.4 | | | | 10-Q | 10.5 | 05/09/11 |
| | | | | | |
Sempra Energy / Southern California Gas Company |
10.5 | | | | 8-K | 10.1 | 09/27/21 |
| | | | | | |
Management Contract or Compensatory Plan, Contract or Arrangement |
Sempra Energy / San Diego Gas & Electric Company / Southern California Gas Company |
10.6 | | | | 10-K | 10.6 | 02/25/21 |
| | | | | | |
10.7 | | | | 10-K | 10.7 | 02/25/21 |
| | | | | | |
10.8 | | | | 10-K | 10.8 | 02/25/21 |
| | | | | | |
10.9 | | | | 10-K | 10.9 | 02/25/21 |
| | | | | | |
10.10 | | | | 10-K | 10.5 | 02/27/20 |
| | | | | | |
10.11 | | | | 10-K | 10.6 | 02/27/20 |
| | | | | | |
* Portions of the exhibit have been omitted in accordance with applicable SEC rules.
(1) Exhibit is not available on the SEC’s website as it was filed in paper and predates EDGAR.
| | | | | | | | | | | | | | | | | | | | |
EXHIBIT INDEX (CONTINUED) |
| | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | Filed or Furnished Herewith | Form or Registration Statement No. | Exhibit or Appendix | Filing Date |
| | | | | | |
4.58 | | | | | 8-K | 4.1 | 01/09/20 |
| | | | | | |
4.59 | | | Indenture, dated as of May 1, 1989, between Southern California Gas Company and Citibank, N.A., as trustee. | | 333-28260 | 4.1.1 | (1) |
| | | | | | |
4.60 | | | First Supplemental Indenture, dated as of October 1, 1992, between Southern California Gas Company and Citibank, N.A., as trustee. | | 8-K | 4.1.2 | (1) |
| | | | | | |
4.61 | | | Form of 5.670% Medium Term Note due 2028. | | 8-K | 4.2.1 | (1) |
| | | | | | |
4.62 | | | | | 8-K | 4.1 | 09/21/20 |
| | | | | | |
4.63 | | | | | 8-K | 4.2 | 09/21/20 |
| | | | | | |
EXHIBIT 10 -- MATERIAL CONTRACTS | | | | |
| | | | | | |
Sempra Energy |
10.1* | | | X | | | |
| | | | | | |
10.2* | | | | 10-Q | 10.1 | 05/04/20 |
| | | | | | |
Sempra Energy / San Diego Gas & Electric Company / Southern California Gas Company |
10.3 | | | | 8-K | 99.1 | 01/05/06 |
| | | | | | |
Sempra Energy / San Diego Gas & Electric Company |
10.4 | | | | 10-Q | 10.4 | 05/09/11 |
| | | | | | |
10.5 | | | | 10-Q | 10.5 | 05/09/11 |
| | | | | | |
Management Contract or Compensatory Plan, Contract or Arrangement |
Sempra Energy / San Diego Gas & Electric Company / Southern California Gas Company |
| | | | | | |
10.6 | | | X | | | |
| | | | | | |
10.7 | | | X | | | |
| | | | | | |
10.8 | | | X | | | |
| | | | | | |
10.9 | | | X | | | |
| | | | | | |
* Portions of the exhibit have been omitted in accordance with applicable SEC rules.(1) Exhibit is not available on the SEC’s website as it was filed in paper and predates EDGAR. | | | | | | | | | | | | | | | | | | | | |
EXHIBIT INDEX (CONTINUED) |
| | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | Filed or Furnished Herewith | Form or Registration Statement No. | Exhibit or Appendix | Filing Date |
| | | | | | |
10.12 | | | | 10-Q | 10.1 | 11/05/20 |
| | | | | | |
10.13 | | | | 10-K | 10.7 | 02/27/20 |
| | | | | | |
10.14 | | | | 10-K | 10.8 | 02/27/20 |
| | | | | | |
10.15 | | | | 10-K | 10.9 | 02/27/20 |
| | | | | | |
10.16 | | | | DEF 14A | E | 03/22/19 |
| | | | | | |
10.17 | | | | 10-Q | 10.2 | 08/02/19 |
| | | | | | |
10.18 | | | | 10-Q | 10.5 | 08/02/19 |
| | | | | | |
10.19 | | | | 10-Q | 10.1 | 05/07/19 |
| | | | | | |
10.20 | | | | 10-Q | 10.2 | 05/07/19 |
| | | | | | |
10.21 | | | | 10-Q | 10.3 | 05/07/19 |
| | | | | | |
10.22 | | | | 10-Q | 10.4 | 05/07/19 |
| | | | | | |
10.23 | | | | 10-Q | 10.5 | 05/07/19 |
| | | | | | |
10.24 | | | | 10-Q | 10.2 | 08/07/08 |
| | | | | | |
10.25 | | | | 10-Q | 10.1 | 05/04/16 |
| | | | | | |
10.26 | | | | 10-K | 10.19 | 02/27/14 |
| | | | | | |
10.27 | | | | 10-K | 10.26 | 02/25/21 |
| | | | | | |
10.28 | | | | 10-K | 10.5 | 02/26/16 |
| | | | | | |
10.29 | | | | 10-Q | 10.8 | 05/07/18 |
| | | | | | |
10.30 | | | | 10-Q | 10.9 | 05/07/18 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
EXHIBIT INDEX (CONTINUED) |
| | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | Filed or Furnished Herewith | Form or Registration Statement No. | Exhibit or Appendix | Filing Date |
| | | | | | |
10.10 | | | | 10-K | 10.5 | 02/27/20 |
| | | | | | |
10.11 | | | | 10-K | 10.6 | 02/27/20 |
| | | | | | |
10.12 | | | | 10-Q | 10.1 | 11/05/20 |
| | | | | | |
10.13 | | | | 10-K | 10.7 | 02/27/20 |
| | | | | | |
10.14 | | | | 10-K | 10.8 | 02/27/20 |
| | | | | | |
10.15 | | | | 10-K | 10.9 | 02/27/20 |
| | | | | | |
10.16 | | | | DEF 14A | E | 03/22/19 |
| | | | | | |
10.17 | | | | 10-Q | 10.2 | 08/02/19 |
| | | | | | |
10.18 | | | | 10-Q | 10.5 | 08/02/19 |
| | | | | | |
10.19 | | | | 10-Q | 10.1 | 05/07/19 |
| | | | | | |
10.20 | | | | 10-Q | 10.2 | 05/07/19 |
| | | | | | |
10.21 | | | | 10-Q | 10.3 | 05/07/19 |
| | | | | | |
10.22 | | | | 10-Q | 10.4 | 05/07/19 |
| | | | | | |
10.23 | | | | 10-Q | 10.5 | 05/07/19 |
| | | | | | |
10.24 | | | | 10-Q | 10.1 | 05/04/16 |
| | | | | | |
10.25 | | | | 10-K | 10.19 | 02/27/14 |
| | | | | | |
10.26 | | | X | | | |
| | | | | | |
10.27 | | | | 10-K | 10.5 | 02/26/16 |
| | | | | | |
10.28 | | | | 10-Q | 10.8 | 05/07/18 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
EXHIBIT INDEX (CONTINUED) |
| | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | Filed or Furnished Herewith | Form or Registration Statement No. | Exhibit or Appendix | Filing Date |
| | | | | | |
10.31 | | | | 10-Q | 10.10 | 05/07/18 |
| | | | | | |
10.32 | | | | 10-Q | 10.11 | 05/07/18 |
| | | | | | |
10.33 | | | | 10-Q | 10.13 | 05/07/18 |
| | | | | | |
10.34 | | | | 10-K | 10.33 | 02/25/21 |
| | | | | | |
10.35 | | | | 10-K | 10.28 | 02/28/17 |
| | | | | | |
10.36 | | | | 10-K | 10.28 | 02/26/16 |
| | | | | | |
10.37 | | | | 10-K | 10.29 | 02/26/16 |
| | | | | | |
10.38 | | | | 10-K | 10.43 | 02/26/15 |
| | | | | | |
10.39 | | | | 10-K | 10.31 | 02/26/16 |
| | | | | | |
10.40 | | | | 10-K | 10.22 | 02/26/13 |
| | | | | | |
10.41 | | | | 10-K | 10.35 | 02/27/20 |
| | | | | | |
Sempra Energy |
10.42 | | | | 10-Q | 10.3 | 08/02/19 |
| | | | | | |
10.43 | | | | 10-Q | 10.4 | 08/02/19 |
| | | | | | |
10.44 | | | | 10-K | 10.50 | 02/27/18 |
| | | | | | |
10.45 | | | | 10-Q | 10.7 | 08/07/08 |
| | | | | | |
10.46 | | | | 10-Q | 10.7 | 05/07/18 |
| | | | | | |
10.47 | | | | 10-Q | 10.3 | 08/06/18 |
| | | | | | |
10.48 | | | | 10-Q | 10.2 | 11/05/20 |
| | | | | | |
10.49 | | | | 10-Q | 10.5 | 08/06/18 |
| | | | | | |
10.50 | | | | 10-Q | 10.3 | 11/05/20 |
| | | | | | |
10.51 | | | X | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
EXHIBIT INDEX (CONTINUED) |
| | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | Filed or Furnished Herewith | Form or Registration Statement No. | Exhibit or Appendix | Filing Date |
| | | | | | |
10.29 | | | | 10-Q | 10.9 | 05/07/18 |
| | | | | | |
10.30 | | | | 10-Q | 10.10 | 05/07/18 |
| | | | | | |
10.31 | | | | 10-Q | 10.11 | 05/07/18 |
| | | | | | |
10.32 | | | | 10-Q | 10.12 | 05/07/18 |
| | | | | | |
10.33 | | | X | | | |
| | | | | | |
10.34 | | | | 10-Q | 10.13 | 05/07/18 |
| | | | | | |
10.35 | | | | 10-K | 10.28 | 02/28/17 |
| | | | | | |
10.36 | | | | 10-K | 10.28 | 02/26/16 |
| | | | | | |
10.37 | | | | 10-K | 10.29 | 02/26/16 |
| | | | | | |
10.38 | | | | 10-K | 10.43 | 02/26/15 |
| | | | | | |
10.39 | | | | 10-K | 10.31 | 02/26/16 |
| | | | | | |
10.40 | | | | 10-K | 10.22 | 02/26/13 |
| | | | | | |
10.41 | | | | 10-K | 10.35 | 02/27/20 |
| | | | | | |
10.42 | | | | 10-Q | 10.2 | 08/07/08 |
| | | | | | |
Sempra Energy |
| | | | | | |
10.43 | | | | 10-Q | 10.3 | 08/02/19 |
| | | | | | |
10.44 | | | | 10-Q | 10.4 | 08/02/19 |
| | | | | | |
10.45 | | | | 10-K | 10.09 | 02/26/03 |
| | | | | | |
10.46 | | | | 10-K | 10.50 | 02/27/18 |
| | | | | | |
10.47 | | | | 10-Q | 10.7 | 08/07/08 |
| | | | | | |
10.48 | | | | 10-Q | 10.7 | 05/07/18 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
EXHIBIT INDEX (CONTINUED) |
| | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | Filed or Furnished Herewith | Form or Registration Statement No. | Exhibit or Appendix | Filing Date |
| | | | | | |
Sempra Energy / San Diego Gas & Electric Company |
10.52 | | | | 10-K | 10.64 | 02/27/14 |
| | | | | | |
10.53 | | | | 10-Q | 10.1 | 08/05/20 |
| | | | | | |
10.54 | | | | 10-Q | 10.15 | 05/09/17 |
| | | | | | |
10.55 | | | | 10-Q | 10.4 | 11/05/20 |
| | | | | | |
10.56 | | | | 10-K | 10.68 | 02/26/19 |
| | | | | | |
Sempra Energy / Southern California Gas Company |
| | | | | | |
10.57 | | | | 10-K | 10.71 | 02/27/14 |
| | | | | | |
10.58 | | | | 10-Q | 10.4 | 11/07/18 |
| | | | | | |
10.59 | | | | 10-Q | 10.7 | 08/02/19 |
| | | | | | |
10.60 | | | | 10-Q | 10.2 | 08/05/20 |
| | | | | | |
10.61 | | | | 10-Q | 10.6 | 08/02/19 |
| | | | | | |
10.62 | | | | 10-K | 10.77 | 02/26/19 |
| | | | | | |
10.63 | | | | 10-K | 10.67 | 02/25/21 |
| | | | | | |
| | | | |
| | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
EXHIBIT 14 -- CODE OF ETHICS | | | | |
Sempra Energy / San Diego Gas & Electric Company / Southern California Gas Company |
14.1 | | | | X | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
EXHIBIT INDEX (CONTINUED) |
| | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | Filed or Furnished Herewith | Form or Registration Statement No. | Exhibit or Appendix | Filing Date |
| | | | | | |
10.49 | | | | 10-Q | 10.3 | 08/06/18 |
| | | | | | |
10.50 | | | | 10-Q | 10.2 | 11/05/20 |
| | | | | | |
10.51 | | | | 10-Q | 10.5 | 08/06/18 |
10.52 | | | | 10-Q | 10.3 | 11/05/20 |
| | | | | | |
10.53 | | | | 10-K | 10.42 | 02/28/17 |
| | | | | | |
10.54 | | | | 10-Q | 10.1 | 11/01/19 |
| | | | | | |
10.55 | | | | 10-Q | 10.2 | 05/04/20 |
| | | | | | |
Sempra Energy / San Diego Gas & Electric Company |
| | | | | | |
10.56 | | | | 10-K | 10.64 | 02/27/14 |
| | | | | | |
10.57 | | | | 10-Q | 10.1 | 08/05/20 |
| | | | | | |
10.58 | | | | 10-Q | 10.15 | 05/09/17 |
| | | | | | |
10.59 | | | | 10-Q | 10.4 | 11/05/20 |
| | | | | | |
10.60 | | | | 10-K | 10.68 | 02/26/19 |
| | | | | | |
Sempra Energy / Southern California Gas Company |
| | | | | | |
10.61 | | | | 10-K | 10.71 | 02/27/14 |
| | | | | | |
10.62 | | | | 10-Q | 10.4 | 11/07/18 |
| | | | | | |
10.63 | | | | 10-Q | 10.7 | 08/02/19 |
| | | | | | |
10.64 | | | | 10-Q | 10.2 | 08/05/20 |
| | | | | | |
10.65 | | | | 10-Q | 10.6 | 08/02/19 |
| | | | | | |
10.66 | | | | 10-K | 10.77 | 02/26/19 |
| | | | | | |
10.67 | | | X | | | |
| | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
EXHIBIT INDEX (CONTINUED) |
| | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | Filed or Furnished Herewith | Form or Registration Statement No. | Exhibit or Appendix | Filing Date |
| | | | | | |
Nuclear | | | | |
Sempra Energy / San Diego Gas & Electric Company | | | | |
| | | | | | |
10.68 | | Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station dated June 29, 1992. | | 10-K | 10.7 | (1) |
| | | | | | |
10.69 | | | | 10-K | 10.56 | 02/28/95 |
| | | | | | |
10.70 | | | | 10-K | 10.57 | 02/28/95 |
| | | | | | |
10.71 | | | | 10-K | 10.59 | 03/19/97 |
| | | | | | |
10.72 | | | | 10-K | 10.60 | 03/19/97 |
| | | | | | |
10.73 | | | | 10-K | 10.26 | 03/29/00 |
| | | | | | |
10.74 | | | | 10-K | 10.27 | 03/29/00 |
| | | | | | |
10.75 | | | | 10-K | 10.42 | 02/25/04 |
| | | | | | |
10.76 | | | | 10-K | 10.70 | 02/28/12 |
| | | | | | |
10.77 | | | | 10-K | 10.83 | 02/27/14 |
| | | | | | |
10.78 | | | | 10-Q | 10.1 | 11/04/14 |
| | | | | | |
10.79 | | | | 10-Q | 10.2 | 11/04/14 |
| | | | | | |
10.80 | | | | 10-Q | 10.3 | 11/04/14 |
| | | | | | |
10.81 | | | | 10-K | 10.78 | 02/26/16 |
| | | | | | |
(1) Exhibit is not available on the SEC’s website as it was filed in paper and predates EDGAR
| | | | | | | | | | | | | | | | | | | | |
EXHIBIT INDEX (CONTINUED) |
| | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | Filed or Furnished Herewith | Form or Registration Statement No. | Exhibit or Appendix | Filing Date |
| | | | | | |
10.82 | | | | 10-Q | 10.1 | 11/02/16 |
| | | | | | |
10.83 | | | | 10-Q | 10.2 | 11/02/16 |
| | | | | | |
10.84 | | U. S. Department of Energy contract for disposal of spent nuclear fuel and/or high-level radioactive waste, entered into between the DOE and Southern California Edison Company, as agent for SDG&E and others; Contract DE-CR01-83NE44418, dated June 10, 1983. | | 10-K | 10N | (1) |
| | | | | | |
EXHIBIT 14 -- CODE OF ETHICS | | | | |
| | | | | | |
Sempra Energy / San Diego Gas & Electric Company / Southern California Gas Company |
14.1 | | | | | 10-K | 14.01 | 02/23/07 |
| | | | | | |
(1) Exhibit is not available on the SEC’s website as it was filed in paper and predates EDGAR
| | | | | | | | | | | | | | |
EXHIBIT INDEX (CONTINUED) |
Exhibit Number | | Exhibit Description | | Filed or Furnished Herewith |
| | | | |
EXHIBIT 21 -- SUBSIDIARIES | | |
| | | | |
Sempra Energy | | |
21.1 | | | | | X |
| | | | |
EXHIBIT 23 -- CONSENTS OF EXPERTS AND COUNSEL | | |
| | | | |
Sempra Energy | | |
23.1 | | | | | X |
| | | | |
23.2 | | | | | X |
| | | | |
San Diego Gas & Electric Company | | |
23.3 | | | | | X |
| | | | |
Southern California Gas Company | | |
23.4 | | | | | X |
| | | | |
EXHIBIT 31 -- SECTION 302 CERTIFICATIONS | | |
| | | | |
Sempra Energy | | |
31.1 | | | | | X |
| | | | |
31.2 | | | | | X |
| | | | |
San Diego Gas & Electric Company | | |
31.3 | | | | | X |
| | | | |
31.4 | | | | | X |
| | | | |
Southern California Gas Company | | |
31.5 | | | | | X |
| | | | |
31.6 | | | | | X |
| | | | |
EXHIBIT 32 -- SECTION 906 CERTIFICATIONS | | |
| | | | |
Sempra Energy | | |
32.1 | | | | | X |
| | | | |
32.2 | | | | | X |
| | | | |
San Diego Gas & Electric Company | | |
32.3 | | | | | X |
| | | | |
32.4 | | | | | X |
| | | | |
| | | | | | | | | | | | | | |
EXHIBIT INDEX (CONTINUED) |
Exhibit Number | | Exhibit Description | | Filed or Furnished Herewith |
| | | | |
Southern California Gas Company | | |
32.5 | | | | | X |
| | | | |
32.6 | | | | | X |
| | | | |
EXHIBIT 99 -- ADDITIONAL EXHIBITS | | |
| | | | |
Sempra Energy | | |
99.1 | | | | | X |
| | | | |
EXHIBIT 101 -- INTERACTIVE DATA FILE | | |
| | | | |
101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document. | | X |
| | | | |
101.SCH | | XBRL Taxonomy Extension Schema Document. | | X |
| | | | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. | | X |
| | | | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. | | X |
| | | | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. | | X |
| | | | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. | | X |
| | | | |
EXHIBIT 104 -- COVER PAGE | | |
| | | | |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | | |
| | | | |
ITEM 16. FORM 10-K SUMMARY
Not applicable.
| | | | | |
Sempra Energy: |
SIGNATURES |
|
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. |
|
| SEMPRA ENERGY, (Registrant) |
| |
| By: /s/ J. Walker Martin |
| J. Walker Martin Chairman, Chief Executive Officer and President |
| |
| Date: February 25, 20212022 |
| | | | | | | | |
Pursuant to the requirements of the Securities Exchange Act of 1934 (the Act), this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. |
| | |
Name/Title | Signature | Date |
Principal Executive Officer: J. Walker Martin Chief Executive Officer and President | /s/ J. Walker Martin | February 25, 20212022 |
| | |
Principal Financial Officer: Trevor I. Mihalik Executive Vice President and Chief Financial Officer | /s/ Trevor I. Mihalik | February 25, 20212022 |
| | |
Principal Accounting Officer: Peter R. Wall Senior Vice President, Controller and Chief Accounting Officer | /s/ Peter R. Wall | February 25, 20212022 |
Directors: | | |
J. Walker Martin, Chairman | /s/ J. Walker Martin | February 25, 20212022 |
| | |
Alan L. Boeckmann, Director | /s/ Alan L. Boeckmann | February 25, 20212022 |
| | |
Kathleen L. Brown, Director | /s/ Kathleen L. Brown | February 25, 2021 |
| | |
Andrés Conesa, Director | /s/ Andrés Conesa | February 25, 20212022 |
| | |
Maria Contreras-Sweet, Director | /s/ Maria Contreras-Sweet | February 25, 20212022 |
| | |
Pablo A. Ferrero, Director | /s/ Pablo A. Ferrero | February 25, 20212022 |
| | |
William D. Jones, Director | /s/ William D. Jones | February 25, 20212022 |
| | |
Bethany J. Mayer, Director | /s/ Bethany J. Mayer | February 25, 20212022 |
| | |
Michael N. Mears, Director | /s/ Michael N. Mears | February 25, 20212022 |
| | |
Jack T. Taylor, Director | /s/ Jack T. Taylor | February 25, 20212022 |
| | |
Cynthia L. Walker, Director | /s/ Cynthia L. Walker | February 25, 20212022 |
| | |
Cynthia J. Warner, Director | /s/ Cynthia J. Warner | February 25, 20212022 |
| | |
James C. Yardley, Director | /s/ James C. Yardley | February 25, 20212022 |
| | | | | |
San Diego Gas & Electric Company: |
SIGNATURES |
|
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. |
|
| SAN DIEGO GAS & ELECTRIC COMPANY, (Registrant) |
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| By: /s/ Caroline A. Winn |
| Caroline A. Winn Chief Executive Officer |
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| Date: February 25, 20212022 |
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Pursuant to the requirements of the Securities Exchange Act of 1934 (the Act), this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. |
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Name/Title | Signature | Date |
Principal Executive Officer: Caroline A. Winn Chief Executive Officer | /s/ Caroline A. Winn | February 25, 20212022 |
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Principal Financial Officer: Bruce A. Folkmann President and Chief Financial Officer | /s/ Bruce A. Folkmann | February 25, 20212022 |
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Principal Accounting Officer: Valerie A. Bille Vice President, Controller and Chief Accounting Officer | /s/ Valerie A. Bille | February 25, 20212022 |
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Directors: | | |
Kevin C. Sagara, Non-Executive Chairman | /s/ Kevin C. Sagara | February 25, 20212022 |
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Robert J. Borthwick, Director | /s/ Robert J. Borthwick | February 25, 20212022 |
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Erbin B. Keith, Director | /s/ Erbin B. Keith | February 25, 2021 |
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Trevor I. Mihalik, Director | /s/ Trevor I. Mihalik | February 25, 20212022 |
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Caroline A. Winn, Director | /s/ Caroline A. Winn | February 25, 20212022 |
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT:
No annual report, proxy statement, form of proxy or other soliciting material has been sent to security holders during the period covered by this annual report on Form 10-K, and no such materials are to be furnished to security holders subsequent to the filing of this annual report on Form 10-K.
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Southern California Gas Company: |
SIGNATURES |
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. |
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| SOUTHERN CALIFORNIA GAS COMPANY, (Registrant) |
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| By: /s/ Scott D. Drury |
| Scott D. Drury Chief Executive Officer |
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| Date: February 25, 20212022 |
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. |
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Name/Title | Signature | Date |
Principal Executive Officer: Scott D. Drury Chief Executive Officer | /s/ Scott D. Drury | February 25, 20212022 |
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Principal Financial and Accounting Officer: Mia L. DeMontigny Vice President, Controller, Chief Financial Officer, Controller and Chief Accounting Officer
| /s/ Mia L. DeMontigny | February 25, 20212022 |
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Directors: | | |
Kevin C. Sagara, Non-Executive Chairman | /s/ Kevin C. Sagara | February 25, 20212022 |
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Scott D. Drury, Director | /s/ Scott D. Drury | February 25, 20212022 |
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Lisa Larroque Alexander, Director | /s/ Lisa Larroque Alexander | February 25, 20212022 |
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Trevor I. Mihalik,Karen L. Sedgwick, Director | /s/ Trevor I. MihalikKaren L. Sedgwick | February 25, 20212022 |
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SEMPRA ENERGY | | | |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS | | | |
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Consolidated Financial Statements: | Sempra Energy | San Diego Gas & Electric Company | Southern California Gas Company |
Consolidated Statements of Operations for the years ended December 31, 2021, 2020 2019 and 20182019 | | | |
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Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2021, 2020 2019 and 20182019 | | | |
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Consolidated Balance Sheets at December 31, 2021, 2020 and 2019 | | | |
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Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 2019 and 20182019 | | | |
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Consolidated Statements of Changes in Equity for the years ended December 31, 2021, 2020 2019 and 20182019 | | | N/A |
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Statements of Changes in Shareholders’ Equity for the years ended December 31, 2021, 2020 2019 and 20182019 | N/A | N/A | |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Sempra Energy:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Sempra Energy and subsidiaries (“Sempra Energy”Sempra”) as of December 31, 2021, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows for each of the three years in the period ended December 31, 2020,2021, the related notes, and the schedule listed in Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of Sempra Energy as of December 31, 2021, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020,2021, in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), Sempra Energy’sSempra’s internal control over financial reporting as of December 31, 2020,2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 25, 20212022 expressed an unqualified opinion on Sempra Energy’sSempra’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of Sempra Energy’sSempra’s management. Our responsibility is to express an opinion on Sempra Energy’sSempra’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to Sempra Energy in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Insurance Receivable and Legal Contingencies Related to Aliso Canyon Gas Leak - Refer to Note 16 of the Notes to Consolidated Financial Statements
Critical Audit Matter Description
Sempra Energy has an insurance receivable of $445$360 million as of December 31, 20202021 related to certain costs arising from the Aliso Canyon natural gas storage facility gas leak. Sempra Energy has determined that the insurance receivable is probable of recovery based on the nature of the insurance claims, the costs incurred, and the coverage provided by applicable insurance policies.
Additionally, Sempra Energy is named in various lawsuits related to the gas leak and the liabilities could be material. Sempra Energy’s accrual for civil litigation matters associated with the gas leak, inclusive of estimated legal costs, is included within its $451 million Reserve for Aliso Canyon Costs as of December 31, 2020.
We identified the recoverability of the insurance receivable as a critical audit matter due to the management judgments required in assessing if, and to what degree, the coverage provided by applicable insurance policies would cover the types of costs included in the insurance claims submitted. Also, we identified the contingency accrual related to the civil litigation as a critical audit matter due to the management judgments required in assessing the probability and reasonable estimation of the potential liability related to the civil litigation. Auditing the probability of recovery of the insurance receivable and the contingency accrual related to the civil litigation required subjective auditor judgment and extensive audit effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the probability of recovery of the insurance receivable for the costs related to the Aliso Canyon natural gas storage facility gas leak included the following, among others:
▪We tested the effectiveness of management’s internal controls over the costs included in the related insurance receivable and the evaluation of the recoverability of this insurance receivable.
▪With the assistance of an insurance specialist, we evaluated management’s judgments related to the determination of the recoverability of the insurance receivable by:
◦Evaluating the coverage provided by applicable insurance policies and evaluating the potential coverage available under such policies based on the nature of the underlying costs.
◦Evaluating the probability of recovery of the insurance receivable by obtaining correspondence between Sempra Energy and the applicable insurers.
◦Evaluating the probability of recovery of the insurance receivable through inquiries with management and with external legal counsel of Sempra Energy and we evaluated whether the information provided was consistent with our other procedures.
◦Searching external sources for and considering any contradictory evidence to Sempra Energy’sSempra’s accounting assessment of probability of recoverability of the insurance receivable.
Our audit procedures related to civil litigation matters included the following, among others:
▪We tested the effectiveness of management’s internal controls over (1) Sempra Energy’s determination of whether a loss was probable and reasonably estimable and (2) the financial statement disclosures related to the gas leak.
▪We evaluated management’s judgments related to (1) whether a loss was probable and reasonably estimable and (2) whether additional losses are reasonably possible by inquiring of management and legal counsel of Sempra Energy regarding the amounts of probable and reasonably estimable losses.
▪We read a settlement offer and external information for any evidence that might contradict management’s assertions.
▪We read legal letters from external and internal legal counsel of Sempra Energy regarding information from settlement discussions and we evaluated whether the information therein was consistent with the information obtained in our procedures.
▪We evaluated whether Sempra Energy’sSempra’s disclosures were appropriate and consistent with the information obtained in our procedures.
Regulatory Accounting -– Impact of Rate Regulation on the Financial Statements -– Refer to Note 1 of the Notes to Consolidated Financial Statements
Critical Audit Matter Description
Sempra Energy is subject to rate regulation by regulators and commissions in various jurisdictions (collectively, the “Commissions”) that have jurisdiction with respect to the rates of electric and gas transmission and distribution companies in those jurisdictions. Management has determined it meets the requirements under U.S. GAAP to prepare its financial statements applying the specialized rules to account for the effects of cost-based rate regulation. Accounting for the economics of rate regulation impacts multiple financial statement line items and disclosures, such as property, plant and equipment; regulatory assets and liabilities; operating revenues; operation and maintenance expense; depreciation expense; and taxes.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management to support its assertions about impacted account balances and disclosures and the high degree of subjectivity involved in assessing the impact of future regulatory orders on the financial statements. Management’s judgments include assessing the likelihood of (1) the recovery in future rates of incurred costs and (2) potential refunds to customers. Auditing these judgments required specialized knowledge of accounting for rate regulation and the rate setting process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the application of specialized rules to account for the effects of cost-based rate regulation and the uncertainty of future decisions by the Commissions included the following, among others:
▪We tested the effectiveness of management’s controls over the evaluation of the likelihood of (1) the recovery in future rates of costs deferred as regulatory assets, and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities. We tested the effectiveness of management’s controls over the initial recognition of amounts as regulatory assets or liabilities and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.
▪We read relevant regulatory orders issued by the Commissions for Sempra Energy and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared to management’s recorded regulatory asset and liability balances for completeness.
▪We evaluated Sempra Energy’sSempra’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
February 25, 20212022
We have served as Sempra Energy’sSempra’s auditor since 1935.
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholder and Board of Directors of San Diego Gas & Electric Company:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of San Diego Gas & Electric Company (“SDG&E”) as of December 31, 2021, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows for each of the three years in the period ended December 31, 2020,2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of SDG&E as of December 31, 2021, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020,2021, in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), SDG&E’s internal control over financial reporting as of December 31, 2020,2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 25, 20212022 expressed an unqualified opinion on SDG&E’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of SDG&E’s management. Our responsibility is to express an opinion on SDG&E’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to SDG&E in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Accounting -– Impact of Rate Regulation on the Financial Statements -– Refer to Note 1 of the Notes to Consolidated Financial Statements
Critical Audit Matter Description
SDG&E is subject to rate regulation by regulators and commissions in various jurisdictions (collectively, the “Commissions”) that have jurisdiction with respect to the rates of electric and gas transmission and distribution companies in those jurisdictions. Management has determined it meets the requirements under U.S. GAAP to prepare its financial statements applying the specialized rules to account for the effects of cost-based rate regulation. Accounting for the economics of rate regulation impacts multiple financial statement line items and disclosures, such as property, plant and equipment; regulatory assets and liabilities; operating revenues; operation and maintenance expense; depreciation expense; and taxes.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management to support its assertions about impacted account balances and disclosures and the high degree of subjectivity involved in assessing the impact of future regulatory orders on the financial statements. Management’s judgments include assessing the likelihood of (1) the recovery in future rates of incurred costs and (2) potential refunds to customers. Auditing these judgments required specialized knowledge of accounting for rate regulation and the rate setting process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the application of specialized rules to account for the effects of cost-based rate regulation and the uncertainty of future decisions by the Commissions included the following, among others:
▪We tested the effectiveness of management’s controls over the evaluation of the likelihood of (1) the recovery in future rates of costs deferred as regulatory assets, and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities. We tested the effectiveness of management’s controls over the initial recognition of amounts as regulatory assets or liabilities and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.
▪We read relevant regulatory orders issued by the Commissions for SDG&E and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared to management’s recorded regulatory asset and liability balances for completeness.
▪We evaluated SDG&E’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
February 25, 20212022
We have served as SDG&E’s auditor since 1935.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Southern California Gas Company:
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Southern California Gas Company (“SoCalGas”) as of December 31, 2021, 2020 and 2019, the related statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020,2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of SoCalGas as of December 31, 2021, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020,2021, in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), SoCalGas’ internal control over financial reporting as of December 31, 2020,2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 25, 20212022 expressed an unqualified opinion on SoCalGas’ internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of SoCalGas’ management. Our responsibility is to express an opinion on SoCalGas’ financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to SoCalGas in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Insurance Receivable and Legal Contingencies Related to Aliso Canyon Gas Leak -– Refer to Note 16 of the Notes to Financial Statements
Critical Audit Matter Description
SoCalGas has an insurance receivable of $445$360 million as of December 31, 20202021 related to certain costs arising from the Aliso Canyon natural gas storage facility gas leak. SoCalGas has determined that the insurance receivable is probable of recovery based on the nature of the insurance claims, the costs incurred, and the coverage provided by applicable insurance policies.
Additionally, SoCalGas is named in various lawsuits related to the gas leak and the liabilities could be material. SoCalGas’ accrual for civil litigation matters associated with the gas leak, inclusive of estimated legal costs, is included within its $451 million Reserve for Aliso Canyon Costs as of December 31, 2020.
We identified the recoverability of the insurance receivable as a critical audit matter due to the management judgments required in assessing if, and to what degree, the coverage provided by applicable insurance policies would cover the types of costs included in the insurance claims submitted. Also, we identified the contingency accrual related to the civil litigation as a critical audit matter due to the management judgments required in assessing the probability and reasonable estimation of the potential liability related to the civil litigation. Auditing the probability of recovery of the insurance receivable and the contingency accrual related to the civil litigation required subjective auditor judgment and extensive audit effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the probability of recovery of the insurance receivable for the costs related to the Aliso Canyon natural gas storage facility gas leak included the following, among others:
▪We tested the effectiveness of management’s internal controls over the costs included in the related insurance receivable and the evaluation of the recoverability of this insurance receivable.
▪With the assistance of an insurance specialist, we evaluated management’s judgments related to the determination of the recoverability of the insurance receivable by:
◦Evaluating the coverage provided by applicable insurance policies and evaluating the potential coverage available under such policies based on the nature of the underlying costs.
◦Evaluating the probability of recovery of the insurance receivable by obtaining correspondence between SoCalGas and the applicable insurers.
◦Evaluating the probability of recovery of the insurance receivable through inquiries with management and with external legal counsel of SoCalGas and we evaluated whether the information provided was consistent with our other procedures.
◦Searching external sources for and considering any contradictory evidence to SoCalGas’ accounting assessment of probability of recoverability of the insurance receivable.
Our audit procedures related to civil litigation matters included the following, among others:
▪We tested the effectiveness of management’s internal controls over (1) SoCalGas’ determination of whether a loss was probable and reasonably estimable and (2) the financial statement disclosures related to the gas leak.
▪We evaluated management’s judgments related to (1) whether a loss was probable and reasonably estimable and (2) whether additional losses are reasonably possible by inquiring of management and legal counsel of Sempra Energy and SoCalGas regarding the amounts of probable and reasonably estimable losses.
▪We read a settlement offer and external information for any evidence that might contradict management’s assertions.
▪We read legal letters from external and internal legal counsel of Sempra Energy regarding information from settlement discussions and we evaluated whether the information therein was consistent with the information obtained in our procedures.
▪We evaluated whether SoCalGas’ disclosures were appropriate and consistent with the information obtained in our procedures.
Regulatory Accounting -– Impact of Rate Regulation on the Financial Statements -– Refer to Note 1 of the Notes to Financial Statements
Critical Audit Matter Description
SoCalGas is subject to rate regulation by regulators and commissions in various jurisdictions (collectively, the “Commissions”) that have jurisdiction with respect to the rates of gas transmission and distribution companies in those jurisdictions. Management has determined it meets the requirements under U.S. GAAP to prepare its financial statements applying the specialized rules to account for the effects of cost-based rate regulation. Accounting for the economics of rate regulation impacts multiple financial statement line items and disclosures, such as property, plant and equipment; regulatory assets and liabilities; operating revenues; operation and maintenance expense; depreciation expense; and taxes.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management to support its assertions about impacted account balances and disclosures and the high degree of subjectivity involved in assessing the impact of future regulatory orders on the financial statements. Management’s judgments include assessing the likelihood of (1) the recovery in future rates of incurred costs and (2) potential refunds to customers. Auditing these judgments required specialized knowledge of accounting for rate regulation and the rate setting process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the application of specialized rules to account for the effects of cost-based rate regulation and the uncertainty of future decisions by the Commissions included the following, among others:
▪We tested the effectiveness of management’s controls over the evaluation of the likelihood of (1) the recovery in future rates of costs deferred as regulatory assets, and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities. We tested the effectiveness of management’s controls over the initial recognition of amounts as regulatory assets or liabilities and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.
▪We read relevant regulatory orders issued by the Commissions for SoCalGas and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared to management’s recorded regulatory asset and liability balances for completeness.
▪We evaluated SoCalGas’ disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
February 25, 20212022
We have served as SoCalGas’ auditor since 1937.
| SEMPRA ENERGY | SEMPRA ENERGY | SEMPRA ENERGY |
CONSOLIDATED STATEMENTS OF OPERATIONS | CONSOLIDATED STATEMENTS OF OPERATIONS | CONSOLIDATED STATEMENTS OF OPERATIONS |
(Dollars in millions, except per share amounts; shares in thousands) | (Dollars in millions, except per share amounts; shares in thousands) | (Dollars in millions, except per share amounts; shares in thousands) |
| | | Years ended December 31, | | | Years ended December 31, |
| | | 2020 | | 2019 | | 2018 | | | 2021 | | 2020 | | 2019 |
REVENUES | REVENUES | | | | | | | REVENUES | | | | | | |
Utilities | | $ | 10,025 | | | $ | 9,448 | | | $ | 8,539 | | |
Utilities: | | Utilities: | |
Natural gas | | Natural gas | | $ | 6,333 | | | $ | 5,411 | | | $ | 5,185 | |
Electric | | Electric | | 4,658 | | | 4,614 | | | 4,263 | |
Energy-related businesses | Energy-related businesses | | 1,345 | | | 1,381 | | | 1,563 | | Energy-related businesses | | 1,866 | | | 1,345 | | | 1,381 | |
Total revenues | Total revenues | | 11,370 | | | 10,829 | | | 10,102 | | Total revenues | | 12,857 | | | 11,370 | | | 10,829 | |
| EXPENSES AND OTHER INCOME | EXPENSES AND OTHER INCOME | | | | | | | EXPENSES AND OTHER INCOME | | | | | | |
Utilities: | Utilities: | | | | | | | Utilities: | | | | | | |
Cost of natural gas | Cost of natural gas | | (925) | | | (1,139) | | | (1,208) | | Cost of natural gas | | (1,597) | | | (925) | | | (1,139) | |
Cost of electric fuel and purchased power | Cost of electric fuel and purchased power | | (1,187) | | | (1,188) | | | (1,358) | | Cost of electric fuel and purchased power | | (1,010) | | | (1,187) | | | (1,188) | |
Energy-related businesses cost of sales | Energy-related businesses cost of sales | | (276) | | | (344) | | | (357) | | Energy-related businesses cost of sales | | (611) | | | (276) | | | (344) | |
Operation and maintenance | Operation and maintenance | | (3,940) | | | (3,466) | | | (3,150) | | Operation and maintenance | | (4,338) | | | (3,940) | | | (3,466) | |
Aliso Canyon litigation and regulatory matters | Aliso Canyon litigation and regulatory matters | | (307) | | | 0 | | | 0 | | Aliso Canyon litigation and regulatory matters | | (1,593) | | | (307) | | | — | |
Depreciation and amortization | Depreciation and amortization | | (1,666) | | | (1,569) | | | (1,491) | | Depreciation and amortization | | (1,855) | | | (1,666) | | | (1,569) | |
Franchise fees and other taxes | Franchise fees and other taxes | | (543) | | | (496) | | | (472) | | Franchise fees and other taxes | | (596) | | | (543) | | | (496) | |
| Impairment losses | Impairment losses | | (1) | | | (43) | | | (1,122) | | Impairment losses | | (3) | | | (1) | | | (43) | |
(Loss) gain on sale of assets | | (3) | | | 63 | | | 513 | | |
Other (expense) income, net | | (48) | | | 77 | | | 58 | | |
Gain (loss) on sale of assets | | Gain (loss) on sale of assets | | 36 | | | (3) | | | 63 | |
Other income (expense), net | | Other income (expense), net | | 58 | | | (48) | | | 77 | |
Interest income | Interest income | | 96 | | | 87 | | | 85 | | Interest income | | 69 | | | 96 | | | 87 | |
Interest expense | Interest expense | | (1,081) | | | (1,077) | | | (886) | | Interest expense | | (1,198) | | | (1,081) | | | (1,077) | |
Income from continuing operations before income taxes and equity earnings | Income from continuing operations before income taxes and equity earnings | | 1,489 | | | 1,734 | | | 714 | | Income from continuing operations before income taxes and equity earnings | | 219 | | | 1,489 | | | 1,734 | |
Income tax (expense) benefit | | (249) | | | (315) | | | 49 | | |
Income tax expense | | Income tax expense | | (99) | | | (249) | | | (315) | |
Equity earnings | Equity earnings | | 1,015 | | | 580 | | | 175 | | Equity earnings | | 1,343 | | | 1,015 | | | 580 | |
Income from continuing operations, net of income tax | Income from continuing operations, net of income tax | | 2,255 | | | 1,999 | | | 938 | | Income from continuing operations, net of income tax | | 1,463 | | | 2,255 | | | 1,999 | |
Income from discontinued operations, net of income tax | Income from discontinued operations, net of income tax | | 1,850 | | | 363 | | | 188 | | Income from discontinued operations, net of income tax | | — | | | 1,850 | | | 363 | |
Net income | Net income | | 4,105 | | | 2,362 | | | 1,126 | | Net income | | 1,463 | | | 4,105 | | | 2,362 | |
Earnings attributable to noncontrolling interests | Earnings attributable to noncontrolling interests | | (172) | | | (164) | | | (76) | | Earnings attributable to noncontrolling interests | | (145) | | | (172) | | | (164) | |
Preferred dividends | Preferred dividends | | (168) | | | (142) | | | (125) | | Preferred dividends | | (63) | | | (168) | | | (142) | |
Preferred dividends of subsidiary | Preferred dividends of subsidiary | | (1) | | | (1) | | | (1) | | Preferred dividends of subsidiary | | (1) | | | (1) | | | (1) | |
Earnings attributable to common shares | Earnings attributable to common shares | | $ | 3,764 | | | $ | 2,055 | | | $ | 924 | | Earnings attributable to common shares | | $ | 1,254 | | | $ | 3,764 | | | $ | 2,055 | |
| Basic EPS: | Basic EPS: | | Basic EPS: | |
Earnings from continuing operations | Earnings from continuing operations | | $ | 6.61 | | | $ | 6.22 | | | $ | 2.86 | | Earnings from continuing operations | | $ | 4.03 | | | $ | 6.61 | | | $ | 6.22 | |
Earnings from discontinued operations | Earnings from discontinued operations | | $ | 6.32 | | | $ | 1.18 | | | $ | 0.59 | | Earnings from discontinued operations | | $ | — | | | $ | 6.32 | | | $ | 1.18 | |
Earnings | Earnings | | $ | 12.93 | | | $ | 7.40 | | | $ | 3.45 | | Earnings | | $ | 4.03 | | | $ | 12.93 | | | $ | 7.40 | |
Weighted-average common shares outstanding | Weighted-average common shares outstanding | | 291,077 | | | 277,904 | | | 268,072 | | Weighted-average common shares outstanding | | 311,755 | | | 291,077 | | | 277,904 | |
| Diluted EPS: | Diluted EPS: | | Diluted EPS: | |
Earnings from continuing operations | Earnings from continuing operations | | $ | 6.58 | | | $ | 6.13 | | | $ | 2.84 | | Earnings from continuing operations | | $ | 4.01 | | | $ | 6.58 | | | $ | 6.13 | |
Earnings from discontinued operations | Earnings from discontinued operations | | $ | 6.30 | | | $ | 1.16 | | | $ | 0.58 | | Earnings from discontinued operations | | $ | — | | | $ | 6.30 | | | $ | 1.16 | |
Earnings | Earnings | | $ | 12.88 | | | $ | 7.29 | | | $ | 3.42 | | Earnings | | $ | 4.01 | | | $ | 12.88 | | | $ | 7.29 | |
Weighted-average common shares outstanding | Weighted-average common shares outstanding | | 292,252 | | | 282,033 | | | 269,852 | | Weighted-average common shares outstanding | | 313,036 | | | 292,252 | | | 282,033 | |
See Notes to Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SEMPRA ENERGY |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |
(Dollars in millions) |
| Years ended December 31, 2021, 2020 and 2019 |
| Sempra Energy shareholders’ equity | | | | |
| Pretax amount | | Income tax (expense) benefit | | Net-of-tax amount | | Noncontrolling interests (after tax) | | Total |
2021: | | | | | | | | | |
Net income | $ | 1,417 | | | $ | (99) | | | $ | 1,318 | | | $ | 145 | | | $ | 1,463 | |
Other comprehensive income (loss): | | | | | | | | | |
Foreign currency translation adjustments | (6) | | | — | | | (6) | | | (3) | | | (9) | |
Financial instruments | 191 | | | (47) | | | 144 | | | 14 | | | 158 | |
Pension and other postretirement benefits | 28 | | | (6) | | | 22 | | | — | | | 22 | |
Total other comprehensive income | 213 | | | (53) | | | 160 | | | 11 | | | 171 | |
Comprehensive income | 1,630 | | | (152) | | | 1,478 | | | 156 | | | 1,634 | |
Preferred dividends of subsidiary | (1) | | | — | | | (1) | | | — | | | (1) | |
Comprehensive income, after preferred dividends of subsidiary | $ | 1,629 | | | $ | (152) | | | $ | 1,477 | | | $ | 156 | | | $ | 1,633 | |
2020: | | | | | | | | | |
Net income | $ | 5,368 | | | $ | (1,435) | | | $ | 3,933 | | | $ | 172 | | | $ | 4,105 | |
Other comprehensive income (loss): | | | | | | | | | |
Foreign currency translation adjustments | 547 | | | — | | | 547 | | | (12) | | | 535 | |
Financial instruments | (146) | | | 33 | | | (113) | | | (12) | | | (125) | |
Pension and other postretirement benefits | 11 | | | 1 | | | 12 | | | — | | | 12 | |
Total other comprehensive income (loss) | 412 | | | 34 | | | 446 | | | (24) | | | 422 | |
Comprehensive income | 5,780 | | | (1,401) | | | 4,379 | | | 148 | | | 4,527 | |
Preferred dividends of subsidiary | (1) | | | — | | | (1) | | | — | | | (1) | |
Comprehensive income, after preferred dividends of subsidiary | $ | 5,779 | | | $ | (1,401) | | | $ | 4,378 | | | $ | 148 | | | $ | 4,526 | |
2019: | | | | | | | | | |
Net income | $ | 2,585 | | | $ | (387) | | | $ | 2,198 | | | $ | 164 | | | $ | 2,362 | |
Other comprehensive income (loss): | | | | | | | | | |
Foreign currency translation adjustments | (43) | | | — | | | (43) | | | 3 | | | (40) | |
Financial instruments | (161) | | | 53 | | | (108) | | | (10) | | | (118) | |
Pension and other postretirement benefits | 25 | | | (7) | | | 18 | | | — | | | 18 | |
Total other comprehensive loss | (179) | | | 46 | | | (133) | | | (7) | | | (140) | |
Comprehensive income | 2,406 | | | (341) | | | 2,065 | | | 157 | | | 2,222 | |
Preferred dividends of subsidiary | (1) | | | — | | | (1) | | | — | | | (1) | |
Comprehensive income, after preferred dividends of subsidiary | $ | 2,405 | | | $ | (341) | | | $ | 2,064 | | | $ | 157 | | | $ | 2,221 | |
See Notes to Consolidated Financial Statements. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SEMPRA ENERGY |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |
(Dollars in millions) |
| Years ended December 31, 2020, 2019 and 2018 |
| Sempra Energy shareholders’ equity | | | | |
| Pretax amount | | Income tax (expense) benefit | | Net-of-tax amount | | Noncontrolling interests (after tax) | | Total |
2020: | | | | | | | | | |
Net income | $ | 5,368 | | | $ | (1,435) | | | $ | 3,933 | | | $ | 172 | | | $ | 4,105 | |
Other comprehensive income (loss): | | | | | | | | | |
Foreign currency translation adjustments | 547 | | | 0 | | | 547 | | | (12) | | | 535 | |
Financial instruments | (146) | | | 33 | | | (113) | | | (12) | | | (125) | |
Pension and other postretirement benefits | 11 | | | 1 | | | 12 | | | 0 | | | 12 | |
Total other comprehensive income (loss) | 412 | | | 34 | | | 446 | | | (24) | | | 422 | |
Comprehensive income | 5,780 | | | (1,401) | | | 4,379 | | | 148 | | | 4,527 | |
Preferred dividends of subsidiary | (1) | | | 0 | | | (1) | | | 0 | | | (1) | |
Comprehensive income, after preferred dividends of subsidiary | $ | 5,779 | | | $ | (1,401) | | | $ | 4,378 | | | $ | 148 | | | $ | 4,526 | |
2019: | | | | | | | | | |
Net income | $ | 2,585 | | | $ | (387) | | | $ | 2,198 | | | $ | 164 | | | $ | 2,362 | |
Other comprehensive income (loss): | | | | | | | | | |
Foreign currency translation adjustments | (43) | | | 0 | | | (43) | | | 3 | | | (40) | |
Financial instruments | (161) | | | 53 | | | (108) | | | (10) | | | (118) | |
Pension and other postretirement benefits | 25 | | | (7) | | | 18 | | | 0 | | | 18 | |
Total other comprehensive loss | (179) | | | 46 | | | (133) | | | (7) | | | (140) | |
Comprehensive income | 2,406 | | | (341) | | | 2,065 | | | 157 | | | 2,222 | |
Preferred dividends of subsidiary | (1) | | | 0 | | | (1) | | | 0 | | | (1) | |
Comprehensive income, after preferred dividends of subsidiary | $ | 2,405 | | | $ | (341) | | | $ | 2,064 | | | $ | 157 | | | $ | 2,221 | |
2018: | | | | | | | | | |
Net income | $ | 1,146 | | | $ | (96) | | | $ | 1,050 | | | $ | 76 | | | $ | 1,126 | |
Other comprehensive income (loss): | | | | | | | | | |
Foreign currency translation adjustments | (144) | | | 0 | | | (144) | | | (11) | | | (155) | |
Financial instruments | 64 | | | (21) | | | 43 | | | 13 | | | 56 | |
Pension and other postretirement benefits | (38) | | | 4 | | | (34) | | | 0 | | | (34) | |
Total other comprehensive (loss) income | (118) | | | (17) | | | (135) | | | 2 | | | (133) | |
Comprehensive income | 1,028 | | | (113) | | | 915 | | | 78 | | | 993 | |
Preferred dividends of subsidiary | (1) | | | 0 | | | (1) | | | 0 | | | (1) | |
Comprehensive income, after preferred dividends of subsidiary | $ | 1,027 | | | $ | (113) | | | $ | 914 | | | $ | 78 | | | $ | 992 | |
| | | | | | | | | | | | | | | | | |
SEMPRA ENERGY |
CONSOLIDATED BALANCE SHEETS |
(Dollars in millions) |
| December 31, |
| 2021 | | 2020 | | 2019 |
ASSETS | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | $ | 559 | | | $ | 960 | | | $ | 108 | |
Restricted cash | 19 | | | 22 | | | 31 | |
Accounts receivable – trade, net | 2,071 | | | 1,578 | | | 1,261 | |
Accounts receivable – other, net | 398 | | | 403 | | | 455 | |
Due from unconsolidated affiliates | 23 | | | 20 | | | 32 | |
Income taxes receivable | 79 | | | 113 | | | 112 | |
Inventories | 389 | | | 308 | | | 277 | |
Prepaid expenses | 260 | | | 215 | | | 161 | |
Regulatory assets | 271 | | | 190 | | | 222 | |
Greenhouse gas allowances | 97 | | | 553 | | | 72 | |
Assets held for sale in discontinued operations | — | | | — | | | 445 | |
Other current assets | 209 | | | 149 | | | 163 | |
Total current assets | 4,375 | | | 4,511 | | | 3,339 | |
| | | | | |
Other assets: | | | | | |
Restricted cash | 3 | | | 3 | | | 3 | |
Due from unconsolidated affiliates | 637 | | | 780 | | | 742 | |
Regulatory assets | 2,011 | | | 1,822 | | | 1,930 | |
Insurance receivable for Aliso Canyon costs | 360 | | | 445 | | | 339 | |
Greenhouse gas allowances | 422 | | | 101 | | | 470 | |
Nuclear decommissioning trusts | 1,012 | | | 1,019 | | | 1,082 | |
Dedicated assets in support of certain benefit plans | 567 | | | 512 | | | 488 | |
Deferred income taxes | 151 | | | 136 | | | 155 | |
Right-of-use assets – operating leases | 594 | | | 543 | | | 591 | |
Investment in Oncor Holdings | 12,947 | | | 12,440 | | | 11,519 | |
Other investments | 1,525 | | | 1,388 | | | 2,103 | |
Goodwill | 1,602 | | | 1,602 | | | 1,602 | |
Other intangible assets | 370 | | | 202 | | | 213 | |
Wildfire fund | 331 | | | 363 | | | 392 | |
Assets held for sale in discontinued operations | — | | | — | | | 3,513 | |
Other long-term assets | 1,244 | | | 753 | | | 732 | |
Total other assets | 23,776 | | | 22,109 | | | 25,874 | |
| | | | | |
Property, plant and equipment: | | | | | |
Property, plant and equipment | 58,940 | | | 53,928 | | | 49,329 | |
Less accumulated depreciation and amortization | (15,046) | | | (13,925) | | | (12,877) | |
Property, plant and equipment, net | 43,894 | | | 40,003 | | | 36,452 | |
Total assets | $ | 72,045 | | | $ | 66,623 | | | $ | 65,665 | |
See Notes to Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | |
SEMPRA ENERGY |
CONSOLIDATED BALANCE SHEETS (CONTINUED) |
(Dollars in millions) |
| December 31, |
| 2021 | | 2020 | | 2019 |
LIABILITIES AND EQUITY | | | | | |
Current liabilities: | | | | | |
Short-term debt | $ | 3,471 | | | $ | 885 | | | $ | 3,505 | |
Accounts payable – trade | 1,671 | | | 1,359 | | | 1,234 | |
Accounts payable – other | 178 | | | 154 | | | 179 | |
Due to unconsolidated affiliates | — | | | 45 | | | 5 | |
Dividends and interest payable | 563 | | | 551 | | | 515 | |
Accrued compensation and benefits | 479 | | | 446 | | | 476 | |
Regulatory liabilities | 359 | | | 140 | | | 319 | |
Current portion of long-term debt and finance leases | 106 | | | 1,540 | | | 1,526 | |
Reserve for Aliso Canyon costs | 1,980 | | | 150 | | | 9 | |
Greenhouse gas obligations | 97 | | | 553 | | | 72 | |
Liabilities held for sale in discontinued operations | — | | | — | | | 444 | |
Other current liabilities | 1,131 | | | 1,016 | | | 866 | |
Total current liabilities | 10,035 | | | 6,839 | | | 9,150 | |
| | | | | |
Long-term debt and finance leases | 21,068 | | | 21,781 | | | 20,785 | |
| | | | | |
Deferred credits and other liabilities: | | | | | |
Due to unconsolidated affiliates | 287 | | | 234 | | | 195 | |
Regulatory liabilities | 3,402 | | | 3,372 | | | 3,741 | |
Reserve for Aliso Canyon costs | 3 | | | 301 | | | 7 | |
Greenhouse gas obligations | 225 | | | — | | | 301 | |
Pension and other postretirement benefit plan obligations, net of plan assets | 687 | | | 1,059 | | | 1,067 | |
Deferred income taxes | 3,477 | | | 2,871 | | | 2,577 | |
Asset retirement obligations | 3,375 | | | 3,113 | | | 2,923 | |
Liabilities held for sale in discontinued operations | — | | | — | | | 1,052 | |
Deferred credits and other | 2,067 | | | 2,119 | | | 2,062 | |
Total deferred credits and other liabilities | 13,523 | | | 13,069 | | | 13,925 | |
| | | | | |
Commitments and contingencies (Note 16) | 0 | | 0 | | 0 |
| | | | | |
Equity: | | | | | |
Preferred stock (50 million shares authorized): | | | | | |
Mandatory convertible preferred stock, series A (17.25 million shares outstanding at December 31, 2020 and 2019) | — | | | 1,693 | | | 1,693 | |
Mandatory convertible preferred stock, series B (5.75 million shares outstanding at December 31, 2020 and 2019) | — | | | 565 | | | 565 | |
Preferred stock, series C (0.9 million shares outstanding at December 31, 2021 and 2020) | 889 | | | 889 | | | — | |
Common stock (750 million shares authorized; 317 million, 288 million and 292 million shares outstanding at December 31, 2021, 2020 and 2019, respectively; no par value) | 11,862 | | | 7,053 | | | 7,480 | |
Retained earnings | 13,548 | | | 13,673 | | | 11,130 | |
Accumulated other comprehensive income (loss) | (318) | | | (500) | | | (939) | |
Total Sempra Energy shareholders’ equity | 25,981 | | | 23,373 | | | 19,929 | |
Preferred stock of subsidiary | 20 | | | 20 | | | 20 | |
Other noncontrolling interests | 1,418 | | | 1,541 | | | 1,856 | |
Total equity | 27,419 | | | 24,934 | | | 21,805 | |
Total liabilities and equity | $ | 72,045 | | | $ | 66,623 | | | $ | 65,665 | |
See Notes to Consolidated Financial Statements.
| | | | | | | | | | | |
SEMPRA ENERGY |
CONSOLIDATED BALANCE SHEETS |
(Dollars in millions) |
| December 31, |
| 2020 | | 2019 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 960 | | | $ | 108 | |
Restricted cash | 22 | | | 31 | |
Accounts receivable – trade, net | 1,578 | | | 1,261 | |
Accounts receivable – other, net | 403 | | | 455 | |
Due from unconsolidated affiliates | 20 | | | 32 | |
Income taxes receivable | 113 | | | 112 | |
Inventories | 308 | | | 277 | |
Regulatory assets | 190 | | | 222 | |
Greenhouse gas allowances | 553 | | | 72 | |
Assets held for sale in discontinued operations | 0 | | | 445 | |
Other current assets | 364 | | | 324 | |
Total current assets | 4,511 | | | 3,339 | |
| | | |
Other assets: | | | |
Restricted cash | 3 | | | 3 | |
Due from unconsolidated affiliates | 780 | | | 742 | |
Regulatory assets | 1,822 | | | 1,930 | |
Nuclear decommissioning trusts | 1,019 | | | 1,082 | |
Investment in Oncor Holdings | 12,440 | | | 11,519 | |
Other investments | 1,388 | | | 2,103 | |
Goodwill | 1,602 | | | 1,602 | |
Other intangible assets | 202 | | | 213 | |
Dedicated assets in support of certain benefit plans | 512 | | | 488 | |
Insurance receivable for Aliso Canyon costs | 445 | | | 339 | |
Deferred income taxes | 136 | | | 155 | |
Greenhouse gas allowances | 101 | | | 470 | |
Right-of-use assets – operating leases | 543 | | | 591 | |
Wildfire fund | 363 | | | 392 | |
Assets held for sale in discontinued operations | 0 | | | 3,513 | |
Other long-term assets | 753 | | | 732 | |
Total other assets | 22,109 | | | 25,874 | |
| | | |
Property, plant and equipment: | | | |
Property, plant and equipment | 53,928 | | | 49,329 | |
Less accumulated depreciation and amortization | (13,925) | | | (12,877) | |
Property, plant and equipment, net | 40,003 | | | 36,452 | |
Total assets | $ | 66,623 | | | $ | 65,665 | |
| | | | | | | | | | | | | | | | | |
SEMPRA ENERGY |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Dollars in millions) |
| Years ended December 31, |
| 2021 | | 2020 | | 2019 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 1,463 | | | $ | 4,105 | | | $ | 2,362 | |
Less: Income from discontinued operations, net of income tax | — | | | (1,850) | | | (363) | |
Income from continuing operations, net of income tax | 1,463 | | | 2,255 | | | 1,999 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 1,855 | | | 1,666 | | | 1,569 | |
Deferred income taxes and investment tax credits | (78) | | | 159 | | | 189 | |
Impairment losses | 3 | | | 1 | | | 43 | |
(Gain) loss on sale of assets | (36) | | | 3 | | | (63) | |
Equity earnings | (1,343) | | | (1,015) | | | (580) | |
Foreign currency transaction losses (gains), net | 18 | | | 25 | | | (21) | |
Share-based compensation expense | 63 | | | 71 | | | 75 | |
Fixed-price contracts and other derivatives | 206 | | | (7) | | | (11) | |
Other | 167 | | | 139 | | | 58 | |
Net change in other working capital components: | | | | | |
Accounts receivable | (599) | | | (328) | | | (97) | |
Due to/from unconsolidated affiliates, net | (1) | | | 12 | | | 1 | |
Income taxes receivable/payable, net | (38) | | | (94) | | | (166) | |
Inventories | (87) | | | (35) | | | (22) | |
Other current assets | (220) | | | 38 | | | (88) | |
Accounts payable | 263 | | | 74 | | | 17 | |
Regulatory balancing accounts, net | 249 | | | (231) | | | 13 | |
Reserve for Aliso Canyon costs | 1,532 | | | 141 | | | (144) | |
Other current liabilities | (105) | | | (127) | | | (99) | |
Intercompany activities with discontinued operations, net | — | | | — | | | 378 | |
Insurance receivable for Aliso Canyon costs | 85 | | | (106) | | | 122 | |
Distributions from investments | 941 | | | 651 | | | 247 | |
Wildfire fund, current and noncurrent | — | | | — | | | (323) | |
Reserve for Aliso Canyon costs, noncurrent | — | | | 294 | | | — | |
Changes in other noncurrent assets and liabilities, net | (496) | | | 56 | | | (399) | |
Net cash provided by continuing operations | 3,842 | | | 3,642 | | | 2,698 | |
Net cash (used in) provided by discontinued operations | — | | | (1,051) | | | 390 | |
Net cash provided by operating activities | 3,842 | | | 2,591 | | | 3,088 | |
| | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Expenditures for property, plant and equipment | (5,015) | | | (4,676) | | | (3,708) | |
Expenditures for investments and acquisitions | (633) | | | (652) | | | (1,797) | |
Proceeds from sale of assets | 38 | | | 19 | | | 899 | |
Distributions from investments | 366 | | | 761 | | | 9 | |
Purchases of nuclear decommissioning trust assets | (961) | | | (1,439) | | | (914) | |
Proceeds from sales of nuclear decommissioning trust assets | 961 | | | 1,439 | | | 914 | |
Advances to unconsolidated affiliates | (8) | | | (92) | | | (16) | |
Repayments of advances to unconsolidated affiliates | 38 | | | 7 | | | 3 | |
Disbursement for note receivable | (305) | | | — | | | — | |
Intercompany activities with discontinued operations, net | — | | | — | | | 8 | |
Other | 11 | | | 15 | | | 21 | |
Net cash used in continuing operations | (5,508) | | | (4,618) | | | (4,581) | |
Net cash provided by (used in) discontinued operations | — | | | 5,171 | | | (12) | |
Net cash (used in) provided by investing activities | (5,508) | | | 553 | | | (4,593) | |
See Notes to Consolidated Financial Statements.
| | | | | | | | | | | |
SEMPRA ENERGY |
CONSOLIDATED BALANCE SHEETS (CONTINUED) |
(Dollars in millions) |
| December 31, |
| 2020 | | 2019 |
LIABILITIES AND EQUITY | | | |
Current liabilities: | | | |
Short-term debt | $ | 885 | | | $ | 3,505 | |
Accounts payable – trade | 1,359 | | | 1,234 | |
Accounts payable – other | 154 | | | 179 | |
Due to unconsolidated affiliates | 45 | | | 5 | |
Dividends and interest payable | 551 | | | 515 | |
Accrued compensation and benefits | 446 | | | 476 | |
Regulatory liabilities | 140 | | | 319 | |
Current portion of long-term debt and finance leases | 1,540 | | | 1,526 | |
Reserve for Aliso Canyon costs | 150 | | | 9 | |
Greenhouse gas obligations | 553 | | | 72 | |
Liabilities held for sale in discontinued operations | 0 | | | 444 | |
Other current liabilities | 1,016 | | | 866 | |
Total current liabilities | 6,839 | | | 9,150 | |
| | | |
Long-term debt and finance leases | 21,781 | | | 20,785 | |
| | | |
Deferred credits and other liabilities: | | | |
Due to unconsolidated affiliates | 234 | | | 195 | |
Pension and other postretirement benefit plan obligations, net of plan assets | 1,059 | | | 1,067 | |
Deferred income taxes | 2,871 | | | 2,577 | |
| | | |
Regulatory liabilities | 3,372 | | | 3,741 | |
Reserve for Aliso Canyon costs | 301 | | | 7 | |
Asset retirement obligations | 3,113 | | | 2,923 | |
Greenhouse gas obligations | 0 | | | 301 | |
Liabilities held for sale in discontinued operations | 0 | | | 1,052 | |
Deferred credits and other | 2,119 | | | 2,062 | |
Total deferred credits and other liabilities | 13,069 | | | 13,925 | |
| | | |
Commitments and contingencies (Note 16) | 0 | | 0 |
| | | |
Equity: | | | |
Preferred stock (50 million shares authorized): | | | |
Mandatory convertible preferred stock, series A (17.25 million shares outstanding) | 1,693 | | | 1,693 | |
Mandatory convertible preferred stock, series B (5.75 million shares outstanding) | 565 | | | 565 | |
Preferred stock, series C (0.9 million shares outstanding) | 889 | | | 0 | |
Common stock (750 million shares authorized; 288 million and 292 million shares outstanding at December 31, 2020 and 2019, respectively; no par value) | 7,053 | | | 7,480 | |
Retained earnings | 13,673 | | | 11,130 | |
Accumulated other comprehensive income (loss) | (500) | | | (939) | |
Total Sempra Energy shareholders’ equity | 23,373 | | | 19,929 | |
Preferred stock of subsidiary | 20 | | | 20 | |
Other noncontrolling interests | 1,541 | | | 1,856 | |
Total equity | 24,934 | | | 21,805 | |
Total liabilities and equity | $ | 66,623 | | | $ | 65,665 | |
| | | | | | | | | | | | | | | | | |
SEMPRA ENERGY |
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) |
(Dollars in millions) |
| Years ended December 31, |
| 2021 | | 2020 | | 2019 |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Common dividends paid | (1,331) | | | (1,174) | | | (993) | |
Preferred dividends paid | (99) | | | (157) | | | (142) | |
Issuances of preferred stock, net | — | | | 891 | | | — | |
Issuances of common stock, net | 5 | | | 11 | | | 1,830 | |
Repurchases of common stock | (339) | | | (566) | | | (26) | |
Issuances of debt (maturities greater than 90 days) | 3,773 | | | 6,051 | | | 4,296 | |
Payments on debt (maturities greater than 90 days) and finance leases | (5,489) | | | (5,864) | | | (3,667) | |
Increase (decrease) in short-term debt, net | 1,913 | | | (1,759) | | | 656 | |
Advances from unconsolidated affiliates | 40 | | | 64 | | | 155 | |
Purchases of noncontrolling interests | (224) | | | (248) | | | (30) | |
Proceeds from sales of noncontrolling interests, net | 3,206 | | | 26 | | | 5 | |
Contributions from noncontrolling interests, net | 4 | | | 1 | | | 98 | |
Intercompany activities with discontinued operations, net | — | | | — | | | (266) | |
Other | (199) | | | (50) | | | (49) | |
Net cash provided by (used in) continuing operations | 1,260 | | | (2,774) | | | 1,867 | |
Net cash provided by (used in) discontinued operations | — | | | 401 | | | (392) | |
Net cash provided by (used in) financing activities | 1,260 | | | (2,373) | | | 1,475 | |
| | | | | |
Effect of exchange rate changes in continuing operations | 2 | | | — | | | — | |
Effect of exchange rate changes in discontinued operations | — | | | (3) | | | 1 | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 2 | | | (3) | | | 1 | |
| | | | | |
(Decrease) increase in cash, cash equivalents and restricted cash, including discontinued operations | (404) | | | 768 | | | (29) | |
Cash, cash equivalents and restricted cash, including discontinued operations, January 1 | 985 | | | 217 | | | 246 | |
Cash, cash equivalents and restricted cash, including discontinued operations, December 31 | $ | 581 | | | $ | 985 | | | $ | 217 | |
| | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | | | | |
Interest payments, net of amounts capitalized | $ | 1,163 | | | $ | 1,046 | | | $ | 1,051 | |
Income tax payments, including discontinued operations, net of refunds | 230 | | | 1,385 | | | 360 | |
| | | | | |
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | | | | | |
Accrued commercial paper proceeds | $ | — | | | $ | — | | | $ | 67 | |
Accrued interest receivable from unconsolidated affiliate | — | | | — | | | 55 | |
Contribution to Cameron LNG JV | — | | | 50 | | | — | |
Distribution from Cameron LNG JV | — | | | 50 | | | — | |
Increase in Cameron LNG JV investment for guarantee | 22 | | | — | | | — | |
Repayment of advances from unconsolidated affiliate in lieu of distribution | 45 | | | — | | | — | |
Accrued capital expenditures | 591 | | | 535 | | | 515 | |
Increase in finance lease obligations for investment in PP&E, net | 43 | | | 77 | | | 38 | |
Derecognized PP&E for net investment in sales-type lease | 44 | | | — | | | — | |
Increase in ARO for investment in PP&E | 153 | | | 142 | | | 36 | |
Equitization of long-term debt for deficit held by NCI | — | | | 22 | | | — | |
Accrued purchase price adjustment for sale of NCI | 13 | | | — | | | — | |
Issuance of common stock in exchange for NCI and related AOCI | 1,373 | | | — | | | — | |
Common dividends issued in stock | — | | | 22 | | | 55 | |
Common dividends declared but not paid | 349 | | | 301 | | | 283 | |
Conversion of mandatory convertible preferred stock | 2,258 | | | — | | | — | |
Preferred dividends declared but not paid | 11 | | | 47 | | | 36 | |
See Notes to Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | |
SEMPRA ENERGY |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Dollars in millions) |
| Years ended December 31, |
| 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 4,105 | | | $ | 2,362 | | | $ | 1,126 | |
Less: Income from discontinued operations, net of income tax | (1,850) | | | (363) | | | (188) | |
Income from continuing operations, net of income tax | 2,255 | | | 1,999 | | | 938 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 1,666 | | | 1,569 | | | 1,491 | |
Deferred income taxes and investment tax credits | 159 | | | 189 | | | (242) | |
Impairment losses | 1 | | | 43 | | | 1,122 | |
Loss (gain) on sale of assets | 3 | | | (63) | | | (513) | |
Equity earnings | (1,015) | | | (580) | | | (175) | |
Foreign currency transaction losses (gains), net | 25 | | | (21) | | | 6 | |
Share-based compensation expense | 71 | | | 75 | | | 83 | |
Other | 132 | | | 47 | | | 106 | |
Net change in other working capital components: | | | | | |
Accounts receivable | (315) | | | (91) | | | (145) | |
Income taxes receivable/payable, net | (94) | | | (166) | | | 88 | |
Inventories | (35) | | | (22) | | | 32 | |
Other current assets | 38 | | | (88) | | | (79) | |
Accounts payable | 73 | | | 12 | | | 96 | |
Regulatory balancing accounts | (231) | | | 13 | | | 263 | |
Reserve for Aliso Canyon costs | 141 | | | (144) | | | 56 | |
Other current liabilities | (127) | | | (99) | | | 52 | |
Intercompany activities with discontinued operations, net | 0 | | | 378 | | | 70 | |
Distributions from investments | 651 | | | 247 | | | 202 | |
Insurance receivable for Aliso Canyon costs | (106) | | | 122 | | | (43) | |
Wildfire fund, current and noncurrent | 0 | | | (323) | | | 0 | |
Reserve for Aliso Canyon costs, noncurrent | 294 | | | 0 | | | 0 | |
Changes in other noncurrent assets and liabilities, net | 56 | | | (399) | | | (188) | |
Net cash provided by continuing operations | 3,642 | | | 2,698 | | | 3,220 | |
Net cash (used in) provided by discontinued operations | (1,051) | | | 390 | | | 296 | |
Net cash provided by operating activities | 2,591 | | | 3,088 | | | 3,516 | |
| | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Expenditures for property, plant and equipment | (4,676) | | | (3,708) | | | (3,544) | |
Expenditures for investments and acquisitions | (652) | | | (1,797) | | | (10,168) | |
Proceeds from sale of assets | 19 | | | 899 | | | 1,580 | |
Distributions from investments | 761 | | | 9 | | | 10 | |
Purchases of nuclear decommissioning trust assets | (1,439) | | | (914) | | | (890) | |
Proceeds from sales of nuclear decommissioning trust assets | 1,439 | | | 914 | | | 890 | |
Advances to unconsolidated affiliates | (92) | | | (16) | | | (95) | |
Repayments of advances to unconsolidated affiliates | 7 | | | 3 | | | 3 | |
Intercompany activities with discontinued operations, net | 0 | | | 8 | | | (22) | |
Other | 15 | | | 21 | | | 31 | |
Net cash used in continuing operations | (4,618) | | | (4,581) | | | (12,205) | |
Net cash provided by (used in) discontinued operations | 5,171 | | | (12) | | | (265) | |
Net cash provided by (used in) investing activities | 553 | | | (4,593) | | | (12,470) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SEMPRA ENERGY |
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
(Dollars in millions) |
| Years ended December 31, 2021, 2020 and 2019 |
| Preferred stock | | Common stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Sempra Energy shareholders' equity | | Non- controlling interests | | Total equity |
Balance at December 31, 2018 | $ | 2,258 | | | $ | 5,540 | | | $ | 10,104 | | | $ | (764) | | | $ | 17,138 | | | $ | 2,110 | | | $ | 19,248 | |
Adoption of ASU 2016-02 | | | | | 17 | | | | | 17 | | | | | 17 | |
Adoption of ASU 2018-02 | | | | | 40 | | | (42) | | | (2) | | | | | (2) | |
Adjusted balance at December 31, 2018 | 2,258 | | | 5,540 | | | 10,161 | | | (806) | | | 17,153 | | | 2,110 | | | 19,263 | |
| | | | | | | | | | | | | |
Net income | | | | | 2,198 | | | | | 2,198 | | | 164 | | | 2,362 | |
Other comprehensive loss | | | | | | | (133) | | | (133) | | | (7) | | | (140) | |
| | | | | | | | | | | | | |
Share-based compensation expense | | | 75 | | | | | | | 75 | | | | | 75 | |
Dividends declared: | | | | | | | | | | | | | |
Series A preferred stock ($6.00/share) | | | | | (103) | | | | | (103) | | | | | (103) | |
Series B preferred stock ($6.75/share) | | | | | (39) | | | | | (39) | | | | | (39) | |
Common stock ($3.87/share) | | | | | (1,086) | | | | | (1,086) | | | | | (1,086) | |
Preferred dividends of subsidiary | | | | | (1) | | | | | (1) | | | | | (1) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Issuances of common stock | | | 1,885 | | | | | | | 1,885 | | | | | 1,885 | |
Repurchases of common stock | | | (26) | | | | | | | (26) | | | | | (26) | |
Noncontrolling interest activities: | | | | | | | | | | | | | |
Contributions | | | | | | | | | | | 175 | | | 175 | |
Distributions | | | 5 | | | | | | | 5 | | | (103) | | | (98) | |
Purchases | | | (3) | | | | | | | (3) | | | (27) | | | (30) | |
Sale | | | 4 | | | | | | | 4 | | | 1 | | | 5 | |
Acquisition | | | | | | | | | | | 3 | | | 3 | |
Deconsolidations | | | | | | | | | | | (440) | | | (440) | |
Balance at December 31, 2019 | 2,258 | | | 7,480 | | | 11,130 | | | (939) | | | 19,929 | | | 1,876 | | | 21,805 | |
Adoption of ASU 2016-13 | | | | | (7) | | | | | (7) | | | (2) | | | (9) | |
| | | | | | | | | | | | | |
Adjusted balance at December 31, 2019 | 2,258 | | | 7,480 | | | 11,123 | | | (939) | | | 19,922 | | | 1,874 | | | 21,796 | |
| | | | | | | | | | | | | |
Net income | | | | | 3,933 | | | | | 3,933 | | | 172 | | | 4,105 | |
Other comprehensive income (loss) | | | | | | | 446 | | | 446 | | | (24) | | | 422 | |
| | | | | | | | | | | | | |
Share-based compensation expense | | | 71 | | | | | | | 71 | | | | | 71 | |
Dividends declared: | | | | | | | | | | | | | |
Series A preferred stock ($6.00/share) | | | | | (104) | | | | | (104) | | | | | (104) | |
Series B preferred stock ($6.75/share) | | | | | (39) | | | | | (39) | | | | | (39) | |
Series C preferred stock ($27.90/share) | | | | | (25) | | | | | (25) | | | | | (25) | |
Common stock ($4.18/share) | | | | | (1,214) | | | | | (1,214) | | | | | (1,214) | |
Preferred dividends of subsidiary | | | | | (1) | | | | | (1) | | | | | (1) | |
Issuance of Series C preferred stock | 889 | | | | | | | | | 889 | | | | | 889 | |
Issuances of common stock | | | 33 | | | | | | | 33 | | | | | 33 | |
Repurchases of common stock | | | (566) | | | | | | | (566) | | | | | (566) | |
Noncontrolling interest activities: | | | | | | | | | | | | | |
Contributions | | | | | | | | | | | 1 | | | 1 | |
Distributions | | | | | | | | | | | (1) | | | (1) | |
Purchases | | | 34 | | | | | (7) | | | 27 | | | (275) | | | (248) | |
Sale | | | 1 | | | | | | | 1 | | | 27 | | | 28 | |
Acquisition | | | | | | | | | | | 1 | | | 1 | |
Equitization of long-term debt for deficit held by NCI | | | | | | | | | | | 22 | | | 22 | |
Deconsolidation | | | | | | | | | | | (236) | | | (236) | |
Balance at December 31, 2020 | 3,147 | | | 7,053 | | | 13,673 | | | (500) | | | 23,373 | | | 1,561 | | | 24,934 | |
See Notes to Consolidated Financial StatementsStatements.
| | | | | | | | | | | | | | | | | |
SEMPRA ENERGY |
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) |
(Dollars in millions) |
| Years ended December 31, |
| 2020 | | 2019 | | 2018 |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Common dividends paid | (1,174) | | | (993) | | | (877) | |
Preferred dividends paid | (157) | | | (142) | | | (89) | |
Issuances of preferred stock, net | 891 | | | 0 | | | 2,258 | |
Issuances of common stock, net | 11 | | | 1,830 | | | 2,272 | |
Repurchases of common stock | (566) | | | (26) | | | (21) | |
Issuances of debt (maturities greater than 90 days) | 6,051 | | | 4,296 | | | 8,927 | |
Payments on debt (maturities greater than 90 days) and finance leases | (5,864) | | | (3,667) | | | (3,342) | |
(Decrease) increase in short-term debt, net | (1,759) | | | 656 | | | (84) | |
Advances from unconsolidated affiliates | 64 | | | 155 | | | 0 | |
Proceeds from sale of noncontrolling interests, net | 26 | | | 5 | | | 90 | |
Purchases of noncontrolling interests | (248) | | | (30) | | | (7) | |
Contributions from (distributions to) noncontrolling interests, net | 1 | | | 98 | | | (26) | |
Intercompany activities with discontinued operations, net | 0 | | | (266) | | | (109) | |
Other | (50) | | | (49) | | | (117) | |
Net cash (used in) provided by continuing operations | (2,774) | | | 1,867 | | | 8,875 | |
Net cash provided by (used in) discontinued operations | 401 | | | (392) | | | (25) | |
Net cash (used in) provided by financing activities | (2,373) | | | 1,475 | | | 8,850 | |
| | | | | |
Effect of exchange rate changes in continuing operations | 0 | | | 0 | | | (2) | |
Effect of exchange rate changes in discontinued operations | (3) | | | 1 | | | (12) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (3) | | | 1 | | | (14) | |
| | | | | |
Increase (decrease) in cash, cash equivalents and restricted cash, including discontinued operations | 768 | | | (29) | | | (118) | |
Cash, cash equivalents and restricted cash, including discontinued operations, January 1 | 217 | | | 246 | | | 364 | |
Cash, cash equivalents and restricted cash, including discontinued operations, December 31 | $ | 985 | | | $ | 217 | | | $ | 246 | |
| | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | | | | |
Interest payments, net of amounts capitalized | $ | 1,046 | | | $ | 1,051 | | | $ | 773 | |
Income tax payments, including discontinued operations, net of refunds | 1,385 | | | 360 | | | 174 | |
| | | | | |
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | | | | | |
Acquisitions: | | | | | |
Assets acquired | $ | 0 | | | $ | 0 | | | $ | 9,670 | |
Liabilities assumed | 0 | | | 0 | | | (102) | |
Cash paid | $ | 0 | | | $ | 0 | | | $ | 9,568 | |
| | | | | |
Accrued interest receivable from unconsolidated affiliate | $ | 0 | | | $ | 55 | | | $ | 62 | |
Accrued capital expenditures | 535 | | | 515 | | | 425 | |
Accrued commercial paper proceeds | 0 | | | 67 | | | 0 | |
Increase in finance lease obligations for investment in property, plant and equipment | 77 | | | 38 | | | 556 | |
Increase in ARO for investment in PP&E | 142 | | | 36 | | | 78 | |
Equitization of long-term debt for deficit held by NCI | 22 | | | 0 | | | 0 | |
Contribution to Cameron LNG JV | 50 | | | 0 | | | 0 | |
Distribution from Cameron LNG JV | 50 | | | 0 | | | 0 | |
Preferred dividends declared but not paid | 47 | | | 36 | | | 36 | |
Common dividends issued in stock | 22 | | | 55 | | | 54 | |
Common dividends declared but not paid | 301 | | | 283 | | | 245 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SEMPRA ENERGY |
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED) |
(Dollars in millions) |
| Years ended December 31, 2021, 2020 and 2019 |
| Preferred stock | | Common stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Sempra Energy shareholders' equity | | Non- controlling interests | | Total equity |
Balance at December 31, 2020 | $ | 3,147 | | | $ | 7,053 | | | $ | 13,673 | | | $ | (500) | | | $ | 23,373 | | | $ | 1,561 | | | $ | 24,934 | |
| | | | | | | | | | | | | |
Net income | | | | | 1,318 | | | | | 1,318 | | | 145 | | | 1,463 | |
Other comprehensive income | | | | | | | 160 | | | 160 | | | 11 | | | 171 | |
| | | | | | | | | | | | | |
Share-based compensation expense | | | 63 | | | | | | | 63 | | | | | 63 | |
Dividends declared: | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Series B preferred stock ($3.38/share) | | | | | (19) | | | | | (19) | | | | | (19) | |
Series C preferred stock ($48.75/share) | | | | | (44) | | | | | (44) | | | | | (44) | |
Common stock ($4.40/share) | | | | | (1,379) | | | | | (1,379) | | | | | (1,379) | |
Preferred dividends of subsidiary | | | | | (1) | | | | | (1) | | | | | (1) | |
Conversion of series A preferred stock | (1,693) | | | 1,693 | | | | | | | — | | | | | — | |
Conversion of series B preferred stock | (565) | | | 565 | | | | | | | — | | | | | — | |
Issuances of common stock | | | 5 | | | | | | | 5 | | | | | 5 | |
Repurchases of common stock | | | (339) | | | | | | | (339) | | | | | (339) | |
Noncontrolling interest activities: | | | | | | | | | | | | | |
Contributions | | | | | | | | | | | 4 | | | 4 | |
| | | | | | | | | | | | | |
Purchases | | | 1,459 | | | | | (44) | | | 1,415 | | | (1,567) | | | (152) | |
Sales | | | 1,363 | | | | | 66 | | | 1,429 | | | 1,283 | | | 2,712 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Deconsolidation | | | | | | | | | | | 1 | | | 1 | |
Balance at December 31, 2021 | $ | 889 | | | $ | 11,862 | | | $ | 13,548 | | | $ | (318) | | | $ | 25,981 | | | $ | 1,438 | | | $ | 27,419 | |
See Notes to Consolidated Financial StatementsStatements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SEMPRA ENERGY |
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
(Dollars in millions) |
| Years ended December 31, 2020, 2019 and 2018 |
| Preferred stock | | Common stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Sempra Energy shareholders' equity | | Non- controlling interests | | Total equity |
Balance at December 31, 2017 | $ | 0 | | | $ | 3,149 | | | $ | 10,147 | | | $ | (626) | | | $ | 12,670 | | | $ | 2,470 | | | $ | 15,140 | |
Adoption of ASU 2017-12 | | | | | 2 | | | (3) | | | (1) | | | | | (1) | |
Adjusted balance as of December 31, 2017 | 0 | | | 3,149 | | | 10,149 | | | (629) | | | 12,669 | | | 2,470 | | | 15,139 | |
| | | | | | | | | | | | | |
Net income | | | | | 1,050 | | | | | 1,050 | | | 76 | | | 1,126 | |
Other comprehensive (loss) income | | | | | | | (135) | | | (135) | | | 2 | | | (133) | |
| | | | | | | | | | | | | |
Share-based compensation expense | | | 83 | | | | | | | 83 | | | | | 83 | |
Dividends declared: | | | | | | | | | | | | | |
Series A preferred stock ($6.10/share) | | | | | (105) | | | | | (105) | | | | | (105) | |
Series B preferred stock ($3.41/share) | | | | | (20) | | | | | (20) | | | | | (20) | |
Common stock ($3.58/share) | | | | | (969) | | | | | (969) | | | | | (969) | |
Preferred dividends of subsidiary | | | | | (1) | | | | | (1) | | | | | (1) | |
Issuance of series A preferred stock | 1,693 | | | | | | | | | 1,693 | | | | | 1,693 | |
Issuance of series B preferred stock | 565 | | | | | | | | | 565 | | | | | 565 | |
Issuances of common stock | | | 2,326 | | | | | | | 2,326 | | | | | 2,326 | |
Repurchases of common stock | | | (21) | | | | | | | (21) | | | | | (21) | |
Noncontrolling interest activities: | | | | | | | | | | | | | |
Contributions | | | | | | | | | | | 66 | | | 66 | |
Distributions | | | | | | | | | | | (110) | | | (110) | |
Purchases | | | (1) | | | | | | | (1) | | | (7) | | | (8) | |
Sales, net of offering costs | | | 4 | | | | | | | 4 | | | 86 | | | 90 | |
Acquisition | | | | | | | | | | | 13 | | | 13 | |
Deconsolidations | | | | | | | | | | | (486) | | | (486) | |
Balance at December 31, 2018 | 2,258 | | | 5,540 | | | 10,104 | | | (764) | | | 17,138 | | | 2,110 | | | 19,248 | |
Adoption of ASU 2016-02 | | | | | 17 | | | | | 17 | | | | | 17 | |
Adoption of ASU 2018-02 | | | | | 40 | | | (42) | | | (2) | | | | | (2) | |
Adjusted balance as of December 31, 2018 | 2,258 | | | 5,540 | | | 10,161 | | | (806) | | | 17,153 | | | 2,110 | | | 19,263 | |
| | | | | | | | | | | | | |
Net income | | | | | 2,198 | | | | | 2,198 | | | 164 | | | 2,362 | |
Other comprehensive loss | | | | | | | (133) | | | (133) | | | (7) | | | (140) | |
| | | | | | | | | | | | | |
Share-based compensation expense | | | 75 | | | | | | | 75 | | | | | 75 | |
Dividends declared: | | | | | | | | | | | | | |
Series A preferred stock ($6.00/share) | | | | | (103) | | | | | (103) | | | | | (103) | |
Series B preferred stock ($6.75/share) | | | | | (39) | | | | | (39) | | | | | (39) | |
Common stock ($3.87/share) | | | | | (1,086) | | | | | (1,086) | | | | | (1,086) | |
Preferred dividends of subsidiary | | | | | (1) | | | | | (1) | | | | | (1) | |
Issuances of common stock | | | 1,885 | | | | | | | 1,885 | | | | | 1,885 | |
Repurchases of common stock | | | (26) | | | | | | | (26) | | | | | (26) | |
Noncontrolling interest activities: | | | | | | | | | | | | | |
Contributions | | | | | | | | | | | 175 | | | 175 | |
Distributions | | | 5 | | | | | | | 5 | | | (103) | | | (98) | |
Purchases | | | (3) | | | | | | | (3) | | | (27) | | | (30) | |
Sale | | | 4 | | | | | | | 4 | | | 1 | | | 5 | |
Acquisition | | | | | | | | | | | 3 | | | 3 | |
Deconsolidations | | | | | | | | | | | (440) | | | (440) | |
Balance at December 31, 2019 | 2,258 | | | 7,480 | | | 11,130 | | | (939) | | | 19,929 | | | 1,876 | | | 21,805 | |
| | | | | | | | | | | | | | | | | | | | |
SAN DIEGO GAS & ELECTRIC COMPANY |
CONSOLIDATED STATEMENTS OF OPERATIONS |
(Dollars in millions) |
| | Years ended December 31, |
| | 2021 | | 2020 | | 2019 |
Operating revenues | | | | | | |
Electric | | $ | 4,666 | | | $ | 4,619 | | | $ | 4,267 | |
Natural gas | | 838 | | | 694 | | | 658 | |
Total operating revenues | | 5,504 | | | 5,313 | | | 4,925 | |
Operating expenses | | | | | | |
Cost of electric fuel and purchased power | | 1,069 | | | 1,191 | | | 1,194 | |
Cost of natural gas | | 242 | | | 162 | | | 176 | |
Operation and maintenance | | 1,587 | | | 1,455 | | | 1,181 | |
Depreciation and amortization | | 889 | | | 801 | | | 760 | |
Franchise fees and other taxes | | 350 | | | 331 | | | 301 | |
Total operating expenses | | 4,137 | | | 3,940 | | | 3,612 | |
Operating income | | 1,367 | | | 1,373 | | | 1,313 | |
Other income, net | | 64 | | | 52 | | | 39 | |
Interest income | | 1 | | | 2 | | | 4 | |
Interest expense | | (412) | | | (413) | | | (411) | |
Income before income taxes | | 1,020 | | | 1,014 | | | 945 | |
Income tax expense | | (201) | | | (190) | | | (171) | |
Net income | | 819 | | | 824 | | | 774 | |
Earnings attributable to noncontrolling interest | | — | | | — | | | (7) | |
Earnings attributable to common shares | | $ | 819 | | | $ | 824 | | | $ | 767 | |
See Notes to Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SEMPRA ENERGY |
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED) |
(Dollars in millions) |
| Years ended December 31, 2020, 2019 and 2018 |
| Preferred stock | | Common stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Sempra Energy shareholders' equity | | Non- controlling interests | | Total equity |
Balance at December 31, 2019 | 2,258 | | | 7,480 | | | 11,130 | | | (939) | | | 19,929 | | | 1,876 | | | 21,805 | |
Adoption of ASU 2016-13 | | | | | (7) | | | | | (7) | | | (2) | | | (9) | |
Adjusted balance as of December 31, 2019 | 2,258 | | | 7,480 | | | 11,123 | | | (939) | | | 19,922 | | | 1,874 | | | 21,796 | |
| | | | | | | | | | | | | |
Net income | | | | | 3,933 | | | | | 3,933 | | | 172 | | | 4,105 | |
Other comprehensive income (loss) | | | | | | | 446 | | | 446 | | | (24) | | | 422 | |
| | | | | | | | | | | | | |
Share-based compensation expense | | | 71 | | | | | | | 71 | | | | | 71 | |
Dividends declared: | | | | | | | | | | | | | |
Series A preferred stock ($6.00/share) | | | | | (104) | | | | | (104) | | | | | (104) | |
Series B preferred stock ($6.75/share) | | | | | (39) | | | | | (39) | | | | | (39) | |
Series C preferred stock ($27.90/share) | | | | | (25) | | | | | (25) | | | | | (25) | |
Common stock ($4.18/share) | | | | | (1,214) | | | | | (1,214) | | | | | (1,214) | |
Preferred dividends of subsidiary | | | | | (1) | | | | | (1) | | | | | (1) | |
Issuances of series C preferred stock | 889 | | | | | | | | | 889 | | | | | 889 | |
Issuances of common stock | | | 33 | | | | | | | 33 | | | | | 33 | |
Repurchases of common stock | | | (566) | | | | | | | (566) | | | | | (566) | |
Noncontrolling interest activities: | | | | | | | | | | | | | |
Contributions | | | | | | | | | | | 1 | | | 1 | |
Distributions | | | | | | | | | | | (1) | | | (1) | |
Purchases | | | 34 | | | | | (7) | | | 27 | | | (275) | | | (248) | |
Sale | | | 1 | | | | | | | 1 | | | 27 | | | 28 | |
Acquisition | | | | | | | | | | | 1 | | | 1 | |
Equitization of long-term debt for deficit held by NCI | | | | | | | | | | | 22 | | | 22 | |
Deconsolidation | | | | | | | | | | | (236) | | | (236) | |
Balance at December 31, 2020 | $ | 3,147 | | | $ | 7,053 | | | $ | 13,673 | | | $ | (500) | | | $ | 23,373 | | | $ | 1,561 | | | $ | 24,934 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SAN DIEGO GAS & ELECTRIC COMPANY |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |
(Dollars in millions) | | | | |
| Years ended December 31, 2021, 2020 and 2019 |
| SDG&E shareholder's equity | | | | |
| Pretax amount | | Income tax (expense) benefit | | Net-of-tax amount | | Noncontrolling interest (after tax) | | Total |
2021: | | | | | | | | | |
Net income/Comprehensive income | $ | 1,020 | | | $ | (201) | | | $ | 819 | | | $ | — | | | $ | 819 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
2020: | | | | | | | | | |
Net income | $ | 1,014 | | | $ | (190) | | | $ | 824 | | | $ | — | | | $ | 824 | |
Other comprehensive income (loss): | | | | | | | | | |
| | | | | | | | | |
Pension and other postretirement benefits | 8 | | | (2) | | | 6 | | | — | | | 6 | |
Total other comprehensive income | 8 | | | (2) | | | 6 | | | — | | | 6 | |
Comprehensive income | $ | 1,022 | | | $ | (192) | | | $ | 830 | | | $ | — | | | $ | 830 | |
2019: | | | | | | | | | |
Net income | $ | 938 | | | $ | (171) | | | $ | 767 | | | $ | 7 | | | $ | 774 | |
Other comprehensive income (loss): | | | | | | | | | |
Financial instruments | — | | | — | | | — | | | 2 | | | 2 | |
Pension and other postretirement benefits | (6) | | | 2 | | | (4) | | | — | | | (4) | |
Total other comprehensive (loss) income | (6) | | | 2 | | | (4) | | | 2 | | | (2) | |
Comprehensive income | $ | 932 | | | $ | (169) | | | $ | 763 | | | $ | 9 | | | $ | 772 | |
See Notes to Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | |
SAN DIEGO GAS & ELECTRIC COMPANY |
CONSOLIDATED STATEMENTS OF OPERATIONS |
(Dollars in millions) |
| Years ended December 31, |
| 2020 | | 2019 | | 2018 |
Operating revenues | | | | | |
Electric | $ | 4,619 | | | $ | 4,267 | | | $ | 4,003 | |
Natural gas | 694 | | | 658 | | | 565 | |
Total operating revenues | 5,313 | | | 4,925 | | | 4,568 | |
Operating expenses | | | | | |
Cost of electric fuel and purchased power | 1,191 | | | 1,194 | | | 1,370 | |
Cost of natural gas | 162 | | | 176 | | | 152 | |
Operation and maintenance | 1,455 | | | 1,181 | | | 1,058 | |
Depreciation and amortization | 801 | | | 760 | | | 688 | |
Franchise fees and other taxes | 331 | | | 301 | | | 290 | |
Total operating expenses | 3,940 | | | 3,612 | | | 3,558 | |
Operating income | 1,373 | | | 1,313 | | | 1,010 | |
Other income, net | 52 | | | 39 | | | 56 | |
Interest income | 2 | | | 4 | | | 4 | |
Interest expense | (413) | | | (411) | | | (221) | |
Income before income taxes | 1,014 | | | 945 | | | 849 | |
Income tax expense | (190) | | | (171) | | | (173) | |
Net income | 824 | | | 774 | | | 676 | |
Earnings attributable to noncontrolling interest | 0 | | | (7) | | | (7) | |
Earnings attributable to common shares | $ | 824 | | | $ | 767 | | | $ | 669 | |
| | | | | | | | | | | | | | | | | |
SAN DIEGO GAS & ELECTRIC COMPANY |
CONSOLIDATED BALANCE SHEETS |
(Dollars in millions) |
| December 31, |
| 2021 | | 2020 | | 2019 |
ASSETS | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | $ | 25 | | | $ | 262 | | | $ | 10 | |
Accounts receivable – trade, net | 715 | | | 573 | | | 398 | |
Accounts receivable – other, net | 78 | | | 143 | | | 119 | |
| | | | | |
Income taxes receivable, net | 9 | | | — | | | 128 | |
Inventories | 123 | | | 104 | | | 94 | |
Prepaid expenses | 174 | | | 153 | | | 120 | |
Regulatory assets | 231 | | | 174 | | | 209 | |
Greenhouse gas allowances | 13 | | | 113 | | | 13 | |
Other current assets | 63 | | | 78 | | | 67 | |
Total current assets | 1,431 | | | 1,600 | | | 1,158 | |
| | | | | |
Other assets: | | | | | |
Regulatory assets | 786 | | | 534 | | | 440 | |
Greenhouse gas allowances | 111 | | | 83 | | | 189 | |
Nuclear decommissioning trusts | 1,012 | | | 1,019 | | | 1,082 | |
Right-of-use assets – operating leases | 185 | | | 102 | | | 130 | |
Wildfire fund | 331 | | | 363 | | | 392 | |
Other long-term assets | 154 | | | 189 | | | 202 | |
Total other assets | 2,579 | | | 2,290 | | | 2,435 | |
| | | | | |
Property, plant and equipment: | | | | | |
Property, plant and equipment | 26,456 | | | 24,436 | | | 22,504 | |
Less accumulated depreciation and amortization | (6,408) | | | (6,015) | | | (5,537) | |
Property, plant and equipment, net | 20,048 | | | 18,421 | | | 16,967 | |
Total assets | $ | 24,058 | | | $ | 22,311 | | | $ | 20,560 | |
See Notes to Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SAN DIEGO GAS & ELECTRIC COMPANY |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |
(Dollars in millions) | | | | |
| Years ended December 31, 2020, 2019 and 2018 |
| SDG&E shareholder's equity | | | | |
| Pretax amount | | Income tax (expense) benefit | | Net-of-tax amount | | Noncontrolling interest (after tax) | | Total |
2020: | | | | | | | | | |
Net income | $ | 1,014 | | | $ | (190) | | | $ | 824 | | | $ | 0 | | | $ | 824 | |
Other comprehensive income (loss): | | | | | | | | | |
Pension and other postretirement benefits | 8 | | | (2) | | | 6 | | | 0 | | | 6 | |
Total other comprehensive income | 8 | | | (2) | | | 6 | | | 0 | | | 6 | |
Comprehensive income | $ | 1,022 | | | $ | (192) | | | $ | 830 | | | $ | 0 | | | $ | 830 | |
2019: | | | | | | | | | |
Net income | $ | 938 | | | $ | (171) | | | $ | 767 | | | $ | 7 | | | $ | 774 | |
Other comprehensive income (loss): | | | | | | | | | |
Financial instruments | 0 | | | 0 | | | 0 | | | 2 | | | 2 | |
Pension and other postretirement benefits | (6) | | | 2 | | | (4) | | | 0 | | | (4) | |
Total other comprehensive (loss) income | (6) | | | 2 | | | (4) | | | 2 | | | (2) | |
Comprehensive income | $ | 932 | | | $ | (169) | | | $ | 763 | | | $ | 9 | | | $ | 772 | |
2018: | | | | | | | | | |
Net income | $ | 842 | | | $ | (173) | | | $ | 669 | | | $ | 7 | | | $ | 676 | |
Other comprehensive income (loss): | | | | | | | | | |
Financial instruments | 0 | | | 0 | | | 0 | | | 8 | | | 8 | |
Pension and other postretirement benefits | (2) | | | 0 | | | (2) | | | 0 | | | (2) | |
Total other comprehensive (loss) income | (2) | | | 0 | | | (2) | | | 8 | | | 6 | |
Comprehensive income | $ | 840 | | | $ | (173) | | | $ | 667 | | | $ | 15 | | | $ | 682 | |
| | | | | | | | | | | | | | | | | |
SAN DIEGO GAS & ELECTRIC COMPANY |
CONSOLIDATED BALANCE SHEETS (CONTINUED) |
(Dollars in millions) |
| December 31, |
| 2021 | | 2020 | | 2019 |
LIABILITIES AND EQUITY | | | | | |
Current liabilities: | | | | | |
Short-term debt | $ | 776 | | | $ | — | | | $ | 80 | |
Accounts payable | 588 | | | 553 | | | 496 | |
Due to unconsolidated affiliates | 97 | | | 64 | | | 53 | |
Accrued compensation and benefits | 148 | | | 135 | | | 138 | |
Regulatory liabilities | 14 | | | 61 | | | 76 | |
Current portion of long-term debt and finance leases | 49 | | | 611 | | | 56 | |
Customer deposits | 30 | | | 56 | | | 74 | |
Greenhouse gas obligations | 13 | | | 113 | | | 13 | |
Asset retirement obligations | 86 | | | 117 | | | 95 | |
Other current liabilities | 310 | | | 301 | | | 229 | |
Total current liabilities | 2,111 | | | 2,011 | | | 1,310 | |
| | | | | |
Long-term debt and finance leases | 7,581 | | | 6,866 | | | 6,306 | |
| | | | | |
Deferred credits and other liabilities: | | | | | |
Regulatory liabilities | 2,302 | | | 2,195 | | | 2,319 | |
Greenhouse gas obligations | 31 | | | — | | | 62 | |
Pension obligation, net of plan assets | 25 | | | 92 | | | 153 | |
Deferred income taxes | 2,275 | | | 2,019 | | | 1,848 | |
Asset retirement obligations | 804 | | | 759 | | | 771 | |
Deferred credits and other | 680 | | | 639 | | | 691 | |
Total deferred credits and other liabilities | 6,117 | | | 5,704 | | | 5,844 | |
| | | | | |
Commitments and contingencies (Note 16) | 0 | | 0 | | 0 |
| | | | | |
Shareholder’s equity: | | | | | |
Preferred stock (45 million shares authorized; NaN issued) | — | | | — | | | — | |
Common stock (255 million shares authorized; 117 million shares outstanding; no par value) | 1,660 | | | 1,660 | | | 1,660 | |
Retained earnings | 6,599 | | | 6,080 | | | 5,456 | |
Accumulated other comprehensive income (loss) | (10) | | | (10) | | | (16) | |
Total shareholder’s equity | 8,249 | | | 7,730 | | | 7,100 | |
Total liabilities and shareholder’s equity | $ | 24,058 | | | $ | 22,311 | | | $ | 20,560 | |
See Notes to Consolidated Financial Statements.
| | | | | | | | | | | |
SAN DIEGO GAS & ELECTRIC COMPANY |
CONSOLIDATED BALANCE SHEETS |
(Dollars in millions) |
| December 31, |
| 2020 | | 2019 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 262 | | | $ | 10 | |
Accounts receivable – trade, net | 573 | | | 398 | |
Accounts receivable – other, net | 143 | | | 119 | |
| | | |
Income taxes receivable, net | 0 | | | 128 | |
Inventories | 104 | | | 94 | |
Prepaid expenses | 153 | | | 120 | |
Regulatory assets | 174 | | | 209 | |
Fixed-price contracts and other derivatives | 56 | | | 43 | |
Greenhouse gas allowances | 113 | | | 13 | |
Other current assets | 22 | | | 24 | |
Total current assets | 1,600 | | | 1,158 | |
| | | |
Other assets: | | | |
Regulatory assets | 534 | | | 440 | |
Nuclear decommissioning trusts | 1,019 | | | 1,082 | |
Greenhouse gas allowances | 83 | | | 189 | |
Right-of-use assets – operating leases | 102 | | | 130 | |
Wildfire fund | 363 | | | 392 | |
Other long-term assets | 189 | | | 202 | |
Total other assets | 2,290 | | | 2,435 | |
| | | |
Property, plant and equipment: | | | |
Property, plant and equipment | 24,436 | | | 22,504 | |
Less accumulated depreciation and amortization | (6,015) | | | (5,537) | |
Property, plant and equipment, net | 18,421 | | | 16,967 | |
Total assets | $ | 22,311 | | | $ | 20,560 | |
| | | | | | | | | | | | | | | | | |
SAN DIEGO GAS & ELECTRIC COMPANY |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Dollars in millions) |
| Years ended December 31, |
| 2021 | | 2020 | | 2019 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 819 | | | $ | 824 | | | $ | 774 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 889 | | | 801 | | | 760 | |
Deferred income taxes and investment tax credits | 153 | | | 35 | | | 105 | |
Other | (14) | | | 27 | | | 13 | |
Net change in other working capital components: | | | | | |
Accounts receivable | (105) | | | (134) | | | (15) | |
Due to/from unconsolidated affiliates, net | 33 | | | 11 | | | (8) | |
Income taxes receivable/payable, net | (20) | | | 129 | | | (126) | |
Inventories | (19) | | | (10) | | | 4 | |
Other current assets | — | | | 4 | | | (19) | |
Accounts payable | 7 | | | 31 | | | 32 | |
Regulatory balancing accounts, net | (57) | | | (71) | | | (101) | |
Other current liabilities | (92) | | | (100) | | | 4 | |
Wildfire fund, current and noncurrent | — | | | — | | | (323) | |
Changes in other noncurrent assets and liabilities, net | (218) | | | (158) | | | (10) | |
Net cash provided by operating activities | 1,376 | | | 1,389 | | | 1,090 | |
| | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Expenditures for property, plant and equipment | (2,220) | | | (1,942) | | | (1,522) | |
Purchases of nuclear decommissioning trust assets | (961) | | | (1,439) | | | (914) | |
Proceeds from sales of nuclear decommissioning trust assets | 961 | | | 1,439 | | | 914 | |
Other | 7 | | | 8 | | | — | |
Net cash used in investing activities | (2,213) | | | (1,934) | | | (1,522) | |
| | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Common dividends paid | (300) | | | (200) | | | — | |
Equity contribution from Sempra Energy | — | | | — | | | 322 | |
Issuances of debt (maturities greater than 90 days) | 1,120 | | | 1,598 | | | 400 | |
Payments on debt maturities (greater than 90 days) and finance leases | (613) | | | (510) | | | (274) | |
Increase (decrease) in short-term debt, net | 401 | | | (80) | | | (211) | |
Contributions from noncontrolling interest, net | — | | | — | | | 172 | |
Debt issuance costs | (8) | | | (11) | | | (4) | |
Net cash provided by financing activities | 600 | | | 797 | | | 405 | |
| | | | | |
(Decrease) increase in cash, cash equivalents and restricted cash | (237) | | | 252 | | | (27) | |
Cash, cash equivalents and restricted cash, January 1 | 262 | | | 10 | | | 37 | |
Cash and cash equivalents, December 31 | $ | 25 | | | $ | 262 | | | $ | 10 | |
| | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | | | | |
Interest payments, net of amounts capitalized | $ | 402 | | | $ | 404 | | | $ | 405 | |
Income tax payments, net of refunds | 67 | | | 25 | | | 191 | |
| | | | | |
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | | | | | |
Accrued capital expenditures | $ | 228 | | | $ | 199 | | | $ | 174 | |
Increase in finance lease obligations for investment in PP&E | 24 | | | 30 | | | 16 | |
Increase (decrease) in ARO for investment in PP&E | 14 | | | 31 | | | (1) | |
See Notes to Consolidated Financial Statements.
| | | | | | | | | | | |
SAN DIEGO GAS & ELECTRIC COMPANY |
CONSOLIDATED BALANCE SHEETS (CONTINUED) |
(Dollars in millions) |
| December 31, |
| 2020 | | 2019 |
LIABILITIES AND EQUITY | | | |
Current liabilities: | | | |
Short-term debt | $ | 0 | | | $ | 80 | |
Accounts payable | 553 | | | 496 | |
Due to unconsolidated affiliates | 64 | | | 53 | |
Interest payable | 46 | | | 43 | |
Accrued compensation and benefits | 135 | | | 138 | |
Accrued franchise fees | 56 | | | 53 | |
Regulatory liabilities | 61 | | | 76 | |
Current portion of long-term debt and finance leases | 611 | | | 56 | |
Customer deposits | 56 | | | 74 | |
Greenhouse gas obligations | 113 | | | 13 | |
Asset retirement obligations | 117 | | | 95 | |
Other current liabilities | 199 | | | 133 | |
Total current liabilities | 2,011 | | | 1,310 | |
| | | |
Long-term debt and finance leases | 6,866 | | | 6,306 | |
| | | |
Deferred credits and other liabilities: | | | |
Pension obligation, net of plan assets | 92 | | | 153 | |
Deferred income taxes | 2,019 | | | 1,848 | |
Deferred investment tax credits | 13 | | | 14 | |
Regulatory liabilities | 2,195 | | | 2,319 | |
Asset retirement obligations | 759 | | | 771 | |
Greenhouse gas obligations | 0 | | | 62 | |
Deferred credits and other | 626 | | | 677 | |
Total deferred credits and other liabilities | 5,704 | | | 5,844 | |
| | | |
Commitments and contingencies (Note 16) | | | |
| | | |
Shareholder’s Equity: | | | |
Preferred stock (45 million shares authorized; NaN issued) | 0 | | | 0 | |
Common stock (255 million shares authorized; 117 million shares outstanding; no par value) | 1,660 | | | 1,660 | |
Retained earnings | 6,080 | | | 5,456 | |
Accumulated other comprehensive income (loss) | (10) | | | (16) | |
Total shareholder’s equity | 7,730 | | | 7,100 | |
Total liabilities and shareholder’s equity | $ | 22,311 | | | $ | 20,560 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SAN DIEGO GAS & ELECTRIC COMPANY |
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
(Dollars in millions) |
| Years ended December 31, 2021, 2020 and 2019 |
| Common stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | SDG&E shareholder's equity | | Noncontrolling interest | | Total equity |
Balance at December 31, 2018 | $ | 1,338 | | | $ | 4,687 | | | $ | (10) | | | $ | 6,015 | | | $ | 100 | | | $ | 6,115 | |
Adoption of ASU 2018-02 | | | 2 | | | (2) | | | — | | | | | — | |
Adjusted Balance at December 31, 2018 | 1,338 | | | 4,689 | | | (12) | | | 6,015 | | | 100 | | | 6,115 | |
| | | | | | | | | | | |
Net income | | | 767 | | | | | 767 | | | 7 | | | 774 | |
Other comprehensive (loss) income | | | | | (4) | | | (4) | | | 2 | | | (2) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Equity contribution from Sempra Energy | 322 | | | | | | 322 | | | | 322 |
Noncontrolling interest activities: | | | | | | | | | | | |
Contributions | | | | | | | | | 175 | | | 175 | |
Distributions | | | | | | | | | (3) | | | (3) | |
Deconsolidation | | | | | | | | | (281) | | | (281) | |
Balance at December 31, 2019 | 1,660 | | | 5,456 | | | (16) | | | 7,100 | | | — | | | 7,100 | |
| | | | | | | | | | | |
Net income | | | 824 | | | | | 824 | | | | | 824 | |
Other comprehensive income | | | | | 6 | | | 6 | | | | | 6 | |
| | | | | | | | | | | |
Common stock dividends declared ($1.72/share) | | | (200) | | | | | (200) | | | | | (200) | |
Balance at December 31, 2020 | 1,660 | | | 6,080 | | | (10) | | | 7,730 | | | 0 | | 7,730 | |
| | | | | | | | | | | |
Net income | | | 819 | | | | | 819 | | | | | 819 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Common stock dividends declared ($2.57/share) | | | (300) | | | | | (300) | | | | | (300) | |
Balance at December 31, 2021 | $ | 1,660 | | | $ | 6,599 | | | $ | (10) | | | $ | 8,249 | | | $ | — | | | $ | 8,249 | |
See Notes to Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | |
SAN DIEGO GAS & ELECTRIC COMPANY |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Dollars in millions) |
| Years ended December 31, |
| 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 824 | | | $ | 774 | | | $ | 676 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 801 | | | 760 | | | 688 | |
Deferred income taxes and investment tax credits | 35 | | | 105 | | | 39 | |
Other | 27 | | | 13 | | | (17) | |
Net change in other working capital components: | | | | | |
Accounts receivable | (134) | | | (15) | | | 30 | |
Due to/from affiliates, net | 11 | | | (8) | | | (2) | |
Income taxes receivable/payable, net | 129 | | | (126) | | | 23 | |
Inventories | (10) | | | 4 | | | 3 | |
Other current assets | 4 | | | (19) | | | (6) | |
Accounts payable | 31 | | | 32 | | | (1) | |
Regulatory balancing accounts | (71) | | | (101) | | | 138 | |
Other current liabilities | (100) | | | 4 | | | 4 | |
Wildfire fund, current and noncurrent | 0 | | | (323) | | | 0 | |
Changes in other noncurrent assets and liabilities, net | (158) | | | (10) | | | 9 | |
Net cash provided by operating activities | 1,389 | | | 1,090 | | | 1,584 | |
| | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Expenditures for property, plant and equipment | (1,942) | | | (1,522) | | | (1,542) | |
Decrease in cash from deconsolidation of Otay Mesa VIE | 0 | | | (8) | | | 0 | |
Purchases of nuclear decommissioning trust assets | (1,439) | | | (914) | | | (890) | |
Proceeds from sales of nuclear decommissioning trust assets | 1,439 | | | 914 | | | 890 | |
Other | 8 | | | 8 | | | 0 | |
Net cash used in investing activities | (1,934) | | | (1,522) | | | (1,542) | |
| | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Common dividends paid | (200) | | | 0 | | | (250) | |
Equity contribution from Sempra Energy | 0 | | | 322 | | | 0 | |
Issuances of debt (maturities greater than 90 days) | 1,598 | | | 400 | | | 618 | |
Payments on debt (maturities greater than 90 days) and finance leases | (510) | | | (274) | | | (492) | |
(Decrease) increase in short-term debt, net | (80) | | | (211) | | | 38 | |
Contributions from noncontrolling interest, net | 0 | | | 172 | | | 57 | |
Debt issuance costs | (11) | | | (4) | | | (5) | |
| | | | | |
Net cash provided by (used in) financing activities | 797 | | | 405 | | | (34) | |
| | | | | |
Increase (decrease) in cash, cash equivalents and restricted cash | 252 | | | (27) | | | 8 | |
Cash, cash equivalents and restricted cash, January 1 | 10 | | | 37 | | | 29 | |
Cash, cash equivalents and restricted cash, December 31 | $ | 262 | | | $ | 10 | | | $ | 37 | |
| | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | | | | |
Interest payments, net of amounts capitalized | $ | 404 | | | $ | 405 | | | $ | 214 | |
Income tax payments, net of refunds | 25 | | | 191 | | | 112 | |
| | | | | |
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | | | | | |
Accrued capital expenditures | $ | 199 | | | $ | 174 | | | $ | 159 | |
Increase in finance lease obligations for investment in property, plant and equipment | 30 | | | 16 | | | 550 | |
Increase (decrease) in ARO for investment in PP&E | 31 | | | (1) | | | 35 | |
See Notes to Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SAN DIEGO GAS & ELECTRIC COMPANY |
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
(Dollars in millions) |
| Years ended December 31, 2020, 2019 and 2018 |
| Common stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | SDG&E shareholder's equity | | Noncontrolling interest | | Total equity |
Balance at December 31, 2017 | $ | 1,338 | | | $ | 4,268 | | | $ | (8) | | | $ | 5,598 | | | $ | 28 | | | $ | 5,626 | |
| | | | | | | | | | | |
Net income | | | 669 | | | | | 669 | | | 7 | | | 676 | |
Other comprehensive (loss) income | | | | | (2) | | | (2) | | | 8 | | | 6 | |
| | | | | | | | | | | |
Common stock dividends declared ($2.14/share) | | | (250) | | | | | (250) | | | | | (250) | |
Noncontrolling interest activities: | | | | | | | | | | | |
Contributions | | | | | | | | | 65 | | | 65 | |
Distributions | | | | | | | | | (8) | | | (8) | |
Balance at December 31, 2018 | 1,338 | | | 4,687 | | | (10) | | | 6,015 | | | 100 | | | 6,115 | |
Adoption of ASU 2018-02 | | | 2 | | | (2) | | | — | | | | | 0 | |
Adjusted balance at December 31, 2018 | 1,338 | | | 4,689 | | | (12) | | | 6,015 | | | 100 | | | 6,115 | |
| | | | | | | | | | | |
Net income | | | 767 | | | | | 767 | | | 7 | | | 774 | |
Other comprehensive (loss) income | | | | | (4) | | | (4) | | | 2 | | | (2) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Equity contribution from Sempra Energy | 322 | | | | | | | 322 | | | | | 322 | |
Noncontrolling interest activities: | | | | | | | | | | | |
Contributions | | | | | | | | | 175 | | | 175 | |
Distributions | | | | | | | | | (3) | | | (3) | |
Deconsolidation | | | | | | | | | (281) | | | (281) | |
Balance at December 31, 2019 | 1,660 | | | 5,456 | | | (16) | | | 7,100 | | | 0 | | | 7,100 | |
| | | | | | | | | | | |
Net income | | | 824 | | | | | 824 | | | 0 | | | 824 | |
Other comprehensive income | | | | | 6 | | | 6 | | | 0 | | | 6 | |
| | | | | | | | | | | |
Common stock dividends declared ($1.72/share) | | | (200) | | | | | (200) | | | | | (200) | |
Balance at December 31, 2020 | $ | 1,660 | | | $ | 6,080 | | | $ | (10) | | | $ | 7,730 | | | $ | 0 | | | $ | 7,730 | |
| | | | | | | | | | | | | | | | | | | | |
SOUTHERN CALIFORNIA GAS COMPANY |
STATEMENTS OF OPERATIONS |
(Dollars in millions) |
| | Years ended December 31, |
| | 2021 | | 2020 | | 2019 |
Operating revenues | | $ | 5,515 | | | $ | 4,748 | | | $ | 4,525 | |
Operating expenses | | | | | | |
Cost of natural gas | | 1,369 | | | 783 | | | 977 | |
Operation and maintenance | | 2,180 | | | 2,029 | | | 1,780 | |
Aliso Canyon litigation and regulatory matters | | 1,593 | | | 307 | | | — | |
Depreciation and amortization | | 716 | | | 654 | | | 602 | |
Franchise fees and other taxes | | 223 | | | 190 | | | 173 | |
Impairment losses | | — | | | — | | | 37 | |
Total operating expenses | | 6,081 | | | 3,963 | | | 3,569 | |
Operating (loss) income | | (566) | | | 785 | | | 956 | |
Other expense, net | | (14) | | | (28) | | | (55) | |
Interest income | | 1 | | | 2 | | | 2 | |
Interest expense | | (157) | | | (158) | | | (141) | |
(Loss) income before income taxes | | (736) | | | 601 | | | 762 | |
Income tax benefit (expense) | | 310 | | | (96) | | | (120) | |
Net (loss) income | | (426) | | | 505 | | | 642 | |
Preferred dividends | | (1) | | | (1) | | | (1) | |
(Losses) earnings attributable to common shares | | $ | (427) | | | $ | 504 | | | $ | 641 | |
See Notes to ConsolidatedFinancial Statements.
| | | | | | | | | | | | | | | | | |
SOUTHERN CALIFORNIA GAS COMPANY |
STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |
(Dollars in millions) |
| Years ended December 31, 2021, 2020 and 2019 |
| Pretax amount | | Income tax benefit (expense) | | Net-of-tax amount |
2021: | | | | | |
Net loss/Comprehensive loss | $ | (736) | | | $ | 310 | | | $ | (426) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
2020: | | | | | |
Net income | $ | 601 | | | $ | (96) | | | $ | 505 | |
Other comprehensive income (loss): | | | | | |
| | | | | |
Pension and other postretirement benefits | (12) | | | 4 | | | (8) | |
Total other comprehensive loss | (12) | | | 4 | | | (8) | |
Comprehensive income | $ | 589 | | | $ | (92) | | | $ | 497 | |
2019: | | | | | |
Net income | $ | 762 | | | $ | (120) | | | $ | 642 | |
Other comprehensive income (loss): | | | | | |
Financial instruments | 1 | | | — | | | 1 | |
Pension and other postretirement benefits | 1 | | | (1) | | | — | |
Total other comprehensive income | 2 | | | (1) | | | 1 | |
Comprehensive income | $ | 764 | | | $ | (121) | | | $ | 643 | |
See Notes to Financial Statements.
| | | | | | | | | | | | | | | | | |
SOUTHERN CALIFORNIA GAS COMPANY |
STATEMENTS OF OPERATIONS |
(Dollars in millions) |
| Years ended December 31, |
| 2020 | | 2019 | | 2018 |
Operating revenues | $ | 4,748 | | | $ | 4,525 | | | $ | 3,962 | |
Operating expenses | | | | | |
Cost of natural gas | 783 | | | 977 | | | 1,048 | |
Operation and maintenance | 2,029 | | | 1,780 | | | 1,613 | |
Aliso Canyon litigation and regulatory matters | 307 | | | 0 | | | 0 | |
Depreciation and amortization | 654 | | | 602 | | | 556 | |
Franchise fees and other taxes | 190 | | | 173 | | | 154 | |
Impairment losses | 0 | | | 37 | | | 0 | |
Total operating expenses | 3,963 | | | 3,569 | | | 3,371 | |
Operating income | 785 | | | 956 | | | 591 | |
Other (expense) income, net | (28) | | | (55) | | | 15 | |
Interest income | 2 | | | 2 | | | 2 | |
Interest expense | (158) | | | (141) | | | (115) | |
Income before income taxes | 601 | | | 762 | | | 493 | |
Income tax expense | (96) | | | (120) | | | (92) | |
Net income | 505 | | | 642 | | | 401 | |
Preferred dividends | (1) | | | (1) | | | (1) | |
Earnings attributable to common shares | $ | 504 | | | $ | 641 | | | $ | 400 | |
| | | | | | | | | | | | | | | | | |
SOUTHERN CALIFORNIA GAS COMPANY |
BALANCE SHEETS |
(Dollars in millions) |
| December 31, |
| 2021 | | 2020 | | 2019 |
ASSETS | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | $ | 37 | | | $ | 4 | | | $ | 10 | |
Accounts receivable – trade, net | 1,084 | | | 786 | | | 710 | |
Accounts receivable – other, net | 58 | | | 64 | | | 87 | |
Due from unconsolidated affiliates | 49 | | | 22 | | | 11 | |
Income taxes receivable, net | 23 | | | — | | | 161 | |
Inventories | 172 | | | 153 | | | 136 | |
Regulatory assets | 40 | | | 16 | | | 7 | |
Greenhouse gas allowances | 75 | | | 390 | | | 52 | |
Other current assets | 61 | | | 47 | | | 44 | |
Total current assets | 1,599 | | | 1,482 | | | 1,218 | |
| | | | | |
Other assets: | | | | | |
Regulatory assets | 1,148 | | | 1,208 | | | 1,407 | |
Insurance receivable for Aliso Canyon costs | 360 | | | 445 | | | 339 | |
Greenhouse gas allowances | 290 | | | 9 | | | 248 | |
Right-of-use assets – operating leases | 57 | | | 74 | | | 94 | |
Other long-term assets | 627 | | | 499 | | | 447 | |
Total other assets | 2,482 | | | 2,235 | | | 2,535 | |
| | | | | |
Property, plant and equipment: | | | | | |
Property, plant and equipment | 23,104 | | | 21,180 | | | 19,362 | |
Less accumulated depreciation and amortization | (6,861) | | | (6,437) | | | (6,038) | |
Property, plant and equipment, net | 16,243 | | | 14,743 | | | 13,324 | |
Total assets | $ | 20,324 | | | $ | 18,460 | | | $ | 17,077 | |
See Notes to Financial Statements.
| | | | | | | | | | | | | | | | | |
SOUTHERN CALIFORNIA GAS COMPANY |
STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |
(Dollars in millions) |
| Years ended December 31, 2020, 2019 and 2018 |
| Pretax amount | | Income tax (expense) benefit | | Net-of-tax amount |
2020: | | | | | |
Net income | $ | 601 | | | $ | (96) | | | $ | 505 | |
Other comprehensive income (loss): | | | | | |
| | | | | |
Pension and other postretirement benefits | (12) | | | 4 | | | (8) | |
Total other comprehensive loss | (12) | | | 4 | | | (8) | |
Comprehensive income | $ | 589 | | | $ | (92) | | | $ | 497 | |
2019: | | | | | |
Net income | $ | 762 | | | $ | (120) | | | $ | 642 | |
Other comprehensive income (loss): | | | | | |
Financial instruments | 1 | | | 0 | | | 1 | |
Pension and other postretirement benefits | 1 | | | (1) | | | 0 | |
Total other comprehensive income | 2 | | | (1) | | | 1 | |
Comprehensive income | $ | 764 | | | $ | (121) | | | $ | 643 | |
2018: | | | | | |
Net income | $ | 493 | | | $ | (92) | | | $ | 401 | |
Other comprehensive income (loss): | | | | | |
Financial instruments | 1 | | | 0 | | | 1 | |
| | | | | |
Total other comprehensive income | 1 | | | 0 | | | 1 | |
Comprehensive income | $ | 494 | | | $ | (92) | | | $ | 402 | |
| | | | | | | | | | | | | | | | | |
SOUTHERN CALIFORNIA GAS COMPANY |
BALANCE SHEETS (CONTINUED) |
(Dollars in millions) |
| December 31, |
| 2021 | | 2020 | | 2019 |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | |
Current liabilities: | | | | | |
Short-term debt | $ | 385 | | | $ | 113 | | | $ | 630 | |
Accounts payable – trade | 775 | | | 600 | | | 545 | |
Accounts payable – other | 142 | | | 122 | | | 110 | |
Due to unconsolidated affiliates | 36�� | | | 31 | | | 47 | |
Accrued compensation and benefits | 202 | | | 189 | | | 182 | |
Regulatory liabilities | 345 | | | 79 | | | 243 | |
Current portion of long-term debt and finance leases | 11 | | | 10 | | | 6 | |
Customer deposits | 13 | | | 48 | | | 71 | |
Reserve for Aliso Canyon costs | 1,980 | | | 150 | | | 9 | |
Greenhouse gas obligations | 75 | | | 390 | | | 52 | |
Asset retirement obligations | 77 | | | 59 | | | 65 | |
Other current liabilities | 271 | | | 291 | | | 222 | |
Total current liabilities | 4,312 | | | 2,082 | | | 2,182 | |
| | | | | |
Long-term debt and finance leases | 4,773 | | | 4,763 | | | 3,788 | |
| | | | | |
Deferred credits and other liabilities: | | | | | |
Regulatory liabilities | 1,100 | | | 1,177 | | | 1,422 | |
Reserve for Aliso Canyon costs | 3 | | | 301 | | | 7 | |
Greenhouse gas obligations | 174 | | | — | | | 208 | |
Pension obligation, net of plan assets | 551 | | | 853 | | | 785 | |
Deferred income taxes | 1,039 | | | 1,406 | | | 1,403 | |
Asset retirement obligations | 2,505 | | | 2,309 | | | 2,112 | |
Deferred credits and other | 425 | | | 425 | | | 422 | |
Total deferred credits and other liabilities | 5,797 | | | 6,471 | | | 6,359 | |
| | | | | |
Commitments and contingencies (Note 16) | 0 | | 0 | | 0 |
| | | | | |
Shareholders’ equity: | | | | | |
Preferred stock (11 million shares authorized; 1 million shares outstanding) | 22 | | | 22 | | | 22 | |
Common stock (100 million shares authorized; 91 million shares outstanding; no par value) | 1,666 | | | 866 | | | 866 | |
Retained earnings | 3,785 | | | 4,287 | | | 3,883 | |
Accumulated other comprehensive income (loss) | (31) | | | (31) | | | (23) | |
Total shareholders’ equity | 5,442 | | | 5,144 | | | 4,748 | |
Total liabilities and shareholders’ equity | $ | 20,324 | | | $ | 18,460 | | | $ | 17,077 | |
See Notes to Financial StatementsStatements.
| | | | | | | | | | | |
SOUTHERN CALIFORNIA GAS COMPANY |
BALANCE SHEETS |
(Dollars in millions) |
| December 31, |
| 2020 | | 2019 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 4 | | | $ | 10 | |
Accounts receivable – trade, net | 786 | | | 710 | |
Accounts receivable – other, net | 64 | | | 87 | |
Due from unconsolidated affiliates | 22 | | | 11 | |
Income taxes receivable, net | 0 | | | 161 | |
Inventories | 153 | | | 136 | |
Regulatory assets | 16 | | | 7 | |
Greenhouse gas allowances | 390 | | | 52 | |
Other current assets | 47 | | | 44 | |
Total current assets | 1,482 | | | 1,218 | |
| | | |
Other assets: | | | |
Regulatory assets | 1,208 | | | 1,407 | |
Insurance receivable for Aliso Canyon costs | 445 | | | 339 | |
Greenhouse gas allowances | 9 | | | 248 | |
Right-of-use assets – operating leases | 74 | | | 94 | |
Other long-term assets | 499 | | | 447 | |
Total other assets | 2,235 | | | 2,535 | |
| | | |
Property, plant and equipment: | | | |
Property, plant and equipment | 21,180 | | | 19,362 | |
Less accumulated depreciation and amortization | (6,437) | | | (6,038) | |
Property, plant and equipment, net | 14,743 | | | 13,324 | |
Total assets | $ | 18,460 | | | $ | 17,077 | |
| | | | | | | | | | | | | | | | | |
SOUTHERN CALIFORNIA GAS COMPANY |
STATEMENTS OF CASH FLOWS |
(Dollars in millions) |
| Years ended December 31, |
| 2021 | | 2020 | | 2019 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net (loss) income | $ | (426) | | | $ | 505 | | | $ | 642 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 716 | | | 654 | | | 602 | |
Deferred income taxes and investment tax credits | (494) | | | (112) | | | 88 | |
Impairment losses | — | | | — | | | 37 | |
Other | 19 | | | 59 | | | (5) | |
Net change in working capital components: | | | | | |
Accounts receivable | (383) | | | (101) | | | (73) | |
Due to/from unconsolidated affiliates, net | (25) | | | (27) | | | (1) | |
Income taxes receivable/payable, net | (43) | | | 189 | | | (156) | |
Inventories | (18) | | | (19) | | | 1 | |
Other current assets | (21) | | | (12) | | | (9) | |
Accounts payable | 181 | | | 64 | | | (7) | |
Regulatory balancing accounts, net | 306 | | | (160) | | | 114 | |
Reserve for Aliso Canyon costs | 1,532 | | | 141 | | | (144) | |
Other current liabilities | (92) | | | (21) | | | (21) | |
Insurance receivable for Aliso Canyon costs | 85 | | | (106) | | | 122 | |
Reserve for Aliso Canyon costs, noncurrent | — | | | 294 | | | — | |
Changes in other noncurrent assets and liabilities, net | (304) | | | 178 | | | (322) | |
Net cash provided by operating activities | 1,033 | | | 1,526 | | | 868 | |
| | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Expenditures for property, plant and equipment | (1,984) | | | (1,843) | | | (1,439) | |
Other | — | | | — | | | 1 | |
Net cash used in investing activities | (1,984) | | | (1,843) | | | (1,438) | |
| | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Common dividends paid | (75) | | | (100) | | | (150) | |
Preferred dividends paid | (1) | | | (1) | | | (1) | |
Equity contribution from Sempra Energy | 800 | | | — | | | — | |
Issuances of debt (maturities greater than 90 days) | — | | | 949 | | | 349 | |
Payments on finance leases | (12) | | | (12) | | | (6) | |
Increase (decrease) in short-term debt, net | 272 | | | (517) | | | 374 | |
Debt issuance costs | — | | | (8) | | | (4) | |
Net cash provided by financing activities | 984 | | | 311 | | | 562 | |
| | | | | |
Increase (decrease) in cash and cash equivalents | 33 | | | (6) | | | (8) | |
Cash and cash equivalents, January 1 | 4 | | | 10 | | | 18 | |
Cash and cash equivalents, December 31 | $ | 37 | | | $ | 4 | | | $ | 10 | |
| | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | | | | |
Interest payments, net of amounts capitalized | $ | 151 | | | $ | 146 | | | $ | 126 | |
Income tax payments, net of refunds | 227 | | | 19 | | | 188 | |
| | | | | |
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | | | | | |
Accrued capital expenditures | $ | 222 | | | $ | 208 | | | $ | 205 | |
Increase in finance lease obligations for investment in PP&E | 19 | | | 47 | | | 22 | |
Increase in ARO for investment in PP&E | 125 | | | 107 | | | 35 | |
See Notes to Financial Statements.
| | | | | | | | | | | |
SOUTHERN CALIFORNIA GAS COMPANY |
BALANCE SHEETS (CONTINUED) |
(Dollars in millions) |
| December 31, |
| 2020 | | 2019 |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Short-term debt | $ | 113 | | | $ | 630 | |
Accounts payable – trade | 600 | | | 545 | |
Accounts payable – other | 122 | | | 110 | |
Due to unconsolidated affiliates | 31 | | | 47 | |
Accrued compensation and benefits | 189 | | | 182 | |
Regulatory liabilities | 79 | | | 243 | |
Current portion of long-term debt and finance leases | 10 | | | 6 | |
Customer deposits | 48 | | | 71 | |
Reserve for Aliso Canyon costs | 150 | | | 9 | |
Greenhouse gas obligations | 390 | | | 52 | |
Asset retirement obligations | 59 | | | 65 | |
Other current liabilities | 291 | | | 222 | |
Total current liabilities | 2,082 | | | 2,182 | |
| | | |
Long-term debt and finance leases | 4,763 | | | 3,788 | |
| | | |
Deferred credits and other liabilities: | | | |
Pension obligation, net of plan assets | 853 | | | 785 | |
Deferred income taxes | 1,406 | | | 1,403 | |
Deferred investment tax credits | 8 | | | 7 | |
Regulatory liabilities | 1,177 | | | 1,422 | |
Reserve for Aliso Canyon costs | 301 | | | 7 | |
Asset retirement obligations | 2,309 | | | 2,112 | |
Greenhouse gas obligations | 0 | | | 208 | |
Deferred credits and other | 417 | | | 415 | |
Total deferred credits and other liabilities | 6,471 | | | 6,359 | |
| | | |
Commitments and contingencies (Note 16) | | | |
| | | |
Shareholders’ equity: | | | |
Preferred stock (11 million shares authorized; 1 million shares outstanding) | 22 | | | 22 | |
Common stock (100 million shares authorized; 91 million shares outstanding; no par value) | 866 | | | 866 | |
Retained earnings | 4,287 | | | 3,883 | |
Accumulated other comprehensive income (loss) | (31) | | | (23) | |
Total shareholders’ equity | 5,144 | | | 4,748 | |
Total liabilities and shareholders’ equity | $ | 18,460 | | | $ | 17,077 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SOUTHERN CALIFORNIA GAS COMPANY |
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY |
(Dollars in millions) |
| Years ended December 31, 2021, 2020 and 2019 |
| Preferred stock | | Common stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Total shareholders’ equity |
Balance at December 31, 2018 | $ | 22 | | | $ | 866 | | | $ | 3,390 | | | $ | (20) | | | $ | 4,258 | |
Adoption of ASU 2018-02 | | | | | 2 | | | (4) | | | (2) | |
Adjusted balance at December 31, 2018 | 22 | | | 866 | | | 3,392 | | | (24) | | | 4,256 | |
| | | | | | | | | |
Net income | | | | | 642 | | | | | 642 | |
Other comprehensive income | | | | | | | 1 | | | 1 | |
| | | | | | | | | |
Dividends declared: | | | | | | | | | |
Preferred stock ($1.50/share) | | | | | (1) | | | | | (1) | |
Common stock ($1.64/share) | | | | | (150) | | | | | (150) | |
Balance at December 31, 2019 | 22 | | | 866 | | | 3,883 | | | (23) | | | 4,748 | |
| | | | | | | | | |
Net income | | | | | 505 | | | | | 505 | |
Other comprehensive loss | | | | | | | (8) | | | (8) | |
| | | | | | | | | |
Dividends declared: | | | | | | | | | |
Preferred stock ($1.50/share) | | | | | (1) | | | | | (1) | |
Common stock ($1.10/share) | | | | | (100) | | | | | (100) | |
Balance at December 31, 2020 | 22 | | | 866 | | | 4,287 | | | (31) | | | 5,144 | |
| | | | | | | | | |
Net loss | | | | | (426) | | | | | (426) | |
| | | | | | | | | |
| | | | | | | | | |
Dividends declared: | | | | | | | | | |
Preferred stock ($1.50/share) | | | | | (1) | | | | | (1) | |
Common stock ($0.82/share) | | | | | (75) | | | | | (75) | |
Equity contribution from Sempra Energy | | | 800 | | | | | | | 800 | |
Balance at December 31, 2021 | $ | 22 | | | $ | 1,666 | | | $ | 3,785 | | | $ | (31) | | | $ | 5,442 | |
See Notes to Financial Statements.
| | | | | | | | | | | | | | | | | |
SOUTHERN CALIFORNIA GAS COMPANY |
STATEMENTS OF CASH FLOWS |
(Dollars in millions) |
| Years ended December 31, |
| 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 505 | | | $ | 642 | | | $ | 401 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 654 | | | 602 | | | 556 | |
Deferred income taxes and investment tax credits | (112) | | | 88 | | | 78 | |
Impairment losses | 0 | | | 37 | | | 0 | |
Other | 59 | | | (5) | | | (7) | |
Net change in working capital components: | | | | | |
Accounts receivable | (101) | | | (73) | | | (87) | |
Due to/from affiliates, net | (27) | | | (1) | | | (10) | |
Income taxes receivable/payable, net | 189 | | | (156) | | | 14 | |
Inventories | (19) | | | 1 | | | (2) | |
Other current assets | (12) | | | (9) | | | 11 | |
Accounts payable | 64 | | | (7) | | | 71 | |
Regulatory balancing accounts | (160) | | | 114 | | | 125 | |
Reserve for Aliso Canyon costs | 141 | | | (144) | | | 56 | |
Other current liabilities | (21) | | | (21) | | | (6) | |
Insurance receivable for Aliso Canyon costs | (106) | | | 122 | | | (43) | |
Reserve for Aliso Canyon costs, noncurrent | 294 | | | 0 | | | 0 | |
Changes in other noncurrent assets and liabilities, net | 178 | | | (322) | | | (144) | |
Net cash provided by operating activities | 1,526 | | | 868 | | | 1,013 | |
| | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Expenditures for property, plant and equipment | (1,843) | | | (1,439) | | | (1,538) | |
| | | | | |
Other | 0 | | | 1 | | | 7 | |
Net cash used in investing activities | (1,843) | | | (1,438) | | | (1,531) | |
| | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Common dividends paid | (100) | | | (150) | | | (50) | |
Preferred dividends paid | (1) | | | (1) | | | (1) | |
Issuances of debt (maturities greater than 90 days) | 949 | | | 349 | | | 949 | |
Payments on debt (maturities greater than 90 days) and finance leases | (12) | | | (6) | | | (500) | |
(Decrease) increase in short-term debt, net | (517) | | | 374 | | | 140 | |
Debt issuance costs | (8) | | | (4) | | | (10) | |
Net cash provided by financing activities | 311 | | | 562 | | | 528 | |
| | | | | |
(Decrease) increase in cash and cash equivalents | (6) | | | (8) | | | 10 | |
Cash and cash equivalents, January 1 | 10 | | | 18 | | | 8 | |
Cash and cash equivalents, December 31 | $ | 4 | | | $ | 10 | | | $ | 18 | |
| | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | | | | |
Interest payments, net of amounts capitalized | $ | 146 | | | $ | 126 | | | $ | 105 | |
Income tax payments, net of refunds | 19 | | | 188 | | | 0 | |
| | | | | |
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | | | | | |
Accrued capital expenditures | $ | 208 | | | $ | 205 | | | $ | 191 | |
Increase in finance lease obligations for investment in property, plant and equipment | 47 | | | 22 | | | 6 | |
Increase in ARO for investment in PP&E | 107 | | | 35 | | | 35 | |
See Notes to Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SOUTHERN CALIFORNIA GAS COMPANY |
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY |
(Dollars in millions) |
| Years ended December 31, 2020, 2019 and 2018 |
| Preferred stock | | Common stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Total shareholders’ equity |
Balance at December 31, 2017 | $ | 22 | | | $ | 866 | | | $ | 3,040 | | | $ | (21) | | | $ | 3,907 | |
| | | | | | | | | |
Net income | | | | | 401 | | | | | 401 | |
Other comprehensive income | | | | | | | 1 | | | 1 | |
| | | | | | | | | |
Dividends declared: | | | | | | | | | |
Preferred stock ($1.50/share) | | | | | (1) | | | | | (1) | |
Common stock ($0.55/share) | | | | | (50) | | | | | (50) | |
Balance at December 31, 2018 | 22 | | | 866 | | | 3,390 | | | (20) | | | 4,258 | |
Adoption of ASU 2018-02 | | | | | 2 | | | (4) | | | (2) | |
Adjusted balance as of December 31, 2018 | 22 | | | 866 | | | 3,392 | | | (24) | | | 4,256 | |
| | | | | | | | | |
Net income | | | | | 642 | | | | | 642 | |
Other comprehensive income | | | | | | | 1 | | | 1 | |
| | | | | | | | | |
Dividends declared: | | | | | | | | | |
Preferred stock ($1.50/share) | | | | | (1) | | | | | (1) | |
Common stock ($1.64/share) | | | | | (150) | | | | | (150) | |
Balance at December 31, 2019 | 22 | | | 866 | | | 3,883 | | | (23) | | | 4,748 | |
| | | | | | | | | |
Net income | | | | | 505 | | | | | 505 | |
Other comprehensive loss | | | | | | | (8) | | | (8) | |
| | | | | | | | | |
Dividends declared: | | | | | | | | | |
Preferred stock ($1.50/share) | | | | | (1) | | | | | (1) | |
Common stock ($1.10/share) | | | | | (100) | | | | | (100) | |
Balance at December 31, 2020 | $ | 22 | | | $ | 866 | | | $ | 4,287 | | | $ | (31) | | | $ | 5,144 | |
See Notes to Financial Statements
SEMPRA ENERGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES AND OTHER FINANCIAL DATA
PRINCIPLES OF CONSOLIDATION
Sempra Energy
Sempra Energy’sSempra’s Consolidated Financial Statements include the accounts of Sempra Energy, a California-based energy-servicesholding company doing business as Sempra, and its consolidated entities. In the fourth quarter of 2021, we formed Sempra Infrastructure, a new segment that includes the operating companies of our subsidiary, SI Partners, as well as a holding company and itscertain services companies. Through an internal reorganization, we consolidated subsidiariesthe assets of our LNG business (previously included in our Sempra LNG segment) and VIEs.our ownership of IEnova (previously included in our Sempra Mexico segment) under Sempra Global is(previously included in Parent and other), which was renamed SI Partners. This reorganization simplifies Sempra’s ownership and management of its non-utility, energy infrastructure assets in North America by consolidating them under a single platform. As a result, the holding company forSempra LNG and Sempra Mexico segments no longer exist. Our historical segment disclosures have been restated to conform with the current presentation, so that all discussions of our subsidiaries that are not subject to California or Texas utility regulation. Sempra Energy’s businesses were managed within 6reportable segments reflect the revised segment information of our 4 separate reportable segments, until April 2019 and 5 separate reportable segments thereafter, which we discuss in Note 17. All references in these Notes to our reportable segments are not intended to refer to any legal entity with the same or similar name.
SDG&E
SDG&E’s Consolidated Financial Statements include its accounts and the accounts of a VIE of which SDG&E was the primary beneficiary until August 23, 2019, at which time SDG&E deconsolidated the VIE, as we discuss below in “Variable Interest Entities.” SDG&E’s common stock is wholly owned by Enova, which is a wholly owned subsidiary of Sempra Energy.Sempra.
SoCalGas
SoCalGas’ common stock is wholly owned by PE, which is a wholly owned subsidiary of Sempra Energy.
In this report, we refer to SDG&E and SoCalGas collectively as the California Utilities.Sempra.
BASIS OF PRESENTATION
This is a combined report of Sempra, Energy, SDG&E and SoCalGas. We provide separate information for SDG&E and SoCalGas as required. References in this report to “we,” “our,” “us” and “Sempra Energy Consolidated”“Sempra” are to Sempra Energy and its consolidated entities, collectively, unless otherwise stated or indicated by the context. We sometimes refer to SDG&E and SoCalGas collectively as Sempra California. SI Partners (formerly Sempra Global) is the holding company for our subsidiaries that are not subject to California or Texas utility regulation. We have eliminated intercompany accounts and transactions within the consolidated financial statements of each reporting entity.
Throughout these Notes, we refer to the following as Consolidated Financial Statements and Notes to Consolidated Financial Statements when discussed together or collectively:
▪the Consolidated Financial Statements and related Notes of Sempra Energy and its subsidiaries and VIEs;Sempra;
▪the Consolidated Financial Statements and related Notes of SDG&E and its VIE (until deconsolidation of the VIE in August 2019);&E; and
▪the Financial Statements and related Notes of SoCalGas.
Use of Estimates in the Preparation of the Financial Statements
We have prepared our Consolidated Financial Statements in conformity with U.S. GAAP. This requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, including the disclosure of contingent assets and liabilities at the date of the financial statements. Although we believe the estimates and assumptions are reasonable, actual amounts ultimately may differ significantly from those estimates.
Discontinued Operations
In January 2019,We completed the sales of our board of directors approved a plan to sellequity interests in our South AmericanPeruvian businesses based onin April 2020 and our strategic focus on North America.Chilean businesses in June 2020. We determined that these businesses, which previously constituted the Sempra South American Utilities segment, and certain activities associated with these businesses, met the held-for-sale criteria.criteria upon our decision to sell them in January 2019. These
businesses are presented as discontinued operations, which we discuss further in Note 5. We completed the sales in the second quarter of 2020. Our discussions in the Notes below relate only to our continuing operations unless otherwise noted.
Subsequent Events
We evaluated events and transactions that occurred after December 31, 20202021 through the date the financial statements were issued, and in the opinion of management, the accompanying statements reflect all adjustments and disclosures necessary for a fair presentation.
EFFECTS OF REGULATIONREGULATED OPERATIONS
The California Utilities’SDG&E’s and SoCalGas’ accounting policies and financial statements reflect the application of U.S. GAAP provisions governing rate-regulated operations and the policies of the CPUC and the FERC. Under these provisions, a regulated utility records regulatory assets, which are generally costs that would otherwise be charged to expense, if it is probable that, through the ratemaking process, the utility will recover those assets from customers. To the extent that recovery is no longer probable, the related regulatory assets are written off. Regulatory liabilities generally represent amounts collected from customers in advance of the actual expenditure by the utility. If the actual expenditures are less than amounts previously collected from ratepayers, the excess would be refunded to customers, generally by reducing future rates. Regulatory liabilities may also arise from other transactions such as unrealized gains on fixed price contracts and other derivatives or certain deferred income tax benefits that are passed through to customers in future rates. In addition, the California UtilitiesSDG&E and SoCalGas record regulatory liabilities when the CPUC or, in the case of SDG&E, the FERC, requires a refund to be made to customers or has required that a gain or other transaction of net allowable costs be given to customers over future periods.
Determining probability of recovery of regulatory assets requires significant judgment by management and may include, but is not limited to, consideration of:
▪the nature of the event giving rise to the assessment
▪existing statutes and regulatory code
▪legal precedents
▪regulatory principles and analogous regulatory actions
▪testimony presented in regulatory hearings
▪regulatory orders
▪a commission-authorized mechanism established for the accumulation of costs
▪status of applications for rehearings or state court appeals
▪specific approval from a commission
▪historical experience
Sempra Mexico’sInfrastructure’s natural gas distribution utility, Ecogas, also applies U.S. GAAP for rate-regulated utilities to its operations, including the same evaluation of probability of recovery of regulatory assets described above.
We provide information concerning regulatory assets and liabilities in Note 4.
Our Sempra Texas Utilities segment is comprised of our equity method investments in Oncor Holdings, which at December 31, 2020, owns an 80.25% interest in Oncor, and Sharyland Holdings, which owns 100% of Sharyland Utilities. Oncor and Sharyland Utilities are regulated electric transmission and distribution utilities in Texas and their rates are regulated by the PUCT and certain cities and are subject to regulatory rate-setting processes and annual earnings oversight. Oncor and Sharyland Utilities prepare their financial statements in accordance with the provisions of U.S. GAAP governing rate-regulated operations.
Our Sempra MexicoInfrastructure segment includes the operating companies of our subsidiary, IEnova, as well as certain holding companies and risk management activity. Certain business activities at IEnova are regulated by the CRE and meet the regulatory accounting requirements of U.S. GAAP. Pipeline projects currently under construction at IEnova that meet the regulatory accounting requirements of U.S. GAAP record the impact of AFUDC related to equity. We discuss AFUDC below in “Property, Plant and Equipment.”
FAIR VALUE MEASUREMENTS
We measure certain assets and liabilities at fair value on a recurring basis, primarily NDT and benefit plan trust assets and derivatives. We also measure certain assets at fair value on a non-recurring basis in certain circumstances.
A fair value measurement reflects the assumptions market participants would use in pricing an asset or liability based on the best available information. These assumptions include the risk inherent in a particular valuation technique (such as a pricing model) and the risks inherent in the inputs to the model. Also, we consider an issuer’s credit standing when measuring its liabilities at fair value.
We establish a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
Level 1 – Pricing inputs are unadjusted quoted prices available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Our Level 1 financial instruments primarily consist of listed equities, short-term investments, and U.S. government treasury securities, primarily in the NDT and benefit plan trusts, and exchange-traded derivatives.
Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including:
▪quoted forward prices for commodities
▪time value
▪current market and contractual prices for the underlying instruments
▪volatility factors
▪other relevant economic measures
Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument and can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Our financial instruments in this category include listed equities, domestic corporate bonds, municipal bonds and other foreign bonds, primarily in the NDT and benefit plan trusts, and non-exchange-traded derivatives such as interest rate instruments and over-the-counter forwards and options.
Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value from the perspective of a market participant. Our Level 3 financial instruments consist of CRRs and fixed-price electricity positions at SDG&E and the Support Agreement at Sempra LNG.Infrastructure.
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Cash equivalents are highly liquid investments with original maturities of three months or less at the date of purchase.
Restricted cash includesincludes:
▪for Sempra Infrastructure, funds primarily denominated in Mexican pesos to pay for rights-of-way, license fees, permits, topographic surveys and other costs pursuant to trust and debt agreements related to pipeline projects at Sempra Mexico.
▪for Parent and other, funds held in a delisting trust for the purpose of purchasing the remaining publicly owned IEnova shares
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on theSempra’s Consolidated Balance Sheets to the sum of such amounts reported on theSempra’s Consolidated Statements of Cash Flows.
| RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH | RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH | | RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH | |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) | |
| | At December 31, | | At December 31, |
| | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated: | | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 960 | | | $ | 108 | | Cash and cash equivalents | $ | 559 | | | $ | 960 | | | $ | 108 | |
Restricted cash, current | Restricted cash, current | 22 | | | 31 | | Restricted cash, current | 19 | | | 22 | | | 31 | |
Restricted cash, noncurrent | Restricted cash, noncurrent | 3 | | | 3 | | Restricted cash, noncurrent | 3 | | | 3 | | | 3 | |
Cash, cash equivalents and restricted cash in discontinued operations | Cash, cash equivalents and restricted cash in discontinued operations | 0 | | | 75 | | Cash, cash equivalents and restricted cash in discontinued operations | — | | | — | | | 75 | |
Total cash, cash equivalents and restricted cash on the Consolidated Statements of Cash Flows | Total cash, cash equivalents and restricted cash on the Consolidated Statements of Cash Flows | $ | 985 | | | $ | 217 | | Total cash, cash equivalents and restricted cash on the Consolidated Statements of Cash Flows | $ | 581 | | | $ | 985 | | | $ | 217 | |
In the Sempra EnergySempra’s Consolidated Statement of Cash Flows for the year ended December 31, 2020, the ending cash, cash equivalents and restricted cash balance in discontinued operations of $4.6 billion is considered to be cash, cash equivalents and restricted cash for continuing operations following the sales of the South American businesses.
CREDIT LOSSES
We are exposed to credit losses from financial assets measured at amortized cost, including trade and other accounts receivable, and amounts due from unconsolidated affiliates.affiliates, our net investment in a sales-type lease and a note receivable. We are also exposed to credit losses from off-balance sheet arrangements through our guarantees ofSempra’s guarantee related to Cameron LNG JV’s debt.
SDSRA, which we discuss in Note 6.We regularly monitor and evaluate credit losses and record allowances for expected credit losses, if necessary, for trade and other accounts receivable using a combination of factors, including past-due status based on contractual terms, trends in write-offs, the age of the receivable,receivables and customer payment patterns, historical and industry trends, counterparty creditworthiness, economic conditions and specific events, such as bankruptcies.bankruptcies, pandemics and other factors. We write off financial assets measured at amortized cost in the period in which we determine they are not recoverable. We record recoveries of amounts previously written off when it is known that they will be recovered.
In connection with the COVID-19 pandemic and at the California Utilities havedirection of the CPUC, SDG&E and SoCalGas implemented certain measures to assist customers, including suspending service disconnections due to nonpayment for all customers (except for SoCalGas’ noncore customers), waiving late payment fees, and offering flexible payment plans. At the CPUC’s direction, SDG&E and SoCalGas are automatically enrolling residential and small business customers waiving late payment fees for business customers, and offering flexible payment plans to customers experiencing difficulty paying their electric or gas bills. with past-due balances in long-term repayment plans.
As we discuss in Note 4, the CPUC authorized each of the California UtilitiesSDG&E and SoCalGas to track and request recovery of incremental costs, including uncollectible expenses, associated with complying with residential and small business customer protection measures implementedordered by the CPUC related to the COVID-19 pandemic.
In June 2020, the CPUC issued a decision inconnection with a separate proceedingCPUC decision addressing residential service disconnections, that, among other things, allowsSDG&E and SoCalGas each of the California Utilities to establishestablished a two-way balancing account to record the uncollectible expenses associated with residential customers’ inability to pay their electric or gas bills. This decision also directsbills, including as a result of the California Utilities to establish an AMP that provides successfully participating, income-qualified residential customers with relief from outstanding utility bill amounts. Refer to Note 4 for further discussion.
The California Utilities have recorded increases in their allowances for expected credit losses as of December 31, 2020 primarily related to expected forgiveness of outstanding utility bill amounts including increases due to the effect of the COVID-19 pandemic, for residential customers eligibleprovided under the AMP. Our businessesAMP, as we discuss in Note 4.
In 2021, SDG&E and SoCalGas applied, on behalf of their customers, for financial assistance from the California Department of Community Services and Development under the California Arrearage Payment Program, which provided funds of $63 million and $79 million for SDG&E and SoCalGas, respectively. In the first quarter of 2022, SDG&E and SoCalGas received and will continueapply the amounts directly to monitor macroeconomic factors andeligible customer payment patterns when evaluating their allowances for credit losses in future reporting periods, which may increase significantlyaccounts to reduce past due to the effects of the COVID-19 pandemic or other factors.balances.
We provide below allowances and changes in allowances for credit losses for trade receivables and other accounts receivable, excluding allowances related to amounts due from unconsolidated affiliatesreceivables. SDG&E and off-balance sheet arrangements, which we discuss separately below the table. The California UtilitiesSoCalGas record changes in the allowances for credit losses related to Accounts Receivable – Trade in regulatory accounts.
| | | | | | | | | | | | | | | | | |
TRADE AND OTHER ACCOUNTS RECEIVABLE – ALLOWANCES FOR CREDIT LOSSES |
(Dollars in millions) |
| Years ended December 31, |
| 2020 | | 2019 | | 2018 |
Sempra Energy Consolidated: | | | | | |
Allowances for credit losses at January 1 | $ | 29 | | | $ | 21 | | | $ | 25 | |
Incremental allowance upon adoption of ASU 2016-13 | 1 | | | 0 | | | 0 | |
Provisions for expected credit losses | 124 | | | 22 | | | 10 | |
Write-offs | (16) | | | (14) | | | (14) | |
Allowances for credit losses at December 31(1) | $ | 138 | | | $ | 29 | | | $ | 21 | |
SDG&E: | | | | | |
Allowances for credit losses at January 1 | $ | 14 | | | $ | 11 | | | $ | 9 | |
Provisions for expected credit losses | 65 | | | 10 | | | 9 | |
Write-offs | (10) | | | (7) | | | (7) | |
Allowances for credit losses at December 31(2) | $ | 69 | | | $ | 14 | | | $ | 11 | |
SoCalGas: | | | | | |
Allowances for credit losses at January 1 | $ | 15 | | | $ | 10 | | | $ | 16 | |
Provisions for expected credit losses | 59 | | | 12 | | | 1 | |
Write-offs | (6) | | | (7) | | | (7) | |
Allowances for credit losses at December 31(3) | $ | 68 | | | $ | 15 | | | $ | 10 | |
(1)Balances at December 31, 2020 and 2019 include $111 million and $7 million, respectively, in Accounts Receivable – Trade, Net and $27 million and $22 million, respectively, in Accounts Receivable – Other, Net.
(2)Balances at December 31, 2020 and 2019 include $55 million and $4 million, respectively, in Accounts Receivable – Trade, Net and $14 million and $10 million, respectively, in Accounts Receivable – Other, Net.
(3)Balances at December 31, 2020 and 2019 include $55 million and $3 million, respectively, in Accounts Receivable – Trade, Net and $13 million and $12 million, respectively, in Accounts Receivable – Other, Net.
For amounts | | | | | | | | | | | | | | | | | |
RECEIVABLES – ALLOWANCES FOR CREDIT LOSSES |
(Dollars in millions) |
| Years ended December 31, |
| 2021 | | 2020 | | 2019 |
Sempra: | | | | | |
Allowances for credit losses at January 1 | $ | 138 | | | $ | 29 | | | $ | 21 | |
Incremental allowance upon adoption of ASU 2016-13 | — | | | 1 | | | — | |
Provisions for expected credit losses | 45 | | | 124 | | | 22 | |
Write-offs | (47) | | | (16) | | | (14) | |
Allowances for credit losses at December 31 | $ | 136 | | | $ | 138 | | | $ | 29 | |
SDG&E: | | | | | |
Allowances for credit losses at January 1 | $ | 69 | | | $ | 14 | | | $ | 11 | |
Provisions for expected credit losses | 23 | | | 65 | | | 10 | |
Write-offs | (26) | | | (10) | | | (7) | |
Allowances for credit losses at December 31 | $ | 66 | | | $ | 69 | | | $ | 14 | |
SoCalGas: | | | | | |
Allowances for credit losses at January 1 | $ | 68 | | | $ | 15 | | | $ | 10 | |
Provisions for expected credit losses | 22 | | | 59 | | | 12 | |
Write-offs | (21) | | | (6) | | | (7) | |
Allowances for credit losses at December 31 | $ | 69 | | | $ | 68 | | | $ | 15 | |
Allowances for credit losses are included in the Consolidated Balance Sheets as follows:
| | | | | | | | | | | | | | | | | |
ALLOWANCES FOR CREDIT LOSSES |
(Dollars in millions) |
| December 31, |
| 2021 | | 2020 | | 2019 |
Sempra: | | | | | |
Accounts receivable – trade, net | $ | 94 | | | $ | 111 | | | $ | 7 | |
Accounts receivable – other, net | 39 | | | 27 | | | 22 | |
Other long-term assets | 3 | | | — | | | — | |
Total allowances for credit losses | $ | 136 | | | $ | 138 | | | $ | 29 | |
SDG&E: | | | | | |
Accounts receivable – trade, net | $ | 42 | | | $ | 55 | | | $ | 4 | |
Accounts receivable – other, net | 22 | | | 14 | | | 10 | |
Other long-term assets | 2 | | | — | | | — | |
Total allowances for credit losses | $ | 66 | | | $ | 69 | | | $ | 14 | |
SoCalGas: | | | | | |
Accounts receivable – trade, net | $ | 51 | | | $ | 55 | | | $ | 3 | |
Accounts receivable – other, net | 17 | | | 13 | | | 12 | |
Other long-term assets | 1 | | | — | | | — | |
Total allowances for credit losses | $ | 69 | | | $ | 68 | | | $ | 15 | |
As we discuss below in “Transactions with Affiliates,” we have loans due from unconsolidated affiliates with varying tenors, interest rates and off-balance sheet arrangements, oncurrencies. On a quarterly basis, we evaluate credit losses and record allowances for expected credit losses on amounts due from unconsolidated affiliates, if necessary, based on credit quality indicators such as external credit ratings, published default rate studies, the maturity date of the instrument and past delinquencies. However, we do not record allowances for expected credit losses related to accrued interest receivable on loans due from unconsolidated affiliates because we write off such amounts, if any, through a reversal of interest income in the period we determine such amounts are uncollectible. In the absence of external credit ratings, we may utilize an internally developed credit rating based on our analysis of a counterparty’s financial statements to determine our expected credit losses. At December 31, 2021 and 2020, $1 million and $3 million, respectively, of expected credit losses are included in noncurrent Due From Unconsolidated Affiliates on Sempra’s Consolidated Balance Sheets.
As we discuss below in “Transactions with Affiliates,“Note Receivable,” we have loans due from unconsolidated affiliates with varying tenors, interest ratesSempra loaned $300 million to KKR in exchange for an interest-bearing promissory note. We evaluate credit losses and currencies. We provide below the changes inrecord allowances for expected credit losses for loanson this note receivable based on published default rate studies, the maturity date of the instrument and other amounts due from unconsolidated affiliates.
| | | | | |
AMOUNTS DUE FROM UNCONSOLIDATED AFFILIATES – ALLOWANCES FOR CREDIT LOSSES | |
(Dollars in millions) |
| Sempra
Energy
Consolidated(1)
|
Allowances for credit losses at January 1, 2020 | $ | 0 | |
Allowance established upon adoption of ASU 2016-13 | 6 | |
Reduction to expected credit losses | (3) | |
Allowances for credit losses at December 31, 2020 | $ | 3 | |
(1) Balance atan internally developed credit rating. At December 31, 2020 includes negligible amounts and $32021, $8 million of expected credit losses is included in Due from Unconsolidated Affiliates – Current and Due from Unconsolidated Affiliates – Noncurrent, respectively.Other Long-Term Assets on Sempra’s Consolidated Balance Sheet.
As we discuss below in Note 6, Sempra Energy has provided guaranteesa guarantee for the benefit of Cameron LNG JV related to its debt obligations for a maximum aggregate amount of $4.0 billion. We established a liability for credit losses of $6 million for this off-balance sheet arrangement upon adoption of ASU 2016-13 on January 1, 2020 and we subsequently reduced this liabilityamounts withdrawn by $4 million inSempra Infrastructure from the year ended December 31, 2020 through a reduction to credit loss expense, which is included in O&M on the Sempra Energy Consolidated Statement of Operations.SDSRA. At December 31, 2020,2021, expected credit losses of $2$7 million related to this guarantee are included in Deferred Credits and Other Current Liabilities on the Sempra EnergySempra’s Consolidated Balance Sheet.
CONCENTRATION OF CREDIT RISK
Credit risk is the risk of loss that would be incurred as a result of nonperformance by our counterparties on their contractual obligations. We have policies governing the management of credit risk that are administered by the respective credit departments at each of our segments and overseen by their separate risk management committees.
This oversight includes calculating current and potential credit risk on a regular basis and monitoring actual balances in comparison to approved limits. We establish credit limits based on risk and return considerations under terms customarily available in the industry. We avoid concentration of counterparties whenever possible, and we believe our credit policies significantly reduce overall credit risk. These policies include an evaluation of:
▪prospective counterparties’ financial condition (including credit ratings)
▪collateral requirements
▪the use of standardized agreements that allow for the netting of positive and negative exposures associated with a single counterparty
▪downgrade triggers
We believe that we have provided adequate reserves for counterparty nonperformance in our allowances for credit losses.
When our development projects become operational, we rely significantly on the ability of suppliers to perform under long-term agreements and on our ability to enforce contract terms in the event of nonperformance. Also, the factors that we consider in evaluating a development project include negotiating customer and supplier agreements and, therefore, we rely on these agreements for future performance. We also may condition our decision to go forward on development projects on first obtaining these customer and supplier agreements.
INVENTORIES
The California UtilitiesSDG&E and SoCalGas value natural gas inventory using the last-in first-out method. As inventories are sold, differences between the last-in first-out valuation and the estimated replacement cost are reflected in customer rates. These differences are generally temporary, but may become permanent if the natural gas inventory withdrawn from storage during the year is not replaced by year end. The California UtilitiesSDG&E and SoCalGas generally value materials and supplies at the lower of average cost or net realizable value.
Sempra Mexico and Sempra LNG valueInfrastructure values natural gas inventory and materials and supplies at the lower of average cost or net realizable value. Sempra Mexicovalue, and Sempra LNG value LNG inventory using the first-in first-out method.
The components of inventories are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
INVENTORY BALANCES AT DECEMBER 31 |
(Dollars in millions) |
| Natural gas | | LNG | | Materials and supplies | | Total |
| 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Sempra Energy Consolidated | $ | 118 | | | $ | 110 | | | $ | 7 | | | $ | 9 | | | $ | 183 | | | $ | 158 | | | $ | 308 | | | $ | 277 | |
SDG&E | 0 | | | 1 | | | 0 | | | 0 | | | 104 | | | 93 | | | 104 | | | 94 | |
SoCalGas | 94 | | | 90 | | | 0 | | | 0 | | | 59 | | | 46 | | | 153 | | | 136 | |
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INVENTORY BALANCES AT DECEMBER 31 |
(Dollars in millions) |
| Sempra | SDG&E | SoCalGas |
| 2021 | | 2020 | | 2019 | 2021 | | 2020 | | 2019 | 2021 | | 2020 | | 2019 |
Natural gas | $ | 164 | | | $ | 118 | | | $ | 110 | | $ | — | | | $ | — | | | $ | 1 | | $ | 114 | | | $ | 94 | | | $ | 90 | |
LNG | 27 | | | 7 | | | 9 | | — | | | — | | | — | | — | | | — | | | — | |
Materials and supplies | 198 | | | 183 | | | 158 | | 123 | | | 104 | | | 93 | | 58 | | | 59 | | | 46 | |
Total | $ | 389 | | | $ | 308 | | | $ | 277 | | $ | 123 | | | $ | 104 | | | $ | 94 | | $ | 172 | | | $ | 153 | | | $ | 136 | |
NOTE RECEIVABLE
In connection with the KKR Purchase Agreement, which we define and discuss below in “Noncontrolling Interests,” we entered into an accommodation and support agreement under which KKR issued a $300 million interest bearing promissory note to Sempra in exchange for cash. Loan-related transaction costs incurred by KKR totaled $5 million, which were reimbursed by Sempra per the terms of the agreement. The promissory note is due to be repaid in full no later than October 1, 2029 and bears compound interest at 5% per annum, which may be paid quarterly or added to the outstanding principal at the election of KKR. At December 31, 2021, Other Long-Term Assets includes $297 million of outstanding principal, net of allowance for credit losses, and Other Current Assets includes $3 million of interest receivable on Sempra’s Consolidated Balance Sheet.
WILDFIRE FUND
In July 2019, the Wildfire Legislation was signed into law. The Wildfire Legislation addresses certain issues related to catastrophic wildfires in the State of California and their impact on electric IOUs. Investor-owned gas distribution utilities such as SoCalGas are not covered by this legislation. The issues addressed include wildfire mitigation, cost recovery standards and requirements, a wildfire fund, a cap on liability, and the establishment of a wildfire safety board.
The Wildfire Legislation provided that SDG&E would not recover the ROE on its first $215 million of fire risk mitigation capital expenditures.
The Wildfire Legislation established a revised legal standard for the recovery of wildfire costs (Revised Prudent Manager Standard) and established a fund (the Wildfire Fund) designed to provide liquidity to SDG&E, PG&E and Edison to pay IOU wildfire-related claims in the event that the governmental agency responsible for determining causation determines the applicable IOU’s equipment caused the ignition of a wildfire, primary insurance coverage is exceeded and certain other conditions are satisfied. A primary purpose of the Wildfire Fund is to pool resources provided by shareholders and ratepayers of the IOUs and make those resources available to reimburse the IOUs for third-party wildfire claims incurred after July 12, 2019, the effective date of the Wildfire Legislation, subject to certain limitations.
An IOU may seek payment from the Wildfire Fund for settled or adjudicated third-party damage claims arising from certain wildfires that exceed, in aggregate in a calendar year, the greater of $1 billion or the IOU’s required amount of insurance coverage as recommended by the Wildfire Fund’s administrator. Wildfire claims approved by the Wildfire Fund’s administrator will be paid by the Wildfire Fund to the IOU to the extent funds are available. These utilized funds will be subject to review by the CPUC, which will make a determination as to the degree an IOU’s conduct related to an ignition of a wildfire was prudent or imprudent. The Revised Prudent Manager Standard requires that the CPUC apply clear standards when reviewing wildfire liability losses paid when determining the reasonableness of an IOU’s conduct related to an ignition. Under this standard, the conduct under review related to the ignition may include factors within and beyond the IOU’s control, including humidity, temperature and winds. Costs and expenses may be allocated for cost recovery in full or in part. Also, under this standard, an IOU’s conduct will be deemed reasonable if a valid annual safety certification is in place at the time of the ignition, unless a serious doubt is raised, in which case the burden shifts to the utility to dispel that doubt. The IOUs will receive an annual safety certification from the CPUC if they meet various requirements.
If an IOU has maintained a valid annual safety certification, to the extent it is found to be imprudent, claims will be reimbursable by the IOU to the Wildfire Fund up to a cap based on the IOU’s rate base. The aggregate requirement to reimburse the Wildfire Fund over a trailing three calendar year period is capped at 20% of the equity portion of an IOU’s electric transmission and distribution rate base in the year of the prudency determination. Based on its 20202021 rate base, the liability cap for SDG&E is approximately $950 million,$1.1 billion, which is adjusted annually. The liability cap will apply on a rolling three-year basis so long as future annual safety certifications are received and the Wildfire Fund has not been terminated, which could occur if funds are exhausted. Amounts in excess of the liability cap and amounts that are determined to be prudently incurred do not need to be reimbursed by an IOU to the Wildfire Fund. The Wildfire Fund does not have a specified term and coverage will continue until the assets of the
Wildfire Fund are exhausted and the Wildfire Fund is terminated, in which case, the remaining funds, if any, will be transferred to California’s general fund to be used for fire risk mitigation programs.
In June 2020,July 2021, the CPUC approved SDG&E’s 2020 wildfire mitigation plan, which2021 Wildfire Mitigation Plan. In July 2021, the CPUC’s Wildfire Safety Division became the OEIS under the California Natural Resources Agency. As successor to the Wildfire Safety Division, the OEIS maintains the duties and responsibilities of the former Wildfire Safety Division with respect to Wildfire Mitigation Plans. The 2021 Wildfire Mitigation Plan is effective until the CPUCOEIS approves a new plan. In addition, on September 14, 2020,December 2021, SDG&E received its 20202021 wildfire safety certification from the Wildfire Safety Division of the CPUC. The certificateOEIS, which is valid for 12 months from the issue date.
The Wildfire Fund has beenwas initially funded up to $10.5 billion by a loan from the State of California Surplus Money Investment Fund. The loan is financed through a DWR bond, which was put in place on October 1, 2020 and is securitized through a dedicated surcharge on ratepayers’ bills attributable to the DWR. In October 2019, the CPUC adopted a decision authorizing a non-bypassable charge to be collected by the IOUs to support the anticipated DWR bond issuance authorized by AB 1054. The CPUC decision also determined that ratepayers of non-participating electrical corporations shall not pay the non-bypassable charge.
The Wildfire Fund haswas also been funded $7.5 billion fromby initial shareholder contributions from the IOUs (SDGtotaling $7.5 billion. SDG&E’s share was $322.5 million, PG&E’s share was $4.8 billion and Edison’s share was $2.4 billion).million. The IOUs are also required to make annual shareholder contributions to the Wildfire Fund with an aggregate value of $3 billion over a 10-year period starting in 2019 (SDG2019. SDG&E’s share is $129 million, PG&E’s share is $1.9 billion and Edison’s share is $945 million).million. The contributions are not subject to rate recovery.
In a complaint filed in U.S. District Court for the Northern District of California in July 2019, plaintiffs seek to invalidate AB 1054 based on allegations that the legislation violates federal law. ThatThe district court dismissed the complaint and, the plaintiffs have petitionedsubsequently, the U.S. Court of Appeals for the Ninth Circuit to reviewdismissed the dismissal.complaint.
Wildfire Fund Asset and Obligation
In the third quarter of 2019, SDG&E recorded both a Wildfire Fund asset and a related obligation of $451.5 million for its commitment to make shareholder contributions of $451.5 million to the Wildfire Fund, measured at present value as of July 25, 2019 (the date by which both Edison and SDG&E opted to contribute to the Wildfire Fund). SDG&E paid its initial shareholder contribution of $322.5 million to the Wildfire Fund in September 2019. SDG&E funded this contribution with proceeds from an equity contribution from Sempra Energy. Sempra Energy funded the equity contribution to SDG&E with proceeds from settling forward sale agreements through physical delivery of shares of Sempra Energy common stock in exchange for cash, which we discuss in Note 14. Edison paid its initial shareholder contribution in September 2019 and PG&E paid its initial shareholder contribution in July 2020 after receiving bankruptcy court approval to participate in the Wildfire Fund.Sempra. SDG&E expects to continue to make annual shareholder contributions of $12.9 million through December 31, 2028. SDG&E accretes the present value of the Wildfire Fund obligation until the liability is settled.
SDG&E is amortizing the Wildfire Fund asset on a straight-line basis over the estimated period of benefit, as adjusted for utilization by the IOUs. The estimated period of benefit of the Wildfire Fund asset is 15 years and is based on several assumptions, including, but not limited to:
•▪historical wildfire experience of each IOU in the State of California, including frequency and severity of the wildfires
•▪the value of property potentially damaged by wildfires
•▪the effectiveness of wildfire risk mitigation efforts by each IOU
•▪liability cap of each IOU
•▪IOU prudency determination levels
•▪FERC jurisdictional allocation levels
•▪insurance coverage levels
The use of different assumptions, or changes to the assumptions used, could have a significant impact on the estimated period of benefit of the Wildfire Fund asset. SDG&E periodically evaluates the estimated period of benefit of the Wildfire Fund asset based on actual experience and changes in these assumptions. SDG&E may recognizerecognizes a reduction of its Wildfire Fund asset and recordrecords a charge against earnings in the period when there is a reduction of the available coverage due to recoverable claims from any of the participating IOUs. Wildfire claims that are recoverable from the Wildfire Fund, net of anticipated or actual reimbursement to the Wildfire Fund by the responsible IOU, would decrease the Wildfire Fund asset and remaining available coverage. Although California experienced some of the largest wildfires in its history in 2020 (measured by acres burned), including fires in each participating IOU’s service territory, SDG&E is not aware of any claims made by any participating IOU requiring a reduction of the Wildfire Fund asset as of December 31, 2020.
The following table summarizes the location of balances related to the Wildfire Fund on Sempra Energy’sSempra’s and SDG&E’s Consolidated Balance Sheets and Consolidated Statements of Operations.
| WILDFIRE FUND | WILDFIRE FUND | WILDFIRE FUND |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | December 31, | | December 31, |
| | Location | 2020 | | 2019 | | Location | 2021 | | 2020 | | 2019 |
Wildfire Fund asset: | Wildfire Fund asset: | | Wildfire Fund asset: | |
Current | Current | Other Current Assets(1) | $ | 29 | | | $ | 29 | | Current | Prepaid Expenses | $ | 29 | | | $ | 29 | | | $ | 29 | |
Noncurrent | Noncurrent | Wildfire Fund | 363 | | | 392 | | Noncurrent | Wildfire Fund | 331 | | | 363 | | | 392 | |
Wildfire Fund obligation: | Wildfire Fund obligation: | | Wildfire Fund obligation: | |
Current | Current | Other Current Liabilities | $ | 13 | | | $ | 13 | | Current | Other Current Liabilities | $ | 13 | | | $ | 13 | | | $ | 13 | |
Noncurrent | Noncurrent | Deferred Credits and Other | 75 | | | 86 | | Noncurrent | Deferred Credits and Other | 64 | | | 75 | | | 86 | |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Amortization of Wildfire Fund asset | Amortization of Wildfire Fund asset | Operation and Maintenance | $ | 29 | | | $ | 12 | | Amortization of Wildfire Fund asset | Operation and Maintenance | $ | 29 | | | $ | 29 | | | $ | 12 | |
Impairment of Wildfire Fund asset | | Impairment of Wildfire Fund asset | Impairment Losses(1) | 3 | | | — | | | — | |
Accretion of Wildfire Fund obligation | Accretion of Wildfire Fund obligation | Operation and Maintenance | 2 | | | 1 | | Accretion of Wildfire Fund obligation | Operation and Maintenance | 2 | | | 2 | | | 1 | |
(1) Included in Prepaid ExpensesO&M for SDG&E.
INCOME TAXES
Income tax expense includes current and deferred income taxes. We record deferred income taxes for temporary differences between the book and the tax basis of assets and liabilities. Investment tax credits from prior years are amortized to income by the California UtilitiesSDG&E and SoCalGas over the estimated service lives of the properties as required by the CPUC.
Under the regulatory accounting treatment required for flow-through temporary differences, the California UtilitiesSDG&E, SoCalGas and Sempra MexicoInfrastructure recognize:
▪regulatory assets to offset deferred income tax liabilities if it is probable that the amounts will be recovered from customers; and
▪regulatory liabilities to offset deferred income tax assets if it is probable that the amounts will be returned to customers.
When there are uncertainties related to potential income tax benefits, in order to qualify for recognition, the position we take has to have at least a more-likely-than-not chance of being sustained (based on the position’s technical merits) upon challenge by the respective authorities. The term “more-likely-than-not” means a likelihood of more than 50%. Otherwise, we may not recognize any of the potential tax benefit associated with the position. We recognize a benefit for a tax position that meets the more-likely-than-not criterion at the largest amount of tax benefit that is greater than 50% likely of being realized upon its effective resolution.
Unrecognized income tax benefits involve management’s judgment regarding the likelihood of the benefit being sustained. The final resolution of uncertain tax positions could result in adjustments to recorded amounts and may affect our ETR.
We accrue income tax to the extent we intend to repatriate cash to the U.S. from our continuing international operations. We currently do not record deferred income taxes for other basis differences between financial statement and income tax investment amounts in non-U.S. subsidiaries to the extent the related cumulative undistributed earningsbecause they are indefinitely reinvested. We recognize income tax expense for basis differences related to global intangible low-taxed income as a period cost if and when incurred.
We provide additional information about income taxes in Note 8.
GREENHOUSE GAS ALLOWANCES AND OBLIGATIONS
The California Utilities, Sempra MexicoSDG&E, SoCalGas and Sempra LNGInfrastructure are required by AB 32 to acquire GHG allowances for every metric ton of carbon dioxide equivalent emitted into the atmosphere during electric generation and natural gas transportation. At the California Utilities,SDG&E and SoCalGas, many GHG allowances are allocated to us on behalf of our customers at no cost. We record purchased and allocated GHG allowances at the lower of weighted-average cost or market. We measure the compliance obligation, which is based on emissions, at the carrying value of allowances held plus the fair value of additional allowances necessary to satisfy the obligation. The California UtilitiesSDG&E and SoCalGas balance costs and revenues associated with the GHG program through regulatory balancing accounts. Sempra Mexico and Sempra LNG recordInfrastructure records the cost of GHG obligations in cost of sales. We remove the assets and liabilities from the balance sheets as the allowances are surrendered.
RENEWABLE ENERGY CERTIFICATES
RECs are energy rights established by governmental agencies for the environmental and social promotion of renewable electricity generation. A REC, and its associated attributes and benefits, can be sold separately from the underlying physical electricity associated with a renewable-based generation source in certain markets.
Retail sellers of electricity obtain RECs through renewable energy PPAs, internal generation or separate purchases in the market to comply with the RPS Program established by the governmental agencies. RECs provide documentation for the generation of a unit of renewable energy that is used to verify compliance with the RPS Program. The cost of RECs at SDG&E, which is recoverable in rates, is recorded in Cost of Electric Fuel and Purchased Power on the Consolidated Statements of Operations.
PROPERTY, PLANT AND EQUIPMENT
PP&E is recorded at cost and primarily represents the buildings, equipment and other facilities used by the California UtilitiesSDG&E and SoCalGas to provide natural gas and electric utility services, and by the Sempra GlobalInfrastructure businesses in their operations, including construction work in progress. PP&E also includes lease improvements and other equipment at Parent and Other.other. Our plant costs include labor, materials and contract services and expenditures for replacement parts incurred during a major maintenance outage of a plant. In addition, the cost of utility plant at our rate-regulated businesses and PP&E under regulated projects that meet the regulatory accounting requirements of U.S. GAAP includes AFUDC. The cost of PP&E for our non-regulated projects includes capitalized interest. Maintenance costs are expensed as incurred. The cost of most retired depreciable utility plant assets less salvage value is charged to accumulated depreciation.
We discuss assets collateralized as security for certain indebtedness in Note 7.
| PROPERTY, PLANT AND EQUIPMENT BY MAJOR FUNCTIONAL CATEGORY | PROPERTY, PLANT AND EQUIPMENT BY MAJOR FUNCTIONAL CATEGORY | PROPERTY, PLANT AND EQUIPMENT BY MAJOR FUNCTIONAL CATEGORY |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | December 31, | | Depreciation rates for years ended December 31, | | December 31, | | Depreciation rates for years ended December 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
SDG&E: | SDG&E: | | | | | | | | | | SDG&E: | | | | | | | | | | |
Natural gas operations | Natural gas operations | $ | 2,805 | | | $ | 2,534 | | | 2.51 | % | | 2.47 | % | | 2.44 | % | Natural gas operations | $ | 3,200 | | | $ | 2,805 | | | $ | 2,534 | | | 2.55 | % | | 2.51 | % | | 2.47 | % |
Electric distribution | Electric distribution | 8,592 | | | 7,985 | | | 3.90 | | | 3.94 | | | 3.91 | | Electric distribution | 9,471 | | | 8,592 | | | 7,985 | | | 3.93 | | | 3.90 | | | 3.94 | |
Electric transmission(1) | Electric transmission(1) | 7,156 | | | 6,577 | | | 3.10 | | | 2.79 | | | 2.76 | | Electric transmission(1) | 7,577 | | | 7,156 | | | 6,577 | | | 3.02 | | | 3.10 | | | 2.79 | |
Electric generation | Electric generation | 2,440 | | | 2,415 | | | 4.56 | | | 4.50 | | | 4.12 | | Electric generation | 2,446 | | | 2,440 | | | 2,415 | | | 4.74 | | | 4.56 | | | 4.50 | |
Other electric | Other electric | 1,743 | | | 1,492 | | | 6.92 | | | 6.61 | | | 6.43 | | Other electric | 2,100 | | | 1,743 | | | 1,492 | | | 7.23 | | | 6.92 | | | 6.61 | |
Construction work in progress(1) | Construction work in progress(1) | 1,700 | | | 1,501 | | | NA | | NA | | NA | Construction work in progress(1) | 1,662 | | | 1,700 | | | 1,501 | | | NA | | NA | | NA |
Total SDG&E | Total SDG&E | 24,436 | | | 22,504 | | | | | | Total SDG&E | 26,456 | | | 24,436 | | | 22,504 | | | | | |
SoCalGas: | SoCalGas: | | | | | | | | | | SoCalGas: | | | | | | | | | | |
Natural gas operations | Natural gas operations | 19,961 | | | 18,370 | | | 3.63 | | | 3.60 | | | 3.60 | | Natural gas operations | 21,894 | | | 19,961 | | | 18,370 | | | 3.65 | | | 3.63 | | | 3.60 | |
Other non-utility | Other non-utility | 45 | | | 34 | | | 3.80 | | | 5.08 | | | 5.39 | | Other non-utility | 50 | | | 45 | | | 34 | | | 2.23 | | | 3.80 | | | 5.08 | |
Construction work in progress | Construction work in progress | 1,174 | | | 958 | | | NA | | NA | | NA | Construction work in progress | 1,160 | | | 1,174 | | | 958 | | | NA | | NA | | NA |
Total SoCalGas | Total SoCalGas | 21,180 | | | 19,362 | | | | | | | | Total SoCalGas | 23,104 | | | 21,180 | | | 19,362 | | | | | | | |
| Other operating units and parent(2): | | | | | Estimated useful lives | Weighted-average useful life | |
Sempra Infrastructure and parent(2): | | Sempra Infrastructure and parent(2): | | | | | Estimated useful lives | Weighted-average useful life |
Land and land rights | Land and land rights | 283 | | | 278 | | | 16 to 50 years(3) | | 31 | Land and land rights | 291 | | | 283 | | | 278 | | | 16 to 50 years(3) | | 36 |
Machinery and equipment: | Machinery and equipment: | | | | | | | | | Machinery and equipment: | | | | | | | | |
Pipelines and storage | | Pipelines and storage | 3,698 | | | 3,482 | | | 3,596 | | | 5 to 50 years | | 42 |
Generating plants | Generating plants | 1,288 | | | 1,154 | | | 11 to 25 years | | 22 | Generating plants | 1,659 | | | 1,288 | | | 1,154 | | | 11 to 30 years | | 27 |
LNG terminals | LNG terminals | 1,138 | | | 1,134 | | | 43 years | | 43 | LNG terminals | 1,138 | | | 1,138 | | | 1,134 | | | 43 years | | 43 |
Pipelines and storage | 3,482 | | | 3,596 | | | 5 to 50 years | | 44 | |
Liquid fuels terminals | | Liquid fuels terminals | 420 | | | — | | | — | | | 37 years | | 37 |
Other | Other | 359 | | | 180 | | | 1 to 50 years | | 14 | Other | 370 | | | 359 | | | 180 | | | 3 to 50 years | | 13 |
Construction work in progress | Construction work in progress | 1,514 | | | 895 | | | NA | | NA | Construction work in progress | 1,494 | | | 1,514 | | | 895 | | | NA | | NA |
Other | Other | 248 | | | 226 | | | 4 to 50 years | | 23 | Other | 310 | | | 248 | | | 226 | | | 4 to 50 years | | 21 |
| | 8,312 | | | 7,463 | | | | | | | | 9,380 | | | 8,312 | | | 7,463 | | | | | | |
Total Sempra Energy Consolidated | $ | 53,928 | | | $ | 49,329 | | | | | | | |
Total Sempra | | Total Sempra | $ | 58,940 | | | $ | 53,928 | | | $ | 49,329 | | | | | | |
(1) At December 31, 2020,2021, includes $505 million$542 in electric transmission assets and $9 million$5 in construction work in progress related to SDG&E’s 88%86% interest in the Southwest Powerlink transmission line, jointly owned by SDG&E with other utilities. SDG&E, and each of the other owners, holds its undivided interest as a tenant in common in the property. Each owner is responsible for its share of the project and participates in decisions concerning operations and capital expenditures. SDG&E’s share of operating expenses is included in Sempra Energy’sSempra’s and SDG&E’s Consolidated Statements of Operations.
(2) Includes $211, $191 million and $178 million at December 31, 2021, 2020, and 2019, respectively, of utility plant, primarily pipelines and other distribution assets at Ecogas.
(3) Estimated useful lives are for land rights.
Depreciation expense is computed using the straight-line method over the asset’s estimated composite useful life, the CPUC-prescribed period for the California Utilities,SDG&E and SoCalGas, or the remaining term of the site leases, whichever is shortest.
| DEPRECIATION EXPENSE | DEPRECIATION EXPENSE | DEPRECIATION EXPENSE |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated | $ | 1,646 | | | $ | 1,551 | | | $ | 1,470 | | |
Sempra | | Sempra | $ | 1,833 | | | $ | 1,646 | | | $ | 1,551 | |
SDG&E | SDG&E | 797 | | | 757 | | | 686 | | SDG&E | 884 | | | 797 | | | 757 | |
SoCalGas | SoCalGas | 649 | | | 598 | | | 553 | | SoCalGas | 711 | | | 649 | | | 598 | |
| ACCUMULATED DEPRECIATION AND AMORTIZATION | ACCUMULATED DEPRECIATION AND AMORTIZATION | ACCUMULATED DEPRECIATION AND AMORTIZATION | |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) | |
| | December 31, | | December 31, |
| | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
SDG&E: | SDG&E: | | | | SDG&E: | | | | |
Accumulated depreciation: | Accumulated depreciation: | | | | Accumulated depreciation: | | | | |
Natural gas operations | Natural gas operations | $ | 870 | | | $ | 832 | | Natural gas operations | $ | 919 | | | $ | 870 | | | $ | 832 | |
Electric transmission, distribution and generation(1) | Electric transmission, distribution and generation(1) | 5,145 | | | 4,705 | | Electric transmission, distribution and generation(1) | 5,489 | | | 5,145 | | | 4,705 | |
Total SDG&E | Total SDG&E | 6,015 | | | 5,537 | | Total SDG&E | 6,408 | | | 6,015 | | | 5,537 | |
SoCalGas: | SoCalGas: | | | | SoCalGas: | | | | |
Accumulated depreciation: | Accumulated depreciation: | | Accumulated depreciation: | |
Natural gas operations | Natural gas operations | 6,422 | | | 6,023 | | Natural gas operations | 6,845 | | | 6,422 | | | 6,023 | |
Other non-utility | Other non-utility | 15 | | | 15 | | Other non-utility | 16 | | | 15 | | | 15 | |
Total SoCalGas | Total SoCalGas | 6,437 | | | 6,038 | | Total SoCalGas | 6,861 | | | 6,437 | | | 6,038 | |
Other operating units and parent and other: | | | | |
Sempra Infrastructure and parent: | | Sempra Infrastructure and parent: | | | | |
Accumulated depreciation – other(2) | Accumulated depreciation – other(2) | 1,473 | | | 1,302 | | Accumulated depreciation – other(2) | 1,777 | | | 1,473 | | | 1,302 | |
Total Sempra Energy Consolidated | $ | 13,925 | | | $ | 12,877 | | |
Total Sempra | | Total Sempra | $ | 15,046 | | | $ | 13,925 | | | $ | 12,877 | |
(1) Includes $277 million$292 at December 31, 20202021 related to SDG&E’s 88%86% interest in the Southwest Powerlink transmission line, jointly owned by SDG&E and other utilities.
(2) Includes $55, $51 million and $49 million at December 31, 2021, 2020, and 2019, respectively, of accumulated depreciation for utility plant at Ecogas.
The California Utilities
SDG&E and SoCalGas finance their construction projects with debt and equity funds. The CPUC and the FERC allow the recovery of the cost of these funds by the capitalization of AFUDC, calculated using rates authorized by the CPUC and the FERC, as a cost component of PP&E. The California UtilitiesSDG&E and SoCalGas earn a return on the capitalized AFUDC after the utility property is placed in service and recover the AFUDC from their customers over the expected useful lives of the assets.
Pipeline projects currently under construction by Sempra MexicoInfrastructure that are both subject to certain regulation and meet U.S. GAAP regulatory accounting requirements record the impact of AFUDC.
We capitalize interest costs incurred to finance capital projects and interest at equity method investments that have not commenced planned principal operations.
The table below summarizes capitalized interestfinancing costs, comprised of AFUDC and AFUDC.capitalized interest.
| CAPITALIZED FINANCING COSTS | CAPITALIZED FINANCING COSTS | CAPITALIZED FINANCING COSTS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated | $ | 202 | | | $ | 183 | | | $ | 193 | | |
Sempra | | Sempra | $ | 217 | | | $ | 202 | | | $ | 183 | |
SDG&E | SDG&E | 104 | | | 75 | | | 82 | | SDG&E | 106 | | | 104 | | | 75 | |
SoCalGas | SoCalGas | 55 | | | 47 | | | 48 | | SoCalGas | 64 | | | 55 | | | 47 | |
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Goodwill is the excess of the purchase price over the fair value of the identifiable net assets of acquired companies measured at the time of acquisition. Goodwill is not amortized, but we test it for impairment annually on October 1 or whenever events or changes in circumstances necessitate an evaluation. If the carrying value of the reporting unit, including goodwill, exceeds its fair value, we record a goodwill impairment loss as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the carrying amount of goodwill.
For our annual goodwill impairment testing, under current U.S. GAAP guidance we have the option to first make a qualitative assessment of whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount before applying the quantitative goodwill impairment test. If we elect to perform the qualitative assessment, we evaluate relevant events and circumstances, including but not limited to, macroeconomic conditions, industry and market considerations, cost factors changes in key personnel and the overall financial performance of the reporting unit. If, after assessing these qualitative factors, we determine that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then we perform the quantitative goodwill impairment test. If, after performing the quantitative goodwill impairment test, we determine that goodwill is impaired, we record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the carrying amount of goodwill.
Goodwill of $1,602 million at December 31, 2021, 2020, and 2019 relates to the 2016 acquisitions of IEnova Pipelines and the Ventika wind power generation facilities at Sempra Mexico.Infrastructure.
Other Intangible Assets
Other Intangible Assets included on the Sempra EnergySempra’s Consolidated Balance Sheets are as follows:
| OTHER INTANGIBLE ASSETS | OTHER INTANGIBLE ASSETS | | | | | | OTHER INTANGIBLE ASSETS | | | | | | |
(Dollars in millions) | (Dollars in millions) | | | | | | (Dollars in millions) | | | | | | |
| | Amortization period (years) | | December 31, | | Amortization period (years) | | December 31, |
| | | 2020 | | 2019 | | | 2021 | | 2020 | | 2019 |
Renewable energy transmission and consumption permit | 19 | | $ | 154 | | | $ | 154 | | |
Renewable energy transmission and consumption permits | | Renewable energy transmission and consumption permits | 15 to 19 | | $ | 169 | | | $ | 169 | | | $ | 169 | |
O&M agreement | O&M agreement | 23 | | 66 | | | 66 | | O&M agreement | 23 | | 66 | | | 66 | | | 66 | |
ESJ PPA | | ESJ PPA | 14 | | 190 | | | — | | | — | |
Other | Other | 10 years to indefinite | | 30 | | | 30 | | Other | 10 to indefinite | | 15 | | | 15 | | | 15 | |
| | | | 250 | | | 250 | | | | | 440 | | | 250 | | | 250 | |
Less accumulated amortization: | Less accumulated amortization: | | | | | | Less accumulated amortization: | | | | | | |
Renewable energy transmission and consumption permit | | (32) | | | (24) | | |
Renewable energy transmission and consumption permits | | Renewable energy transmission and consumption permits | | (40) | | | (32) | | | (24) | |
O&M agreement | O&M agreement | | (9) | | | (6) | | O&M agreement | | (12) | | | (9) | | | (6) | |
ESJ PPA | | ESJ PPA | | (10) | | | — | | | — | |
Other | Other | | | (7) | | | (7) | | Other | | | (8) | | | (7) | | | (7) | |
| | | | (48) | | | (37) | | | | | (70) | | | (48) | | | (37) | |
| | | | $ | 202 | | | $ | 213 | | | | | $ | 370 | | | $ | 202 | | | $ | 213 | |
Other Intangible Assets at December 31, 20202021 primarily includes:include:
▪a renewable energy transmission and consumption permitpermits previously granted by the CRE that was acquired in connection with the acquisition ofat the Ventika wind power generation facilities;facilities, Don Diego Solar and Border Solar;
▪a favorable O&M agreement acquired in connection with the acquisition of DEN.DEN; and
▪the relative fair value of the PPA that was acquired in connection with the acquisition of ESJ in March 2021.
Intangible assets subject to amortization are amortized over their estimated useful lives. Amortization expense for intangible assets was $22 million, including $10 million recorded against revenues, in 2020, 20192021 and 2018 was $11 million $11 millionin both 2020 and $16 million, respectively.2019. We estimate the amortization expense for the next five years to be $12$26 million per year.year, including $13 million per year recorded against revenues.
LONG-LIVED ASSETS
We test long-lived assets for recoverability whenever events or changes in circumstances have occurred that may affect the recoverability or the estimated useful lives of long-lived assets. Long-lived assets include intangible assets subject to amortization, but do not include investments in unconsolidated entities. A long-lived asset may be impaired when the estimated future undiscounted cash flows are less than the carrying amount of the asset. If that comparison indicates that the asset’s carrying value may not be recoverable, the impairment is measured based on the difference between the carrying amount and the fair value of the asset. This evaluation is performed at the lowest level for which separately identifiable cash flows exist.
VARIABLE INTEREST ENTITIES
We consolidate a VIE if we are the primary beneficiary of the VIE. Our determination of whether we are the primary beneficiary is based on qualitative and quantitative analyses, which assess:
▪the purpose and design of the VIE;
▪the nature of the VIE’s risks and the risks we absorb;
▪the power to direct activities that most significantly impact the economic performance of the VIE; and
▪the obligation to absorb losses or the right to receive benefits that could be significant to the VIE.
We will continue to evaluate our VIEs for any changes that may impact our determination of whether an entity is a VIE and if we are the primary beneficiary.
SDG&E
SDG&E’s power procurement is subject to reliability requirements that may require SDG&E to enter into various PPAs that include variable interests. SDG&E evaluates the respective entities to determine if variable interests exist and, based on the qualitative and quantitative analyses described above, if SDG&E, and therebyindirectly Sempra, Energy, is the primary beneficiary.
SDG&E has agreements under which it purchases power generated by facilities for which it supplies all of the natural gas to fuel the power plant (i.e., tolling agreements). SDG&E’s obligation to absorb natural gas costs may be a significant variable interest. In addition, SDG&E has the power to direct the dispatch of electricity generated by these facilities. Based on our analysis, the ability to direct the dispatch of electricity may have the most significant impact on the economic performance of the entity owning the generating facility because of the associated exposure to the cost of natural gas, which fuels the plants, and the value of electricity produced. To the extent that SDG&E (1) is obligated to purchase and provide fuel to operate the facility, (2) has the power to direct the dispatch, and (3) purchases all of the output from the facility for a substantial portion of the facility’s useful life, SDG&E may be the primary beneficiary of the entity owning the generating facility. SDG&E determines if it is the primary beneficiary in these cases based on a qualitative approach in which it considers the operational characteristics of the facility, including its expected power generation output relative to its capacity to generate and the financial structure of the entity, among other factors. If SDG&E determines that it is the primary beneficiary, SDG&E and Sempra Energy consolidate the entity that owns the facility as a VIE.
In addition to tolling agreements, other variable interests involve various elements of fuel and power costs, and other components of cash flows expected to be paid to or received by our counterparties. In most of these cases, the expectation of variability is not substantial, and SDG&E generally does not have the power to direct activities, including the operation and maintenance activities of the generating facility, that most significantly impact the economic performance of the other VIEs. If our ongoing evaluation of these VIEs were to conclude that SDG&E becomes the primary beneficiary and consolidation by SDG&E becomes necessary, the effects could be significant to the financial position and liquidity of SDG&E and Sempra Energy.Sempra.
SDG&E determined that none of its PPAs and tolling agreements resulted in SDG&E being the primary beneficiary of a VIE at December 31, 2021, 2020 and 2019. PPAs and tolling agreements that relate to SDG&E’s involvement with VIEs are primarily accounted for as finance leases. The carrying amounts of the assets and liabilities under these contracts are included in PP&E, net, and finance lease liabilities with balances of $1,217 million, $1,237 million and $1,255 million at December 31, 2021, 2020 and 2019, respectively. SDG&E recovers costs incurred on PPAs, tolling agreements and other variable interests through CPUC-approved long-term power procurement plans. SDG&E has no residual interest in the respective entities and has not provided or guaranteed any debt or equity support, liquidity arrangements, performance guarantees or other commitments associated with these contracts other than the purchase commitments described in Note 16. As a result, SDG&E’s potential exposure to loss from its variable interest in these VIEs is not significant.
Otay Mesa VIE
Through October 3, 2019, SDG&E had a tolling agreement to purchase power generated at OMEC, a 605-MW generating facility owned by OMEC LLC, which is a VIE that we refer to as Otay Mesa VIE. SDG&E determined that it was the primary beneficiary of Otay Mesa VIE, and therefore, SDG&E and Sempra Energy consolidated Otay Mesa VIE. On August 23, 2019, SDG&E and OMEC LLC executed an amended resource adequacy capacity agreement that resulted in SDG&E and Sempra Energy deconsolidating Otay Mesa VIE. No gain or loss was recognized upon deconsolidation.
Sempra Texas Utilities
Our 100% interest in Oncor Holdings is a VIE that owns an 80.25% interest in Oncor. Sempra Energy is not the primary beneficiary of thethis VIE because of the structural and operational ring-fencing and governance measures in place that prevent us from having the
from having the power to direct the significant activities of Oncor Holdings. As a result, we do not consolidate Oncor Holdings and instead account for our ownership interest as an equity method investment. See Notes 5 andNote 6 for additional information about our equity method investment in Oncor Holdings and restrictions on our ability to influence its activities. Our maximum exposure to loss, which fluctuates over time, from our interest in Oncor Holdings does not exceed the carrying value of our investment, which was $12,947 million, $12,440 million and $11,519 million at December 31, 2021, 2020 and 2019, respectively.
Sempra Mexico
Sempra Mexico’s businesses also enter into arrangements that could include variable interests. We evaluate these arrangements and applicable entities based on the qualitative and quantitative analyses described above. Certain of these entities are service or project companies that are VIEs because the total equity at risk is not sufficient for the entities to finance their activities without additional subordinated financial support. As the primary beneficiary of these companies, we consolidate them. At December 31, 2019, Sempra Mexico consolidated such a VIE with assets totaling approximately $126 million, which consisted primarily of PP&E and other long-term assets.
Sempra LNGInfrastructure
Cameron LNG JV
Cameron LNG JV is a VIE principally due to contractual provisions that transfer certain risks to customers. Sempra Energy is not the primary beneficiary of thethis VIE because we do not have the power to direct the most significant activities of Cameron LNG JV, including LNG production and operation and maintenance activities at the liquefaction facility. Therefore, we account for our investment in Cameron LNG JV under the equity method. The carrying value of our investment, including amounts recognized in AOCI related to interest-rate cash flow hedges at Cameron LNG JV, was $514 million at December 31, 2021, $433 million at December 31, 2020 and $1,256 million at December 31, 2019. Our maximum exposure to loss, which fluctuates over time, includes the carrying value of our investment and guarantees thatour obligation under the SDSRA, which we discuss in Note 6.
CFIN
As we discuss in Note 6, in July 2020, Sempra Energy entered into a Support Agreement, which was amended in June 2021, for the benefit of CFIN, which is a VIE. SinceSempra is not the primary beneficiary of this VIE because we do not have the power to direct the most significant activities of CFIN, including modification, prepayment, and refinance decisions related to the VIE, we are notfinancing arrangement with external lenders and Cameron LNG JV’s four project owners as well as the primary beneficiary.ability to determine and enforce remedies in the event of default. The conditional obligations of the Support Agreement represent a variable interest that we measure at fair value on a recurring basis (see Note 12)9). Sempra Energy’sSempra’s maximum exposure to loss under the terms of the Support Agreement is $979 million.
ECA LNG Phase 1
ECA LNG Phase 1 is a VIE because its total equity at risk is not sufficient to finance its activities without additional subordinated financial support. We expect that ECA LNG Phase 1 will require future capital contributions or other financial support to finance the construction of the facility. Sempra Energy is the primary beneficiary of thethis VIE because we have the power to direct the development activities related to the construction of the liquefaction facility, which we consider to be the most significant activities of ECA LNG Phase 1 during the construction phase of theits natural gas liquefaction export project. As a result, we consolidate ECA LNG Phase 1. At December 31, 2020, Sempra LNGInfrastructure consolidated $632 million and $207 million of assets at December 31, 2021 and 2020, respectively, consisting primarily of PP&E, net, and Accounts Receivable – Other attributable to ECA LNG Phase 1 that could be used only to settle obligations of thethis VIE and that are not available to settle obligations of Sempra, Energyand $455 million and $49 million of liabilities at December 31, 2021 and 2020, respectively, consisting primarily of long-term debt, short-term debt and accounts payable attributable to ECA LNG Phase 1 for which creditors do not have recourse to the general credit of Sempra Energy.Sempra. Additionally, as we discuss in Note 7, Sempra Energy, IEnova and TOTALTotalEnergies SE have provided guarantees for the loan facility supporting construction of the liquefaction facility based on their respective proportionate ownership interest in ECA LNG Phase 1.
ASSET RETIREMENT OBLIGATIONS
For tangible long-lived assets, we record AROs for the present value of liabilities of future costs expected to be incurred when assets are retired from service, if the retirement process is legally required and if a reasonable estimate of fair value can be made. We also record a liability if a legal obligation to perform an asset retirement exists and can be reasonably estimated, but performance is conditional upon a future event. We record the estimated retirement cost over the life of the related asset by depreciating the asset retirement cost (measured asusing the present value of the obligation at the time the asset is placed into service),service, and recognize that cost over the life of the related asset by depreciating the asset retirement cost and accreting the obligation until the liability is settled. Our rate-regulated entities including the California Utilities, record regulatory assets or liabilities as a result of the timing difference between the recognition of costs in accordance with U.S. GAAP and costs recovered through the rate-making process.
We have recorded AROs related to various assets, including:
SDG&E and SoCalGas
▪fuel and storage tanks
▪natural gas transmission and distribution systems
▪hazardous waste storage facilities
▪asbestos-containing construction materials
SDG&E
▪nuclear power facilities
▪electric transmission and distribution systems
▪energy storage systems
▪power generation plants
SoCalGas
▪underground natural gas storage facilities and wells
All Other Sempra Energy BusinessesInfrastructure
▪natural gas transportation and distribution systems
▪power generation plants
▪LNG facility
▪LPG terminal
The changes in AROs are as follows:
| CHANGES IN ASSET RETIREMENT OBLIGATIONS | CHANGES IN ASSET RETIREMENT OBLIGATIONS | CHANGES IN ASSET RETIREMENT OBLIGATIONS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Sempra Energy Consolidated | | SDG&E | | SoCalGas | | Sempra | SDG&E | SoCalGas |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | 2021 | | 2020 | | 2019 | 2021 | | 2020 | | 2019 |
Balance as of January 1(1) | Balance as of January 1(1) | $ | 3,083 | | | $ | 2,972 | | | $ | 866 | | | $ | 874 | | | $ | 2,177 | | | $ | 2,063 | | Balance as of January 1(1) | $ | 3,289 | | | $ | 3,083 | | | $ | 2,972 | | $ | 876 | | | $ | 866 | | | $ | 874 | | $ | 2,368 | | | $ | 2,177 | | | $ | 2,063 | |
Accretion expense | Accretion expense | 127 | | | 123 | | | 39 | | | 39 | | | 86 | | | 81 | | Accretion expense | 133 | | | 127 | | | 123 | | 38 | | | 39 | | | 39 | | 92 | | | 86 | | | 81 | |
Liabilities incurred | 2 | | | 2 | | | 0 | | | 0 | | | 0 | | | 0 | | |
Liabilities incurred and acquired | | Liabilities incurred and acquired | 20 | | | 2 | | | 2 | | 2 | | | — | | | — | | — | | | — | | | — | |
Deconsolidation | Deconsolidation | 0 | | | (2) | | | 0 | | | (2) | | | 0 | | | 0 | | Deconsolidation | — | | | — | | | (2) | | — | | | — | | | (2) | | — | | | — | | | — | |
Payments | Payments | (63) | | | (46) | | | (60) | | | (44) | | | (2) | | | (2) | | Payments | (63) | | | (63) | | | (46) | | (60) | | | (60) | | | (44) | | (3) | | | (2) | | | (2) | |
Revisions(2) | Revisions(2) | 140 | | | 34 | | | 31 | | | (1) | | | 107 | | | 35 | | Revisions(2) | 159 | | | 140 | | | 34 | | 34 | | | 31 | | | (1) | | 125 | | | 107 | | | 35 | |
Balance at December 31(1) | Balance at December 31(1) | $ | 3,289 | | | $ | 3,083 | | | $ | 876 | | | $ | 866 | | | $ | 2,368 | | | $ | 2,177 | | Balance at December 31(1) | $ | 3,538 | | | $ | 3,289 | | | $ | 3,083 | | $ | 890 | | | $ | 876 | | | $ | 866 | | $ | 2,582 | | | $ | 2,368 | | | $ | 2,177 | |
(1) Current portion of the ARO for Sempra Energy Consolidated is included in Other Current Liabilities on the Consolidated Balance Sheets.
(2) SDG&E’s increase in ARO in 2021 includes $22 million due to a revised estimate related to the decommissioning of SONGS, which is offset in noncurrent Regulatory Assets.
CONTINGENCIES
We accrue losses for the estimated impacts of various conditions, situations or circumstances involving uncertain outcomes. For loss contingencies, we accrue the loss if an event has occurred on or before the balance sheet date and:and if:
▪information available through the date we file our financial statements indicates it is probable that a loss has been incurred, given the likelihood of uncertain future events; and
▪the amount of the loss or a range of possible losses can be reasonably estimated.
We do not accrue contingencies that might result in gains. We continuously assess contingencies for litigation claims, environmental remediation and other events.
LEGAL FEES
Legal fees that are associated with a past event for which a liability has been recorded are accrued when it is probable that fees also will be incurred and amounts are estimable.
COMPREHENSIVE INCOME
Comprehensive income includes all changes in the equity of a business enterprise (except those resulting from investments by owners and distributions to owners), including:
▪foreign currency translation adjustments
▪certain hedging activities
▪changes in unamortized net actuarial gain or loss and prior service cost related to pension and other postretirement benefits plans
▪unrealized gains or losses on available-for-sale securities
The Consolidated Statements of Comprehensive Income (Loss) show the changes in the components of OCI, including the amounts attributable to NCI. The following tables present the changes in AOCI by component and amounts reclassified out of AOCI to net income, excluding amounts attributable to NCI:NCI.
| CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT(1) | CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT(1) | CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT(1) |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Foreign currency translation adjustments | | Financial instruments | | Pension and other postretirement benefits | | Total accumulated other comprehensive income (loss) | | Foreign currency translation adjustments | | Financial instruments | | Pension and other postretirement benefits | | Total accumulated other comprehensive income (loss) |
Sempra Energy Consolidated(2): | | |
| Balance as of December 31, 2017 | $ | (420) | | | $ | (122) | | | $ | (84) | | | $ | (626) | | |
Adoption of ASU 2017-12 | 0 | | | (3) | | | 0 | | | (3) | | |
| OCI before reclassifications | (144) | | | 40 | | | (52) | | | (156) | | |
Amounts reclassified from AOCI | 0 | | | 3 | | | 18 | | | 21 | | |
Net OCI | (144) | | | 43 | | | (34) | | | (135) | | |
Sempra(2): | | Sempra(2): | |
Balance as of December 31, 2018 | Balance as of December 31, 2018 | (564) | | | (82) | | | (118) | | | (764) | | Balance as of December 31, 2018 | $ | (564) | | | $ | (82) | | | $ | (118) | | | $ | (764) | |
Adoption of ASU 2018-02 | Adoption of ASU 2018-02 | 0 | | | (25) | | | (17) | | | (42) | | Adoption of ASU 2018-02 | — | | | (25) | | | (17) | | | (42) | |
| OCI before reclassifications(3) | OCI before reclassifications(3) | (43) | | | (116) | | | (18) | | | (177) | | OCI before reclassifications(3) | (43) | | | (116) | | | (18) | | | (177) | |
Amounts reclassified from AOCI(3) | Amounts reclassified from AOCI(3) | 0 | | | 8 | | | 36 | | | 44 | | Amounts reclassified from AOCI(3) | — | | | 8 | | | 36 | | | 44 | |
Net OCI | Net OCI | (43) | | | (108) | | | 18 | | | (133) | | Net OCI | (43) | | | (108) | | | 18 | | | (133) | |
Balance as of December 31, 2019 | Balance as of December 31, 2019 | (607) | | | (215) | | | (117) | | | (939) | | Balance as of December 31, 2019 | (607) | | | (215) | | | (117) | | | (939) | |
| OCI before reclassifications(3) | (102) | | | (163) | | | (26) | | | (291) | | |
OCI before reclassifications(3)(4) | | OCI before reclassifications(3)(4) | (102) | | | (163) | | | (26) | | | (291) | |
Amounts reclassified from AOCI(3) | Amounts reclassified from AOCI(3) | 645 | | | 47 | | | 38 | | | 730 | | Amounts reclassified from AOCI(3) | 645 | | | 47 | | | 38 | | | 730 | |
Net OCI(4) | Net OCI(4) | 543 | | | (116) | | | 12 | | | 439 | | Net OCI(4) | 543 | | | (116) | | | 12 | | | 439 | |
Balance as of December 31, 2020 | Balance as of December 31, 2020 | $ | (64) | | | $ | (331) | | | $ | (105) | | | $ | (500) | | Balance as of December 31, 2020 | (64) | | | (331) | | | (105) | | | (500) | |
OCI before reclassifications(4) | | OCI before reclassifications(4) | (34) | | | 62 | | | 8 | | | 36 | |
Amounts reclassified from AOCI(5) | | Amounts reclassified from AOCI(5) | 19 | | | 113 | | | 14 | | | 146 | |
Net OCI(4)(5) | | Net OCI(4)(5) | (15) | | | 175 | | | 22 | | | 182 | |
Balance as of December 31, 2021 | | Balance as of December 31, 2021 | $ | (79) | | | $ | (156) | | | $ | (83) | | | $ | (318) | |
SDG&E: | SDG&E: | | SDG&E: | |
| Balance as of December 31, 2017 | | $ | (8) | | | $ | (8) | | |
| OCI before reclassifications | | (6) | | | (6) | | |
Amounts reclassified from AOCI | | 4 | | | 4 | | |
Net OCI | | (2) | | | (2) | | |
Balance as of December 31, 2018 | Balance as of December 31, 2018 | | (10) | | | (10) | | Balance as of December 31, 2018 | | $ | (10) | | | $ | (10) | |
Adoption of ASU 2018-02 | Adoption of ASU 2018-02 | | (2) | | | (2) | | Adoption of ASU 2018-02 | | (2) | | | (2) | |
| OCI before reclassifications | OCI before reclassifications | | (5) | | | (5) | | OCI before reclassifications | | (5) | | | (5) | |
Amounts reclassified from AOCI | Amounts reclassified from AOCI | | 1 | | | 1 | | Amounts reclassified from AOCI | | 1 | | | 1 | |
Net OCI | Net OCI | | (4) | | | (4) | | Net OCI | | (4) | | | (4) | |
Balance as of December 31, 2019 | Balance as of December 31, 2019 | | (16) | | | (16) | | Balance as of December 31, 2019 | | (16) | | | (16) | |
| OCI before reclassifications(3) | OCI before reclassifications(3) | | (4) | | | (4) | | OCI before reclassifications(3) | | (4) | | | (4) | |
Amounts reclassified from AOCI(3) | Amounts reclassified from AOCI(3) | | 10 | | | 10 | | Amounts reclassified from AOCI(3) | | 10 | | | 10 | |
Net OCI | Net OCI | | 6 | | | 6 | | Net OCI | | 6 | | | 6 | |
Balance as of December 31, 2020 | Balance as of December 31, 2020 | | $ | (10) | | | $ | (10) | | Balance as of December 31, 2020 | | (10) | | | (10) | |
OCI before reclassifications | | OCI before reclassifications | | (1) | | | (1) | |
Amounts reclassified from AOCI | | Amounts reclassified from AOCI | | 1 | | | 1 | |
Net OCI | | Net OCI | | — | | | — | |
Balance as of December 31, 2021 | | Balance as of December 31, 2021 | | $ | (10) | | | $ | (10) | |
SoCalGas: | SoCalGas: | | SoCalGas: | |
| Balance as of December 31, 2017 | | $ | (13) | | | $ | (8) | | | $ | (21) | | |
Balance as of December 31, 2018 | | Balance as of December 31, 2018 | | $ | (12) | | | $ | (8) | | | $ | (20) | |
Adoption of ASU 2018-02 | | Adoption of ASU 2018-02 | | (2) | | | (2) | | | (4) | |
OCI before reclassifications | | OCI before reclassifications | | — | | | (4) | | | (4) | |
Amounts reclassified from AOCI(3) | | Amounts reclassified from AOCI(3) | | 1 | | | 4 | | | 5 | |
Net OCI | | Net OCI | | 1 | | | — | | | 1 | |
Balance as of December 31, 2019 | | Balance as of December 31, 2019 | | (13) | | | (10) | | | (23) | |
| OCI before reclassifications(3) | | OCI before reclassifications(3) | | — | | | (10) | | | (10) | |
Amounts reclassified from AOCI(3) | | Amounts reclassified from AOCI(3) | | — | | | 2 | | | 2 | |
Net OCI | | Net OCI | | — | | | (8) | | | (8) | |
Balance as of December 31, 2020 | | Balance as of December 31, 2020 | | (13) | | | (18) | | | (31) | |
| OCI before reclassifications | OCI before reclassifications | | 0 | | | (1) | | | (1) | | OCI before reclassifications | | — | | | (2) | | | (2) | |
Amounts reclassified from AOCI | Amounts reclassified from AOCI | | 1 | | | 1 | | | 2 | | Amounts reclassified from AOCI | | — | | | 2 | | | 2 | |
Net OCI | Net OCI | | 1 | | | 0 | | | 1 | | Net OCI | | — | | | — | | | — | |
Balance as of December 31, 2018 | | (12) | | | (8) | | | (20) | | |
Adoption of ASU 2018-02 | | (2) | | | (2) | | | (4) | | |
| OCI before reclassifications(3) | | 0 | | | (4) | | | (4) | | |
Amounts reclassified from AOCI(3) | | 1 | | | 4 | | | 5 | | |
Net OCI | | 1 | | | 0 | | | 1 | | |
Balance as of December 31, 2019 | | (13) | | | (10) | | | (23) | | |
| OCI before reclassifications(3) | | 0 | | | (10) | | | (10) | | |
Amounts reclassified from AOCI | | 0 | | | 2 | | | 2 | | |
Net OCI | | 0 | | | (8) | | | (8) | | |
Balance as of December 31, 2020 | | $ | (13) | | | $ | (18) | | | $ | (31) | | |
Balance as of December 31, 2021 | | Balance as of December 31, 2021 | | $ | (13) | | | $ | (18) | | | $ | (31) | |
(1) All amounts are net of income tax, if subject to tax, and exclude NCI.
(2) Includes discontinued operations.operations in 2020 and 2019.
(3) Pension and Other Postretirement Benefits and Total AOCI include $6 million in transfers of liabilities from SDG&E to SoCalGas and $3 million in transfers of liabilities from SDG&E to Sempra Energy in 2020 and $4 million in transfers of liabilities from SoCalGas to Sempra Energy in 2019 related to the nonqualified pension plans.
(4) Total AOCI includes $28 of foreign currency translation adjustments and $16 of financial instruments associated with the IEnova exchange and cash tender offers in 2021. Total AOCI includes $4 million of foreign currency translation adjustments and $3 million of financial instruments associated with purchasesIEnova’s repurchases of NCI which wein 2020. We discuss these transactions below in “Other Noncontrolling Interests – Sempra Mexico,Infrastructure.” These transactions do not impact the Consolidated Statements of Comprehensive Income (Loss).
(5) Total AOCI includes $19 of foreign currency translation adjustments and which$47 of financial instruments associated with the sale of NCI to KKR in 2021. We discuss this transaction below in “Other Noncontrolling Interests – Sempra Infrastructure.” This transaction does not impact the Consolidated StatementStatements of Comprehensive Income (Loss).
| RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
Details about accumulated other comprehensive income (loss) components | Details about accumulated other comprehensive income (loss) components | Amounts reclassified from accumulated other comprehensive income (loss) | | Affected line item on Consolidated Statements of Operations | Details about accumulated other comprehensive income (loss) components | Amounts reclassified from accumulated other comprehensive income (loss) | | Affected line item on Consolidated Statements of Operations |
| | Years ended December 31, | | | | Years ended December 31, | | |
| | 2020 | | 2019 | | 2018 | | | | 2021 | | 2020 | | 2019 | | |
Sempra Energy Consolidated: | | | | | | | | |
Sempra: | | Sempra: | | | | | | | |
Foreign currency translation adjustments | Foreign currency translation adjustments | $ | 645 | | | $ | 0 | | | $ | 0 | | | Income from Discontinued Operations, Net of Income Tax | Foreign currency translation adjustments | $ | — | | | $ | 645 | | | $ | — | | | Income from Discontinued Operations, Net of Income Tax |
| Financial instruments: | Financial instruments: | | | | | | | | Financial instruments: | | | | | | | |
Interest rate instruments | Interest rate instruments | $ | 0 | | | $ | 10 | | | $ | 9 | | | (Loss) Gain on Sale of Assets | Interest rate instruments | $ | — | | | $ | — | | | $ | 10 | | | Gain (Loss) on Sale of Assets |
Interest rate instruments(1) | Interest rate instruments(1) | 10 | | | 3 | | | 1 | | | Interest Expense | Interest rate instruments(1) | 11 | | | 10 | | | 3 | | | Interest Expense |
Interest rate instruments | Interest rate instruments | 46 | | | 3 | | | 9 | | | Equity Earnings | Interest rate instruments | 73 | | | 46 | | | 3 | | | Equity Earnings(2) |
Foreign exchange instruments | Foreign exchange instruments | (1) | | | 2 | | | (1) | | | Revenues: Energy-Related Businesses | Foreign exchange instruments | 1 | | | (1) | | | 2 | | | Revenues: Energy-Related Businesses |
| Foreign exchange instruments | | Foreign exchange instruments | — | | | — | | | 2 | | | Equity Earnings(2) |
Interest rate and foreign exchange instruments | Interest rate and foreign exchange instruments | 1 | | | 0 | | | (1) | | | Interest Expense | Interest rate and foreign exchange instruments | 1 | | | 1 | | | — | | | Interest Expense |
| | 11 | | | (9) | | | (2) | | | Other (Expense) Income, Net | | 6 | | | 11 | | | (9) | | | Other Income (Expense) , Net |
Foreign exchange instruments | 0 | | | 2 | | | (2) | | | Equity Earnings | |
Total before income tax | Total before income tax | 67 | | | 11 | | | 13 | | | | Total before income tax | 92 | | | 67 | | | 11 | | | |
| | (19) | | | (2) | | | (4) | | | Income Tax (Expense) Benefit | | (24) | | | (19) | | | (2) | | | Income Tax Expense |
Net of income tax | Net of income tax | 48 | | | 9 | | | 9 | | | | Net of income tax | 68 | | | 48 | | | 9 | | | |
| | (1) | | | (1) | | | (6) | | | Earnings Attributable to Noncontrolling Interests | | (2) | | | (1) | | | (1) | | | Earnings Attributable to Noncontrolling Interests |
| | $ | 47 | | | $ | 8 | | | $ | 3 | | | | | $ | 66 | | | $ | 47 | | | $ | 8 | | | |
Pension and other postretirement benefits(2): | | | | | | | |
Pension and other postretirement benefits(3): | | Pension and other postretirement benefits(3): | | | | | | |
Amortization of actuarial loss | Amortization of actuarial loss | $ | 8 | | | $ | 12 | | | $ | 11 | | | Other (Expense) Income, Net | Amortization of actuarial loss | $ | 8 | | | $ | 8 | | | $ | 12 | | | Other Income (Expense), Net |
Amortization of actuarial loss | Amortization of actuarial loss | 6 | | | 1 | | | 1 | | | Income from Discontinued Operations, Net of Income Tax | Amortization of actuarial loss | — | | | 6 | | | 1 | | | Income from Discontinued Operations, Net of Income Tax |
Amortization of prior service cost | Amortization of prior service cost | 4 | | | 3 | | | 2 | | | Other (Expense) Income, Net | Amortization of prior service cost | 4 | | | 4 | | | 3 | | | Other Income (Expense), Net |
Settlement charges | Settlement charges | 22 | | | 28 | | | 12 | | | Other (Expense) Income, Net | Settlement charges | 7 | | | 22 | | | 28 | | | Other Income (Expense), Net |
Total before income tax | Total before income tax | 40 | | | 44 | | | 26 | | | Total before income tax | 19 | | | 40 | | | 44 | | |
| | (2) | | | 0 | | | 0 | | | Income from Discontinued Operations, Net of Income Tax | | — | | | (2) | | | — | | | Income from Discontinued Operations, Net of Income Tax |
| | (9) | | | (12) | | | (8) | | | Income Tax (Expense) Benefit | | (5) | | | (9) | | | (12) | | | Income Tax Expense |
Net of income tax | Net of income tax | $ | 29 | | | $ | 32 | | | $ | 18 | | | | Net of income tax | $ | 14 | | | $ | 29 | | | $ | 32 | | | |
| Total reclassifications for the period, net of tax | Total reclassifications for the period, net of tax | $ | 721 | | | $ | 40 | | | $ | 21 | | | | Total reclassifications for the period, net of tax | $ | 80 | | | $ | 721 | | | $ | 40 | | | |
SDG&E: | SDG&E: | | | | | | | | SDG&E: | | | | | | | |
Financial instruments: | Financial instruments: | | | | | | | | Financial instruments: | | | | | | | |
Interest rate instruments(1) | Interest rate instruments(1) | $ | 0 | | | $ | 3 | | | $ | 7 | | | Interest Expense | Interest rate instruments(1) | $ | — | | | $ | — | | | $ | 3 | | | Interest Expense |
| | 0 | | | (3) | | | (7) | | | Earnings Attributable to Noncontrolling Interest | | — | | | — | | | (3) | | | Earnings Attributable to Noncontrolling Interest |
| | $ | 0 | | | $ | 0 | | | $ | 0 | | | | | $ | — | | | $ | — | | | $ | — | | | |
Pension and other postretirement benefits(2): | | | | | | | | |
Pension and other postretirement benefits(3): | | Pension and other postretirement benefits(3): | | | | | | | |
Amortization of actuarial loss | Amortization of actuarial loss | $ | 1 | | | $ | 0 | | | $ | 1 | | | Other Income, Net | Amortization of actuarial loss | $ | — | | | $ | 1 | | | $ | — | | | Other Income, Net |
Amortization of prior service cost | Amortization of prior service cost | 1 | | | 1 | | | 0 | | | Other Income, Net | Amortization of prior service cost | 1 | | | 1 | | | 1 | | | Other Income, Net |
Settlement charges | 0 | | | 0 | | | 4 | | | Other Income, Net | |
| Total before income tax | Total before income tax | 2 | | | 1 | | | 5 | | | Total before income tax | 1 | | | 2 | | | 1 | | |
| | (1) | | | 0 | | | (1) | | | Income Tax Expense | | — | | | (1) | | | — | | | Income Tax Expense |
Net of income tax | Net of income tax | $ | 1 | | | $ | 1 | | | $ | 4 | | | | Net of income tax | $ | 1 | | | $ | 1 | | | $ | 1 | | | |
| Total reclassifications for the period, net of tax | Total reclassifications for the period, net of tax | $ | 1 | | | $ | 1 | | | $ | 4 | | | | Total reclassifications for the period, net of tax | $ | 1 | | | $ | 1 | | | $ | 1 | | | |
SoCalGas: | SoCalGas: | | | | | | | | SoCalGas: | | | | | | | |
Financial instruments: | Financial instruments: | | | | | | | | Financial instruments: | | | | | | | |
Interest rate instruments | Interest rate instruments | $ | 0 | | | $ | 1 | | | $ | 1 | | | Interest Expense | Interest rate instruments | $ | — | | | $ | — | | | $ | 1 | | | Interest Expense |
| Pension and other postretirement benefits(2): | | | | | | | | |
Pension and other postretirement benefits(3): | | Pension and other postretirement benefits(3): | | | | | | | |
Amortization of actuarial loss | Amortization of actuarial loss | $ | 1 | | | $ | 1 | | | $ | 0 | | | Other (Expense) Income, Net | Amortization of actuarial loss | $ | 1 | | | $ | 1 | | | $ | 1 | | | Other Expense, Net |
Amortization of prior service cost | Amortization of prior service cost | 1 | | | 0 | | | 1 | | | Other (Expense) Income, Net | Amortization of prior service cost | 1 | | | 1 | | | — | | | Other Expense, Net |
Total before income tax | Total before income tax | 2 | | | 1 | | | 1 | | | Total before income tax | 2 | | | 2 | | | 1 | | |
| | 0 | | | (1) | | | 0 | | | Income Tax Expense | | — | | | — | | | (1) | | | Income Tax Benefit (Expense) |
Net of income tax | Net of income tax | $ | 2 | | | $ | 0 | | | $ | 1 | | | | Net of income tax | $ | 2 | | | $ | 2 | | | $ | — | | | |
| Total reclassifications for the period, net of tax | Total reclassifications for the period, net of tax | $ | 2 | | | $ | 1 | | | $ | 2 | | | | Total reclassifications for the period, net of tax | $ | 2 | | | $ | 2 | | | $ | 1 | | | |
(1) Amounts in 2019 and 2018 include Otay Mesa VIE. All of SDG&E’s interest rate derivative activity relates to Otay Mesa VIE.
(2) Equity earnings at our foreign equity method investees are recognized after tax.
(3) Amounts are included in the computation of net periodic benefit cost (see “Net Periodic Benefit Cost” in Note 9).
NONCONTROLLING INTERESTS
Ownership interests in a consolidated entity that are held by unconsolidated owners are accounted for and reported as NCI.
SoCalGas Preferred Stock
The preferred stock at SoCalGas is presented at Sempra Energy as NCI. Sempra Energy records charges against income related to NCI for preferred dividends declared by SoCalGas. We provide additional information regarding SoCalGas’ preferred stock in Note 13.
Other Noncontrolling Interests
SDG&EThe following table provides information about NCI held by others in subsidiaries or entities consolidated by us and recorded in Other Noncontrolling Interests in Total Equity on Sempra’s Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
OTHER NONCONTROLLING INTERESTS |
(Dollars in millions) |
| Percent ownership held by noncontrolling interests | | Equity held by noncontrolling interests |
| December 31, | | December 31, |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Sempra Infrastructure: | | | | | | | | | | | |
SI Partners | 20.0 | | % | — | | % | — | | % | $ | 1,384 | | | $ | — | | | $ | — | |
SI Partners subsidiaries(1) | 0.1 - 16.6 | | 17.5 - 29.8 | | 10.0 - 46.3 | | 34 | | | 1,540 | | | 1,622 | |
Parent and other: | | | | | | | | | | | |
PXiSE | — | | | 20.0 | | | 20.0 | | | — | | | 1 | | | 1 | |
Discontinued Operations: | | | | | | | | | | | |
Chilquinta Energía subsidiaries(1) | — | | | — | | | 19.7 - 43.4 | | — | | | — | | | 23 | |
Luz del Sur | — | | | — | | | 16.4 | | | — | | | — | | | 205 | |
Tecsur | — | | | — | | | 9.8 | | | — | | | — | | | 5 | |
Total Sempra | | | | | | | $ | 1,418 | | | $ | 1,541 | | | $ | 1,856 | |
(1) SI Partners and Chilquinta Energía have subsidiaries with NCI held by others. Percentage range reflects the highest and lowest ownership percentages among these subsidiaries.
Sempra Infrastructure
Sale of NCI in SI Partners to KKR. On October 1, 2021, Sempra, its wholly owned subsidiary, SI Partners (formerly Sempra Global), and KKR consummated the transactions contemplated under a purchase and contribution agreement dated April 4, 2021 (as amended prior to closing, the KKR Purchase Agreement). Pursuant to the KKR Purchase Agreement, KKR acquired newly designated Class A Units representing a 20% NCI in SI Partners for a purchase price of $3.4 billion, including post-closing adjustments. As a result of this sale, we discussrecorded a $1.3 billion increase in “Variable Interest Entities” above,equity held by NCI and an increase in August 2019, SDG&ESempra’s shareholders’ equity of $1.4 billion, net of $173 million in transaction costs and Sempra Energy deconsolidated Otay Mesa VIE after SDG&E determined that it was no longer$490 million in tax impacts, including the primary beneficiarytax effect of the VIE.sale and changes to a deferred income tax liability related to outside basis differences in SI Partners. Transaction costs include $149 million paid to KKR for reimbursement of certain expenses that KKR incurred in connection with closing the transaction.
Prior to the closing of the transactions contemplated under the KKR Purchase Agreement on October 1, 2021, we completed an internal legal reorganization to consolidate the assets of Sempra MexicoLNG Holding, LP and our ownership of IEnova under Sempra Global, which was renamed SI Partners. At closing, we owned 99.9% of the outstanding shares of IEnova. To the extent we later acquire additional shares of IEnova after the closing, such additional shares will be acquired by SI Partners and KKR will provide 20% of the funding.
Pursuant to the KKR Purchase Agreement, we have agreed to indemnify SI Partners for, among other things, certain losses arising from liabilities of SI Partners and its subsidiaries to the extent not primarily relating to the undertaking of the business of SI Partners, and we have agreed to indemnify KKR for losses attributable to pre-closing taxes.
At the closing of the sale of NCI in SI Partners to KKR, Sempra and KKR entered into a limited partnership agreement (the LP Agreement), which governs our and their respective rights and obligations in respect of our ownership interests in SI Partners. We maintain control of SI Partners as the 80% owner with KKR having certain minority protections commensurate with the size of its investment.
SI Partners has two authorized classes of units, designated as “Class A Units” (which are common voting units) and “Sole Risk Interests.” If KKR approves our request that a project not be pursued jointly, or if KKR decides not to participate in any proposed
project for which we nevertheless desire to make a positive final investment decision, we may proceed with such project either independently through a different investment vehicle or as a “Sole Risk Project” within SI Partners and receive Sole Risk Interests in respect thereof. Sole Risk Projects are separated from other SI Partners projects and are conducted at our sole cost, expense and liability and we receive, through the acquisition of Sole Risk Interests, any economic and other benefits from such projects. KKR is not entitled to any benefits or rights in respect of any Sole Risk Project. The Guaymas-El Oro segment of the Sonora pipeline currently constitutes a Sole Risk Project. Until a specified date, KKR has certain discretionary rights to cause the Guaymas-El Oro segment of the Sonora pipeline to cease to be a Sole Risk Project and be pursued jointly within SI Partners.
Under the LP Agreement, SI Partners is managed by a board of managers comprised of members designated by us and by KKR. Matters are generally decided by majority vote. The managers designated by us and the managers designated by KKR each, as a group, have voting power equivalent to the ownership percentage of their respective designating member. However, SI Partners and its controlled subsidiaries are prohibited from taking certain actions without the prior written approval of KKR (subject to KKR maintaining certain ownership thresholds in SI Partners).
The LP Agreement contains certain default remedies if we or KKR fails to fund any amounts required to be funded under the LP Agreement. The LP Agreement also requires that SI Partners distribute to us and to KKR at least 85% of distributable cash of SI Partners and its subsidiaries on a quarterly basis, subject to certain exceptions and reserves. Generally, distributions from SI Partners are made to us and KKR on a pro rata basis in accordance with our and their respective ownership interests in SI Partners. However, KKR is entitled to certain priority distributions in the event of material deviations between certain specified projected cash flows and actual cash flows. Additionally, KKR is entitled to certain priority distributions in the event a specified project that reaches a positive final investment decision does not have projected internal rates of return over a specified threshold or in the event we have not made a positive final investment decision by a certain date on specified LNG projects that are currently in development.
In addition, under the LP Agreement, both parties are granted customary registration rights in the event of an initial public offering of SI Partners, which is subject to certain consent rights of KKR.
At the closing of the transactions contemplated under the KKR Purchase Agreement, SI Partners entered into a management agreement with Sempra to engage Sempra for certain staffing and general and administrative services. The management agreement governs the services that Sempra provides to SI Partners and the charges associated with those services.
Pending Sale of NCI in SI Partners to ADIA. On December 2,21, 2021, Sempra entered into a purchase and sale agreement (the ADIA Purchase Agreement) with ADIA, and, solely for purposes of guaranteeing the obligations of ADIA, Infinity Investments S.A. and Azure Vista C 2020 we announcedS.à.r.l., each a non-binding offerwholly owned affiliate of Abu Dhabi Investment Authority, pursuant to which ADIA will acquire upfrom Sempra, for an aggregate purchase price of $1.8 billion, subject to 100%certain adjustments described below, a 10% NCI in SI Partners. Following the closing of the transaction pursuant to the ADIA Purchase Agreement, Sempra, KKR and ADIA will directly or indirectly own 70%, 20%, and 10%, respectively, of the outstanding Class A Units of SI Partners, which excludes the non-voting Sole Risk Interests held only by Sempra. As further described below, after the closing of the transactions under the ADIA Purchase Agreement, ADIA will have certain rights similar to those of KKR but subject to additional limitations and adjustments to take into account ADIA’s relative ownership percentage.
At December 31, 2021, SI Partners indirectly owned 99.9% of the outstanding shares of IEnova. Under the terms of the ADIA Purchase Agreement, there will be a proportional purchase price adjustment at the closing (i) for any remaining shares of IEnova that are not owned by SI Partners at the closing and (ii) that generally takes into account cash distributions made to, or capital contributions made by, the partners of SI Partners, from and after the date of the ADIA Purchase Agreement to the closing.
The closing of the transactions pursuant to the ADIA Purchase Agreement is subject to receipt of certain regulatory approvals, including from the Comisión Federal de Competencia Económica, FERC and DOE; certain other third-party approvals; the absence of a material adverse effect on the assets, businesses, properties, liabilities, financial condition or results of operations of SI Partners taken as a whole, subject to certain exceptions; and other customary closing conditions. Any party may generally terminate the ADIA Purchase Agreement if the closing has not occurred on or before September 30, 2022, subject to an automatic extension through December 21, 2022 if necessary to receive required regulatory approvals. We expect the transaction will close in the summer of 2022.
At the closing, Sempra and KKR and ADIA (the Minority Partners) will enter into a second amended and restated agreement of limited partnership of SI Partners (the Amended LP Agreement), which will govern their respective rights and obligations in respect of their ownership of SI Partners. Under the Amended LP Agreement, ADIA will have the right at the closing to designate one manager to the SI Partners board of managers. Matters are decided generally by majority vote and the managers designated by Sempra and the managers designated by each Minority Partner will each, as a group, have voting power equivalent to the ownership percentage of their respective designating limited partner. Sempra expects to maintain control of SI Partners as its 70%
owner on terms similar to those currently applicable at SI Partners. However, SI Partners and its controlled subsidiaries will be prohibited from taking certain limited actions without the prior written approval of the Minority Partners (subject to each Minority Partner maintaining certain ownership thresholds in SI Partners). The minority protections held by ADIA constitute a sub-set of the minority protections granted to KKR.
The terms of the Amended LP Agreement applicable to ADIA in relation to capital contributions and distributions are generally consistent with those granted to KKR, with adjustments and limitations to take into account ADIA’s relative ownership percentage, including limiting ADIA’s priority distribution rights to the failure of certain proposed projects to receive a positive final investment decision by a certain date or to achieve specified thresholds of projected internal rates of return or leverage. The transfer rights and restrictions and registration rights in the Amended LP Agreement applicable to ADIA are also generally consistent with those granted to KKR, with adjustments and limitations to take into account ADIA’s relative ownership percentage, including a general restriction on ADIA transferring its interests in SI Partners to third parties (other than pursuant to certain specified permitted transfers) for a specified period following its entry into the Amended LP Agreement.
SI Partners Subsidiaries. In May 2021, we acquired 381,015,194 publicly heldowned shares of IEnova in exchange for 12,306,777 newly issued shares of our common stock upon completion of our exchange offer launched in the U.S. and Mexico, which increased our ownership interest in IEnova from 70.2% to 96.4%. In addition to being traded on the NYSE, Sempra’s common stock is now also listed on the Mexican Stock Exchange under the trading symbol SRE.MX. We acquired the IEnova shares at an exchange ratio of 0.03130.0323 shares of our common stock for each one IEnova ordinary share. ThisIn connection with the exchange ratio is non-bindingoffer, we recorded a $1.4 billion decrease in equity held by NCI and remains subject to approval by Sempra Energy’s boardan increase in Sempra’s shareholders’ equity of directors. We expect to complete this transaction$1.4 billion, net of $12 million in transactions costs.
In September 2021, we acquired 51,014,545 publicly owned shares of IEnova for 4.0 billion Mexican pesos (approximately $202 million in U.S. dollars) in cash upon completion of our tender offer launched in the second quarterU.S. and Mexico in August 2021, which increased our ownership interest in IEnova from 96.4% to 99.9%. We acquired these IEnova shares at a price of 78.97 Mexican pesos per share (approximately $3.95 per share in U.S. dollars). In connection with the cash tender offer, we recorded a $188 million decrease in equity held by NCI and a decrease in Sempra’s shareholders’ equity of $17 million, including $4 million in transaction costs.
As a result of the increase in our ownership interest in IEnova, we recorded an increase in Sempra’s shareholders’ equity of $72 million offset by a deferred income tax asset related to the outside basis difference in IEnova’s shares. Upon completing the sale of a 20% NCI in SI Partners to KKR in October 2021, subjectwhich we discuss above, we recorded $72 million in net income tax expense related to authorization by the SEC, CNBV andutilization of this deferred income tax asset.
Following the cash tender offer, IEnova’s shares were delisted from the Mexican Stock Exchange and other closing conditions.
effective October 15, 2021. In connection with the first quarter of 2020, IEnova purchased additional shares in ICM Ventures Holdings B.V. for $9 million, increasing its ownership interest from 53.7% to 82.5%. ICM Ventures Holdings B.V. owns certain permits and land where IEnova is building terminalsdelisting, we are maintaining a trust for the receipt, storage and deliverypurpose of liquid fuels.purchasing the 1,212,981 IEnova shares that remained publicly owned as of the completion of the cash tender offer for 78.97 Mexican pesos per share, the same price per share that was offered in our cash tender offer. The trust will be in place through the earlier of April 14, 2022 or the date on which we acquire all the remaining publicly owned IEnova shares. As of February 16, 2022, an aggregate of 629,784 of the remaining publicly owned IEnova shares had been acquired by such trust.
In 2020, IEnova repurchased 77,122,780 shares of its outstanding common stock held by NCI for approximately $231 million, resulting in an increase in Sempra Energy’sSempra’s ownership interest in IEnova from 66.6% to 70.2%.
In 2019, IEnova repurchased 2,620,000 shares of its outstanding common stock held by NCI for approximately $10 million, resulting in an increase in Sempra Energy’sSempra’s ownership interest in IEnova from 66.5% to 66.6%.
In 2020, Sempra LNGInfrastructure purchased additional shares in ICM Ventures Holdings B.V. for $9 million, increasing its ownership interest from 53.7% to 82.5%. ICM Ventures Holdings B.V. owns certain permits and land where Sempra Infrastructure is building a terminal for the receipt, storage and delivery of liquid fuels. In July 2021, Sempra Infrastructure acquired the remaining 17.5% interest held by NCI in ICM Ventures Holdings B.V. for $7 million.
In December 2020, an affiliate of TOTALTotalEnergies SE acquired a 16.6% ownership interest in ECA LNG Phase 1, with Sempra LNG and IEnova each retaining a 41.7% ownership interest. Sempra LNG consolidates ECA LNG Phase 1 and Sempra Energy’s NCI in IEnova’s 41.7% ownership interest is reported at Sempra LNG.1.
In March 2020, Sempra LNGInfrastructure purchased for $7 million the 24.6% minority interest in Liberty Gas Storage LLC, which owns 100% of LA Storage, LLC, increasing Sempra LNG’sInfrastructure’s ownership in Liberty Gas Storage LLC to 100%. Prior to the purchase, the minority partner converted $22 million in notes payable due from Sempra LNGInfrastructure to equity. As a result of the purchase, we recorded an increase in Sempra Energy’sSempra’s shareholders’ equity of $2 million for the difference between the carrying value and fair value related to the change in ownership.
In February 2019, Sempra LNGInfrastructure purchased for $20 million the 9.1% minority interest in Bay Gas immediately prior to the sale of 100% of Bay Gas.
Parent and Other
As we discuss in Note 5, in April 2019, Sempra RenewablesDecember 2021, Parent and other sold its remaining wind assets and investments, which included its wind tax equity arrangements. The remaining interest in PXiSE Energy Solutions, LLC was subsumed into Parent and other.PXiSE.
Discontinued Operations
As we discuss in Note 5, we completed the sales of our equity interests in our Peruvian and Chilean businesses in the second quarter of 2020. The minority interests in Luz del Sur and Tecsur were deconsolidated upon the sale of our Peruvian businesses in April 2020, and the minority interests in the Chilquinta Energía and its subsidiaries were deconsolidated upon the sale of our Chilean businesses in June 2020.
The following table provides information about NCI held by others in subsidiaries or entities consolidated by us and recorded in Other Noncontrolling Interests in Total Equity on Sempra Energy’s Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | | | | | | | |
OTHER NONCONTROLLING INTERESTS |
(Dollars in millions) |
| Percent ownership held by noncontrolling interests | | Equity (deficit) held by noncontrolling interests |
| December 31, | | December 31, |
| 2020 | | 2019 | | 2020 | | 2019 |
Sempra Mexico: | | | | | | | |
IEnova | 29.8 | | % | 33.4 | | % | $ | 1,487 | | | $ | 1,608 | |
IEnova subsidiaries(1) | 17.5 | | | 10.0 - 46.3 | | 7 | | | 15 | |
Sempra LNG: | | | | | | | |
Liberty Gas Storage, LLC | 0 | | | 24.6 | | | 0 | | | (13) | |
ECA LNG Phase 1 | 29.0 | | | 16.7 | | | 46 | | | 12 | |
Parent and other: | | | | | | | |
PXiSE Energy Solutions, LLC | 20.0 | | | 20.0 | | | 1 | | | 1 | |
Discontinued Operations: | | | | | | | |
Chilquinta Energía subsidiaries(1) | 0 | | | 19.7 - 43.4 | | 0 | | | 23 | |
Luz del Sur | 0 | | | 16.4 | | | 0 | | | 205 | |
Tecsur | 0 | | | 9.8 | | | 0 | | | 5 | |
Total Sempra Energy | | | | | $ | 1,541 | | | $ | 1,856 | |
(1) IEnova and Chilquinta Energía have subsidiaries with NCI held by others. Percentage range reflects the highest and lowest ownership percentages among these subsidiaries.
REVENUES
See Note 3 for a description of significant accounting policies for revenues.
OPERATION AND MAINTENANCE EXPENSES
Operation and Maintenance includes O&M and general and administrative costs, consisting primarily of personnel costs, purchased materials and services, insurance, rent and litigation expense (except for litigation expense included in Aliso Canyon Litigation and Regulatory Matters).
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
Our natural gas distribution utility in Mexico, Ecogas, and the majority of our former operations in South America (until our sale of these operations in the second quarter of 2020) use their local currency as their functional currency. The assets and liabilities of their foreign operations are translated into U.S. dollars at current exchange rates at the end of the reporting period, and revenues and expenses are translated at average exchange rates for the year. The resulting noncash translation adjustments do not enter into the calculation of earnings or retained earnings, but are reflected in OCI and in AOCI.
Cash flows of these consolidated foreign subsidiaries are translated into U.S. dollars using average exchange rates for the period. We report the effect of exchange rate changes on cash balances held in foreign currencies in Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash on the Sempra EnergySempra’s Consolidated Statements of Cash Flows.
Foreign currency transaction (losses) gains in a currency other than Sempra Mexico’sInfrastructure’s functional currency were $(18) million, $(25) million $21 million and $(6)$21 million for the years ended December 31, 2021, 2020 2019 and 2018,2019, respectively, and are included in Other Income (Expense) , Net, on the Sempra EnergySempra’s Consolidated Statements of Operations. Foreign currency transaction gains (losses) in a currency other than the functional currencies of our operations in South America are included in discontinued operations.
TRANSACTIONS WITH AFFILIATES
We summarize amounts due from and to unconsolidated affiliates at Sempra, Energy Consolidated, SDG&E and SoCalGas in the following table.
| AMOUNTS DUE FROM (TO) UNCONSOLIDATED AFFILIATES | AMOUNTS DUE FROM (TO) UNCONSOLIDATED AFFILIATES | AMOUNTS DUE FROM (TO) UNCONSOLIDATED AFFILIATES | |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) | |
| | December 31, | | December 31, |
| | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated: | | | | |
Sempra: | | Sempra: | | | | |
Total due from various unconsolidated affiliates – current | Total due from various unconsolidated affiliates – current | $ | 20 | | | $ | 32 | | Total due from various unconsolidated affiliates – current | $ | 23 | | | $ | 20 | | | $ | 32 | |
| Sempra Mexico(1): | | |
ESJ – Note due December 31, 2022, net of negligible allowance for credit losses at December 31, 2020(2) | $ | 85 | | | $ | 0 | | |
IMG JV – Note due March 15, 2022, net of allowance for credit losses of $3 at December 31, 2020(3) | 695 | | | 742 | | |
Sempra Infrastructure: | | Sempra Infrastructure: | |
ESJ JV – Note due December 31, 2022, net of negligible allowance for credit losses at December 31, 2020(1) | | ESJ JV – Note due December 31, 2022, net of negligible allowance for credit losses at December 31, 2020(1) | $ | — | | | $ | 85 | | | $ | — | |
IMG JV – Note due March 15, 2022, net of allowance for credit losses of $1 and $3 at December 31, 2021 and 2020, respectively(2) | | IMG JV – Note due March 15, 2022, net of allowance for credit losses of $1 and $3 at December 31, 2021 and 2020, respectively(2) | 637 | | | 695 | | | 742 | |
Total due from unconsolidated affiliates – noncurrent | Total due from unconsolidated affiliates – noncurrent | $ | 780 | | | $ | 742 | | Total due from unconsolidated affiliates – noncurrent | $ | 637 | | | $ | 780 | | | $ | 742 | |
| Sempra Mexico – TAG Pipelines Norte, S. de R.L. de C.V. – Note due December 20, 2021(1)(4) | $ | (41) | | | $ | 0 | | |
Sempra Infrastructure – TAG Pipelines Norte, S. de R.L. de C.V. – Note due December 20, 2021(3)(4) | | Sempra Infrastructure – TAG Pipelines Norte, S. de R.L. de C.V. – Note due December 20, 2021(3)(4) | $ | — | | | $ | (41) | | | $ | — | |
Various affiliates | Various affiliates | (4) | | | (5) | | Various affiliates | — | | | (4) | | | (5) | |
Total due to unconsolidated affiliates – current | Total due to unconsolidated affiliates – current | $ | (45) | | | $ | (5) | | Total due to unconsolidated affiliates – current | $ | — | | | $ | (45) | | | $ | (5) | |
| Sempra Mexico(1): | | |
TAG Pipelines Norte, S. de R.L. de C.V. | | |
Note due December 20, 2021(4) | $ | 0 | | | $ | (39) | | |
Sempra Infrastructure(4): | | Sempra Infrastructure(4): | |
TAG Pipelines Norte, S. de R.L. de C.V.: | | TAG Pipelines Norte, S. de R.L. de C.V.: | |
Note due December 20, 2021(3) | | Note due December 20, 2021(3) | $ | — | | | $ | — | | | $ | (39) | |
5.5% Note due January 9, 2024(5) | 5.5% Note due January 9, 2024(5) | (68) | | | 0 | | 5.5% Note due January 9, 2024(5) | (69) | | | (68) | | | — | |
5.5% Note due January 14, 2025(5) | | 5.5% Note due January 14, 2025(5) | (21) | | | — | | | — | |
5.5% Note due July 16, 2025(5) | | 5.5% Note due July 16, 2025(5) | (20) | | | — | | | — | |
TAG JV – 5.74% Note due December 17, 2029(5) | TAG JV – 5.74% Note due December 17, 2029(5) | (166) | | | (156) | | TAG JV – 5.74% Note due December 17, 2029(5) | (177) | | | (166) | | | (156) | |
Total due to unconsolidated affiliates – noncurrent | Total due to unconsolidated affiliates – noncurrent | $ | (234) | | | $ | (195) | | Total due to unconsolidated affiliates – noncurrent | $ | (287) | | | $ | (234) | | | $ | (195) | |
SDG&E: | SDG&E: | | | | SDG&E: | | | | |
| Sempra Energy | $ | (38) | | | $ | (37) | | |
Sempra | | Sempra | $ | (40) | | | $ | (38) | | | $ | (37) | |
SoCalGas | SoCalGas | (21) | | | (10) | | SoCalGas | (48) | | | (21) | | | (10) | |
| Various affiliates | Various affiliates | (5) | | | (6) | | Various affiliates | (9) | | | (5) | | | (6) | |
Total due to unconsolidated affiliates – current | Total due to unconsolidated affiliates – current | $ | (64) | | | $ | (53) | | Total due to unconsolidated affiliates – current | $ | (97) | | | $ | (64) | | | $ | (53) | |
| Income taxes due from Sempra Energy(6) | $ | 0 | | | $ | 130 | | |
Income taxes due from Sempra(6) | | Income taxes due from Sempra(6) | $ | 19 | | | $ | — | | | $ | 130 | |
SoCalGas: | SoCalGas: | | | | SoCalGas: | | | | |
SDG&E | SDG&E | $ | 21 | | | $ | 10 | | SDG&E | $ | 48 | | | $ | 21 | | | $ | 10 | |
Various affiliates | Various affiliates | 1 | | | 1 | | Various affiliates | 1 | | | 1 | | | 1 | |
Total due from unconsolidated affiliates – current | Total due from unconsolidated affiliates – current | $ | 22 | | | $ | 11 | | Total due from unconsolidated affiliates – current | $ | 49 | | | $ | 22 | | | $ | 11 | |
| Sempra Energy | $ | (31) | | | $ | (45) | | |
Sempra | | Sempra | $ | (36) | | | $ | (31) | | | $ | (45) | |
| Various affiliates | Various affiliates | 0 | | | (2) | | Various affiliates | — | | | — | | | (2) | |
Total due to unconsolidated affiliates – current | Total due to unconsolidated affiliates – current | $ | (31) | | | $ | (47) | | Total due to unconsolidated affiliates – current | $ | (36) | | | $ | (31) | | | $ | (47) | |
| Income taxes due (to) from Sempra Energy(6) | $ | (37) | | | $ | 152 | | |
Income taxes due from (to) Sempra(6) | | Income taxes due from (to) Sempra(6) | $ | 6 | | | $ | (37) | | | $ | 152 | |
(1) Amounts include principal balances plus accumulated interest outstanding.
(2) U.S. dollar-denominated loan at a variable interest rate based on 1-month LIBOR plus 196 bps (2.11% at December 31, 2020). At December 31, 2020, $1 million of accrued interest receivable is included in Due from Unconsolidated Affiliates – Current. In March 2021, Sempra Infrastructure acquired the remaining 50% equity interest in ESJ that it did not already own, and ESJ became a wholly owned, consolidated subsidiary, resulting in the elimination of this note receivable.
(3)(2) Mexican peso-denominated revolving line of credit for up to 14.2 billion Mexican pesos or approximately $712 million$691 U.S. dollar-equivalent at December 31, 2021, at a variable interest rate based on the 91-day Interbank Equilibrium Interest Rate plus 220 bps (6.66%(8.06% at December 31, 2020)2021), to finance construction of thea natural gas marine pipeline. At both December 31, 2021 and 2020, $2 million of accrued interest receivable is included in Due from Unconsolidated Affiliates – Current. At December 31, 2021, we classified this revolving line of credit as noncurrent because we expect to extend the maturity date on a long-term basis prior to its stated maturity date.
(4)(3) U.S. dollar-denominated loan at a variable interest rate based on 6-month LIBOR plus 290 bps (3.16% at December 31, 2020).
(4)Amounts include principal balances plus accumulated interest outstanding.
(5) U.S. dollar-denominated loan at a fixed interest rate.
(6) SDG&E and SoCalGas are included in the consolidated income tax return of Sempra, Energy and their respective income tax expense is computed as an amount equal to that which would result from each company having always filed a separate return.
The following table summarizes income statement information from unconsolidated affiliates.
| | | | | | | | | | | | | | | | | |
INCOME STATEMENT IMPACT FROM UNCONSOLIDATED AFFILIATES |
(Dollars in millions) |
| Years ended December 31, |
| 2020 | | 2019 | | 2018 |
Sempra Energy Consolidated | | | | | |
Revenue | $ | 37�� | | | $ | 52 | | | $ | 64 | |
Cost of Sales | 45 | | | 50 | | | 46 | |
Interest Income | 56 | | | 74 | | | 62 | |
Interest Expense | 14 | | | 2 | | | 2 | |
SDG&E: | | | | | |
Revenue | $ | 6 | | | $ | 6 | | | $ | 5 | |
Cost of Sales | 79 | | | 74 | | | 73 | |
SoCalGas: | | | | | |
Revenue | $ | 88 | | | $ | 69 | | | $ | 64 | |
Cost of Sales | 0 | | | 8 | | | 0 | |
| | | | | | | | | | | | | | | | | |
INCOME STATEMENT IMPACT FROM UNCONSOLIDATED AFFILIATES |
(Dollars in millions) |
| Years ended December 31, |
| 2021 | | 2020 | | 2019 |
Sempra: | | | | | |
Revenues | $ | 31 | | | $ | 37 | | | $ | 52 | |
Cost of sales | 11 | | | 45 | | | 50 | |
Interest income | 50 | | | 56 | | | 74 | |
Interest expense | 15 | | | 14 | | | 2 | |
SDG&E: | | | | | |
Revenues | $ | 11 | | | $ | 6 | | | $ | 6 | |
Cost of sales | 103 | | | 79 | | | 74 | |
SoCalGas: | | | | | |
Revenues | $ | 98 | | | $ | 88 | | | $ | 69 | |
Cost of sales(1) | 1 | | | — | | | 8 | |
California Utilities(1) Includes net commodity costs from natural gas transactions with unconsolidated affiliates.
Sempra Energy,California
Sempra, SDG&E and SoCalGas provide certain services to each other and are charged an allocable share of the cost of such services. Also, from time-to-time, SDG&E and SoCalGas may make short-term advances of surplus cash to Sempra Energy at interest rates based on the federal funds effective rate plus a margin of 13 to 20 bps, depending on the loan balance.
SoCalGas provides natural gas transportation and storage services for SDG&E and charges SDG&E for such services monthly. SoCalGas records revenues and SDG&E records a corresponding amount to cost of sales.
SDG&E and SoCalGas charge one another, as well as other Sempra Energy affiliates, for shared asset depreciation. SoCalGas and SDG&E record revenues and the affiliates record corresponding amounts to O&M.
The natural gas supply for SDG&E’s and SoCalGas’ core natural gas customers is purchased by SoCalGas as a combined procurement portfolio managed by SoCalGas. Core customers are primarily residential and small commercial and industrial customers. This core gas procurement function is considered a shared service; therefore, revenues and costs related to SDG&E are presented net in SoCalGas’ Statements of Operations.
SDG&E has a 20-year contract for up to 155 MW of renewable power supplied from the ESJ wind power generation facility. Prior to March 2021, ESJ iswas a 50% owned and unconsolidated JV of Sempra Mexico.Infrastructure. In March 2021, Sempra Infrastructure completed the acquisition of the remaining 50% interest in ESJ and ESJ became a wholly owned, consolidated subsidiary of Sempra. A second 20-year contract between SDG&E and ESJ for up to 108 MW of renewable power supplied from the same facility commenced in January 2022.
Sempra MexicoInfrastructure
Sempra Mexico,Infrastructure, through its indirect wholly owned subsidiaries, DEN and IEnova Pipelines, provides operating and maintenance services to TAG Pipelines Norte, S. de. R.L. de C.V., and also provides personnel under an administrative services arrangement to TAG Pipelines Norte, S. de. R.L. de C.V. and TAG JV.
Sempra LNG
Sempra LNGInfrastructure provides certain business services to Cameron LNG JV. Sempra LNGInfrastructure had an agreement to provide transportation services to Cameron LNG JV for capacity on the Cameron Interstate Pipeline through August 2020, when Cameron LNG JV achieved commercial operations of Train 3 of its Phase 1 project.
Sempra Energy has provided guarantees related to Cameron LNG JVJV’s construction-period debt, which were terminated in March 2021, as well as guarantees related to Cameron LNG JV’s SDSRA and to CFIN, as weCFIN’s Support Agreement, which remain outstanding. We discuss these guarantees in Note 6.
RESTRICTED NET ASSETS
Sempra Energy Consolidated
As we discuss below, the California UtilitiesSDG&E, SoCalGas and certain other Sempra Energy subsidiaries have restrictions on the amount of funds that can be transferred to Sempra Energy by dividend, advance or loan as a result of conditions imposed by various regulators. Additionally,
certain other Sempra Energy subsidiaries are subject to various financial and other covenants and other restrictions contained in debt and credit agreements (described in Note 7) and in other agreements that limit the amount of funds that can be transferred to Sempra Energy.Sempra. At December 31, 2020,2021, Sempra Energy was in compliance with all covenants related to its debt agreements.
At December 31, 2020,2021, the amount of restricted net assets of consolidated entities of Sempra, Energy, including the California UtilitiesSDG&E and SoCalGas discussed below, that may not be distributed to Sempra Energy in the form of a loan or dividend is $12.2$19.3 billion. Additionally, the amount of restricted net assets of our unconsolidated entities is $12.6$13.2 billion. Although the restrictions cap the amount of funding that the various operating subsidiaries can provide to Sempra, Energy, we do not believe these restrictions will have a significant impact on our ability to access cash to pay dividends and fund operating needs.
As we discuss in Note 6, $1.1$1.5 billion of Sempra Energy’s consolidatedSempra’s retained earnings represents undistributed earnings of equity method investments at December 31, 2020.2021.
Sempra California Utilities
The CPUC’s regulation of the California Utilities’SDG&E’s and SoCalGas’ capital structures limits the amounts available for dividends and loans to Sempra Energy.Sempra. At December 31, 2020,2021, Sempra Energy could have received combined loans and dividends of approximately $717$798 million from SDG&E and approximately $148$445 million from SoCalGas.
The payment and amount of future dividends by SDG&E and SoCalGas are at the discretion of their respective boards of directors. The following restrictions limit the amount of retained earnings that may be paid as common stock dividends or loaned to Sempra Energy from either utility:
▪The CPUC requires that SDG&E’s and SoCalGas’ common equity ratios be no lower than one percentage point below the CPUC-authorized percentage of each entity’s authorized capital structure. The authorized percentage at December 31, 20202021 is 52% at both SDG&E and SoCalGas.
▪SDG&E and SoCalGas each have a revolving credit line that requires it to maintain a ratio of consolidated indebtedness to consolidated capitalization (as defined in the agreements) of no more than 65%, as we discuss in Note 7.
Based on these restrictions, at December 31, 2020,2021, SDG&E’s restricted net assets were $7.0$7.5 billion and SoCalGas’ restricted net assets were $5.0 billion, which could not be transferred to Sempra Energy.Sempra.
Sempra Texas Utilities
Sempra Energy owns an indirect, 100% interest in Oncor Holdings, which owns an 80.25% interest in Oncor. As we discuss in Note 6, we account for our investment in Oncor Holdings under the equity method. Significant restrictions at Oncor that limit the amount that may be paid as dividends to Sempra Energy include:
▪In connection with ring-fencing measures, governance mechanisms and commitments, Oncor may not pay any dividends or make any other distributions (except for contractual tax payments) if a majority of its independent directors or a minority member director determines that it is in the best interests of Oncor to retain such amounts to meet expected future requirements.
▪Oncor must remain in compliance with its debt-to-equity ratio established by the PUCT for ratemaking purposes and may not pay dividends or other distributions (except for contractual tax payments) if that payment would cause it to exceed its PUCT authorized debt-to-equity ratio. Oncor’s authorized regulatory capital structure is 57.5% debt to 42.5% equity at December 31, 2020.2021.
▪If the credit rating on Oncor’s senior secured debt by any of the three major credit rating agencies falls below BBB (or the equivalent), Oncor will suspend dividends and other distributions (except for contractual tax payments), unless otherwise allowed by the PUCT. At December 31, 2020,2021, all of Oncor’s senior secured ratings were above BBB.
▪Oncor’s revolving credit line and certain of its other debt agreements require it to maintain a consolidated senior debt-to-capitalization ratio of no more than 65% and observe certain affirmative covenants. At December 31, 2020,2021, Oncor was in compliance with these covenants.
Based on these restrictions, at December 31, 2020,2021, Oncor’s restricted net assets were $11.9$12.6 billion, which could not be transferred to Sempra Energy.Sempra.
Sempra Energy owns an indirect, 50% interest in Sharyland Holdings, which owns a 100% interest in Sharyland Utilities. Significant restrictions related to this equity method investment include:
▪Sharyland Utilities may not pay dividends or make other distributions (except for contractual payments) without the consent of the JV partner.
▪Sharyland Utilities must remain in compliance with the capital structure established by the PUCT for ratemaking purposes and may not pay dividends or other distributions (except for contractual tax payments) if that payment would cause its debt to exceed 55%60% of its capital structure.
▪Sharyland Utilities has a revolving credit line and a term loan credit agreement that require it to maintain a consolidated debt-to-capitalization ratio of no more than 70% and observe certain customary reporting requirements and other affirmative covenants. At December 31, 2020,2021, Sharyland Utilities was in compliance with these and all other covenants.
Based on these restrictions, at December 31, 2020,2021, Sharyland Utilities’ restricted net assets were $114$103 million, which could not be transferred to its owners.
Sempra MexicoInfrastructure
Significant restrictions at Sempra MexicoInfrastructure include:
▪Mexico requires domestic corporationsPartnerships and JVs at Sempra Infrastructure may not pay dividends or make other distributions (except for contractual payments) without the consent of the partners.
▪The ADIA Purchase Agreement has certain covenants that require SI Partners to maintainoperate its business in ordinary course, including limitations on the ability to liquidate all or substantially all of the company’s assets or to sell or dispose of certain assets, from December 21, 2021 through closing or termination of the ADIA Purchase Agreement. Under these restrictions, net assets of SI Partners totaling $6.8 billion, including the $193 million minimum legal reserves as a percentage of capital stock, resulting inand $20 million restricted net assets of $185 million at Sempra Energy’s consolidated Mexican subsidiaries at December 31, 2020.
▪Wholly owned IEnova Pipelines has a long-term debt agreementcash that requires it to maintain a reserve account to pay the projects’ debt. Under this restriction, net assets totaling $12 millionwe describe below, are restricted at December 31, 2020.2021.
▪Wholly owned Ventika has long-term debt agreements that require it to maintain reserve accounts to pay the projects’ debt. The debt agreements may limit the project companies’ ability to incur liens, incur additional indebtedness, make investments, pay cash dividends and undertake certain additional actions. Under these restrictions, net assets totaling $9 million are restricted at December 31, 2020.
▪ESJ, a 50% owned and unconsolidated JV of Sempra Mexico, has long-term debt agreements that require the establishment and funding of project and reserve accounts to which the proceeds of loans, letter of credit borrowings, project revenues and other amounts are deposited and applied in accordance with the debt agreements. The long-term debt agreements also limit the JV’s ability to incur liens, incur additional indebtedness, make acquisitions and undertake certain actions. Under these restrictions, net assets totaling $7 million are restricted at December 31, 2020.
▪TAG JV, a 50% owned and unconsolidated JV of Sempra Mexico, has a long-term debt agreement that requires it to maintain a reserve account to pay the projects’ debt. Under these restrictions, net assets totaling $73 million are restricted at December 31, 2020.
Sempra LNG
Sempra LNGInfrastructure has an equity method investment in Cameron LNG JV, which has debt agreements that require the establishment and funding of project accounts to which the proceeds of loans, project revenues and other amounts are deposited and applied in accordance with the debt agreements. The debt agreements require the JV to maintain reserve accounts in order to pay the project debt service, and also contain restrictions related to the payment of dividends and other distributions to the members of the JV. We discuss Cameron LNG JV’s debt agreements and the associated Sempra Energy guarantees in Note 6. Under these restrictions, net assets of Cameron LNG JV of approximately $452$395 million are restricted at December 31, 2020.2021.
▪Mexico requires domestic corporations to maintain minimum legal reserves as a percentage of capital stock, resulting in restricted net assets of $193 million at Sempra Infrastructure’s consolidated Mexican subsidiaries at December 31, 2021
▪IEnova has restrictions under trust and debt agreements related to pipeline projects to pay for rights-of-way, license fees, permits, topographic surveys and other costs. Under these restrictions, net assets totaling $20 million are restricted at December 31, 2021.
▪TAG JV, a 50% owned and unconsolidated JV of Sempra Infrastructure, has a long-term debt agreement that requires it to maintain a reserve account to pay the projects’ debt. Under these restrictions, net assets totaling $66 million are restricted at December 31, 2021.
OTHER INCOME (EXPENSE) INCOME,, NET
Other Income (Expense) Income,, Net on the Consolidated Statements of Operations consists of the following:
| OTHER (EXPENSE) INCOME, NET | |
OTHER INCOME (EXPENSE), NET | | OTHER INCOME (EXPENSE), NET |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated: | | | | | | |
Sempra: | | Sempra: | | | | | |
Allowance for equity funds used during construction | Allowance for equity funds used during construction | $ | 128 | | | $ | 94 | | | $ | 98 | | Allowance for equity funds used during construction | $ | 133 | | | $ | 128 | | | $ | 94 | |
Investment gains (losses)(1) | 41 | | | 61 | | | (6) | | |
Investment gains, net(1) | | Investment gains, net(1) | 50 | | | 41 | | | 61 | |
(Losses) gains on interest rate and foreign exchange instruments, net | (Losses) gains on interest rate and foreign exchange instruments, net | (67) | | | 34 | | | 7 | | (Losses) gains on interest rate and foreign exchange instruments, net | (28) | | | (67) | | | 34 | |
Foreign currency transaction (losses) gains, net(2) | Foreign currency transaction (losses) gains, net(2) | (25) | | | 21 | | | (6) | | Foreign currency transaction (losses) gains, net(2) | (18) | | | (25) | | | 21 | |
Non-service component of net periodic benefit cost | Non-service component of net periodic benefit cost | (102) | | | (132) | | | (35) | | Non-service component of net periodic benefit cost | (67) | | | (102) | | | (132) | |
Fine related to Energy Efficiency Program Inquiry | (6) | | | 0 | | | 0 | | |
Penalties related to billing practices OII | 0 | | | (8) | | | 0 | | |
| Interest on regulatory balancing accounts, net | Interest on regulatory balancing accounts, net | 14 | | | 14 | | | 2 | | Interest on regulatory balancing accounts, net | 6 | | | 14 | | | 14 | |
| Sundry, net | Sundry, net | (31) | | | (7) | | | (2) | | Sundry, net | (18) | | | (37) | | | (15) | |
Total | Total | $ | (48) | | | $ | 77 | | | $ | 58 | | Total | $ | 58 | | | $ | (48) | | | $ | 77 | |
SDG&E: | SDG&E: | | | | | | SDG&E: | | | | | |
Allowance for equity funds used during construction | Allowance for equity funds used during construction | $ | 79 | | | $ | 56 | | | $ | 61 | | Allowance for equity funds used during construction | $ | 81 | | | $ | 79 | | | $ | 56 | |
Non-service component of net periodic benefit cost | Non-service component of net periodic benefit cost | (20) | | | (20) | | | (6) | | Non-service component of net periodic benefit cost | (13) | | | (20) | | | (20) | |
Fine related to Energy Efficiency Program Inquiry | (6) | | | 0 | | | 0 | | |
| Interest on regulatory balancing accounts, net | Interest on regulatory balancing accounts, net | 9 | | | 13 | | | 4 | | Interest on regulatory balancing accounts, net | 6 | | | 9 | | | 13 | |
| Sundry, net | Sundry, net | (10) | | | (10) | | | (3) | | Sundry, net | (10) | | | (16) | | | (10) | |
Total | Total | $ | 52 | | | $ | 39 | | | $ | 56 | | Total | $ | 64 | | | $ | 52 | | | $ | 39 | |
SoCalGas: | SoCalGas: | | | | | | SoCalGas: | | | | | |
Allowance for equity funds used during construction | Allowance for equity funds used during construction | $ | 41 | | | $ | 34 | | | $ | 36 | | Allowance for equity funds used during construction | $ | 48 | | | $ | 41 | | | $ | 34 | |
Non-service component of net periodic benefit cost | Non-service component of net periodic benefit cost | (54) | | | (72) | | | (10) | | Non-service component of net periodic benefit cost | (40) | | | (54) | | | (72) | |
Penalties related to billing practices OII | 0 | | | (8) | | | 0 | | |
| Interest on regulatory balancing accounts, net | Interest on regulatory balancing accounts, net | 5 | | | 1 | | | (2) | | Interest on regulatory balancing accounts, net | — | | | 5 | | | 1 | |
| Sundry, net | Sundry, net | (20) | | | (10) | | | (9) | | Sundry, net | (22) | | | (20) | | | (18) | |
Total | Total | $ | (28) | | | $ | (55) | | | $ | 15 | | Total | $ | (14) | | | $ | (28) | | | $ | (55) | |
(1) Represents net investment gains (losses) on dedicated assets in support of our executive retirement and deferred compensation plans. These amounts are offset by corresponding changes in compensation expense related to the plans, recorded in O&M on the Consolidated Statements of Operations.
(2) Includes losses of $23 in 2021, losses of $42 million in 2020 and gains of $30 million in 2019 and losses of $3 million in 2018 from translation to U.S. dollars of a Mexican peso-denominated loan to IMG JV, which are offset by corresponding amounts included in Equity Earnings on the Consolidated Statements of Operations.
NOTE 2. NEW ACCOUNTING STANDARDS
We describe below recent accounting pronouncements that have had or may have a significant effect on our financial condition, results of operations, financial condition, cash flows or disclosures.
ASU 2016-13, “Measurement of Credit Losses on Financial Instruments”: ASU 2016-13, as amended by subsequently issued ASUs, changes how entities measure credit losses for most financial assets and certain other instruments. The standard introduces an “expected credit loss” impairment model that requires immediate recognition of estimated credit losses expected to occur over the remaining life of most financial assets measured at amortized cost, including trade and other receivables, loan receivables and commitments and financial guarantees. ASU 2016-13 also requires use of an allowance to record estimated credit losses on available-for-sale debt securities and expands disclosure requirements regarding an entity’s assumptions, models and methods for estimating the credit losses. We adopted the standard on January 1, 2020 using a modified retrospective approach through a cumulative-effect adjustment to retained earnings. The adoption primarily impacted the expected credit losses associated with accounts receivable balances, amounts due from unconsolidated affiliates and off-balance sheet financial guarantees. There was an insignificant impact to SDG&E’s and SoCalGas’ balance sheets from adoption. The following table shows the initial (decreases) increases on Sempra Energy’s balance sheet at January 1, 2020 from adoption of ASU 2016-13.
| | | | | |
IMPACT FROM ADOPTION OF ASU 2016-13 |
(Dollars in millions) |
| Sempra Energy Consolidated |
Accounts receivable – trade, net | $ | (1) | |
Due from unconsolidated affiliates – noncurrent | (6) | |
Deferred income tax assets | 4 | |
Other current liabilities | 4 | |
Deferred credits and other | 2 | |
Retained earnings | (7) | |
Other noncontrolling interests | (2) | |
ASU 2017-04, “Simplifying the Test for Goodwill Impairment”: ASU 2017-04 removes the second step of the goodwill impairment test, which requires a hypothetical purchase price allocation. An entity will be required to apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the carrying amount of goodwill. We adopted ASU 2017-04 on January 1, 2020 and are applying the standard on a prospective basis to our goodwill impairment tests.
0ASU 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting”: ASU 2020-04 provides optional expedients and exceptions for applying U.S. GAAP to contract modifications that replace LIBOR or another reference rate affected by reference rate reform and to hedging relationships that reference LIBOR or another reference rate affected or expected to be affected by reference rate reform. ASU 2020-04 was effective March 12, 2020 and can be applied through December 31, 2022, with certain exceptions for hedging relationships that continue to exist after this date, and may be applied from January 1, 2020. For contract modifications, the standard allows entities to account for modifications as an event that does not require reassessment or remeasurement (i.e., as a continuation of the existing contract). The standard also allows entities to amend their formal designation and documentation of hedging relationships affected or expected to be affected by reference rate reform, without having to de-designate the hedging relationship. Entities may elect the optional expedients and exceptions on an individual hedging relationship basis and independently from one another. We elected the optional expedients for contract modifications. We elected the cash flow hedging expedients to disregard the potential discontinuation of a reference rate when assessing whether a hedged forecasted interest payment is probable and to disregard certain mismatches between the designated hedging instrument and the hedged item when assessing the hedge effectiveness. We are applying these expedients prospectively from January 1, 2020. Application of these expedients preserves the presentation of derivatives consistent with the past presentation.
ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”: ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. In addition to other changes, this standard amends ASC 470-20, “Debt with Conversion and Other Options,” by removing the accounting models for instruments with beneficial conversion features and cash conversion features. The standard also amends certain guidance in ASC 260, “Earnings Per Share,” as follows:
▪requires an entity to applyfor the if-converted method when calculating dilutedcomputation of EPS for convertible instruments and no longer use the treasury stock method, which was previously allowed for certain convertible instruments;
▪requirescontracts on an entity to include the effect of potential share settlement in the diluted EPS calculation when an instrument may be settled in cash or shares, and no longer allows an entity to rebut the presumption of share settlement if it has a history or policy of cash settlement;
▪requires an entity to include equity-classified convertible preferred stock that contains down-round features whereby, if the down-round feature is triggered, its effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS;
▪clarifies that the average market price should be used to calculate the diluted EPS denominator when the exercise price or the number of shares that may be issued is variable, except for certain contingently issuable shares; and
▪clarifies that the weighted-average share count from each quarter should be used when calculating the year-to-date weighted-average share count.
entity’s own equity. For public entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods therein, with early adoption permitted for fiscal years beginning after December 15, 2020.permitted. An entity can use either a full or modified retrospective approach to adopt ASU 2020-06 and must disclose, in the period of adoption, EPS transition information about the effect of the change on affected per-share amounts. We plan towill adopt the standard on January 1, 2022 using a modified retrospective approach and are currently evaluatingdo not expect the effect of the standard onadoption will materially impact our ongoing financial reporting.statements or per-share amounts.
NOTE 3. REVENUES
The following table disaggregates our revenues from contracts with customers by major service line and market and provides a reconciliation to total revenues by segment. The majority of our revenue is recognized over time.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
DISAGGREGATED REVENUES |
(Dollars in millions) |
| SDG&E | | SoCalGas | | Sempra Mexico | | Sempra LNG | | Sempra Renewables | | Consolidating adjustments and Parent and other | | Sempra Energy Consolidated |
| Year ended December 31, 2020 |
By major service line: | | | | | | | | | | | | | |
Utilities | $ | 4,920 | | | $ | 4,571 | | | $ | 58 | | | $ | 0 | | | $ | 0 | | | $ | (94) | | | $ | 9,455 | |
Energy-related businesses | 0 | | | 0 | | | 834 | | | 92 | | | 0 | | | (71) | | | 855 | |
Revenues from contracts with customers | $ | 4,920 | | | $ | 4,571 | | | $ | 892 | | | $ | 92 | | | $ | 0 | | | $ | (165) | | | $ | 10,310 | |
By market: | | | | | | | | | | | | | |
Gas | $ | 692 | | | $ | 4,571 | | | $ | 603 | | | $ | 86 | | | $ | 0 | | | $ | (156) | | | $ | 5,796 | |
Electric | 4,228 | | | 0 | | | 289 | | | 6 | | | 0 | | | (9) | | | 4,514 | |
Revenues from contracts with customers | $ | 4,920 | | | $ | 4,571 | | | $ | 892 | | | $ | 92 | | | $ | 0 | | | $ | (165) | | | $ | 10,310 | |
| | | | | | | | | | | | | |
Revenues from contracts with customers | $ | 4,920 | | | $ | 4,571 | | | $ | 892 | | | $ | 92 | | | $ | 0 | | | $ | (165) | | | $ | 10,310 | |
Utilities regulatory revenues | 393 | | | 177 | | | 0 | | | 0 | | | 0 | | | 0 | | | 570 | |
Other revenues | 0 | | | 0 | | | 364 | | | 282 | | | 0 | | | (156) | | | 490 | |
Total revenues | $ | 5,313 | | | $ | 4,748 | | | $ | 1,256 | | | $ | 374 | | | $ | 0 | | | $ | (321) | | | $ | 11,370 | |
| | | | | | | | | | | | | |
| Year ended December 31, 2019 |
By major service line: | | | | | | | | | | | | | |
Utilities | $ | 4,819 | | | $ | 4,367 | | | $ | 73 | | | $ | 0 | | | $ | 0 | | | $ | (75) | | | $ | 9,184 | |
Energy-related businesses | 0 | | | 0 | | | 919 | | | 176 | | | 5 | | | (143) | | | 957 | |
Revenues from contracts with customers | $ | 4,819 | | | $ | 4,367 | | | $ | 992 | | | $ | 176 | | | $ | 5 | | | $ | (218) | | | $ | 10,141 | |
By market: | | | | | | | | | | | | | |
Gas | $ | 587 | | | $ | 4,367 | | | $ | 680 | | | $ | 170 | | | $ | 0 | | | $ | (208) | | | $ | 5,596 | |
Electric | 4,232 | | | 0 | | | 312 | | | 6 | | | 5 | | | (10) | | | 4,545 | |
Revenues from contracts with customers | $ | 4,819 | | | $ | 4,367 | | | $ | 992 | | | $ | 176 | | | $ | 5 | | | $ | (218) | | | $ | 10,141 | |
| | | | | | | | | | | | | |
Revenues from contracts with customers | $ | 4,819 | | | $ | 4,367 | | | $ | 992 | | | $ | 176 | | | $ | 5 | | | $ | (218) | | | $ | 10,141 | |
Utilities regulatory revenues | 106 | | | 158 | | | 0 | | | 0 | | | 0 | | | 0 | | | 264 | |
Other revenues | 0 | | | 0 | | | 383 | | | 234 | | | 5 | | | (198) | | | 424 | |
Total revenues | $ | 4,925 | | | $ | 4,525 | | | $ | 1,375 | | | $ | 410 | | | $ | 10 | | | $ | (416) | | | $ | 10,829 | |
| | | | | | | | | | | | | |
| Year ended December 31, 2018 |
By major service line: | | | | | | | | | | | | | |
Utilities | $ | 4,788 | | | $ | 3,577 | | | $ | 78 | | | $ | 0 | | | $ | 0 | | | $ | (69) | | | $ | 8,374 | |
Energy-related businesses | 0 | | | 0 | | | 941 | | | 232 | | | 46 | | | (146) | | | 1,073 | |
Revenues from contracts with customers | $ | 4,788 | | | $ | 3,577 | | | $ | 1,019 | | | $ | 232 | | | $ | 46 | | | $ | (215) | | | $ | 9,447 | |
By market: | | | | | | | | | | | | | |
Gas | $ | 491 | | | $ | 3,577 | | | $ | 711 | | | $ | 224 | | | $ | 0 | | | $ | (203) | | | $ | 4,800 | |
Electric | 4,297 | | | 0 | | | 308 | | | 8 | | | 46 | | | (12) | | | 4,647 | |
Revenues from contracts with customers | $ | 4,788 | | | $ | 3,577 | | | $ | 1,019 | | | $ | 232 | | | $ | 46 | | | $ | (215) | | | $ | 9,447 | |
| | | | | | | | | | | | | |
Revenues from contracts with customers | $ | 4,788 | | | $ | 3,577 | | | $ | 1,019 | | | $ | 232 | | | $ | 46 | | | $ | (215) | | | $ | 9,447 | |
Utilities regulatory revenues | (220) | | | 385 | | | 0 | | | 0 | | | 0 | | | 0 | | | 165 | |
Other revenues | 0 | | | 0 | | | 357 | | | 240 | | | 78 | | | (185) | | | 490 | |
Total revenues | $ | 4,568 | | | $ | 3,962 | | | $ | 1,376 | | | $ | 472 | | | $ | 124 | | | $ | (400) | | | $ | 10,102 | |
F-54
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
DISAGGREGATED REVENUES |
(Dollars in millions) |
| SDG&E | | SoCalGas | | Sempra Infrastructure | | Sempra Renewables | | Consolidating adjustments and Parent and other | | Sempra |
| Year ended December 31, 2021 |
By major service line: | | | | | | | | | | | |
Utilities | $ | 5,144 | | | $ | 5,424 | | | $ | 81 | | | $ | — | | | $ | (109) | | | $ | 10,540 | |
Energy-related businesses | — | | | — | | | 1,165 | | | — | | | (29) | | | 1,136 | |
Revenues from contracts with customers | $ | 5,144 | | | $ | 5,424 | | | $ | 1,246 | | | $ | — | | | $ | (138) | | | $ | 11,676 | |
By market: | | | | | | | | | | | |
Gas | $ | 790 | | | $ | 5,424 | | | $ | 856 | | | $ | — | | | $ | (101) | | | $ | 6,969 | |
Electric | 4,354 | | | — | | | 390 | | | — | | | (37) | | | 4,707 | |
Revenues from contracts with customers | $ | 5,144 | | | $ | 5,424 | | | $ | 1,246 | | | $ | — | | | $ | (138) | | | $ | 11,676 | |
| | | | | | | | | | | |
Revenues from contracts with customers | $ | 5,144 | | | $ | 5,424 | | | $ | 1,246 | | | $ | — | | | $ | (138) | | | $ | 11,676 | |
Utilities regulatory revenues | 360 | | | 91 | | | — | | | — | | | — | | | 451 | |
Other revenues | — | | | — | | | 751 | | | — | | | (21) | | | 730 | |
Total revenues | $ | 5,504 | | | $ | 5,515 | | | $ | 1,997 | | | $ | — | | | $ | (159) | | | $ | 12,857 | |
| | | | | | | | | | | |
| Year ended December 31, 2020 |
By major service line: | | | | | | | | | | | |
Utilities | $ | 4,920 | | | $ | 4,571 | | | $ | 58 | | | $ | — | | | $ | (94) | | | $ | 9,455 | |
Energy-related businesses | — | | | — | | | 854 | | | — | | | 1 | | | 855 | |
Revenues from contracts with customers | $ | 4,920 | | | $ | 4,571 | | | $ | 912 | | | $ | — | | | $ | (93) | | | $ | 10,310 | |
By market: | | | | | | | | | | | |
Gas | $ | 692 | | | $ | 4,571 | | | $ | 623 | | | $ | — | | | $ | (90) | | | $ | 5,796 | |
Electric | 4,228 | | | — | | | 289 | | | — | | | (3) | | | 4,514 | |
Revenues from contracts with customers | $ | 4,920 | | | $ | 4,571 | | | $ | 912 | | | $ | — | | | $ | (93) | | | $ | 10,310 | |
| | | | | | | | | | | |
Revenues from contracts with customers | $ | 4,920 | | | $ | 4,571 | | | $ | 912 | | | $ | — | | | $ | (93) | | | $ | 10,310 | |
Utilities regulatory revenues | 393 | | | 177 | | | — | | | — | | | — | | | 570 | |
Other revenues | — | | | — | | | 488 | | | — | | | 2 | | | 490 | |
Total revenues | $ | 5,313 | | | $ | 4,748 | | | $ | 1,400 | | | $ | — | | | $ | (91) | | | $ | 11,370 | |
| | | | | | | | | | | |
| Year ended December 31, 2019 |
By major service line: | | | | | | | | | | | |
Utilities | $ | 4,819 | | | $ | 4,367 | | | $ | 73 | | | $ | — | | | $ | (75) | | | $ | 9,184 | |
Energy-related businesses | — | | | — | | | 951 | | | 5 | | | 1 | | | 957 | |
Revenues from contracts with customers | $ | 4,819 | | | $ | 4,367 | | | $ | 1,024 | | | $ | 5 | | | $ | (74) | | | $ | 10,141 | |
By market: | | | | | | | | | | | |
Gas | $ | 587 | | | $ | 4,367 | | | $ | 711 | | | $ | — | | | $ | (69) | | | $ | 5,596 | |
Electric | 4,232 | | | — | | | 313 | | | 5 | | | (5) | | | 4,545 | |
Revenues from contracts with customers | $ | 4,819 | | | $ | 4,367 | | | $ | 1,024 | | | $ | 5 | | | $ | (74) | | | $ | 10,141 | |
| | | | | | | | | | | |
Revenues from contracts with customers | $ | 4,819 | | | $ | 4,367 | | | $ | 1,024 | | | $ | 5 | | | $ | (74) | | | $ | 10,141 | |
Utilities regulatory revenues | 106 | | | 158 | | | — | | | — | | | — | | | 264 | |
Other revenues | — | | | — | | | 430 | | | 5 | | | (11) | | | 424 | |
Total revenues | $ | 4,925 | | | $ | 4,525 | | | $ | 1,454 | | | $ | 10 | | | $ | (85) | | | $ | 10,829 | |
REVENUES FROM CONTRACTS WITH CUSTOMERS
Our revenues from contracts with customers are primarily related to the transmission, distribution and storage of natural gas and the generation, transmission and distribution of electricity through our regulated utilities. We also provide other midstream and renewable energy-related services. We assess our revenues on a contract-by-contract basis as well as a portfolio basis to determine the nature, amount, timing and uncertainty, if any, of revenues being recognized.
We generally recognize revenues when performance of the promised commodity service is provided to our customers and we invoice our customers for an amount that reflects the consideration we are entitled to in exchange for those services. We consider the delivery and transmission of natural gas and electricity and providing of natural gas storage services as ongoing and integrated services. Generally, natural gas or electricity services are received and consumed by the customer simultaneously. Our performance obligations related to these services are satisfied over time and represent a series of distinct services that are substantially the same and that have the same pattern of transfer to the customers. We recognize revenue based on units delivered, as the satisfaction of our performance obligations can be directly measured by the amount of natural gas or electricity delivered to the customer. In most cases, the right to consideration from the customer directly corresponds to the value transferred to the customer and we recognize revenue in the amount that we have the right to invoice.
The payment terms in our customer contracts vary. Typically, we have an unconditional right to customer payments, which are due after the performance obligation to the customer is satisfied. The term between invoicing and when payment is due is typically between 10 and 90 days.
We exclude sales and usage-based taxes from revenues. In addition, the California UtilitiesSDG&E and SoCalGas pay franchise fees to operate in various municipalities. The California UtilitiesSDG&E and SoCalGas bill these franchise fees to their customers based on a CPUC-authorized rate. These franchise fees, which are required to be paid regardless of the California Utilities’SDG&E’s and SoCalGas’ ability to collect from the customer, are accounted for on a gross basis and reflected in utilities revenues from contracts with customers and operating expense.
Utilities Revenues
Utilities revenues represent the majority of our consolidated revenues from contracts with customers and include:
▪The transmission, distribution and storage of natural gas at:
◦SDG&E
◦SoCalGas
◦Sempra Mexico’sInfrastructure’s Ecogas
▪The generation, transmission and distribution of electricity at SDG&E.
Utilities revenues are derived from and recognized upon the delivery of natural gas or electricity services to customers. Amounts that we bill our customers are based on tariffs set by regulators within the respective state or country. For SDG&E and SoCalGas, which follow the provisions of U.S. GAAP governing rate-regulated operations as we discuss in Note 1, amounts that we bill to customers also include adjustments for previously recognized regulatory revenues.
The California UtilitiesSDG&E, SoCalGas and Ecogas recognize revenues based on regulator-approved revenue requirements, which allowsallow the utilities to recover their reasonable operating costs and provides the opportunity to realize their authorized rates of return on their investments. While the California Utilities’SDG&E’s and SoCalGas’ revenues are not affected by actual sales volumes, the pattern of their revenue recognition during the year is affected by seasonality. SDG&E and SoCalGas recognizesrecognize annual authorized revenue for core natural gas customers using seasonal factors established in the Triennial Cost Allocation Proceeding, resultingapplicable proceedings. This generally results in a significant portion of earningsoperating revenues being recognized in the third quarter of each year for SDG&E and in the first and fourth quarters of each year. SDG&E’s authorized revenue recognition is also impacted by seasonal factors, resulting in higher earnings in the third quarter when electric loads are typically higher than in the other three quarters of the year.year for SoCalGas.
SDG&E has an arrangement to provide the California ISO with the ability to control its high-voltage transmission lines for prices approved by the FERC. Revenue is recognized over time as access is provided to the California ISO.
Factors that can affect the amount, timing and uncertainty of revenues and cash flows include weather, seasonality and timing of customer billings, which may result in unbilled revenues that can vary significantly from month to month and generally approximate one-half month’s deliveries.
The California UtilitiesSDG&E and SoCalGas recognize revenues from the sale of allocated California GHG emissions allowances at quarterly auctions administered by CARB. GHG allowances are delivered to CARB in advance of the quarterly auctions, and the California UtilitiesSDG&E and SoCalGas have the right to payment when the GHG allowances are sold at auction. GHG revenue is recognized on a point in time basis
within the quarter the auction is held. The California UtilitiesSDG&E and SoCalGas balance costs and revenues associated with the GHG program through regulatory balancing accounts.
In connection with the COVID-19 pandemic, the California Utilities and the CPUC have implemented certain measures to assist customers, including suspending service disconnections due to nonpayment for residential and small business customers, waiving late payment fees for business customers, and offering flexible payment plans to customers experiencing difficulty paying their electric or gas bills. Additional measures could be mandated or voluntarily implemented in the future. Under the regulatory compact applicable to the California Utilities, including decoupling of rates, recovery of uncollectible expenses, and other recovery mechanisms potentially available, which we discuss in Note 4, the California Utilities have continued to recognize revenues under ASC 606, “Revenue from Contracts with Customers,” in the year ended December 31, 2020.
Energy-Related Businesses Revenues
Midstream Revenues
Midstream revenues at Sempra Mexico and Sempra LNGInfrastructure typically represent revenues from long-term, U.S. dollar-based contracts with customers for the sale of natural gas and LNG, as well as storage and transportation of natural gas. Invoiced amounts are based on the volume of natural gas delivered and contracted prices.
Sempra Mexico’s marketing operations sell natural gas to the CFE and other customers under supply agreements. Sempra Mexico recognizes the revenue from the sale of natural gas upon transfer of the natural gas via pipelines to customers at the agreed upon delivery points, and in the case of the CFE, at its thermoelectric power plants.
Through its marketing operations, Sempra LNG has contracts to sell natural gas and LNG to Sempra Mexico that allow Sempra Mexico to satisfy its obligations under supply agreements with the CFE and other customers, and to supply Sempra Mexico’s TdM power plant. Because Sempra Mexico either immediately delivers the natural gas to its customers or consumes the benefits simultaneously (by using the gas to supply TdM), revenues from Sempra LNG’s sale of natural gas to Sempra Mexico are generally recognized over time as delivered. Revenues from LNG sales are recognized at the point when the cargo is delivered to Sempra Mexico.
Revenues from the sale of LNG and natural gas by Sempra LNG to Sempra Mexico are adjusted for indemnity payments and profit sharing. We consider these adjustments to be forms of variable consideration that are associated with the sale of LNG and natural gas to Sempra Mexico, and therefore, Sempra LNG records the related costs as an offset to revenues, with no impact to Sempra Energy’s consolidated revenues.
We recognize storage revenue from firm capacity reservation agreements, under which we collect a fee for reserving storage capacity for customers in our storage facilities. Under these firm agreements, customers pay a monthly fixed reservation fee based
on the storage capacity reserved rather than the actual volumes stored. For the fixed-fee component, revenue is recognized on a straight-line basis over the term of the contract. We bill customers for any capacity used in excess of the contracted capacity and such revenues are recognized in the month of occurrence. We also recognize revenue for interruptible storage services. As we discuss in Note 5, in February 2019, Sempra LNGInfrastructure completed the sale of its non-utility natural gas storage assets in the southeast U.S. (comprised of Mississippi Hub and Bay Gas).
We generate pipeline transportation revenues from firm agreements, under which customers pay a fee for reserving transportation capacity. Revenue is recognized when the volumes are delivered to the customers’ agreed upon delivery point. We recognize revenues for our stand-ready obligation to provide capacity and transportation services throughout the contractual delivery period, as the benefits are received and consumed simultaneously as customers utilize pipeline capacity for the transport and receipt of natural gas and LPG. Invoiced amounts are based on a variable usage fee and a fixed capacity charge, adjusted for the Consumer Price Index, the effects of any foreign currency translation and the actual quantity of commodity transported.
Renewables Revenues
Sempra MexicoInfrastructure and, previously, Sempra Renewables develop, invest in and operate solar and wind facilities that have long-term PPAs to sell the electricity and the related green energy attributes they generate to customers, generally load serving entities, and also for Sempra Mexico,Infrastructure, industrial and other customers. Load serving entities will sell electric service to their end-users and wholesale customers immediately upon receipt of our power delivery, and industrial and other customers immediately consume the electricity to run their facilities, and thus, we recognize the revenue under the PPAs as the electricity is generated and delivered. We invoice customers based on the volume of energy delivered at rates pursuant to the PPAs. As we discuss in Note 5, in December 2018, Sempra Renewables completed the sale of its U.S. operating solar assets, solar and battery storage development projects and its 50% ownership interest in a wind power generation facility. In April 2019, Sempra Renewables completed the sale of its remaining wind assets and investments.
Sempra LNG has a contractual agreement to provide scheduling and marketing of renewable power for Sempra Mexico’s ESJ JV. Invoiced amounts are based on a fixed fee per MWh scheduled.
Other Revenues from Contracts with Customers
TdM is a natural gas-fired power plant that generates revenues from selling electricity and/or resource adequacy to the California ISO and to governmental, public utility and wholesale power marketing entities, as the power is delivered at the interconnection point.
Sempra Infrastructure sells natural gas to the CFE and other customers under supply agreements. Sempra Infrastructure recognizes the revenue from the sale of natural gas upon transfer of the natural gas via pipelines to customers at the agreed upon delivery points, and in the case of the CFE, at its thermoelectric power plants.
Remaining Performance Obligations
We do not disclose information about remaining performance obligations for (a) contracts with an original expected length of one year or less, (b) variable consideration recognized at the amount at which we have the right to invoice for services performed, or (c) variable consideration allocated to wholly unsatisfied performance obligations.
For contracts greater than one year, at December 31, 2020,2021, we expect to recognize revenue related to the fixed fee component of the consideration as shown below. Sempra Energy’sSempra’s remaining performance obligations primarily relate to capacity agreements for natural gas storage and transportation at Sempra Mexico.Infrastructure. SoCalGas did not have any remaining performance obligations at December 31, 2020.2021.
| REMAINING PERFORMANCE OBLIGATIONS(1) | REMAINING PERFORMANCE OBLIGATIONS(1) | | REMAINING PERFORMANCE OBLIGATIONS(1) | |
(Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| | Sempra Energy Consolidated | SDG&E | | Sempra | SDG&E |
2021 | $ | 387 | | $ | 4 | | |
2022 | 2022 | 406 | | 4 | | 2022 | $ | 368 | | $ | 4 | |
2023 | 2023 | 407 | | 4 | | 2023 | 367 | | 4 | |
2024 | 2024 | 348 | | 4 | | 2024 | 365 | | 4 | |
2025 | 2025 | 351 | | 4 | | 2025 | 362 | | 4 | |
2026 | | 2026 | 361 | | 4 | |
Thereafter | Thereafter | 4,361 | | 67 | | Thereafter | 4,289 | | 63 | |
Total revenues to be recognized | Total revenues to be recognized | $ | 6,260 | | $ | 87 | | Total revenues to be recognized | $ | 6,112 | | $ | 83 | |
(1) Excludes intercompany transactions.
Contract BalancesLiabilities from Revenues from Contracts with Customers
From time to time, we receive payments in advance of satisfying the performance obligations associated with customer contracts. We defer such revenues as contract liabilities and recognize them in earnings as the performance obligations are satisfied.
Activities within Sempra Energy’sSempra’s and SDG&E’s contract liabilities are presented below. There were no contract liabilities at SDG&E in 2018 or at SoCalGas in 2021, 2020 2019 or 2018.2019.
| | | | | | | | | | | | | | | | | |
CONTRACT LIABILITIES | | | | | |
(Dollars in millions) | | | | | |
| 2020 | | 2019 | | 2018 |
Sempra Energy Consolidated: | | | | | |
Contract liabilities at January 1 | $ | (163) | | | $ | (70) | | | $ | 0 | |
Adoption of ASC 606 | 0 | | | 0 | | | (61) | |
Revenue from performance obligations satisfied during reporting period | 4 | | | 2 | | | 7 | |
Payments received in advance | (48) | | | (95) | | | (16) | |
Contract liabilities at December 31(1) | $ | (207) | | | $ | (163) | | | $ | (70) | |
SDG&E: | | | | | |
Contract liabilities at January 1 | $ | (91) | | | $ | 0 | | | |
Revenue from performance obligations satisfied during reporting period | 4 | | | 1 | | | |
| | | | | |
Payments received in advance | 0 | | | (92) | | | |
Contract liabilities at December 31(2) | $ | (87) | | | $ | (91) | | | |
| | | | | | | | | | | | | | | | | |
CONTRACT LIABILITIES | | | | | |
(Dollars in millions) | | | | | |
| 2021 | | 2020 | | 2019 |
Sempra: | | | | | |
Contract liabilities at January 1 | $ | (207) | | | $ | (163) | | | $ | (70) | |
Revenue from performance obligations satisfied during reporting period | 52 | | | 4 | | | 2 | |
Payments received in advance | (123) | | | (48) | | | (95) | |
Contract liabilities at December 31(1) | $ | (278) | | | $ | (207) | | | $ | (163) | |
SDG&E: | | | | | |
Contract liabilities at January 1 | $ | (87) | | | $ | (91) | | | $ | — | |
Revenue from performance obligations satisfied during reporting period | 4 | | | 4 | | | 1 | |
Payments received in advance | — | | | — | | | (92) | |
Contract liabilities at December 31(2) | $ | (83) | | | $ | (87) | | | $ | (91) | |
(1) Balances at December 31, 2021, 2020 and 2019 include $116, $52 million and $4, million, respectively, in Other Current Liabilities and $162, $155 million and $159, million, respectively, in Deferred Credits and Other.
(2) Balances at December 31, 2021, 2020 and 2019 include $4, million$4 and $4, million, respectively, in Other Current Liabilities and $79, $83 million and $87, million, respectively, in Deferred Credits and Other.
Receivables from Revenues from Contracts with Customers
The table below shows receivable balances associated with revenues from contracts with customers on the Consolidated Balance Sheets.
| RECEIVABLES FROM REVENUES FROM CONTRACTS WITH CUSTOMERS | RECEIVABLES FROM REVENUES FROM CONTRACTS WITH CUSTOMERS | | | | | RECEIVABLES FROM REVENUES FROM CONTRACTS WITH CUSTOMERS | | | | |
(Dollars in millions) | (Dollars in millions) | | | | | | (Dollars in millions) | | | | | |
| | | December 31, | | | | December 31, | |
| | | 2020 | | | 2019 | | | | 2021 | | | 2020 | | 2019 | |
Sempra Energy Consolidated: | | | | | | |
Sempra: | | Sempra: | | | | | |
Accounts receivable – trade, net | Accounts receivable – trade, net | | $ | 1,447 | | | | $ | 1,163 | | | Accounts receivable – trade, net | | $ | 1,886 | | | | $ | 1,447 | | | $ | 1,163 | | |
Accounts receivable – other, net | Accounts receivable – other, net | | 12 | | | | 16 | | | Accounts receivable – other, net | | 19 | | | | 12 | | | 16 | | |
Due from unconsolidated affiliates – current(1) | Due from unconsolidated affiliates – current(1) | | 3 | | | | 5 | | | Due from unconsolidated affiliates – current(1) | | 2 | | | | 3 | | | 5 | | |
Other long-term assets | | Other long-term assets | | 70 | | | | — | | | — | | |
Total | Total | | $ | 1,462 | | | | $ | 1,184 | | | Total | | $ | 1,977 | | | | $ | 1,462 | | | $ | 1,184 | | |
SDG&E: | SDG&E: | | | | | | SDG&E: | | | | | |
Accounts receivable – trade, net | Accounts receivable – trade, net | | $ | 573 | | | | $ | 398 | | | Accounts receivable – trade, net | | $ | 715 | | | | $ | 573 | | | $ | 398 | | |
Accounts receivable – other, net | Accounts receivable – other, net | | 8 | | | | 5 | | | Accounts receivable – other, net | | 9 | | | | 8 | | | 5 | | |
Due from unconsolidated affiliates – current(1) | Due from unconsolidated affiliates – current(1) | | 2 | | | | 2 | | | Due from unconsolidated affiliates – current(1) | | 2 | | | | 2 | | | 2 | | |
Other long-term assets | | Other long-term assets | | 25 | | | | — | | | — | | |
Total | Total | | $ | 583 | | | | $ | 405 | | | Total | | $ | 751 | | | | $ | 583 | | | $ | 405 | | |
SoCalGas: | SoCalGas: | | | | | | SoCalGas: | | | | | |
Accounts receivable – trade, net | Accounts receivable – trade, net | | $ | 786 | | | | $ | 710 | | | Accounts receivable – trade, net | | $ | 1,084 | | | | $ | 786 | | | $ | 710 | | |
Accounts receivable – other, net | Accounts receivable – other, net | | 4 | | | | 11 | | | Accounts receivable – other, net | | 10 | | | | 4 | | | 11 | | |
Other long-term assets | | Other long-term assets | | 45 | | | | — | | | — | | |
Total | Total | | $ | 790 | | | | $ | 721 | | | Total | | $ | 1,139 | | | | $ | 790 | | | $ | 721 | | |
(1) Amount is presented net of amounts due to unconsolidated affiliates on the Consolidated Balance Sheets, when right of offset exists.
In connection with the COVID-19 pandemic and at the direction of the CPUC, SDG&E and SoCalGas implemented certain measures to assist customers, including suspending service disconnections due to nonpayment for all customers (except for SoCalGas’ noncore customers), waiving late payment fees, and offering flexible payment plans. At the CPUC’s direction, SDG&E and SoCalGas are automatically enrolling residential and small business customers with past-due balances in long-term repayment plans.
In 2021, SDG&E and SoCalGas applied, on behalf of their customers, for financial assistance from the California Department of Community Services and Development under the California Arrearage Payment Program, which provided funds of $63 million and $79 million for SDG&E and SoCalGas, respectively. In the first quarter of 2022, SDG&E and SoCalGas received and will apply the amounts directly to eligible customer accounts to reduce past due balances.
REVENUES FROM SOURCES OTHER THAN CONTRACTS WITH CUSTOMERS
Certain of our revenues are derived from sources other than contracts with customers and are accounted for under other accounting standards outside the scope of ASC 606.
Utilities Regulatory Revenues
Alternative Revenue Programs
We recognize revenues from alternative revenue programs when the regulator-specified conditions for recognition have been met and adjust these revenues as they are recovered or refunded through future utility service.
Decoupled revenues. As discussed earlier, the regulatory framework requires the California UtilitiesSDG&E and SoCalGas to recover authorized revenue based on estimated annual demand forecasts approved in regular proceedings before the CPUC. However, actual demand for natural gas and electricity will generally vary from CPUC-approved forecasted demand due to the impacts from weather volatility, energy efficiency programs, rooftop solar and other factors affecting consumption. The CPUC regulatory framework provides for the California UtilitiesSDG&E and SoCalGas to use a “decoupling” mechanism, which allows the California UtilitiesSDG&E and SoCalGas to record revenue shortfalls or excess revenues resulting from any difference between actual and forecasted demand to be recovered or refunded in authorized revenue in a subsequent period based on the nature of the account.
Incentive mechanisms. The CPUC applies performance-based measures and incentive mechanisms to all California IOUs, under which the California UtilitiesSDG&E and SoCalGas have earnings potential above authorized base margins if they achieve or exceed specific performance and operating goals. Generally, for performance-based awards, if performance is above or below specific benchmarks, the utility is eligible for financial awards or subject to financial penalties.
Incentive awards are included in revenues when we receive required CPUC approval of the award, the timing of which may not be consistent from year to year. We would record penalties for results below the specified benchmarks against revenues when we believe it is probable that the CPUC would assess a penalty.
Other Cost-Based Regulatory Recovery
The CPUC, and the FERC as it relates to SDG&E, authorize the California UtilitiesSDG&E and SoCalGas to collect revenue requirements for operating costs and capital related costs (such as depreciation, taxes and return on rate base) from customers, including:
▪costs to purchase natural gas and electricity;
▪costs associated with administering public purpose, demand response, and customer energy efficiency programs;
▪other programmatic activities, such as gas distribution, gas transmission, gas storage integrity management and wildfire mitigation; and
▪costs associated with third party liability insurance premiums.
Authorized costs are recovered as the commodity or service is delivered. To the extent authorized amounts collected vary from actual costs, the differences are generally recovered or refunded within a subsequent period based on the nature of the balancing account mechanism. In general, the revenue recognition criteria for balanced costs billed to customers are met at the time the costs are incurred. Because these costs are substantially recovered in rates through a balancing account mechanism, changes in these costs are reflected as changes in revenues. The CPUC and the FERC may impose various review procedures before authorizing recovery or refund for programs authorized, including limitations on the total cost of the program, revenue requirement limits or reviews of costs for reasonableness. These procedures could result in disallowances of recovery from ratepayers.
We discuss balancing accounts and their effects further in Note 4.
Other Revenues
Sempra MexicoInfrastructure generates lease revenues from operating lease agreements with PEMEX and CENAGAS for the usecertain of its natural gas and ethane pipelines, andcompressor stations, LPG storage facilities.facilities, a rail facility and liquid fuels terminals. Certain PPAs at Sempra Renewables were also accounted for as operating leases prior to sale of its solar and wind assets in December 2018 and April 2019. We discuss the recognition of lease income in Note 16 of the Notes to Consolidated Financial Statements.
Sempra LNGInfrastructure has an agreement with Tangguh PSC to supply LNG to Sempra Mexico’sthe ECA Regas Facility. AlthoughUnder the LNG sale and purchaseterms of the agreement, specifies aTangguh PSC must either deliver the contracted number of cargoes to be delivered annually, actual cargoes delivered by the supplier have traditionally been significantly lower than the maximum specified under the agreement. Asor pay a result, Sempradiversion fee for non-delivery of LNG is contractually required to make monthly indemnity payments to Sempra Mexico for failure to deliver the contracted LNG.cargoes.
Sempra LNGInfrastructure also recognizes other revenues from:
▪feesassociated with derivatives related to contractual counterparty obligations for non-delivery of LNG cargoes, as described above; and
▪the sales of natural gas and electricity under short-term and long-term contracts and into the spot market and other competitive markets. Revenues include the net realized gains and losses on physical and derivative settlements and net unrealized gains and losses from the change in fair values of thethese derivatives.
NOTE 4. REGULATORY MATTERS
REGULATORY ASSETS AND LIABILITIES
We show the details of regulatory assets and liabilities in the following table and discuss them below. With the exception of regulatory balancing accounts, we generally do not earn a return on our regulatory assets until such time as a related cash expenditure has been made. Upon the occurrence of a cash expenditure associated with a regulatory asset, the related amounts are recoverable through a regulatory account mechanism for which we earn a return authorized by applicable regulators, which generally approximates the three-month commercial paper rate. The periods during which we recognize a regulatory asset while we do not earn a return vary by regulatory asset.
| | | | | | | | | | | |
REGULATORY ASSETS (LIABILITIES) |
(Dollars in millions) |
| December 31, |
| 2020 | | 2019 |
SDG&E: | | | |
Fixed-price contracts and other derivatives | $ | (53) | | | $ | 8 | |
Deferred income taxes recoverable (refundable) in rates | 22 | | | (108) | |
Pension and other postretirement benefit plan obligations | 50 | | | 103 | |
Removal obligations | (2,121) | | | (2,056) | |
Environmental costs | 56 | | | 45 | |
Sunrise Powerlink fire mitigation | 121 | | | 121 | |
Regulatory balancing accounts(1)(2) | | | |
Commodity – electric | 72 | | | 102 | |
Gas transportation | 35 | | | 22 | |
Safety and reliability | 67 | | | 77 | |
Public purpose programs | (158) | | | (124) | |
2019 GRC retroactive impacts | 56 | | | 111 | |
Other balancing accounts | 233 | | | 106 | |
Other regulatory assets (liabilities), net(2) | 72 | | | (153) | |
Total SDG&E | (1,548) | | | (1,746) | |
SoCalGas: | | | |
Deferred income taxes refundable in rates | (82) | | | (203) | |
Pension and other postretirement benefit plan obligations | 417 | | | 400 | |
Employee benefit costs | 37 | | | 44 | |
Removal obligations | (685) | | | (728) | |
Environmental costs | 36 | | | 40 | |
Regulatory balancing accounts(1)(2) | | | |
Commodity – gas, including transportation | (56) | | | (118) | |
Safety and reliability | 335 | | | 295 | |
Public purpose programs | (253) | | | (273) | |
2019 GRC retroactive impacts | 202 | | | 400 | |
Other balancing accounts | (58) | | | (7) | |
Other regulatory assets (liabilities), net(2) | 75 | | | (101) | |
Total SoCalGas | (32) | | | (251) | |
Sempra Mexico: | | | |
Deferred income taxes recoverable in rates | 80 | | | 83 | |
Other regulatory assets | 0 | | | 6 | |
Total Sempra Energy Consolidated | $ | (1,500) | | | $ | (1,908) | |
| | | | | | | | | | | | | | | | | |
REGULATORY ASSETS (LIABILITIES) | | | | | |
(Dollars in millions) | | | | | |
| December 31, |
| 2021 | | 2020 | | 2019 |
SDG&E: | | | | | |
Fixed-price contracts and other derivatives | $ | (50) | | | $ | (53) | | | $ | 8 | |
Deferred income taxes recoverable (refundable) in rates | 125 | | | 22 | | | (108) | |
Pension and other postretirement benefit plan obligations | (7) | | | 50 | | | 103 | |
Removal obligations | (2,251) | | | (2,121) | | | (2,056) | |
Environmental costs | 62 | | | 56 | | | 45 | |
Sunrise Powerlink fire mitigation | 122 | | | 121 | | | 121 | |
Regulatory balancing accounts(1)(2) | | | | | |
Commodity – electric | 77 | | | 72 | | | 102 | |
Gas transportation | 49 | | | 35 | | | 22 | |
Safety and reliability | 67 | | | 67 | | | 77 | |
Public purpose programs | (107) | | | (158) | | | (124) | |
2019 GRC retroactive impacts | — | | | 56 | | | 111 | |
Wildfire mitigation plan | 178 | | | 93 | | | 12 | |
Liability insurance premium | 110 | | | 79 | | | 24 | |
Other balancing accounts | 207 | | | 61 | | | 70 | |
Other regulatory assets (liabilities), net(2) | 119 | | | 72 | | | (153) | |
Total SDG&E | (1,299) | | | (1,548) | | | (1,746) | |
SoCalGas: | | | | | |
Deferred income taxes recoverable (refundable) in rates | 44 | | | (82) | | | (203) | |
Pension and other postretirement benefit plan obligations | 51 | | | 417 | | | 400 | |
Employee benefit costs | 31 | | | 37 | | | 44 | |
Removal obligations | (627) | | | (685) | | | (728) | |
Environmental costs | 34 | | | 36 | | | 40 | |
Regulatory balancing accounts(1)(2) | | | | | |
Commodity – gas, including transportation | (146) | | | (56) | | | (118) | |
Safety and reliability | 339 | | | 335 | | | 295 | |
Public purpose programs | (183) | | | (253) | | | (273) | |
2019 GRC retroactive impacts | — | | | 202 | | | 400 | |
Liability insurance premium | 16 | | | 7 | | | 4 | |
Other balancing accounts | 42 | | | (65) | | | (11) | |
Other regulatory assets (liabilities), net(2) | 142 | | | 75 | | | (101) | |
Total SoCalGas | (257) | | | (32) | | | (251) | |
Sempra Infrastructure: | | | | | |
Deferred income taxes recoverable in rates | 77 | | | 80 | | | 83 | |
Other regulatory assets | — | | | — | | | 6 | |
Total Sempra | $ | (1,479) | | | $ | (1,500) | | | $ | (1,908) | |
(1) At December 31, 2021, 2020 and 2019, the noncurrent portion of regulatory balancing accounts – net undercollected for SDG&E was $358, $139 million and $108, million, respectively, and for SoCalGas was $410, $218 million and $500, million, respectively.
(2) Includes regulatory assets earning a return.return authorized by applicable regulators, which generally approximates the three-month commercial paper rate.
In the table above:Regulatory Assets Not Earning a Return
▪Regulatory assets arising from fixed-price contracts and other derivatives are offset by corresponding liabilities arising from purchased power and natural gas commodity and transportation contracts. The regulatory asset is increased/decreased based on changes in the fair market value of the contracts. It is also reduced as payments are made for commodities and services under these contracts. The related amounts are recovered in rates once these contracts are settled, generally within two years.
▪Deferred income taxes refundable/recoverablerecoverable/refundable in rates are based on current regulatory ratemaking and income tax laws. SDG&E, SoCalGas and Sempra MexicoInfrastructure expect to refund/recoverrecover/refund net regulatory liabilities/assetsassets/liabilities related to deferred income
taxes over the lives of the assets, ranging from 5 to 69 years, that give rise to the related accumulated deferred income tax balances. Regulatory assets and liabilities include excess deferred income taxes resulting from statutory income tax rate changes and certain income tax benefits and expenses associated with flow-through items, which we discuss in Note 8.
▪Regulatory assets/liabilities related to pension and other postretirement benefit plan obligations are offset by corresponding liabilities/assets. The assets and are being recovered in rates as the plans are funded.
▪The regulatory asset related to employee benefit costs represents our liability associated with long-term disability insurance that will be recovered from customers in future rates as expenditures are made.
▪Regulatory liabilities from removal obligations represent cumulative amounts collected in rates for future asset removal costs in excess of cumulative amounts incurred (or paid).
▪Regulatory assets related to environmental costs represent the portion of our environmental liability recognized at the end of the period in excess of the amount that has been recovered through rates charged to customers. We expect this amount to be recovered in future rates as expenditures are made.
▪The regulatory asset related to Sunrise Powerlink fire mitigation is offset by a corresponding liability for the funding of a trust to cover the mitigation costs. SDG&E expects to recover the regulatory asset in rates as the trust is funded over a remaining 49-year48-year period.
Regulatory Assets Earning a Return
▪Over- and undercollected regulatory balancing accounts reflect the difference between customer billings and recorded or CPUC-authorized costs, including commodity costs.amounts. Depreciation, taxes and return on rate base may also be included in certain accounts. Amounts in the balancing accounts are recoverable (receivable) or refundable (payable) in future rates, subject to CPUC approval. The adopted revenue requirements in the 2019 GRC FD associated with the period from January 1, 2019 through December 31, 2019 are beingwere recovered in rates over a 24-month period that began in January 2020.
Amortization expense on certain regulatory assets for the years ended December 31, 2021, 2020 and 2019 and 2018 was $10 million, $9 million $7 million and $5$7 million, respectively, at Sempra, Energy Consolidated, $4 million, $3 million and $2 million, respectively, at SDG&E, and $5 million, $4 million and $3 million, respectively, at SDG&E, and $5 million, $5 million and $4 million, respectively, at SoCalGas.
SEMPRA CALIFORNIA UTILITIES
COVID-19 Pandemic Protections
In March 2020, the CPUC required that all energy companies under its jurisdiction, including the California Utilities, take action to implement several emergency customer protection measures to support California customers in light ofconnection with the COVID-19 pandemic for upand at the direction of the CPUC, SDG&E and SoCalGas implemented certain measures to one year. Currently, the customer protection measures are mandatoryassist customers, including suspending service disconnections due to nonpayment for all customers (except for SoCalGas’ noncore customers), waiving late payment fees, and offering flexible payment plans. At the CPUC’s direction, SDG&E and SoCalGas are automatically enrolling residential and small business customers. customers with past-due balances in long-term repayment plans.
In February 2021, the CPUC extended the customer protection measures through June 2021SDG&E and may extend them further. EachSoCalGas applied, on behalf of their customers, for financial assistance from the California Utilities wasDepartment of Community Services and Development under the California Arrearage Payment Program, which provided funds of $63 million and $79 million for SDG&E and SoCalGas, respectively. In the first quarter of 2022, SDG&E and SoCalGas received and will apply the amounts directly to eligible customer accounts to reduce past due balances.
SDG&E and SoCalGas have been authorized to track and request recovery of incremental costs associated with complying with residential and small business customer protection measures implemented by the CPUC related to the COVID-19 pandemic, including costs associated with suspending service disconnections and uncollectible expenses that arise from these customers’ failure to pay. The California UtilitiesSDG&E and SoCalGas expect to pursue recovery of small and medium-large commercial and industrial customers’ tracked costs in rates in a future CPUC proceeding,proceedings, which recovery is not assured. Uncollectible expenses related to residential customers are recorded in a two-way balancing account as we discuss below.
Disconnection OIR
In June 2020, the CPUC issued a decision to adopt certain customer protections to reduce residential customer disconnections and improve reconnection processes, including, among other things, imposing limitations on service disconnections, elimination of deposit requirements and reconnection fees, establishment of the AMP that provides successfully participating, income-qualified residential customers with relief from outstanding utility bill amounts, and increased outreach and marketing efforts. TheAs permitted by the decision, allowsSDG&E and SoCalGas have each of the California Utilities to establishestablished a two-way balancing account to record the uncollectible expenses associated with residential customers’ inability to pay their electric or gas bills, including as a result of the relief from outstanding utility bill amounts provided under the AMP.
CPUC General Rate CaseGRC
The CPUC uses GRC proceedingsGRCs to set rates designed to allow the California UtilitiesSDG&E and SoCalGas to recover their reasonable operating costs and to provide the opportunity to realize their authorized rates of return on their investments.
In September 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, which was effective retroactively to January 1, 2019. This is the first GRC that includes revenues authorized for risk assessment mitigation phase activities.
The 2019 GRC FD approved 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) and $2,770 million for SoCalGas.
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 | |
In January 2020, the CPUC issued a final decision implementing a four-year GRC cycle for California IOUs. The California UtilitiesSDG&E and SoCalGas were directed to file a petition for modification to revise their 2019 GRC to add two additional attrition years, resulting in a transitional five-year GRC period (2019-2023). The California Utilities filed the petition in April 2020 and requested authorization of their post-test year ratemaking mechanism for two additional years. We subsequently requested an updated increase in the revenue requirement for SDG&E and SoCalGas of approximately $91 million and $150 million, respectively, for 2022, and $104 million and $131 million, respectively, for 2023, reflecting certain adjustments. These amounts include revenues for both O&M and capital cost attrition. In June 2020,May 2021, the CPUC issued a rulingfinal decision approving SDG&E’s and SoCalGas’ request to further clarify the issues for review in the California Utilities’ petition, which are mainly whether the proposed revenue requirements andcontinue their authorized post-test year mechanisms for 2022 and 2023. For SDG&E, the two proposed additional attrition years are justdecision authorizes revenue requirement increases of $87 million (3.92%) for 2022 and reasonable. In September 2020,$86 million (3.70%) for 2023. For SoCalGas, the California Utilities filed a status report to summarize positions on how impactsdecision authorizes revenue requirement increases of the COVID-19 pandemic should be incorporated into the proposed attrition rates. The California Utilities proposed to continue with the adopted attrition mechanism using the second quarter 2020 Global Insight utility cost forecast, which incorporates impacts of the COVID-19 pandemic. Intervenors have proposed other alternatives, including using escalation factors based on the Consumer Price Index. We expect a proposed decision in the first quarter of 2021.$142 million (4.53%) for 2022 and $130 million (3.97%) for 2023.
The 2019 GRC FD approved the California Utilities’SDG&E’s and SoCalGas’ 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 UtilitiesSDG&E and SoCalGas to seek recovery of additional liability insurance coverage.
The 2019 GRC FD clarified that differences between incurred and forecasted income tax expense due to forecasting differences are not subject to tracking in the income tax expense memorandum account beginning in 2019. SDG&E and SoCalGas previously recorded regulatory liabilities, inclusive of interest, associated with the 2016 through 2018 tracked forecasting differences of $86 million and $89 million, respectively. In April 2020, the CPUC confirmed treatment of the two-way income tax expense memorandum account for these 2016 through 2018 balances, at which time the California UtilitiesSDG&E and SoCalGas released these regulatory liability balances to revenues and regulatory interest.
CPUC Cost of Capital
A CPUC cost of capital proceeding determines a utility’s authorized capital structure and authorized return on rate base. In December 2019, the CPUC approved the cost of capital and rate structures (shown in the table below) for SDG&E and SoCalGas that became effective on January 1, 2020 and will remain in effect through December 31, 2022. SDG&E did not propose a 20202022, subject to the CCM.
| | | | | | | | | | | | | | | | | | | | |
CPUC AUTHORIZED COST OF CAPITAL AND RATE STRUCTURE, SUBJECT TO THE CCM |
|
SDG&E | | SoCalGas |
Authorized weighting | Return on rate base | Weighted return on rate base | | Authorized weighting | Return on rate base | Weighted return on rate base |
45.25 | % | 4.59 | % | 2.08 | % | Long-Term Debt | 45.60 | % | 4.23 | % | 1.93 | % |
2.75 | | 6.22 | | 0.17 | | Preferred Equity | 2.40 | | 6.00 | | 0.14 | |
52.00 | | 10.20 | | 5.30 | | Common Equity | 52.00 | | 10.05 | | 5.23 | |
100.00 | % | | 7.55 | % | | 100.00 | % | | 7.30 | % |
The CCM applies in the interim years between required cost of preferred equitycapital applications and considers changes in this proceeding. In January 2020, SDG&E filed an advice letter to continue the cost of preferred equitycapital based on changes in interest rates based on the applicable utility bond index published by Moody’s (the CCM benchmark rate) for test year 2020 at 6.22%, whicheach 12-month period ending September 30 (the measurement period). The CCM benchmark rate is the CPUC approved in March 2020.basis of comparison to
| | | | | | | | | | | | | | | | | | | | |
CPUC AUTHORIZED COST OF CAPITAL AND RATE STRUCTURE |
|
SDG&E | | SoCalGas |
Authorized weighting | Return on rate base | Weighted return on rate base | | Authorized weighting | Return on rate base | Weighted return on rate base |
45.25 | % | 4.59 | % | 2.08 | % | Long-Term Debt | 45.60 | % | 4.23 | % | 1.93 | % |
2.75 | | 6.22 | | 0.17 | | Preferred Equity | 2.40 | | 6.00 | | 0.14 | |
52.00 | | 10.20 | | 5.30 | | Common Equity | 52.00 | | 10.05 | | 5.23 | |
100.00 | % | | 7.55 | % | | 100.00 | % | | 7.30 | % |
Thedetermine if the CCM was reauthorizedis triggered, which occurs if the change in the 2020 costapplicable Moody’s utility bond index relative to the CCM benchmark rate is larger than plus or minus 1.000% at the end of capital proceedingthe measurement period. The index applicable to continue through 2022.SDG&E and SoCalGas is based on each utility’s credit rating. SDG&E’s CCM benchmark rate is 4.498%, based on Moody’s Baa- utility bond index, and SoCalGas’ CCM benchmark rate is 4.029%, based on Moody’s A- utility bond index. The index applicable to each utility is based on each utility’s credit rating. TheAlternatively, under the CCM, benchmark rates for SDG&E and SoCalGas are permitted to file a cost of capital application in an interim year in which an extraordinary or catastrophic event materially impacts its cost of capital and affects utilities differently than the basismarket as a whole.
For the measurement period ended September 30, 2021, the CCM would trigger for SDG&E because the average Moody’s Baa- utility bond index between October 1, 2020 and September 30, 2021 was 1.17% below SDG&E’s CCM benchmark rate of comparison4.498%. In August 2021, SDG&E filed an application with the CPUC to update its cost of capital effective January 1, 2022 due to the ongoing effects of the COVID-19 pandemic rather than have the CCM apply. In this application, SDG&E proposed to adjust its authorized capital structure by increasing its common equity ratio from 52% to 54%. SDG&E also proposed to increase its authorized ROE from 10.20% to 10.55% and decrease its authorized cost of debt from 4.59% to 3.84%. As a result, SDG&E’s proposed return on rate base would decrease from 7.55% to 7.46% if such application is approved by the CPUC as filed. SDG&E filed a joint motion with PG&E and Edison to consolidate all three utilities’ cost of capital applications given the overlapping issues of law and fact, which joint motion was granted in October 2021. In December 2021, the CPUC established a proceeding to determine if future measurement periods “trigger”SDG&E’s cost of capital was impacted by an extraordinary event. If the CCM. ForCPUC finds that there was not an extraordinary event, the 12 months ended September 2020, the first “CCM Period,” the trigger did not occur for SDG&E or SoCalGas. The next CCM Period is from October 2020 to September 2021. The CCM, if triggered in 2021, would be effective retroactive to January 1, 2022 and would automatically update theadjust SDG&E’s authorized ROE from 10.20% to 9.62% and adjust its authorized cost of debt based on actual coststo reflect the then current embedded cost and updateprojected interest rate. If the CPUC finds that there was an extraordinary event, it will then determine whether to suspend the CCM for 2022 and preserve SDG&E’s current authorized ROE upwardcost of capital or downward by one-halfhold a second phase of the difference betweenproceeding to set a new cost of capital for 2022. SDG&E expects a final decision in the second half of 2022. In December 2021, the CPUC granted SDG&E the establishment of memorandum accounts effective January 1, 2022 to track any differences in revenue requirement resulting from the interim cost of capital decision expected in 2022.
For the measurement period ended September 30, 2021, the CCM benchmarkwas not triggered for SoCalGas. SDG&E and the applicable 12-month average Moody’s utility bond index.SoCalGas are required to file their next cost of capital applications in April 2022 for a January 1, 2023 effective date.
SDG&E
FERC Rate Matters and Cost of Capital
SDG&E files separately with the FERC for its authorized ROE on FERC-regulated electric transmission operations and assets.
SDG&E’s TO4 ROE of 10.05% was the basis of SDG&E’s FERC-related revenue recognition until March 2020, when the FERC approved the settlement terms that SDG&E and all settling parties reached in October 2019 on SDG&E’s TO5 filing. The settlement agreement provided for a ROE of 10.60%, consisting of a base ROE of 10.10% plus an additional 50 bps for participation in the California ISO.ISO (the California ISO adder). If the FERC issues an order ruling that California IOUs are no longer eligible for the additional California ISO ROE,adder, SDG&E would refund the additional 50 bps of ROE associated with the California ISO adder as of the refund effective date (June 1, 2019) in this proceeding.if such a refund is determined to be required by the terms of the TO5 settlement. The TO5 term is effective June 1, 2019 and shall remain in effect indefinitely, with parties havingeach calendar quarter until terminated by a notice at least six months before the annual right to terminateend of the agreement beginning in 2022.calendar year. In 2020, SDG&E recorded retroactive revenues of $12 million related to 2019, and additional FERC revenues of $17 million to conclude a rate base matter, net of certain refunds to be paid to CPUC-jurisdictional customers.
Energy Efficiency Program Inquiry
In January 2020, the CPUC issued a ruling seeking comments on a report prepared by its consultant regarding SDG&E’s Upstream Lighting Program for the program year 2017. The CPUC subsequently expanded the scope of the comments to cover the program year 2018. The Upstream Lighting Program was one of SDG&E’s Energy Efficiency programsPrograms designed to produce energy efficiency savings for which SDG&E could earn a performance-based incentive.
Pursuant to the CPUC ruling, intervenors representing ratepayers have questioned SDG&E’s management of the program and alleged that certain program expenditures did not benefit the purpose of the program. As a result of the inquiry, SDG&E voluntarily expanded its review to include the program year 2019. Based on this review, and discussions with intervenors, SDG&E concluded that some concessions were appropriate, which include refunding certain costs and certain performance-based incentives to customers and incurring a fine.reducing certain performance-based incentives. Accordingly, in the year ended December 31, 2020, SDG&E reduced revenues by $51 million and recorded a fine of $6 million in Other (Expense) Income, Net, on the SDG&E and Sempra Energy Consolidated Statements of Operations. The after-tax impact for the year ended December 31, 2020 was $44 million. In October 2020, SDG&E executed a settlement agreement with intervenors consistent with these concessions. We expectIn September 2021, the CPUC approval ofapproved the settlement agreement in 2021.agreement.
SOCALGAS
OSCs – Energy Efficiency and Advocacy
In October 2019, the CPUC issued an OSC to determine whether SoCalGas should be sanctioned for violation of certain CPUC code sections and orders. The OSC stemmed from approximately 40 days and $9,000 of transitionalorders relating to energy efficiency (EE) codes
and standards advocacy activities, undertaken by SoCalGas in 2018, following a CPUC decision disallowing SoCalGas’ future engagement in advocacy around such EE statewidecodes and standards. On February 3, 2022, the assigned Administrative Law Judge issued a Presiding Officer’s Decision (POD 1) that found that SoCalGas did undertake prohibited EE codes and standards advocacy activities using ratepayer funds. POD 1 imposes on SoCalGas a financial penalty of $10 million; customer refunds for certain ratepayer expenditures and shareholder incentives that SoCalGas estimates will be negligible; and a prohibition from recovering from ratepayers costs of proposed codes and standards activities until SoCalGas demonstrates policies, practices and procedures that adhere to the CPUC’s intent for codes and standards advocacy. POD 1 can be appealed within 30 days or be reviewed by any of the CPUC commissioners. If there are no appeals or commissioner requests for review, POD 1 automatically becomes the final decision of the CPUC. SoCalGas does not intend to appeal POD 1.
In December 2019, the CPUC issued a second OSC to determine whether SoCalGas is entitled to the EE program’s shareholder incentives for codes and standards advocacy in 2016 and 2017 (later expanded to include 2014 and 2015), whether its shareholders should bear the costs of those advocacy activities, and to address whether any other remedies are appropriate. The scope ofIn April 2021, the assigned Administrative Law Judge issued a Presiding Officer’s Decision (POD 2) on this OSC was later expanded to includesecond OSC. POD 2 finds no violations and assesses no fines or penalties but finds that SoCalGas spent ratepayer funds on activities that were not aligned with the CPUC’s intent for EE program years 2014codes and 2015,standards advocacy, and SoCalGas’ engagementorders customer refunds that SoCalGas estimates will be negligible. Additionally, POD 2 precludes SoCalGas from seeking cost recovery associated with local governments on proposed reach codes.
Intervenors in these OSCs have suggestedEE codes and standards advocacy programs until lifted by the CPUC, order variousand orders certain nonfinancial remedies. POD 2 was appealed by intervenors and in February 2022, the assigned Administrative Law Judge issued a modified POD 2 that substantially retains the original conclusions, including no fines or penalties. Also, in February 2022, a CPUC commissioner issued an alternative decision that imposes a financial penalty of $150,000. SoCalGas expects that both the modified POD 2 and non-financial penalties. the CPUC commissioner’s alternative decision will be heard at a CPUC meeting in March 2022.
If the CPUC were to assess fines, penalties or penaltiesother restrictions on SoCalGas associated with these OSCs,that are different from what has been ordered in POD 1 and the modified POD 2, they could be material. We expect CPUC decisions on these OSCs in the first halfmaterial to SoCalGas’ and Sempra’s results of 2021.
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, operations, financial condition, cash flows and/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.prospects.
NOTE 5. ACQUISITIONS, DIVESTITURES AND DISCONTINUED OPERATIONS
We consolidate assets acquired and liabilities assumed as of the purchase date and include earnings from acquisitions in consolidated earnings after the purchase date.
ACQUISITIONS
Sempra Texas Utilities
TTHC
In February 2020, STIH acquired an additional indirect, 0.1975% interest in Oncor through its acquisition of a 1% interest in TTHC from Hunt Strategic Utility Investment, L.L.C. (Hunt), including notes receivable due from TTHC with an aggregate outstanding balance of approximately $6 million, for a total purchase price of approximately $23 million in cash, bringing Sempra Energy’s indirect ownership interest in Oncor to approximately 80.45%. TTHC indirectly owns 100% of TTI, which owns 19.75% of Oncor’s outstanding membership interests. At the acquisition date, we determined the fair value of the notes receivable was $7 million based on a discounted cash flow model, and attributed $16 million to the investment in TTHC, which we recorded as an equity method investment.
STIH’s acquisition of the 1% interest was the subject of a lawsuit filed in the Delaware Court of Chancery by the owners of the remaining 99% ownership interest in TTHC. STIH purchased its 1% interest in TTHC in February 2020 after the Delaware Court of Chancery decided, among other things, that STIH’s right to purchase the 1% interest was superior to that of the remaining owners of TTHC. The remaining owners appealed that decision and, in May 2020, the Delaware Supreme Court reversed the Delaware Court of Chancery’s ruling and remanded the case back to the Delaware Court of Chancery. In September 2020, the Delaware Court of Chancery ordered, among other things, the rescission of STIH’s purchase of the 1% interest in TTHC. The parties have complied with the court’s order and Sempra Energy’s indirect ownership in Oncor has returned to 80.25%. We received a full refund of the purchase price from Hunt in September 2020 and have fully unwound the acquisition.
Oncor Holdings
In March 2018, Sempra Energy completed the acquisition of an indirect, 100% interest in Oncor Holdings, which owned 80.03% of Oncor, and other EFH assets and liabilities unrelated to Oncor. We paid consideration of $9.45 billion in cash and an additional $31 million representing an adjustment for dividends and payments pursuant to a tax sharing agreement with Oncor and Oncor Holdings. Also in March 2018, in a separate transaction, Sempra Energy, through its interest in Oncor Holdings, acquired an additional 0.22% of the outstanding membership interests in Oncor from Oncor Management Investment LLC for $26 million in
cash, bringing Sempra Energy’s indirect ownership in Oncor to 80.25%. TTI continues to own 19.75% of Oncor’s outstanding membership interest.
Due to ring-fencing measures, existing governance mechanisms and commitments in effect, we do not have the power to direct the significant activities of Oncor Holdings and Oncor. Consequently, we account for our 100% ownership interest in Oncor Holdings as an equity method investment. See Note 6 for additional information about our equity method investment in Oncor Holdings and related ring-fencing measures.
The total purchase price paid was comprised of the following:
▪$9,450 million of merger consideration;
▪$31 million adjustment for dividends and payments pursuant to a tax sharing agreement with Oncor and Oncor Holdings;
▪$26 million paid in a separate transaction to acquire an additional 0.22% of the outstanding membership interests in Oncor from Oncor Management Investment LLC; and
▪$59 million of transaction costs included in the basis of our investment in Oncor Holdings.
We accounted for the merger as an asset acquisition, as the equity method investment in Oncor Holdings represents substantially all of the fair value of the gross assets acquired. Other EFH assets and liabilities unrelated to Oncor that were acquired have been subsumed into our parent organization, Parent and other. The following table sets forth the allocation of the total purchase price paid to the identifiable assets acquired and liabilities assumed.
| | | | | | | | |
PURCHASE PRICE ALLOCATION | | |
(Dollars in millions) |
| At March 9, 2018(1)
|
Assets acquired: | |
Accounts receivable – other, net | | $ | 1 | |
Due from unconsolidated affiliates | | 46 | |
Investment in Oncor Holdings | | 9,227 | |
Deferred income tax assets | | 287 | |
Other noncurrent assets | | 109 | |
Total assets acquired | | 9,670 | |
| | |
Liabilities assumed: | | |
Other current liabilities | | 23 | |
Pension and other postretirement benefit plan obligations | | 21 | |
Deferred credits and other | | 58 | |
Total liabilities assumed | | 102 | |
Net assets acquired | | $ | 9,568 | |
Total purchase price paid | | $ | 9,568 | |
(1) As adjusted for post-closing items.
The fair value of the equity method investment in Oncor Holdings is primarily attributable to Oncor’s business. Therefore, we considered the underlying assets and liabilities of Oncor when determining the fair value of our equity method investment. As a regulated entity, Oncor’s rates are set and approved by the PUCT, and are designed to recover the cost of providing service and the opportunity to earn a reasonable return on its investments. Accordingly, Oncor applies the guidance under the provisions of U.S. GAAP governing rate-regulated operations. Under U.S. GAAP, regulation is viewed as being a characteristic (restriction) of a regulated entity’s assets and liabilities, and the impact of regulation is considered a fundamental input to measuring the fair value of Oncor’s assets and liabilities. Under this premise, we concluded that the carrying values of all assets and liabilities recoverable through rates are representative of their fair values.
In May 2019, Oncor completed the acquisition of 100% of the issued and outstanding shares of InfraREIT and 100% of the limited partnership units of its subsidiary, InfraREIT Partners, LP. Oncor paid consideration of $1,275 million, or $21 per share, plus certain transaction costs incurred by InfraREIT and its subsidiaries and paid by Oncor on their behalf, including $40 million for a management agreement termination fee. Oncor received a total of $1,330 million in capital contributions from Sempra Energy and certain indirect equity holders of TTI, proportionate to their respective ownership interest in Oncor, to fund the purchase price and certain expenses.
As part of Oncor’s acquisition of interests in InfraREIT, immediately prior to closing the InfraREIT acquisition, SDTS accepted and assumed certain assets and liabilities of Sharyland Utilities, LP in exchange for certain SDTS assets. SDTS received real
property and other assets used in the electric transmission and distribution business in Central, North and West Texas, as well as the equity interests in GS Project Entity, LLC (a wholly owned subsidiary of Sharyland Utilities, LP), and Sharyland Utilities, LP received real property and other assets used in the electric transmission and distribution business near the Texas-Mexico border. Immediately prior to the completion of the exchange, SDTS became a wholly owned, indirect subsidiary of InfraREIT Partners, LP.
Sharyland Holdings
In May 2019, Sempra Energy acquired an indirect, 50% interest in Sharyland Holdings for $95 million (net of $7 million in post-closing adjustments). In connection with and prior to the consummation of the acquisition, Sharyland Holdings owned 100% of the membership interests in Sharyland Utilities, LP and Sharyland Utilities, LP converted into a limited liability company, named Sharyland Utilities, L.L.C. We account for our indirect, 50% interest in Sharyland Holdings as an equity method investment.
Sempra South American UtilitiesInfrastructure
Compañía Transmisora del Norte Grande S.A.ESJ
In December 2018, Chilquinta Energía acquired a 100% interest in Compañía Transmisora del Norte Grande S.A. through a sales and purchase agreement with AES Gener S.A. and its subsidiary Sociedad Eléctrica Angamos S.A. WeMarch 2021, Sempra Infrastructure completed the acquisition of Saavi Energía’s 50% equity interest in ESJ for a purchase price of $226 million and paid $208$65 million (net of $18$14 million of acquired cash acquired) with availableand cash on hand at our formerequivalents) plus the assumption of $277 million in debt (including $94 million owed from ESJ to Sempra South American Utilities segment, which is presentedInfrastructure that eliminates upon consolidation). Sempra Infrastructure previously accounted for its 50% interest in and was includedESJ as part of the sale of discontinued operations.
an equity method investment. This acquisition increased Sempra Infrastructure’s ownership interest in ESJ from 50% to 100%. We accounted for this business combinationasset acquisition using a cost accumulation model whereby the cost of the acquisition methodand carrying value of accounting. At the acquisition date, weour previously held interest in ESJ ($34 million) were allocated the $208 million in cash paid to the identifiable
assets acquired ($231458 million) and liabilities assumed ($43345 million) based on their respectiverelative fair values, with the excess recognized as goodwill ($38 million), which are included below in the “Assets Held for Sale in Discontinued Operations” table.
PENDING ACQUISITION
Sempra Mexico
ESJ
In February 2021, IEnova agreed to acquire Saavi Energía’s 50% interest in ESJ for approximately $83 million. At December 31, 2020, IEnova owned a 50% interest in ESJ, which is accounted for as an equity method investment. Upon completion of the acquisition, IEnova will own 100% of ESJ and will consolidate it.values. ESJ owns a fully operating wind power generation facility with a nameplate capacity of 155 MW that is fully contracted by SDG&E.&E under a long-term PPA. Sempra Infrastructure recorded a $190 million intangible asset for the relative fair value of the PPA that will be amortized over a period of 14 years against revenues. On January 15, 2022, ESJ is constructingcompleted construction and began commercial operation of a second wind power generation facility which we expect will be completed in late 2021 or in the first quarter of 2022 and will havewith a nameplate capacity of 108 MW. We expect to complete the acquisition in the first half of 2021, subject to various closing conditions, including authorizations from the FERC and COFECE.MW that is also fully contracted by SDG&E under a long-term PPA.
DIVESTITURES
In June 2018, our board of directors approved a plan to divest certain non-utility natural gas storage assets in the southeast U.S., and all our U.S. wind and U.S. solar assets (collectively, the Assets). As a result, we recorded impairment charges totaling $1.5 billion ($900 million after tax and NCI) in June 2018, which included $1.3 billion ($755 million after tax and NCI) at Sempra LNG, included in Impairment Losses on Sempra Energy’s Consolidated Statements of Operations, and $200 million ($145 million after tax) at Sempra Renewables, included in Equity Earnings on Sempra Energy’s Consolidated Statements of Operations. In December 2018, we reduced the impairment of $1.3 billion recorded at Sempra LNG in June 2018 by $183 million ($126 million after tax and NCI) as a result of the sales agreement for certain storage assets described below, resulting in a total impairment charge of $1.1 billion ($629 million after tax and NCI) for the year ended December 31, 2018. These impairment charges primarily represented an adjustment of the related assets’ carrying values to estimated fair values, less costs to sell when applicable, which we discuss in Notes 6 and 12.
Sempra LNGInfrastructure
In February 2019, Sempra LNGInfrastructure completed the sale of its non-utility natural gas storage assets in the southeast U.S. (comprised of Mississippi Hub and Bay Gas), which we classified as held for sale at December 31, 2018, and received cash proceeds of $322 million, net of transaction costs. In January 2019, Sempra LNGInfrastructure completed the sale of other non-utility assets for $5 million.
Sempra Renewables
In December 2018, Sempra Renewables completed the sale of the following assets for cash proceeds of $1.6 billion:
▪its operating solar assets, including assets that we owned through JVs or through tax equity arrangements (other than those interests held by tax equity investors);
▪its solar and battery storage development projects; and
▪its 50% interest in the Broken Bow 2 wind generation facility.
In 2018, we recognized a pretax gain of $513 million ($367 million after tax) in Gain on Sale of Assets on Sempra Energy’s Consolidated Statement of Operations.
The following table summarizes the deconsolidation of these subsidiaries in 2018.
| | | | | | | | |
DECONSOLIDATION OF SUBSIDIARIES |
(Dollars in millions) |
| Certain subsidiaries of Sempra Renewables |
| At December 13, 2018 |
Proceeds from sale, net of transaction costs | $ | 1,585 | |
Cash | (7) | |
Restricted cash | (7) | |
Other current assets | (14) | |
Property, plant and equipment, net | (1,303) | |
Other investments | (329) | |
Other long-term assets | (24) | |
Current liabilities | 8 | |
Long-term debt | 70 | |
Asset retirement obligations | 52 | |
Other long-term liabilities | 5 | |
Noncontrolling interests | 486 | |
Accumulated other comprehensive income | (9) | |
Gain on sale | $ | 513 | |
In April 2019, Sempra Renewables completed the sale of its remaining wind assets and investments for $569 million, net of transaction costs, and recorded a $61 million ($45 million after tax and NCI) gain, which is included in Gain on Sale of Assets on the Sempra EnergySempra’s Consolidated Statements of Operations. Upon completion of the sale, remaining nominal business activities at Sempra Renewables were subsumed into Parent and other and the Sempra Renewables segment ceased to exist.
Parent and Other
PXiSE
In December 2021, Parent and other completed the sale of its 80% interest in PXiSE for total cash proceeds of $38 million, net of transaction costs totaling $4 million, and recorded a $36 million ($26 million after tax) gain, which is included in Gain (Loss) on Sale of Assets on Sempra’s Consolidated Statement of Operations.
DISCONTINUED OPERATIONS
In January 2019, our board of directors approved a plan to sell our South American businesses. We present these businesses, which previously constituted the Sempra South American Utilities segment, and certain activities associated with those businesses as discontinued operations.
In April 2020, we completed the sale of our equity interests in our Peruvian businesses, including our 83.6% interest in Luz del Sur and our interest in Tecsur, to an affiliate of China Yangtze Power International (Hongkong) Co., Limited for cash proceeds of $3,549 million, net of transaction costs and as adjusted for post-closing adjustments, and recorded a pretax gain of $2,271 million ($1,499 million after tax).
In June 2020, we completed the sale of our equity interests in our Chilean businesses, including our 100% interest in Chilquinta Energía and Tecnored and our 50% interest in Eletrans, to State Grid International Development Limited for cash proceeds of $2,216 million, net of transaction costs and as adjusted for post-closing adjustments, and recorded a pretax gain of $628 million ($248 million after tax).
In the year ended December 31, 2020, the pretax gains from the sales of our South American businesses are included in Gain on Sale of Discontinued Operations in the table below and the after-tax gains are included in Income from Discontinued Operations, Net of Income Tax, on the Sempra EnergySempra’s Consolidated Statements of Operations.
Summarized results from discontinued operations were as follows:
| DISCONTINUED OPERATIONS | DISCONTINUED OPERATIONS | DISCONTINUED OPERATIONS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Years ended December 31, | | Years ended December 31, |
| | 2020(1) | | 2019 | | 2018 | | 2020(1) | | 2019 |
Revenues | Revenues | $ | 570 | | | $ | 1,614 | | | $ | 1,585 | | Revenues | $ | 570 | | | $ | 1,614 | |
Cost of sales | Cost of sales | (364) | | | (1,012) | | | (1,041) | | Cost of sales | (364) | | | (1,012) | |
Gain on sale of discontinued operations | Gain on sale of discontinued operations | 2,899 | | | 0 | | | 0 | | Gain on sale of discontinued operations | 2,899 | | | — | |
Operating expenses | Operating expenses | (66) | | | (159) | | | (206) | | Operating expenses | (66) | | | (159) | |
Interest and other | Interest and other | (3) | | | (11) | | | (6) | | Interest and other | (3) | | | (11) | |
Income before income taxes and equity earnings | Income before income taxes and equity earnings | 3,036 | | | 432 | | | 332 | | Income before income taxes and equity earnings | 3,036 | | | 432 | |
Income tax expense | Income tax expense | (1,186) | | | (72) | | | (145) | | Income tax expense | (1,186) | | | (72) | |
Equity earnings | Equity earnings | 0 | | | 3 | | | 1 | | Equity earnings | — | | | 3 | |
Income from discontinued operations, net of income tax | Income from discontinued operations, net of income tax | 1,850 | | | 363 | | | 188 | | Income from discontinued operations, net of income tax | 1,850 | | | 363 | |
Earnings attributable to noncontrolling interests | Earnings attributable to noncontrolling interests | (10) | | | (35) | | | (32) | | Earnings attributable to noncontrolling interests | (10) | | | (35) | |
Earnings from discontinued operations attributable to common shares | Earnings from discontinued operations attributable to common shares | $ | 1,840 | | | $ | 328 | | | $ | 156 | | Earnings from discontinued operations attributable to common shares | $ | 1,840 | | | $ | 328 | |
(1) Results include activity until deconsolidation of our Peruvian businesses on April 24, 2020 and Chilean businesses on June 24, 2020 and post-closing adjustments related to the sales of these businesses.
The following table summarizes the carrying amounts of the major classes of assets and related liabilities classified as held for sale in discontinued operations.
| | | | | |
ASSETS HELD FOR SALE IN DISCONTINUED OPERATIONS |
(Dollars in millions) | |
| December 31, 2019 |
Cash and cash equivalents | $ | 74 | |
Restricted cash(1) | 1 | |
Accounts receivable, net | 303 | |
Due from unconsolidated affiliates | 2 | |
Inventories | 36 | |
Other current assets | 29 | |
Current assets | $ | 445 | |
| |
Due from unconsolidated affiliates | $ | 54 | |
Goodwill and other intangible assets | 801 | |
Property, plant and equipment, net | 2,618 | |
Other noncurrent assets | 40 | |
Noncurrent assets | $ | 3,513 | |
| |
Short-term debt | $ | 52 | |
Accounts payable | 201 | |
Current portion of long-term debt and finance leases | 85 | |
Other current liabilities | 106 | |
Current liabilities | $ | 444 | |
| |
Long-term debt and finance leases | $ | 702 | |
Deferred income taxes | 284 | |
Other noncurrent liabilities | 66 | |
Noncurrent liabilities | $ | 1,052 | |
(1) Primarily represents funds held in accordance with Peruvian tax law.
As a result of the sales of our South American businesses, in 2020, we reclassified $645 million of cumulative foreign currency translation losses from AOCI to Gain on Sale of Discontinued Operations, which is included in Income from Discontinued Operations, Net of Income Tax, on the Sempra EnergySempra’s Consolidated Statements of Operations.
NOTE 6. INVESTMENTS IN UNCONSOLIDATED ENTITIES
We generally account for investments under the equity method when we have significant influence over, but do not have control of, these entities. Equity earnings and losses, both before and net of income tax, are combined and presented as Equity Earnings on the Consolidated Statements of Operations.
Our equity method investments include various domestic and foreign entities. Our domestic equity method investees are typically partnerships that are pass-through entities for income tax purposes and therefore they do not record income tax. Sempra Energy’sSempra’s income tax on earnings from these equity method investees, other than Oncor Holdings as we discuss below, is included in Income Tax (Expense) BenefitExpense on the Consolidated Statements of Operations. Our foreign equity method investees are generally corporations whose operations are taxable on a standalone basis in the countries in which they operate, and we recognize our equity in such income or loss net of investee income tax. See Note 8 for information on how equity earnings and losses before income taxes are factored into the calculations of our pretax income or loss and ETR.
We provide the carrying values of our investments and earnings (losses) on these investments in the following tables.
| EQUITY METHOD AND OTHER INVESTMENT BALANCES | EQUITY METHOD AND OTHER INVESTMENT BALANCES | EQUITY METHOD AND OTHER INVESTMENT BALANCES |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Percent ownership | | | | Percent ownership | | | |
| | December 31, | | December 31, | | December 31, | | December 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Sempra Texas Utilities: | Sempra Texas Utilities: | | Sempra Texas Utilities: | |
Oncor Holdings(1) | Oncor Holdings(1) | 100 | % | | 100 | % | | $ | 12,440 | | | $ | 11,519 | | Oncor Holdings(1) | 100 | % | | 100 | % | | 100 | % | | $ | 12,947 | | | $ | 12,440 | | | $ | 11,519 | |
Sempra Texas Utilities: | Sempra Texas Utilities: | | Sempra Texas Utilities: | |
Sharyland Holdings(2) | Sharyland Holdings(2) | 50 | | | 50 | | | $ | 102 | | | $ | 100 | | Sharyland Holdings(2) | 50 | | | 50 | | | 50 | | | $ | 100 | | | $ | 102 | | | $ | 100 | |
Sempra Mexico: | | | | | |
ESJ(3) | 50 | | | 50 | | | 34 | | | 39 | | |
IMG JV(4) | 40 | | | 40 | | | 440 | | | 337 | | |
TAG JV(5) | 50 | | | 50 | | | 378 | | | 365 | | |
Sempra LNG: | | | | | |
Cameron LNG JV(6) | 50.2 | | | 50.2 | | | 433 | | | 1,256 | | |
Sempra Infrastructure: | | Sempra Infrastructure: | | | | | |
Cameron LNG JV(3) | | Cameron LNG JV(3) | 50.2 | | | 50.2 | | | 50.2 | | | 514 | | | 433 | | | 1,256 | |
ESJ JV(4) | | ESJ JV(4) | — | | | 50 | | | 50 | | | — | | | 34 | | | 39 | |
IMG JV(5) | | IMG JV(5) | 40 | | | 40 | | | 40 | | | 523 | | | 440 | | | 337 | |
TAG JV(6) | | TAG JV(6) | 50 | | | 50 | | | 50 | | | 388 | | | 378 | | | 365 | |
Total other equity method investments | Total other equity method investments | | 1,387 | | | 2,097 | | Total other equity method investments | | 1,525 | | | 1,387 | | | 2,097 | |
Other | Other | | 1 | | | 6 | | Other | | — | | | 1 | | | 6 | |
Total other investments | Total other investments | | $ | 1,388 | | | $ | 2,103 | | Total other investments | | $ | 1,525 | | | $ | 1,388 | | | $ | 2,103 | |
(1) The carrying value of our equity method investment is $2,844, $2,833 million and $2,823 million higher than the underlying equity in the net assets of the investee at December 31, 2021, 2020 and 2019, respectively, due to $2,868 million of equity method goodwill and $69 million in basis differences in AOCI, offset by $93, $104 millionand $114 at December 31, 2021, 2020 and $114 million at December 31, 2019, respectively, due to a tax sharing liability to TTI under a tax sharing agreement.
(2) The carrying value of our equity method investment is $42 million higher than the underlying equity in the net assets of the investee due to equity method goodwill.
(3)(3) The carrying value of our equity method investment is $12 million higher than the underlying equity in the net assets of the investee due to the remeasurement of our retained investment to fair value in 2014.
(4)The carrying value of our equity method investment is $5 million higher than the underlying equity in the net assets of the investee due to guarantees.
(5) The carrying value of our equity method investment is $130 million higher than the underlying equity in the net assets of the investee due to equity method goodwill.
(6) The carrying value of our equity method investment is$276, $259 million and $263 million higher than the underlying equity in the net assets of the investee at December 31, 2021, 2020 and 2019, respectively, primarily due to guarantees, which we discuss below, interest capitalized on the investment prior to the JV commencing its planned principal operations in August 2019 and amortization of guarantee fees and capitalized interest thereafter.
(4) In March 2021, Sempra Infrastructure completed the acquisition of the remaining 50% interest in ESJ and ESJ became a wholly owned, consolidated subsidiary. After the acquisition, ESJ is no longer accounted for as an equity method investment. The carrying value of our equity method investment is $12 higher than the underlying equity in the net assets of the investee at December 31, 2020 and 2019 due to the remeasurement of our retained investment to fair value in 2014.
(5)The carrying value of our equity method investment is $5 higher than the underlying equity in the net assets of the investee due to guarantees.
(6) The carrying value of our equity method investment is $130 higher than the underlying equity in the net assets of the investee due to equity method goodwill.
| | | | | | | | | | | | | | | | | |
EARNINGS (LOSSES) FROM EQUITY METHOD INVESTMENTS |
(Dollars in millions) |
| Years ended December 31, |
| 2020 | | 2019 | | 2018 |
EARNINGS (LOSSES) RECORDED BEFORE INCOME TAX(1): | | | | | |
Sempra Texas Utilities: | | | | | |
Sharyland Holdings | $ | 3 | | | $ | 2 | | | $ | 0 | |
Sempra LNG: | | | | | |
Cameron LNG JV | 391 | | | 24 | | | 0 | |
Sempra Renewables: | | | | | |
Wind: | | | | | |
Auwahi Wind | 0 | | | 0 | | | 3 | |
Broken Bow 2 Wind | 0 | | | 0 | | | (2) | |
Cedar Creek 2 Wind | 0 | | | 0 | | | (1) | |
Flat Ridge 2 Wind(2) | 0 | | | (3) | | | (178) | |
Fowler Ridge 2 Wind | 0 | | | 5 | | | 3 | |
Mehoopany Wind(2) | 0 | | | 1 | | | (30) | |
Solar: | | | | | |
California solar partnership | 0 | | | 0 | | | 8 | |
Copper Mountain Solar 2 | 0 | | | 0 | | | 5 | |
Copper Mountain Solar 3 | 0 | | | 0 | | | 8 | |
Mesquite Solar 1 | 0 | | | 0 | | | 18 | |
Other | 0 | | | 2 | | | (3) | |
Parent and other: | | | | | |
RBS Sempra Commodities(2) | (100) | | | 0 | | | (67) | |
Other | 0 | | | (1) | | | 0 | |
| 294 | | | 30 | | | (236) | |
EARNINGS RECORDED NET OF INCOME TAX: | | | | | |
Sempra Texas Utilities: | | | | | |
Oncor Holdings | 577 | | | 526 | | | 371 | |
Sempra Mexico: | | | | | |
ESJ | 5 | | | 2 | | | 2 | |
IMG JV | 103 | | | 9 | | | 29 | |
TAG JV | 36 | | | 13 | | | 9 | |
| 721 | | | 550 | | | 411 | |
Total | $ | 1,015 | | | $ | 580 | | | $ | 175 | |
| | | | | | | | | | | | | | | | | |
EARNINGS (LOSSES) FROM EQUITY METHOD INVESTMENTS |
(Dollars in millions) |
| Years ended December 31, |
| 2021 | | 2020 | | 2019 |
EARNINGS (LOSSES) RECORDED BEFORE INCOME TAX(1): | | | | | |
Sempra Texas Utilities: | | | | | |
Sharyland Holdings | $ | 5 | | | $ | 3 | | | $ | 2 | |
Sempra Infrastructure: | | | | | |
Cameron LNG JV(2) | 559 | | | 391 | | | 24 | |
Sempra Renewables: | | | | | |
Wind assets | — | | | — | | | 5 |
Parent and other: | | | | | |
RBS Sempra Commodities | 50 | | | (100) | | | — | |
Other | — | | | — | | | (1) | |
| 614 | | | 294 | | | 30 | |
EARNINGS RECORDED NET OF INCOME TAX: | | | | | |
Sempra Texas Utilities: | | | | | |
Oncor Holdings | 617 | | | 577 | | | 526 | |
Sempra Infrastructure: | | | | | |
ESJ JV | 2 | | | 5 | | | 2 | |
IMG JV | 83 | | | 103 | | | 9 | |
TAG JV | 27 | | | 36 | | | 13 | |
| 729 | | | 721 | | | 550 | |
Total | $ | 1,343 | | | $ | 1,015 | | | $ | 580 | |
(1) We provide our ETR calculation in Note 8.
(2)Losses from Includes $3 of basis differences in equity method investmentearnings related to AOCI in 2018 include an other-than-temporary impairment charge, which we discuss below.2021.
We disclose distributions received from our investments, by segment, in the table below.
| DISTRIBUTIONS FROM INVESTMENTS | DISTRIBUTIONS FROM INVESTMENTS | DISTRIBUTIONS FROM INVESTMENTS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Sempra Texas Utilities | Sempra Texas Utilities | $ | 286 | | | $ | 246 | | | $ | 149 | | Sempra Texas Utilities | $ | 688 | | | $ | 286 | | | $ | 246 | |
Sempra Mexico | 8 | | | 2 | | | 0 | | |
Sempra LNG | 1,168 | | | 0 | | | 0 | | |
Sempra Infrastructure | | Sempra Infrastructure | 672 | | | 1,176 | | | 2 | |
Sempra Renewables | Sempra Renewables | 0 | | | 1 | | | 63 | | Sempra Renewables | — | | | — | | | 1 | |
Parent and other | Parent and other | 0 | | | 7 | | | 0 | | Parent and other | — | | | — | | | 7 | |
Total | Total | $ | 1,462 | | | $ | 256 | | | $ | 212 | | Total | $ | 1,360 | | | $ | 1,462 | | | $ | 256 | |
At December 31, 2021, 2020 and 2019 our share of the undistributed earnings of equity method investments was $1.5 billion, $1.1 billion and $634 million, respectively, including $792 million$1.1 billion at December 31, 20202021 in undistributed earnings from investments for which we have more than 50% equity interests.
SEMPRA TEXAS UTILITIES
Oncor Holdings
As we discuss in Note 5, in March 2018, we completed the acquisition of an indirect,We account for our 100% ownership interest in Oncor Holdings, which owns an 80.25% interest in Oncor.Oncor, as an equity method investment. Sempra Energy does not control Oncor Holdings or Oncor, and the ring-fencing measures, governance mechanisms and commitments in effect limit our ability to direct the management, policies and operations of Oncor Holdings and Oncor, including the deployment or disposition of their assets, declarations of dividends, strategic planning and other important corporate issues and actions. We also have limited representation on the Oncor Holdings and Oncor boards of directors. As we do not have the power to direct the significant activities of Oncor Holdings and Oncor, we account for our 100% ownership interest in Oncor Holdings as an equity method investment.
Oncor is a domestic partnership for U.S. federal income tax purposes and is not included in the consolidated income tax return of Sempra Energy.Sempra. Rather, only our pretax equity earnings from our investment in Oncor Holdings (a disregarded entity for tax purposes) are included in our consolidated income tax return. A tax sharing agreement with TTI, Oncor Holdings and Oncor provides for the calculation of an income tax liability substantially as if Oncor Holdings and Oncor were taxed as corporations and requires tax
payments determined on that basis. While partnerships are not subject to income taxes, in consideration of the tax sharing agreement and Oncor being subject to the provisions of U.S. GAAP governing rate-regulated operations, Oncor recognizes amounts determined under cost-based regulatory rate-setting processes (with such costs including income taxes), as if it were taxed as a corporation. As a result, since Oncor Holdings consolidates Oncor, we recognize equity earnings from our investment in Oncor Holdings net of its recorded income tax.
We provide summarized income statement and balance sheet information for Oncor Holdings in the following table.
| SUMMARIZED FINANCIAL INFORMATION – ONCOR HOLDINGS | SUMMARIZED FINANCIAL INFORMATION – ONCOR HOLDINGS | SUMMARIZED FINANCIAL INFORMATION – ONCOR HOLDINGS |
(Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| | Year ended December 31, | | March 9 - December 31, | | Year ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Operating revenues | Operating revenues | $ | 4,511 | | | $ | 4,347 | | | $ | 3,347 | | Operating revenues | $ | 4,764 | | | $ | 4,511 | | | $ | 4,347 | |
Operating expense | Operating expense | (3,224) | | | (3,135) | | | (2,434) | | Operating expense | (3,397) | | | (3,224) | | | (3,135) | |
Income from operations | Income from operations | 1,287 | | | 1,212 | | | 913 | | Income from operations | 1,367 | | | 1,287 | | | 1,212 | |
Interest expense | Interest expense | (405) | | | (375) | | | (285) | | Interest expense | (413) | | | (405) | | | (375) | |
Income tax expense | Income tax expense | (146) | | | (131) | | | (119) | | Income tax expense | (163) | | | (146) | | | (131) | |
Net income | Net income | 703 | | | 643 | | | 455 | | Net income | 760 | | | 703 | | | 643 | |
Noncontrolling interest held by TTI | Noncontrolling interest held by TTI | (141) | | | (129) | | | (94) | | Noncontrolling interest held by TTI | (152) | | | (141) | | | (129) | |
Earnings attributable to Sempra Energy | 562 | | | 514 | | | 360 | | |
Earnings attributable to Sempra(1) | | Earnings attributable to Sempra(1) | 608 | | | 562 | | | 514 | |
| | | At December 31, | | At December 31, |
| | | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Current assets | Current assets | | $ | 1,045 | | | $ | 913 | | Current assets | $ | 1,039 | | | $ | 1,045 | | | $ | 913 | |
Noncurrent assets | Noncurrent assets | | 28,022 | | | 26,012 | | Noncurrent assets | 29,481 | | | 28,022 | | | 26,012 | |
Current liabilities | Current liabilities | | 1,120 | | | 1,626 | | Current liabilities | 2,220 | | | 1,120 | | | 1,626 | |
Noncurrent liabilities | Noncurrent liabilities | | 15,611 | | | 14,125 | | Noncurrent liabilities | 15,281 | | | 15,611 | | | 14,125 | |
Noncontrolling interest held by TTI | Noncontrolling interest held by TTI | | 2,737 | | | 2,473 | | Noncontrolling interest held by TTI | 2,916 | | | 2,737 | | | 2,473 | |
(1) Excludes adjustments to equity earnings related to amortization of a tax sharing liability associated with a tax sharing arrangement and changes in basis differences in AOCI within the carrying value of our equity method investment.
In 2021, 2020 and 2019, Sempra Energy contributed $566 million, $632 million and $1,587 million, respectively, to Oncor Holdings, including $1,067 million in 2019 to fund Oncor’s May 2019 acquisition of interests in InfraREIT and certain acquisition-related expenses. In 2018, Sempra Energy contributed $230 million in cash to Oncor Holdings.
Sharyland Holdings
As we discuss in Note 5, in May 2019, we acquired an indirect, 50% interest in Sharyland Holdings, which owns a 100% interest in Sharyland Utilities, for $95 million, net of $7 million in post-closing adjustments, which we account for as an equity method investment. In 2019, we invested cash of $3 million in Sharyland Holdings.
SEMPRA MEXICO
ESJ
As we discuss in Note 5, in February 2021, IEnova agreed to acquire Saavi Energía’s 50% interest in ESJ for approximately $83 million. At December 31, 2020, IEnova owned a 50% interest in ESJ, which is accounted for as an equity method investment. Upon completion of the acquisition, IEnova will own 100% of ESJ and will consolidate it. We expect to complete the acquisition in the first half of 2021, subject to various closing conditions, including authorizations from the FERC and COFECE.
IMG JV
IEnova has a 40% interest in IMG JV, a JV with a subsidiary of TC Energy, and accounts for its interest as an equity method investment. IMG JV owns and operates the Sur de Texas-Tuxpan natural gas marine pipeline, which is fully contracted under a 35-year natural gas transportation service contract with the CFE and commenced commercial operation in September 2019. In 2018, Sempra Mexico invested cash of $80 million in IMG JV.
SEMPRA LNGINFRASTRUCTURE
Cameron LNG JV
Cameron LNG JV was formed in October 2014 amongand is a JV between Sempra Energy and three project partners, TOTALTotalEnergies SE, Mitsui & Co., Ltd., and Japan LNG Investment, LLC, a company jointly owned by Mitsubishi Corporation and Nippon Yusen Kabushiki Kaisha. We account for our 50.2% investment in Cameron LNG JV under the equity method.
Cameron LNG JV operates a three-train natural gas liquefaction export facility with a nameplate capacity of 13.9 Mtpa of LNG, with an export capacity of 12 Mtpa of LNG, or approximately 1.7 Bcf per day. Cameron LNG JV achieved commercial operations of Train 1, Train 2 and Train 3 under its tolling agreements in August 2019, February 2020 and August 2020, respectively. Prior to commencing full commercial operation,operations, Sempra LNGInfrastructure capitalized interest of $33 million in 2019 and $47 million in 2018 related to this equity method investment. In 2021, 2020 and 2019, and 2018, Sempra LNGInfrastructure contributed $2 million, $54 million $77 million and $228$77 million, respectively, to Cameron LNG JV.
Cameron LNG JV Financing
General. In August 2014, Cameron LNG JV entered into finance documents (collectively, Loan Facility Agreements) for senior secured financing in an initial aggregate principal amount of up to $7.4 billion under three debt facilities provided by the Japan Bank for International Cooperation (JBIC) and 29 international commercial banks, some of which will benefit from insurance coverage provided by Nippon Export and Investment Insurance (NEXI).
The Loan Facility Agreements and related finance documents provide senior secured term loans with a maturity date of July 15, 2030. The proceeds of the loans were used for financing the cost of development and construction of the three-train Cameron LNG JV project. The Loan Facility Agreements and related finance documents contain customary representations and affirmative and negative covenants for project finance facilities of this kind with the lenders of the type participating in the Cameron LNG JV financing.
In December 2019, Cameron LNG JV refinanced the commercial bank portion of the Loan Facility Agreements not covered by NEXI with $3.0 billion of senior secured notes issued in a private placement bond offering. The senior secured notes bear interest at a weighted-average fixed rate of 3.39% at December 31, 20202021 with a weighted-average tenor of 15.4 years.maturity dates ranging between 2031 and 2039.
Interest. The weighted-average all-in cost of the loans that remain outstanding under the original Loan Facility Agreements (and based on certain assumptions as to timing of drawdown) is 0.98% per annum over LIBOR prior to financial completion of the project and 1.22% per annum over LIBOR following financial completion of the project. The original Loan Facility Agreements required Cameron LNG JV to hedge 50% of outstanding borrowings to fix the interest rate, beginning in 2016. The hedges are to remain in place until the debt principal has been amortized by 50%. In November 2014, Cameron LNG JV entered into floating-to-fixed interest rate swaps for approximately $3.7 billion notional amount, resulting in an effective fixed rate of 3.19% for the LIBOR component of the interest rate on the loans. In June 2015, Cameron LNG JV entered into additional floating-to-fixed interest rate swaps effective starting in 2020, for approximately $1.5 billion notional amount, resulting in an effective fixed rate of 3.32% for the LIBOR component of the interest rate on the loans. In December 2019, approximately $790 million of the $1.5 billion notional amount was terminated as a result of the refinancing, resulting in an effective fixed rate of 3.26% for the LIBOR component of the interest rate on the remaining loans outstanding.
The weighted-average all-in cost of the loans outstanding under the original Loan Facility Agreements and the newly issued senior secured notes is 3.72%3.69%.
Guarantees. In March 2021, Cameron LNG JV reached financial completion of the three-train liquefaction project, and Sempra’s guarantees related to agreements entered into in August 2014 and December 2019, Sempra Energy entered into agreements for the benefit of all of Cameron LNG JV’s creditors under the original Loan Facility Agreements and the newly issued senior secured notes, respectively. Pursuant to these agreements, Sempra Energy has severally guaranteed 50.2% of Cameron LNG JV’s obligations under the original Loan Facility Agreements and the newly issued senior secured notes, or a maximum amount of $4.0 billion. Guarantees for the remaining 49.8% of Cameron LNG JV’s senior secured financing have been provided by the other project owners. Sempra Energy’s agreements and guarantees will terminate upon financial completion of the three-train liquefaction project, which is subject to satisfaction of certain conditions, including all three trains achieving commercial operations and meeting certain operational performance tests that are currently underway. We expect the project to achieve financial completion and the guarantees to be terminated in the first half of 2021, but this timing could be delayed, perhaps substantially, if these operational performance tests are not completed due to weather-related events, other events or other factors beyond our control. Sempra Energy recorded a liability of $82 million in October 2014 for the fair value of its obligations associated with the original Loan Facility Agreements, which constitute guarantees. This liability was fully amortized at December 31, 2019. Sempra Energy recorded a liability of $3 million in December 2019, with an associated carrying value of $1 million at December 31, 2020, for the fair value of its obligations associated with Cameron LNG JV’s newly issued senior secured notes, which also constitute guarantees. This liability will be reduced on a straight-line basis over the duration of the guarantees by decreasing our investment in Cameron LNG JV.were terminated.
In August 2014, Sempra Energy and the other project owners entered into a transfer restrictions agreement with Société Générale, as intercreditor agent for the lenders under the Loan Facility Agreements. Pursuant to the transfer restriction agreement, Sempra Energy agreed to certain restrictions on its ability to dispose of Sempra Energy’s indirect fully diluted economic and beneficial ownership interests in Cameron LNG JV. These restrictions vary over time. Prior to financial completion of the three-train Cameron LNG project, Sempra Energy must retain 37.65% of such interest in Cameron LNG JV. Startingstarting six months after financial completion of the three-train Cameron LNG JV project, Sempra Energy must retain at least 10% of the indirect fully diluted economic and beneficial ownership interest in Cameron LNG JV. In addition, at all times, a Sempra Energy controlled (but not necessarily wholly owned) subsidiary must directly own 50.2% of the membership interests of Cameron LNG JV.
Events of Default.Cameron LNG JV’s Loan Facility Agreements and related finance documents contain events of default customary for such financings, including events of default for: failure to pay principal and interest on the due date;when due; insolvency of Cameron LNG JV; abandonment of the project; expropriation; and unenforceability or termination of the finance documents; and a failure to achieve financial completion of the project by a financial completion deadline date of September 30, 2021 (with up to an additional 365 days extension beyond such date permitted in cases of force majeure). A delay that results in failure to achieve financial completion by September 30, 2021 would result in an event of default under Cameron LNG JV’s financing agreements and a potential demand of up to $4.0 billion on Sempra Energy’s guarantees. Further, pursuant to the financing agreements, Cameron LNG JV is restricted from making distributions to its project owners, including Sempra LNG, from January 1, 2021 until the earlier of September 30, 2021 and the achievement of financial completion.documents.
Security. To support Cameron LNG JV’s obligations under its debt agreements, Cameron LNG JV has granted security over all of its assets, subject to customary exceptions, and all equity interests in Cameron LNG JV have beenwere pledged to HSBC Bank USA, National Association, as security trustee for the benefit of all of Cameron LNG JV’s creditors. As a result, an enforcement action by the lenders taken in accordance with the finance documents could result in the exercise of such security interests by the lenders and the loss of ownership interests in Cameron LNG JV by Sempra Energy and the other project partners.
The security trustee under
Sempra Promissory Note for SDSRA Distribution
Cameron LNG JV’s financing can demand that a payment be made by Sempra Energy under its guarantees of Sempra Energy’s 50.2% share ofdebt agreements require Cameron LNG JV to maintain the SDSRA, which is an additional reserve account beyond the Senior Debt Service Accrual Account, where funds accumulate from operations to satisfy senior debt obligations due and payable either on the date such amounts were due fromnext payment date. Both accounts can be funded with cash or authorized investments. In June 2021, Sempra Infrastructure received a distribution of $165 million based on its proportionate share of the SDSRA, for which Sempra provided a promissory note and letters of credit to secure a proportionate share of Cameron LNG JV (taking into account cure periods)JV’s obligation to fund the SDSRA. Sempra’s maximum exposure to loss is replenishment of the amount withdrawn by Sempra Infrastructure from the SDSRA, or $165 million. We recorded a guarantee liability of $22 million in June 2021, with an associated carrying value of $22 million at December 31, 2021, for the eventfair value of a failure bythe promissory note, which is being reduced over the duration of the guarantee through Sempra Infrastructure’s investment in Cameron LNG JVJV. The guarantee will terminate upon full repayment of Cameron LNG JV’s debt, scheduled to pay such senior debt obligations when they become dueoccur in 2039, or within 10 business days in the event of an acceleration of senior debt obligations under the termsreplenishment of the finance documents. If an eventamount withdrawn by Sempra Infrastructure from the SDSRA.
Sempra Energy Support Agreement for CFIN
In July 2020, CFIN entered into a financing arrangement with Cameron LNG JV’s four project owners and received aggregate proceeds of $1.5 billion from two project owners and from external lenders on behalf of the other two project owners (collectively, the affiliate loans), based on their proportionate ownership interest in Cameron LNG JV. CFIN used the proceeds from the affiliate loans to provide a loan to Cameron LNG JV. The affiliate loans mature in 2039. Principal and interest will be
paid from Cameron LNG JV’s project cash flows from its three-train natural gas liquefaction facility. Cameron LNG JV used the proceeds from its loan to return equity to its project owners. Sempra Energy used its $753 million share of the proceeds for working capital and other general corporate purposes, including the repayment of indebtedness.
Sempra Energy’sInfrastructure’s $753 million proportionate share of the affiliate loans, based on its 50.2% ownership interest in Cameron LNG JV, was funded by external lenders comprised of a syndicate of eight banks (the bank debt) to whom Sempra Energy has provided a guarantee pursuant to a Support Agreement. Under the terms of the Support Agreement, as amended on June 29, 2021, under which:
▪Sempra Energy has severally guaranteed repayment of the bank debt plus accrued and unpaid interest if CFIN fails to pay the external lenders. Additionally, lenders;
▪the external lenders may exercise an option to put the bank debt to Sempra Energy on every one-year anniversary of the closing of the affiliate loans, as well asInfrastructure upon the occurrence of certain events, including a failure by CFIN to meet its payment obligations under the bank debt. In addition,debt;
▪the external lenders will put some or all of the bank debt will be transferred by each external lender back to Sempra EnergyInfrastructure on the five-yearfifth, tenth, or fifteenth anniversary date of the affiliate loans, unlessexcept the portion of the debt owed to any external lenders electlender that has elected not to waive their transfer rightsparticipate in the put option six months prior to the five-yearrespective anniversary of the affiliate loans. date;
▪Sempra EnergyInfrastructure also has a right to call the bank debt back from, or to refinance the bank debt with, the external lenders at any time. Thetime; and
▪the Support Agreement will terminate upon full repayment of the bank debt, including repayment following an event in which the bank debt is put to Sempra Energy. Infrastructure.
In exchange for this guarantee, the external lenders will pay a guarantee fee that is based on the credit rating of Sempra Energy’sSempra’s long-term senior unsecured non-credit enhanced debt rating, which guarantee fee Sempra LNGInfrastructure will recognize as interest income as earned. Sempra Energy’sSempra’s maximum exposure to loss is the bank debt plus any accrued and unpaid interest and related fees, subject to a liability cap of 130% of the bank debt, or $979 million. We measure the Support Agreement at fair value, net of related guarantee fees, on a recurring basis (see Note 12). At December 31, 2020,2021, the fair value of the Support Agreement was $3$7 million, of which $7 million is included in Other Current Assets offset by $4 million included in Deferred Credits and Other on the Sempra EnergySempra’s Consolidated Balance Sheet.
ESJ JV
As we discuss in Note 5, in March 2021, Sempra Infrastructure completed the acquisition of the remaining 50% equity interest in ESJ and ESJ became a wholly owned, consolidated subsidiary. Prior to the acquisition date, Sempra Infrastructure owned 50% of ESJ and accounted for its interest as an equity method investment.
IMG JV
Sempra Infrastructure has a 40% interest in IMG JV, a JV with a subsidiary of TC Energy Corporation, and accounts for its interest as an equity method investment. IMG JV owns and operates the Sur de Texas-Tuxpan natural gas marine pipeline, which is fully contracted under a 35-year natural gas transportation service contract with the CFE and commenced commercial operations in September 2019.
SEMPRA RENEWABLES
As a result of the plan of sale, Sempra Renewables recorded an other-than-temporary impairment on certain of its wind equity method investments totaling $200 million in 2018, which is included in Equity Earnings on Sempra Energy’s Consolidated Statement of Operations. Sempra Renewables completed the salessale of all its operating solar assets, including its solar equity method investments and one wind equity method investment, in December 2018 and its remaining wind assets and investments in April 2019. We discuss these divestituresthis divestiture further in Note 5.
In 2018, Sempra Renewables invested cash of $5 million in its unconsolidated JVs.
RBS SEMPRA COMMODITIES
RBS Sempra Commodities is a United Kingdom limited liability partnership formed by Sempra Energy and RBS in 2008 to own and operate the commodities-marketing businesses previously operated through wholly owned subsidiaries of Sempra Energy.Sempra. We and RBS sold substantially all of the partnership’s businesses and assets in four separate transactions completed in 2010 and 2011. Since 2011, our investment balance has reflected our share of the remaining partnership assets, including amounts retained by the partnership to help offset unanticipated future general and administrative costs necessary to complete the dissolution of the
partnership and the distribution of the partnership’s remaining assets, if any. We account for our investment in RBS Sempra Commodities under the equity method.
In September 2018, we fully impaired our remaining equity method investment in RBS Sempra Commodities by recording a charge of $65 million in Equity Earnings on Sempra Energy’s Consolidated Statement of Operations.Commodities. In 2020, we recorded a charge of $100 million in Equity Earnings on Sempra Energy’sSempra’s Consolidated Statement of Operations for losses from our investment in RBS Sempra Commodities. We recognizedIn 2021, we reduced this charge by $50 million based on the favorable outcome of a corresponding liabilitysettlement with HMRC and revised assumptions on the High Court of $25 million in Other Current Liabilities and $75 million in Deferred Credits and Other for our share of estimated losses in excess of the carrying value of our equity method investment.Justice case. We discuss matters related to RBS Sempra Commodities further in “Other Litigation” in Note 16.
SUMMARIZED FINANCIAL INFORMATION
We present summarized financial information below, aggregated for all other equity method investments (excluding Oncor Holdings)Holdings and RBS Sempra Commodities) for the periods in which we were invested in the entities. The amounts below represent the results of operations and aggregate financial position of 100% of each of Sempra Energy’sSempra’s other equity method investments.
| | | | | | | | | | | | | | | | | |
SUMMARIZED FINANCIAL INFORMATION – OTHER EQUITY METHOD INVESTMENTS |
(Dollars in millions) |
| Years ended December 31, |
| 2020 | | 2019(1) | | 2018(2) |
Gross revenues | $ | 2,341 | | | $ | 798 | | | $ | 706 | |
Operating expense | (706) | | | (372) | | | (609) | |
Income from operations | 1,635 | | | 426 | | | 97 | |
Interest expense | (514) | | | (401) | | | (322) | |
Net income (loss)/Earnings (losses)(3) | 1,132 | | | 85 | | | (36) | |
| | | | | | | | | | | | | | | | | |
| | | At December 31, |
| | | 2020 | | 2019(1) |
Current assets | | | $ | 1,035 | | | $ | 1,124 | |
Noncurrent assets | | | 15,304 | | | 15,039 | |
Current liabilities | | | 1,342 | | | 1,232 | |
Noncurrent liabilities | | | 12,863 | | | 11,438 | |
| | | | | | | | | | | | | | | | | |
SUMMARIZED FINANCIAL INFORMATION – OTHER EQUITY METHOD INVESTMENTS |
(Dollars in millions) |
| Years ended December 31, |
| 2021(1) | | 2020 | | 2019(2) |
Gross revenues | $ | 2,721 | | | $ | 2,341 | | | $ | 798 | |
Operating expense | (719) | | | (706) | | | (372) | |
Income from operations | 2,002 | | | 1,635 | | | 426 | |
Interest expense | (548) | | | (514) | | | (401) | |
Net income/Earnings(3) | 1,388 | | | 1,132 | | | 85 | |
| | | | | | | | | | | | | | | | | |
| At December 31, |
| 2021(1) | | 2020 | | 2019(2) |
Current assets | $ | 788 | | | $ | 1,035 | | | $ | 1,124 | |
Noncurrent assets | 14,686 | | | 15,304 | | | 15,039 | |
Current liabilities | 1,230 | | | 1,342 | | | 1,232 | |
Noncurrent liabilities | 11,807 | | | 12,863 | | | 11,438 | |
(1)In March 2021, Sempra Infrastructure completed the acquisition of the remaining 50% equity interest in ESJ and ESJ became a wholly owned, consolidated subsidiary.
(2) On April 22, 2019, Sempra Renewables sold its remaining wind assets and investments. As of April 22, 2019, these wind assets and investments are no longer equity method investments.
(2)(3) On December 13, 2018, Sempra Renewables sold all its operating solar assets, including its solar equity method investments, and its 50% interest in the Broken Bow 2 wind power generation facility. As of December 13, 2018, the solar equity method investments and Broken Bow 2 are no longer equity method investments.
(3)Except for our investments in Mexico, there was no income tax recorded by the entities, as they are primarily domestic partnerships.
NOTE 7. DEBT AND CREDIT FACILITIES
LINES OF CREDITSHORT-TERM DEBT
Primary U.S. Committed Lines of Credit
At December 31, 2020,2021, Sempra Energy Consolidated had an aggregate capacity of $6.7$9.5 billion in fourunder seven primary U.S. committed lines of credit, which provide liquidity and support our commercial paper.
| | | | | | | | | | | | | | | | | | | | | | | |
PRIMARY U.S. COMMITTED LINES OF CREDIT | | |
(Dollars in millions) | | |
| | | At December 31, 2020 |
| | | Total facility | | Commercial paper outstanding(1) | | Available unused credit |
Sempra Energy(2) | | $ | 1,250 | | | $ | 0 | | | 1,250 | |
Sempra Global | | 3,185 | | | 0 | | | 3,185 | |
SDG&E(3) | | 1,500 | | | 0 | | | 1,500 | |
SoCalGas(3)(4) | | 750 | | | (113) | | | 637 | |
Total | | $ | 6,685 | | | $ | (113) | | | $ | 6,572 | |
(1)paper programs. Because theour commercial paper programs are supported by these lines of credit, we reflect the amount of commercial paper outstanding, before reductions of any unamortized discounts, and any letters of credit outstanding as a reduction to the available unused credit.credit capacity.
(2)The facility also provides for issuance of $200 million of letters of credit on behalf of Sempra Energy with the amount of borrowings otherwise available under the facility reduced by the amount of outstanding letters of credit. Subject to obtaining commitments from existing or new lenders and satisfaction of other specified conditions, Sempra Energy has the right to increase the letter of credit commitment up to $500 million. No letters of credit were outstanding at December 31, 2020.
(3)The facility also provides for issuance of $100 million of letters of credit on behalf of the borrowing utility with the amount of borrowings otherwise available under the facility reduced by the amount of outstanding letters of credit. Subject to obtaining commitments from existing or new lenders and satisfaction of other specified conditions, the borrowing utility has the right to increase the letter of credit commitment up to $250 million. No letters of credit were outstanding at December 31, 2020.
(4)Commercial paper outstanding is before reductions of a negligible amount of unamortized discount.F-73
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
COMMITTED LINES OF CREDIT | | | | |
(Dollars in millions) | | | | |
| | | At December 31, 2021 |
Borrower | Expiration date of facility | | Total facility | | Commercial paper outstanding | | Amounts outstanding | | Available unused credit |
Sempra | May 2024 | | $ | 3,185 | | | $ | (1,240) | | | $ | — | | | 1,945 | |
Sempra | May 2024 | | 1,250 | | | — | | | — | | | 1,250 | |
SDG&E | May 2024 | | 1,500 | | | (401) | | | — | | | 1,099 | |
SoCalGas | May 2024 | | 750 | | | (385) | | | — | | | 365 | |
SI Partners | November 2024 | | 1,000 | | | — | | | — | | | 1,000 | |
IEnova | September 2023 | | 350 | | | — | | | (350) | | | — | |
IEnova | February 2024 | | 1,500 | | | — | | | (399) | | | 1,101 | |
Total | | $ | 9,535 | | | $ | (2,026) | | | $ | (749) | | | $ | 6,760 | |
The principal terms of the Sempra, SDG&E and SoCalGas primary U.S. committed lines of credit reflected in the table above include the following:
▪Each is a 5-year syndicated revolving credit agreement expiring in May 2024.
▪Citibank N.A. serves as administrative agent for the Sempra Energy and Sempra Global facilities and JPMorgan Chase Bank, N.A. serves as administrative agent for the SDG&E and SoCalGas facilities.
▪Each facility has a syndicate of 23 lenders. No single lender has greater than a 6% share in any facility.
▪Sempra’s $1.3 billion facility and SDG&E’s and SoCalGas’ facilities provide for the issuance of $200 million, $100 million and $100 million, respectively, of letters of credit. Subject to obtaining commitments from existing or new lenders and satisfaction of other specified conditions, Sempra, SDG&E and SoCalGas each have the right to increase its letter of credit commitment up to $500 million, $250 million and $250 million, respectively.
▪Borrowings bear interest at a benchmark ratesrate plus a margin that varies with Sempra Energy’sthe borrower’s credit ratings in the case of the Sempra Energy and Sempra Global lines of credit, and with the borrowing utility’s credit rating in the case of SDG&E’s and SoCalGas’ lines of credit.rating.
▪Sempra Energy, SDG&E and SoCalGas eachEach borrower must maintain a ratio of indebtedness to total capitalization (as defined in each of the applicable credit facilities) of no more than 65% at the end of each quarter. At December 31, 2020,2021, each entity was in compliance with this ratio and all other financial covenants under its respective credit facility.
▪Sempra Energy guarantees Sempra Global’s obligations under itsIn November 2021, SI Partners entered into a three-year $1.0 billion credit facility.
Foreign Committed Lines of Credit
Our foreign operations in Mexico have additional committed lines of credit aggregating $1.8 billion at December 31, 2020. The principal terms of thesethe SI Partners’ line of credit facilitiesreflected in the table above include the following:
▪A syndication of 12 lenders each having an 8.33% share in the facility.
▪The facility provides for issuance of $200 million of letters of credit.
▪The facility includes a $100 million swingline loan sub-limit, whereby any outstanding amounts would reduce available unused credit. No swingline loan borrowings were outstanding at December 31, 2021.
▪Borrowings are described below.
| | | | | | | | | | | | | | | | | | | | | | | |
FOREIGN COMMITTED LINES OF CREDIT | | | | | |
(U.S. dollar equivalent in millions) |
| | | December 31, 2020 |
Expiration date of facility | | Total facility | | Amounts outstanding | | Available unused credit |
February 2024(1) | | $ | 1,500 | | | $ | (392) | | | $ | 1,108 | |
September 2021(2) | | 280 | | | (280) | | | 0 | |
Total | | $ | 1,780 | | | $ | (672) | | | $ | 1,108 | |
issued in U.S. dollars and letters of credit can be issued in U.S. dollars or Mexican pesos.(1) ▪Five-yearBorrowings bear interest at a benchmark rate plus a margin that varies with SI Partners’ credit rating.
▪SI Partners must maintain a ratio of consolidated adjusted net indebtedness to consolidated earnings before interest, taxes, depreciation and amortization (as defined in its credit facility) of no more than 5.25 to 1.00 as of the end of each quarter. At December 31, 2021, SI Partners was in compliance with this ratio.
IEnova has two revolving credit facilities. The principal terms of IEnova’s lines of credit reflected in the table above include the following:
▪The $350 million revolving credit facility, withwhich was amended in September 2021 to increase the amount available under the facility from $280 million to $350 million and extend the expiration date from September 2021 to September 2023, has a single lender and borrowings bear interest at a per annum rate equal to 3-month LIBOR plus 54 bps.
▪The $1.5 billion revolving credit facility has a syndicate of 10 lenders. Borrowingslenders and borrowings bear interest at a per annum rate equal to 3-month LIBOR plus 80 bps.
(2) ▪Two-year revolving credit facility with The Bank of Nova Scotia. Borrowings maycan be made for up to two years from September 23, 2019issued in U.S. dollars.dollars only.
Uncommitted Lines of Credit
In addition to our committed lines of credit, Sempra Infrastructure’s foreign operations in Mexico have uncommitted lines of credit with an aggregate capacity of $470 million at December 31, 2021, which are generally used for working capital requirements. We reflect amounts outstanding before reductions of any unamortized discounts.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
FOREIGN UNCOMMITTED LINES OF CREDIT |
(U.S. dollar equivalent in millions) |
| | | | December 31, 2021 |
Borrower | Expiration date of facility | Borrowing denomination | | Total facility | | Amounts outstanding | | Available unused credit |
IEnova(1) | September 2022 | U.S. dollars | | $ | 250 | | | $ | (250) | | | $ | — | |
ECA LNG Phase 1(2) | August 2023 | U.S. dollars or Mexican pesos | | 100 | | | (63) | | | 37 | |
IEnova(3) | October 2023 | U.S. dollars | | 100 | | | (8) | | | 92 | |
IEnova(4) | October 2023 | U.S. dollars or Mexican pesos | | 20 | | | — | | | 20 | |
| Total | | $ | 470 | | | $ | (321) | | | $ | 149 | |
(1) Borrowings bear interest at a per annum rate equal to 3-month LIBOR plus 5410 bps.
(2)
In addition to its committed lines of credit, Outstanding amounts were borrowed in October 2020, IEnova entered intoMexican pesos and bear interest at a three-year $20 million uncommitted revolving credit facility with Scotiabank Inverlat S.A. (borrowings may be made in either U.S. dollars or Mexican pesos) and a three-year $100 million uncommitted revolving credit facility with The Bank of Nova Scotia (borrowings may only bevariable rate based on the 28-day Interbank Equilibrium Interest Rate plus 105 bps. Borrowings made in U.S. dollars). At December 31, 2020, available unused creditdollars bear interest at a variable rate based on these lines was $20 million.the 1-month or 3-month LIBOR plus 105 bps.
(3) Borrowings bear interest at a per annum rate equal to between 1-month and 6-month LIBOR plus 52 bps.
(4) Borrowings made in Mexican pesos bear interest at a variable rate based on the 28-day Interbank Equilibrium Interest Rate plus an applicable margin. Borrowings made in U.S. dollars bear interest at a variable rate based on 1-month LIBOR plus an applicable margin. The applicable margin is determined on the date of borrowing.
Uncommitted Letters of Credit
Outside of our domestic and foreign committed credit facilities, we have bilateral unsecured standby letter of credit capacity with select lenders that is uncommitted and supported by reimbursement agreements. At December 31, 2020, we had2021, there was approximately $508$682 million in standby letters of credit outstanding under these agreements.
TERM LOAN | | | | | | | | | | | |
UNCOMMITTED LETTERS OF CREDIT |
(Dollars in millions) |
| | | December 31, 2021 |
| Expiration date range | | Uncommitted letters of credit outstanding |
SDG&E | January 2022 to May 2022 | | $ | 15 | |
SoCalGas | March 2022 to November 2022 | | 15 | |
Sempra Infrastructure | March 2022 to October 2043 | | 473 | |
Parent and other | April 2022 to May 2023 | | 179 | |
Total | | $ | 682 | |
Term Loan
In March 2020 and April 2020, Sempra Energy borrowedJune 2021, SDG&E entered into a total of $1,599$375 million, net of $1 million of debt discounts and issuance costs, under a 364-day term loan which hadwith a maturity date of March 16,June 27, 2022. At December 31, 2021, with an option to extend the maturity date to September 16, 2021, subject to receiving the consent$375 million, net of the lenders. Sempra Energy used the proceeds fromnegligible issuance costs, was outstanding under the term loan to repay borrowings on its committed lines of credit and for other general corporate purposes. Thisloan. The borrowing bears interest at benchmark rates plus 62.5 bps. The term loan was repaid in full in September 2020.provides SDG&E with additional liquidity outside of its line of credit.
WEIGHTED-AVERAGE INTEREST RATESWeighted-Average Interest Rates
The weighted-average interest rates on the total short-term debt at December 31 2020 and 2019 were as follows:
| WEIGHTED-AVERAGE INTEREST RATES | WEIGHTED-AVERAGE INTEREST RATES | | WEIGHTED-AVERAGE INTEREST RATES | |
| | | December 31, | | December 31, |
| | | | 2020 | | 2019 | | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated | | 0.83 | % | | 2.31 | % | |
Sempra | | Sempra | 0.60 | % | | 0.83 | % | | 2.31 | % |
SDG&E | SDG&E | | 0 | | | 1.97 | | SDG&E | 0.65 | | | — | | | 1.97 | |
SoCalGas | SoCalGas | | 0.14 | | | 1.86 | | SoCalGas | 0.21 | | | 0.14 | | | 1.86 | |
F-75
LONG-TERM DEBT
The following tables show the detail and maturities of long-term debt outstanding:
| LONG-TERM DEBT AND FINANCE LEASES | LONG-TERM DEBT AND FINANCE LEASES | | LONG-TERM DEBT AND FINANCE LEASES | |
(Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| | December 31, | | December 31, |
| | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
SDG&E: | SDG&E: | | | | SDG&E: | | | | |
First mortgage bonds (collateralized by plant assets): | First mortgage bonds (collateralized by plant assets): | | | | First mortgage bonds (collateralized by plant assets): | | | | |
3% August 15, 2021 | 3% August 15, 2021 | $ | 350 | | | $ | 350 | | 3% August 15, 2021 | $ | — | | | $ | 350 | | | $ | 350 | |
1.914% payable 2015 through February 2022 | 1.914% payable 2015 through February 2022 | 53 | | | 89 | | 1.914% payable 2015 through February 2022 | 17 | | | 53 | | | 89 | |
3.6% September 1, 2023 | 3.6% September 1, 2023 | 450 | | | 450 | | 3.6% September 1, 2023 | 450 | | | 450 | | | 450 | |
2.5% May 15, 2026 | 2.5% May 15, 2026 | 500 | | | 500 | | 2.5% May 15, 2026 | 500 | | | 500 | | | 500 | |
6% June 1, 2026 | 6% June 1, 2026 | 250 | | | 250 | | 6% June 1, 2026 | 250 | | | 250 | | | 250 | |
1.7% October 1, 2030 | 1.7% October 1, 2030 | 800 | | | 0 | | 1.7% October 1, 2030 | 800 | | | 800 | | | — | |
5.875% January and February 2034(1) | 5.875% January and February 2034(1) | 0 | | | 176 | | 5.875% January and February 2034(1) | — | | | — | | | 176 | |
5.35% May 15, 2035 | 5.35% May 15, 2035 | 250 | | | 250 | | 5.35% May 15, 2035 | 250 | | | 250 | | | 250 | |
6.125% September 15, 2037 | 6.125% September 15, 2037 | 250 | | | 250 | | 6.125% September 15, 2037 | 250 | | | 250 | | | 250 | |
4% May 1, 2039(1) | 4% May 1, 2039(1) | 0 | | | 75 | | 4% May 1, 2039(1) | — | | | — | | | 75 | |
6% June 1, 2039 | 6% June 1, 2039 | 300 | | | 300 | | 6% June 1, 2039 | 300 | | | 300 | | | 300 | |
5.35% May 15, 2040 | 5.35% May 15, 2040 | 250 | | | 250 | | 5.35% May 15, 2040 | 250 | | | 250 | | | 250 | |
4.5% August 15, 2040 | 4.5% August 15, 2040 | 500 | | | 500 | | 4.5% August 15, 2040 | 500 | | | 500 | | | 500 | |
3.95% November 15, 2041 | 3.95% November 15, 2041 | 250 | | | 250 | | 3.95% November 15, 2041 | 250 | | | 250 | | | 250 | |
4.3% April 1, 2042 | 4.3% April 1, 2042 | 250 | | | 250 | | 4.3% April 1, 2042 | 250 | | | 250 | | | 250 | |
3.75% June 1, 2047 | 3.75% June 1, 2047 | 400 | | | 400 | | 3.75% June 1, 2047 | 400 | | | 400 | | | 400 | |
4.15% May 15, 2048 | 4.15% May 15, 2048 | 400 | | | 400 | | 4.15% May 15, 2048 | 400 | | | 400 | | | 400 | |
4.1% June 15, 2049 | 4.1% June 15, 2049 | 400 | | | 400 | | 4.1% June 15, 2049 | 400 | | | 400 | | | 400 | |
3.32% April 15, 2050 | 3.32% April 15, 2050 | 400 | | | 0 | | 3.32% April 15, 2050 | 400 | | | 400 | | | — | |
2.95% August 15, 2051 | | 2.95% August 15, 2051 | 750 | | | — | | | — | |
| | 6,053 | | | 5,140 | | | 6,417 | | | 6,053 | | | 5,140 | |
Other long-term debt (uncollateralized): | Other long-term debt (uncollateralized): | | | | Other long-term debt (uncollateralized): | | | | |
Variable rate (0.95% at December 31, 2020) 364-day term loan March 18, 2021(1) | Variable rate (0.95% at December 31, 2020) 364-day term loan March 18, 2021(1) | 200 | | | 0 | | Variable rate (0.95% at December 31, 2020) 364-day term loan March 18, 2021(1) | — | | | 200 | | | — | |
Finance lease obligations: | Finance lease obligations: | | Finance lease obligations: | |
Purchased-power contracts | Purchased-power contracts | 1,237 | | | 1,255 | | Purchased-power contracts | 1,217 | | | 1,237 | | | 1,255 | |
Other | Other | 39 | | | 15 | | Other | 57 | | | 39 | | | 15 | |
| | 1,476 | | | 1,270 | | | 1,274 | | | 1,476 | | | 1,270 | |
| | 7,529 | | | 6,410 | | | 7,691 | | | 7,529 | | | 6,410 | |
Current portion of long-term debt | Current portion of long-term debt | (611) | | | (56) | | Current portion of long-term debt | (49) | | | (611) | | | (56) | |
Unamortized discount on long-term debt | Unamortized discount on long-term debt | (13) | | | (12) | | Unamortized discount on long-term debt | (17) | | | (13) | | | (12) | |
Unamortized debt issuance costs | Unamortized debt issuance costs | (39) | | | (36) | | Unamortized debt issuance costs | (44) | | | (39) | | | (36) | |
Total SDG&E | Total SDG&E | 6,866 | | | 6,306 | | Total SDG&E | 7,581 | | | 6,866 | | | 6,306 | |
| SoCalGas: | SoCalGas: | | | | SoCalGas: | | | | |
First mortgage bonds (collateralized by plant assets): | First mortgage bonds (collateralized by plant assets): | | | | First mortgage bonds (collateralized by plant assets): | | | | |
3.15% September 15, 2024 | 3.15% September 15, 2024 | $ | 500 | | | $ | 500 | | 3.15% September 15, 2024 | $ | 500 | | | $ | 500 | | | $ | 500 | |
3.2% June 15, 2025 | 3.2% June 15, 2025 | 350 | | | 350 | | 3.2% June 15, 2025 | 350 | | | 350 | | | 350 | |
2.6% June 15, 2026 | 2.6% June 15, 2026 | 500 | | | 500 | | 2.6% June 15, 2026 | 500 | | | 500 | | | 500 | |
2.55% February 1, 2030 | 2.55% February 1, 2030 | 650 | | | 0 | | 2.55% February 1, 2030 | 650 | | | 650 | | | — | |
5.75% November 15, 2035 | 5.75% November 15, 2035 | 250 | | | 250 | | 5.75% November 15, 2035 | 250 | | | 250 | | | 250 | |
5.125% November 15, 2040 | 5.125% November 15, 2040 | 300 | | | 300 | | 5.125% November 15, 2040 | 300 | | | 300 | | | 300 | |
3.75% September 15, 2042 | 3.75% September 15, 2042 | 350 | | | 350 | | 3.75% September 15, 2042 | 350 | | | 350 | | | 350 | |
4.45% March 15, 2044 | 4.45% March 15, 2044 | 250 | | | 250 | | 4.45% March 15, 2044 | 250 | | | 250 | | | 250 | |
4.125% June 1, 2048 | 4.125% June 1, 2048 | 400 | | | 400 | | 4.125% June 1, 2048 | 400 | | | 400 | | | 400 | |
4.3% January 15, 2049 | 4.3% January 15, 2049 | 550 | | | 550 | | 4.3% January 15, 2049 | 550 | | | 550 | | | 550 | |
3.95% February 15, 2050 | 3.95% February 15, 2050 | 350 | | | 350 | | 3.95% February 15, 2050 | 350 | | | 350 | | | 350 | |
| | | 4,450 | | | 3,800 | | | 4,450 | | | 4,450 | | | 3,800 | |
Other long-term debt (uncollateralized): | Other long-term debt (uncollateralized): | | | | Other long-term debt (uncollateralized): | | | | |
Notes at variable rates (0.57% at December 31, 2020) September 14, 2023(1) | 300 | | | 0 | | |
Notes at variable rates (0.55% at December 31, 2021) September 14, 2023(1) | | Notes at variable rates (0.55% at December 31, 2021) September 14, 2023(1) | 300 | | | 300 | | | — | |
1.875% Notes May 14, 2026(1) | 1.875% Notes May 14, 2026(1) | 4 | | | 4 | | 1.875% Notes May 14, 2026(1) | 4 | | | 4 | | | 4 | |
5.67% Notes January 18, 2028 | 5 | | | 5 | | |
5.67% Notes January 18, 2028(2) | | 5.67% Notes January 18, 2028(2) | 5 | | | 5 | | | 5 | |
Finance lease obligations | Finance lease obligations | 54 | | | 19 | | Finance lease obligations | 61 | | | 54 | | | 19 | |
| | 363 | | | 28 | | | 370 | | | 363 | | | 28 | |
| | 4,813 | | | 3,828 | | | 4,820 | | | 4,813 | | | 3,828 | |
Current portion of long-term debt | Current portion of long-term debt | (10) | | | (6) | | Current portion of long-term debt | (11) | | | (10) | | | (6) | |
Unamortized discount on long-term debt | Unamortized discount on long-term debt | (8) | | | (7) | | Unamortized discount on long-term debt | (7) | | | (8) | | | (7) | |
Unamortized debt issuance costs | Unamortized debt issuance costs | (32) | | | (27) | | Unamortized debt issuance costs | (29) | | | (32) | | | (27) | |
Total SoCalGas | Total SoCalGas | 4,763 | | | 3,788 | | Total SoCalGas | 4,773 | | | 4,763 | | | 3,788 | |
| LONG-TERM DEBT AND FINANCE LEASES (CONTINUED) | LONG-TERM DEBT AND FINANCE LEASES (CONTINUED) | | LONG-TERM DEBT AND FINANCE LEASES (CONTINUED) | |
(Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| | December 31, | | December 31, |
| | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Sempra Energy: | | | | |
Sempra: | | Sempra: | | | | |
Other long-term debt (uncollateralized): | Other long-term debt (uncollateralized): | | | | Other long-term debt (uncollateralized): | | | | |
| 2.4% Notes February 1, 2020 | 2.4% Notes February 1, 2020 | 0 | | | 500 | | 2.4% Notes February 1, 2020 | $ | — | | | $ | — | | | $ | 500 | |
2.4% Notes March 15, 2020 | 2.4% Notes March 15, 2020 | 0 | | | 500 | | 2.4% Notes March 15, 2020 | — | | | — | | | 500 | |
2.85% Notes November 15, 2020 | 2.85% Notes November 15, 2020 | 0 | | | 400 | | 2.85% Notes November 15, 2020 | — | | | — | | | 400 | |
Notes at variable rates (2.50% at December 31, 2019) January 15, 2021(1) | Notes at variable rates (2.50% at December 31, 2019) January 15, 2021(1) | 0 | | | 700 | | Notes at variable rates (2.50% at December 31, 2019) January 15, 2021(1) | — | | | — | | | 700 | |
Notes at variable rates (3.069% after floating-to-fixed rate swaps effective 2019) March 15, 2021 | Notes at variable rates (3.069% after floating-to-fixed rate swaps effective 2019) March 15, 2021 | 850 | | | 850 | | Notes at variable rates (3.069% after floating-to-fixed rate swaps effective 2019) March 15, 2021 | — | | | 850 | | | 850 | |
2.875% Notes October 1, 2022 | 2.875% Notes October 1, 2022 | 500 | | | 500 | | 2.875% Notes October 1, 2022 | — | | | 500 | | | 500 | |
2.9% Notes February 1, 2023 | 2.9% Notes February 1, 2023 | 500 | | | 500 | | 2.9% Notes February 1, 2023 | — | | | 500 | | | 500 | |
4.05% Notes December 1, 2023 | 4.05% Notes December 1, 2023 | 500 | | | 500 | | 4.05% Notes December 1, 2023 | — | | | 500 | | | 500 | |
3.55% Notes June 15, 2024 | 3.55% Notes June 15, 2024 | 500 | | | 500 | | 3.55% Notes June 15, 2024 | — | | | 500 | | | 500 | |
3.75% Notes November 15, 2025 | 3.75% Notes November 15, 2025 | 350 | | | 350 | | 3.75% Notes November 15, 2025 | — | | | 350 | | | 350 | |
3.25% Notes June 15, 2027 | 3.25% Notes June 15, 2027 | 750 | | | 750 | | 3.25% Notes June 15, 2027 | 750 | | | 750 | | | 750 | |
3.4% Notes February 1, 2028 | 3.4% Notes February 1, 2028 | 1,000 | | | 1,000 | | 3.4% Notes February 1, 2028 | 1,000 | | | 1,000 | | | 1,000 | |
3.8% Notes February 1, 2038 | 3.8% Notes February 1, 2038 | 1,000 | | | 1,000 | | 3.8% Notes February 1, 2038 | 1,000 | | | 1,000 | | | 1,000 | |
6% Notes October 15, 2039 | 6% Notes October 15, 2039 | 750 | | | 750 | | 6% Notes October 15, 2039 | 750 | | | 750 | | | 750 | |
4% Notes February 1, 2048 | 4% Notes February 1, 2048 | 800 | | | 800 | | 4% Notes February 1, 2048 | 800 | | | 800 | | | 800 | |
4.125% Junior Subordinated Notes April 1, 2052(1) | | 4.125% Junior Subordinated Notes April 1, 2052(1) | 1,000 | | | — | | | — | |
5.75% Junior Subordinated Notes July 1, 2079(1) | 5.75% Junior Subordinated Notes July 1, 2079(1) | 758 | | | 758 | | 5.75% Junior Subordinated Notes July 1, 2079(1) | 758 | | | 758 | | | 758 | |
| Sempra Mexico | | | |
Sempra Infrastructure: | | Sempra Infrastructure: | | |
Other long-term debt (uncollateralized unless otherwise noted): | Other long-term debt (uncollateralized unless otherwise noted): | | | Other long-term debt (uncollateralized unless otherwise noted): | | |
6.3% Notes February 2, 2023 (4.124% after cross-currency swap effective 2013) | 6.3% Notes February 2, 2023 (4.124% after cross-currency swap effective 2013) | 197 | | | 207 | | 6.3% Notes February 2, 2023 (4.124% after cross-currency swap effective 2013) | 189 | | | 197 | | | 207 | |
Notes at variable rates (4.88% after floating-to-fixed rate swaps effective 2014), payable 2016 through December 2026, collateralized by plant assets | 196 | | | 237 | | |
Loan at variable rates (2.93% at December 31, 2021) December 9, 2025 | | Loan at variable rates (2.93% at December 31, 2021) December 9, 2025 | 341 | | | 17 | | | — | |
Notes at 2.87% to 3.51% October 1, 2026(1) | | Notes at 2.87% to 3.51% October 1, 2026(1) | — | | | — | | | 22 | |
Notes at variable rates (5.13% after floating-to-fixed rate swaps effective 2014), payable 2016 through December 2026, collateralized by plant assets(2) | | Notes at variable rates (5.13% after floating-to-fixed rate swaps effective 2014), payable 2016 through December 2026, collateralized by plant assets(2) | 154 | | | 196 | | | 237 | |
3.75% Notes January 14, 2028 | 3.75% Notes January 14, 2028 | 300 | | | 300 | | 3.75% Notes January 14, 2028 | 300 | | | 300 | | | 300 | |
Loan at variable rates (5.75% at December 31, 2019) July 31, 2028(1) | | Loan at variable rates (5.75% at December 31, 2019) July 31, 2028(1) | — | | | — | | | 11 | |
Bank loans including $234 at a weighted-average fixed rate of 6.87%, $130 at variable rates (weighted-average rate of 6.54% after floating-to-fixed rate swaps effective 2014) and $34 at variable rates (3.45% at December 31, 2020), payable 2016 through March 2032, collateralized by plant assets | Bank loans including $234 at a weighted-average fixed rate of 6.87%, $130 at variable rates (weighted-average rate of 6.54% after floating-to-fixed rate swaps effective 2014) and $34 at variable rates (3.45% at December 31, 2020), payable 2016 through March 2032, collateralized by plant assets | 398 | | | 423 | | Bank loans including $234 at a weighted-average fixed rate of 6.87%, $130 at variable rates (weighted-average rate of 6.54% after floating-to-fixed rate swaps effective 2014) and $34 at variable rates (3.45% at December 31, 2020), payable 2016 through March 2032, collateralized by plant assets | — | | | 398 | | | 423 | |
Loan at variable rates (4.0275% after floating-to-fixed rate swap effective 2019) payable 2022 through November 2034(1) | | Loan at variable rates (4.0275% after floating-to-fixed rate swap effective 2019) payable 2022 through November 2034(1) | 200 | | | 200 | | | 200 | |
2.9% Loan November 15, 2034(1) | | 2.9% Loan November 15, 2034(1) | 241 | | | 241 | | | — | |
Loan at variable rates (2.38% after floating-to-fixed rate swap effective 2020) payable November 2034(1) | | Loan at variable rates (2.38% after floating-to-fixed rate swap effective 2020) payable November 2034(1) | 100 | | | 100 | | | — | |
4.875% Notes January 14, 2048 | 4.875% Notes January 14, 2048 | 540 | | | 540 | | 4.875% Notes January 14, 2048 | 540 | | | 540 | | | 540 | |
Loan at variable rates (5.75% at December 31, 2019) July 31, 2028(1) | 0 | | | 11 | | |
Loan at variable rates (4.0275% after floating-to-fixed rate swap effective 2019) payable 2022 through November 2034(1) | 200 | | | 200 | | |
4.75% notes January 15, 2051 | 800 | | | 0 | | |
Loan at variable rates (2.38% after floating-to-fixed rate swap effective 2020) payable November 2034(1) | 100 | | | 0 | | |
2.90% loan November 15, 2034(1) | 241 | | | 0 | | |
Sempra LNG | | |
Other long-term debt (uncollateralized): | | |
Notes at 2.87% to 3.51% October 1, 2026(1) | 0 | | | 22 | | |
Loan at variable rates (2.82% at December 31, 2020) December 9, 2025(1) | 17 | | | 0 | | |
4.75% Notes January 15, 2051 | | 4.75% Notes January 15, 2051 | 800 | | | 800 | | | — | |
| | 11,247 | | | 12,298 | | | 8,923 | | | 11,247 | | | 12,298 | |
Current portion of long-term debt | Current portion of long-term debt | (919) | | | (1,464) | | Current portion of long-term debt | (46) | | | (919) | | | (1,464) | |
Unamortized discount on long-term debt | Unamortized discount on long-term debt | (55) | | | (35) | | Unamortized discount on long-term debt | (65) | | | (55) | | | (35) | |
| Unamortized debt issuance costs | Unamortized debt issuance costs | (121) | | | (108) | | Unamortized debt issuance costs | (98) | | | (121) | | | (108) | |
Total other Sempra Energy | 10,152 | | | 10,691 | | |
Total Sempra Energy Consolidated | $ | 21,781 | | | $ | 20,785 | | |
Total other Sempra | | Total other Sempra | 8,714 | | | 10,152 | | | 10,691 | |
Total Sempra | | Total Sempra | $ | 21,068 | | | $ | 21,781 | | | $ | 20,785 | |
(1) Callable long-term debt not subject to make-whole provisions.
(2) Debt is not callable.
| MATURITIES OF LONG-TERM DEBT(1) | MATURITIES OF LONG-TERM DEBT(1) | MATURITIES OF LONG-TERM DEBT(1) |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | SDG&E | | SoCalGas | | Other Sempra Energy | | Total Sempra Energy Consolidated | | SDG&E | | SoCalGas | | Other Sempra | | Total Sempra |
2021 | $ | 585 | | | $ | 0 | | | $ | 919 | | | $ | 1,504 | | |
2022 | 2022 | 18 | | | 0 | | | 583 | | | 601 | | 2022 | $ | 17 | | | $ | — | | | $ | 46 | | | $ | 63 | |
2023 | 2023 | 450 | | | 300 | | | 1,281 | | | 2,031 | | 2023 | 450 | | | 300 | | | 257 | | | 1,007 | |
2024 | 2024 | 0 | | | 500 | | | 564 | | | 1,064 | | 2024 | — | | | 500 | | | 48 | | | 548 | |
2025 | 2025 | 0 | | | 350 | | | 461 | | | 811 | | 2025 | — | | | 350 | | | 410 | | | 760 | |
2026 | | 2026 | 750 | | | 500 | | | 74 | | | 1,324 | |
Thereafter | Thereafter | 5,200 | | | 3,609 | | | 7,439 | | | 16,248 | | Thereafter | 5,200 | | | 3,109 | | | 8,088 | | | 16,397 | |
Total | Total | $ | 6,253 | | | $ | 4,759 | | | $ | 11,247 | | | $ | 22,259 | | Total | $ | 6,417 | | | $ | 4,759 | | | $ | 8,923 | | | $ | 20,099 | |
(1) Excludes finance lease obligations, discounts, and debt issuance costs.
Various long-term obligations totaling $11.2$9.1 billion at Sempra Energy Consolidated at December 31, 20202021 are unsecured. This includes unsecured long-term obligations totaling $200 million at SDG&E and $309 million at SoCalGas. SDG&E does not have unsecured long-term obligations at December 31, 2021.
Callable Long-Term Debt
At the option of Sempra, Energy, SDG&E and SoCalGas, certain debt at December 31, 20202021 is callable subject to premiums:
| CALLABLE LONG-TERM DEBT | CALLABLE LONG-TERM DEBT | CALLABLE LONG-TERM DEBT |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | SDG&E | | SoCalGas | | Other Sempra Energy | | Total Sempra Energy Consolidated | | SDG&E | | SoCalGas | | Other Sempra | | Total Sempra |
Not subject to make-whole provisions | Not subject to make-whole provisions | $ | 200 | | | $ | 304 | | | $ | 1,299 | | | $ | 1,803 | | Not subject to make-whole provisions | $ | — | | | $ | 304 | | | $ | 2,299 | | | $ | 2,603 | |
Subject to make-whole provisions | Subject to make-whole provisions | 6,053 | | | 4,450 | | | 8,503 | | | 19,006 | | Subject to make-whole provisions | 6,417 | | | 4,450 | | | 6,470 | | | 17,337 | |
First Mortgage Bonds
The California UtilitiesSDG&E and SoCalGas issue first mortgage bonds secured by a lienliens on their respective utility plant assets. The California UtilitiesSDG&E and SoCalGas may issue additional first mortgage bonds if in compliance with the provisions of their bond agreements (indentures). These indentures require, among other things, the satisfaction of pro forma earnings-coverage tests on first mortgage bond interest and the availability of sufficient mortgaged property to support the additional bonds, after giving effect to prior bond redemptions. The most restrictive of these tests (the property test) would permit the issuance, subject to CPUC authorization, of additional first mortgage bonds of $6.5$7.3 billion at SDG&E and $1.2$1.9 billion at SoCalGas at December 31, 2020.2021.
SDG&E
In September 2020,August 2021, SDG&E issued $800$750 million of 1.70%2.95% green first mortgage bonds maturing in 20302051 and received proceeds of $792$737 million, net of debt discount, underwriting discounts and debt issuance costs of $13 million. SDG&E intends to use the net proceeds to finance or refinance eligible projects that fall into one or more of the following categories: climate change adaptation, clean energy solutions and clean transportation.
Other Long-Term Debt
Sempra
In December 2021, Sempra redeemed, at respective make-whole redemption prices, an aggregate principal amount of $2.35 billion of senior unsecured notes prior to scheduled maturities in 2022 through 2025. Upon the early redemptions, we recognized $126 million ($92 million after tax) in charges associated with the make-whole premiums and a write-off of unamortized discount and debt issuance costs.
In November 2021, we issued $1.0 billion of 4.125% fixed-to-fixed reset rate junior subordinated notes maturing on April 1, 2052. Interest on the notes accrues from and including November 19, 2021 and is payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2022. The notes will bear interest (i) from and including November 19, 2021 to, but excluding, April 1, 2027 at the rate of 4.125% per annum and (ii) from and including April 1, 2027, during each subsequent five-year period beginning on April 1 of every fifth year, at a rate per annum equal to the Five-year U.S. Treasury Rate (as defined in the notes) as of the day falling two business days before the first day of such five-year period plus a spread of 2.868%, to be reset on April 1 of every fifth year beginning in 2027. We received proceeds of $988 million (net of underwriting discounts and debt issuance costs of $12 million). We used the proceeds from the offering to repay a portion of the aggregate principal amount of the $2.35 billion of senior unsecured notes that we discuss above. We may redeem some or all of the notes before their maturity, as follows:
▪in whole or from time to time in part, on any day during any period from and including the January 1 immediately preceding an interest rate reset date through and including such reset date at a redemption price in cash equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest on the notes to be redeemed to, but excluding, the redemption date;
▪in whole but not in part, at any time following the occurrence and during the continuance of a tax event (as defined in the notes) at a redemption price in cash equal to 100% of the principal amount of the notes, plus accrued and unpaid interest on the notes to, but excluding, the redemption date; and
▪in whole but not in part, at any time following the occurrence and during the continuance of a rating agency event (as defined in the notes) at a redemption price in cash equal to 102% of the principal amount of the notes, plus accrued and unpaid interest on the notes to, but excluding, the redemption date.
The notes are unsecured obligations and rank junior and subordinate in right of payment to our existing and future senior indebtedness. The notes rank equally in right of payment with our existing 5.75% junior subordinated notes due 2079 and with any future unsecured indebtedness that we may incur if the terms of such indebtedness provide that it ranks equally with the notes in right of payment. The notes are effectively subordinated in right of payment to any secured indebtedness we have incurred or may incur and to all existing and future indebtedness and other liabilities of our subsidiaries.
SDG&E
On February 18, 2022, SDG&E entered into a $400 million, two-year term loan with a maturity date of February 18, 2024. SDG&E may request up to three borrowings for an aggregate amount of $400 million through May 18, 2022. On February 18, 2022, SDG&E borrowed $200 million. The borrowing bears interest at benchmark rates plus 62.5 bps. The margin is based on SDG&E’s long-term senior unsecured credit rating.
Sempra Infrastructure
SI Partners. On January 11, 2022, SI Partners completed a private offering of $400 million in aggregate principal of 3.25% senior notes due January 15, 2032 to “qualified institutional buyers” as defined in Rule 144A under the Securities Act of 1933, as amended (the Securities Act), and non-U.S. persons outside the U.S. under Regulation S under the Securities Act. The notes were issued at 98.903% of the principal amount and require semi-annual interest payments in January and July, commencing July 15, 2022. The notes are senior unsecured obligations that rank equally with all of SI Partners’ existing and future outstanding unsecured senior indebtedness. Sempra Infrastructure received proceeds of $390 million (net of debt discount, underwriting discounts and debt issuance costs of $8$10 million). SDG&E used a portion ofSempra Infrastructure intends to use the proceeds from the offering to redeem $176 million, prior to a scheduled maturity in 2034, and $75 million, prior to a scheduled maturity in 2039, of tax-exempt industrial development revenue refunding bonds in December 2020. SDG&E used the remainingnet proceeds for general corporate purposes, includingwhich may include the repayment of commercial paper.certain indebtedness of its subsidiaries.
In April 2020, SDG&E issued $400 million of 3.32% first mortgage bonds maturing in 2050 and received proceeds of $395 million (net of debt discount, underwriting discounts and debt issuance costs of $5 million). SDG&E used $200 million of the proceeds from the offering to repay line of credit borrowings, and the remaining proceeds for working capital and other general corporate purposes.
SoCalGas
In January 2020, SoCalGas issued $650 million of 2.55% first mortgage bonds maturing in 2030 and received proceeds of $643 million (net of debt discount, underwriting discounts and debt issuance costs of $7 million). SoCalGas used the proceeds from the offering to repay outstanding commercial paper and for other general corporate purposes.
Other Long-Term Debt
Sempra Energy
In October 2020, Sempra Energy redeemed $700 million of floating-rate notes,At any time prior to a scheduled maturity in January 2021, utilizing a portion of the proceeds received from the sales of our South American businesses.
SDG&E
In March 2020, SDG&E borrowed $200 million under a 364-day term loan, which has a maturity date of March 18, 2021 with an option to extend the maturity date to September 17, 2021, subject to receiving the consent of the lenders. Borrowings bear interest at benchmark rates plus 80 bps (0.95% at December 31, 2020). The term loan provides SDG&E with additional liquidity outside of its committed line of credit. SDG&E classified this term loan as long-term debt based on management’s intent and ability to maintain this level of borrowing on a long-term basis by issuing long-term debt. At December 31, 2020, this term loan was included in Current Portion of Long-Term Debt and Finance Leases on SDG&E’s and Sempra Energy’s Consolidated Balance Sheets.
In the first quarter of 2020, SDG&E borrowed $200 million from its line of credit and classified it as long-term debt based on management’s intent and ability to maintain this level of borrowing on a long-term basis either supported by this credit facility or
by issuing long-term debt. In the second quarter of 2020, SDG&E repaid these borrowings with proceeds from the issuance of first mortgage bonds, which we discuss above.
SoCalGas
In September 2020, SoCalGas issued $300 million of senior unsecured floating rate notes maturing in 2023 and received proceeds of $298 million (net of underwriting discounts and debt issuance costs of $2 million). The notes bear interest at a per annum rate equal to the 3-month LIBOR rate (or, under certain circumstances, a benchmark replacement rate), reset quarterly, plus 35 bps. SoCalGasOctober 15, 2031, SI Partners may at its option, redeem some or all of the floating rate notes at any time on or after March 14, 2021 at a redemption price equal toby paying the greater of (i) 100% of the principal amount of the notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to, but excluding, the date of redemption) as if redeemed on October 15, 2031 discounted to the redemption date on a semi-annual basis at the U.S. Treasury rate plus 25 bps and, in each case, accrued and unpaid interest to, but excluding, the date of redemption. At any time beginning on October 15, 2031, SI Partners may redeem some or all of the notes being redeemed. SoCalGas usedby paying 100% of the proceeds fromprincipal amount of the offering for general corporate purposes, including repaymentnotes to be redeemed, plus, in each case, accrued and unpaid interest to, but excluding, the date of commercial paper.
Sempra Mexico
In September 2020, IEnova offered and soldredemption. Upon the occurrence of specific kinds of change of control events that result in a private placement $800 milliondowngrade of 4.75% senior unsecuredSI Partners’ credit ratings, holders of the notes maturingwould have the right to require SI Partners to offer to purchase some or all of the notes at 101% of the then outstanding principal amount thereof, plus, in 2051each case, accrued and received proceedsunpaid interest to, but excluding, the date of $770 million (net of debt discount, underwriting discounts and debt issuance costs of $30 million). IEnova used the proceeds from the offering to repay line of credit borrowings and for other general corporate purposes.redemption.
In November 2019, IEnova entered into a financing agreement with International Finance Corporation and North American Development Bank to finance and/or refinance the construction of solar generation projects in Mexico. Under this agreement, in April 2020, IEnova borrowed $100 million from Japan International Cooperation Agency, with loan proceeds of $98 million (net of debt issuance costs of $2 million). The loan matures in November 2034 and bears interest based on 6-month LIBOR plus 150 bps. In April 2020, IEnova entered into a floating-to-fixed interest rate swap, resulting in a fixed rate of 2.38%. Also under the financing agreement, in June 2020, IEnova borrowed $241 million from U.S. International Development Finance Corporation, with loan proceeds of $236 million (net of debt issuance costs of $5 million). The loan matures in November 2034 and bears interest at a fixed rate of 2.90%.
SempraECA LNG
Phase 1.In December 2020, ECA LNG Phase 1 entered into a five-year loan agreement with a syndicate of nine banks for an aggregate principal amount of up to $1.6 billion, of which $17 million was outstanding as of December 31, 2020.billion. Proceeds from the loan are being used to finance the cost of development and construction of a one-train natural gas liquefaction export facility with a name-plate capacity of 3.25 Mtpa and initial offtake capacity of approximately 2.5 Mtpa. The loan matures in December 2025 and bears interest at a weighted-average blended rate of 2.70% plus a benchmark interest rate per annum equal to (a) the LIBOR for such interest period divided by (b) one minus the Eurodollar Reserve Percentage; provided that in no event shall the benchmark at any time be less than 0% per annum. ECA LNG Phase 1 may elect for each calendar quarter (i) three successive interest periods of one month or (ii) a single interest period of three months. Sempra Energy, IEnova and TOTALTotalEnergies SE have provided guarantees for repayment of the loans plus accrued and unpaid interest based on their proportionate ownership interest in ECA LNG Phase 1 of 41.7%, 41.7%83.4% and 16.6%, respectively. The effective interest rate of the loan is based on the interest payments made to external lenders and guarantee payments made to TOTALTotalEnergies SE as a guarantor. At December 31, 2021 and 2020, $341 million and $17 million, respectively, was outstanding under the loan agreement, with a weighted-average interest rate of 2.93% and 2.82%, respectively.
ESJ.As we discuss in “Shareholders’ EquityNote 5, through its acquisition of the remaining 50% of ESJ, Sempra Infrastructure assumed a $177 million (net of $6 million in unamortized debt issuance costs) variable rate loan payable to a syndicate of 5 lenders that matures in June 2033. To moderate exposure to interest rate and Noncontrolling Interests – Other Noncontrolling Interests –associated cash flow variability, ESJ entered into floating-to-fixed rate swaps for 90% of the principal balance, resulting in a fixed rate of 6.13%. The remaining 10% of the principal balance bore interest at 6-month LIBOR plus a margin of 2.63% with an increase of 25 bps every four years. On October 8, 2021, Sempra LNG”Infrastructure used proceeds from borrowings against IEnova’s committed and uncommitted lines of credit to fully repay the $175 million of outstanding principal plus accrued and unpaid interest on the ESJ loan prior to its scheduled maturity in Note 14, notes payable totaling $222033, and recognized $18 million due($10 million after tax and NCI) in charges associated with hedge termination costs and a write-off of unamortized debt issuance costs.
Ventika. On October 1, 2026 were converted13, 2021, Sempra Infrastructure used proceeds from borrowings against IEnova’s committed and uncommitted lines of credit to equity byfully repay $375 million of outstanding principal plus accrued and unpaid interest on the minority partnerVentika fixed- and variable-rate loans prior to scheduled maturity dates through 2032, and recognized $36 million ($20 million after tax and NCI) in Liberty Gas Storage LLCcharges associated with hedge termination costs and are no longer outstanding.a write-off of unamortized debt issuance costs.
NOTE 8. INCOME TAXES
We provide our calculations of ETRs in the following table.
| INCOME TAX EXPENSE (BENEFIT) AND EFFECTIVE INCOME TAX RATES | INCOME TAX EXPENSE (BENEFIT) AND EFFECTIVE INCOME TAX RATES | INCOME TAX EXPENSE (BENEFIT) AND EFFECTIVE INCOME TAX RATES |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated: | | |
Income tax expense (benefit) from continuing operations | $ | 249 | | | $ | 315 | | | $ | (49) | | |
Sempra: | | Sempra: | |
Income tax expense from continuing operations | | Income tax expense from continuing operations | $ | 99 | | | $ | 249 | | | $ | 315 | |
| Income from continuing operations before income taxes and equity earnings | Income from continuing operations before income taxes and equity earnings | $ | 1,489 | | | $ | 1,734 | | | $ | 714 | | Income from continuing operations before income taxes and equity earnings | $ | 219 | | | $ | 1,489 | | | $ | 1,734 | |
Equity earnings (losses), before income tax(1) | 294 | | | 30 | | | (236) | | |
Equity earnings, before income tax(1) | | Equity earnings, before income tax(1) | 614 | | | 294 | | | 30 | |
Pretax income | Pretax income | $ | 1,783 | | | $ | 1,764 | | | $ | 478 | | Pretax income | $ | 833 | | | $ | 1,783 | | | $ | 1,764 | |
| Effective income tax rate | Effective income tax rate | 14 | % | | 18 | % | | (10) | % | Effective income tax rate | 12 | % | | 14 | % | | 18 | % |
SDG&E: | SDG&E: | | SDG&E: | |
Income tax expense | Income tax expense | $ | 190 | | | $ | 171 | | | $ | 173 | | Income tax expense | $ | 201 | | | $ | 190 | | | $ | 171 | |
Income before income taxes | Income before income taxes | $ | 1,014 | | | $ | 945 | | | $ | 849 | | Income before income taxes | $ | 1,020 | | | $ | 1,014 | | | $ | 945 | |
Effective income tax rate | Effective income tax rate | 19 | % | | 18 | % | | 20 | % | Effective income tax rate | 20 | % | | 19 | % | | 18 | % |
SoCalGas: | SoCalGas: | | SoCalGas: | |
Income tax expense | $ | 96 | | | $ | 120 | | | $ | 92 | | |
Income before income taxes | $ | 601 | | | $ | 762 | | | $ | 493 | | |
Income tax (benefit) expense | | Income tax (benefit) expense | $ | (310) | | | $ | 96 | | | $ | 120 | |
(Loss) income before income taxes | | (Loss) income before income taxes | $ | (736) | | | $ | 601 | | | $ | 762 | |
Effective income tax rate | Effective income tax rate | 16 | % | | 16 | % | | 19 | % | Effective income tax rate | 42 | % | | 16 | % | | 16 | % |
(1) We discuss how we recognize equity earnings in Note 6.
For SDG&E and SoCalGas, the CPUC requires flow-through rate-making treatment for the current income tax benefit or expense arising from certain property-related and other temporary differences between the treatment for financial reporting and income tax, which will reverse over time. Under the regulatory accounting treatment required for these flow-through temporary differences, deferred income tax assets and liabilities are not recorded to deferred income tax expense, but rather to a regulatory asset or liability, which impacts the ETR. As a result, changes in the relative size of these items compared to pretax income, from period to period, can cause variations in the ETR. The following items are subject to flow-through treatment:
▪repairs expenditures related to a certain portion of utility plant fixed assets
▪the equity portion of AFUDC, which is non-taxable
▪a portion of the cost of removal of utility plant assets
▪utility self-developed software expenditures
▪depreciation on a certain portion of utility plant assets
▪state income taxes
The AFUDC related to equity recorded for regulated construction projects at Sempra MexicoInfrastructure has similar flow-through treatment.
We record income tax (expense) benefit from the transactional effects of foreign currency and inflation. SuchThrough the first quarter of 2021, such effects are offset by net gains (losses) from foreign currency derivatives that arewere hedging Sempra Mexico parent’sInfrastructure’s exposure to movements in the Mexican peso from its controlling interest in IEnova.
We present in the table below reconciliations of net U.S. statutory federal income tax rates to our ETRs.
| RECONCILIATION OF FEDERAL INCOME TAX RATES TO EFFECTIVE INCOME TAX RATES | RECONCILIATION OF FEDERAL INCOME TAX RATES TO EFFECTIVE INCOME TAX RATES | RECONCILIATION OF FEDERAL INCOME TAX RATES TO EFFECTIVE INCOME TAX RATES |
| | | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated: | | | | | | |
Sempra: | | Sempra: | | | | | |
U.S. federal statutory income tax rate | U.S. federal statutory income tax rate | 21 | % | | 21 | % | | 21 | % | U.S. federal statutory income tax rate | 21 | % | | 21 | % | | 21 | % |
Outside basis differences | | Outside basis differences | 9 | | | — | | | — | |
Utility depreciation | Utility depreciation | 3 | | | 3 | | | 12 | | Utility depreciation | 8 | | | 3 | | | 3 | |
Non-U.S. earnings taxed at rates different from the U.S. statutory income tax rate(1) | Non-U.S. earnings taxed at rates different from the U.S. statutory income tax rate(1) | 2 | | | 3 | | | 10 | | Non-U.S. earnings taxed at rates different from the U.S. statutory income tax rate(1) | 5 | | | 2 | | | 3 | |
State income taxes, net of federal income tax benefit | 1 | | | 2 | | | (8) | | |
Impairment losses | 1 | | | 0 | | | (32) | | |
Effects of the TCJA | 0 | | | 0 | | | 9 | | |
Unrecognized income tax benefits | 0 | | | 0 | | | 4 | | |
Noncontrolling interests in tax equity arrangements | 0 | | | 0 | | | 3 | | |
Resolution of prior years’ income tax items | 0 | | | 0 | | | (1) | | |
Foreign exchange and inflation effects(2) | | Foreign exchange and inflation effects(2) | 1 | | | (3) | | | 4 | |
Valuation allowances | | Valuation allowances | 1 | | | (1) | | | — | |
Tax credits | | Tax credits | — | | | (1) | | | (2) | |
Excess deferred income taxes outside of ratemaking | Excess deferred income taxes outside of ratemaking | 0 | | | (4) | | | 0 | | Excess deferred income taxes outside of ratemaking | — | | | — | | | (4) | |
Compensation-related items | Compensation-related items | (1) | | | 0 | | | 3 | | Compensation-related items | (1) | | | (1) | | | — | |
Valuation allowances | (1) | | | 0 | | | 0 | | |
Impairment losses | | Impairment losses | (1) | | | 1 | | | — | |
| Noncontrolling interests | | Noncontrolling interests | (2) | | | — | | | — | |
Allowance for equity funds used during construction | Allowance for equity funds used during construction | (1) | | | (1) | | | (4) | | Allowance for equity funds used during construction | (3) | | | (1) | | | (1) | |
Amortization of excess deferred income taxes | Amortization of excess deferred income taxes | (1) | | | (1) | | | (4) | | Amortization of excess deferred income taxes | (3) | | | (1) | | | (1) | |
Tax credits | (1) | | | (2) | | | (10) | | |
Foreign exchange and inflation effects(2) | (3) | | | 4 | | | 6 | | |
Remeasurement of deferred taxes | | Remeasurement of deferred taxes | (4) | | | — | | | — | |
State income taxes, net of federal income tax benefit | | State income taxes, net of federal income tax benefit | (4) | | | 1 | | | 2 | |
Utility self-developed software expenditures | Utility self-developed software expenditures | (3) | | | (2) | | | (7) | | Utility self-developed software expenditures | (5) | | | (3) | | | (2) | |
Utility repairs expenditures | Utility repairs expenditures | (4) | | | (3) | | | (13) | | Utility repairs expenditures | (9) | | | (4) | | | (3) | |
Other, net | Other, net | 1 | | | (2) | | | 1 | | Other, net | (1) | | | 1 | | | (2) | |
Effective income tax rate | Effective income tax rate | 14 | % | | 18 | % | | (10) | % | Effective income tax rate | 12 | % | | 14 | % | | 18 | % |
SDG&E: | SDG&E: | | | | | | SDG&E: | | | | | |
U.S. federal statutory income tax rate | U.S. federal statutory income tax rate | 21 | % | | 21 | % | | 21 | % | U.S. federal statutory income tax rate | 21 | % | | 21 | % | | 21 | % |
State income taxes, net of federal income tax benefit | State income taxes, net of federal income tax benefit | 5 | | | 6 | | | 5 | | State income taxes, net of federal income tax benefit | 5 | | | 5 | | | 6 | |
Depreciation | Depreciation | 3 | | | 3 | | | 3 | | Depreciation | 3 | | | 3 | | | 3 | |
Excess deferred income taxes outside of ratemaking | Excess deferred income taxes outside of ratemaking | 0 | | | (3) | | | 0 | | Excess deferred income taxes outside of ratemaking | — | | | — | | | (3) | |
Self-developed software expenditures | | Self-developed software expenditures | (1) | | | (4) | | | (3) | |
Amortization of excess deferred income taxes | Amortization of excess deferred income taxes | (1) | | | (1) | | | (1) | | Amortization of excess deferred income taxes | (2) | | | (1) | | | (1) | |
Allowance for equity funds used during construction | Allowance for equity funds used during construction | (2) | | | (1) | | | (2) | | Allowance for equity funds used during construction | (2) | | | (2) | | | (1) | |
Repairs expenditures | Repairs expenditures | (3) | | | (3) | | | (3) | | Repairs expenditures | (4) | | | (3) | | | (3) | |
Self-developed software expenditures | (4) | | | (3) | | | (2) | | |
Other, net | Other, net | — | | | (1) | | | (1) | | Other, net | — | | | — | | | (1) | |
Effective income tax rate | Effective income tax rate | 19 | % | | 18 | % | | 20 | % | Effective income tax rate | 20 | % | | 19 | % | | 18 | % |
SoCalGas: | SoCalGas: | | | | | | SoCalGas: | | | | | |
U.S. federal statutory income tax rate | U.S. federal statutory income tax rate | 21 | % | | 21 | % | | 21 | % | U.S. federal statutory income tax rate | 21 | % | | 21 | % | | 21 | % |
State income taxes, net of federal income tax benefit | | State income taxes, net of federal income tax benefit | 11 | | | 2 | | | 4 | |
Repairs expenditures | | Repairs expenditures | 5 | | | (7) | | | (4) | |
Self-developed software expenditures | | Self-developed software expenditures | 5 | | | (4) | | | (2) | |
Amortization of excess deferred income taxes | | Amortization of excess deferred income taxes | 2 | | | (1) | | | (1) | |
Allowance for equity funds used during construction | | Allowance for equity funds used during construction | 1 | | | (1) | | | (1) | |
Nondeductible expenditures | | Nondeductible expenditures | — | | | 2 | | | — | |
Excess deferred income taxes outside of ratemaking | | Excess deferred income taxes outside of ratemaking | — | | | — | | | (5) | |
Depreciation | Depreciation | 5 | | | 4 | | | 7 | | Depreciation | (5) | | | 5 | | | 4 | |
State income taxes, net of federal income tax benefit | 2 | | | 4 | | | 2 | | |
Nondeductible expenditures | 2 | | | 0 | | | 0 | | |
Unrecognized income tax benefits | 0 | | | 0 | | | 4 | | |
Compensation-related items | 0 | | | 0 | | | 1 | | |
Resolution of prior years’ income tax items | 0 | | | 0 | | | (1) | | |
Excess deferred income taxes outside of ratemaking | 0 | | | (5) | | | 0 | | |
Allowance for equity funds used during construction | (1) | | | (1) | | | (2) | | |
Amortization of excess deferred income taxes | (1) | | | (1) | | | (2) | | |
Self-developed software expenditures | (4) | | | (2) | | | (3) | | |
Repairs expenditures | (7) | | | (4) | | | (7) | | |
Other, net | Other, net | (1) | | | 0 | | | (1) | | Other, net | 2 | | | (1) | | | — | |
Effective income tax rate | Effective income tax rate | 16 | % | | 16 | % | | 19 | % | Effective income tax rate | 42 | % | | 16 | % | | 16 | % |
(1) Related to operations in Mexico.
(2) Due to fluctuation of the Mexican peso against the U.S. dollar. We record income tax expense (benefit) from the transactional effects of foreign currency and inflation because of appreciation (depreciation) of the Mexican peso. We also recognize gains (losses) in Other Income (Expense), Net, on the Consolidated Statements of Operations from foreign currency derivatives that are partially hedging Sempra Mexico parent’sInfrastructure’s exposure to movements in the Mexican peso from its controlling interest in IEnova.
In January 2019, our board of directors approved a plan to sell our South American businesses and we completed the sales in the second quarter of 2020, as we discuss in Note 5. Prior to this decision, our repatriation estimate excluded post-2017 earnings and other basis differences related to our South American businesses. Because of our decision to sell our South American businesses,
we no longer assert indefinite reinvestment of these basis differences. Accordingly, we recorded the following income tax impacts from changes in outside basis differences in our discontinued operations in South America:
▪$89 million income tax benefit in 2019 primarily related to outside basis differences existing as of the January 25, 2019 approval of our plan to sell our South American businesses; and
▪$7 million income tax benefit in 2020 compared to $51 million income tax expense in 2019 related to changes in outside basis differences from earnings and foreign currency effects since January 25, 2019.
We expect to repatriate approximately $1.3$1.8 billion of foreign undistributed earnings in the foreseeable future, and have accrued $58$59 million of U.S. state deferred income tax liability as ofat December 31, 20202021 for repatriations that we expect will begin in 20212022 as cash is generated. We repatriated approximately $4.7 billion $254 million and $338$254 million to the U.S. in 2020 2019 and 2018,2019, respectively.
We have not recorded deferred income taxes with respect to remaining basis differences of approximately $1.1 billion$600 million between financial statement and income tax investment amounts in our non-U.S. subsidiaries because we consider them to be indefinitely reinvested as of December 31, 2020.2021. However, the sale of NCI in SI Partners to ADIA, which we discuss in Note 1, would affect our indefinite reinvestment assertion. The remaining basis differences are calculated pursuant to U.S. federal tax law, which may differ from tax law in California and foreign jurisdictions. It is currently not practicable to determine the hypothetical amount of tax that might be payable if the underlying basis differences were realized.
The remeasurement of deferred income tax balances at SDG&E and SoCalGas in December 2017, as a result of the TCJA, resulted in excess deferred income taxes that previously had been collected from ratepayers at the higher rate. In a January 2019 decision, the CPUC directed certain excess deferred income tax balances generated by activities outside of ratemaking be allocated to shareholders rather than ratepayers. As a result, in 2019, SDG&E and SoCalGas recorded income tax benefits of $31 million and $38 million, respectively, from the release of a portion of the regulatory liability established in connection with 2017 tax reform for excess deferred income tax balances.
The table below presents the geographic components of pretax income.
| PRETAX INCOME – SEMPRA ENERGY CONSOLIDATED | |
PRETAX INCOME | | PRETAX INCOME |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Sempra: | | Sempra: | |
By geographic components: | By geographic components: | | By geographic components: | |
U.S. | U.S. | $ | 1,461 | | | $ | 1,191 | | | $ | (102) | | U.S. | $ | 346 | | | $ | 1,461 | | | $ | 1,191 | |
Non-U.S. | Non-U.S. | 322 | | | 573 | | | 580 | | Non-U.S. | 487 | | | 322 | | | 573 | |
Total(1) | Total(1) | $ | 1,783 | | | $ | 1,764 | | | $ | 478 | | Total(1) | $ | 833 | | | $ | 1,783 | | | $ | 1,764 | |
(1) See the Income Tax Expense (Benefit) and Effective Income Tax Rates table above for the calculation of pretax income.U.S. pretax income was lower in 20182021 compared to 2020 and 2019 primarily due to the 2018 impairment of certain assets2021 charges at Sempra LNG and Sempra Renewables (discussed in Notes 5 and 12), offset bySoCalGas related to civil litigation pertaining to the 2018 gain on the sale of assets at Sempra Renewables (discussedLeak, which we describe in Note 5).16.
The components of income tax expense are as follows.
| INCOME TAX EXPENSE (BENEFIT) | INCOME TAX EXPENSE (BENEFIT) | | | | | | INCOME TAX EXPENSE (BENEFIT) | | | | | |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated: | | | | | | |
Sempra: | | Sempra: | | | | | |
Current: | Current: | | | | | | Current: | | | | | |
U.S. federal | $ | 0 | | | $ | 0 | | | $ | (1) | | |
U.S. state | U.S. state | (22) | | | (14) | | | 67 | | U.S. state | $ | (6) | | | $ | (22) | | | $ | (14) | |
Non-U.S. | Non-U.S. | 112 | | | 140 | | | 127 | | Non-U.S. | 183 | | | 112 | | | 140 | |
Total | Total | 90 | | | 126 | | | 193 | | Total | 177 | | | 90 | | | 126 | |
Deferred: | Deferred: | | | | | | Deferred: | | | | | |
U.S. federal | U.S. federal | 157 | | | 87 | | | (121) | | U.S. federal | (9) | | | 157 | | | 87 | |
U.S. state | U.S. state | 36 | | | 21 | | | (183) | | U.S. state | (37) | | | 36 | | | 21 | |
Non-U.S. | Non-U.S. | (34) | | | 84 | | | 66 | | Non-U.S. | (31) | | | (34) | | | 84 | |
Total | Total | 159 | | | 192 | | | (238) | | Total | (77) | | | 159 | | | 192 | |
Deferred investment tax credits | Deferred investment tax credits | 0 | | | (3) | | | (4) | | Deferred investment tax credits | (1) | | | — | | | (3) | |
Total income tax expense (benefit) | $ | 249 | | | $ | 315 | | | $ | (49) | | |
Total income tax expense | | Total income tax expense | $ | 99 | | | $ | 249 | | | $ | 315 | |
SDG&E: | SDG&E: | | | | | | SDG&E: | | | | | |
Current: | Current: | | | | | | Current: | | | | | |
U.S. federal | U.S. federal | $ | 121 | | | $ | 35 | | | $ | 104 | | U.S. federal | $ | 35 | | | $ | 121 | | | $ | 35 | |
U.S. state | U.S. state | 34 | | | 31 | | | 30 | | U.S. state | 13 | | | 34 | | | 31 | |
Total | Total | 155 | | | 66 | | | 134 | | Total | 48 | | | 155 | | | 66 | |
Deferred: | Deferred: | | | | | | Deferred: | | | | | |
U.S. federal | U.S. federal | 11 | | | 75 | | | 17 | | U.S. federal | 99 | | | 11 | | | 75 | |
U.S. state | U.S. state | 25 | | | 32 | | | 24 | | U.S. state | 54 | | | 25 | | | 32 | |
Total | Total | 36 | | | 107 | | | 41 | | Total | 153 | | | 36 | | | 107 | |
Deferred investment tax credits | Deferred investment tax credits | (1) | | | (2) | | | (2) | | Deferred investment tax credits | — | | | (1) | | | (2) | |
Total income tax expense | Total income tax expense | $ | 190 | | | $ | 171 | | | $ | 173 | | Total income tax expense | $ | 201 | | | $ | 190 | | | $ | 171 | |
SoCalGas: | SoCalGas: | | | | | | SoCalGas: | | | | | |
Current: | Current: | | | | | | Current: | | | | | |
U.S. federal | U.S. federal | $ | 163 | | | $ | 8 | | | $ | 4 | | U.S. federal | $ | 134 | | | $ | 163 | | | $ | 8 | |
U.S. state | U.S. state | 45 | | | 24 | | | 10 | | U.S. state | 50 | | | 45 | | | 24 | |
Total | Total | 208 | | | 32 | | | 14 | | Total | 184 | | | 208 | | | 32 | |
Deferred: | Deferred: | | | | | | Deferred: | | | | | |
U.S. federal | U.S. federal | (85) | | | 79 | | | 78 | | U.S. federal | (334) | | | (85) | | | 79 | |
U.S. state | U.S. state | (28) | | | 10 | | | 2 | | U.S. state | (159) | | | (28) | | | 10 | |
Total | Total | (113) | | | 89 | | | 80 | | Total | (493) | | | (113) | | | 89 | |
Deferred investment tax credits | Deferred investment tax credits | 1 | | | (1) | | | (2) | | Deferred investment tax credits | (1) | | | 1 | | | (1) | |
Total income tax expense | $ | 96 | | | $ | 120 | | | $ | 92 | | |
Total income tax (benefit) expense | | Total income tax (benefit) expense | $ | (310) | | | $ | 96 | | | $ | 120 | |
The tables below present the components of deferred income taxes:
| DEFERRED INCOME TAXES – SEMPRA ENERGY CONSOLIDATED | |
DEFERRED INCOME TAXES – SEMPRA | | DEFERRED INCOME TAXES – SEMPRA |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | December 31, | | December 31, |
| | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Deferred income tax liabilities: | Deferred income tax liabilities: | | | | Deferred income tax liabilities: | | | | |
Differences in financial and tax bases of fixed assets, investments and other assets(1) | Differences in financial and tax bases of fixed assets, investments and other assets(1) | $ | 4,891 | | | $ | 4,052 | | Differences in financial and tax bases of fixed assets, investments and other assets(1) | $ | 5,230 | | | $ | 4,891 | | | $ | 4,052 | |
U.S. state and non-U.S. withholding tax on repatriation of foreign earnings | U.S. state and non-U.S. withholding tax on repatriation of foreign earnings | 46 | | | 153 | | U.S. state and non-U.S. withholding tax on repatriation of foreign earnings | 47 | | | 46 | | | 153 | |
Regulatory balancing accounts | Regulatory balancing accounts | 587 | | | 468 | | Regulatory balancing accounts | 538 | | | 587 | | | 468 | |
Right-of-use assets – operating leases | Right-of-use assets – operating leases | 144 | | | 131 | | Right-of-use assets – operating leases | 160 | | | 144 | | | 131 | |
Property taxes | Property taxes | 51 | | | 44 | | Property taxes | 52 | | | 51 | | | 44 | |
Other deferred income tax liabilities | Other deferred income tax liabilities | 40 | | | 93 | | Other deferred income tax liabilities | 50 | | | 40 | | | 93 | |
Total deferred income tax liabilities | Total deferred income tax liabilities | 5,759 | | | 4,941 | | Total deferred income tax liabilities | 6,077 | | | 5,759 | | | 4,941 | |
Deferred income tax assets: | Deferred income tax assets: | | | | Deferred income tax assets: | | | | |
Tax credits | Tax credits | 1,161 | | | 1,136 | | Tax credits | 1,135 | | | 1,161 | | | 1,136 | |
Net operating losses | Net operating losses | 1,299 | | | 911 | | Net operating losses | 706 | | | 1,299 | | | 911 | |
Postretirement benefits | Postretirement benefits | 162 | | | 200 | | Postretirement benefits | 30 | | | 162 | | | 200 | |
Compensation-related items | Compensation-related items | 169 | | | 161 | | Compensation-related items | 164 | | | 169 | | | 161 | |
Operating lease liabilities | Operating lease liabilities | 125 | | | 131 | | Operating lease liabilities | 140 | | | 125 | | | 131 | |
Other deferred income tax assets | Other deferred income tax assets | 152 | | | 72 | | Other deferred income tax assets | 130 | | | 97 | | | 60 | |
State income taxes | | State income taxes | 21 | | | 20 | | | 8 | |
Bad debt allowance | | Bad debt allowance | 33 | | | 35 | | | 4 | |
Accrued expenses not yet deductible | Accrued expenses not yet deductible | 130 | | | 52 | | Accrued expenses not yet deductible | 575 | | | 130 | | | 52 | |
Deferred income tax assets before valuation allowances | Deferred income tax assets before valuation allowances | 3,198 | | | 2,663 | | Deferred income tax assets before valuation allowances | 2,934 | | | 3,198 | | | 2,663 | |
Less: valuation allowances | Less: valuation allowances | 174 | | | 144 | | Less: valuation allowances | 183 | | | 174 | | | 144 | |
Total deferred income tax assets | Total deferred income tax assets | 3,024 | | | 2,519 | | Total deferred income tax assets | 2,751 | | | 3,024 | | | 2,519 | |
Net deferred income tax liability(2) | Net deferred income tax liability(2) | $ | 2,735 | | | $ | 2,422 | | Net deferred income tax liability(2) | $ | 3,326 | | | $ | 2,735 | | | $ | 2,422 | |
(1) In addition to the financial over tax basis differences in fixed assets, the amount also includes financial over tax basis differences in various interests in partnerships and certain subsidiaries.
(2) At December 31, 2021, 2020, and 2019, includes $151, $136, million and $155, million, respectively, recorded as a noncurrent asset and $3,477, $2,871, million and $2,577, million, respectively, recorded as a noncurrent liability on the Consolidated Balance Sheets.
| DEFERRED INCOME TAXES – SDG&E AND SOCALGAS | DEFERRED INCOME TAXES – SDG&E AND SOCALGAS | DEFERRED INCOME TAXES – SDG&E AND SOCALGAS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | SDG&E | | SoCalGas | | SDG&E | | SoCalGas |
| | December 31, | | December 31, | | December 31, | | December 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Deferred income tax liabilities: | Deferred income tax liabilities: | | | | | | | | Deferred income tax liabilities: | | | | | | | | |
Differences in financial and tax bases of utility plant and other assets | Differences in financial and tax bases of utility plant and other assets | $ | 1,833 | | | $ | 1,735 | | | $ | 1,322 | | | $ | 1,246 | | Differences in financial and tax bases of utility plant and other assets | $ | 1,970 | | | $ | 1,833 | | | $ | 1,735 | | | $ | 1,444 | | | $ | 1,322 | | | $ | 1,246 | |
Regulatory balancing accounts | Regulatory balancing accounts | 224 | | | 141 | | | 362 | | | 327 | | Regulatory balancing accounts | 323 | | | 224 | | | 141 | | | 215 | | | 362 | | | 327 | |
Right-of-use assets – operating leases | Right-of-use assets – operating leases | 28 | | | 32 | | | 21 | | | 22 | | Right-of-use assets – operating leases | 52 | | | 28 | | | 32 | | | 16 | | | 21 | | | 22 | |
Property taxes | Property taxes | 34 | | | 30 | | | 17 | | | 14 | | Property taxes | 35 | | | 34 | | | 30 | | | 17 | | | 17 | | | 14 | |
Other | Other | 2 | | | 14 | | | 1 | | | 1 | | Other | 1 | | | 2 | | | 14 | | | 1 | | | 1 | | | 1 | |
Total deferred income tax liabilities | Total deferred income tax liabilities | 2,121 | | | 1,952 | | | 1,723 | | | 1,610 | | Total deferred income tax liabilities | 2,381 | | | 2,121 | | | 1,952 | | | 1,693 | | | 1,723 | | | 1,610 | |
Deferred income tax assets: | Deferred income tax assets: | | | | | | | | Deferred income tax assets: | | | | | | | | |
Tax credits | Tax credits | 5 | | | 6 | | | 3 | | | 3 | | Tax credits | 5 | | | 5 | | | 6 | | | 3 | | | 3 | | | 3 | |
Postretirement benefits | Postretirement benefits | 14 | | | 37 | | | 123 | | | 120 | | Postretirement benefits | — | | | 14 | | | 37 | | | 18 | | | 123 | | | 120 | |
Compensation-related items | Compensation-related items | 12 | | | 6 | | | 36 | | | 25 | | Compensation-related items | 12 | | | 12 | | | 6 | | | 33 | | | 36 | | | 25 | |
Operating lease liabilities | Operating lease liabilities | 28 | | | 32 | | | 21 | | | 22 | | Operating lease liabilities | 52 | | | 28 | | | 32 | | | 16 | | | 21 | | | 22 | |
Bad debt allowance | Bad debt allowance | 18 | | | 3 | | | 15 | | | 1 | | Bad debt allowance | 16 | | | 18 | | | 3 | | | 15 | | | 15 | | | 1 | |
State income taxes | State income taxes | 8 | | | 7 | | | 11 | | | 8 | | State income taxes | 4 | | | 8 | | | 7 | | | 12 | | | 11 | | | 8 | |
Accrued expenses not yet deductible | Accrued expenses not yet deductible | 14 | | | 9 | | | 93 | | | 15 | | Accrued expenses not yet deductible | 16 | | | 14 | | | 9 | | | 539 | | | 93 | | | 15 | |
Other | Other | 3 | | | 4 | | | 15 | | | 13 | | Other | 1 | | | 3 | | | 4 | | | 18 | | | 15 | | | 13 | |
Total deferred income tax assets | Total deferred income tax assets | 102 | | | 104 | | | 317 | | | 207 | | Total deferred income tax assets | 106 | | | 102 | | | 104 | | | 654 | | | 317 | | | 207 | |
Net deferred income tax liability | Net deferred income tax liability | $ | 2,019 | | | $ | 1,848 | | | $ | 1,406 | | | $ | 1,403 | | Net deferred income tax liability | $ | 2,275 | | | $ | 2,019 | | | $ | 1,848 | | | $ | 1,039 | | | $ | 1,406 | | | $ | 1,403 | |
The following table summarizes our unused NOLs and tax credit carryforwards.
| NET OPERATING LOSSES AND TAX CREDIT CARRYFORWARDS | NET OPERATING LOSSES AND TAX CREDIT CARRYFORWARDS | | NET OPERATING LOSSES AND TAX CREDIT CARRYFORWARDS | |
(Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| | Unused amount at December 31, 2020 | Year expiration begins | | Unused amount at December 31, 2021 | Year expiration begins |
Sempra Energy Consolidated: | | |
Sempra: | | Sempra: | |
U.S. federal: | U.S. federal: | | U.S. federal: | |
NOLs(1) | NOLs(1) | $ | 5,284 | | 2031 | NOLs(1) | $ | 3,263 | | Indefinite |
General business tax credits(1) | General business tax credits(1) | 428 | | 2032 | General business tax credits(1) | 436 | | 2032 |
Foreign tax credits(2) | Foreign tax credits(2) | 694 | | 2024 | Foreign tax credits(2) | 688 | | 2024 |
U.S. state(2): | U.S. state(2): | | U.S. state(2): | |
NOLs | NOLs | 3,047 | | 2021 | NOLs | 2,938 | | 2022 |
General business tax credits | General business tax credits | 39 | | 2021 | General business tax credits | 6 | | 2022 |
Non-U.S.(2) – NOLs | Non-U.S.(2) – NOLs | 126 | | 2021 | Non-U.S.(2) – NOLs | 248 | | 2022 |
|
(1) We have recorded deferred income tax benefits on these NOLs and tax credits, in total, because we currently believe they will be realized on a more-likely-than-not-basis.
(2) We have not recorded deferred income tax benefits on a portion of these NOLs and tax credits because we currently believe they will not be realized on a more-likely-than-not-basis, as discussed below.
A valuation allowance is recorded when, based on more-likely-than-not criteria, negative evidence outweighs positive evidence with regard to our ability to realize a deferred income tax asset in the future. Of the valuation allowances recorded to date, the negative evidence outweighs the positive evidence primarily due to cumulative pretax losses in various U.S. state and non-U.S. jurisdictions resulting in deferred income tax assets that we currently do not believe will be realized on a more-likely-than-not basis. The following table provides the valuation allowances that we recorded against a portion of our total deferred income tax assets shown above in the “Deferred Income Taxes – Sempra Energy Consolidated”Sempra” table.
| VALUATION ALLOWANCES | VALUATION ALLOWANCES | VALUATION ALLOWANCES |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | December 31, | | December 31, |
| | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated: | | |
Sempra: | | Sempra: | |
U.S. federal | U.S. federal | $ | 118 | | | $ | 90 | | U.S. federal | $ | 128 | | | $ | 118 | | | $ | 90 | |
| U.S. state | U.S. state | 32 | | | 33 | | U.S. state | 31 | | | 32 | | | 33 | |
| Non-U.S. | Non-U.S. | 24 | | | 21 | | Non-U.S. | 24 | | | 24 | | | 21 | |
| | | $ | 174 | | | $ | 144 | | | $ | 183 | | | $ | 174 | | | $ | 144 | |
Following is a reconciliation of the changes in unrecognized income tax benefits and the potential effect on our ETR for the years ended December 31:
| RECONCILIATION OF UNRECOGNIZED INCOME TAX BENEFITS | RECONCILIATION OF UNRECOGNIZED INCOME TAX BENEFITS | RECONCILIATION OF UNRECOGNIZED INCOME TAX BENEFITS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated: | | | | | | |
Sempra: | | Sempra: | | | | | |
Balance at January 1 | Balance at January 1 | $ | 93 | | | $ | 119 | | | $ | 89 | | Balance at January 1 | $ | 99 | | | $ | 93 | | | $ | 119 | |
Increase in prior period tax positions | Increase in prior period tax positions | 3 | | | 5 | | | 7 | | Increase in prior period tax positions | 3 | | | 3 | | | 5 | |
Decrease in prior period tax positions | Decrease in prior period tax positions | (1) | | | 0 | | | (1) | | Decrease in prior period tax positions | (2) | | | (1) | | | — | |
Increase in current period tax positions | Increase in current period tax positions | 4 | | | 2 | | | 24 | | Increase in current period tax positions | 204 | | | 4 | | | 2 | |
Settlements with taxing authorities | Settlements with taxing authorities | 0 | | | (32) | | | 0 | | Settlements with taxing authorities | — | | | — | | | (32) | |
Expiration of statutes of limitations | Expiration of statutes of limitations | 0 | | | (1) | | | 0 | | Expiration of statutes of limitations | — | | | — | | | (1) | |
Balance at December 31 | Balance at December 31 | $ | 99 | | | $ | 93 | | | $ | 119 | | Balance at December 31 | $ | 304 | | | $ | 99 | | | $ | 93 | |
Of December 31 balance, amounts related to tax positions that if recognized in future years would | Of December 31 balance, amounts related to tax positions that if recognized in future years would | | | | | | Of December 31 balance, amounts related to tax positions that if recognized in future years would | | | | | |
decrease the effective tax rate(1) | decrease the effective tax rate(1) | $ | (87) | | | $ | (81) | | | $ | (107) | | decrease the effective tax rate(1) | $ | (105) | | | $ | (87) | | | $ | (81) | |
increase the effective tax rate(1) | increase the effective tax rate(1) | 31 | | | 27 | | | 24 | | increase the effective tax rate(1) | 34 | | | 31 | | | 27 | |
SDG&E: | SDG&E: | | | | | | SDG&E: | | | | | |
Balance at January 1 | Balance at January 1 | $ | 12 | | | $ | 11 | | | $ | 10 | | Balance at January 1 | $ | 13 | | | $ | 12 | | | $ | 11 | |
Increase in prior period tax positions | Increase in prior period tax positions | 1 | | | 1 | | | 1 | | Increase in prior period tax positions | 1 | | | 1 | | | 1 | |
Balance at December 31 | Balance at December 31 | $ | 13 | | | $ | 12 | | | $ | 11 | | Balance at December 31 | $ | 14 | | | $ | 13 | | | $ | 12 | |
Of December 31 balance, amounts related to tax positions that if recognized in future years would | Of December 31 balance, amounts related to tax positions that if recognized in future years would | | | | | | Of December 31 balance, amounts related to tax positions that if recognized in future years would | | | | | |
decrease the effective tax rate(1) | decrease the effective tax rate(1) | $ | (10) | | | $ | (9) | | | $ | (9) | | decrease the effective tax rate(1) | $ | (11) | | | $ | (10) | | | $ | (9) | |
increase the effective tax rate(1) | increase the effective tax rate(1) | 1 | | | 1 | | | 1 | | increase the effective tax rate(1) | 1 | | | 1 | | | 1 | |
SoCalGas: | SoCalGas: | | | | | | SoCalGas: | | | | | |
Balance at January 1 | Balance at January 1 | $ | 64 | | | $ | 61 | | | $ | 35 | | Balance at January 1 | $ | 68 | | | $ | 64 | | | $ | 61 | |
Increase in prior period tax positions | Increase in prior period tax positions | 1 | | | 1 | | | 2 | | Increase in prior period tax positions | 1 | | | 1 | | | 1 | |
Increase in current period tax positions | Increase in current period tax positions | 3 | | | 2 | | | 24 | | Increase in current period tax positions | 3 | | | 3 | | | 2 | |
Balance at December 31 | Balance at December 31 | $ | 68 | | | $ | 64 | | | $ | 61 | | Balance at December 31 | $ | 72 | | | $ | 68 | | | $ | 64 | |
Of December 31 balance, amounts related to tax positions that if recognized in future years would | Of December 31 balance, amounts related to tax positions that if recognized in future years would | | | | | | Of December 31 balance, amounts related to tax positions that if recognized in future years would | | | | | |
decrease the effective tax rate(1) | decrease the effective tax rate(1) | $ | (59) | | | $ | (55) | | | $ | (51) | | decrease the effective tax rate(1) | $ | (63) | | | $ | (59) | | | $ | (55) | |
increase the effective tax rate(1) | increase the effective tax rate(1) | 30 | | | 26 | | | 23 | | increase the effective tax rate(1) | 33 | | | 30 | | | 26 | |
(1) Includes temporary book and tax differences that are treated as flow-through for ratemaking purposes, as discussed above.
It is reasonably possible that within the next 12 months, unrecognized income tax benefits could decrease due to the following:
| POSSIBLE DECREASES IN UNRECOGNIZED INCOME TAX BENEFITS WITHIN 12 MONTHS | POSSIBLE DECREASES IN UNRECOGNIZED INCOME TAX BENEFITS WITHIN 12 MONTHS | POSSIBLE DECREASES IN UNRECOGNIZED INCOME TAX BENEFITS WITHIN 12 MONTHS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | At December 31, | | At December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated: | | | | | | |
Expiration of statutes of limitations on tax assessments | $ | 0 | | | $ | 0 | | | $ | (1) | | |
Sempra: | | Sempra: | | | | | |
Potential resolution of audit issues with various U.S. federal, state and local and non-U.S. taxing authorities | Potential resolution of audit issues with various U.S. federal, state and local and non-U.S. taxing authorities | (8) | | | (8) | | | (40) | | Potential resolution of audit issues with various U.S. federal, state and local and non-U.S. taxing authorities | $ | 8 | | | $ | 8 | | | $ | 8 | |
| $ | (8) | | | $ | (8) | | | $ | (41) | | |
SDG&E: | SDG&E: | | | | | | SDG&E: | | | | | |
Potential resolution of audit issues with various U.S. federal, state and local taxing authorities | Potential resolution of audit issues with various U.S. federal, state and local taxing authorities | $ | (6) | | | $ | (6) | | | $ | (6) | | Potential resolution of audit issues with various U.S. federal, state and local taxing authorities | $ | 6 | | | $ | 6 | | | $ | 6 | |
SoCalGas: | SoCalGas: | | | | | | SoCalGas: | | | | | |
Potential resolution of audit issues with various U.S. federal, state and local taxing authorities | Potential resolution of audit issues with various U.S. federal, state and local taxing authorities | $ | (2) | | | $ | (2) | | | $ | (2) | | Potential resolution of audit issues with various U.S. federal, state and local taxing authorities | $ | 2 | | | $ | 2 | | | $ | 2 | |
Amounts accrued for interest and penalties associated with unrecognized income tax benefits are included in Income Tax Expense on the Consolidated Statements of Operations. Sempra Energy Consolidated accrued negligible amounts at December 31, 2021 and 2020 and $1 million for
interest expense and penalties at December 31, 2020 and 2019 respectively, on the Consolidated Balance Sheets, and recorded $1 million ofnegligible amounts for interest expense and penalties in 2018 and negligible amounts in each of 2020 and 2019 on the Consolidated Statements of Operations.Operations for all periods presented. SDG&E and SoCalGas
each accrued negligible amounts for interest expense and penalties at December 31, 2021, 2020, and 2019 on the Consolidated Balance Sheets, and recorded negligible amounts of interest expense and penalties in each of 2020, 2019 and 2018 on the Consolidated Statements of Operations.Operations for all periods presented.
INCOME TAX AUDITS
Sempra Energy is subject to U.S. federal income tax as well as income tax of multiple state and non-U.S. jurisdictions. We remain subject to examination for U.S. federal tax years after 2016.2017. We are subject to examination by major state tax jurisdictions for tax years after 2012. Certain major non-U.S. income tax returns for tax years 2013 through the present are open to examination. We are also open to examination for non-U.S. income tax returns related to our prior interest in our commodities business, which we divested in 2010, for years 1999 through2009 and 2010.
SDG&E and SoCalGas are subject to U.S. federal income tax and state income tax. They remain subject to examination for U.S. federal tax years after 20162017 and state tax years after 2012.
In addition, Sempra Energy has filed protests to contest proposed state audit adjustments for tax years 2009 through 2012. The pre-2013 tax years for our major state tax jurisdictions are closed to new issues; therefore, no additional tax may be assessed by the taxing authorities for these tax years.
NOTE 9. EMPLOYEE BENEFIT PLANS
For our employee benefit plans, we:
▪recognize an asset for a plan’s overfunded status or a liability for a plan’s underfunded status in the balance sheet;
▪measure a plan’s assets and its obligations that determine its funded status as of the end of the fiscal year; and
▪recognize changes in the funded status of pension and PBOP plans in the year in which the changes occur. Generally, those changes are reported in OCI and as a separate component of shareholders’ equity.
The detailed information presented below covers the employee benefit plans of primarily Sempra Energy and its consolidated subsidiaries.
Sempra Energy has funded and unfunded noncontributory traditional defined benefit and cash balance plans, including separate plans for SDG&E and SoCalGas, which collectively cover all eligible employees, including a member of the Sempra Energy board of directors who was a participant in a predecessor plan on or before June 1, 1998. Pension benefits under the traditional defined benefit plans are based on service and final average earnings, while the cash balance plans provide benefits using a career average earnings methodology.
IEnova has an unfunded noncontributory defined benefit plan covering all employees that provides defined benefits to retirees based on date of hire, years of service and final average earnings.
Sempra Energy also has PBOP plans, including separate plans for SDG&E and SoCalGas, which collectively cover all domestic and certain foreign employees. The life insurance plans are both contributory and noncontributory, and the health care plans are contributory. Participants’ contributions are adjusted annually. Other postretirement benefits include medical benefits for retirees’ spouses.benefits.
Pension and other postretirement benefits costs and obligations are dependent on assumptions used in calculating such amounts. We review these assumptions on an annual basis and update them as appropriate. We consider current market conditions, including interest rates, in making these assumptions. We use a December 31 measurement date for all of our plans.
RABBI TRUST
In support of its Supplemental Executive Retirement, Cash Balance Restoration and Deferred Compensation Plans, Sempra Energy maintains dedicated assets, including a Rabbi Trust and investments in life insurance contracts, which totaled $567 million, $512 million and $488 million at December 31, 2021, 2020 and 2019, respectively.
PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Benefit Plan Amendments Affecting 2019
In 2019, certain executive participants in a company nonqualified pension plan became eligible in this same plan for Supplemental Executive Retirement Plan benefits. This was treated as a plan amendment and increased the recorded pension liability by $5 million at Sempra, Energy, $3 million at SDG&E and $2 million at SoCalGas in 2019.
Settlement Accounting for Lump Sum PaymentsOncor
When applicable, we record settlement charges for lump sum payments from our nonqualified pension plans that are in excess of the respective plan’s service cost plus interest cost. Sempra Energy Consolidated recorded settlement charges of $22 million and $24 million inIn 2021, 2020 and 2019, respectively, and Sempra Energy Consolidated and SDG&E recorded settlement charges of $12 million and $4 million, respectively, in 2018.
Sale of Qualified Pension Plan Annuity Contracts
In March 2018, an insurance company purchased annuities for certain current annuitants in the SDG&E and SoCalGas qualified pension plans and assumed the obligation for payment of these annuities. At SDG&E in the first quarter of 2018 and at SoCalGas in the second quarter of 2018, the liability transferred for these annuities, plus the total year-to-date lump-sum payments, exceeded the settlement threshold, which triggered settlement accounting. This resulted in settlement charges in net periodic benefit cost of $54 million at Sempra Energy Consolidated, including $22 million at SDG&E and $32 million at SoCalGas. The settlement charges were recorded as regulatory assets on the Consolidated Balance Sheets.
Special Termination Benefits Affecting 2018
In 2018, certain nonrepresented employees age 62 or older with 5 years of service or age 55 to 61 with 10 years of service that retired under the Voluntary Retirement Enhancement Program offered that year received an additional postretirement health benefit in the form of a $100,000 Health Reimbursement Account. We treated the benefit obligation attributable to the Health Reimbursement Account as a special termination benefit. This resulted in increases to the recorded liability for PBOP and net periodic benefit cost of $5 million for Sempra Energy Consolidated, $3 million for SDG&E and $2 million for SoCalGas in 2018.
Oncor
In 2020 and in each of 2019 and 2018, we had $7 million, $11 million and $27 million, respectively, in AOCI representing an actuarial loss related to Oncor’s pension plan.
Benefit Obligations and Assets
The following three tables provide a reconciliation of the changes in the plans’ projected benefit obligations and the fair value of assets during 2021, 2020 and 2019, and a statement of the funded status at December 31, 2021, 2020 and 2019:
| PROJECTED BENEFIT OBLIGATION, FAIR VALUE OF ASSETS AND FUNDED STATUS | PROJECTED BENEFIT OBLIGATION, FAIR VALUE OF ASSETS AND FUNDED STATUS | PROJECTED BENEFIT OBLIGATION, FAIR VALUE OF ASSETS AND FUNDED STATUS |
SEMPRA ENERGY CONSOLIDATED | |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Pension benefits | | Other postretirement benefits | | Pension benefits | | Other postretirement benefits |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Sempra: | | Sempra: | |
CHANGE IN PROJECTED BENEFIT OBLIGATION | CHANGE IN PROJECTED BENEFIT OBLIGATION | | | | | | | | CHANGE IN PROJECTED BENEFIT OBLIGATION | | | | | | | | |
Net obligation at January 1 | Net obligation at January 1 | $ | 3,768 | | | $ | 3,339 | | | $ | 913 | | | $ | 868 | | Net obligation at January 1 | $ | 4,077 | | | $ | 3,768 | | | $ | 3,339 | | | $ | 989 | | | $ | 913 | | | $ | 868 | |
Service cost | Service cost | 129 | | | 110 | | | 18 | | | 17 | | Service cost | 145 | | | 129 | | | 110 | | | 23 | | | 18 | | | 17 | |
Interest cost | Interest cost | 129 | | | 139 | | | 33 | | | 36 | | Interest cost | 112 | | | 129 | | | 139 | | | 28 | | | 33 | | | 36 | |
Contributions from plan participants | Contributions from plan participants | 0 | | | 0 | | | 22 | | | 21 | | Contributions from plan participants | — | | | — | | | — | | | 21 | | | 22 | | | 21 | |
Actuarial loss | 351 | | | 445 | | | 79 | | | 45 | | |
Actuarial (gain) loss | | Actuarial (gain) loss | (76) | | | 351 | | | 445 | | | (53) | | | 79 | | | 45 | |
Plan amendments | Plan amendments | 0 | | | 5 | | | 0 | | | 0 | | Plan amendments | — | | | — | | | 5 | | | — | | | — | | | — | |
Benefit payments | Benefit payments | (93) | | | (93) | | | (74) | | | (72) | | Benefit payments | (98) | | | (93) | | | (93) | | | (68) | | | (74) | | | (72) | |
Settlements | Settlements | (207) | | | (177) | | | (2) | | | (2) | | Settlements | (303) | | | (207) | | | (177) | | | — | | | (2) | | | (2) | |
Net obligation at December 31 | Net obligation at December 31 | 4,077 | | | 3,768 | | | 989 | | | 913 | | Net obligation at December 31 | 3,857 | | | 4,077 | | | 3,768 | | | 940 | | | 989 | | | 913 | |
| CHANGE IN PLAN ASSETS | CHANGE IN PLAN ASSETS | | | | | | | | CHANGE IN PLAN ASSETS | | | | | | | | |
Fair value of plan assets at January 1 | Fair value of plan assets at January 1 | 2,662 | | | 2,160 | | | 1,281 | | | 1,108 | | Fair value of plan assets at January 1 | 3,002 | | | 2,662 | | | 2,160 | | | 1,399 | | | 1,281 | | | 1,108 | |
Actual return on plan assets | Actual return on plan assets | 350 | | | 496 | | | 164 | | | 218 | | Actual return on plan assets | 340 | | | 350 | | | 496 | | | 51 | | | 164 | | | 218 | |
Employer contributions | Employer contributions | 290 | | | 276 | | | 8 | | | 8 | | Employer contributions | 241 | | | 290 | | | 276 | | | 5 | | | 8 | | | 8 | |
Contributions from plan participants | Contributions from plan participants | 0 | | | 0 | | | 22 | | | 21 | | Contributions from plan participants | — | | | — | | | — | | | 21 | | | 22 | | | 21 | |
Benefit payments | Benefit payments | (93) | | | (93) | | | (74) | | | (72) | | Benefit payments | (98) | | | (93) | | | (93) | | | (68) | | | (74) | | | (72) | |
Settlements | Settlements | (207) | | | (177) | | | (2) | | | (2) | | Settlements | (303) | | | (207) | | | (177) | | | — | | | (2) | | | (2) | |
Fair value of plan assets at December 31 | Fair value of plan assets at December 31 | 3,002 | | | 2,662 | | | 1,399 | | | 1,281 | | Fair value of plan assets at December 31 | 3,182 | | | 3,002 | | | 2,662 | | | 1,408 | | | 1,399 | | | 1,281 | |
Funded status at December 31 | Funded status at December 31 | $ | (1,075) | | | $ | (1,106) | | | $ | 410 | | | $ | 368 | | Funded status at December 31 | $ | (675) | | | $ | (1,075) | | | (1,106) | | | $ | 468 | | | $ | 410 | | | $ | 368 | |
Net recorded (liability) asset at December 31 | Net recorded (liability) asset at December 31 | $ | (1,075) | | | $ | (1,106) | | | $ | 410 | | | $ | 368 | | Net recorded (liability) asset at December 31 | $ | (675) | | | $ | (1,075) | | | (1,106) | | | $ | 468 | | | $ | 410 | | | $ | 368 | |
| PROJECTED BENEFIT OBLIGATION, FAIR VALUE OF ASSETS AND FUNDED STATUS | PROJECTED BENEFIT OBLIGATION, FAIR VALUE OF ASSETS AND FUNDED STATUS | PROJECTED BENEFIT OBLIGATION, FAIR VALUE OF ASSETS AND FUNDED STATUS |
SAN DIEGO GAS & ELECTRIC COMPANY | |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Pension benefits | | Other postretirement benefits | | Pension benefits | | Other postretirement benefits |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
SDG&E: | | SDG&E: | |
CHANGE IN PROJECTED BENEFIT OBLIGATION | CHANGE IN PROJECTED BENEFIT OBLIGATION | | | | | | | | CHANGE IN PROJECTED BENEFIT OBLIGATION | | | | | | | | |
Net obligation at January 1 | Net obligation at January 1 | $ | 895 | | | $ | 814 | | | $ | 177 | | | $ | 170 | | Net obligation at January 1 | $ | 913 | | | $ | 895 | | | $ | 814 | | | $ | 193 | | | $ | 177 | | | $ | 170 | |
Service cost | Service cost | 31 | | | 30 | | | 4 | | | 4 | | Service cost | 35 | | | 31 | | | 30 | | | 5 | | | 4 | | | 4 | |
Interest cost | Interest cost | 30 | | | 34 | | | 6 | | | 7 | | Interest cost | 25 | | | 30 | | | 34 | | | 5 | | | 6 | | | 7 | |
Contributions from plan participants | Contributions from plan participants | 0 | | | 0 | | | 8 | | | 7 | | Contributions from plan participants | — | | | — | | | — | | | 7 | | | 8 | | | 7 | |
Actuarial loss | 37 | | | 61 | | | 17 | | | 7 | | |
Actuarial (gain) loss | | Actuarial (gain) loss | (2) | | | 37 | | | 61 | | | (3) | | | 17 | | | 7 | |
Plan amendments | Plan amendments | 0 | | | 3 | | | 0 | | | 0 | | Plan amendments | — | | | — | | | 3 | | | — | | | — | | | — | |
Benefit payments | Benefit payments | (18) | | | (18) | | | (20) | | | (18) | | Benefit payments | (17) | | | (18) | | | (18) | | | (19) | | | (20) | | | (18) | |
Settlements | Settlements | (52) | | | (39) | | | 0 | | | 0 | | Settlements | (69) | | | (52) | | | (39) | | | — | | | — | | | — | |
Transfer of liability from other plans | Transfer of liability from other plans | (10) | | | 10 | | | 1 | | | 0 | | Transfer of liability from other plans | — | | | (10) | | | 10 | | | — | | | 1 | | | — | |
Net obligation at December 31 | Net obligation at December 31 | 913 | | | 895 | | | 193 | | | 177 | | Net obligation at December 31 | 885 | | | 913 | | | 895 | | | 188 | | | 193 | | | 177 | |
| CHANGE IN PLAN ASSETS | CHANGE IN PLAN ASSETS | | | | | | | | CHANGE IN PLAN ASSETS | | | | | | | | |
Fair value of plan assets at January 1 | Fair value of plan assets at January 1 | 739 | | | 600 | | | 197 | | | 172 | | Fair value of plan assets at January 1 | 819 | | | 739 | | | 600 | | | 213 | | | 197 | | | 172 | |
Actual return on plan assets | Actual return on plan assets | 94 | | | 135 | | | 26 | | | 36 | | Actual return on plan assets | 73 | | | 94 | | | 135 | | | (5) | | | 26 | | | 36 | |
Employer contributions | Employer contributions | 52 | | | 52 | | | 1 | | | 0 | | Employer contributions | 53 | | | 52 | | | 52 | | | 1 | | | 1 | | | — | |
Contributions from plan participants | Contributions from plan participants | 0 | | | 0 | | | 8 | | | 7 | | Contributions from plan participants | — | | | — | | | — | | | 7 | | | 8 | | | 7 | |
Benefit payments | Benefit payments | (18) | | | (18) | | | (20) | | | (18) | | Benefit payments | (17) | | | (18) | | | (18) | | | (19) | | | (20) | | | (18) | |
Settlements | Settlements | (52) | | | (39) | | | 0 | | | 0 | | Settlements | (69) | | | (52) | | | (39) | | | — | | | — | | | — | |
Transfer of assets from other plans | Transfer of assets from other plans | 4 | | | 9 | | | 1 | | | 0 | | Transfer of assets from other plans | — | | | 4 | | | 9 | | | — | | | 1 | | | — | |
Fair value of plan assets at December 31 | Fair value of plan assets at December 31 | 819 | | | 739 | | | 213 | | | 197 | | Fair value of plan assets at December 31 | 859 | | | 819 | | | 739 | | | 197 | | | 213 | | | 197 | |
Funded status at December 31 | Funded status at December 31 | $ | (94) | | | $ | (156) | | | $ | 20 | | | $ | 20 | | Funded status at December 31 | $ | (26) | | | $ | (94) | | | (156) | | | $ | 9 | | | $ | 20 | | | $ | 20 | |
Net recorded (liability) asset at December 31 | Net recorded (liability) asset at December 31 | $ | (94) | | | $ | (156) | | | $ | 20 | | | $ | 20 | | Net recorded (liability) asset at December 31 | $ | (26) | | | $ | (94) | | | (156) | | | $ | 9 | | | $ | 20 | | | $ | 20 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
PROJECTED BENEFIT OBLIGATION, FAIR VALUE OF ASSETS AND FUNDED STATUS |
(Dollars in millions) |
| Pension benefits | | Other postretirement benefits |
(Dollars in millions) | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
SoCalGas: | | | | | | | | | | | |
CHANGE IN PROJECTED BENEFIT OBLIGATION | | | | | | | | | | | |
Net obligation at January 1 | $ | 2,829 | | | $ | 2,526 | | | $ | 2,148 | | | $ | 749 | | | $ | 688 | | | $ | 646 | |
Service cost | 97 | | | 86 | | | 68 | | | 17 | | | 14 | | | 12 | |
Interest cost | 78 | | | 88 | | | 91 | | | 22 | | | 25 | | | 27 | |
Contributions from plan participants | — | | | — | | | — | | | 13 | | | 14 | | | 13 | |
Actuarial (gain) loss | (83) | | | 282 | | | 345 | | | (49) | | | 57 | | | 39 | |
Plan amendments | — | | | — | | | 2 | | | — | | | — | | | — | |
Benefit payments | (63) | | | (60) | | | (59) | | | (46) | | | (49) | | | (49) | |
Settlements | (211) | | | (105) | | | (65) | | | — | | | — | | | — | |
Transfer of liability to other plans | — | | | 12 | | | (4) | | | — | | | — | | | — | |
Net obligation at December 31 | 2,647 | | | 2,829 | | | 2,526 | | | 706 | | | 749 | | | 688 | |
| | | | | | | | | | | |
CHANGE IN PLAN ASSETS | | | | | | | | | | | |
Fair value of plan assets at January 1 | 1,969 | | | 1,737 | | | 1,385 | | | 1,159 | | | 1,059 | | | 916 | |
Actual return on plan assets | 243 | | | 243 | | | 320 | | | 51 | | | 134 | | | 178 | |
Employer contributions | 157 | | | 152 | | | 152 | | | 1 | | | 1 | | | 1 | |
Contributions from plan participants | — | | | — | | | — | | | 13 | | | 14 | | | 13 | |
Benefit payments | (63) | | | (60) | | | (59) | | | (46) | | | (49) | | | (49) | |
Settlements | (211) | | | (105) | | | (65) | | | — | | | — | | | — | |
Transfer of assets from other plans | — | | | 2 | | | 4 | | | — | | | — | | | — | |
Fair value of plan assets at December 31 | 2,095 | | | 1,969 | | | 1,737 | | | 1,178 | | | 1,159 | | | 1,059 | |
Funded status at December 31 | $ | (552) | | | $ | (860) | | | $ | (789) | | | $ | 472 | | | $ | 410 | | | $ | 371 | |
Net recorded (liability) asset at December 31 | $ | (552) | | | $ | (860) | | | $ | (789) | | | $ | 472 | | | $ | 410 | | | $ | 371 | |
| | | | | | | | | | | | | | | | | | | | | | | |
PROJECTED BENEFIT OBLIGATION, FAIR VALUE OF ASSETS AND FUNDED STATUS |
SOUTHERN CALIFORNIA GAS COMPANY |
(Dollars in millions) |
| | | | | | | |
| Pension benefits | | Other postretirement benefits |
(Dollars in millions) | 2020 | | 2019 | | 2020 | | 2019 |
CHANGE IN PROJECTED BENEFIT OBLIGATION | | | | | | | |
Net obligation at January 1 | $ | 2,526 | | | $ | 2,148 | | | $ | 688 | | | $ | 646 | |
Service cost | 86 | | | 68 | | | 14 | | | 12 | |
Interest cost | 88 | | | 91 | | | 25 | | | 27 | |
Contributions from plan participants | 0 | | | 0 | | | 14 | | | 13 | |
Actuarial loss | 282 | | | 345 | | | 57 | | | 39 | |
Plan amendments | 0 | | | 2 | | | 0 | | | 0 | |
Benefit payments | (60) | | | (59) | | | (49) | | | (49) | |
Settlements | (105) | | | (65) | | | 0 | | | 0 | |
Transfer of liability to other plans | 12 | | | (4) | | | 0 | | | 0 | |
Net obligation at December 31 | 2,829 | | | 2,526 | | | 749 | | | 688 | |
| | | | | | | |
CHANGE IN PLAN ASSETS | | | | | | | |
Fair value of plan assets at January 1 | 1,737 | | | 1,385 | | | 1,059 | | | 916 | |
Actual return on plan assets | 243 | | | 320 | | | 134 | | | 178 | |
Employer contributions | 152 | | | 152 | | | 1 | | | 1 | |
Contributions from plan participants | 0 | | | 0 | | | 14 | | | 13 | |
Benefit payments | (60) | | | (59) | | | (49) | | | (49) | |
Settlements | (105) | | | (65) | | | 0 | | | 0 | |
Transfer of assets from other plans | 2 | | | 4 | | | 0 | | | 0 | |
Fair value of plan assets at December 31 | 1,969 | | | 1,737 | | | 1,159 | | | 1,059 | |
Funded status at December 31 | $ | (860) | | | $ | (789) | | | $ | 410 | | | $ | 371 | |
Net recorded (liability) asset at December 31 | $ | (860) | | | $ | (789) | | | $ | 410 | | | $ | 371 | |
Actuarial losses (gains) fluctuate based on changes in assumptions that we describe below in “Assumptions for Pension and Other Postretirement Benefit Plans” and updates to census data. In 2021, 2020 2019 and 2018,2019, the Society of Actuaries released updated mortality improvement projection scales, reflecting changes to projected observed longevity improvements in its mortality tables. We have incorporated these assumptions, adjusted for the Sempra Energy companies’ actual mortality experience, in our calculations for each of those years.
▪Actuarial lossesgains in pension plans at Sempra Energy Consolidated in 20202021 were driven primarily by a decreasean increase in discount rates at Sempra Energy,SoCalGas, SDG&E and SoCalGasSempra and a decrease in the lump-sum conversion rate at SoCalGas, along with updated census data at Sempra Energy and SoCalGas. These actuarial lossesgains were partially offset by actuarial gainslosses at Sempra Energy, SDG&E, SoCalGas and SoCalGasSempra due to a decreasean increase in the interest crediting rate for the cash balance plans.plans, at SDG&E and Sempra due to updated census data and at SoCalGas due to a decrease in the conversion rate used to determine lump-sum distributions.
▪Actuarial lossesgains in PBOP plans at Sempra Energy Consolidated in 20202021 were driven primarily by a decreasean increase in discount rates at Sempra Energy,SoCalGas, SDG&E and SoCalGas andSempra, updated census data at SoCalGas. These actuarial losses were offset bySoCalGas and a reduction in the 20212022 expected health care costs at SoCalGas.
Net Assets and Liabilities
The assets and liabilities of the pension and PBOP plans are affected by changing market conditions as well as when actual plan experience is different than assumed. Such events result in investment gains and losses, which we defer and recognize in pension and other postretirement benefit costs over a period of years. Our funded pension and PBOP plans use the asset smoothing method, except for those at SDG&E. This method develops an asset value that recognizes realized and unrealized investment gains and losses over a three-year period. This adjusted asset value, known as the market-related value of assets, is used in conjunction with an expected long-term rate of return to determine the expected return-on-assets component of net periodic benefit cost. SDG&E does not use the asset smoothing method, but rather recognizes realized and unrealized investment gains and losses during the current year.
The 10% corridor accounting method is used at Sempra, Energy Consolidated, SDG&E and SoCalGas. Under the corridor accounting method, if as of the beginning of a year unrecognized net gain or loss exceeds 10% of the greater of the projected benefit obligation or the market-related value of plan assets, the excess is amortized over the average remaining service period of
active participants. The asset smoothing and 10% corridor accounting methods help mitigate volatility of net periodic benefit costs from year to year.
Defined benefit pension and other postretirement plans with an aggregated overfunded status are recognized as an asset and with an aggregated underfunded status are recognized as a liability; unrecognized changes in these assets and/or liabilities are normally recorded in AOCI on the balance sheet. The California UtilitiesSDG&E and SoCalGas record regulatory assets and liabilities that offset the funded pension and other postretirement plans’ assets or liabilities, as these costs are expected to be recovered in future utility rates based on decisions by regulatory agencies.
The California UtilitiesSDG&E and SoCalGas record annual pension and other postretirement net periodic benefit costs equal to the contributions to their qualified plans as authorized by the CPUC. The annual contributions to the pension plans are the greater of:
▪a minimum required funding amount as required by the IRS;
▪the amount required to maintain an 85% Adjusted Funding Target Attainment Percentage as defined by the Pension Protection Act of 2006, as amended; or
▪beginning January 1, 2019 and for the duration of the 2019 GRC cycle, a fixed amount equal to the estimated annual service cost as defined by U.S. GAAP plus one year of a 14-year amortization of the unfunded projected benefit obligation of the pension plan as of January 1, 2019, and limited to an annual amount that keeps the fair value of the pension plan assets from exceeding 110% of the pension benefit obligation of the plan.
The annual contributions to PBOP plans are equal to the lesser of the maximum tax deductible amount or the net periodic cost calculated in accordance with U.S. GAAP for pension and PBOP plans. Any differences between booked net periodic benefit cost and amounts contributed to the pension and other postretirement plans for the California UtilitiesSDG&E and SoCalGas are disclosed as regulatory adjustments in accordance with U.S. GAAP for rate-regulated entities.
The net (liability) asset is included in the following categories on the Consolidated Balance Sheets at December 31:
| PENSION AND OTHER POSTRETIREMENT BENEFIT OBLIGATIONS, NET OF PLAN ASSETS | PENSION AND OTHER POSTRETIREMENT BENEFIT OBLIGATIONS, NET OF PLAN ASSETS | PENSION AND OTHER POSTRETIREMENT BENEFIT OBLIGATIONS, NET OF PLAN ASSETS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Pension benefits | | Other postretirement benefits | | Pension benefits | | Other postretirement benefits |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated: | | | | | | | | |
Sempra: | | Sempra: | | | | | | | | |
Noncurrent assets | Noncurrent assets | $ | 0 | | | $ | 0 | | | $ | 430 | | | $ | 391 | | Noncurrent assets | $ | 19 | | | $ | — | | | $ | — | | | $ | 481 | | | $ | 430 | | | $ | 391 | |
Current liabilities | Current liabilities | (35) | | | (59) | | | (1) | | | (3) | | Current liabilities | (19) | | | (35) | | | (59) | | | (1) | | | (1) | | | (3) | |
Noncurrent liabilities | Noncurrent liabilities | (1,040) | | | (1,047) | | | (19) | | | (20) | | Noncurrent liabilities | (675) | | | (1,040) | | | (1,047) | | | (12) | | | (19) | | | (20) | |
Net recorded (liability) asset | Net recorded (liability) asset | $ | (1,075) | | | $ | (1,106) | | | $ | 410 | | | $ | 368 | | Net recorded (liability) asset | $ | (675) | | | $ | (1,075) | | | $ | (1,106) | | | $ | 468 | | | $ | 410 | | | $ | 368 | |
SDG&E: | SDG&E: | | | | | | | | SDG&E: | | | | | | | | |
Noncurrent assets | Noncurrent assets | $ | 0 | | | $ | 0 | | | $ | 20 | | | $ | 20 | | Noncurrent assets | $ | — | | | $ | — | | | $ | — | | | $ | 9 | | | $ | 20 | | | $ | 20 | |
Current liabilities | Current liabilities | (2) | | | (3) | | | 0 | | | 0 | | Current liabilities | (1) | | | (2) | | | (3) | | | — | | | — | | | — | |
Noncurrent liabilities | Noncurrent liabilities | (92) | | | (153) | | | 0 | | | 0 | | Noncurrent liabilities | (25) | | | (92) | | | (153) | | | — | | | — | | | — | |
Net recorded (liability) asset | Net recorded (liability) asset | $ | (94) | | | $ | (156) | | | $ | 20 | | | $ | 20 | | Net recorded (liability) asset | $ | (26) | | | $ | (94) | | | $ | (156) | | | $ | 9 | | | $ | 20 | | | $ | 20 | |
SoCalGas: | SoCalGas: | | | | | | | | SoCalGas: | | | | | | | | |
Noncurrent assets | Noncurrent assets | $ | 0 | | | $ | 0 | | | $ | 410 | | | $ | 371 | | Noncurrent assets | $ | — | | | $ | — | | | $ | — | | | $ | 472 | | | $ | 410 | | | $ | 371 | |
Current liabilities | Current liabilities | (7) | | | (4) | | | 0 | | | 0 | | Current liabilities | (1) | | | (7) | | | (4) | | | — | | | — | | | — | |
Noncurrent liabilities | Noncurrent liabilities | (853) | | | (785) | | | 0 | | | 0 | | Noncurrent liabilities | (551) | | | (853) | | | (785) | | | — | | | — | | | — | |
Net recorded (liability) asset | Net recorded (liability) asset | $ | (860) | | | $ | (789) | | | $ | 410 | | | $ | 371 | | Net recorded (liability) asset | $ | (552) | | | $ | (860) | | | $ | (789) | | | $ | 472 | | | $ | 410 | | | $ | 371 | |
Amounts recorded in AOCI at December 31, net of income tax effects and amounts recorded as regulatory assets, are as follows:
| AMOUNTS IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | AMOUNTS IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | AMOUNTS IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Pension benefits | | Other postretirement benefits | | Pension benefits | | Other postretirement benefits |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated(1): | | | | | | | | |
Sempra(1): | | Sempra(1): | | | | | | | | |
Net actuarial (loss) gain | Net actuarial (loss) gain | $ | (102) | | | $ | (113) | | | $ | 8 | | | $ | 10 | | Net actuarial (loss) gain | $ | (86) | | | $ | (102) | | | $ | (113) | | | $ | 11 | | | $ | 8 | | | $ | 10 | |
Prior service cost | Prior service cost | (11) | | | (14) | | | 0 | | | 0 | | Prior service cost | (8) | | | (11) | | | (14) | | | — | | | — | | | — | |
Total | Total | $ | (113) | | | $ | (127) | | | $ | 8 | | | $ | 10 | | Total | $ | (94) | | | $ | (113) | | | $ | (127) | | | $ | 11 | | | $ | 8 | | | $ | 10 | |
SDG&E: | SDG&E: | | | | | | | | SDG&E: | | | | | | | | | |
Net actuarial loss | Net actuarial loss | $ | (8) | | | $ | (9) | | | | | | Net actuarial loss | $ | (9) | | | $ | (8) | | | $ | (9) | | | | | | |
Prior service cost | Prior service cost | (2) | | | (7) | | | Prior service cost | (1) | | | (2) | | | (7) | | |
Total | Total | $ | (10) | | | $ | (16) | | | Total | $ | (10) | | | $ | (10) | | | $ | (16) | | |
SoCalGas: | SoCalGas: | | | | | | | | SoCalGas: | | | | | | | | | |
Net actuarial loss | Net actuarial loss | $ | (14) | | | $ | (7) | | | | | | Net actuarial loss | $ | (15) | | | $ | (14) | | | $ | (7) | | | | | | |
Prior service cost | Prior service cost | (4) | | | (3) | | | | | | Prior service cost | (3) | | | (4) | | | (3) | | | | | | |
Total | Total | $ | (18) | | | $ | (10) | | | | | | Total | $ | (18) | | | $ | (18) | | | $ | (10) | | | | | | |
(1) Includes discontinued operations.operations in 2020 and 2019.
Sempra, Energy, SDG&E and SoCalGas each have a funded pension plan. The following table shows the obligations of funded pension plans with benefit obligations in excess of plan assets at December 31: | OBLIGATIONS OF FUNDED PENSION PLANS | OBLIGATIONS OF FUNDED PENSION PLANS | OBLIGATIONS OF FUNDED PENSION PLANS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated: | | | | |
Sempra: | | Sempra: | | | | |
Projected benefit obligation | Projected benefit obligation | $ | 3,679 | | | $ | 3,578 | | Projected benefit obligation | $ | 2,612 | | | $ | 3,679 | | | $ | 3,578 | |
Accumulated benefit obligation | Accumulated benefit obligation | 3,265 | | | 3,229 | | Accumulated benefit obligation | 2,277 | | | 3,265 | | | 3,229 | |
Fair value of plan assets | Fair value of plan assets | 2,788 | | | 2,662 | | Fair value of plan assets | 2,095 | | | 2,788 | | | 2,662 | |
SDG&E: | SDG&E: | | | SDG&E: | | | |
Projected benefit obligation | Projected benefit obligation | $ | 887 | | | $ | 861 | | Projected benefit obligation | | $ | 887 | | | $ | 861 | |
Accumulated benefit obligation | Accumulated benefit obligation | 834 | | | 818 | | Accumulated benefit obligation | | 834 | | | 818 | |
Fair value of plan assets | Fair value of plan assets | 819 | | | 739 | | Fair value of plan assets | | 819 | | | 739 | |
SoCalGas: | SoCalGas: | | | | SoCalGas: | | | | |
Projected benefit obligation | Projected benefit obligation | $ | 2,792 | | | $ | 2,505 | | Projected benefit obligation | $ | 2,612 | | | $ | 2,792 | | | $ | 2,505 | |
Accumulated benefit obligation | Accumulated benefit obligation | 2,431 | | | 2,208 | | Accumulated benefit obligation | 2,277 | | | 2,431 | | | 2,208 | |
Fair value of plan assets | Fair value of plan assets | 1,969 | | | 1,737 | | Fair value of plan assets | 2,095 | | | 1,969 | | | 1,737 | |
We also have unfunded pension plans at Sempra, Energy, SDG&E, SoCalGas and IEnova. The following table shows the obligations of unfunded pension plans at December 31: | | | | | | | | | | | |
OBLIGATIONS OF UNFUNDED PENSION PLANS |
(Dollars in millions) |
| 2020 | | 2019 |
Sempra Energy Consolidated: | | | |
Projected benefit obligation | $ | 184 | | | $ | 190 | |
Accumulated benefit obligation | 146 | | | 158 | |
SDG&E: | | | |
Projected benefit obligation | $ | 26 | | | $ | 34 | |
Accumulated benefit obligation | 22 | | | 27 | |
SoCalGas: | | | |
Projected benefit obligation | $ | 37 | | | $ | 21 | |
Accumulated benefit obligation | 31 | | | 17 | |
| | | | | | | | | | | | | | | | | |
OBLIGATIONS OF UNFUNDED PENSION PLANS |
(Dollars in millions) |
| 2021 | | 2020 | | 2019 |
Sempra: | | | | | |
Projected benefit obligation | $ | 178 | | | $ | 184 | | | $ | 190 | |
Accumulated benefit obligation | 139 | | | 146 | | | 158 | |
SDG&E: | | | | | |
Projected benefit obligation | $ | 26 | | | $ | 26 | | | $ | 34 | |
Accumulated benefit obligation | 22 | | | 22 | | | 27 | |
SoCalGas: | | | | | |
Projected benefit obligation | $ | 35 | | | $ | 37 | | | $ | 21 | |
Accumulated benefit obligation | 29 | | | 31 | | | 17 | |
Sempra, Energy, SDG&E and SoCalGas each have a funded other postretirement benefit plan. At December 31, 2021, the assets for SDG&E’s and SoCalGas’ other postretirement benefit plans exceeded the plans’ obligations. The following table shows the obligations of funded other postretirement benefit plans with accumulated postretirement benefit obligations in excess of plan assets at December 31: | OBLIGATIONS OF FUNDED OTHER POSTRETIREMENT BENEFIT PLANS | OBLIGATIONS OF FUNDED OTHER POSTRETIREMENT BENEFIT PLANS | OBLIGATIONS OF FUNDED OTHER POSTRETIREMENT BENEFIT PLANS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated: | | | | |
Sempra: | | Sempra: | | | | |
Accumulated postretirement benefit obligation | Accumulated postretirement benefit obligation | $ | 33 | | | $ | 32 | | Accumulated postretirement benefit obligation | $ | 34 | | | $ | 33 | | | $ | 32 | |
Fair value of plan assets | Fair value of plan assets | 27 | | | 25 | | Fair value of plan assets | 33 | | | 27 | | | 25 | |
We also have unfunded other postretirement benefit plans at Sempra Energy.Sempra. The following table shows the obligations of unfunded other postretirement benefit plans at December 31: | OBLIGATIONS OF UNFUNDED OTHER POSTRETIREMENT BENEFIT PLANS | OBLIGATIONS OF UNFUNDED OTHER POSTRETIREMENT BENEFIT PLANS | OBLIGATIONS OF UNFUNDED OTHER POSTRETIREMENT BENEFIT PLANS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated: | | | | |
Sempra: | | Sempra: | | | | |
Accumulated postretirement benefit obligation | Accumulated postretirement benefit obligation | $ | 14 | | | $ | 16 | | Accumulated postretirement benefit obligation | $ | 12 | | | $ | 14 | | | $ | 16 | |
Net Periodic Benefit Cost
The following tables provide the components of net periodic benefit cost and pretax amounts recognized in OCI for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
NET PERIODIC BENEFIT COST AND AMOUNTS RECOGNIZED IN OCI |
SEMPRA ENERGY CONSOLIDATED |
(Dollars in millions) |
| Pension benefits | | Other postretirement benefits |
| 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 |
NET PERIODIC BENEFIT COST | | | | | | | | | | | |
Service cost | $ | 129 | | | $ | 110 | | | $ | 124 | | | $ | 18 | | | $ | 17 | | | $ | 21 | |
Interest cost | 129 | | | 139 | | | 140 | | | 33 | | | 36 | | | 36 | |
Expected return on assets | (169) | | | (144) | | | (157) | | | (55) | | | (71) | | | (70) | |
Amortization of: | | | | | | | | | | | |
Prior service cost (credit) | 12 | | | 12 | | | 11 | | | (2) | | | 0 | | | 1 | |
Actuarial loss (gain) | 35 | | | 36 | | | 22 | | | (10) | | | (10) | | | (6) | |
Settlement charges | 22 | | | 28 | | | 66 | | | 0 | | | 0 | | | 0 | |
Special termination benefits | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 5 | |
Net periodic benefit cost (credit) | 158 | | | 181 | | | 206 | | | (16) | | | (28) | | | (13) | |
Regulatory adjustment | 91 | | | 77 | | | (30) | | | 16 | | | 29 | | | 17 | |
Total expense recognized | 249 | | | 258 | | | 176 | | | 0 | | | 1 | | | 4 | |
| | | | | | | | | | | |
CHANGES IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN OCI (1) | | | | | | | | | | | |
Net loss (gain) | 28 | | | 17 | | | 56 | | | 1 | | | (3) | | | (4) | |
Prior service cost | 0 | | | 5 | | | 12 | | | 0 | | | 0 | | | 0 | |
Amortization of actuarial (loss) gain | (14) | | | (13) | | | (12) | | | 0 | | | 0 | | | 0 | |
Amortization of prior service cost | (4) | | | (3) | | | (2) | | | 0 | | | 0 | | | 0 | |
Settlements | (22) | | | (28) | | | (12) | | | 0 | | | 0 | | | 0 | |
Total recognized in OCI | (12) | | | (22) | | | 42 | | | 1 | | | (3) | | | (4) | |
Total recognized in net periodic benefit cost and OCI | $ | 237 | | | $ | 236 | | | $ | 218 | | | $ | 1 | | | $ | (2) | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
NET PERIODIC BENEFIT COST AND AMOUNTS RECOGNIZED IN OCI |
(Dollars in millions) |
| Pension benefits | | Other postretirement benefits |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Sempra: | | | | | | | | | | | |
NET PERIODIC BENEFIT COST | | | | | | | | | | | |
Service cost | $ | 145 | | | $ | 129 | | | $ | 110 | | | $ | 23 | | | $ | 18 | | | $ | 17 | |
Interest cost | 112 | | | 129 | | | 139 | | | 28 | | | 33 | | | 36 | |
Expected return on assets | (173) | | | (169) | | | (144) | | | (61) | | | (55) | | | (71) | |
Amortization of: | | | | | | | | | | | |
Prior service cost (credit) | 11 | | | 12 | | | 12 | | | (2) | | | (2) | | | — | |
Actuarial loss (gain) | 45 | | | 35 | | | 36 | | | (9) | | | (10) | | | (10) | |
Settlement charges | 38 | | | 22 | | | 28 | | | — | | | — | | | — | |
Net periodic benefit cost (credit) | 178 | | | 158 | | | 181 | | | (21) | | | (16) | | | (28) | |
Regulatory adjustment | 57 | | | 91 | | | 77 | | | 21 | | | 16 | | | 29 | |
Total expense recognized | 235 | | | 249 | | | 258 | | | — | | | — | | | 1 | |
| | | | | | | | | | | |
CHANGES IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN OCI (1) | | | | | | | | | | | |
Net (gain) loss | (5) | | | 28 | | | 17 | | | (4) | | | 1 | | | (3) | |
Prior service cost | — | | | — | | | 5 | | | — | | | — | | | — | |
Amortization of actuarial loss | (8) | | | (14) | | | (13) | | | — | | | — | | | — | |
Amortization of prior service cost | (4) | | | (4) | | | (3) | | | — | | | — | | | — | |
Settlements | (7) | | | (22) | | | (28) | | | — | | | — | | | — | |
Total recognized in OCI | (24) | | | (12) | | | (22) | | | (4) | | | 1 | | | (3) | |
Total recognized in net periodic benefit cost and OCI | $ | 211 | | | $ | 237 | | | $ | 236 | | | $ | (4) | | | $ | 1 | | | $ | (2) | |
(1) Includes discontinued operations.operations in 2020 and 2019. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
NET PERIODIC BENEFIT COST AND AMOUNTS RECOGNIZED IN OCI |
(Dollars in millions) |
| Pension benefits | | Other postretirement benefits |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
SDG&E: | | | | | | | | | | | |
NET PERIODIC BENEFIT COST | | | | | | | | | | | |
Service cost | $ | 35 | | | $ | 31 | | | $ | 30 | | | $ | 5 | | | $ | 4 | | | $ | 4 | |
Interest cost | 25 | | | 30 | | | 34 | | | 5 | | | 6 | | | 7 | |
Expected return on assets | (50) | | | (49) | | | (38) | | | (10) | | | (10) | | | (11) | |
Amortization of: | | | | | | | | | | | |
Prior service cost | 1 | | | 2 | | | 3 | | | — | | | — | | | 2 | |
Actuarial loss (gain) | 2 | | | 3 | | | 11 | | | (2) | | | (3) | | | (2) | |
Settlement charges | 6 | | | — | | | — | | | — | | | — | | | — | |
Net periodic benefit cost (credit) | 19 | | | 17 | | | 40 | | | (2) | | | (3) | | | — | |
Regulatory adjustment | 34 | | | 38 | | | 14 | | | 2 | | | 3 | | | — | |
Total expense recognized | 53 | | | 55 | | | 54 | | | — | | | — | | | — | |
| | | | | | | | | | | |
CHANGES IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN OCI | | | | | | | | | | | |
Net loss | 1 | | | 6 | | | 5 | | | — | | | — | | | — | |
Prior service cost | — | | | — | | | 2 | | | — | | | — | | | — | |
Transfer of actuarial gain | — | | | (7) | | | — | | | — | | | — | | | — | |
Transfer of prior service credit | — | | | (5) | | | — | | | — | | | — | | | — | |
Amortization of actuarial loss | — | | | (1) | | | — | | | — | | | — | | | — | |
Amortization of prior service cost | (1) | | | (1) | | | (1) | | | — | | | — | | | — | |
Total recognized in OCI | — | | | (8) | | | 6 | | | — | | | — | | | — | |
Total recognized in net periodic benefit cost and OCI | $ | 53 | | | $ | 47 | | | $ | 60 | | | $ | — | | | $ | — | | | $ | — | |
| NET PERIODIC BENEFIT COST AND AMOUNTS RECOGNIZED IN OCI | NET PERIODIC BENEFIT COST AND AMOUNTS RECOGNIZED IN OCI | NET PERIODIC BENEFIT COST AND AMOUNTS RECOGNIZED IN OCI |
SAN DIEGO GAS & ELECTRIC COMPANY | |
SOUTHERN CALIFORNIA GAS COMPANY | | SOUTHERN CALIFORNIA GAS COMPANY |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Pension benefits | | Other postretirement benefits | | Pension benefits | | Other postretirement benefits |
| | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
SoCalGas: | | SoCalGas: | |
NET PERIODIC BENEFIT COST | NET PERIODIC BENEFIT COST | | | | | | | | | | | | NET PERIODIC BENEFIT COST | | | | | | | | | | | |
Service cost | Service cost | $ | 31 | | | $ | 30 | | | $ | 30 | | | $ | 4 | | | $ | 4 | | | $ | 5 | | Service cost | $ | 97 | | | $ | 86 | | | $ | 68 | | | $ | 17 | | | $ | 14 | | | $ | 12 | |
Interest cost | Interest cost | 30 | | | 34 | | | 35 | | | 6 | | | 7 | | | 7 | | Interest cost | 78 | | | 88 | | | 91 | | | 22 | | | 25 | | | 27 | |
Expected return on assets | Expected return on assets | (49) | | | (38) | | | (47) | | | (10) | | | (11) | | | (13) | | Expected return on assets | (113) | | | (107) | | | (94) | | | (48) | | | (43) | | | (58) | |
Amortization of: | Amortization of: | | | | | | | | | | | | Amortization of: | | | | | | | | | | | |
Prior service cost | 2 | | | 3 | | | 2 | | | 0 | | | 2 | | | 3 | | |
Prior service cost (credit) | | Prior service cost (credit) | 8 | | | 8 | | | 8 | | | (3) | | | (2) | | | (2) | |
Actuarial loss (gain) | Actuarial loss (gain) | 3 | | | 11 | | | 1 | | | (3) | | | (2) | | | (3) | | Actuarial loss (gain) | 36 | | | 26 | | | 16 | | | (7) | | | (7) | | | (8) | |
Settlement charges | Settlement charges | 0 | | | 0 | | | 26 | | | 0 | | | 0 | | | 0 | | Settlement charges | 25 | | | — | | | — | | | — | | | — | | | — | |
Special termination benefits | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 3 | | |
Net periodic benefit cost | 17 | | | 40 | | | 47 | | | (3) | | | 0 | | | 2 | | |
Net periodic benefit cost (credit) | | Net periodic benefit cost (credit) | 131 | | | 101 | | | 89 | | | (19) | | | (13) | | | (29) | |
Regulatory adjustment | Regulatory adjustment | 38 | | | 14 | | | (8) | | | 3 | | | 0 | | | 0 | | Regulatory adjustment | 23 | | | 53 | | | 63 | | | 19 | | | 13 | | | 29 | |
Total expense recognized | Total expense recognized | 55 | | | 54 | | | 39 | | | 0 | | | 0 | | | 2 | | Total expense recognized | 154 | | | 154 | | | 152 | | | — | | | — | | | — | |
| CHANGES IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN OCI | CHANGES IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN OCI | | | | | | | | | | | | CHANGES IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN OCI | | | | | | | | | | | |
Net loss (gain) | 6 | | | 5 | | | (1) | | | 0 | | | 0 | | | 0 | | |
Net loss | | Net loss | 2 | | | 6 | | | 2 | | | — | | | — | | | — | |
Prior service cost | Prior service cost | 0 | | | 2 | | | 8 | | | 0 | | | 0 | | | 0 | | Prior service cost | — | | | — | | | 3 | | | — | | | — | | | — | |
Transfer of actuarial loss | (7) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | |
Transfer of prior service cost | (5) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | |
Transfer of actuarial loss (gain) | | Transfer of actuarial loss (gain) | — | | | 5 | | | (4) | | | — | | | — | | | — | |
Transfer of prior service cost (credit) | | Transfer of prior service cost (credit) | — | | | 3 | | | (1) | | | — | | | — | | | — | |
Amortization of actuarial loss | Amortization of actuarial loss | (1) | | | 0 | | | (1) | | | 0 | | | 0 | | | 0 | | Amortization of actuarial loss | (1) | | | (1) | | | (1) | | | — | | | — | | | — | |
Amortization of prior service cost | Amortization of prior service cost | (1) | | | (1) | | | 0 | | | 0 | | | 0 | | | 0 | | Amortization of prior service cost | (1) | | | (1) | | | — | | | — | | | — | | | — | |
Settlements | 0 | | | 0 | | | (4) | | | 0 | | | 0 | | | 0 | | |
Total recognized in OCI | Total recognized in OCI | (8) | | | 6 | | | 2 | | | 0 | | | 0 | | | 0 | | Total recognized in OCI | — | | | 12 | | | (1) | | | — | | | — | | | — | |
Total recognized in net periodic benefit cost and OCI | Total recognized in net periodic benefit cost and OCI | $ | 47 | | | $ | 60 | | | $ | 41 | | | $ | 0 | | | $ | 0 | | | $ | 2 | | Total recognized in net periodic benefit cost and OCI | $ | 154 | | | $ | 166 | | | $ | 151 | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
NET PERIODIC BENEFIT COST AND AMOUNTS RECOGNIZED IN OCI |
SOUTHERN CALIFORNIA GAS COMPANY |
(Dollars in millions) |
| Pension benefits | | Other postretirement benefits |
| 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 |
NET PERIODIC BENEFIT COST | | | | | | | | | | | |
Service cost | $ | 86 | | | $ | 68 | | | $ | 81 | | | $ | 14 | | | $ | 12 | | | $ | 15 | |
Interest cost | 88 | | | 91 | | | 92 | | | 25 | | | 27 | | | 27 | |
Expected return on assets | (107) | | | (94) | | | (98) | | | (43) | | | (58) | | | (56) | |
Amortization of: | | | | | | | | | | | |
Prior service cost (credit) | 8 | | | 8 | | | 8 | | | (2) | | | (2) | | | (3) | |
Actuarial loss (gain) | 26 | | | 16 | | | 13 | | | (7) | | | (8) | | | (2) | |
Settlement charges | 0 | | | 0 | | | 32 | | | 0 | | | 0 | | | 0 | |
Special termination benefits | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2 | |
Net periodic benefit cost (credit) | 101 | | | 89 | | | 128 | | | (13) | | | (29) | | | (17) | |
Regulatory adjustment | 53 | | | 63 | | | (22) | | | 13 | | | 29 | | | 17 | |
Total expense recognized | 154 | | | 152 | | | 106 | | | 0 | | | 0 | | | 0 | |
| | | | | | | | | | | |
CHANGES IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN OCI | | | | | | | | | | | |
Net loss | 6 | | | 2 | | | 1 | | | 0 | | | 0 | | | 0 | |
Prior service cost | 0 | | | 3 | | | 0 | | | 0 | | | 0 | | | 0 | |
Transfer of actuarial loss | 5 | | | (4) | | | 0 | | | 0 | | | 0 | | | 0 | |
Transfer of prior service cost | 3 | | | (1) | | | 0 | | | 0 | | | 0 | | | 0 | |
Amortization of actuarial loss | (1) | | | (1) | | | 0 | | | 0 | | | 0 | | | 0 | |
Amortization of prior service cost | (1) | | | 0 | | | (1) | | | 0 | | | 0 | | | 0 | |
Total recognized in OCI | 12 | | | (1) | | | 0 | | | 0 | | | 0 | | | 0 | |
Total recognized in net periodic benefit cost and OCI | $ | 166 | | | $ | 151 | | | $ | 106 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Assumptions for Pension and Other Postretirement Benefit Plans
Benefit Obligation and Net Periodic Benefit Cost
Except for the IEnova plans, we develop the discount rate assumptions using a bond selection-settlement portfolio approach. This approach develops a discount rate by selecting a portfolio of high quality corporate bonds that generate sufficient cash flows to provide for projected benefit payments of the plan. The selected bond portfolio is derived from a universe of corporate bonds with a Bloomberg Composite of AA or higher. After the bond portfolio is selected, a single interest rate is determined that equates the present value of the plans’ projected benefit payments discounted at this rate with the market value of the bonds selected.
We develop the discount rate assumptions for the plans at IEnova by constructing a synthetic government zero coupon bond yield curve from the available market data, based on duration matching, and we add a risk spread to allow for the yields of high-quality corporate bonds. Such method is required when there is no deep market for high quality corporate bonds.
Long-term return on assets is based on the weighted-average of the plans’ investment allocation as of the measurement date and the expected returns for those asset types.
Interest crediting rate is based on an average 30-year Treasury bond from the month of November of the preceding year.
We amortize prior service cost using straight line amortization over average future service (or average expected lifetime for plans where participants are substantially inactive employees), which is an alternative method allowed under U.S. GAAP.
The significant assumptions affecting benefit obligation and net periodic benefit cost are as follows:
| WEIGHTED-AVERAGE ASSUMPTIONS USED TO DETERMINE BENEFIT OBLIGATION | WEIGHTED-AVERAGE ASSUMPTIONS USED TO DETERMINE BENEFIT OBLIGATION | WEIGHTED-AVERAGE ASSUMPTIONS USED TO DETERMINE BENEFIT OBLIGATION |
AT DECEMBER 31 | AT DECEMBER 31 | | | | AT DECEMBER 31 |
| | Pension benefits | | Other postretirement benefits | | Pension benefits | | Other postretirement benefits |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated: | | | | | | | | |
Sempra: | | Sempra: | | | | | | | | |
Discount rate | Discount rate | 2.78 | % | | 3.49 | % | | 2.88 | % | | 3.54 | % | Discount rate | 3.04 | % | | 2.78 | % | | 3.49 | % | | 3.04 | % | | 2.88 | % | | 3.54 | % |
Interest crediting rate(1)(2) | Interest crediting rate(1)(2) | 1.62 | | | 2.28 | | | 1.62 | | | 2.28 | | Interest crediting rate(1)(2) | 1.94 | | | 1.62 | | | 2.28 | | | 1.94 | | | 1.62 | | | 2.28 | |
Rate of compensation increase | Rate of compensation increase | 2.70-10.00 | | 2.70-10.00 | | 2.70-10.00 | | 2.70-10.00 | Rate of compensation increase | 2.70-10.00 | | 2.70-10.00 | | 2.70-10.00 | | 2.70-10.00 | | 2.70-10.00 | | 2.70-10.00 |
SDG&E: | SDG&E: | | | | | | | | SDG&E: | | | | | | | | |
Discount rate | Discount rate | 2.73 | % | | 3.44 | % | | 2.85 | % | | 3.55 | % | Discount rate | 2.99 | % | | 2.73 | % | | 3.44 | % | | 3.05 | % | | 2.85 | % | | 3.55 | % |
Interest crediting rate(1)(2) | Interest crediting rate(1)(2) | 1.62 | | | 2.28 | | | 1.62 | | | 2.28 | | Interest crediting rate(1)(2) | 1.94 | | | 1.62 | | | 2.28 | | | 1.94 | | | 1.62 | | | 2.28 | |
Rate of compensation increase | Rate of compensation increase | 2.70-10.00 | | 2.70-10.00 | | 2.70-10.00 | | 2.70-10.00 | Rate of compensation increase | 3.50-10.00 | | 2.70-10.00 | | 2.70-10.00 | | 3.50-10.00 | | 2.70-10.00 | | 2.70-10.00 |
SoCalGas: | SoCalGas: | | | | | | | | SoCalGas: | | | | | | | | |
Discount rate | Discount rate | 2.79 | % | | 3.50 | % | | 2.90 | % | | 3.55 | % | Discount rate | 3.04 | % | | 2.79 | % | | 3.50 | % | | 3.05 | % | | 2.90 | % | | 3.55 | % |
Interest crediting rate(1)(2) | Interest crediting rate(1)(2) | 1.62 | | | 2.28 | | | 1.62 | | | 2.28 | | Interest crediting rate(1)(2) | 1.94 | | | 1.62 | | | 2.28 | | | 1.94 | % | | 1.62 | | | 2.28 | |
Rate of compensation increase | Rate of compensation increase | 2.70-10.00 | | 2.70-10.00 | | 2.70-10.00 | | 2.70-10.00 | Rate of compensation increase | 2.70-10.00 | | 2.70-10.00 | | 2.70-10.00 | | 2.70-10.00 | | 2.70-10.00 | | 2.70-10.00 |
(1) Interest crediting rate for pension benefits applies only to funded cash balance plans.(2) Interest crediting rate for other postretirement benefits applies only to interest bearing health retirement accounts at SDG&E and SoCalGas.
| WEIGHTED-AVERAGE ASSUMPTIONS USED TO DETERMINE NET PERIODIC BENEFIT COST | WEIGHTED-AVERAGE ASSUMPTIONS USED TO DETERMINE NET PERIODIC BENEFIT COST | WEIGHTED-AVERAGE ASSUMPTIONS USED TO DETERMINE NET PERIODIC BENEFIT COST |
YEARS ENDED DECEMBER 31 | YEARS ENDED DECEMBER 31 | | | | YEARS ENDED DECEMBER 31 | | | |
| | Pension benefits | | Other postretirement benefits | | Pension benefits | | Other postretirement benefits |
| | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated: | | | | | | | | | | | | |
Sempra: | | Sempra: | | | | | | | | | | | |
Discount rate | Discount rate | 3.49 | % | | 4.29 | % | | 3.64 | % | | 3.54 | % | | 4.29 | % | | 3.68 | % | Discount rate | 2.78 | % | | 3.49 | % | | 4.29 | % | | 2.88 | % | | 3.54 | % | | 4.29 | % |
Expected return on plan assets | Expected return on plan assets | 7.00 | | | 7.00 | | | 7.00 | | | 4.64 | | | 6.48 | | | 6.49 | | Expected return on plan assets | 6.47 | | | 7.00 | | | 7.00 | | | 4.76 | | | 4.64 | | | 6.48 | |
Interest crediting rate(1)(2) | Interest crediting rate(1)(2) | 2.28 | | | 3.36 | | | 2.80 | | | 2.28 | | | 3.36 | | | 2.80 | | Interest crediting rate(1)(2) | 1.62 | | | 2.28 | | | 3.36 | | | 1.62 | | | 2.28 | | | 3.36 | |
Rate of compensation increase | Rate of compensation increase | 2.70-10.00 | | 2.00-10.00 | | 2.00-10.00 | | 2.70-10.00 | | 2.00-10.00 | | 2.00-10.00 | Rate of compensation increase | 2.70-10.00 | | 2.70-10.00 | | 2.00-10.00 | | 2.70-10.00 | | 2.70-10.00 | | 2.00-10.00 |
SDG&E: | SDG&E: | | | | | | | | | SDG&E: | | | | | | | | |
Discount rate | Discount rate | 3.44 | % | | 4.29 | % | | 3.64 | % | | 3.55 | % | | 4.30 | % | | 3.65 | % | Discount rate | 2.73 | % | | 3.44 | % | | 4.29 | % | | 2.85 | % | | 3.55 | % | | 4.30 | % |
Expected return on plan assets | Expected return on plan assets | 7.00 | | | 7.00 | | | 7.00 | | | 5.51 | | | 6.92 | | | 6.94 | | Expected return on plan assets | 6.25 | | | 7.00 | | | 7.00 | | | 4.81 | | | 5.51 | | | 6.92 | |
Interest crediting rate(1)(2) | Interest crediting rate(1)(2) | 2.28 | | | 3.36 | | | 2.80 | | | 2.28 | | | 3.36 | | | 2.80 | | Interest crediting rate(1)(2) | 1.62 | | | 2.28 | | | 3.36 | | | 1.62 | | | 2.28 | | | 3.36 | |
Rate of compensation increase | Rate of compensation increase | 2.70-10.00 | | 2.00-10.00 | | 2.00-10.00 | | 2.70-10.00 | | 2.00-10.00 | | 2.00-10.00 | Rate of compensation increase | 2.70-10.00 | | 2.70-10.00 | | 2.00-10.00 | | 2.70-10.00 | | 2.70-10.00 | | 2.00-10.00 |
SoCalGas: | SoCalGas: | | | | | | | | | SoCalGas: | | | | | | | | |
Discount rate | Discount rate | 3.50 | % | | 4.30 | % | | 3.65 | % | | 3.55 | % | | 4.30 | % | | 3.70 | % | Discount rate | 2.79 | % | | 3.50 | % | | 4.30 | % | | 2.90 | % | | 3.55 | % | | 4.30 | % |
Expected return on plan assets | Expected return on plan assets | 7.00 | | | 7.00 | | | 7.00 | | | 4.41 | | | 6.38 | | | 6.38 | | Expected return on plan assets | 6.75 | | | 7.00 | | | 7.00 | | | 4.70 | | | 4.41 | | | 6.38 | |
Interest crediting rate(1)(2) | Interest crediting rate(1)(2) | 2.28 | | | 3.36 | | | 2.80 | | | 2.28 | | | 3.36 | | | 2.80 | | Interest crediting rate(1)(2) | 1.62 | | | 2.28 | | | 3.36 | | | 1.62 | | | 2.28 | | | 3.36 | |
Rate of compensation increase | Rate of compensation increase | 2.70-10.00 | | 2.00-10.00 | | 2.00-10.00 | | 2.70-10.00 | | 2.00-10.00 | | 2.00-10.00 | Rate of compensation increase | 2.70-10.00 | | 2.70-10.00 | | 2.00-10.00 | | 2.70-10.00 | | 2.70-10.00 | | 2.00-10.00 |
(1) Interest crediting rate for pension benefits applies only to funded cash balance plans.(2) Interest crediting rate for other postretirement benefits applies only to interest bearing health retirement accounts at SDG&E and SoCalGas.
Health Care Cost Trend Rates
Assumed health care cost trend rates have a significant effect on the amounts that weSempra, SDG&E and SoCalGas report for the health care plan costs. Following are the health care cost trend rates applicable to our postretirement benefit plans:
| ASSUMED HEALTH CARE COST TREND RATES | ASSUMED HEALTH CARE COST TREND RATES | ASSUMED HEALTH CARE COST TREND RATES |
AT DECEMBER 31 | AT DECEMBER 31 | | AT DECEMBER 31 | |
| | Other postretirement benefit plans | | Other postretirement benefit plans |
| | Pre-65 retirees | | Retirees aged 65 years and older | | Pre-65 retirees | | Retirees aged 65 years and older |
| | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Health care cost trend rate assumed for next year | Health care cost trend rate assumed for next year | 6.00 | % | | 6.25 | % | | 6.50 | % | | 4.75 | % | | 4.75 | % | | 4.75 | % | Health care cost trend rate assumed for next year | 6.00 | % | | 6.00 | % | | 6.25 | % | | 4.75 | % | | 4.75 | % | | 4.75 | % |
Rate to which the cost trend rate is assumed to decline (the ultimate trend) | Rate to which the cost trend rate is assumed to decline (the ultimate trend) | 4.75 | % | | 4.75 | % | | 4.75 | % | | 4.50 | % | | 4.50 | % | | 4.50 | % | Rate to which the cost trend rate is assumed to decline (the ultimate trend) | 4.75 | % | | 4.75 | % | | 4.75 | % | | 4.50 | % | | 4.50 | % | | 4.50 | % |
Year the rate reaches the ultimate trend | Year the rate reaches the ultimate trend | 2025 | | 2025 | | 2025 | | 2022 | | 2022 | | 2022 | Year the rate reaches the ultimate trend | 2025 | | 2025 | | 2025 | | 2022 | | 2022 | | 2022 |
Plan Assets
Investment Allocation Strategy for Sempra Energy’sSempra’s Pension Master Trust
Sempra Energy’sSempra’s pension master trust holds the investments for our pension plans and a portion of the investments for our PBOP plans. We maintain additional trusts, as we discuss below, for certain of the California Utilities’SDGE’s and SoCalGas’ PBOP plans. Other than through indexing strategies, the trusts do not invest in securities of Sempra Energy.Sempra.
The current asset allocation objective for the pension master trust is to protect the funded status of the plans while generating sufficient returns to cover future benefit payments and accruals. We assess the portfolio performance by comparing actual returns with relevant benchmarks. Currently, the pension plans’ target asset allocations are:
▪33%31% domestic equity
▪22%21% international equity
▪21% long credit
▪10% diversified real assets
▪7%10% return-seeking credit
▪5% ultra-long duration government securities
▪2% other diversifying assets
The asset allocation of the plans is reviewed by our Plan Funding Committee and our Pension and Benefits Investment Committee (the Committees) on a regular basis. When evaluating strategic asset allocations, the Committees consider many variables, including:
▪long-term cost
▪variability and level of contributions
▪funded status
▪a range of expected outcomes over varying confidence levels
This allocation results in a 74% target allocation to return-seeking assets and a 26% target allocation to risk-mitigating assets. We maintain asset allocations at strategic levels with reasonable bands of variance.
In accordance with the Sempra Energy pension investment guidelines, derivative financial instruments may be used by the pension master trust’s equity and fixed income portfolio investment managers to equitize cash, hedge certain exposures, and as substitutes for certain types of fixed income securities.
Rate of Return Assumption
The expected return on assets in our pension and PBOP plans is based on the weighted-average of the plans’ investment allocations to specific asset classes as of the measurement date. We arrive at a 6.75% expected return on assets by considering both the historical and forecasted long-term rates of return on those asset classes. We expect a return of between 4% and 12% on return-seeking assets and between 1% and 4% for risk-mitigating assets. Certain trusts that hold assets for the SDG&E other postretirement benefit plan are subject to taxation, which impacts the expected after-tax return on assets in the plan.
Concentration of Risk
Plan assets are diversified across global equity and bond markets, and concentration of risk in any one economic, industry, maturity or geographic sector is limited.
Investment Strategy for SDG&E’s and SoCalGas’ Other Postretirement Benefit Plans
SDG&E’s and SoCalGas’ PBOP plans are funded by cash contributions from SDG&E and SoCalGas and their current retirees. The assets of these plans are placed into the pension master trust and other Voluntary Employee Beneficiary Association trusts. Certain assets of SDG&E’s and SoCalGas’ PBOP plans are held in the pension master trust, which invests a portion of the assets in completion portfolios that aim to reduce interest rate risk, thereby resulting in an overall target allocation of 38% to return-seeking assets and 62% to risk-mitigating assets for these well-funded plans. Certain of SoCalGas’ PBOP plans are held in a Voluntary Employee Benefit Association trust that also utilizes a completion portfolio, resulting in a target allocation of 30% to return-seeking assets and 70% to risk-mitigating assets. SDG&E’s and SoCalGas’ assets held in other Voluntary Employee Beneficiary Association trusts are invested in accordance with a de-risking glidepath that reduces the assets’ exposure to risk as the trusts become better funded. These specific allocations are periodically reviewed to help ensure that plan assets are best positioned to meet plan obligations.
Fair Value of Pension and Other Postretirement Benefit Plan Assets
We classify the investments in Sempra Energy’sSempra’s pension master trust and the trusts for the California Utilities’SDG&E’s and SoCalGas’ PBOP plans based on the fair value hierarchy, except for certain investments measured at NAV.
The following are descriptions of the valuation methods and assumptions we use to estimate the fair values of investments held by pension and other postretirement benefit plan trusts.
Equity Securities – Equity securities are valued using quoted prices listed on nationally recognized securities exchanges.
Registered Investment Companies – Investments in mutual funds sponsored by a registered investment company are valued based on exchange listed prices. Where the value is a quoted price in an active market, the investment is classified within Level 1 of the fair value hierarchy. Other investments are valued under a discounted cash flow approach that maximizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable, such as credit and liquidity risks.
Fixed Income Securities – Certain fixed income securities are valued at the closing price reported in the active market in which the security is traded. Other fixed income securities are valued based on yields currently available on comparable securities of issuers with similar credit ratings. When quoted prices are not available for identical or similar securities, the security is valued under a discounted cash flow approach that maximizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable, such as credit and liquidity risks. Certain high yield fixed-income securities are valued by applying a price adjustment to the bid side to calculate a mean and ask value. Adjustments can vary based on maturity, credit standing, and reported trade frequencies. The bid to ask spread is determined by the investment manager based on the review of the available market information.
Registered Investment Companies – Investments in mutual funds sponsored by a registered investment company are valued based on exchange listed prices. Where the value is a quoted price in an active market, the investment is classified within
Level 1 of the fair value hierarchy. Investments in certain fixed income securities are valued under a discounted cash flow approach that maximizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable, such as credit and liquidity risks for the remaining fixed income securities.
Common/Collective Trusts – Investments in common/collective trust funds are valued based on the NAV of units owned, which is based on the current fair value of the funds’ underlying assets.
Private EquityVenture Capital Funds and Real Estate Funds – These funds consist of investments in private equitiesventure capital funds and real estate funds that are held by limited partnerships or similar private entities following various strategies, including private equity and corporate finance. These partnerships generally have limited lives of 10 years, after which liquidating distributions will be received.investment strategies. The value is determined based on the NAV of theour proportionate share of an ownership interest in partners’ capital. Holdings in these types of private equity funds are negligible, as the funds are well past their expected investment term and have distributed the bulk of proceeds from investment sales.entity.
Derivative Financial Instruments – Futures contracts that are publicly traded in active markets are valued at closing prices as of the last business day of the year. Forward currency contracts are valued at the prevailing forward exchange rate of the underlying currencies, and unrealized gain (loss) is recorded daily. Fixed income futures and options are marked to market daily. Equity index futures contracts are valued at the last sales price quoted on the exchange on which they primarily trade.
While management believes the valuation methods described above are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
We provide more discussion of fair value measurements in Notes 1 and 12. The following tables set forth by level within the fair value hierarchy a summary of the investments in our pension and other postretirement benefit plan trusts measured at fair value on a recurring basis.
SDG&E and SoCalGas each hold a proportionate share of investment assets in the pension master trust at Sempra Energy Consolidated.Sempra. The fair values of our pension plan assets by asset category are as follows:
| FAIR VALUE MEASUREMENTS – INVESTMENT ASSETS OF PENSION PLANS | FAIR VALUE MEASUREMENTS – INVESTMENT ASSETS OF PENSION PLANS | FAIR VALUE MEASUREMENTS – INVESTMENT ASSETS OF PENSION PLANS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Fair value at December 31, 2020 | | Fair value at December 31, 2021 |
| | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 | | Total |
Sempra Energy Consolidated: | | | | | | |
Sempra: | | Sempra: | | | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 7 | | | $ | 0 | | | $ | 7 | | Cash and cash equivalents | $ | 18 | | | $ | — | | | $ | 18 | |
Equity securities: | Equity securities: | | | | | | Equity securities: | | | | | |
Domestic | Domestic | 931 | | | 0 | | | 931 | | Domestic | 844 | | | 5 | | | 849 | |
International | International | 563 | | | 0 | | | 563 | | International | 384 | | | 1 | | | 385 | |
Registered investment companies | 183 | | | 0 | | | 183 | | |
Registered investment companies: | | Registered investment companies: | |
Domestic | | Domestic | 204 | | | 21 | | | 225 | |
International | | International | 33 | | | — | | | 33 | |
Fixed income securities: | Fixed income securities: | | | | | | Fixed income securities: | | | | | |
Domestic government and government agencies | Domestic government and government agencies | 238 | | | 34 | | | 272 | | Domestic government and government agencies | 463 | | | 24 | | | 487 | |
International government bonds | International government bonds | 0 | | | 13 | | | 13 | | International government bonds | — | | | 11 | | | 11 | |
Domestic corporate bonds | Domestic corporate bonds | 0 | | | 418 | | | 418 | | Domestic corporate bonds | — | | | 413 | | | 413 | |
International corporate bonds | International corporate bonds | 0 | | | 61 | | | 61 | | International corporate bonds | — | | | 65 | | | 65 | |
Registered investment companies | 0 | | | 37 | | | 37 | | |
Other | Other | 2 | | | (1) | | | 1 | | Other | 1 | | | — | | | 1 | |
Total investment assets in the fair value hierarchy | Total investment assets in the fair value hierarchy | $ | 1,924 | | | $ | 562 | | | 2,486 | | Total investment assets in the fair value hierarchy | $ | 1,947 | | | $ | 540 | | | 2,487 | |
Accounts receivable/payable, net | Accounts receivable/payable, net | | 13 | | Accounts receivable/payable, net | | | (20) | |
Investments measured at NAV: | Investments measured at NAV: | | Investments measured at NAV: | |
Common/collective trusts | Common/collective trusts | | 493 | | Common/collective trusts | | 657 | |
Private equity funds | | 10 | | |
Venture capital funds and real estate funds | | Venture capital funds and real estate funds | | 58 | |
Total investment assets | Total investment assets | | $ | 3,002 | | Total investment assets | | $ | 3,182 | |
SDG&E’s proportionate share of investment assets | SDG&E’s proportionate share of investment assets | | $ | 819 | | SDG&E’s proportionate share of investment assets | | $ | 859 | |
SoCalGas’ proportionate share of investment assets | SoCalGas’ proportionate share of investment assets | | $ | 1,969 | | SoCalGas’ proportionate share of investment assets | | $ | 2,095 | |
| | | Fair value at December 31, 2019 | | Fair value at December 31, 2020 |
| | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 | | Total |
Sempra Energy Consolidated: | | |
Sempra: | | Sempra: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 17 | | | $ | 0 | | | $ | 17 | | Cash and cash equivalents | $ | 7 | | | $ | — | | | $ | 7 | |
Equity securities: | Equity securities: | | | | | | Equity securities: | | | | | |
Domestic | Domestic | 923 | | | 0 | | | 923 | | Domestic | 931 | | | — | | | 931 | |
International | International | 555 | | | 1 | | | 556 | | International | 563 | | | — | | | 563 | |
Registered investment companies | 96 | | | 0 | | | 96 | | |
Registered investment companies: | | Registered investment companies: | |
Domestic | | Domestic | 151 | | | 37 | | | 188 | |
International | | International | 32 | | | — | | | 32 | |
Fixed income securities: | Fixed income securities: | | | | | | Fixed income securities: | | | | | |
Domestic government and government agencies | Domestic government and government agencies | 228 | | | 39 | | | 267 | | Domestic government and government agencies | 238 | | | 34 | | | 272 | |
International government bonds | International government bonds | 0 | | | 9 | | | 9 | | International government bonds | — | | | 13 | | | 13 | |
Domestic corporate bonds | Domestic corporate bonds | 0 | | | 346 | | | 346 | | Domestic corporate bonds | — | | | 418 | | | 418 | |
International corporate bonds | International corporate bonds | 0 | | | 62 | | | 62 | | International corporate bonds | — | | | 61 | | | 61 | |
Registered investment companies | 0 | | | 2 | | | 2 | | |
Other | | Other | 2 | | | (1) | | | 1 | |
Total investment assets in the fair value hierarchy | Total investment assets in the fair value hierarchy | $ | 1,819 | | | $ | 459 | | | 2,278 | | Total investment assets in the fair value hierarchy | $ | 1,924 | | | $ | 562 | | | 2,486 | |
Accounts receivable/payable, net | Accounts receivable/payable, net | | (38) | | Accounts receivable/payable, net | | | 13 | |
Investments measured at NAV: | Investments measured at NAV: | | Investments measured at NAV: | |
Common/collective trusts | Common/collective trusts | | 417 | | Common/collective trusts | | 493 | |
Private equity funds | | 5 | | |
Venture capital funds and real estate funds | | Venture capital funds and real estate funds | | 10 | |
Total investment assets | Total investment assets | | $ | 2,662 | | Total investment assets | | $ | 3,002 | |
SDG&E’s proportionate share of investment assets | SDG&E’s proportionate share of investment assets | | $ | 739 | | SDG&E’s proportionate share of investment assets | | $ | 819 | |
SoCalGas’ proportionate share of investment assets | SoCalGas’ proportionate share of investment assets | | $ | 1,737 | | SoCalGas’ proportionate share of investment assets | | $ | 1,969 | |
F-98
| | | | | | | | | | | | | | | | | |
FAIR VALUE MEASUREMENTS – INVESTMENT ASSETS OF PENSION PLANS |
(Dollars in millions) |
| Fair value at December 31, 2019 |
| Level 1 | | Level 2 | | Total |
Sempra: | | | | | |
Cash and cash equivalents | $ | 17 | | | $ | — | | | $ | 17 | |
Equity securities: | | | | | |
Domestic | 923 | | | — | | | 923 | |
International | 555 | | | 1 | | | 556 | |
Registered investment companies: | | | | | |
Domestic | 93 | | | 2 | | | 95 | |
International | 3 | | | — | | | 3 | |
Fixed income securities: | | | | | |
Domestic government and government agencies | 228 | | | 39 | | | 267 | |
International government bonds | — | | | 9 | | | 9 | |
Domestic corporate bonds | — | | | 346 | | | 346 | |
International corporate bonds | — | | | 62 | | | 62 | |
Total investment assets in the fair value hierarchy | $ | 1,819 | | | $ | 459 | | | 2,278 | |
Accounts receivable/payable, net | | | | | (38) | |
Investments measured at NAV: | | | | | |
Common/collective trusts | | | | | 417 | |
Venture capital funds and real estate funds | | | | | 5 | |
Total investment assets | | | | | $ | 2,662 | |
SDG&E’s proportionate share of investment assets | | | | | $ | 739 | |
SoCalGas’ proportionate share of investment assets | | | | | $ | 1,737 | |
The fair values by asset category of the PBOP plan assets held in the pension master trust and in the additional trusts for SoCalGas’ PBOP plans and SDG&E’s PBOP plan trusts are as follows:
| FAIR VALUE MEASUREMENTS – INVESTMENT ASSETS OF OTHER POSTRETIREMENT BENEFIT PLANS | FAIR VALUE MEASUREMENTS – INVESTMENT ASSETS OF OTHER POSTRETIREMENT BENEFIT PLANS | FAIR VALUE MEASUREMENTS – INVESTMENT ASSETS OF OTHER POSTRETIREMENT BENEFIT PLANS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Fair value at December 31, 2020 | | Fair value at December 31, 2021 |
| | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 | | Total |
SDG&E: | SDG&E: | | | | | | SDG&E: | | | | | |
Equity securities: | Equity securities: | | | | | | Equity securities: | | | | | |
Domestic | Domestic | $ | 17 | | | $ | 0 | | | $ | 17 | | Domestic | $ | 16 | | | $ | — | | | $ | 16 | |
International | International | 11 | | | 0 | | | 11 | | International | 7 | | | — | | | 7 | |
Registered investment companies | 80 | | | 0 | | | 80 | | |
Registered investment companies: | | Registered investment companies: | |
Domestic | | Domestic | 82 | | | 1 | | | 83 | |
International | | International | 9 | | | — | | | 9 | |
Fixed income securities: | Fixed income securities: | | | | | | Fixed income securities: | |
Domestic government and government agencies | Domestic government and government agencies | 38 | | | 2 | | | 40 | | Domestic government and government agencies | 24 | | | 1 | | | 25 | |
| Domestic corporate bonds | Domestic corporate bonds | 0 | | | 8 | | | 8 | | Domestic corporate bonds | — | | | 8 | | | 8 | |
International corporate bonds | International corporate bonds | 0 | | | 1 | | | 1 | | International corporate bonds | — | | | 1 | | | 1 | |
Registered investment companies | 0 | | | 7 | | | 7 | | |
Total investment assets in the fair value hierarchy | Total investment assets in the fair value hierarchy | 146 | | | 18 | | | 164 | | Total investment assets in the fair value hierarchy | 138 | | | 11 | | | 149 | |
Accounts receivable/payable, net | Accounts receivable/payable, net | | (2) | | Accounts receivable/payable, net | | | (1) | |
Investments measured at NAV – Common/collective trusts | Investments measured at NAV – Common/collective trusts | | 51 | | Investments measured at NAV – Common/collective trusts | | 49 | |
Total investment assets | Total investment assets | | 213 | | Total investment assets | | 197 | |
| SoCalGas: | SoCalGas: | | | | | | SoCalGas: | | | | | |
Cash and cash equivalents | Cash and cash equivalents | 1 | | | 0 | | | 1 | | Cash and cash equivalents | 2 | | | — | | | 2 | |
Equity securities: | Equity securities: | | | | | | Equity securities: | | | | | |
Domestic | Domestic | 76 | | | 0 | | | 76 | | Domestic | 83 | | | 1 | | | 84 | |
International | International | 46 | | | 0 | | | 46 | | International | 37 | | | — | | | 37 | |
Registered investment companies | 61 | | | 0 | | | 61 | | |
Registered investment companies: | | Registered investment companies: | |
Domestic | | Domestic | 74 | | | 73 | | | 147 | |
International | | International | 3 | | | — | | | 3 | |
Fixed income securities: | Fixed income securities: | | | | | | Fixed income securities: | | | | | |
Domestic government and government agencies | Domestic government and government agencies | 273 | | | 25 | | | 298 | | Domestic government and government agencies | 241 | | | 17 | | | 258 | |
International government bonds | International government bonds | 1 | | | 14 | | | 15 | | International government bonds | 1 | | | 11 | | | 12 | |
Domestic corporate bonds | Domestic corporate bonds | 0 | | | 349 | | | 349 | | Domestic corporate bonds | — | | | 337 | | | 337 | |
International corporate bonds | International corporate bonds | 0 | | | 42 | | | 42 | | International corporate bonds | — | | | 49 | | | 49 | |
Registered investment companies | 0 | | | 81 | | | 81 | | |
Derivative financial instruments | 1 | | | 0 | | | 1 | | |
Total investment assets in the fair value hierarchy | | Total investment assets in the fair value hierarchy | 441 | | | 488 | | | 929 | |
Accounts receivable/payable, net | | Accounts receivable/payable, net | | | (1) | |
Investments measured at NAV: | | Investments measured at NAV: | |
Common/collective trusts | | Common/collective trusts | | 244 | |
Venture capital funds and real estate funds | | Venture capital funds and real estate funds | | 6 | |
Total investment assets | | Total investment assets | | 1,178 | |
Other Sempra: | | Other Sempra: | | | | | |
Equity securities: | | Equity securities: | | | | | |
Domestic | | Domestic | 9 | | | — | | | 9 | |
International | | International | 6 | | | — | | | 6 | |
Registered investment companies – Domestic | | Registered investment companies – Domestic | 2 | | | — | | | 2 | |
Fixed income securities: | | Fixed income securities: | | | | | |
Domestic government and government agencies | | Domestic government and government agencies | 2 | | | 1 | | | 3 | |
Domestic corporate bonds | | Domestic corporate bonds | — | | | 4 | | | 4 | |
International corporate bonds | | International corporate bonds | — | | | 1 | | | 1 | |
Total investment assets in the fair value hierarchy | Total investment assets in the fair value hierarchy | 459 | | | 511 | | | 970 | | Total investment assets in the fair value hierarchy | 19 | | | 6 | | | 25 | |
Investments measured at NAV: | Investments measured at NAV: | | | Investments measured at NAV: | | |
Common/collective trusts | Common/collective trusts | | 188 | | Common/collective trusts | | 7 | |
Venture capital funds and real estate funds | Venture capital funds and real estate funds | | 1 | | Venture capital funds and real estate funds | | 1 | |
Total investment assets | | 1,159 | | |
Total other Sempra investment assets | | Total other Sempra investment assets | | 33 | |
| Other Sempra Energy: | | | | | | |
Equity securities: | | | | | | |
Domestic | 10 | | | 0 | | | 10 | | |
International | 6 | | | 0 | | | 6 | | |
Registered investment companies | 1 | | | 0 | | | 1 | | |
Fixed income securities: | | | | | | |
Domestic government and government agencies | 2 | | | 0 | | | 2 | | |
Domestic corporate bonds | 0 | | | 4 | | | 4 | | |
International corporate bonds | 0 | | | 1 | | | 1 | | |
Registered investment companies | 0 | | | (1) | | | (1) | | |
Total investment assets in the fair value hierarchy | 19 | | | 4 | | | 23 | | |
Investments measured at NAV – Common/collective trusts | | 4 | | |
Total other Sempra Energy investment assets | | 27 | | |
Total Sempra Energy Consolidated investment assets in the fair value hierarchy | $ | 624 | | | $ | 533 | | | | |
Total Sempra Energy Consolidated investment assets | | $ | 1,399 | | |
Total Sempra investment assets in the fair value hierarchy | | Total Sempra investment assets in the fair value hierarchy | $ | 598 | | | $ | 505 | | |
Total Sempra investment assets | | Total Sempra investment assets | | $ | 1,408 | |
| | | | | | | | | | | | | | | | | |
FAIR VALUE MEASUREMENTS – INVESTMENT ASSETS OF OTHER POSTRETIREMENT BENEFIT PLANS |
(Dollars in millions) |
| Fair value at December 31, 2020 |
| Level 1 | | Level 2 | | Total |
SDG&E: | | | | | |
Equity securities: | | | | | |
Domestic | $ | 17 | | | $ | — | | | $ | 17 | |
International | 11 | | | — | | | 11 | |
Registered investment companies: | | | | | |
Domestic | 69 | | | 7 | | | 76 | |
International | 11 | | | — | | | 11 | |
Fixed income securities: | | | | | |
Domestic government and government agencies | 38 | | | 2 | | | 40 | |
Domestic corporate bonds | — | | | 8 | | | 8 | |
International corporate bonds | — | | | 1 | | | 1 | |
Total investment assets in the fair value hierarchy | 146 | | | 18 | | | 164 | |
Accounts receivable/payable, net | | | | | (2) | |
Investments measured at NAV – Common/collective trusts | | | | | 51 | |
Total investment assets | | | | | 213 | |
| | | | | |
SoCalGas: | | | | | |
Cash and cash equivalents | 1 | | | — | | | 1 | |
Equity securities: | | | | | |
Domestic | 76 | | | — | | | 76 | |
International | 46 | | | — | | | 46 | |
Registered investment companies: | | | | | |
Domestic | 58 | | | 81 | | | 139 | |
International | 3 | | | — | | | 3 | |
Fixed income securities: | | | | | |
Domestic government and government agencies | 273 | | | 25 | | | 298 | |
International government bonds | 1 | | | 14 | | | 15 | |
Domestic corporate bonds | — | | | 349 | | | 349 | |
International corporate bonds | — | | | 42 | | | 42 | |
Derivative financial instruments | 1 | | | — | | | 1 | |
Total investment assets in the fair value hierarchy | 459 | | | 511 | | | 970 | |
Investments measured at NAV: | | | | | |
Common/collective trusts | | | | | 188 | |
Venture capital funds and real estate funds | | | | | 1 | |
Total investment assets | | | | | 1,159 | |
| | | | | |
Other Sempra: | | | | | |
Equity securities: | | | | | |
Domestic | 10 | | | — | | | 10 | |
International | 6 | | | — | | | 6 | |
Registered investment companies – Domestic | 1 | | | (1) | | | — | |
Fixed income securities: | | | | | |
Domestic government and government agencies | 2 | | | — | | | 2 | |
Domestic corporate bonds | — | | | 4 | | | 4 | |
International corporate bonds | — | | | 1 | | | 1 | |
Total investment assets in the fair value hierarchy | 19 | | | 4 | | | 23 | |
Investments measured at NAV – Common/collective trusts | | | | | 4 | |
Total other Sempra investment assets | | | | | 27 | |
| | | | | |
Total Sempra investment assets in the fair value hierarchy | $ | 624 | | | $ | 533 | | | |
Total Sempra investment assets | | | | | $ | 1,399 | |
| | | | | | | | | | | | | | | | | |
FAIR VALUE MEASUREMENTS – INVESTMENT ASSETS OF OTHER POSTRETIREMENT BENEFIT PLANS |
(Dollars in millions) |
| Fair value at December 31, 2019 |
| Level 1 | | Level 2 | | Total |
SDG&E: | | | | | |
Equity securities: | | | | | |
Domestic | $ | 21 | | | $ | 0 | | | $ | 21 | |
International | 13 | | | 0 | | | 13 | |
Registered investment companies | 68 | | | 0 | | | 68 | |
Fixed income securities: | | | | | |
Domestic government and government agencies | 32 | | | 1 | | | 33 | |
Domestic corporate bonds | 0 | | | 8 | | | 8 | |
International corporate bonds | 0 | | | 1 | | | 1 | |
Registered investment companies | 0 | | | 8 | | | 8 | |
Total investment assets in the fair value hierarchy | 134 | | | 18 | | | 152 | |
Accounts receivable/payable, net | | | | | (2) | |
Investments measured at NAV – Common/collective trusts | | | | | 47 | |
Total investment assets | | | | | 197 | |
| | | | | |
SoCalGas: | | | | | |
Cash and cash equivalents | 3 | | | 0 | | | 3 | |
Equity securities: | | | | | |
Domestic | 78 | | | 0 | | | 78 | |
International | 48 | | | 0 | | | 48 | |
Registered investment companies | 52 | | | 0 | | | 52 | |
Fixed income securities: | | | | | |
Domestic government and government agencies | 267 | | | 21 | | | 288 | |
International government bonds | 1 | | | 10 | | | 11 | |
Domestic corporate bonds | 0 | | | 309 | | | 309 | |
International corporate bonds | 0 | | | 40 | | | 40 | |
Registered investment companies | 0 | | | 75 | | | 75 | |
Derivative financial instruments | 3 | | | 0 | | | 3 | |
Total investment assets in the fair value hierarchy | 452 | | | 455 | | | 907 | |
Accounts receivable/payable, net | | | | | (5) | |
Investments measured at NAV – Common/collective trusts | | | | | 157 | |
Total investment assets | | | | | 1,059 | |
| | | | | |
Other Sempra Energy: | | | | | |
Equity securities: | | | | | |
Domestic | 9 | | | 0 | | | 9 | |
International | 4 | | | 0 | | | 4 | |
Fixed income securities: | | | | | |
Domestic government and government agencies | 3 | | | 1 | | | 4 | |
Domestic corporate bonds | 0 | | | 3 | | | 3 | |
International corporate bonds | 0 | | | 1 | | | 1 | |
Total investment assets in the fair value hierarchy | 16 | | | 5 | | | 21 | |
Investments measured at NAV – Common/collective trusts | | | | | 4 | |
Total other Sempra Energy investment assets | | | | | 25 | |
| | | | | |
Total Sempra Energy Consolidated investment assets in the fair value hierarchy | $ | 602 | | | $ | 478 | | | |
Total Sempra Energy Consolidated investment assets | | | | | $ | 1,281 | |
| | | | | | | | | | | | | | | | | |
FAIR VALUE MEASUREMENTS – INVESTMENT ASSETS OF OTHER POSTRETIREMENT BENEFIT PLANS |
(Dollars in millions) |
| Fair value at December 31, 2019 |
| Level 1 | | Level 2 | | Total |
SDG&E: | | | | | |
Equity securities: | | | | | |
Domestic | $ | 21 | | | $ | — | | | $ | 21 | |
International | 13 | | | — | | | 13 | |
Registered investment companies: | | | | | |
Domestic | 57 | | | 8 | | | 65 | |
International | 11 | | | — | | | 11 | |
Fixed income securities: | | | | | |
Domestic government and government agencies | 32 | | | 1 | | | 33 | |
Domestic corporate bonds | — | | | 8 | | | 8 | |
International corporate bonds | — | | | 1 | | | 1 | |
Total investment assets in the fair value hierarchy | 134 | | | 18 | | | 152 | |
Accounts receivable/payable, net | | | | | (2) | |
Investments measured at NAV – Common/collective trusts | | | | | 47 | |
Total investment assets | | | | | 197 | |
| | | | | |
SoCalGas: | | | | | |
Cash and cash equivalents | 3 | | | — | | | 3 | |
Equity securities: | | | | | |
Domestic | 78 | | | — | | | 78 | |
International | 48 | | | — | | | 48 | |
Registered investment companies – Domestic | 52 | | | 75 | | | 127 | |
Fixed income securities: | | | | | |
Domestic government and government agencies | 267 | | | 21 | | | 288 | |
International government bonds | 1 | | | 10 | | | 11 | |
Domestic corporate bonds | — | | | 309 | | | 309 | |
International corporate bonds | — | | | 40 | | | 40 | |
Derivative financial instruments | 3 | | | — | | | 3 | |
Total investment assets in the fair value hierarchy | 452 | | | 455 | | | 907 | |
Accounts receivable/payable, net | | | | | (5) | |
Investments measured at NAV – Common/collective trusts | | | | | 157 | |
Total investment assets | | | | | 1,059 | |
| | | | | |
Other Sempra: | | | | | |
Equity securities: | | | | | |
Domestic | 9 | | | — | | | 9 | |
International | 4 | | | — | | | 4 | |
Fixed income securities: | | | | | |
Domestic government and government agencies | 3 | | | 1 | | | 4 | |
Domestic corporate bonds | — | | | 3 | | | 3 | |
International corporate bonds | — | | | 1 | | | 1 | |
Total investment assets in the fair value hierarchy | 16 | | | 5 | | | 21 | |
Investments measured at NAV – Common/collective trusts | | | | | 4 | |
Total other Sempra investment assets | | | | | 25 | |
| | | | | |
Total Sempra investment assets in the fair value hierarchy | $ | 602 | | | $ | 478 | | | |
Total Sempra investment assets | | | | | $ | 1,281 | |
Future Payments
We expect to contribute the following amounts to our pension and PBOP plans in 2021:2022:
| EXPECTED CONTRIBUTIONS | EXPECTED CONTRIBUTIONS | | | | | | EXPECTED CONTRIBUTIONS | | | | | |
(Dollars in millions) | (Dollars in millions) | | | | | | (Dollars in millions) | | | | | |
| | Sempra Energy Consolidated | | SDG&E | | SoCalGas | | Sempra | | SDG&E | | SoCalGas |
Pension plans | Pension plans | $ | 246 | | | $ | 53 | | | $ | 157 | | Pension plans | $ | 231 | | | $ | 52 | | | $ | 152 | |
Other postretirement benefit plans | Other postretirement benefit plans | 5 | | | 1 | | | 1 | | Other postretirement benefit plans | 5 | | | 1 | | | 1 | |
The following table shows the total benefits we expect to pay for the next 10 years to current employees and retirees from the plans or from company assets.
| EXPECTED BENEFIT PAYMENTS | EXPECTED BENEFIT PAYMENTS | EXPECTED BENEFIT PAYMENTS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Sempra Energy Consolidated | | SDG&E | | SoCalGas | | Sempra | | SDG&E | | SoCalGas |
| | Pension benefits | | Other postretirement benefits | | Pension benefits | | Other postretirement benefits | | Pension benefits | | Other postretirement benefits | | Pension benefits | | Other postretirement benefits | | Pension benefits | | Other postretirement benefits | | Pension benefits | | Other postretirement benefits |
2021 | $ | 389 | | | $ | 47 | | | $ | 112 | | | $ | 10 | | | $ | 226 | | | $ | 34 | | |
2022 | 2022 | 268 | | | 47 | | | 68 | | | 10 | | | 172 | | | 34 | | 2022 | $ | 276 | | | $ | 46 | | | $ | 71 | | | $ | 9 | | | $ | 171 | | | $ | 33 | |
2023 | 2023 | 255 | | | 48 | | | 65 | | | 10 | | | 166 | | | 35 | | 2023 | 261 | | | 46 | | | 69 | | | 10 | | | 163 | | | 33 | |
2024 | 2024 | 246 | | | 48 | | | 61 | | | 10 | | | 159 | | | 35 | | 2024 | 253 | | | 46 | | | 66 | | | 10 | | | 158 | | | 33 | |
2025 | 2025 | 239 | | | 47 | | | 60 | | | 10 | | | 157 | | | 35 | | 2025 | 244 | | | 46 | | | 65 | | | 10 | | | 156 | | | 33 | |
2026-2030 | 1,130 | | | 235 | | | 263 | | | 47 | | | 752 | | | 172 | | |
2026 | | 2026 | 240 | | | 48 | | | 59 | | | 10 | | | 153 | | | 33 | |
2027-2031 | | 2027-2031 | 1,122 | | | 226 | | | 275 | | | 48 | | | 725 | | | 166 | |
SAVINGS PLANS
Sempra, Energy Consolidated, SDG&E and SoCalGas offer trusteed savings plans to all employees. Employee participation, employee contributions and employer matching contributions are subject to the provisions of the respective plans, and for employee contributions, limits imposed by the respective governmental authorities.
Employer contributions to the savings plans were as follows:
| EMPLOYER CONTRIBUTIONS TO SAVINGS PLANS | EMPLOYER CONTRIBUTIONS TO SAVINGS PLANS | EMPLOYER CONTRIBUTIONS TO SAVINGS PLANS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated | $ | 47 | | | $ | 44 | | | $ | 43 | | |
Sempra | | Sempra | $ | 52 | | | $ | 47 | | | $ | 44 | |
SDG&E | SDG&E | 16 | | | 15 | | | 15 | | SDG&E | 18 | | | 16 | | | 15 | |
SoCalGas | SoCalGas | 25 | | | 24 | | | 23 | | SoCalGas | 28 | | | 25 | | | 24 | |
The market value of Sempra Energy common stock held by the savings plans was $1.0 billion, $1.1 billion and $1.3 billion at December 31, 2021, 2020 and 2019, respectively.
NOTE 10. SHARE-BASED COMPENSATION
SEMPRA ENERGY EQUITY COMPENSATION PLANS
Sempra Energy has share-based compensation plans intended to align employee and shareholder objectives related to the long-term growth of Sempra Energy.Sempra. The plans permit a wide variety of share-based awards, including:
▪nonqualified stock options
▪incentive stock options
▪restricted stock awards
▪restricted stock units
▪stock appreciation rights
▪performance awards
▪stock payments
▪dividend equivalents
Eligible employees, including those from the California Utilities,SDG&E and SoCalGas, participate in Sempra Energy’sSempra’s share-based compensation plans as a component of their compensation package.
In the three years ended December 31, 2020,2021, Sempra Energy had the following types of equity awards outstanding:
▪Nonqualified Stock Options: Options to purchase common stock have an exercise price equal to the market price of the common stock at the date of grant, are service-based, become exercisable over a three-year period (for awards granted in 2020 and 2019) or over a four-year period (for awards granted in 2010 or earlier), and expire 10 years from the date of grant. Vesting and/or the ability to exercise may be accelerated upon a change in control, in accordance with severance pay agreements or in accordance with the terms of the grant. OptionsUnvested option awards are subject to forfeiture or earlier expiration following a termination of employment, except where the retirement criteria under such awards have been met and subject to certain exceptions.other exceptions described below.
▪Performance-Based Restricted Stock Units: These RSU awards generally vest in Sempra Energy common stock at the end of three-year (for awards granted during or after 2015) or four-year performance periods (for awards granted prior to 2015) based on Sempra Energy’sSempra’s total return to shareholders relative to that of specified market indices or based on the compound annual growth rate of Sempra Energy’sSempra’s EPS. The comparative market indices for the awards that vest based on total return to shareholders are the S&P 500 Utilities Index (excluding water companies) and the S&P 500 Index. We use long-term analyst consensus growth estimates for S&P 500 Utilities Index peer companies (excluding water companies) to develop our targets for awards that vest based on EPS growth. These RSU awards are subject to forfeiture prior to vesting following a termination of employment, except where the retirement criteria under such awards have been met and subject to certain other exceptions described below.
◦For awards granted during or after 2014, upUp to an additional 100% of the granted RSUs may be issued if total return to shareholders or EPS growth exceeds target levels.
◦For awards granted in 2015 and 2016 and certain awards granted in 2017 and 2018 that vest based on Sempra Energy’sSempra’s total return to shareholders, a modifier adds 20% to the award’s payout (as initially calculated based on total return to shareholders relative to that of specified market indices) for total shareholder return performance in the top quartile relative to historical benchmark data for Sempra Energy and reduces the award’s payout by 20% for performance in the bottom quartile. However, in no event will more than an additional 100% of the granted RSUs be issued. If performance falls within the second or third quartiles, the modifier is not triggered, and the payout is based solely on total return to shareholders relative to that of specified market indices.
If Sempra Energy’sSempra’s total return to shareholders or EPS growth is below the target levels but above threshold performance levels, shares are subject to partial vesting on a pro rata basis.
▪Other Performance-Based Restricted Stock Units: RSUs were granted in 2015 in connection with the creation of Cameron LNG JV. The 2015 awards vested in 2019 as both of the following were achieved: (a) the Compensation and Talent Committee of Sempra Energy’sSempra’s board of directors determined that Sempra Energy achieved positive cumulative net income for fiscal years 2015 through 2017 and (b) Cameron LNG JV commenced commercial operations of the first train.
▪Service-Based Restricted Stock Units: RSUs may also be service-based; these generally vest ratably over three-year service periods (for awards granted in 2019)after 2018), or at the end of three-year (for awards granted during 20152016 through 2018) or four-year service periods (for awards granted prior to 2015).
For RSU These awards vesting may beare subject to earlier forfeiture upon termination of employment, subject to certain exceptions described below.
For awards that would otherwise be forfeited upon termination of employment, the Compensation and Talent Development Committee of Sempra’s board of directors may waive the forfeiture requirement and, with respect to options and service-based RSUs, may accelerate vesting. Awards are also subject to accelerated vesting upon a change in control under the applicable LTIP, in accordance with severance pay agreements or atto the discretionextent otherwise required by the terms of the Compensation and Talent Committee of Sempra Energy’s board of directors.applicable award. Dividend equivalents on shares subject to RSUs are reinvested to purchase additional common shares that become subject to the same vesting conditions as the RSUs to which the dividends relate.
SHARE-BASED AWARDS AND COMPENSATION EXPENSE
At December 31, 2020, 6,927,2842021, 5,986,241 common shares were authorized and available for future grants of share-based awards. Our practice is to satisfy share-based awards by issuing new shares rather than by open-market purchases.
We measure and recognize compensation expense for all share-based payment awards made to our employees and directors based on estimated fair values on the date of grant. We recognize compensation costs net of an estimated forfeiture rate (based on historical experience) and recognize the compensation costs for nonqualified stock options and RSUs on a straight-line basis over
the requisite service period of the award, which is generally three or four years. However, for awards granted to retirement-
eligibleretirement-eligible participants, the expense is recognized over the initial year in which the award was granted as the award requires service through the end of the year in which it was granted. For awards granted to participants who become eligible for retirement during the requisite service period, the expense is recognized over the period between the date of grant and the later of the end of the year in which the award was granted or the date the participant first becomes eligible for retirement. Substantially all awards outstanding are classified as equity instruments; therefore, we recognize additional paid in capital as we recognize the compensation expense associated with the awards. We recognize in earnings the tax benefits (or deficiencies) resulting from tax deductions that are in excess of (or less than) tax benefits related to compensation cost recognized for share-based payments.
Sempra Energy subsidiaries record an expense for the plans to the extent that subsidiary employees participate in the plans and/or the subsidiaries are allocated a portion of the Sempra Energy plans’ corporate staff costs. Total share-based compensation expense for all of Sempra Energy’sSempra’s share-based awards was comprised as follows:
| SHARE-BASED COMPENSATION EXPENSE | SHARE-BASED COMPENSATION EXPENSE | SHARE-BASED COMPENSATION EXPENSE |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated: | | |
Sempra: | | Sempra: | |
Share-based compensation expense, before income taxes(1) | Share-based compensation expense, before income taxes(1) | $ | 62 | | | $ | 66 | | | $ | 76 | | Share-based compensation expense, before income taxes(1) | $ | 58 | | | $ | 62 | | | $ | 66 | |
Income tax benefit(1) | Income tax benefit(1) | (17) | | | (18) | | | (21) | | Income tax benefit(1) | (16) | | | (17) | | | (18) | |
| | $ | 45 | | | $ | 48 | | | $ | 55 | | | $ | 42 | | | $ | 45 | | | $ | 48 | |
| Capitalized share-based compensation cost | Capitalized share-based compensation cost | $ | 11 | | | $ | 11 | | | $ | 10 | | Capitalized share-based compensation cost | $ | 9 | | | $ | 11 | | | $ | 11 | |
Excess income tax deficiency | $ | 19 | | | $ | 4 | | | $ | 15 | | |
Excess income tax (benefit) deficiency | | Excess income tax (benefit) deficiency | $ | (9) | | | $ | (19) | | | $ | 4 | |
SDG&E: | SDG&E: | | SDG&E: | |
Share-based compensation expense, before income taxes | Share-based compensation expense, before income taxes | $ | 11 | | | $ | 10 | | | $ | 12 | | Share-based compensation expense, before income taxes | $ | 10 | | | $ | 11 | | | $ | 10 | |
Income tax benefit | Income tax benefit | (3) | | | (3) | | | (3) | | Income tax benefit | (3) | | | (3) | | | (3) | |
| | $ | 8 | | | $ | 7 | | | $ | 9 | | | $ | 7 | | | $ | 8 | | | $ | 7 | |
| Capitalized share-based compensation cost | Capitalized share-based compensation cost | $ | 7 | | | $ | 6 | | | $ | 6 | | Capitalized share-based compensation cost | $ | 5 | | | $ | 7 | | | $ | 6 | |
Excess income tax deficiency | $ | 3 | | | $ | 1 | | | $ | 3 | | |
Excess income tax (benefit) deficiency | | Excess income tax (benefit) deficiency | $ | (1) | | | $ | (3) | | | $ | 1 | |
SoCalGas: | SoCalGas: | | | | | | SoCalGas: | | | | | |
Share-based compensation expense, before income taxes | Share-based compensation expense, before income taxes | $ | 14 | | | $ | 15 | | | $ | 16 | | Share-based compensation expense, before income taxes | $ | 14 | | | $ | 14 | | | $ | 15 | |
Income tax benefit | Income tax benefit | (4) | | | (4) | | | (5) | | Income tax benefit | (4) | | | (4) | | | (4) | |
| | $ | 10 | | | $ | 11 | | | $ | 11 | | | $ | 10 | | | $ | 10 | | | $ | 11 | |
| Capitalized share-based compensation cost | Capitalized share-based compensation cost | $ | 4 | | | $ | 5 | | | $ | 4 | | Capitalized share-based compensation cost | $ | 4 | | | $ | 4 | | | $ | 5 | |
Excess income tax deficiency | $ | 3 | | | $ | 1 | | | $ | 2 | | |
Excess income tax (benefit) deficiency | | Excess income tax (benefit) deficiency | $ | (1) | | | $ | (3) | | | $ | 1 | |
(1) Includes activity of awards issued from the IEnova 2013 LTIP, which settlesettled in cash upon vesting based on the price of IEnova’s common stock.
SEMPRA ENERGY NONQUALIFIED STOCK OPTIONS
We use a Black-Scholes option-pricing model to estimate the fair value of each nonqualified stock option grant. The use of a valuation model requires us to make certain assumptions about selected model inputs. Expected volatility is calculated based on a blend of the historical and implied volatility of Sempra Energy’sSempra’s common stock price. The average expected term for options is based on the vesting schedule, contractual term of the option, expected employee exercise and post-termination behavior. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term estimated at the date of the grant. In 2021, 2020 and 2019, Sempra Energy’sSempra’s board of directors granted 222,620, 154,860 and 261,075 nonqualified stock options, respectively, that are exercisable over a three-year period. There were 0 stock options granted in 2018. The weighted-average per-share fair value for options granted was $19.07, $19.76 and $13.20 in 2021, 2020 and 2019, respectively. To calculate this fair value, we used the Black-Scholes model with the following weighted-average assumptions:
| KEY ASSUMPTIONS FOR STOCK OPTIONS GRANTED | KEY ASSUMPTIONS FOR STOCK OPTIONS GRANTED | | KEY ASSUMPTIONS FOR STOCK OPTIONS GRANTED | |
| | | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Sempra: | | Sempra: | |
Stock price volatility | Stock price volatility | 18.78 | % | | 18.63 | % | Stock price volatility | 26.57 | % | | 18.78 | % | | 18.63 | % |
Expected term | Expected term | 5.34 years | | 5.34 years | Expected term | 5.36 years | | 5.34 years | | 5.34 years |
Risk-free rate of return | Risk-free rate of return | 1.68 | % | | 2.49 | % | Risk-free rate of return | 0.41 | % | | 1.68 | % | | 2.49 | % |
Annual dividend yield | Annual dividend yield | 2.60 | % | | 3.35 | % | Annual dividend yield | 3.38 | % | | 2.60 | % | | 3.35 | % |
The following table shows a summary of nonqualified stock options at December 31, 20202021 and activity for the year then ended:
| | | | | | | | | | | | | | | | | | | | | | | |
NONQUALIFIED STOCK OPTIONS |
|
| Common shares under options | | Weighted- average exercise price | | Weighted- average remaining contractual term (in years) | | Aggregate intrinsic value (in millions) |
Outstanding at January 1, 2020 | 247,577 | | | $ | 105.86 | | | | | |
Granted | 154,860 | | | $ | 149.12 | | | | | |
Exercised | (4,400) | | | $ | 55.90 | | | | | |
Forfeited/canceled | (32,642) | | | $ | 149.12 | | | | | |
Outstanding at December 31, 2020 | 365,395 | | | $ | 120.93 | | | 8.34 | | $ | 2 | |
| | | | | | | |
Vested or expected to vest at December 31, 2020 | 349,596 | | | $ | 120.28 | | | 8.32 | | $ | 2 | |
Exercisable at December 31, 2020 | 81,061 | | | $ | 106.76 | | | 8.00 | | $ | 2 | |
| | | | | | | | | | | | | | | | | | | | | | | |
NONQUALIFIED STOCK OPTIONS |
|
| Common shares under options | | Weighted- average exercise price | | Weighted- average remaining contractual term (in years) | | Aggregate intrinsic value (in millions) |
Sempra: | | | | | | | |
Outstanding at January 1, 2021 | 365,395 | | | $ | 120.93 | | | | | |
Granted | 222,620 | | | $ | 123.80 | | | | | |
Exercised | (50,671) | | | $ | 106.76 | | | | | |
| | | | | | | |
Outstanding at December 31, 2021 | 537,344 | | | $ | 123.45 | | | 8.06 | | $ | 5 | |
| | | | | | | |
Vested or expected to vest at December 31, 2021 | 537,344 | | | $ | 123.45 | | | 8.06 | | $ | 5 | |
Exercisable at December 31, 2021 | 152,189 | | | $ | 118.10 | | | 7.27 | | $ | 2 | |
The aggregate intrinsic value at December 31, 20202021 is the total of the difference between Sempra Energy’sSempra’s closing common stock price and the exercise price for all in-the-money options. The aggregate intrinsic value for nonqualified stock options exercised in the last three years was:
▪$1.4 million in 2021
▪$0.4 million in 2020
▪$4 million in 2019
▪$9 million in 2018
We expect a negligible amount of total compensation cost related to nonvested stock options not yet recognized as of December 31, 20202021 to be recognized over a weighted-average period of 1.31.1 years. The weighted-average per-share fair valuevalues for nonqualified stock options granted in 2020 and 2019 was $106.76.$149.12 and $106.76, respectively.
We received cash of $0.2$5 million, a negligible amount and $3 million from stock option exercises duringin 2021, 2020 and 2019, respectively.
SEMPRA ENERGY RESTRICTED STOCK UNITS
We use a Monte-Carlo simulation model to estimate the fair value of our RSUs that vest based on Sempra Energy’sSempra’s total return to shareholders. Our determination of fair value is affected by the historical volatility of the common stock price for Sempra Energy and its peer group companies. The valuation also is affected by the risk-free rates of return and a number of other variables. Below are key assumptions for RSUs granted in the last three years:
| KEY ASSUMPTIONS FOR RSUs GRANTED | KEY ASSUMPTIONS FOR RSUs GRANTED | KEY ASSUMPTIONS FOR RSUs GRANTED |
| | | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Sempra: | | Sempra: | |
Stock price volatility | Stock price volatility | 16.35 | % | | 17.74 | % | | 17.46 | % | Stock price volatility | 33.39 | % | | 16.35 | % | | 17.74 | % |
Risk-free rate of return | Risk-free rate of return | 1.55 | % | | 2.46 | % | | 2.00 | % | Risk-free rate of return | 0.16 | % | | 1.55 | % | | 2.46 | % |
The following table shows a summary of RSUs at December 31, 20202021 and activity for the year then ended:
| RESTRICTED STOCK UNITS | RESTRICTED STOCK UNITS | | | | | RESTRICTED STOCK UNITS | | | | |
| | | Performance-based restricted stock units | | Service-based restricted stock units | | Performance-based restricted stock units | | Service-based restricted stock units |
| | Units | | Weighted- average grant-date fair value | | Units | | Weighted- average grant-date fair value | | Units | | Weighted- average grant-date fair value | | Units | | Weighted- average grant-date fair value |
Nonvested at January 1, 2020 | 1,086,981 | | | $ | 109.85 | | | 415,787 | | | $ | 119.96 | | |
Sempra: | | Sempra: | |
Nonvested at January 1, 2021 | | Nonvested at January 1, 2021 | 893,961 | | | $ | 121.61 | | | 343,577 | | | $ | 121.59 | |
Granted | Granted | 265,236 | | | $ | 155.62 | | | 165,847 | | | $ | 138.91 | | Granted | 323,889 | | | $ | 133.03 | | | 143,980 | | | $ | 124.84 | |
Vested | Vested | (403,302) | | | $ | 110.45 | | | (230,612) | | | $ | 112.11 | | Vested | (317,128) | | | $ | 105.03 | | | (202,352) | | | $ | 116.28 | |
Forfeited | Forfeited | (54,954) | | | $ | 134.90 | | | (7,445) | | | $ | 140.18 | | Forfeited | (29,945) | | | $ | 131.55 | | | (7,905) | | | $ | 161.49 | |
Nonvested at December 31, 2020(1) | 893,961 | | | $ | 121.61 | | | 343,577 | | | $ | 121.59 | | |
Expected to vest at December 31, 2020 | 882,903 | | | $ | 121.45 | | | 339,025 | | | $ | 121.46 | | |
Nonvested at December 31, 2021(1) | | Nonvested at December 31, 2021(1) | 870,777 | | | $ | 131.64 | | | 277,300 | | | $ | 127.54 | |
Expected to vest at December 31, 2021 | | Expected to vest at December 31, 2021 | 854,697 | | | $ | 131.47 | | | 271,197 | | | $ | 127.47 | |
(1) Each RSU represents the right to receive one share of our common stock if applicable performance conditions are satisfied. For all performance-based RSUs, up to an additional 100% of the shares represented by the RSUs may be issued if Sempra Energy exceeds target performance conditions.
In 2021, 2020 2019 and 2018,2019, the total fair value of RSU shares vested during the year was $57 million, $70 million $36 million and $32$36 million, respectively.
We expect $28$17 million of total compensation cost related to nonvested RSUs not yet recognized as of December 31, 20202021 to be recognized over a weighted-average period of 1.71.5 years. The weighted-average per-share fair values for performance-based RSUs granted were $155.62 and $113.54 in 2020 and $105.03 in 2019, and 2018, respectively. The weighted-average per-share fair values for service-based RSUs granted were $138.91 and $112.50 in 2020 and $107.60 in 2019, and 2018, respectively.
NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS
We use derivative instruments primarily to manage exposures arising in the normal course of business. Our principal exposures are commodity market risk, benchmark interest rate risk and foreign exchange rate exposures. Our use of derivatives for these risks is integrated into the economic management of our anticipated revenues, anticipated expenses, assets and liabilities. Derivatives may be effective in mitigating these risks (1) that could lead to declines in anticipated revenues or increases in anticipated expenses, or (2) that could cause our asset values to fall or our liabilities to increase. Accordingly, our derivative activity summarized below generally represents an impact that is intended to offset associated revenues, expenses, assets or liabilities that are not included in the tables below.
In certain cases, we apply the normal purchase or sale exception to derivative instruments and have other commodity contracts that are not derivatives. These contracts are not recorded at fair value and are therefore excluded from the disclosures below.
In all other cases, we record derivatives at fair value on the Consolidated Balance Sheets. We may have derivatives that are (1) cash flow hedges, (2) fair value hedges, or (3) undesignated. Depending on the applicability of hedge accounting and, for the California UtilitiesSDG&E and SoCalGas and other operations subject to regulatory accounting, the requirement to pass impacts through to customers, the impact of derivative instruments may be offset in OCI (cash flow hedges), on the balance sheet (regulatory offsets), or recognized in earnings (fair value hedges and undesignated derivatives not subject to rate recovery). We classify cash flows from the principal settlements of cross-currency swaps that hedge exposure related to Mexican peso-denominated debt and hedge termination costs on interest rate swaps as financing activities and settlements of other derivative instruments as operating activities on the Consolidated Statements of Cash Flows.
HEDGE ACCOUNTING
We may designate a derivative as a cash flow hedging instrument if it effectively converts anticipated cash flows associated with revenues or expenses to a fixed dollar amount. We may utilize cash flow hedge accounting for derivative commodity instruments, foreign currency instruments and interest rate instruments. Designating cash flow hedges is dependent on the business context in which the instrument is being used, the effectiveness of the instrument in offsetting the risk that the future cash flows of a given revenue or expense item may vary, and other criteria.
ENERGY DERIVATIVES
Our market risk is primarily related to natural gas and electricity price volatility and the specific physical locations where we transact. We use energy derivatives to manage these risks. The use of energy derivatives in our various businesses depends on the particular energy market, and the operating and regulatory environments applicable to the business, as follows:
▪The California UtilitiesSDG&E and SoCalGas use natural gas and electricity derivatives, for the benefit of customers, with the objective of managing price risk and basis risks, and stabilizing and lowering natural gas and electricity costs. These derivatives include fixed-price natural gas and electricity positions, options, and basis risk instruments, which are either exchange-traded or over-the-counter financial instruments, or bilateral physical transactions. This activity is governed by risk management and transacting activity plans that have been filed with and approved by the CPUC. Natural gas and electricity derivative activities are recorded as commodity costs that are offset by regulatory account balances and are recovered in rates. Net commodity cost impacts on the Consolidated Statements of Operations are reflected in Cost of Electric Fuel and Purchased Power or in Cost of Natural Gas.
▪SDG&E is allocated and may purchase CRRs, which serve to reduce the regional electricity price volatility risk that may result from local transmission capacity constraints. Unrealized gains and losses do not impact earnings, as they are offset by regulatory account balances. Realized gains and losses associated with CRRs, which are recoverable in rates, are recorded in Cost of Electric Fuel and Purchased Power on the Consolidated Statements of Operations.
▪Sempra Mexico and Sempra LNGInfrastructure may use natural gas and electricity derivatives, as appropriate, in an effort to optimize the earnings of their assets which support the following businesses: LNG, natural gas transportation and storage, and power generation. Gains and losses associated with undesignated derivatives are recognized in Energy-Related Businesses Revenues or in Energy-Related Businesses Cost of Sales on the Consolidated Statements of Operations. Certain of these derivatives may also be designated as cash flow hedges. Sempra Mexico may also use natural gas energy derivatives with the objective of managing price risk and lowering natural gas prices at its distribution operations. These derivatives, which are recorded as commodity costs that are offset by regulatory account balances and recovered in rates, are recognized in Cost of Natural Gas on the Consolidated Statements of Operations.
▪From time to time, our various businesses, including the California Utilities,SDG&E and SoCalGas, may use other energy derivatives to hedge exposures such as the price of vehicle fuel and GHG allowances.
The following table summarizes net energy derivative volumes.
| | | | | | | | | | | | | | | | | |
NET ENERGY DERIVATIVE VOLUMES |
(Quantities in millions) |
| | | December 31, |
Commodity | Unit of measure | | 2020 | | 2019 |
Sempra Energy Consolidated: | | | | | |
Natural gas | MMBtu | | 5 | | | 32 | |
Electricity | MWh | | 1 | | | 2 | |
Congestion revenue rights | MWh | | 43 | | | 48 | |
| | | | | |
SDG&E: | | | | | |
Natural gas | MMBtu | | 16 | | | 37 | |
Electricity | MWh | | 1 | | | 2 | |
Congestion revenue rights | MWh | | 43 | | | 48 | |
SoCalGas: | | | | | |
Natural gas | MMBtu | | 1 | | | 2 | |
| | | | | |
In addition to the amounts noted above, we use commodity derivatives to manage risks associated with the physical locations of contractual obligations and assets, such as natural gas purchases and sales.
| | | | | | | | | | | | | | | | | | | | | | | |
NET ENERGY DERIVATIVE VOLUMES | | |
(Quantities in millions) | | |
| | | December 31, |
Commodity | Unit of measure | | 2021 | | 2020 | | 2019 |
Sempra: | | | | | | | |
Natural gas | MMBtu | | 184 | | | 189 | | | 231 | |
Electricity | MWh | | 1 | | | 1 | | | 2 | |
Congestion revenue rights | MWh | | 45 | | | 43 | | | 48 | |
| | | | | | | |
SDG&E: | | | | | | | |
Natural gas | MMBtu | | 7 | | | 16 | | | 37 | |
Electricity | MWh | | 1 | | | 1 | | | 2 | |
Congestion revenue rights | MWh | | 45 | | | 43 | | | 48 | |
SoCalGas: | | | | | | | |
Natural gas | MMBtu | | 201 | | | 185 | | | 201 | |
| | | | | | | |
INTEREST RATE DERIVATIVES
We are exposed to interest rates primarily as a result of our current and expected use of financing. The California Utilities,SDG&E and SoCalGas, as well as Sempra Energy and its other subsidiaries and JVs, periodically enter into interest rate derivative agreements intended to moderate our exposure to interest rates and to lower our overall costs of borrowing. In addition, we may utilize interest rate swaps, typically designated as cash flow hedges, to lock in interest rates on outstanding debt or in anticipation of future financings.
The following table presents the net notional amounts of our interest rate derivatives, excluding JVs.those in our equity method investments, at December 31:
| | | | | | | | | | | | | | | | | | | | | | | |
INTEREST RATE DERIVATIVES |
(Dollars in millions) |
| December 31, 2020 | | December 31, 2019 |
| Notional debt | | Maturities | | Notional debt | | Maturities |
Sempra Energy Consolidated: | | | | | | | |
Cash flow hedges | $ | 1,486 | | | 2021-2034 | | $ | 1,445 | | | 2020-2034 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
INTEREST RATE DERIVATIVES |
(Dollars in millions) |
| 2021 | | 2020 | | 2019 |
| Notional debt | | Maturities | | Notional debt | | Maturities | | Notional debt | | Maturities |
Sempra: | | | | | | | | | | | |
Cash flow hedges | $ | 462 | | | 2022-2034 | | $ | 1,486 | | | 2021-2034 | | $ | 1,445 | | | 2020-2034 |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
FOREIGN CURRENCY DERIVATIVES
We utilize cross-currency swaps to hedge exposure related to Mexican peso-denominated debt at our Mexican subsidiaries and JVs. These cash flow hedges exchange our Mexican peso-denominated principal and interest payments into the U.S. dollar and swap Mexican variable interest rates for U.S. fixed interest rates. From time to time, Sempra MexicoInfrastructure and its JVs may use other foreign currency derivatives to hedge exposures related to cash flows associated with revenues from contracts denominated in Mexican pesos that are indexed to the U.S. dollar.
We are also exposed to exchange rate movements at our Mexican subsidiaries and JVs, which have U.S. dollar-denominated cash balances, receivables, payables and debt (monetary assets and liabilities) that give rise to Mexican currency exchange rate movements for Mexican income tax purposes. They also have deferred income tax assets and liabilities denominated in the Mexican peso, which must be translated to U.S. dollars for financial reporting purposes. In addition, monetary assets and liabilities and certain nonmonetary assets and liabilities are adjusted for Mexican inflation for Mexican income tax purposes. We may utilize foreign currency derivatives as a means to manage the risk of exposure to significant fluctuations in our income tax expense and equity earnings from these impacts; however, we generally do not hedge our deferred income tax assets and liabilities or for inflation.
We also utilized foreign currency derivatives in 2020 and 2019 to hedge exposure to fluctuations in the Peruvian sol and Chilean peso related to the sales of our operations in Peru and Chile, respectively.
The following table presents the net notional amounts of our foreign currency derivatives, excluding JVs.those in our equity method investments, at December 31.
| FOREIGN CURRENCY DERIVATIVES | FOREIGN CURRENCY DERIVATIVES | FOREIGN CURRENCY DERIVATIVES |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | December 31, 2020 | | December 31, 2019 | | 2021 | | 2020 | | 2019 |
| | Notional amount | | Maturities | | Notional amount | | Maturities | | Notional amount | Maturities | | Notional amount | Maturities | | Notional amount | Maturities |
Sempra Energy Consolidated: | | | | | | | | |
Sempra: | | Sempra: | | | | | | | | |
Cross-currency swaps | Cross-currency swaps | $ | 306 | | | 2021-2023 | | $ | 306 | | | 2020-2023 | Cross-currency swaps | $ | 306 | | | 2022-2023 | | $ | 306 | | | 2021-2023 | | $ | 306 | | | 2020-2023 |
Other foreign currency derivatives | Other foreign currency derivatives | 1,764 | | | 2021-2022 | | 1,796 | | | 2020-2021 | Other foreign currency derivatives | 106 | | | 2022-2023 | | 1,764 | | | 2021-2022 | | 1,796 | | | 2020-2021 |
FINANCIAL STATEMENT PRESENTATION
The Consolidated Balance Sheets reflect the offsetting of net derivative positions and cash collateral with the same counterparty when a legal right of offset exists. The following tables provide the fair values of derivative instruments on the Consolidated Balance Sheets, including the amount of cash collateral receivables that were not offset because the cash collateral was in excess of liability positions.
| DERIVATIVE INSTRUMENTS ON THE CONSOLIDATED BALANCE SHEETS | DERIVATIVE INSTRUMENTS ON THE CONSOLIDATED BALANCE SHEETS | DERIVATIVE INSTRUMENTS ON THE CONSOLIDATED BALANCE SHEETS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | December 31, 2020 | | December 31, 2021 |
| | Other current assets(1) | | Other long-term assets | | Other current liabilities | | Deferred credits and other | | Other current assets | | Other long-term assets | | Other current liabilities | | Deferred credits and other |
Sempra Energy Consolidated: | | | | | | | | |
Sempra: | | Sempra: | | | | | | | |
Derivatives designated as hedging instruments: | Derivatives designated as hedging instruments: | | | | | | | | Derivatives designated as hedging instruments: | | | | | | | |
Interest rate instruments | | Interest rate instruments | $ | — | | | $ | 6 | | | $ | (6) | | | $ | (2) | |
Foreign exchange instruments | | Foreign exchange instruments | 1 | | | 1 | | | (1) | | | — | |
Interest rate and foreign exchange instruments | Interest rate and foreign exchange instruments | $ | 0 | | | $ | 1 | | | $ | (26) | | | $ | (160) | | Interest rate and foreign exchange instruments | — | | | — | | | (1) | | | (130) | |
Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | | | | | | | Derivatives not designated as hedging instruments: | | | | | | | |
Foreign exchange instruments | 24 | | | 0 | | | 0 | | | 0 | | |
| | Commodity contracts not subject to rate recovery | Commodity contracts not subject to rate recovery | 82 | | | 17 | | | (95) | | | (16) | | Commodity contracts not subject to rate recovery | 136 | | | 11 | | | (122) | | | (10) | |
Associated offsetting commodity contracts | Associated offsetting commodity contracts | (82) | | | (13) | | | 82 | | | 13 | | Associated offsetting commodity contracts | (93) | | | (8) | | | 93 | | | 8 | |
| Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | 35 | | | 95 | | | (35) | | | (25) | | Commodity contracts subject to rate recovery | 38 | | | 52 | | | (58) | | | — | |
Associated offsetting commodity contracts | Associated offsetting commodity contracts | (2) | | | 0 | | | 2 | | | 0 | | Associated offsetting commodity contracts | (8) | | | — | | | 8 | | | — | |
| Net amounts presented on the balance sheet | Net amounts presented on the balance sheet | 57 | | | 100 | | | (72) | | | (188) | | Net amounts presented on the balance sheet | 74 | | | 62 | | | (87) | | | (134) | |
Additional cash collateral for commodity contracts not subject to rate recovery | Additional cash collateral for commodity contracts not subject to rate recovery | 21 | | | 0 | | | 0 | | | 0 | | Additional cash collateral for commodity contracts not subject to rate recovery | 58 | | | — | | | — | | | — | |
Additional cash collateral for commodity contracts subject to rate recovery | Additional cash collateral for commodity contracts subject to rate recovery | 30 | | | 0 | | | 0 | | | 0 | | Additional cash collateral for commodity contracts subject to rate recovery | 46 | | | — | | | — | | | — | |
Total(2) | $ | 108 | | | $ | 100 | | | $ | (72) | | | $ | (188) | | |
Total(1) | | Total(1) | $ | 178 | | | $ | 62 | | | $ | (87) | | | $ | (134) | |
SDG&E: | SDG&E: | | | | | | | | SDG&E: | | | | | | | |
Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | | | | | | | Derivatives not designated as hedging instruments: | | | | | | | |
| Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | $ | 32 | | | $ | 95 | | | $ | (28) | | | $ | (25) | | Commodity contracts subject to rate recovery | $ | 34 | | | $ | 52 | | | $ | (20) | | | $ | — | |
Associated offsetting commodity contracts | Associated offsetting commodity contracts | (1) | | | 0 | | | 1 | | | 0 | | Associated offsetting commodity contracts | (5) | | | — | | | 5 | | | — | |
| Net amounts presented on the balance sheet | Net amounts presented on the balance sheet | 31 | | | 95 | | | (27) | | | (25) | | Net amounts presented on the balance sheet | 29 | | | 52 | | | (15) | | | — | |
| Additional cash collateral for commodity contracts subject to rate recovery | Additional cash collateral for commodity contracts subject to rate recovery | 24 | | | 0 | | | 0 | | | 0 | | Additional cash collateral for commodity contracts subject to rate recovery | 28 | | | — | | | — | | | — | |
Total(2) | $ | 55 | | | $ | 95 | | | $ | (27) | | | $ | (25) | | |
Total(1) | | Total(1) | $ | 57 | | | $ | 52 | | | $ | (15) | | | $ | — | |
SoCalGas: | SoCalGas: | | | | | | | | SoCalGas: | | | | | | | |
Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | | | | | | | Derivatives not designated as hedging instruments: | | | | | | | |
| Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | $ | 3 | | | $ | 0 | | | $ | (7) | | | $ | 0 | | Commodity contracts subject to rate recovery | $ | 4 | | | $ | — | | | $ | (38) | | | $ | — | |
Associated offsetting commodity contracts | Associated offsetting commodity contracts | (1) | | | 0 | | | 1 | | | 0 | | Associated offsetting commodity contracts | (3) | | | — | | | 3 | | | — | |
| Net amounts presented on the balance sheet | Net amounts presented on the balance sheet | 2 | | | 0 | | | (6) | | | 0 | | Net amounts presented on the balance sheet | 1 | | | — | | | (35) | | | — | |
| Additional cash collateral for commodity contracts subject to rate recovery | Additional cash collateral for commodity contracts subject to rate recovery | 6 | | | 0 | | | 0 | | | 0 | | Additional cash collateral for commodity contracts subject to rate recovery | 18 | | | — | | | — | | | — | |
Total | Total | $ | 8 | | | $ | 0 | | | $ | (6) | | | $ | 0 | | Total | $ | 19 | | | $ | — | | | $ | (35) | | | $ | — | |
(1) Included in Current Assets: Fixed-Price Contracts and Other Derivatives for SDG&E.
(2) Normal purchase contracts previously measured at fair value are excluded.
| DERIVATIVE INSTRUMENTS ON THE CONSOLIDATED BALANCE SHEETS | DERIVATIVE INSTRUMENTS ON THE CONSOLIDATED BALANCE SHEETS | DERIVATIVE INSTRUMENTS ON THE CONSOLIDATED BALANCE SHEETS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | December 31, 2019 | | December 31, 2020 |
| | Other current assets(1) | | Other long-term assets | | Other current liabilities | | Deferred credits and other | | Other current assets | | Other long-term assets | | Other current liabilities | | Deferred credits and other |
Sempra Energy Consolidated: | | | | | | | | |
Sempra: | | Sempra: | | | | | | | |
Derivatives designated as hedging instruments: | Derivatives designated as hedging instruments: | | | | | | | | Derivatives designated as hedging instruments: | | | | | | | |
Interest rate instruments | | Interest rate instruments | $ | — | | | $ | 1 | | | $ | (16) | | | $ | (31) | |
Foreign exchange instruments | | Foreign exchange instruments | — | | | — | | | (9) | | | (2) | |
Interest rate and foreign exchange instruments | Interest rate and foreign exchange instruments | $ | 0 | | | $ | 3 | | | $ | (17) | | | $ | (140) | | Interest rate and foreign exchange instruments | — | | | — | | | (1) | | | (127) | |
| Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | | | | | | | Derivatives not designated as hedging instruments: | | | | | | | |
Foreign exchange instruments | Foreign exchange instruments | 41 | | | 0 | | | (20) | | | 0 | | Foreign exchange instruments | 24 | | | — | | | — | | | — | |
Associated offsetting foreign exchange instruments | (20) | | | 0 | | | 20 | | | 0 | | |
| Commodity contracts not subject to rate recovery | Commodity contracts not subject to rate recovery | 34 | | | 11 | | | (41) | | | (10) | | Commodity contracts not subject to rate recovery | 82 | | | 17 | | | (95) | | | (16) | |
Associated offsetting commodity contracts | Associated offsetting commodity contracts | (32) | | | (2) | | | 32 | | | 2 | | Associated offsetting commodity contracts | (82) | | | (13) | | | 82 | | | 13 | |
| Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | 41 | | | 76 | | | (47) | | | (47) | | Commodity contracts subject to rate recovery | 35 | | | 95 | | | (35) | | | (25) | |
Associated offsetting commodity contracts | Associated offsetting commodity contracts | (6) | | | (3) | | | 6 | | | 3 | | Associated offsetting commodity contracts | (2) | | | — | | | 2 | | | — | |
Associated offsetting cash collateral | 0 | | | 0 | | | 14 | | | 0 | | |
| Net amounts presented on the balance sheet | Net amounts presented on the balance sheet | 58 | | | 85 | | | (53) | | | (192) | | Net amounts presented on the balance sheet | 57 | | | 100 | | | (72) | | | (188) | |
Additional cash collateral for commodity contracts not subject to rate recovery | Additional cash collateral for commodity contracts not subject to rate recovery | 43 | | | 0 | | | 0 | | | 0 | | Additional cash collateral for commodity contracts not subject to rate recovery | 21 | | | — | | | — | | | — | |
Additional cash collateral for commodity contracts subject to rate recovery | Additional cash collateral for commodity contracts subject to rate recovery | 25 | | | 0 | | | 0 | | | 0 | | Additional cash collateral for commodity contracts subject to rate recovery | 30 | | | — | | | — | | | — | |
Total(2) | $ | 126 | | | $ | 85 | | | $ | (53) | | | $ | (192) | | |
Total(1) | | Total(1) | $ | 108 | | | $ | 100 | | | $ | (72) | | | $ | (188) | |
SDG&E: | SDG&E: | | | | | | | | SDG&E: | | | | | | | |
Derivatives designated as hedging instruments: | | | | | | | | |
Derivatives not designated as hedging instruments: | | Derivatives not designated as hedging instruments: | | | | | | | |
| Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | 30 | | | 76 | | | (41) | | | (47) | | Commodity contracts subject to rate recovery | $ | 32 | | | $ | 95 | | | $ | (28) | | | $ | (25) | |
Associated offsetting commodity contracts | Associated offsetting commodity contracts | (4) | | | (3) | | | 4 | | | 3 | | Associated offsetting commodity contracts | (1) | | | — | | | 1 | | | — | |
Associated offsetting cash collateral | 0 | | | 0 | | | 14 | | | 0 | | |
| Net amounts presented on the balance sheet | Net amounts presented on the balance sheet | 26 | | | 73 | | | (23) | | | (44) | | Net amounts presented on the balance sheet | 31 | | | 95 | | | (27) | | | (25) | |
| Additional cash collateral for commodity contracts subject to rate recovery | Additional cash collateral for commodity contracts subject to rate recovery | 16 | | | 0 | | | 0 | | | 0 | | Additional cash collateral for commodity contracts subject to rate recovery | 24 | | | — | | | — | | | — | |
Total(2) | $ | 42 | | | $ | 73 | | | $ | (23) | | | $ | (44) | | |
Total(1) | | Total(1) | $ | 55 | | | $ | 95 | | | $ | (27) | | | $ | (25) | |
SoCalGas: | SoCalGas: | | | | | | | | SoCalGas: | | | | | | | |
Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | | | | | | | Derivatives not designated as hedging instruments: | | | | | | | |
| Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | $ | 11 | | | $ | 0 | | | $ | (6) | | | $ | 0 | | Commodity contracts subject to rate recovery | $ | 3 | | | $ | — | | | $ | (7) | | | $ | — | |
Associated offsetting commodity contracts | Associated offsetting commodity contracts | (2) | | | 0 | | | 2 | | | 0 | | Associated offsetting commodity contracts | (1) | | | — | | | 1 | | | — | |
| Net amounts presented on the balance sheet | Net amounts presented on the balance sheet | 9 | | | 0 | | | (4) | | | 0 | | Net amounts presented on the balance sheet | 2 | | | — | | | (6) | | | — | |
| Additional cash collateral for commodity contracts subject to rate recovery | Additional cash collateral for commodity contracts subject to rate recovery | 9 | | | 0 | | | 0 | | | 0 | | Additional cash collateral for commodity contracts subject to rate recovery | 6 | | | — | | | — | | | — | |
Total | Total | $ | 18 | | | $ | 0 | | | $ | (4) | | | $ | 0 | | Total | $ | 8 | | | $ | — | | | $ | (6) | | | $ | — | |
(1) Included in Current Assets: Fixed-Price Contracts and Other Derivatives for SDG&E.
(2) Normal purchase contracts previously measured at fair value are excluded.
| | | | | | | | | | | | | | | | | | | | | | | |
DERIVATIVE INSTRUMENTS ON THE CONSOLIDATED BALANCE SHEETS |
(Dollars in millions) |
| December 31, 2019 |
| Other current assets | | Other long-term assets | | Other current liabilities | | Deferred credits and other |
Sempra: | | | | | | | |
Derivatives designated as hedging instruments: | | | | | | | |
Interest rate instruments | $ | — | | | $ | 3 | | | $ | (11) | | | $ | (17) | |
Foreign exchange instruments | — | | | — | | | (6) | | | (1) | |
Interest rate and foreign exchange instruments | — | | | — | | | — | | | (122) | |
Derivatives not designated as hedging instruments: | | | | | | | |
Foreign exchange instruments | 41 | | | — | | | (20) | | | — | |
Associated offsetting foreign exchange instruments | (20) | | | — | | | 20 | | | — | |
Commodity contracts not subject to rate recovery | 34 | | | 11 | | | (41) | | | (10) | |
Associated offsetting commodity contracts | (32) | | | (2) | | | 32 | | | 2 | |
| | | | | | | |
Commodity contracts subject to rate recovery | 41 | | | 76 | | | (47) | | | (47) | |
Associated offsetting commodity contracts | (6) | | | (3) | | | 6 | | | 3 | |
Associated offsetting cash collateral | — | | | — | | | 14 | | | — | |
Net amounts presented on the balance sheet | 58 | | | 85 | | | (53) | | | (192) | |
Additional cash collateral for commodity contracts not subject to rate recovery | 43 | | | — | | | — | | | — | |
Additional cash collateral for commodity contracts subject to rate recovery | 25 | | | — | | | — | | | — | |
Total(1) | $ | 126 | | | $ | 85 | | | $ | (53) | | | $ | (192) | |
SDG&E: | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Commodity contracts subject to rate recovery | $ | 30 | | | $ | 76 | | | $ | (41) | | | $ | (47) | |
Associated offsetting commodity contracts | (4) | | | (3) | | | 4 | | | 3 | |
Associated offsetting cash collateral | — | | | — | | | 14 | | | — | |
Net amounts presented on the balance sheet | 26 | | | 73 | | | (23) | | | (44) | |
| | | | | | | |
Additional cash collateral for commodity contracts subject to rate recovery | 16 | | | — | | | — | | | — | |
Total(1) | $ | 42 | | | $ | 73 | | | $ | (23) | | | $ | (44) | |
SoCalGas: | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | |
| | | | | | | |
| | | | | | | |
Commodity contracts subject to rate recovery | $ | 11 | | | $ | — | | | $ | (6) | | | $ | — | |
Associated offsetting commodity contracts | (2) | | | — | | | 2 | | | — | |
| | | | | | | |
Net amounts presented on the balance sheet | 9 | | | — | | | (4) | | | — | |
| | | | | | | |
Additional cash collateral for commodity contracts subject to rate recovery | 9 | | | — | | | — | | | — | |
Total | $ | 18 | | | $ | — | | | $ | (4) | | | $ | — | |
(1) Normal purchase contracts previously measured at fair value are excluded.
The following table below includes the effects of derivative instruments designated as cash flow hedges on the Consolidated Statements of Operations and in OCI and AOCI.
| CASH FLOW HEDGE IMPACTS | CASH FLOW HEDGE IMPACTS | CASH FLOW HEDGE IMPACTS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Pretax (loss) gain recognized in OCI | | | | Pretax (loss) gain reclassified from AOCI into earnings | | Pretax gain (loss) recognized in OCI | | | | Pretax (loss) gain reclassified from AOCI into earnings |
| | Years ended December 31, | | | | Years ended December 31, | | Years ended December 31, | | | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | Location | | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 | | Location | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated: | | | | | | | | | | | | | | |
Sempra: | | Sempra: | | | | | | | | | | | | | |
Interest rate instruments | Interest rate instruments | $ | 0 | | | $ | 0 | | | $ | 0 | | | (Loss) Gain on Sale of Assets | | $ | 0 | | | $ | (10) | | | $ | (9) | | Interest rate instruments | $ | — | | | $ | — | | | $ | — | | | Gain (Loss) on Sale of Assets | | $ | — | | | $ | — | | | $ | (10) | |
Interest rate instruments(1) | Interest rate instruments(1) | (34) | | | (24) | | | 17 | | | Interest Expense(1) | | (10) | | | (3) | | | (1) | | Interest rate instruments(1) | 29 | | | (34) | | | (24) | | | Interest Expense(1) | | (11) | | | (10) | | | (3) | |
Interest rate instruments | Interest rate instruments | (185) | | | (164) | | | 44 | | | Equity Earnings | | (46) | | | (3) | | | (9) | | Interest rate instruments | 71 | | | (185) | | | (164) | | | Equity Earnings(2) | | (73) | | | (46) | | | (3) | |
Foreign exchange instruments | Foreign exchange instruments | (4) | | | (8) | | | (4) | | | Revenues: Energy- Related Businesses | | 1 | | | (2) | | | 1 | | Foreign exchange instruments | 11 | | | (4) | | | (8) | | | Revenues: Energy- Related Businesses | | (1) | | | 1 | | | (2) | |
| Foreign exchange instruments | | Foreign exchange instruments | 8 | | | (3) | | | (10) | | | Equity Earnings(2) | | — | | | — | | | (2) | |
Interest rate and foreign exchange instruments | Interest rate and foreign exchange instruments | (6) | | | 19 | | | 14 | | | Interest Expense | | (1) | | | 0 | | | 1 | | Interest rate and foreign exchange instruments | (4) | | | (6) | | | 19 | | | Interest Expense | | (1) | | | (1) | | | — | |
| | | Other (Expense) Income, Net | | (11) | | | 9 | | | 2 | | | Other Income (Expense), Net | | (6) | | | (11) | | | 9 | |
Foreign exchange instruments | (3) | | | (10) | | | (3) | | | Equity Earnings | | 0 | | | (2) | | | 2 | | |
Total | Total | $ | (232) | | | $ | (187) | | | $ | 68 | | | | | $ | (67) | | | $ | (11) | | | $ | (13) | | Total | $ | 115 | | | $ | (232) | | | $ | (187) | | | | | $ | (92) | | | $ | (67) | | | $ | (11) | |
SDG&E: | SDG&E: | | | | | | | | | | | | | | SDG&E: | | | | | | | | | | | | | |
Interest rate instruments(1) | Interest rate instruments(1) | $ | 0 | | | $ | (1) | | | $ | 1 | | | Interest Expense(1) | | $ | 0 | | | $ | (3) | | | $ | (7) | | Interest rate instruments(1) | $ | — | | | $ | — | | | $ | (1) | | | Interest Expense(1) | | $ | — | | | $ | — | | | $ | (3) | |
SoCalGas: | SoCalGas: | | | | | | | | | | | | | | SoCalGas: | | | | | | | | | | | | | |
Interest rate instruments | Interest rate instruments | $ | 0 | | | $ | 0 | | | $ | 0 | | | Interest Expense | | $ | 0 | | | $ | (1) | | | $ | (1) | | Interest rate instruments | $ | — | | | $ | — | | | $ | — | | | Interest Expense | | $ | — | | | $ | — | | | $ | (1) | |
(1) Amounts include Otay Mesa VIE. All of SDG&E’s interest rate derivative activity relates to Otay Mesa VIE. OnIn August 14, 2019, OMEC LLC paid in full its variable-rate loan and terminated its interest rate swaps.
(2) Equity earnings at our foreign equity method investees are recognized after tax.
For Sempra, Energy Consolidated, we expect that $87net losses of $47 million, of losses, which are net of income tax benefit, that are currently recorded in AOCI (including $1 million in NCI) related to cash flow hedges will be reclassified into earnings during the next 12 months as the hedged items affect earnings. SoCalGas expects that $1 million of losses, net of income tax benefit, that are currently recorded in AOCI related to cash flow hedges will be reclassified into earnings during the next 12 months as the hedged items affect earnings. Actual amounts ultimately reclassified into earnings depend on the interest rates in effect when derivative contracts mature.
For all forecasted transactions, the maximum remaining term over which we are hedging exposure to the variability of cash flows at December 31, 20202021 is approximately 1413 years for Sempra Energy Consolidated.Sempra. The maximum remaining term for which we are hedging exposure to the variability of cash flows at our equity method investees is 1918 years.
The following table summarizes the effects of derivative instruments not designated as hedging instruments on the Consolidated Statements of Operations.
| | | | | | | | | | | | | | | | | | | | |
UNDESIGNATED DERIVATIVE IMPACTS |
(Dollars in millions) |
| | Pretax gain (loss) on derivatives recognized in earnings |
| | Years ended December 31, |
| Location | 2020 | | 2019 | | 2018 |
Sempra Energy Consolidated: | | | | | | |
| | | | | | |
Commodity contracts not subject to rate recovery | Revenues: Energy-Related Businesses | $ | 17 | | | $ | 12 | | | $ | 26 | |
| | | | | | |
| | | | | | |
Commodity contracts subject to rate recovery | Cost of Natural Gas | (7) | | | 3 | | | 5 | |
Commodity contracts subject to rate recovery | Cost of Electric Fuel and Purchased Power | 88 | | | (140) | | | 279 | |
Foreign exchange instruments | Other (Expense) Income, Net | (56) | | | 25 | | | 3 | |
Total | | $ | 42 | | | $ | (100) | | | $ | 313 | |
SDG&E: | | | | | | |
| | | | | | |
Commodity contracts subject to rate recovery | Cost of Electric Fuel and Purchased Power | $ | 88 | | | $ | (140) | | | $ | 279 | |
| | | | | | |
SoCalGas: | | | | | | |
| | | | | | |
Commodity contracts subject to rate recovery | Cost of Natural Gas | $ | (7) | | | $ | 3 | | | $ | 5 | |
| | | | | | | | | | | | | | | | | | | | |
UNDESIGNATED DERIVATIVE IMPACTS |
(Dollars in millions) |
| | Pretax (loss) gain on derivatives recognized in earnings |
| | Years ended December 31, |
| Location | 2021 | | 2020 | | 2019 |
Sempra: | | | | | | |
| | | | | | |
Commodity contracts not subject to rate recovery | Revenues: Energy-Related Businesses | $ | (203) | | | $ | 17 | | | $ | 12 | |
| | | | | | |
| | | | | | |
Commodity contracts subject to rate recovery | Cost of Natural Gas | (25) | | | (7) | | | 3 | |
Commodity contracts subject to rate recovery | Cost of Electric Fuel and Purchased Power | 31 | | | 88 | | | (140) | |
Foreign exchange instruments | Other Income (Expense), Net | (22) | | | (56) | | | 25 | |
Total | | $ | (219) | | | $ | 42 | | | $ | (100) | |
SDG&E: | | | | | | |
| | | | | | |
Commodity contracts subject to rate recovery | Cost of Electric Fuel and Purchased Power | $ | 31 | | | $ | 88 | | | $ | (140) | |
| | | | | | |
SoCalGas: | | | | | | |
| | | | | | |
Commodity contracts subject to rate recovery | Cost of Natural Gas | $ | (25) | | | $ | (7) | | | $ | 3 | |
CONTINGENT FEATURES
For Sempra, Energy Consolidated, SDG&E and SoCalGas, certain of our derivative instruments contain credit limits which vary depending on our credit ratings. Generally, these provisions, if applicable, may reduce our credit limit if a specified credit rating agency reduces our ratings. In certain cases, if our credit ratings were to fall below investment grade, the counterparty to these derivative liability instruments could request immediate payment or demand immediate and ongoing full collateralization.
For Sempra, Energy Consolidated, the total fair value of this group of derivative instruments in a liability position at December 31, 2021, 2020 and 2019 was $88 million, $16 million and $21 million, respectively. For SoCalGas, the total fair value of this group of derivative instruments in a liability position at December 31, 2021, 2020 and 2019 was $36 million, $6 million and $4 million, respectively. SDG&E did not have this group of derivative instruments in a liability position at December 31, 2021 2020 or 2019. At December 31, 2020,2021, if the credit ratings of Sempra Energy or SoCalGas were reduced below investment grade, $16$88 million and $6$36 million, respectively, of additional assets could be required to be posted as collateral for these derivative contracts.
For Sempra, Energy Consolidated, SDG&E and SoCalGas, some of our derivative contracts contain a provision that would permit the counterparty, in certain circumstances, to request adequate assurance of our performance under the contracts. Such additional assurance, if needed, is not material and is not included in the amounts above.
NOTE 12. FAIR VALUE MEASUREMENTS
RECURRING FAIR VALUE MEASURES
The three tables below, by level within the fair value hierarchy, set forth our financial assets and liabilities that were accounted for at fair value on a recurring basis at December 31, 2021, 2020 and 2019. We classify financial assets and liabilities in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair-valued assets and liabilities, and their placement within the fair value hierarchy.
The fair value of commodity derivative assets and liabilities is presented in accordance with our netting policy, as we discuss in Note 11 under “Financial Statement Presentation.”
The determination of fair values, shown in the tables below, incorporates various factors, including but not limited to, the credit standing of the counterparties involved and the impact of credit enhancements (such as cash deposits, letters of credit and priority interests).
Our financial assets and liabilities that were accounted for at fair value on a recurring basis in the tables below include the following (other than a $5 million investment at December 31, 2019 measured at NAV):
▪Nuclear decommissioning trusts reflect the assets of SDG&E’s NDT, excluding cash balances.accounts receivable and accounts payable. A third-party trustee values the trust assets using prices from a pricing service based on a market approach. We validate these prices by comparison to prices from other independent data sources. Securities are valued using quoted prices listed on nationally recognized securities exchanges or based on closing prices reported in the active market in which the identical security is traded (Level 1). Other securities are valued based on yields that are currently available for comparable securities of issuers with similar credit ratings (Level 2).
▪For commodity contracts, interest rate derivatives and foreign exchange instruments, we primarily use a market or income approach with market participant assumptions to value these derivatives. Market participant assumptions include those about risk, and the risk inherent in the inputs to the valuation techniques. These inputs can be readily observable, market corroborated, or generally unobservable. We have exchange-traded derivatives that are valued based on quoted prices in active markets for the identical instruments (Level 1). We also may have other commodity derivatives that are valued using industry standard models that consider quoted forward prices for commodities, time value, current market and contractual prices for the underlying instruments, volatility factors, and other relevant economic measures (Level 2). Level 3 recurring items relate to CRRs and long-term, fixed-price electricity positions at SDG&E, as we discuss below in “Level 3 Information – SDG&E.”
▪Rabbi Trust investments include marketable securitiesshort-term investments that consist of money market and mutual funds that we value using a market approach based on closing prices reported in the active market in which the identical security is traded (Level 1). These investments in marketable securities were negligible at December 31, 2020, and 2019.
▪As we discuss in Note 6, in July 2020, Sempra Energy entered into a Support Agreement for the benefit of CFIN. We measure the Support Agreement, which includes a guarantee obligation, a put option and a call option, net of related guarantee fees, at fair value on a recurring basis. We use a discounted cash flow model to value the Support Agreement, net of related guarantee fees. Because some of the inputs that are significant to the valuation are less observable, the Support Agreement is classified as Level 3, as we describe below in “Level 3 Information – Sempra LNG.Infrastructure.”
| RECURRING FAIR VALUE MEASURES – SEMPRA ENERGY CONSOLIDATED | |
RECURRING FAIR VALUE MEASURES – SEMPRA | | RECURRING FAIR VALUE MEASURES – SEMPRA |
(Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| | Fair value at December 31, 2020 | | Fair value at December 31, 2021 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | Assets: | | | | | | | | Assets: | | | | | | | |
Nuclear decommissioning trusts: | Nuclear decommissioning trusts: | | | | | | | | Nuclear decommissioning trusts: | | | | | | | |
Short-term investments, primarily cash equivalents | | Short-term investments, primarily cash equivalents | $ | 13 | | | $ | (10) | | | $ | — | | | $ | 3 | |
Equity securities | Equity securities | $ | 358 | | | $ | 6 | | | $ | 0 | | | $ | 364 | | Equity securities | 358 | | | 6 | | | — | | | 364 | |
Debt securities: | Debt securities: | | | | | | | | Debt securities: | | | | | | | |
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | 41 | | | 24 | | | 0 | | | 65 | | Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | 48 | | | 8 | | | — | | | 56 | |
Municipal bonds | Municipal bonds | 0 | | | 326 | | | 0 | | | 326 | | Municipal bonds | — | | | 321 | | | — | | | 321 | |
Other securities | Other securities | 0 | | | 270 | | | 0 | | | 270 | | Other securities | — | | | 260 | | | — | | | 260 | |
Total debt securities | Total debt securities | 41 | | | 620 | | | 0 | | | 661 | | Total debt securities | 48 | | | 589 | | | — | | | 637 | |
Total nuclear decommissioning trusts(1) | Total nuclear decommissioning trusts(1) | 399 | | | 626 | | | 0 | | | 1,025 | | Total nuclear decommissioning trusts(1) | 419 | | | 585 | | | — | | | 1,004 | |
Interest rate and foreign exchange instruments | 0 | | | 25 | | | 0 | | | 25 | | |
Short-term investments held in Rabbi Trust | | Short-term investments held in Rabbi Trust | 81 | | | — | | | — | | | 81 | |
Interest rate instruments | | Interest rate instruments | — | | | 6 | | | — | | | 6 | |
Foreign exchange instruments | | Foreign exchange instruments | — | | | 2 | | | — | | | 2 | |
| Commodity contracts not subject to rate recovery | Commodity contracts not subject to rate recovery | 0 | | | 4 | | | 0 | | | 4 | | Commodity contracts not subject to rate recovery | — | | | 46 | | | — | | | 46 | |
Effect of netting and allocation of collateral(2) | Effect of netting and allocation of collateral(2) | 21 | | | 0 | | | 0 | | | 21 | | Effect of netting and allocation of collateral(2) | 58 | | | — | | | — | | | 58 | |
Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | 6 | | | 1 | | | 121 | | | 128 | | Commodity contracts subject to rate recovery | 12 | | | 1 | | | 69 | | | 82 | |
Effect of netting and allocation of collateral(2) | Effect of netting and allocation of collateral(2) | 19 | | | 5 | | | 6 | | | 30 | | Effect of netting and allocation of collateral(2) | 31 | | | 9 | | | 6 | | | 46 | |
Support Agreement, net of related guarantee fees | Support Agreement, net of related guarantee fees | 0 | | | 0 | | | 7 | | | 7 | | Support Agreement, net of related guarantee fees | — | | | — | | | 7 | | | 7 | |
Total | Total | $ | 445 | | | $ | 661 | | | $ | 134 | | | $ | 1,240 | | Total | $ | 601 | | | $ | 649 | | | $ | 82 | | | $ | 1,332 | |
| Liabilities: | Liabilities: | | | | | | | | Liabilities: | | | | | | | |
Interest rate instruments | | Interest rate instruments | $ | — | | | $ | 8 | | | $ | — | | | $ | 8 | |
Foreign exchange instruments | | Foreign exchange instruments | — | | | 1 | | | — | | | 1 | |
Interest rate and foreign exchange instruments | Interest rate and foreign exchange instruments | $ | 0 | | | $ | 186 | | | $ | 0 | | | $ | 186 | | Interest rate and foreign exchange instruments | — | | | 131 | | | — | | | 131 | |
Commodity contracts not subject to rate recovery | Commodity contracts not subject to rate recovery | 0 | | | 16 | | | 0 | | | 16 | | Commodity contracts not subject to rate recovery | — | | | 31 | | | — | | | 31 | |
Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | 0 | | | 6 | | | 52 | | | 58 | | Commodity contracts subject to rate recovery | — | | | 35 | | | 15 | | | 50 | |
| Support Agreement, net of related guarantee fees | 0 | | | 0 | | | 4 | | | 4 | | |
| Total | Total | $ | 0 | | | $ | 208 | | | $ | 56 | | | $ | 264 | | Total | $ | — | | | $ | 206 | | | $ | 15 | | | $ | 221 | |
| | Fair value at December 31, 2019 | |
| Level 1 | | Level 2 | | Level 3 | | Total | |
Assets: | | | | | | | | |
Nuclear decommissioning trusts: | | | | | | | | |
Equity securities | $ | 503 | | | $ | 6 | | | $ | 0 | | | $ | 509 | | |
Debt securities: | | | | | | | | |
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | 46 | | | 11 | | | 0 | | | 57 | | |
Municipal bonds | 0 | | | 282 | | | 0 | | | 282 | | |
Other securities | 0 | | | 226 | | | 0 | | | 226 | | |
Total debt securities | 46 | | | 519 | | | 0 | | | 565 | | |
Total nuclear decommissioning trusts(1) | 549 | | | 525 | | | 0 | | | 1,074 | | |
Interest rate and foreign exchange instruments | 0 | | | 24 | | | 0 | | | 24 | | |
Commodity contracts not subject to rate recovery | 0 | | | 11 | | | 0 | | | 11 | | |
Effect of netting and allocation of collateral(2) | 43 | | | 0 | | | 0 | | | 43 | | |
Commodity contracts subject to rate recovery | 5 | | | 8 | | | 95 | | | 108 | | |
Effect of netting and allocation of collateral(2) | 11 | | | 8 | | | 6 | | | 25 | | |
Total | $ | 608 | | | $ | 576 | | | $ | 101 | | | $ | 1,285 | | |
| Liabilities: | | | | | | | | |
Interest rate and foreign exchange instruments | $ | 0 | | | $ | 157 | | | $ | 0 | | | $ | 157 | | |
Commodity contracts not subject to rate recovery | 0 | | | 17 | | | 0 | | | 17 | | |
| Commodity contracts subject to rate recovery | 14 | | | 4 | | | 67 | | | 85 | | |
Effect of netting and allocation of collateral(2) | (14) | | | 0 | | | 0 | | | (14) | | |
Total | $ | 0 | | | $ | 178 | | | $ | 67 | | | $ | 245 | | |
(1) Excludes cash, cash equivalents and receivables (payables), net.
(2) Includes the effect of the contractual ability to settle contracts under master netting agreements and with cash collateral, as well as cash collateral not offset.
F-116
| RECURRING FAIR VALUE MEASURES – SDG&E | |
RECURRING FAIR VALUE MEASURES – SEMPRA | | RECURRING FAIR VALUE MEASURES – SEMPRA |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) | |
| | Fair value at December 31, 2020 | | Fair value at December 31, 2020 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | Assets: | | | | | | | | Assets: | | | | | | | |
Nuclear decommissioning trusts: | Nuclear decommissioning trusts: | | | | | | | | Nuclear decommissioning trusts: | | | | | | | |
Short-term investments, primarily cash equivalents | | Short-term investments, primarily cash equivalents | $ | 9 | | | $ | (6) | | | $ | — | | | $ | 3 | |
Equity securities | Equity securities | $ | 358 | | | $ | 6 | | | $ | 0 | | | $ | 364 | | Equity securities | 358 | | | 6 | | | — | | | 364 | |
Debt securities: | Debt securities: | | | | | | | | Debt securities: | | | | | | | |
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | 41 | | | 24 | | | 0 | | | 65 | | Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | 41 | | | 24 | | | — | | | 65 | |
Municipal bonds | Municipal bonds | 0 | | | 326 | | | 0 | | | 326 | | Municipal bonds | — | | | 326 | | | — | | | 326 | |
Other securities | Other securities | 0 | | | 270 | | | 0 | | | 270 | | Other securities | — | | | 270 | | | — | | | 270 | |
Total debt securities | Total debt securities | 41 | | | 620 | | | 0 | | | 661 | | Total debt securities | 41 | | | 620 | | | — | | | 661 | |
Total nuclear decommissioning trusts(1) | Total nuclear decommissioning trusts(1) | 399 | | | 626 | | | 0 | | | 1,025 | | Total nuclear decommissioning trusts(1) | 408 | | | 620 | | | — | | | 1,028 | |
Short-term investments held in Rabbi Trust | | Short-term investments held in Rabbi Trust | 61 | | | — | | | — | | | 61 | |
Interest rate instruments | | Interest rate instruments | — | | | 1 | | | — | | | 1 | |
Foreign exchange instruments | | Foreign exchange instruments | — | | | 24 | | | — | | | 24 | |
Commodity contracts not subject to rate recovery | | Commodity contracts not subject to rate recovery | — | | | 4 | | | — | | | 4 | |
Effect of netting and allocation of collateral(2) | | Effect of netting and allocation of collateral(2) | 21 | | | — | | | — | | | 21 | |
Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | 5 | | | 0 | | | 121 | | | 126 | | Commodity contracts subject to rate recovery | 6 | | | 1 | | | 121 | | | 128 | |
Effect of netting and allocation of collateral(2) | Effect of netting and allocation of collateral(2) | 18 | | | 0 | | | 6 | | | 24 | | Effect of netting and allocation of collateral(2) | 19 | | | 5 | | | 6 | | | 30 | |
Support Agreement, net of related guarantee fees | | Support Agreement, net of related guarantee fees | — | | | — | | | 7 | | | 7 | |
Total | Total | $ | 422 | | | $ | 626 | | | $ | 127 | | | $ | 1,175 | | Total | $ | 515 | | | $ | 655 | | | $ | 134 | | | $ | 1,304 | |
| Liabilities: | Liabilities: | | | | | | | | Liabilities: | | | | | | | |
| Interest rate instruments | | Interest rate instruments | $ | — | | | $ | 47 | | | $ | — | | | $ | 47 | |
Foreign exchange instruments | | Foreign exchange instruments | — | | | 11 | | | — | | | 11 | |
Interest rate and foreign exchange instruments | | Interest rate and foreign exchange instruments | — | | | 128 | | | — | | | 128 | |
Commodity contracts not subject to rate recovery | | Commodity contracts not subject to rate recovery | — | | | 16 | | | — | | | 16 | |
Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | $ | 0 | | | $ | 0 | | | $ | 52 | | | $ | 52 | | Commodity contracts subject to rate recovery | — | | | 6 | | | 52 | | | 58 | |
| Support Agreement, net of related guarantee fees | | Support Agreement, net of related guarantee fees | — | | | — | | | 4 | | | 4 | |
Total | Total | $ | 0 | | | $ | 0 | | | $ | 52 | | | $ | 52 | | Total | $ | — | | | $ | 208 | | | $ | 56 | | | $ | 264 | |
| | Fair value at December 31, 2019 | |
| Level 1 | | Level 2 | | Level 3 | | Total | |
Assets: | | | | | | | | |
Nuclear decommissioning trusts: | | | | | | | | |
Equity securities | $ | 503 | | | $ | 6 | | | $ | 0 | | | $ | 509 | | |
Debt securities: | | | | | | | | |
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | 46 | | | 11 | | | 0 | | | 57 | | |
Municipal bonds | 0 | | | 282 | | | 0 | | | 282 | | |
Other securities | 0 | | | 226 | | | 0 | | | 226 | | |
Total debt securities | 46 | | | 519 | | | 0 | | | 565 | | |
Total nuclear decommissioning trusts(1) | 549 | | | 525 | | | 0 | | | 1,074 | | |
| Commodity contracts subject to rate recovery | 1 | | | 3 | | | 95 | | | 99 | | |
Effect of netting and allocation of collateral(2) | 10 | | | 0 | | | 6 | | | 16 | | |
Total | $ | 560 | | | $ | 528 | | | $ | 101 | | | $ | 1,189 | | |
| Liabilities: | | | | | | | | |
Commodity contracts subject to rate recovery | $ | 14 | | | $ | 0 | | | $ | 67 | | | $ | 81 | | |
Effect of netting and allocation of collateral(2) | (14) | | | 0 | | | 0 | | | (14) | | |
Total | $ | 0 | | | $ | 0 | | | $ | 67 | | | $ | 67 | | |
(1) Excludes receivables (payables), net.
(2) Includes the effect of the contractual ability to settle contracts under master netting agreements and with cash collateral, as well as cash equivalentscollateral not offset.
| | | | | | | | | | | | | | | | | | | | | | | |
RECURRING FAIR VALUE MEASURES – SEMPRA |
(Dollars in millions) | | | | | | | |
| Fair value at December 31, 2019 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | |
Nuclear decommissioning trusts: | | | | | | | |
Short-term investments, primarily cash equivalents | $ | 14 | | | $ | 2 | | | $ | — | | | $ | 16 | |
Equity securities | 503 | | | 6 | | | — | | | 509 | |
Debt securities: | | | | | | | |
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | 46 | | | 11 | | | — | | | 57 | |
Municipal bonds | — | | | 282 | | | — | | | 282 | |
Other securities | — | | | 226 | | | — | | | 226 | |
Total debt securities | 46 | | | 519 | | | — | | | 565 | |
Total nuclear decommissioning trusts(1) | 563 | | | 527 | | | — | | | 1,090 | |
Short-term investments held in Rabbi Trust | 66 | | | — | | | — | | | 66 | |
Interest rate instruments | — | | | 3 | | | — | | | 3 | |
Foreign exchange instruments | — | | | 21 | | | — | | | 21 | |
Commodity contracts not subject to rate recovery | — | | | 11 | | | — | | | 11 | |
Effect of netting and allocation of collateral(2) | 43 | | | — | | | — | | | 43 | |
Commodity contracts subject to rate recovery | 5 | | | 8 | | | 95 | | | 108 | |
Effect of netting and allocation of collateral(2) | 11 | | | 8 | | | 6 | | | 25 | |
Total | $ | 688 | | | $ | 578 | | | $ | 101 | | | $ | 1,367 | |
Liabilities: | | | | | | | |
Interest rate instruments | $ | — | | | $ | 28 | | | $ | — | | | $ | 28 | |
Foreign exchange instruments | — | | | 7 | | | — | | | 7 | |
Interest rate and foreign exchange instruments | — | | | 122 | | | — | | | 122 | |
Commodity contracts not subject to rate recovery | — | | | 17 | | | — | | | 17 | |
Commodity contracts subject to rate recovery | 14 | | | 4 | | | 67 | | | 85 | |
Effect of netting and allocation of collateral(2) | (14) | | | — | | | — | | | (14) | |
Total | $ | — | | | $ | 178 | | | $ | 67 | | | $ | 245 | |
(1) Excludes receivables (payables), net.
(2) Includes the effect of the contractual ability to settle contracts under master netting agreements and with cash collateral, as well as cash collateral not offset.
| | | | | | | | | | | | | | | | | | | | | | | |
RECURRING FAIR VALUE MEASURES – SDG&E |
(Dollars in millions) |
| Fair value at December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | |
Nuclear decommissioning trusts: | | | | | | | |
Short-term investments, primarily cash equivalents | $ | 13 | | | $ | (10) | | | $ | — | | | $ | 3 | |
Equity securities | 358 | | | 6 | | | — | | | 364 | |
Debt securities: | | | | | | | |
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | 48 | | | 8 | | | — | | | 56 | |
Municipal bonds | — | | | 321 | | | — | | | 321 | |
Other securities | — | | | 260 | | | — | | | 260 | |
Total debt securities | 48 | | | 589 | | | — | | | 637 | |
Total nuclear decommissioning trusts(1) | 419 | | | 585 | | | — | | | 1,004 | |
Commodity contracts subject to rate recovery | 12 | | | — | | | 69 | | | 81 | |
Effect of netting and allocation of collateral(2) | 22 | | | — | | | 6 | | | 28 | |
Total | $ | 453 | | | $ | 585 | | | $ | 75 | | | $ | 1,113 | |
Liabilities: | | | | | | | |
| | | | | | | |
| | | | | | | |
Commodity contracts subject to rate recovery | $ | — | | | $ | — | | | $ | 15 | | | $ | 15 | |
| | | | | | | |
Total | $ | — | | | $ | — | | | $ | 15 | | | $ | 15 | |
| | | | | | | |
| Fair value at December 31, 2020 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | |
Nuclear decommissioning trusts: | | | | | | | |
Short-term investments, primarily cash equivalents | $ | 9 | | | $ | (6) | | | $ | — | | | $ | 3 | |
Equity securities | 358 | | | 6 | | | — | | | 364 | |
Debt securities: | | | | | | | |
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | 41 | | | 24 | | | — | | | 65 | |
Municipal bonds | — | | | 326 | | | — | | | 326 | |
Other securities | — | | | 270 | | | — | | | 270 | |
Total debt securities | 41 | | | 620 | | | — | | | 661 | |
Total nuclear decommissioning trusts(1) | 408 | | | 620 | | | — | | | 1,028 | |
Commodity contracts subject to rate recovery | 5 | | | — | | | 121 | | | 126 | |
Effect of netting and allocation of collateral(2) | 18 | | | — | | | 6 | | | 24 | |
Total | $ | 431 | | | $ | 620 | | | $ | 127 | | | $ | 1,178 | |
Liabilities: | | | | | | | |
Commodity contracts subject to rate recovery | $ | — | | | $ | — | | | $ | 52 | | | $ | 52 | |
Total | $ | — | | | $ | — | | | $ | 52 | | | $ | 52 | |
(1) Excludes receivables (payables), net.
(2)Includes the effect of the contractual ability to settle contracts under master netting agreements and with cash collateral, as well as cash collateral not offset.
| | | | | | | | | | | | | | | | | | | | | | | |
RECURRING FAIR VALUE MEASURES – SDG&E |
(Dollars in millions) |
| Fair value at December 31, 2019 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | |
Nuclear decommissioning trusts: | | | | | | | |
Short-term investments, primarily cash equivalents | $ | 14 | | | $ | 2 | | | $ | — | | | $ | 16 | |
Equity securities | 503 | | | 6 | | | — | | | 509 | |
Debt securities: | | | | | | | |
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | 46 | | | 11 | | | — | | | 57 | |
Municipal bonds | — | | | 282 | | | — | | | 282 | |
Other securities | — | | | 226 | | | — | | | 226 | |
Total debt securities | 46 | | | 519 | | | — | | | 565 | |
Total nuclear decommissioning trusts(1) | 563 | | | 527 | | | — | | | 1,090 | |
Commodity contracts subject to rate recovery | 1 | | | 3 | | | 95 | | | 99 | |
Effect of netting and allocation of collateral(2) | 10 | | | — | | | 6 | | | 16 | |
Total | $ | 574 | | | $ | 530 | | | $ | 101 | | | $ | 1,205 | |
Liabilities: | | | | | | | |
Commodity contracts subject to rate recovery | $ | 14 | | | $ | — | | | $ | 67 | | | $ | 81 | |
Effect of netting and allocation of collateral(2) | (14) | | | — | | | — | | | (14) | |
Total | $ | — | | | $ | — | | | $ | 67 | | | $ | 67 | |
(1) Excludes receivables (payables), net.
(2) Includes the effect of the contractual ability to settle contracts under master netting agreements and with cash collateral, as well as cash collateral not offset.
| RECURRING FAIR VALUE MEASURES – SOCALGAS | RECURRING FAIR VALUE MEASURES – SOCALGAS | RECURRING FAIR VALUE MEASURES – SOCALGAS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Fair value at December 31, 2020 | | Fair value at December 31, 2021 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | Assets: | | | | | | | | Assets: | | | | | | | |
Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | $ | 1 | | | $ | 1 | | | $ | 0 | | | $ | 2 | | Commodity contracts subject to rate recovery | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | |
Effect of netting and allocation of collateral(1) | Effect of netting and allocation of collateral(1) | 1 | | | 5 | | | 0 | | | 6 | | Effect of netting and allocation of collateral(1) | 9 | | | 9 | | | — | | | 18 | |
Total | Total | $ | 2 | | | $ | 6 | | | $ | 0 | | | $ | 8 | | Total | $ | 9 | | | $ | 10 | | | $ | — | | | $ | 19 | |
| Liabilities: | Liabilities: | | | | | | | | Liabilities: | | | | | | | |
| Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | $ | 0 | | | $ | 6 | | | $ | 0 | | | $ | 6 | | Commodity contracts subject to rate recovery | $ | — | | | $ | 35 | | | $ | — | | | $ | 35 | |
Total | Total | $ | 0 | | | $ | 6 | | | $ | 0 | | | $ | 6 | | Total | $ | — | | | $ | 35 | | | $ | — | | | $ | 35 | |
| | | Fair value at December 31, 2019 | | Fair value at December 31, 2020 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | Assets: | | | | | | | | Assets: | | | | | | | |
Commodity contracts subject to rate recovery | | Commodity contracts subject to rate recovery | $ | 1 | | | $ | 1 | | | $ | — | | | $ | 2 | |
Effect of netting and allocation of collateral(1) | | Effect of netting and allocation of collateral(1) | 1 | | | 5 | | | — | | | 6 | |
Total | | Total | $ | 2 | | | $ | 6 | | | $ | — | | | $ | 8 | |
Liabilities: | | Liabilities: | | | | | | | |
Commodity contracts subject to rate recovery | | Commodity contracts subject to rate recovery | $ | — | | | $ | 6 | | | $ | — | | | $ | 6 | |
| Total | | Total | $ | — | | | $ | 6 | | | $ | — | | | $ | 6 | |
| | | | Fair value at December 31, 2019 |
| | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | Assets: | |
| Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | $ | 4 | | | $ | 5 | | | $ | 0 | | | $ | 9 | | Commodity contracts subject to rate recovery | $ | 4 | | | $ | 5 | | | $ | — | | | $ | 9 | |
Effect of netting and allocation of collateral(1) | Effect of netting and allocation of collateral(1) | 1 | | | 8 | | | 0 | | | 9 | | Effect of netting and allocation of collateral(1) | 1 | | | 8 | | | — | | | 9 | |
Total | Total | $ | 5 | | | $ | 13 | | | $ | 0 | | | $ | 18 | | Total | $ | 5 | | | $ | 13 | | | $ | — | | | $ | 18 | |
| Liabilities: | Liabilities: | | | | | | | | Liabilities: | |
Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | $ | 0 | | | $ | 4 | | | $ | 0 | | | $ | 4 | | Commodity contracts subject to rate recovery | $ | — | | | $ | 4 | | | $ | — | | | $ | 4 | |
| Total | Total | $ | 0 | | | $ | 4 | | | $ | 0 | | | $ | 4 | | Total | $ | — | | | $ | 4 | | | $ | — | | | $ | 4 | |
(1) Includes the effect of the contractual ability to settle contracts under master netting agreements and with cash collateral, as well as cash collateral not offset.
Level 3 Information
SDG&E
The table below sets forth reconciliations of changes in the fair value of CRRs and long-term, fixed-price electricity positions classified as Level 3 in the fair value hierarchy for Sempra Energy Consolidated and SDG&E.
| LEVEL 3 RECONCILIATIONS(1) | LEVEL 3 RECONCILIATIONS(1) | LEVEL 3 RECONCILIATIONS(1) |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Balance at January 1 | Balance at January 1 | $ | 28 | | | $ | 179 | | | $ | (28) | | Balance at January 1 | $ | 69 | | | $ | 28 | | | $ | 179 | |
Realized and unrealized gains (losses) | 19 | | | (184) | | | 209 | | |
Realized and unrealized (losses) gains | | Realized and unrealized (losses) gains | (50) | | | 19 | | | (184) | |
Allocated transmission instruments | Allocated transmission instruments | 6 | | | 6 | | | 10 | | Allocated transmission instruments | 3 | | | 6 | | | 6 | |
Settlements | Settlements | 16 | | | 27 | | | (12) | | Settlements | 32 | | | 16 | | | 27 | |
Balance at December 31 | Balance at December 31 | $ | 69 | | | $ | 28 | | | $ | 179 | | Balance at December 31 | $ | 54 | | | $ | 69 | | | $ | 28 | |
Change in unrealized gains (losses) relating to instruments still held at December 31 | $ | 34 | | | $ | (139) | | | $ | 183 | | |
Change in unrealized (losses) gains relating to instruments still held at December 31 | | Change in unrealized (losses) gains relating to instruments still held at December 31 | $ | (16) | | | $ | 34 | | | $ | (139) | |
(1) Excludes the effect of the contractual ability to settle contracts under master netting agreements.
Inputs used to determine the fair value of CRRs and fixed-price electricity positions are reviewed and compared with market conditions to determine reasonableness. SDG&E expects all costs related to these instruments to be recoverable through customer rates. As such, there is no impact to earnings from changes in the fair value of these instruments.
CRRs are recorded at fair value based almost entirely on the most current auction prices published by the California ISO, an objective source. Annual auction prices are published once a year, typically in the middle of November, and are the basis for valuing CRRs settling in the following year. For the CRRs settling from January 1 to December 31, the auction price inputs, at a given location, were in the following ranges for the years indicated below:
| CONGESTION REVENUE RIGHTS AUCTION PRICE INPUTS | CONGESTION REVENUE RIGHTS AUCTION PRICE INPUTS | CONGESTION REVENUE RIGHTS AUCTION PRICE INPUTS |
| Settlement year | Settlement year | | Price per MWh | | Median price per MWh | Settlement year | | Price per MWh | | Median price per MWh |
2022 | | 2022 | $ | (3.67) | | to | $ | 6.96 | | $ | (0.70) | |
2021 | 2021 | $ | (1.81) | | to | $ | 14.11 | | $ | (0.12) | | 2021 | | (1.81) | | to | | 14.11 | | | (0.12) | |
2020 | 2020 | | (3.77) | | to | | 6.03 | | | (1.58) | | 2020 | | (3.77) | | to | | 6.03 | | | (1.58) | |
2019 | | (8.57) | | to | | 35.21 | | | (2.94) | | |
The impact associated with discounting is negligible. Because these auction prices are a less observable input, these instruments are classified as Level 3. The fair value of these instruments is derived from auction price differences between two locations. Positive values between two locations represent expected future reductions in congestion costs, whereas negative values between two locations represent expected future charges. Valuation of our CRRs is sensitive to a change in auction price. If auction prices at one location increase (decrease) relative to another location, this could result in a higher (lower) fair value measurement. We summarize CRR volumes in Note 11.
Long-term, fixed-price electricity positions that are valued using significant unobservable data are classified as Level 3 because the contract terms relate to a delivery location or tenor for which observable market rate information is not available. The fair value of the net electricity positions classified as Level 3 is derived from a discounted cash flow model using market electricity forward price inputs. The range and weighted-average price of these inputs at December 31 were as follows:
| LONG-TERM, FIXED-PRICE ELECTRICITY POSITIONS PRICE INPUTS | LONG-TERM, FIXED-PRICE ELECTRICITY POSITIONS PRICE INPUTS | LONG-TERM, FIXED-PRICE ELECTRICITY POSITIONS PRICE INPUTS |
| Settlement year | Settlement year | | Price per MWh | | Weighted-average price per MWh | Settlement year | | Price per MWh | | Weighted-average price per MWh |
2021 | | 2021 | $ | 24.10 | | to | $ | 105.00 | | $ | 53.57 | |
2020 | 2020 | $ | 19.60 | | to | $ | 78.10 | | $ | 39.71 | | 2020 | | 19.60 | | to | | 78.10 | | | 39.71 | |
2019 | 2019 | | 21.00 | | to | | 61.15 | | | 37.92 | | 2019 | | 21.00 | | to | | 61.15 | | | 37.92 | |
A significant increase (decrease) in market electricity forward prices would result in a significantly higher (lower) fair value. We summarize long-term, fixed-price electricity position volumes in Note 11.
Realized gains and losses associated with CRRs and long-term, fixed-price electricity positions, which are recoverable in rates, are recorded in Cost of Electric Fuel and Purchased Power on the Consolidated Statements of Operations. Because unrealized gains and losses are recorded as regulatory assets and liabilities, they do not affect earnings.
Sempra LNGInfrastructure
The table below sets forth a reconciliationreconciliations of changes in the fair value of Sempra Energy’sSempra’s Support Agreement for the benefit of CFIN classified as Level 3 in the fair value hierarchy for Sempra Energy Consolidated.Sempra.
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LEVEL 3 RECONCILIATION |
(Dollars in millions) |
| Year ended December 31, 2020 | | |
| | | |
Balance at January 1 | $ | 0 | | | |
Realized and unrealized gains(1)
| 6 | | | |
Settlements | (3) | | | |
Balance at December 31(2)
| $ | 3 | | | |
Change in unrealized gains (losses) relating to instruments still held at December 31 | $ | 3 | | | |
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LEVEL 3 RECONCILIATIONS |
(Dollars in millions) |
| Years ended December 31, | | |
| 2021 | | 2020 | | |
Balance at January 1 | $ | 3 | | | $ | — | | | |
Realized and unrealized gains(1) | 11 | | | 6 | | | |
Settlements | (7) | | | (3) | | | |
Balance at December 31(2) | $ | 7 | | | $ | 3 | | | |
Change in unrealized gains relating to instruments still held at December 31 | $ | 11 | | | $ | 3 | | | |
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(1) Net gains are included in Interest Income and net losses are included in Interest Expense on the Sempra EnergySempra’s Consolidated StatementStatements of Operations.
(2) IncludesBalances at December 31, 2021 and 2020 include $7 millionand $7, respectively, in Other Current Assets, offset by a negligible amount and $4, millionrespectively, in Deferred Credits and Other on the Sempra EnergySempra’s Consolidated Balance Sheet.Sheets.
The fair value of the Support Agreement, net of related guarantee fees, is based on a discounted cash flow model using a probability of default and survival methodology. Our estimate of fair value considers inputs such as third-party default rates, credit ratings, recovery rates, and risk-adjusted discount rates, which may be readily observable, market corroborated or generally unobservable inputs. Because CFIN’s credit rating and related default and survival rates are unobservable inputs that are significant to the valuation, the Support Agreement, net of related guarantee fees, is classified as Level 3. We assigned CFIN an internally developed credit rating of A3 and relied on default rate data published by Moody’s to assign a probability of default. A hypothetical change in the credit rating up or down one notch would notcould result in a significant change in the fair value of the Support Agreement.
Fair Value of Financial Instruments
The fair values of certain of our financial instruments (cash, accounts and notes receivable, short-term amounts due to/from unconsolidated affiliates, dividends and accounts payable, short-term debt and customer deposits) approximate their carrying amounts because of the short-term nature of these instruments. Investments in life insurance contracts that we hold in support of our Supplemental Executive Retirement, Cash Balance Restoration and Deferred Compensation Plans are carried at cash surrender values, which represent the amount of cash that could be realized under the contracts. The following table provides the carrying amounts and fair values of certain other financial instruments that are not recorded at fair value on the Consolidated Balance Sheets.
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FAIR VALUE OF FINANCIAL INSTRUMENTS |
(Dollars in millions) |
| December 31, 2020 |
| Carrying | | Fair value |
| amount | | Level 1 | | Level 2 | | Level 3 | | Total |
Sempra Energy Consolidated: | | | | | | | | | |
Long-term amounts due from unconsolidated affiliates(1) | $ | 786 | | | $ | 0 | | | $ | 817 | | | $ | 0 | | | $ | 817 | |
Long-term amounts due to unconsolidated affiliates | 275 | | | 0 | | | 266 | | | 0 | | | 266 | |
Total long-term debt(2) | 22,259 | | | 0 | | | 25,478 | | | 0 | | | 25,478 | |
SDG&E: | | | | | | | | | |
Total long-term debt(3) | $ | 6,253 | | | $ | 0 | | | $ | 7,384 | | | $ | 0 | | | $ | 7,384 | |
SoCalGas: | | | | | | | | | |
Total long-term debt(4) | $ | 4,759 | | | $ | 0 | | | $ | 5,655 | | | $ | 0 | | | $ | 5,655 | |
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| December 31, 2019 |
| Carrying | | Fair value |
| amount | | Level 1 | | Level 2 | | Level 3 | | Total |
Sempra Energy Consolidated: | | | | | | | | | |
Long-term amounts due from unconsolidated affiliates | $ | 742 | | | $ | 0 | | | $ | 759 | | | $ | 0 | | | $ | 759 | |
Long-term amounts due to unconsolidated affiliates | 195 | | | 0 | | | 184 | | | 0 | | | 184 | |
Total long-term debt(2) | 21,247 | | | 0 | | | 22,638 | | | 26 | | | 22,664 | |
SDG&E: | | | | | | | | | |
Total long-term debt(3) | $ | 5,140 | | | $ | 0 | | | $ | 5,662 | | | $ | 0 | | | $ | 5,662 | |
SoCalGas: | | | | | | | | | |
Total long-term debt(4) | $ | 3,809 | | | $ | 0 | | | $ | 4,189 | | | $ | 0 | | | $ | 4,189 | |
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FAIR VALUE OF FINANCIAL INSTRUMENTS |
(Dollars in millions) |
| Carrying | | Fair value |
| amount | | Level 1 | | Level 2 | | Level 3 | | Total |
| December 31, 2021 |
Sempra: | | | | | | | | | |
Long-term note receivable(1) | $ | 300 | | | $ | — | | | $ | — | | | $ | 327 | | | $ | 327 | |
Long-term amounts due from unconsolidated affiliates(2) | 640 | | | — | | | 642 | | | — | | | 642 | |
Long-term amounts due to unconsolidated affiliates | 287 | | | — | | | 295 | | | — | | | 295 | |
Total long-term debt(3) | 20,099 | | | — | | | 22,126 | | | — | | | 22,126 | |
SDG&E: | | | | | | | | | |
Total long-term debt(4) | $ | 6,417 | | | $ | — | | | $ | 7,236 | | | $ | — | | | $ | 7,236 | |
SoCalGas: | | | | | | | | | |
Total long-term debt(5) | $ | 4,759 | | | $ | — | | | $ | 5,367 | | | $ | — | | | $ | 5,367 | |
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| December 31, 2020 |
Sempra: | | | | | | | | | |
Long-term amounts due from unconsolidated affiliates(2) | $ | 786 | | | $ | — | | | $ | 817 | | | $ | — | | | $ | 817 | |
Long-term amounts due to unconsolidated affiliates | 275 | | | — | | | 266 | | | — | | | 266 | |
Total long-term debt(3) | 22,259 | | | — | | | 25,478 | | | — | | | 25,478 | |
SDG&E: | | | | | | | | | |
Total long-term debt(4) | $ | 6,253 | | | $ | — | | | $ | 7,384 | | | $ | — | | | $ | 7,384 | |
SoCalGas: | | | | | | | | | |
Total long-term debt(5) | $ | 4,759 | | | $ | — | | | $ | 5,655 | | | $ | — | | | $ | 5,655 | |
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| December 31, 2019 |
Sempra: | | | | | | | | | |
Long-term amounts due from unconsolidated affiliates | $ | 742 | | | $ | — | | | $ | 759 | | | $ | — | | | $ | 759 | |
Long-term amounts due to unconsolidated affiliates | 195 | | | — | | | 184 | | | — | | | 184 | |
Total long-term debt(3) | 21,247 | | | — | | | 22,638 | | | 26 | | | 22,664 | |
SDG&E: | | | | | | | | | |
Total long-term debt(4) | $ | 5,140 | | | $ | — | | | $ | 5,662 | | | $ | — | | | $ | 5,662 | |
SoCalGas: | | | | | | | | | |
Total long-term debt(5) | $ | 3,809 | | | $ | — | | | $ | 4,189 | | | $ | — | | | $ | 4,189 | |
(1) Before allowances for credit losses of $8 and excluding transaction costs of $5 at December 31, 2021.
(2) Before allowances for credit losses of $1 and $3 million.at December 31, 2021 and 2020, respectively. Includes $2 and $3 million of accrued interest receivable at December 31, 2021 and 2020, respectively, in Due From Unconsolidated Affiliate – Current.
(2) Before reductions of unamortized discount and debt issuance costs of $268 million and $225 million at December 31, 2020 and 2019, respectively, and excluding finance lease obligations of $1,330 million and $1,289 million at December 31, 2020 and 2019, respectively.
(3) Before reductions of unamortized discount and debt issuance costs of $52 million$260, $268 and $48 million$225 at December 31, 2021, 2020 and 2019, respectively, and excluding finance lease obligations of $1,276 million$1,335, $1,330 and $1,270 million$1,289 at December 31, 2021 and 2020 and 2019, respectively.
(4) Before reductions of unamortized discount and debt issuance costs of $40 million$61, $52 and $34 million$48 at December 31, 2021, 2020 and 2019, respectively, and excluding finance lease obligations of $1,274, $1,276 and $1,270 at December 31, 2021, 2020 and 2019, respectively.
(5) Before reductions of unamortized discount and debt issuance costs of $36, $40 and $34 at December 31, 2021, 2020 and 2019, respectively, and excluding finance lease obligations of $61, $54 million and $19 million at December 31, 2021, 2020 and 2019, respectively.
We provide the fair values for the securities held in the NDT related to SONGS in Note 15.
NON-RECURRING FAIR VALUE MEASURES
Sempra LNG
Non-Utility Natural Gas Storage Assets
As we discuss in Note 5, in June 2018, our board of directors approved a plan to sell Mississippi Hub, our 90.9% ownership interest in Bay Gas and other non-utility assets (the non-utility natural gas storage assets). In June 2018, we also owned a 75.4% interest in LA Storage, a salt cavern development project in Cameron Parish in Louisiana. The LA Storage project also includes an existing 23.3-mile pipeline header system that is not currently contracted.
Because of the plan of sale, we considered a market participant’s view of the total value of the non-utility natural gas storage assets and determined that their fair value, less costs to sell, may be less than their carrying value. Additionally, our inability to secure customer contracts that would support further investment in LA Storage led us to assess and conclude that the full carrying value of these other U.S. midstream assets may not be recoverable. As a result, on June 25, 2018, we recorded an impairment of $1.3 billion ($755 million after tax and NCI) in Impairment Losses on Sempra Energy’s Consolidated Statement of Operations.
We measured the estimated fair value of $190 million at June 25, 2018 using a discounted cash flow approach. This approach included unobservable inputs, resulting in a Level 3 measurement in the fair value hierarchy. We considered a market participant’s view of the values of the non-utility natural gas storage assets based on an estimation of future net cash flows. To estimate future net cash flows, we considered the non-utility natural gas storage assets’ prospects for generating revenues and cash flows beyond their existing contracted capacity and tenors, including natural gas price volatility and seasonality factors, as well as discount rates commensurate with the risks inherent in the cash flows.
On January 1, 2019, Sempra LNG entered into an agreement to sell Mississippi Hub and Bay Gas for $332 million, subject to working capital adjustments and $20 million representing Sempra LNG’s purchase of the 9.1% minority interest in Bay Gas immediately prior to and included as part of the sale. On February 7, 2019, Sempra LNG completed this sale. Additionally, in December 2018, Sempra LNG entered into an agreement to sell other non-utility assets for $5 million; such sale was completed in January 2019. We considered the assets’ sales prices negotiated with active market participants to be a relevant and material data input. Accordingly, we updated our fair value analysis to reflect the Level 2 market participant input as the primary indicator of fair value. As a result, on December 31, 2018, we reduced the impairment of $1.3 billion recorded on June 25, 2018 by $183 million ($126 million after tax and NCI), resulting in a total impairment of $1.1 billion ($629 million after tax and NCI) for the year ended December 31, 2018, based on a fair value of $337 million for these non-utility natural gas storage assets.
Sempra Renewables
U.S. Wind Investments
As we discuss in Notes 5 and 6, in June 2018, our board of directors approved a plan to sell all our wind and solar equity method investments at Sempra Renewables. Because of our expectation of a shorter holding period as a result of this plan of sale, we evaluated the recoverability of the carrying amounts of each of these investments and concluded there was an other-than-temporary impairment on certain of our wind equity method investments totaling $200 million ($145 million after tax), which we recorded in Equity Earnings on Sempra Energy’s Consolidated Statement of Operations for the year ended December 31, 2018. We measured the estimated fair value of $145 million at June 25, 2018 using a discounted cash flow model including significant unobservable inputs, adjusted for our applicable ownership percentages, which is a Level 3 measurement in the fair value hierarchy. The key inputs to the methodology were contracted and merchant pricing, and the discount rate. Sempra Renewables completed the sale of its interests in these wind equity method investments in April 2019.
The table below summarizes significant inputs impacting our non-recurring fair value measures. Additional discussions about the related transactions are provided in Note 5, and as applicable, in Note 6.
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NON-RECURRING FAIR VALUE MEASURES – SEMPRA ENERGY CONSOLIDATED |
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| Measurement date | | Estimated fair value (in millions) | Valuation technique | Fair value hierarchy | | % of fair value measurement | | Inputs used to develop measurement | | Range of inputs (weighted average) | |
Non-utility natural gas storage assets | December 31, 2018 | $ | 337 | | Market approach | Level 2 | | 100% | | Assets’ sales prices | | 100% | |
Non-utility natural gas storage assets | June 25, 2018 | $ | 190 | | Discounted cash flows | Level 3 | | 100% | | Storage rates per dekatherm per month | | $0.06 - $0.22 $(0.10) | (1) |
| | | | | | | | | Discount rate | | 10% | (2) |
Certain of our U.S. wind equity method investments | June 25, 2018 | $ | 145 | | Discounted cash flows | Level 3 | | 100% | | Contracted and observable merchant prices per MWh | | $29 - $92 | (1) |
| | | | | | | | | Discount rate | | 8% - 10% (8.7%) | (2) |
(1) Generally, significant increases (decreases) in this input in isolation would result in a significantly higher (lower) fair value measurement.
(2) An increase in the discount rate would result in a decrease in fair value.
NOTE 13. PREFERRED STOCK
Sempra Energy and SDG&E are authorized to issue up to 50 million and 45 million shares of preferred stock, respectively. At December 31, 2021, 2020 and 2019, SDG&E had 0no preferred stock outstanding. The rights, preferences, privileges and restrictions for any new series of preferred stock would be established by each company’s board of directors at the time of issuance. We discuss SoCalGas preferred stock below.
SEMPRA ENERGY MANDATORY CONVERTIBLE PREFERRED STOCK
In January 2018, we issued 17,250,000 shares of our 6% mandatory convertible preferred stock, series A (series A preferred stock) in a registered public offering at $100.00 per share (or $98.20 per share after deducting underwriting discounts), and received net proceeds of $1.69 billion (net of underwriting discounts and equity issuance costs of $32 million). Each share of series A preferred stock had a liquidation value of $100.00.
In July 2018, we issued 5,750,000 shares of our 6.75% mandatory convertible preferred stock, series B (series B preferred stock) in a registered public offering at $100.00 per share (or $98.35 per share after deducting underwriting discounts), and received net proceeds of $565 million (net of underwriting discounts and equity issuance costs of $10 million). Each share of series B preferred stock has a liquidation value of $100.00.
Mandatory Conversion
Unless earlier converted, each share of the series A preferred stock and series B preferred stock is to automatically convert on the mandatory conversion date of January 15, 2021 and July 15, 2021, respectively. The number of shares of our common stock issuable on conversion of each such series of preferred stock is determined based on the volume-weighted average market value per share of our common stock over the 20-consecutive trading day period beginning on and including the 21st scheduled trading day immediately preceding January 15, 2021 for the series A preferred stock and July 15, 2021 for the series B preferred stock. On January 15, 2021, we converted 17,250,000 shares of series A preferred stock into 13,781,025 shares of our common stock based on a conversion rate of 0.7989 shares of our common stock for each issued and outstanding share of series A preferred stock. As a consequence, no shares of series A preferred stock were outstanding after January 15, 2021 and the 17,250,000 shares that were formerly series A preferred stock have returned to the status of authorized and unissued shares of preferred stock.
The termsAs of our series A preferred stock and series B preferred stock require a notice to holders when the aggregate adjustment to the conversion rates at which shares of series A preferred stock or series B preferred stock are convertible into shares of Sempra Energy common stock is more than 1%. On July 6, 2020, we notified the holders of the series A preferred stock of such an adjustment. These adjustments, which resulted from the incremental impact of our second quarter dividend declared on our common stock and which became effective as of June 25, 2020, the ex-dividend date for such dividend, include adjustments to the minimum and maximum conversion rates and the related initial and threshold appreciation prices.
The following table illustrates the conversion rate per share of our series B preferred stock, subject to certain anti-dilution adjustments.
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CONVERSION RATES |
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Applicable market value per share of our common stock | | Conversion rate (number of shares of our common stock to be received upon conversion of each share of series B preferred stock) |
Series B preferred stock | | |
Greater than $136.50 (which is the threshold appreciation price) | | 0.7326 shares (approximately equal to $100.00 divided by the threshold appreciation price) |
Equal to or less than $136.50 but greater than or equal to $113.75 | | Between 0.7326 and 0.8791 shares, determined by dividing $100.00 by the applicable market value of our common stock |
Less than $113.75 (which is the initial price) | | 0.8791 shares (approximately equal to $100.00 divided by the initial price) |
Conversion at the Option of the Holder
Generally, and subject to the terms of the respective series of mandatory convertible preferred stock, at any time prior to January 15, 2021 for the series A preferred stock and July 15, 2021, for the series B preferred stock, holders were (with respectwe had converted, pursuant to the series A preferred stock) or are (with respect to the series B preferred stock) entitled to elect to convert each share of their preferred stock into shares of our common stockeither early conversions at the minimum conversion rate. No holderselection of the series A preferred stock elected such a conversion beforeholder or the January 15, 2021 mandatory conversion of all then-outstanding shares. Ifoutstanding shares, all outstanding series B preferred stock were converted early, we would issue, subject to anti-dilution adjustments, 4.2 million common shares upon such conversion. In addition, if holders of the series B preferred stock elect to convert any shares during a specified period beginning on the effective date of a fundamental change, as defined in the certificate of determination of preferences of the series B preferred stock, such shares of preferred stock will be converted into shares of our common stock at a fundamental change conversion rate, and the holders will also be entitled to receive a fundamental change dividend make-whole amount and accumulated dividend amount.
Dividends
Dividends on each series of mandatory convertible preferred stock are (or, with respect to the series A preferred stock, were) payable quarterly on a cumulative basis when, as and if declared by our board of directors. All dividends ceased to accrue on the series A preferred stock upon their mandatory conversion on January 15, 2021. We may pay quarterly declared dividends on the series B preferred stock in cash or, subject to certain limitations, in shares of our common stock, no par value, or in any combination of cash and shares of our common stock. Shares of common stock used to pay dividends will be valued at 97% of the volume-weighted average price per share over the 5-consecutive trading day period beginning on, and including the sixth trading day prior to, the applicable dividend payment date.
Voting Rights
The holders of the series B preferred stock do not have voting rights, except with respect to any authorization, creation or increase in the authorized amount of any class or series of capital stock ranking senior to the series B preferred stock, certain amendments to the terms of the series B preferred stock, in certain other limited circumstances and as otherwise specifically required by California law. In addition, whenever dividends on any5,750,000 shares of series B preferred stock have not been declaredinto an aggregate of 4,256,720 shares of our common stock and paid or have been declared but not paida nominal amount of cash in lieu of fractional share interests, based on a conversion rate of 0.7403 shares of our common stock for six or more dividend periods, whether or not consecutive, the authorized numbereach issued and outstanding share of directors on our boardseries B preferred stock. As a consequence, no shares of directors will automatically be increased by 2 and the holders of the series B preferred stock voting together as a single class with holders of anywere outstanding after July 15, 2021 and all other outstanding preferred stock of equal rank having similar voting rights, will be entitled to elect 2 directors who satisfy certain requirements to fill such newly created directorships. This voting right will terminate when all accumulated and unpaid dividends on the 5,750,000 shares that were formerly series B preferred stock have been paid in fullreturned to the status of authorized and upon such termination and the termination of the same voting rights of all other holders of outstanding seriesunissued shares of preferred stock that have such voting rights, the term of office of each director elected pursuant to such rights will terminate and the authorized number of directors will automatically decrease by 2, subject to the revesting of that right in the event of each subsequent nonpayment.
Ranking
The series B preferred stock ranks, with respect to dividend rights and distribution rights upon our liquidation, winding-up or dissolution:
▪senior to our common stock and each other class or series of our capital stock established in the future, unless the terms of such capital stock expressly provide otherwise;
▪on parity with our outstanding series C preferred stock and each class or series of our capital stock established in the future if the terms of such capital stock provide that it ranks on parity with the series B preferred stock;
▪junior to each class or series of our capital stock established in the future, if the terms of such capital stock provide that it ranks senior to the series B preferred stock;
▪junior to our existing and future indebtedness and other liabilities; and
▪structurally subordinated to all existing and future indebtedness and other liabilities of our subsidiaries and capital stock of our subsidiaries held by third parties.stock.
SEMPRA ENERGY SERIES C PREFERRED STOCK
In June 2020, we issued 900,000 shares of our 4.875% fixed-rate reset cumulative redeemable perpetual preferred stock, series C (series C preferred stock) in a registered public offering at a price to the public of $1,000 per share and received net proceeds of $889 million after deducting the underwriting discount and equity issuance costs of $11 million. We used the net proceeds for working capital and other general corporate purposes, including the repayment of indebtedness.
Liquidation Preference
Each share of series C preferred stock has a liquidation preference of $1,000 plus any accumulated and unpaid dividends (whether or not declared) on such share.
Redemption at the Option of Sempra Energy
The shares of series C preferred stock are perpetual and have no maturity date. However, we may, at our option, redeem the series C preferred stock in whole or in part, from time to time, on any day during the period from and including the July 15 immediately preceding October 15, 2025 and October 15 of every fifth year after 2025 through and including such October 15 at a redemption price in cash equal to $1,000 per share. Additionally, in the event that a credit rating agency then publishing a rating for us makes certain amendments, clarifications or changes to the criteria it uses to assign equity credit to securities such as the series C preferred stock (Ratings Event), we may redeem the series C preferred stock, in whole but not in part, at any time within 120 days after the conclusion of any review or appeal process instituted by us following the occurrence of the Ratings Event or, if no such review or appeal process is available or sought, the occurrence of such Ratings Event, at a redemption price in cash equal to $1,020 per share (102% of the liquidation preference per share).
Dividends
Dividends on the series C preferred stock, when, as and if declared by our board of directors or an authorized committee thereof, are payable in cash, on a cumulative basis, semi-annually in arrears beginning on October 15, 2020. Dividends on the series C preferred stock will be cumulative whether or not:
▪we have earnings;
▪the payment of such dividends is then permitted under California law;
▪such dividends are authorized or declared; and
▪any agreements to which we are a party prohibit the current payment of dividends, including any agreement relating to our indebtedness.
We accrue dividends on the series C preferred stock on a monthly basis. The dividend rate from and including June 19, 2020 to, but excluding, October 15, 2025 is 4.875% per annum of the $1,000 liquidation preference per share. The dividend rate will reset on October 15, 2025 and on October 15 of every fifth year after 2025 and, for each five-year period following such reset dates, will be a per annum rate equal to the Five-year U.S. Treasury Rate (as defined in the certificate of determination of preferences of the series C preferred stock) as of the second business day prior to such reset date, plus a spread of 4.550%, of the $1,000 liquidation preference per share.
Voting Rights
The holders of series C preferred stock do not have any voting rights, except with respect to any authorization, creation or increase in the authorized amount of any class or series of capital stock ranking senior to the series C preferred stock, certain
amendments to the terms of the series C preferred stock, in certain other limited circumstances and as otherwise specifically required by California law. In addition, whenever dividends on any shares of series C preferred stock have not been declared and paid or have been declared but not paid for three or more dividend periods, whether or not consecutive, the authorized number of directors on our board of directors will automatically be increased by two and the holders of the series C preferred stock, voting together as a single class with holders of any and all other outstanding series of preferred stock of equal rank having similar voting rights, will be entitled to elect two directors who satisfy certain requirements to fill such two newly created directorships. This voting right will terminate when all accumulated and unpaid dividends on the series C preferred stock have been paid in full and, upon such termination and the termination of the same voting rights of all other holders of outstanding series of preferred stock that have such voting rights, the term of office of each director elected pursuant to such rights will terminate and the authorized number of directors will automatically decrease by two, subject to the revesting of such rights in the event of each subsequent nonpayment.
Ranking
The series C preferred stock ranks, with respect to dividend rights and distribution rights upon our liquidation, winding-up or dissolution:
▪senior to our common stock and each other class or series of our capital stock established in the future, unless the terms of such capital stock expressly provide otherwise;
▪on parity with our formerly outstanding series A preferred stock and currently outstanding series B preferred stock and each class or series of our capital stock established in the future, if the terms of such capital stock provide that it ranks on parity with the series C preferred stock;
▪junior to each class or series of our capital stock established in the future, if the terms of such capital stock provide that it ranks senior to the series C preferred stock;
▪junior to our existing and future indebtedness and other liabilities; and
▪structurally subordinated to all existing and future indebtedness and other liabilities of our subsidiaries and capital stock of our subsidiaries held by third parties.
SOCALGAS PREFERRED STOCK
SoCalGas is authorized to issue up to an aggregate of 11 million shares of preferred stock, series preferred stock and preference stock. The table below presents preferred stock outstanding at SoCalGas:
| PREFERRED STOCK OUTSTANDING | PREFERRED STOCK OUTSTANDING | PREFERRED STOCK OUTSTANDING |
(Dollars in millions, except per share amounts) | (Dollars in millions, except per share amounts) | | | | (Dollars in millions, except per share amounts) | | | | |
| | December 31, | | December 31, |
| | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
$25 par value, authorized 1,000,000 shares: | $25 par value, authorized 1,000,000 shares: | | | | $25 par value, authorized 1,000,000 shares: | | | | |
6% Series, 79,011 shares outstanding | 6% Series, 79,011 shares outstanding | $ | 3 | | | $ | 3 | | 6% Series, 79,011 shares outstanding | $ | 3 | | | $ | 3 | | | $ | 3 | |
6% Series A, 783,032 shares outstanding | 6% Series A, 783,032 shares outstanding | 19 | | | 19 | | 6% Series A, 783,032 shares outstanding | 19 | | | 19 | | | 19 | |
SoCalGas - Total preferred stock | SoCalGas - Total preferred stock | 22 | | | 22 | | SoCalGas - Total preferred stock | 22 | | | 22 | | | 22 | |
Less: 50,970 shares of the 6% Series outstanding owned by PE | Less: 50,970 shares of the 6% Series outstanding owned by PE | (2) | | | (2) | | Less: 50,970 shares of the 6% Series outstanding owned by PE | (2) | | | (2) | | | (2) | |
Sempra Energy - Total preferred stock of subsidiary | $ | 20 | | | $ | 20 | | |
Sempra - Total preferred stock of subsidiary | | Sempra - Total preferred stock of subsidiary | $ | 20 | | | $ | 20 | | | $ | 20 | |
None of SoCalGas’ outstanding preferred stock is callable, and no shares are subject to mandatory redemption.
All outstanding shares have one vote per share, cumulative preferences as to dividends and liquidation preferences of $25 per share plus any unpaid dividends.
In addition to the outstanding preferred stock above, SoCalGas’ articles of incorporation authorize 5 million shares of series preferred stock and 5 million shares of preference stock, both without par value and with cumulative preferences as to dividends and liquidation value. The preference stock would rank junior to all series of preferred stock and series preferred stock. Other rights and privileges of any new series of such stock would be established by the SoCalGas board of directors at the time of issuance.
NOTE 14. SEMPRA ENERGY – SHAREHOLDERS’ EQUITY AND EARNINGS PER COMMON SHARE
SEMPRA ENERGY COMMON STOCK REPURCHASES
On September 11, 2007, our board of directors authorized the repurchase of shares of our common stock, provided that the amounts spent for such purpose do not exceed the greater of $2 billion or amounts spent to purchase no more than 40 million shares. On July 1, 2020, we entered into an ASR program under which we prepaid $500 million to repurchase shares of our common stock in a share forward transaction. The total number of shares purchased was determined by dividing the $500 million purchase price by the arithmetic average of the volume-weighted average trading prices of shares of our common stock during the valuation period of July 2, 2020 through August 4, 2020, minus a fixed discount. The ASR program was completed on August 4, 2020 with an aggregate of 4,089,375 shares of Sempra Energy common stock repurchased at an average price of $122.27 per share. Following the completion of the ASR program, the aggregate dollar amount authorized by the September 11, 2007 share repurchase authorization was exhausted.
On July 6, 2020, our board of directors authorized the repurchase of shares of our common stock at any time and from time to time in an aggregate amount not to exceed the lesser of $2 billion or amounts spent to purchase no more than 25 million shares. No shares have beenwere repurchased under this authorization.authorization in 2020.
SEMPRA ENERGY COMMON STOCK OFFERINGS
In January 2018,Beginning on November 17, 2021, we completed the offeringexecuted a series of 26,869,158open market repurchases for which we paid $300 million to repurchase shares of our common stock no par value,in the open market. The repurchases were completed on December 7, 2021 with an aggregate of 2,422,758 shares of Sempra common stock repurchased at a weighted-average purchase price of $123.83 per share, excluding commissions.
On January 11, 2022, we entered into an ASR program under which we prepaid $200 million to repurchase shares of our common stock in a registered public offeringshare forward transaction. A total of 1,472,756 shares were purchased under this program at $107.00an average price of $135.80 per share (approximately $105.07 per share after deducting underwriting discounts), with 23,364,486share. The total number of shares pursuant to forward sale agreements. We received net proceeds totaling approximately $2.8 billion to fully settle these shares, as follows:
▪$367purchased was determined by dividing the $200 million (netpurchase price by the arithmetic average of underwriting discounts and equity issuance coststhe volume-weighted average trading prices of $8 million) to cover overallotment shares of 3,504,672 inour common stock during the first quartervaluation period of 2018 atJanuary 12, 2022 through February 11, 2022, minus a settlement pricefixed discount. The ASR program was completed on February 11, 2022. As of $105.07 per share;February 25, 2022, a maximum of $1.5 billion and no more than 21,104,486 shares may yet be purchased under the July 6, 2020 repurchase authorization.
▪$900 million (net of underwriting discounts of $16 million) from the settlement of 8,556,630 shares in the first quarter of 2018 at a forward sale price of $105.18 per share;SETTLEMENT OF FORWARD SALE AGREEMENTS
▪$800 million (net of underwriting discounts of $14 million) from the settlement of 7,651,671 shares in the second quarter of 2018 at forward sale prices ranging from $104.53 to $104.58 per share; and
▪$728In 2019, we received $728 million (net of underwriting discounts of $13 million) from the settlement of 7,156,185 shares in the third quarter of 2019our common stock at a forward sale price of $101.74 per share.share related to our January 2018 common stock offering.
In July 2018,2019, we completed the offering of 11,212,500 shares of our common stock, no par value, in a registered public offering at $113.75 per share (approximately $111.87 per share after deducting underwriting discounts), with 9,750,000 shares pursuant to forward sale agreements. We received net proceeds totaling approximately $1.2 billion to fully settle these shares, as follows:
▪$164 million (net of underwriting discounts and equity issuance costs of $3 million) to cover overallotment shares of 1,462,500 in the third quarter of 2018 at a settlement price of $111.87 per share; and
▪$1,066$1,066 million (net of underwriting discounts of $18 million) from the settlement of 9,750,000 shares in the fourth quarter of 2019our common stock at a forward sale price of $109.33 per share.share related to our July 2018 common stock offering.
EARNINGS PER COMMON SHARE
Basic EPS is calculated by dividing earnings attributable to common shares (from both continuing and discontinued operations) by the weighted-average number of common shares outstanding for the period. Diluted EPS includes the potential dilution of common stock equivalent shares that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
| EARNINGS PER COMMON SHARE COMPUTATIONS | EARNINGS PER COMMON SHARE COMPUTATIONS | | EARNINGS PER COMMON SHARE COMPUTATIONS | |
(Dollars in millions, except per share amounts; shares in thousands) | (Dollars in millions, except per share amounts; shares in thousands) | | (Dollars in millions, except per share amounts; shares in thousands) | |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Sempra: | | Sempra: | |
Numerator for continuing operations: | Numerator for continuing operations: | | | | | | Numerator for continuing operations: | | | | | |
Income from continuing operations, net of income tax | Income from continuing operations, net of income tax | $ | 2,255 | | | $ | 1,999 | | | $ | 938 | | Income from continuing operations, net of income tax | $ | 1,463 | | | $ | 2,255 | | | $ | 1,999 | |
Earnings attributable to noncontrolling interests | Earnings attributable to noncontrolling interests | (162) | | | (129) | | | (44) | | Earnings attributable to noncontrolling interests | (145) | | | (162) | | | (129) | |
Preferred dividends | Preferred dividends | (168) | | | (142) | | | (125) | | Preferred dividends | (63) | | | (168) | | | (142) | |
Preferred dividends of subsidiary | Preferred dividends of subsidiary | (1) | | | (1) | | | (1) | | Preferred dividends of subsidiary | (1) | | | (1) | | | (1) | |
Earnings from continuing operations attributable to common shares | Earnings from continuing operations attributable to common shares | $ | 1,924 | | | $ | 1,727 | | | $ | 768 | | Earnings from continuing operations attributable to common shares | $ | 1,254 | | | $ | 1,924 | | | $ | 1,727 | |
| Numerator for discontinued operations: | Numerator for discontinued operations: | | Numerator for discontinued operations: | |
Income from discontinued operations, net of income tax | Income from discontinued operations, net of income tax | $ | 1,850 | | | $ | 363 | | | $ | 188 | | Income from discontinued operations, net of income tax | $ | — | | | $ | 1,850 | | | $ | 363 | |
Earnings attributable to noncontrolling interests | Earnings attributable to noncontrolling interests | (10) | | | (35) | | | (32) | | Earnings attributable to noncontrolling interests | — | | | (10) | | | (35) | |
Earnings from discontinued operations attributable to common shares | Earnings from discontinued operations attributable to common shares | $ | 1,840 | | | $ | 328 | | | $ | 156 | | Earnings from discontinued operations attributable to common shares | $ | — | | | $ | 1,840 | | | $ | 328 | |
| Numerator for earnings: | Numerator for earnings: | | Numerator for earnings: | |
Earnings attributable to common shares | Earnings attributable to common shares | $ | 3,764 | | | $ | 2,055 | | | $ | 924 | | Earnings attributable to common shares | $ | 1,254 | | | $ | 3,764 | | | $ | 2,055 | |
| Denominator: | Denominator: | | | | | | Denominator: | | | | | |
Weighted-average common shares outstanding for basic EPS(1) | Weighted-average common shares outstanding for basic EPS(1) | 291,077 | | | 277,904 | | | 268,072 | | Weighted-average common shares outstanding for basic EPS(1) | 311,755 | | | 291,077 | | | 277,904 | |
Dilutive effect of stock options and RSUs(2) | Dilutive effect of stock options and RSUs(2) | 1,175 | | | 1,585 | | | 919 | | Dilutive effect of stock options and RSUs(2) | 752 | | | 1,175 | | | 1,585 | |
Dilutive effect of common shares sold forward | Dilutive effect of common shares sold forward | 0 | | | 2,544 | | | 861 | | Dilutive effect of common shares sold forward | — | | | — | | | 2,544 | |
Dilutive effect of mandatory convertible preferred stock | | Dilutive effect of mandatory convertible preferred stock | 529 | | | — | | | — | |
Weighted-average common shares outstanding for diluted EPS | Weighted-average common shares outstanding for diluted EPS | 292,252 | | | 282,033 | | | 269,852 | | Weighted-average common shares outstanding for diluted EPS | 313,036 | | | 292,252 | | | 282,033 | |
| Basic EPS: | Basic EPS: | | Basic EPS: | |
Earnings from continuing operations | Earnings from continuing operations | $ | 6.61 | | | $ | 6.22 | | | $ | 2.86 | | Earnings from continuing operations | $ | 4.03 | | | $ | 6.61 | | | $ | 6.22 | |
Earnings from discontinued operations | Earnings from discontinued operations | $ | 6.32 | | | $ | 1.18 | | | $ | 0.59 | | Earnings from discontinued operations | $ | — | | | $ | 6.32 | | | $ | 1.18 | |
Earnings | Earnings | $ | 12.93 | | | $ | 7.40 | | | $ | 3.45 | | Earnings | $ | 4.03 | | | $ | 12.93 | | | $ | 7.40 | |
| Diluted EPS: | Diluted EPS: | | | | | | Diluted EPS: | | | | | |
Earnings from continuing operations | Earnings from continuing operations | $ | 6.58 | | | $ | 6.13 | | | $ | 2.84 | | Earnings from continuing operations | $ | 4.01 | | | $ | 6.58 | | | $ | 6.13 | |
Earnings from discontinued operations | Earnings from discontinued operations | $ | 6.30 | | | $ | 1.16 | | | $ | 0.58 | | Earnings from discontinued operations | $ | — | | | $ | 6.30 | | | $ | 1.16 | |
Earnings | Earnings | $ | 12.88 | | | $ | 7.29 | | | $ | 3.42 | | Earnings | $ | 4.01 | | | $ | 12.88 | | | $ | 7.29 | |
(1) Includes fully vested RSUs held in our Deferred Compensation Plan of 453 in 2021, 537 in 2020 and 617 in 2019 and 641 in 2018.2019. These fully vested RSUs are included in weighted-average common shares outstanding for basic EPS because there are no conditions under which the corresponding shares will not be issued.
(2) Due to market fluctuations of both Sempra Energy common stock and the comparative indices used to determine the vesting percentage of our total shareholder return performance-based RSUs, which we discuss in Note 10, dilutive RSUs may vary widely from period-to-period.
The potentially dilutive impact from stock options and RSUs is calculated under the treasury stock method. Under this method, proceeds based on the exercise price and unearned compensation are assumed to be used to repurchase shares on the open market at the average market price for the period, reducing the number of potential new shares to be issued and sometimes causing an antidilutive effect. The computation of diluted EPS for 2021, 2020 2019 and 20182019 excludes potentially dilutive shares related to stock options and RSUs of 211,155, 187,028 80,281 and 20,814,80,281, respectively, because to include them would be antidilutive for the period. However, these shares could potentially dilute basic EPS in the future.
The potentially dilutive impact from the forward sale of our common stock pursuant to the forward sale agreements that we discuss above is reflected in our diluted EPS calculation using the treasury stock method. We have fully settled all forward sale agreements and those shares are included in weighted-average common shares outstanding for basic EPS.
The potentially dilutive impact from our mandatory convertible preferred stock is calculated under the if-converted method.method until the mandatory conversion date. After the mandatory conversion date, the converted shares are included in weighted-average common shares outstanding for basic EPS. As we discuss in Note 13, we converted our series A preferred stock into common stock on January 15, 2021 and our series B preferred stock into common stock on July 15, 2021. The computation of diluted EPS for the years ended December 31, 2021, 2020 and 2019 excludes 2,272,117, 17,889,365 and 2018 excludes 17,889,365, 17,471,375 and 17,197,035 potentially dilutive shares related to our mandatory convertible preferred stock, respectively, because to include them would be antidilutive for those periods. However, these shares could potentially dilute basic EPS in the future. We discuss the 2018 issuances of our mandatory convertible preferred stock and conversion of the series A preferred stock to Sempra Energy common stock on January 15, 2021 in Note 13.
We are authorized to issue 750 million shares of 0no par value common stock. The following table provides common stock activity for the last three years.
| COMMON STOCK ACTIVITY | COMMON STOCK ACTIVITY | COMMON STOCK ACTIVITY |
| | | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Sempra: | | Sempra: | |
Common shares outstanding, January 1 | Common shares outstanding, January 1 | 291,712,925 | | | 273,769,513 | | | 251,358,977 | | Common shares outstanding, January 1 | 288,470,244 | | | 291,712,925 | | | 273,769,513 | |
Conversion of mandatory convertible preferred stock | | Conversion of mandatory convertible preferred stock | 18,037,745 | | | — | | | — | |
Shares issued in IEnova exchange offer | | Shares issued in IEnova exchange offer | 12,306,777 | | | — | | | — | |
Shares issued under forward sale agreements | Shares issued under forward sale agreements | 0 | | | 16,906,185 | | | 21,175,473 | | Shares issued under forward sale agreements | — | | | — | | | 16,906,185 | |
RSUs vesting(1) | RSUs vesting(1) | 896,839 | | | 463,012 | | | 509,042 | | RSUs vesting(1) | 686,916 | | | 896,839 | | | 463,012 | |
Stock options exercised | Stock options exercised | 4,400 | | | 52,540 | | | 138,861 | | Stock options exercised | 50,671 | | | 4,400 | | | 52,540 | |
Savings plan issuance | Savings plan issuance | 201,431 | | | 475,774 | | | 553,036 | | Savings plan issuance | — | | | 201,431 | | | 475,774 | |
Common stock investment plan(2) | Common stock investment plan(2) | 42,955 | | | 199,253 | | | 231,242 | | Common stock investment plan(2) | — | | | 42,955 | | | 199,253 | |
Issuance of RSUs held in our Deferred Compensation Plan | Issuance of RSUs held in our Deferred Compensation Plan | 103,552 | | | 59,470 | | | 3,357 | | Issuance of RSUs held in our Deferred Compensation Plan | 102,238 | | | 103,552 | | | 59,470 | |
Shares repurchased(3) | Shares repurchased(3) | (4,491,858) | | | (212,822) | | | (200,475) | | Shares repurchased(3) | (2,734,809) | | | (4,491,858) | | | (212,822) | |
Common shares outstanding, December 31 | Common shares outstanding, December 31 | 288,470,244 | | | 291,712,925 | | | 273,769,513 | | Common shares outstanding, December 31 | 316,919,782 | | | 288,470,244 | | | 291,712,925 | |
(1) Includes dividend equivalents.
(2) Participants in the Direct Stock Purchase Plan may reinvest dividends to purchase newly issued shares.
(3) In 2021 and 2020, includes shares repurchased under the repurchase programs that we discuss above. Generally, we purchase shares of our common stock or units from LTIP participants who elect to sell to us a sufficient number of vested RSUs to meet minimum statutory tax withholding requirements. In 2020, shares repurchased includes shares repurchased under the ASR program that we discuss above.
NOTE 15. SAN ONOFRE NUCLEAR GENERATING STATION
SDG&E has a 20% ownership interest in SONGS, a nuclear generating facility near San Clemente, California, which permanently ceased operations in June 2013 after an extended outage as a result of issues with the steam generators used in the facility. Edison, the majority owner and operator of SONGS, notified SDG&E that it had reached a decision to permanently retire SONGS and seek approval from the NRC to start the decommissioning activities for the entire facility. SONGS is subject to the jurisdiction of the NRC and the CPUC.
SDG&E, and each of the other owners, holds its undivided interest as a tenant in common in the property. Each owner is responsible for financing its share of costs. SDG&E’s share of operating expenses is included in Sempra Energy’sSempra’s and SDG&E’s Consolidated Statements of Operations.
SETTLEMENT AGREEMENT TO RESOLVE THE CPUC’S ORDER INSTITUTING INVESTIGATION INTO THE SONGS OUTAGE
In 2012, in response to the SONGS outage, the CPUC issued the SONGS OII, which was intended to determine the ultimate recovery of the investment in SONGS and the costs incurred since the commencement of the outage. In July 2018, the CPUC approved a settlement agreement and, in August 2018, SDG&E, Edison, Cal PA, TURN and other intervenors submitted a notice that they accepted the settlement agreement, which provided for various disallowances, refunds and rate recoveries.
In connection with the settlement agreement, and in exchange for the release of certain SONGS-related claims, in January 2018, SDG&E and Edison entered into a utility shareholder agreement, which became effective upon CPUC approval of the settlement agreement in July 2018, under which Edison has an obligation to compensate SDG&E for the revenue requirement amounts that SDG&E will no longer recover because of the settlement agreement. In exchange for Edison’s reimbursement, the parties mutually released each other from all claims that each party had or could have asserted related to the steam generator replacement failure and its aftermath. Edison’s payment obligation commenced in October 2018, and amounts are due to SDG&E quarterly thereafter until April 2022. At December 31, 2020, SDG&E has a receivable from Edison, including accrued interest, totaling $49 million, with $37 million classified as current and $12 million classified as noncurrent. This receivable reflects amounts Edison is
obligated to pay to SDG&E in lieu of amounts SDG&E would have collected from ratepayers associated with the SONGS regulatory asset.
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. Major decommissioning work began in 2020. We expect the majority of the decommissioning work to take approximately 10 years after receipt of all the required permits. The coastal development permit, the last permit required to be obtained, was issued in October 2019. The Samuel Lawrence Foundation filed a writ petition under the California Coastal Act in LA Superior Court in December 2019 seeking to invalidate this permit and to obtain injunctive relief to stop decommissioning work. In September 2020, the Samuel Lawrence Foundation filed another writ petition under the California Coastal Act in LA Superior Court seeking to set aside the CCC’s July 2020 approval of the inspection and maintenance plan for the SONGS’ canisters and to obtain injunctive relief to stop decommissioning work. Major decommissioning work began in 2020 and has not been interrupted by the writ petitions filed by the Samuel Lawrence Foundation.years. 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% of the total decommissioning costs.cost.
The Samuel Lawrence Foundation filed a writ petition under the California Coastal Act in LA Superior Court in December 2019 seeking to invalidate the coastal development permit and to obtain injunctive relief to stop decommissioning work. The petition was denied in September 2021. In December 2021, the foundation filed a notice of appeal. In September 2020, the foundation filed another writ petition under the California Coastal Act in LA Superior Court seeking to set aside the CCC’s July 2020 approval of the inspection and maintenance plan for the SONGS’ canisters and to obtain injunctive relief to stop decommissioning work. In December 2021, the foundation filed a request for dismissal. To date, decommissioning work has not been interrupted as a result of these writ petitions.
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 amountsAmounts that were 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 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. In December 2020,2021, SDG&E received authorization from the CPUC to access NDT funds of up to $89$78 million for forecasted 20212022 costs.
In September 2020, the IRS and the U.S. Department of the Treasury published final 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 final regulations adopted most of the provisions of the proposed regulations issued in December 2016. The final regulations apply to taxable years ending on or after September 4, 2020 and confirm that the definition of “nuclear decommissioning costs” includes amounts related to the storage of spent nuclear fuel at both on-site and off-site ISFSIs.
The final regulations also clarify that costs incurred for ISFSIs that may be or are expected to be reimbursed by the DOE may be paid or reimbursed from a qualified trust fund. Accordingly, the final regulations allow SDG&E the option to access qualified trust funds to recover spent fuel storage 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.
Nuclear Decommissioning TrustsF-130
Nuclear Decommissioning Trusts
The following table shows the fair values and gross unrealized gains and losses for the securities held in the NDT.NDT on the Sempra and SDG&E Consolidated Balance Sheets. We provide additional fair value disclosures for the NDT in Note 12.
| NUCLEAR DECOMMISSIONING TRUSTS | NUCLEAR DECOMMISSIONING TRUSTS | NUCLEAR DECOMMISSIONING TRUSTS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Cost | | Gross unrealized gains | | Gross unrealized losses | | Estimated fair value | | Cost | | Gross unrealized gains | | Gross unrealized losses | | Estimated fair value |
At December 31, 2020: | | | | | | | | |
At December 31, 2021: | | At December 31, 2021: | | | | | | | |
Debt securities: | Debt securities: | | | | | | | | Debt securities: | | | | | | | |
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies(1) | Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies(1) | $ | 64 | | | $ | 1 | | | $ | 0 | | | $ | 65 | | Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies(1) | $ | 56 | | | $ | — | | | $ | — | | | $ | 56 | |
Municipal bonds(2) | Municipal bonds(2) | 308 | | | 18 | | | 0 | | | 326 | | Municipal bonds(2) | 309 | | | 13 | | | (1) | | | 321 | |
Other securities(3) | Other securities(3) | 253 | | | 17 | | | 0 | | | 270 | | Other securities(3) | 255 | | | 7 | | | (2) | | | 260 | |
Total debt securities | Total debt securities | 625 | | | 36 | | | 0 | | | 661 | | Total debt securities | 620 | | | 20 | | | (3) | | | 637 | |
Equity securities | Equity securities | 112 | | | 254 | | | (2) | | | 364 | | Equity securities | 104 | | | 262 | | | (2) | | | 364 | |
Cash and cash equivalents | 3 | | | 0 | | | 0 | | | 3 | | |
Short-term investments, primarily cash equivalents | | Short-term investments, primarily cash equivalents | 3 | | | — | | | — | | | 3 | |
Receivables (payables), net | | Receivables (payables), net | 8 | | | — | | | — | | | 8 | |
Total | | Total | $ | 735 | | | $ | 282 | | | $ | (5) | | | $ | 1,012 | |
At December 31, 2020: | | At December 31, 2020: | | | | | | | |
Debt securities: | | Debt securities: | | | | | | | |
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | | Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | $ | 64 | | | $ | 1 | | | $ | — | | | $ | 65 | |
Municipal bonds | | Municipal bonds | 308 | | | 18 | | | — | | | 326 | |
Other securities | | Other securities | 253 | | | 17 | | | — | | | 270 | |
Total debt securities | | Total debt securities | 625 | | | 36 | | | — | | | 661 | |
Equity securities | | Equity securities | 112 | | | 254 | | | (2) | | | 364 | |
Short-term investments, primarily cash equivalents | | Short-term investments, primarily cash equivalents | 3 | | | — | | | — | | | 3 | |
Receivables (payables), net | Receivables (payables), net | (9) | | | 0 | | | 0 | | | (9) | | Receivables (payables), net | (9) | | | — | | | — | | | (9) | |
Total | Total | $ | 731 | | | $ | 290 | | | $ | (2) | | | $ | 1,019 | | Total | $ | 731 | | | $ | 290 | | | $ | (2) | | | $ | 1,019 | |
At December 31, 2019: | At December 31, 2019: | | | | | | | | At December 31, 2019: | |
Debt securities: | Debt securities: | | | | | | | | Debt securities: | |
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | $ | 57 | | | $ | 0 | | | $ | 0 | | | $ | 57 | | Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | $ | 57 | | | $ | — | | | $ | — | | | $ | 57 | |
Municipal bonds | Municipal bonds | 270 | | | 12 | | | 0 | | | 282 | | Municipal bonds | 270 | | | 12 | | | — | | | 282 | |
Other securities | Other securities | 218 | | | 9 | | | (1) | | | 226 | | Other securities | 218 | | | 9 | | | (1) | | | 226 | |
Total debt securities | Total debt securities | 545 | | | 21 | | | (1) | | | 565 | | Total debt securities | 545 | | | 21 | | | (1) | | | 565 | |
Equity securities | Equity securities | 176 | | | 339 | | | (6) | | | 509 | | Equity securities | 176 | | | 339 | | | (6) | | | 509 | |
Cash and cash equivalents | 16 | | | 0 | | | 0 | | | 16 | | |
Short-term investments, primarily cash equivalents | | Short-term investments, primarily cash equivalents | 16 | | | — | | | — | | | 16 | |
Receivables (payables), net | Receivables (payables), net | (8) | | | 0 | | | 0 | | | (8) | | Receivables (payables), net | (8) | | | — | | | — | | | (8) | |
Total | Total | $ | 729 | | | $ | 360 | | | $ | (7) | | | $ | 1,082 | | Total | $ | 729 | | | $ | 360 | | | $ | (7) | | | $ | 1,082 | |
(1) Maturity dates are 2022-2051.2022-2052.
(2) Maturity dates are 2021-2056.2022-2056.
(3) Maturity dates are 2021-2072.2022-2072.
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 | |
SALES OF SECURITIES IN THE NUCLEAR DECOMMISSIONING TRUSTS | | SALES OF SECURITIES IN THE NUCLEAR DECOMMISSIONING TRUSTS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Proceeds from sales | Proceeds from sales | $ | 1,439 | | | $ | 914 | | | $ | 890 | | Proceeds from sales | $ | 961 | | | $ | 1,439 | | | $ | 914 | |
Gross realized gains | Gross realized gains | 156 | | | 24 | | | 42 | | Gross realized gains | 67 | | | 156 | | | 24 | |
Gross realized losses | Gross realized losses | (17) | | | (5) | | | (10) | | Gross realized losses | (5) | | | (17) | | | (5) | |
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’sSempra’s and SDG&E’s 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
The present value of SDG&E’s ARO related to decommissioning costs for theall three SONGS units was $579$568 million at December 31, 2020. That amount includes the cost to decommission Units 22021 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 pending2020, which will be submitted to the CPUC approval.in the first half of 2022. 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 2020 dollars is approximately $860 million. We expect SDG&E’s undiscounted SONGS decommissioning payments to be $110 million in 2021, $83$79 million in 2022, $63$66 million in 2023, $45$77 million in 2024, $44$46 million in 2025, $52 million in 2026, and $697$718 million thereafter.
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. In October 2015, the CCC approved Edison’s application to expand the ISFSI. 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 and was completed in August 2020. 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. In November 2019, Edison filed a claim for spent fuel management costs in the U.S. Court of Federal Claims for the time period from January 2017 through July 2018.2018, which is pending DOE approval. It is unclear when Edison will pursue litigation claims for spent fuel management costs incurred on or after August 1, 2018. 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.
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.
As a result of updated coverage assessments, theThe SONGS owners have nuclear property damage insurance of $130 million, which exceeds the minimum federal requirements of $50 million. This insurance coverage is provided through NEIL. The NEIL policies have specific exclusions and limitations that can result in reduced 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 $3.5$4.3 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.
NOTE 16. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
We accrue losses for a legal proceeding when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. However, the uncertainties inherent in legal proceedings make it difficult to reasonably estimate the costs and effects of resolving these matters. Accordingly, actual costs incurred may differ materially from amounts accrued, may exceed, and in some cases have exceeded, applicable insurance coverage and could materially adversely affect our business, cash flows, results of operations, financial condition, andcash flows and/or prospects. Unless otherwise indicated, we are unable to reasonably estimate reasonably possible losses or a range of losses in excess of any amounts accrued.
At December 31, 2020,2021, loss contingency accruals for legal matters, including associated legal fees and regulatory matters related to the Leak, that are probable and estimable were $616$2,086 million for Sempra, Energy Consolidatedincluding $4 million for SDG&E and $471$2,006 million for SoCalGas. Amounts for Sempra Energy Consolidated and SoCalGas include $445$1,980 million for matters related to the Leak, which we discuss below. We discuss our policy regarding accrual of legal fees in Note 1.
SoCalGas
Aliso Canyon Natural Gas Storage Facility Gas Leak
From October 23, 2015 through February 11, 2016, SoCalGas experienced a natural gas leak from one of the injection-and-withdrawal wells, SS25, at its Aliso Canyon natural gas storage facility in Los Angeles County. As described below, in “Civil and Criminal Litigation” and “Regulatory Proceedings,” numerous lawsuits, investigations and regulatory proceedings have been
initiated in response to the Leak, resulting in significant costs, which together with other Leak-related costs are discussed below in “Cost Estimates, Accounting Impact and Insurance.”
Civil and Criminal Litigation.Litigation – Litigation Subject to Agreements to Resolve. As of February 22, 2021, 39518, 2022, approximately 390 lawsuits, including approximately 36,000 plaintiffs are(the Individual Plaintiffs) were pending against SoCalGas and Sempra related to the Leak, some of which have also named Sempra Energy.Leak. All these cases other than a matter brought by the Los Angeles County District Attorney and the federal securities class action discussed below, are coordinated before a single court in the LA Superior Court for pretrial management.
In November 2017, in the coordinated proceeding, individuals and business entities filed a Third Amended Consolidated Master Case Complaint for Individual Actions was filed on behalf of the Individual Plaintiffs, through which their separate lawsuits will beare managed for pretrial purposes. The consolidated complaint asserts causes of action for negligence, negligence per se, private and public nuisance (continuing and permanent), trespass, inverse condemnation, strict liability, negligent and intentional infliction of emotional distress, fraudulent concealment, loss of consortium, wrongful death and violations of Proposition 65 against SoCalGas and Sempra Energy.(excluding the Proposition 65 claims, the Individual Plaintiff Litigation). The consolidated complaint seeks compensatory and punitive damages for personal injuries, lost wages and/or lost profits, property damage and diminution in property value, injunctive relief, costs of future medical monitoring, civil penalties, (including penalties associated with Proposition 65 claims alleging violationand attorneys’ fees.
In October 2018 and January 2019, complaints were filed on behalf of requirements51 firefighters stationed near the Aliso Canyon natural gas storage facility who allege they were injured by exposure to chemicals released during the Leak. The complaints against SoCalGas and Sempra assert causes of actions for warning about certain chemical exposures)negligence, negligence per se, private and public nuisance (continuing and permanent), trespass, inverse condemnation, strict liability, negligent and intentional infliction of emotional distress, fraudulent concealment and loss of consortium. The complaints seek compensatory and punitive damages for personal injuries, lost wages and/or lost profits, property damage and diminution in property value, and attorneys’ fees. The initial trial previously scheduled for June 2020These complaints are included in the coordinated proceeding and the Individual Plaintiff Litigation.
On September 26, 2021, SoCalGas and Sempra entered into an agreement with counsel representing over 80% of the plaintiffs in the Individual Plaintiff Litigation to resolve the claims of all Individual Plaintiffs for a smallpayment of up to $1.8 billion. The agreement is subject to acceptance by no fewer than roughly 97% of all plaintiffs in the Individual Plaintiff Litigation by June 1, 2022, although SoCalGas and Sempra have the right to waive such condition. The agreement, which requires each plaintiff who accepts a settlement to release all such plaintiff’s claims against SoCalGas, Sempra and their respective affiliates related to the Individual Plaintiff Litigation and the Leak, provides that the settlement amount will be reduced based on the number of randomly selected individual plaintiffs was postponed, with a new trial date yetwho do not accept. The LA Superior Court has approved the process to allocate payments among the plaintiffs. The plaintiffs who do not agree to participate in the settlement will be determined byable to continue to pursue their claims. Pursuant to the court.agreement, the Individual Plaintiff Litigation has been stayed.
In January 2017, 2 consolidated class action complaints were filed against SoCalGas and Sempra, Energy, 1 on behalf of a putative class of persons and businesses who own or lease real property within a five-mile radius of the well (the Property Class Action), and a second on behalf of a putative class of all persons and entities conducting business within five miles of the facility (the Business Class Action). The Property Class Action asserts claims for strict liability for ultra-hazardous activities, negligence, negligence per se, violation of the California Unfair Competition Law, trespass, permanent and continuing public and private nuisance, and inverse condemnation. The Business Class Action asserts a claim for violation of the California Unfair Competition Law. Both complaints seek compensatory, statutory and punitive damages, injunctive relief and attorneys’ fees.
ThreeOn September 26, 2021, SoCalGas and Sempra entered into an agreement to settle the Property Class Action for a total amount of $40 million. If, following a fairness hearing at which any objections to the settlement will be heard, the LA Superior Court gives final approval of the settlement, the agreement provides for a release of SoCalGas, Sempra and their respective affiliates from all claims related to the Leak by all property class members who do not opt out of the class. Members of the property class who opt out of the settlement will have the right to pursue their claims on an individual basis.
On September 27, 2021, SoCalGas and Sempra entered into an agreement to settle the individual claims of the named plaintiffs in the Business Class Action for a total amount of $100,000 in exchange for a dismissal and release of SoCalGas, Sempra and their respective affiliates from all claims related to the Leak. The complaint was dismissed in January 2022.
The Third Amended Consolidated Master Case Complaint for Individual Actions includes claims for violation of Proposition 65 seeking penalties for alleged violation of requirements to warn about certain chemical exposures as a result of the Leak. On November 4, 2021, SoCalGas entered into an agreement to settle these claims for a payment of approximately $2 million; in addition, SoCalGas agreed to implement certain measures to reduce emissions at the Aliso Canyon natural gas storage facility and to provide warnings to residents if benzene measured at the facility’s fence line exceeds certain levels. In January 2022, the LA Superior Court entered a consent judgment resolving the Proposition 65 claims.
In October 2018 and October 2020, five property developers (the Developer Plaintiffs) filed complaints in July and October of 2018 against SoCalGas and Sempra Energy alleging causes of action for strict liability, negligence per se, negligence, negligent interference, continuing nuisance, permanent nuisance, inverse condemnation and violation of the California Unfair Competition Law and California Public Utilities Code section 2106, as well as claims for negligence against certain directors of SoCalGas. The complaints seek compensatory, statutory and punitive damages, injunctive relief and attorneys’ fees.
In October 2018 and2021, the claims against the individual SoCalGas directors were dismissed. In January 2019, complaints were filed on behalf of 51 firefighters stationed near the Aliso Canyon natural gas storage facility who allege they were injured by exposure to chemicals released during the Leak. The complaints against2022, SoCalGas and Sempra Energy assert causesentered into an agreement to settle the claims of actions for negligence, negligence per se, private and public nuisance (continuing and permanent), trespass, inverse condemnation, strict liability, negligent and intentional infliction of emotional distress, fraudulent concealment and loss of consortium. The complaints seek compensatory and punitive damages for personal injuries, lost wages and/or lost profits, property damage and diminution in property value, and attorney’s fees.
NaN shareholder derivative actions were filed alleging breach of fiduciary duties against certain officers and certain directors of Sempra Energy and/or SoCalGas. NaNone of the actions were joinedDeveloper Plaintiffs, and its complaint was dismissed.
An adverse ruling in an Amended Consolidated Shareholder Derivative Complaint, which was dismissed with prejudiceany of the lawsuits in January 2021. The remaining action was also dismissed butthe Individual Plaintiff Litigation filed by plaintiffs were given leavewho do not agree to amend their complaint.settle, any lawsuits filed by property class members who opt out of the Property Class Action settlement or by members of the putative Business Class Action could have a material adverse effect on SoCalGas’ and Sempra’s results of operations, financial condition, cash flows and/or prospects. In addition, there can be no assurance that the conditions to resolve the Individual Plaintiff Litigation will be satisfied or that the LA Superior Court will approve the settlement for the Property Class Action.
In addition, a federal securities class action alleging violation of the federal securities laws was filed against Sempra Energy and certain of its officers in July 2017 in the U.S. District Court for the Southern District of California. In March 2018, the court dismissed the action with prejudice.prejudice, and in February 2021, the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal. The time for appeal has passed and, as a result, this represents the final judgment in this proceeding.
Civil Litigation – Unresolved Litigation. The claims of four of the Developer Plaintiffs remain pending, and the LA Superior Court has scheduled a trial in October 2022. SoCalGas has engaged in settlement discussions with the Developer Plaintiffs.
NaN shareholder derivative actions were filed alleging breach of fiduciary duties against certain officers and certain directors of Sempra and/or SoCalGas. NaN of the actions were joined in an Amended Consolidated Shareholder Derivative Complaint, which was dismissed with prejudice in January 2021. The plaintiffs have appealed the dismissal.
In February 2019, the LA Superior Court approved a settlement between SoCalGas and the Los Angeles City Attorney’s Office, the County of Los Angeles, the California Office of the Attorney General and CARB of three actions filed by these entities under which SoCalGas made payments and agreed The remaining action was also dismissed but plaintiffs were given leave to provide funding for environmental projects totaling $120 million, including $21 million in civil penalties, as well as other safety-related commitments.
In September 2016, SoCalGas settled a misdemeanor criminal complaint filed in February 2016 by the Los Angeles County District Attorney’s Office against SoCalGas, pleading no contest to a charge that it failed to provide timely notice of the Leak pursuant to California Health and Safety Code section 25510(a), Los Angeles County Code section 12.56.030, and Title 19 California Code of Regulations section 2703(a). In November 2016, the LA Superior Court approved the settlement and entered judgment on the notice charge. Under the settlement, SoCalGas paid a $75,000 fine, $233,500 in penalties, and $246,673 to reimburse costs incurred by Los Angeles County Fire Department’s Health and Hazardous Materials Division, as well as completed operational commitments estimated to cost approximately $6 million. Certain individuals who objected to the settlement petitioned the Court of Appeal to vacate the judgment, contending they should be granted restitution. In July 2019, the
Court of Appeal denied the petition in part, but remanded the matter to the trial court to give the petitioners an opportunity to prove damages stemming from only the three-day delay in reporting the Leak. Following the hearing, the trial court denied restitution. In December 2020, the California Supreme Court denied review of the ruling.amend their complaint.
Regulatory Proceedings. In January 2016, CalGEM and the CPUC directed an independent analysis of the technical root cause of the Leak to be conducted by Blade. In May 2019, Blade released its report, which concluded that the Leak was caused by a failure of the production casing of the well due to corrosion and that attempts to stop the Leak were not effectively conducted, but did not identify any instances of non-compliance by SoCalGas. Blade concluded that SoCalGas’ compliance activities conducted prior to the Leak did not find indications of a casing integrity issue. Blade opined, however, that there were measures, none of which were required by gas storage regulations at the time, that could have been taken to aid in the early identification of corrosion and that, in Blade’s opinion, would have prevented or mitigated the Leak. The report also identified well safety practices and regulations that have since been adopted by CalGEM and implemented by SoCalGas, which address most of the root cause of the Leak identified during Blade’s investigation.SoCalGas.
In June 2019, the CPUC opened an OII to consider penalties against SoCalGas for the Leak, which it later bifurcated into two phases. The first phase will consider whether SoCalGas violated California Public Utilities Code Section 451 or other laws, CPUC orders or decisions, rules or requirements, whether SoCalGas engaged in unreasonable and/or imprudent practices with respect to its operation and maintenance of the Aliso Canyon natural gas storage facility or its related record-keeping practices, whether SoCalGas cooperated sufficiently with the SED of the CPUC and Blade during the pre-formal investigation, and whether any of the mitigation measures proposed by Blade should be implemented to the extent not already done. In November 2019, theThe SED, based largely on the Blade report, has alleged a total of 330324 violations in the first phase, asserting that SoCalGas violated California Public Utilities Code Section 451 and failed to cooperate in the investigation and to keep proper records. Hearings on a subset of issues are scheduled to beginbegan in March 2021. The second phase will consider whether SoCalGas should be sanctioned for the Leak and what damages, fines or other penalties, or sanctions, if any, should be imposed for any violations, unreasonable or imprudent practices, or failure to cooperate sufficiently cooperate with the SED as determined by the CPUC in the first phase. In addition, the second phase will determine the amounts of various costs incurred by SoCalGas and other parties in connection with the Leak and the ratemaking treatment or other
disposition of such costs, which could result in little or no recovery of such costs by SoCalGas. SoCalGas has engaged in settlement discussions with the SED in connection with this proceeding.
In February 2017, the CPUC opened a proceeding pursuant to the SB 380 OII to determine the feasibility of minimizing or eliminating the use of the Aliso Canyon natural gas storage facility while still maintaining energy and electric reliability for the region, but excluding issues with respect to air quality, public health, causation, culpability or cost responsibility regarding the Leak. The CPUC issued a decision on the interim range of gas inventory levels at the Aliso Canyon natural gas storage facility in November 2020 with a final determination to be made within the SB 380 OII proceeding. The first phase of the proceeding established a framework for the hydraulic, production cost and economic modeling assumptions for the potential reduction in usage or elimination of the Aliso Canyon natural gas storage facility. Phase 2 of the proceeding, which will evaluateis evaluating the impacts of reducing or eliminating the Aliso Canyon natural gas storage facility using the established framework and models, began in the first quarter of 2019. In December 2019, the CPUC added a third phase of the proceeding and engaged a consultant to considerwho is analyzing alternative means for meeting or avoiding the demand for the facility’s services if it were eliminated in either the 2027 or 2045 timeframe, which is currently underway.2035 timeframe. In July 2021, the CPUC combined Phase 2 and Phase 3 and modified the scope of Phase 3 to also address potential implementation of alternatives to the Aliso Canyon natural gas storage facility if the CPUC determines that the Aliso Canyon natural gas storage facility should be permanently closed. The CPUC also added all California IOUs as parties to the proceeding and encouraged all load serving entities in the Los Angeles Basin to join the proceeding.
In November 2020, the CPUC issued a decision on the interim range of gas inventory levels at the Aliso Canyon natural gas storage facility, setting the interim range between 0 Bcf and 34 Bcf. In November 2021, the CPUC issued a decision approving a new interim range of gas inventory levels of up to 41.16 Bcf. The CPUC may issue future changes to this interim range of authorized gas inventory levels before issuing a final inventory determination within the SB 380 OII proceeding.
At December 31, 2021, the Aliso Canyon natural gas storage facility had a net book value of $883 million. If the Aliso Canyon natural gas storage facility were to be permanently closed or if future cash flows from its operation were otherwise insufficient to recover its carrying value, it could result inwe may record an impairment of the facility, and significantlyincur higher than expected operating costs and/or be required to make additional capital expenditures (any or all of which may not be recoverable in rates), and natural gas reliability and electric generation could be jeopardized. At December 31, 2020, the Aliso Canyon natural gas storage facility had a net book value of $821 million. Any significant impairment of this asset, or higher operating costs and additional capital expenditures incurred by SoCalGas that may not be recoverable in customer rates,such outcome could have a material adverse effect on SoCalGas’ and Sempra Energy’sSempra’s results of operations, financial condition, and cash flows.flows and/or prospects.
Cost Estimates,Estimate, Accounting Impact and Insurance. SoCalGas has incurred significant costs related to the Leak, primarily for temporary relocation of community residents; to control the well and stop the Leak; to mitigate the natural gas released; to purchase natural gas to replace what was lost through the Leak; to defend against and, in certain cases, settle, civil and criminal litigation arising from the Leak; to pay the costs of the government-ordered response to the Leak, including the costs for Blade to conduct the root cause analysis described above; to respond to various government and agency investigations regarding the Leak; and to comply with increased regulation imposed as a result of the Leak. At December 31, 2020,2021, SoCalGas estimates itsthese costs related to the Leak are $1,627$3,221 million (the cost estimate), which includes $1,279 million of costs recovered or probable of recovery from insurance. This cost estimate may increase significantly as more information becomes available. A substantial portion of the cost estimate has been paid, and $451$1,983 million is accrued as Reserve for Aliso Canyon Costs as ofat December 31, 20202021 on SoCalGas’ and Sempra Energy’sSempra’s Consolidated Balance Sheets.
In 2020, SoCalGas recorded $484 million in costs, inclusive of estimated legal costs, related to settlement discussions in connection with civil litigation and regulatory matters described above in “Civil and Criminal Litigation” and “Regulatory Proceedings.”above. Of this amount, $177 million was recorded in Insurance Receivable for Aliso Canyon Costs on the SoCalGas and Sempra Energy Consolidated Balance Sheets and $307 million ($233 million after tax) was recorded in Aliso Canyon Litigation and Regulatory Matters on the SoCalGas and Sempra EnergyConsolidated Statements of Operations.
As a result of entering into the agreements described under “Civil Litigation – Litigation Subject to Agreements to Resolve” above, and other continuing settlement negotiations, SoCalGas recorded total charges of $1.59 billion ($1.15 billion after tax) in 2021 in Aliso Canyon Litigation and Regulatory Matters on the SoCalGas and Sempra Consolidated Statements of Operations. These accruals are includedSempra elected to make an $800 million equity contribution to SoCalGas in September 2021 and may elect to make additional equity contributions in the cost estimatefuture that we describe above.are intended to maintain SoCalGas’ approved capital structure in connection with these accruals.
Except for the amounts paid or estimated to settle certain actions,legal and regulatory matters as described in “Civil and Criminal Litigation” and “Regulatory Proceedings” above, the cost estimate does not include litigation, regulatory proceedings(i) any amounts necessary to resolve claims of Individual Plaintiffs who do not agree to participate in the settlement of the Individual Actions or regulatory costsmembers of the Property Class Action who opt out of that settlement or (ii) the matters that we describe above in “Civil Litigation – Unresolved Litigation” and “Regulatory Proceedings” to the extent it is not possible to predict at this time the outcome of these actions or reasonably estimate the possible costs to defend or resolve the actions or the amounta range of possible costs for damages, restitution, civil or civil, administrative fines or criminal fines, sanctions, penalties, defense, settlement or other costs or remedies that may be imposed or incurred. The cost estimate also does not include certain other costs incurred by Sempra Energy associated with defending against shareholder derivative
lawsuits and other potential costs that we currently do not anticipate incurring or that we cannot reasonably estimate. Further, we are not able to reasonably estimate the possible loss or a range of possible losses in excess of the amounts accrued. These costs or losses not included in the cost estimate could be significant and could have a material adverse effect on SoCalGas’ and Sempra Energy’sSempra’s results of operations, financial condition, cash flows financial condition and results of operations.and/or prospects.
We have received insurance payments for many of the categories of costs included in the cost estimate, including temporary relocation and associated processing costs, control-of-well expenses, costs of the government-ordered response to the Leak, certain legal costs and lost gas. As ofAt December 31, 2020,2021, we recorded the expected recovery of the cost estimate related to the Leak of $445$360 million as Insurance Receivable for Aliso Canyon Costs on SoCalGas’ and Sempra Energy’sSempra’s Consolidated Balance Sheets. This amount is exclusive of insurance retentions and $834$919 million of insurance proceeds we received through December 31, 2020.2021. We intend to pursue the full extent of our insurance coverage for the costs we have incurred. Other than insurance for certain future defense costs we may incur as well as directors’ and officers’ liability, we have exhausted all of our insurance in this matter. We continue to pursue other sources of insurance coverage for costs related to this matter, but we may not be successful in obtaining additional insurance recovery for any of these costs. If we are not able to secure additional insurance recovery, if any costs we have recorded as an insurance receivable are not collected, if there are delays in receiving insurance recoveries, or if the insurance recoveries are subject to income taxes while the associated costs are not tax deductible, such amounts, which could be significant, could have a material adverse effect on SoCalGas’ and Sempra Energy’sSempra’s results of operations, financial condition, cash flows financial condition and results of operations.and/or prospects.
Sempra MexicoInfrastructure
Energía Costa Azul
IEnovaWe describe below certain land and customer disputes and permit challenges affecting our ECA Regas Facility and our proposed ECA LNG liquefaction projects. One or more unfavorable final decisions on these disputes or challenges could materially adversely affect our existing natural gas regasification operations and proposed natural gas liquefaction projects at the site of the ECA Regas Facility and have a material adverse effect on Sempra’s business, results of operations, financial condition, cash flows and/or prospects.
Land Disputes. Sempra Infrastructure has been engaged in a long-running land dispute relating to property adjacent to its ECA Regas Facility that allegedly overlaps with land owned by the ECA Regas Facility (the facility, however, is not situated on the land that is the subject of this dispute). , as follows:
▪A claimant to the adjacent property filed complaints in the federal Agrarian Court challenging the refusal of SEDATU in 2006 to issue title to him for the disputed property. In November 2013, the federal Agrarian Court ordered that SEDATU issue the requested title to the claimant and cause it to be registered. Both SEDATU and IEnovaSempra Infrastructure challenged the ruling due to lack of notification of the underlying process. In May 2019, a federal court in Mexico reversed the ruling and ordered a retrial.retrial, which is pending resolution.
NaN other▪In a separate proceeding, the claimant filed suit to reinitiate an administrative procedure at SEDATU to obtain the property title that was previously dismissed. In April 2021, the Agrarian Court ordered that the administrative procedure be restarted.
In addition, four cases involving two adjacent areas of real property on which part of the ECA Regas Facility is situated, each brought by a single plaintiff or her descendants, remain pending against the facility. facility, as follows:
▪The first disputed area is subject to a claim in the federal Agrarian Court that has been ongoing since 2006, in which the plaintiffs seekplaintiff seeks to annul the property title for a portion of the land on which the ECA Regas Facility is situated and to obtain possession of a different parcel that allegedly overlaps with the site of the ECA Regas Facility. The proceeding, which seeks an order that SEDATU annul the ECA Regas Facility’s competing property title, was initiated in 2006 and, in July 2021, a decision was issued in favor of the ECA Regas Facility. The plaintiff appealed, and in February 2022, the appellate court confirmed the ruling in favor the ECA Regas Facility and dismissed the appeal.
▪The second disputed area is one parcel adjacent to the ECA Regas Facility that allegedly overlaps with land on which the ECA Regas Facility is situated, which is subject to a claim in the federal Agrarian Court and two claims in Mexican civil courts. The ECA Regas Facility first bought the property from the federal government in 2003; however, to resolve an ownership controversy, in 2008, the ECA Regas Facility reached a financial settlement with the plaintiff to eliminate an adverse claim to our title. Nevertheless, the plaintiff sued in 2013 for the nullity of both titles. The Agrarian Court proceeding,ruled in favor of the plaintiff in May 2021, nullifying the first property title. Sempra Infrastructure appealed the ruling in July 2021, which seeks an order that SEDATU issueis pending resolution. The ECA Regas Facility continues to hold the second property title to the plaintiff, was initiated in 2013 and the parties are awaiting a final decision.land. The two civil court proceedings, which seek to invalidate the contract by which the ECA Regas Facility purchased for the second time the applicable parcel of land on which the ECA Regas Facility is situated on the grounds that the purchase price was allegedly unfair, are progressing at different stages. In the first civil case, initiated in 2013, a lowerthe court ruled in favor of the ECA Regas Facility, and the ruling has been appealed byfinal decision was affirmed on a federal appeal. The descendants of the plaintiff. The same plaintiff filed the second civil case in 2019, which was dismissed by the court. However, the dismissal has been appealed, which is in its initial stages.pending the appellate court’s ruling.
Certain of these land disputes involve land on which portions of the ECA LNG liquefaction facilities, including ECA LNG Phase 1 currently under construction, are proposed to be situated or on which portions of the ECA Regas Facility that would be necessary for the operation of the proposed ECA LNG liquefaction facilities are situated.
Environmental and Social Impact Permits. Several administrative challenges are pending before Mexico’s Secretariat of Environment and Natural Resources (the Mexican environmental protection agency) and Federal Tax and Administrative Courts, seeking revocation of the environmental impact
authorization issued to the ECA Regas Facility in 2003. These cases generally allege that the conditions and mitigation measures in the environmental impact authorization are inadequate and challenge findings that the activities of the terminal are consistent with regional development guidelines.
In 2018 2and 2021, three related claimants filed separate challenges in the federal district court in Ensenada, Baja California in relation to the environmental and social impact permits issued by each of Agencia de Seguridad, Energía y Ambiente (ASEA)ASEA and SENER to ECA LNG authorizing natural gas liquefaction activities at the ECA Regas Facility. Facility, as follows:
▪In the first case, the court issued a provisional injunction in September 2018. In December 2018, ASEA approved modifications to the environmental permit that facilitate the development of the proposed natural gas liquefaction facility in two phases. In May 2019, the court canceled the provisional injunction. The claimant appealed the court’s decision canceling the injunction, but was not successful. The claimant’s underlying challenge to the permits remains pending.
▪In the second case, the initial request for a provisional injunction was denied. That decision was reversed on appeal in January 2020, resulting in the issuance of a new injunction against the same environmental and social impact permits that were already issued by ASEA and SENER. This injunction has uncertain application absent clarification by the court. The reversal and issuanceclaimants petitioned the court to rule that construction of natural gas liquefaction facilities violated the injunction, and in February 2022, the second case is under further appeal.
In September 2020, parties claiming a property interestcourt ruled in the land on whichfavor of the ECA Regas Facility, is situatedmeaning that the natural gas liquefaction activities have not been affected. The claimants may appeal this ruling.
▪In the third case, a group of residents filed a complaint in June 2021 against various federal and state authorities alleging deficiencies in the public consultation process for the issuance of the permits. The request for an initial injunction was denied and the proposed ECA LNG liquefaction facilities are anticipated to be situated filed an administrative proceeding withclaimants have appealed, which is pending the Municipality of Ensenada against the permit for the construction of the proposed liquefaction export projects at the ECA Regas Facility. The ECA Regas Facility and ECA LNG contested the validity of the claim and the Municipality of Ensenada has confirmed the validity of the construction permit and closed the proceeding.appellate court’s ruling.
Customer Dispute.In May 2020, the two third-party capacity customers at the ECA Regas Facility, Shell Mexico and Gazprom, asserted that a 2019 update of the general terms and conditions for service at the facility, as approved by the CRE, resulted in a breach of contract by IEnovaSempra Infrastructure and a force majeure event. Citing these circumstances, the customers subsequently stopped making payments of amounts due under their respective LNG storage and regasification agreements. IEnovaSempra Infrastructure has rejected the customers’ assertions and has drawn (and expects to continue to draw) on the customers’ letters of credit provided as payment security. The parties engaged in discussions under the applicable contractual dispute resolution procedures without coming to a mutually acceptable resolution. In July 2020, Shell Mexico submitted a request for arbitration of the dispute and although Gazprom has joined the proceeding, Gazprom has since replenished the amounts drawn on its letter of credit and has resumed making regular monthly payments under its LNG storage and regasification agreement. IEnovaAs a consequence, Sempra Infrastructure is not currently drawing on Gazprom’s letter of credit but expects to continue to draw on Shell Mexico’s letter of credit. Sempra Infrastructure intends to avail itself of its available claims, defenses, rights and remedies in the arbitration proceeding, including seeking dismissal of the customers’ claims. In addition to the arbitration proceeding, Shell Mexico also filed a constitutional challenge to the CRE’s approval of the update to the general terms and conditions. In October 2020,conditions and an additional constitutional claim against the issuance of the liquefaction permit. Shell Mexico’s request to stay the CRE’s approval of the general terms and conditions was denied and subsequently, Shell Mexico filed an appeal of that decision.
One or more unfavorable final decisionsupheld on these disputes or challenges could materiallyappeal. The claim regarding the liquefaction permit issuance was denied and adversely affect our existing natural gas regasification operations and proposed natural gas liquefaction projects atis currently on appeal. A hearing on the sitemerits of the ECA Regas Facility.arbitration case was held in October 2021.
Sonora Pipeline
IEnova’sGuaymas-El Oro Segment. Sempra Infrastructure’s Sonora natural gas pipeline consists of two segments, the Sasabe-Puerto Libertad-Guaymas segment and the Guaymas-El Oro segment. Each segment has its own service agreement with the CFE. In 2015, the Yaqui tribe, with the exception of some members living in the Bácum community, granted its consent and a right-of-way easement agreement for the construction of the Guaymas-El Oro segment of the Sonora natural gas pipeline that crosses its territory. Representatives of the Bácum community filed a legal challenge in Mexican federal court demanding the right to withhold consent for the project, the stoppage of work in the Yaqui territory and damages. In 2016, the judge granted a suspension order that prohibited the construction of such segment through the Bácum community territory. Because the pipeline does not pass through the Bácum community, IEnovaSempra Infrastructure did not believe the 2016 suspension order prohibited construction in the remainder of the Yaqui territory. Construction of the Guaymas-El Oro segment was completed, and commercial operations began in May 2017.
Following the start of commercial operations of the Guaymas-El Oro segment, IEnovaSempra Infrastructure reported damage to the Guaymas-El Oro segment of the Sonora pipeline in the Yaqui territory that has made that section inoperable since August 2017 and, as a result, IEnovaSempra Infrastructure declared a force majeure event. In 2017, an appellate court ruled that the scope of the 2016 suspension order encompassed the wider Yaqui territory, which has prevented IEnovaSempra Infrastructure from making repairs to put the pipeline back in service. In July 2019, a federal district court ruled in favor of IEnovaSempra Infrastructure and held that the Yaqui tribe was properly consulted and that consent from the Yaqui tribe was properly received. Representatives of the Bácum community appealed this decision, causing the suspension order preventing IEnovaSempra Infrastructure from repairing the damage to the Guaymas-El Oro segment of the Sonora pipeline in the Yaqui territory to remain in place until the appeals process is exhausted. In December 2021, the court of appeals referred the matter to Mexico’s Supreme Court.
IEnovaSempra Infrastructure exercised its rights under the contract, which included seeking force majeure payments for the two-year period such force majeure payments were required to be made, which ended in August 2019.
In July 2019, the CFE filed a request for arbitration generally to nullify certain contract terms that provide for fixed capacity payments in instances of force majeure and made a demand for substantial damages in connection with the force majeure event. In September 2019, the arbitration process ended when IEnovaSempra Infrastructure and the CFE reached an agreement to restart natural gas transportation service on the earlier of completion of repair of the damaged pipeline or January 15, 2020, and to modify the tariff structure and extend the term of the contract by 10 years. Subsequently, IEnovaSempra Infrastructure and the CFE agreed to extend the service start date to May 15, 2020 and then again to September 15, 2020. In the third quarter of 2020, the parties agreed to further extend the service start datemultiple times, most recently to March 14, 2021.2022. Under the revised agreement, the CFE will resume making payments only when the damaged section of the Guaymas-El Oro segment of the Sonora pipeline is repaired. If the pipeline is not repaired by March 14, 20212022, and the parties do not agree on a new service start date, IEnovaSempra Infrastructure retains the right to terminate the contract and seek to recover its reasonable and documented costs and lost profits. Discussions with the CFE regarding the future of the pipeline, including the potential re-routing of a portion of the pipeline, are underway in accordance with a non-binding MOU announced in January 2022 that, among other matters, addresses efforts to restart service on the pipeline. Sempra Infrastructure intends to enter into a definitive agreement with respect to the pipeline in the first quarter of 2022.
If IEnovaAt December 31, 2021, Sempra Infrastructure had $432 million in PP&E, net, related to the Guaymas-El Oro segment of the Sonora pipeline, which could be subject to impairment if Sempra Infrastructure is unable to make such repairs (which have not commenced) or re-route a portion of the pipeline (which has not been agreed to by the parties, but is subject to negotiation pursuant to a non-binding MOU, as described above) and resume operations in the Guaymas-El Oro segment of the Sonora pipeline within this time frame or if IEnovaSempra Infrastructure terminates the contract and is unable to obtain recovery, there may bewhich in each case could have a material adverse impacteffect on Sempra Energy’sSempra’s business, results of operations, andfinancial condition, cash flows and/or prospects.
Sasabe-Puerto Libertad-Guaymas Segment. In June 2014, Sempra Infrastructure and a landowner agreed to enter into a voluntary right-of-way easement agreement for the construction and operation of a seven-mile section of the 314-mile Sasabe-Puerto Libertad-Guaymas segment of the Sonora natural gas pipeline on the landowner’s property. However, in 2015, the landowner filed a complaint demanding the easement agreement be nullified. In September 2021, a definitive and non-appealable judgment was issued declaring the easement agreement nullified and ordering the removal of the pipeline from the landowner’s property. The execution of the judgment is suspended as a result of an amparo lawsuit filed by the CFE as an interested third party that did not participate in the litigation. Sempra Infrastructure filed a special judicial action asking the civil court to acknowledge the existence of the easement and to determine the consideration the landowner should receive in exchange for the easement. The failure to stay this judgment pending the resolution of Sempra Infrastructure’s planned special judicial action or prevail in preserving the easement in the special judicial action could require us to modify the route of the pipeline and could require a temporary shutdown of this portion of the pipeline, which could have a material adverse effect on Sempra’s business, results of operations, financial condition, cash flows and/or prospects.
Regulatory and Other Actions by the Mexican Government
We describe below certain actions by the Mexican government that could have a material impact on the energy sector in Mexico. Sempra Infrastructure and other parties affected by these resolutions, orders, decrees, regulations and proposed amendments to Mexican law have challenged them by filing amparo and other claims, some of which have been granted injunctive relief. The court-ordered injunctions or suspensions provide temporary relief until Mexico’s federal district court or Supreme Court ultimately resolves the amparo and other claims. If passed in its current form, the proposed constitutional reform described below introduces significant changes to the legal and economic principles underlying the country’s energy reform of 2013, generating imminent risks for private investments in this sector. An unfavorable decision on one or more of these amparo or other challenges, the potential for extended disputes, or if passed in its current form, the proposed constitutional reform may impact our ability to operate our facilities at existing levels or at all, may result in increased costs for Sempra Infrastructure and its customers, may adversely affect our ability to develop new projects, and may negatively impact our ability to recover the carrying valuevalues of our investment. At December 31, 2020, the Guaymas-El Oro segmentinvestments in Mexico, any of the Sonora pipeline hadwhich may have a net book valuematerial adverse effect on our business, results of $447 million. The Sasabe-Puerto Libertad-Guaymas segment of the Sonora pipeline remains in full operation and is not impacted by these developments.operations, financial condition, cash flows and/or prospects.
Regulatory Actions by the Mexican Government that Impact Renewable Energy Facilities
In April 2020, Mexico’s CENACE issued an order that it claims would safeguard Mexico’s national power grid from interruptions that may be caused by renewable energy projects. The main provision of the order suspends all legally mandated pre-operative testing that would be neededTransmission Rates for new renewable energy projects to commence operations and prevents such projects from connecting to the national power grid until further notice. IEnova’s renewable energy projects affected by the order filed for legal protection through amparo claims (constitutional protection lawsuits) and, in June 2020, received injunctive relief until the claims are resolved by the courts. We have since achieved commercial operations on two solar power generation projects, Tepezalá and Don Diego, and expect to achieve commercial operations on Border Solar in the first half of 2021. The second phase of ESJ is not impacted by the order because it is not interconnected to the Mexican electric grid.
In May 2020, Mexico’s SENER published a resolution to establish guidelines intended to guarantee the security and reliability of the national grid’s electricity supply by reducing the threat that it claims is caused by clean, intermittent energy. IEnova’s renewable energy projects, including those in construction and in service, filed amparo claims against the SENER resolution in June 2020 and received injunctive relief in July 2020. In addition, in June 2020, COFECE, Mexico’s antitrust regulator, filed a complaint with Mexico’s Supreme Court against the SENER resolution. The court accepted COFECE’s complaint and, in February 2021, issued its final ruling that the main proposed changes in the SENER resolution are unconstitutional.
Legacy Generation Facilities. In May 2020, the CRE approved an update to the transmission rates included in legacy renewablesrenewable and cogeneration energy contracts based on the claim that the legacy transmission rates did not reflect fair and proportional costs for providing the applicable services and, therefore, created inequitable competitive conditions. Three of IEnova’s renewablesSempra Infrastructure’s renewable energy facilities (Don Diego Solar, Border Solar and Ventika) are currently holders of contracts with such legacy rates, and under the terms of these contracts any increases in the transmission rates would be passed through directly to their customers. IEnova filed amparo claims for its affected facilities and, in August 2020, was granted injunctive relief.
IEnova and other companies affected by these new orders and regulations have challenged the orders and regulations by filing amparo claims, some of which have been granted injunctive relief. The court-ordered injunctions provide relief until Mexico’s Federal District Court ultimately resolves the amparo claims. An unfavorable final decision on these amparo challenges, or the potential for an extended dispute, could impact our ability to successfully complete construction of our Border Solar project, which is not yet commercially operating, or to complete such construction in a timely manner and within expected budgets, may impact our ability to operate our wind and solar facilities already in service at existing levels or at all, and may adversely affect our ability to develop new projects, any of which may have a material adverse impact on our results of operations and cash flows and our ability to recover the carrying values of ourThese renewable energy investmentsfacilities have obtained injunctive relief but are required to guarantee the difference in Mexico.tariffs, which could be material, until the claims are definitively resolved by the courts. The three facilities obtained favorable resolutions from a lower court and the CRE has appealed one of these decisions.
Offtakers of Legacy Generation Permits. In October 2020, the CRE approved a resolution to amend the rules for the inclusion of new offtakers of legacy generation and self-supply permits (the Offtaker Resolution), which became effective immediately. The Offtaker Resolution prohibits self-supply permit holders from adding new offtakers that were not included in the original development or expansion plans, making modifications to the amount of energy allocated to the named offtakers, and including load centers that have entered into a supply arrangement under Mexico’s Electricity Industry Law. Don Diego Solar, and Border Solar (two of IEnova’s projects, the first of which has achieved commercial operations and the second of which is currently in construction) and the Ventika wind power generation facilities are holders of legacy self-supply permits and are impacted by the Offtaker Resolution. In January 2022, Don Diego Solar and Border Solar obtained a favorable resolution from a Mexican federal district court that we expect the CRE will appeal. If IEnovaSempra Infrastructure is not able to obtain legal protection for these impacted facilities, IEnovaSempra Infrastructure expects it will sell Border Solar’s capacity and a portion of Don Diego Solar’s capacity affected by the Offtaker Resolution into the spot market. Currently, prices in the spot market are significantly
lower than the fixed prices in the PPAs that were entered into through self-supply permits. IEnovaAt December 31, 2021, Sempra Infrastructure had $14 million in other intangible assets, net, related to these self-supply permits previously granted by the CRE and impacted by the Offtaker Resolution that could be subject to impairment if Sempra Infrastructure is unable to obtain adequate legal protection. Sempra Infrastructure has filed lawsuits against the Offtaker Resolution. Currently, Border SolarResolution and Don Diego Solar are prohibited from delivering electric power to all (with respect to Border Solar) or a portion (with respect to Don Diego Solar) of their respective offtakersreceived injunctive relief pending final resolution.
Amendments to Mexico’s Electricity Industry Law. In March 2021, the Mexican government published a decree with amendments to Mexico’s Electricity Industry Law that include some public policy changes, including establishing priority of dispatch for CFE plants over privately owned plants. According to the decree, these amendments were to become effective on March 10, 2021, and SENER, the CRE and CENACE were to have 180 calendar days to modify, as necessary, all resolutions, policies, criteria, manuals and other regulations applicable to the power industry to conform with this decree. However, a Mexican court issued a suspension of the amendments on March 19, 2021, and it is expected that Mexico’s Supreme Court will ultimately settle the matter. If the proposed amendments are affirmed by the Supreme Court, the CRE may be required to revoke self-supply permits granted under the former electricity law, which were grandfathered when the new Electricity Industry Law was enacted, under a legal standard that is ambiguous and not well defined under the law.
Amendments to Mexico’s Hydrocarbons Law. In May 2021, amendments to Mexico’s Hydrocarbons Law were published and became effective. The amendments grant SENER and the CRE additional powers to suspend and revoke permits related to the midstream and downstream sectors. Suspension of permits will be determined by SENER or the CRE when a danger to national security, energy security, or to the national economy is foreseen. Likewise, new grounds for the revocation of permits are in place if the permit holder (i) carries out its activity with illegally imported products; (ii) fails, on more than one occasion, to comply with the provisions applicable to quantity, quality and measurement of the products; or (iii) modifies the technical conditions of its infrastructure without authorization. Additionally, in the case of existing permits, authorities will revoke those permits that fail to comply with the minimum storage requirements established by SENER or fail to comply with requirements or violate provisions established by the amended Hydrocarbons Law. All of Sempra Infrastructure’s facilities participating in the hydrocarbons sector filed lawsuits against the initiative to reform the Hydrocarbons Law and received injunctive relief pending a
final resolution by the courts. In May 2021, a Mexican district court ordered the suspension of these lawsuits. IEnova is evaluating waysseveral of the provisions of the amendments with general application across the sector. In 2021, district courts issued judgments that the amendments do not affect the interests of the companies at this time and, as a result, dismissed the amparo lawsuits filed by several companies in the market, including three of the five lawsuits filed by Sempra Infrastructure. These judgments have been appealed and the granted suspensions will remain valid until the lawsuits are definitively resolved.
Amendments to Mexico’s General Foreign Trade Rules. In June 2021, amendments to Mexico’s General Foreign Trade Rules went into effect, which establish that only state-owned companies may import and export hydrocarbons, refined products, petrochemicals, and biofuels through channels other than those authorized (LDA authorization). These amendments prevent non-state-owned companies from (i) obtaining LDA authorizations, which affect new projects that have not obtained such approval, and (ii) renewing existing LDA authorizations, which affect operational projects and those under construction. The ECA Regas Facility and the Veracruz terminal have LDA authorizations that are valid through 2023 and, as a preventive measure, have filed amparo claims to challenge the newly introduced barrier to renewing their existing LDA authorizations. In order to start operations at terminals currently under construction or in development in the vicinity of Topolobampo, Manzanillo and Ensenada, including the proposed ECA LNG liquefaction projects, Sempra Infrastructure filed amparo claims to challenge such amendments that prevent them from obtaining LDA authorizations in the future. In October and November of 2021, the Mexican government published new General Foreign Trade Rules in which private companies are allowed to obtain injunctive reliefLDA authorizations and, as a consequence, the amparo claims filed by the ECA Regas Facility and the Veracruz terminal have been dismissed by the courts, while the appropriate court is being determined to hear the amparo claim for future LDA authorizations. There can be no assurance that new or renewed LDA authorizations will be obtained in a timely manner or at all.
Proposed Constitutional Reform in Mexico. In September 2021, the President of Mexico presented a constitutional reform initiative with the stated goal of preserving energy security and self-sufficiency, and a continuous supply of electricity to the country’s population, as a condition for guaranteeing national security and the human right to a decent life. The CRE and the National Commission of Hydrocarbons would allow Border Solarbe dissolved, and Don Diego Solartheir functions would be carried out by SENER. CENACE would be reinstated to deliverthe CFE, and the CFE would be responsible for generating, conducting, transforming, distributing and supplying electricity, and would be the only entity allowed to commercialize electric energy in Mexico. Electricity generation permits and contracts for the sale of electricity and RECs to the CFE, including permits at all of Sempra Infrastructure’s operational power generation facilities, would be canceled. The public electricity supply service would be provided exclusively by the CFE, which may acquire up to their offtakers pending46% of required energy from the private sector. Only certain private power plants would be permitted to continue generating electricity and compete to offer the CFE the lowest production costs.
The initiative must first be submitted to a final decisionvote and approved in the lawsuits.respective plenary sessions of the Chamber of Deputies and the Chamber of Senators in Mexico. Additionally, the initiative must be approved by a two-thirds vote of Mexico’s Federal Congress and by the majority of the legislatures of the Mexican States and published in the Federal Official Gazette to be in force. Sempra Infrastructure is following this legislative procedure while assessing alternatives for its project companies. If passed in its current form, the initiative could have a material adverse effect on our business, results of operations, financial condition, cash flows and/or prospects, our ability to recover the carrying values of our investments in Mexico, and our ability to operate existing facilities and develop new energy projects in the country.
Other Litigation
RBS Sempra Commodities
Sempra Energy holds an equity method investment in RBS Sempra Commodities, a limited liability partnership in the process of being liquidated. RBS, now NatWest Markets plc, our partner in the JV, paid an assessment of £86 million (approximately $138 million in U.S. dollars) in October 2014 to HMRC for denied VAT refund claims filed in connection with the purchase of carbon credit allowances by RBS SEE, a subsidiary of RBS Sempra Commodities. RBS SEE has since beenwas subsequently sold to J.P. Morgan Chase & Co. and later to Mercuria Energy Group, Ltd. HMRC asserted that RBS was not entitled to reduce its VAT liability by VAT paid on certain carbon credit purchases during 2009 because RBS knew or should have known that certain vendors in the trading chain did not remit their own VAT to HMRC. After paying the assessment,In July 2021, RBS filedentered into a Notice of Appeal of the assessmentsettlement with the First-Tier Tribunal. Trial on the matter, which could include the assessment of a penalty of up to 100% of the claimed amount, is scheduled to begin in June 2021.HMRC that resolved this matter.
In 2015, liquidators filed a claim in the High Court of Justice against RBS and Mercuria Energy Europe Trading Limited (the Defendants) on behalf of 10 companies (the Liquidating Companies) that engaged in carbon credit trading via chains that included a company that traded directly with RBS SEE. The claim alleges that the Defendants’ participation in the purchase and sale of carbon credits resulted in the Liquidating Companies’ carbon credit trading transactions creating a VAT liability they were unable to pay, and that the Defendants are liable to provide for equitable compensation due to dishonest assistance and for compensation under the U.K. Insolvency Act of 1986. Trial on the matter was held in June and July of 2018. In March 2020, the High Court of Justice rendered its judgment mostly in favor of the Liquidating Companies and awarded damages of approximately £45 million (approximately
(approximately $61 million in U.S. dollars at December 31, 2020)2021), plus costs and interest. In October 2020, the High Court of Justice issued an order granting theassessed costs and interest to be approximately £21 million (approximately $28 million in U.S. dollars at December 31, 2021) as of that date, with interest continuing to accrue. The Defendants permission to appeal its March 2020 judgment toappealed and, in May 2021, the Court of Appeal set aside the High Court of Justice’s decision and the Defendants have filed an application for such appeal.
Although the final outcome of bothordered a retrial. The Liquidating Companies in the High Court of Justice case have applied to the Supreme Court for permission to appeal the Court of Appeal’s decision. J.P. Morgan Chase & Co. has notified us that Mercuria Energy Group, Ltd. has sought indemnity for the claim, and First-Tier Tribunal case remains uncertain, weJ.P. Morgan Chase & Co. has in turn sought indemnity from Sempra and RBS.
We recorded $100 million in equity losses from our investment in RBS Sempra Commodities in Equity Earnings on the Sempra EnergySempra’s Consolidated Statement of Operations in the year ended December 31, 2020, which representsrepresented an estimate of our obligations to settle pending taxVAT matters and related legal costs. In 2021, we reduced this estimate by $50 million based on the settlement with HMRC on the First-Tier Tribunal case and revised assumptions on the High Court of Justice case. The final outcome of the High Court of Justice case remains uncertain.
Asbestos Claims Against EFH Subsidiaries
Certain EFH subsidiaries that we acquired as part of the merger of EFH with an indirect subsidiary of Sempra Energy arewere defendants in personal injury lawsuits brought in state courts throughout the U.S. As of February 22, 2021, 209 such lawsuits are pending with 77 such lawsuits having been served. These cases allegealleged illness or death as a result of exposure to asbestos in power plants designed and/or built by companies whose assets were purchased by predecessor entities to the EFH subsidiaries, and generally assert claims for product defects, negligence, strict liability and wrongful death. They seeksought compensatory and punitive damages. As of February 18, 2022, no lawsuits are pending. Additionally, in connection with the EFH bankruptcy proceeding, approximately 28,000 proofs of claim were filed on behalf of persons who allege exposure to asbestos under similar circumstances and assert the right to file such lawsuits in the future. None of these claims or lawsuits were discharged in the EFH bankruptcy proceeding. The costs to defend or resolve these lawsuits and the amount of damages that may be imposed or incurred could have a material adverse effect on Sempra Energy’sSempra’s results of operations, financial condition, cash flows financial condition and results of operations.and/or prospects.
Ordinary Course Litigation
We are also defendants in ordinary routine litigation incidental to our businesses, including personal injury, employment litigation, product liability, property damage and other claims. Juries have demonstrated an increasing willingness to grant large awards, including punitive damages, in these types of cases.
LEASES
A lease exists when a contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. We determine if an arrangement is or contains a lease at inception of the contract.
Some of our lease agreements contain nonlease components, which represent activities that transfer a separate good or service to the lessee. As the lessee for both operating and finance leases, we have elected to combine lease and nonlease components as a single lease component for real estate, fleet vehicles, power generating facilities, and pipelines, whereby fixed or in-substance fixed payments allocable to the nonlease component are accounted for as part of the related lease liability and ROU asset. As the lessor, we have elected to combine lease and nonlease components as a single lease component for real estate, and power generating facilities and liquid fuels terminals if the timing and pattern of transfer of the lease and nonlease components are the same and the lease component would be classified as an operating lease if accounted for separately.
Lessee Accounting
We have operating and finance leases for real and personal property (including office space, land, fleet vehicles, machinery and equipment, warehouses and other operational facilities) and PPAs with renewable energy, energy storage and peaker plant facilities.
Some of our leases include options to extend the lease terms for up to 20 years, or to terminate the lease within one year. Our lease liabilities and ROU assets are based on lease terms that may include such options when it is reasonably certain that we will exercise the option.
Certain of our contracts are short-term leases, which have a lease term of 12 months or less at lease commencement. We do not recognize a lease liability or ROU asset arising from short-term leases for all existing classes of underlying assets. In such cases, we recognize short-term lease costs on a straight-line basis over the lease term. Our short-term lease costs for the period reasonably reflect our short-term lease commitments.
Certain of our leases contain escalation clauses requiring annual increases in rent ranging from 2% to 4%5% or based on the Consumer Price Index. The rentals payable under these leases may increase by a fixed amount each year or by a percentage of a base year. Variable lease payments that are based on an index or rate are included in the initial measurement of our lease liability and ROU asset based on the index or rate at lease commencement and are not remeasured because of changes to the index or rate. Rather, changes to the index or rate are treated as variable lease payments and recognized in the period in which the obligation for those payments is incurred.
Similarly, PPAs for the purchase of renewable energy at SDG&E require lease payments based on a stated rate per MWh produced by the facilities, and we are required to purchase substantially all the output from the facilities. SDG&E is required to pay additional amounts for capacity charges and actual purchases of energy that exceed the minimum energy commitments. Under these contracts, we do not recognize a lease liability or ROU asset for leases for which there are no fixed lease payments. Rather, these variable lease payments are recognized separately as variable lease costs. SDG&E estimates these variable lease payments to be $297 million in each of 2021 and 2022, $296 million in 2023, $297 million in 2024, $296 million in 2025, $290 million in 2026 and $3,069$2,779 million thereafter.
As of the lease commencement date, we recognize a lease liability for our obligation to make future lease payments, which we initially measure at present value using our incremental borrowing rate at the date of lease commencement, unless the rate implicit in the lease is readily determinable. We determine our incremental borrowing rate based on the rate of interest that we would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. We also record a corresponding ROU asset, initially equal to the lease liability and adjusted for lease payments made at or before lease commencement, lease incentives, and any initial direct costs. We test ROU assets for recoverability whenever events or changes in circumstances have occurred that may affect the recoverability or the estimated useful lives of the ROU assets.
For our operating leases, our non-regulated entities recognize a single lease cost on a straight-line basis over the lease term in operating expenses. The California UtilitiesSDG&E and SoCalGas recognize this single lease cost on a basis that is consistent with the recovery of such costs in accordance with U.S. GAAP governing rate-regulated operations.
For our finance leases, the interest expense on the lease liability and amortization of the ROU asset are accounted for separately. Our non-regulated entities use the effective interest rate method to account for the imputed interest on the lease liability and amortize the ROU asset on a straight-line basis over the lease term. The California UtilitiesSDG&E and SoCalGas recognize amortization of the ROU asset on a basis that is consistent with the recovery of such costs in accordance with U.S. GAAP governing rate-regulated operations.
Our leases do not contain any material residual value guarantees, restrictions or covenants.
Classification of ROU assets and lease liabilities and the weighted-average remaining lease term and discount rate associated with operating and finance leases are summarized in the table below.
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LESSEE INFORMATION ON THE CONSOLIDATED BALANCE SHEETS | | |
(Dollars in millions) | | |
| Sempra Energy Consolidated | | SDG&E | | SoCalGas |
| December 31, |
| 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Right-of-use assets: | | | | | | | | | | | |
Operating leases: | | | | | | | | | | | |
Right-of-use assets | $ | 543 | | | $ | 591 | | | $ | 102 | | | $ | 130 | | | $ | 74 | | | $ | 94 | |
| | | | | | | | | | | |
Finance leases: | | | | | | | | | | | |
Property, plant and equipment | 1,429 | | | 1,353 | | | 1,356 | | | 1,326 | | | 73 | | | 27 | |
Accumulated depreciation | (99) | | | (64) | | | (80) | | | (57) | | | (19) | | | (7) | |
Property, plant and equipment, net | 1,330 | | | 1,289 | | | 1,276 | | | 1,269 | | | 54 | | | 20 | |
Total right-of-use assets | $ | 1,873 | | | $ | 1,880 | | | $ | 1,378 | | | $ | 1,399 | | | $ | 128 | | | $ | 114 | |
| | | | | | | | | | | |
Lease liabilities: | | | | | | | | | | | |
Operating leases: | | | | | | | | | | | |
Other current liabilities | $ | 52 | | | $ | 52 | | | $ | 27 | | | $ | 27 | | | $ | 18 | | | $ | 18 | |
Deferred credits and other | 407 | | | 445 | | | 73 | | | 102 | | | 56 | | | 75 | |
| 459 | | | 497 | | | 100 | | | 129 | | | 74 | | | 93 | |
Finance leases: | | | | | | | | | | | |
Current portion of long-term debt and finance leases | 36 | | | 26 | | | 26 | | | 20 | | | 10 | | | 6 | |
Long-term debt and finance leases | 1,294 | | | 1,263 | | | 1,250 | | | 1,250 | | | 44 | | | 13 | |
| 1,330 | | | 1,289 | | | 1,276 | | | 1,270 | | | 54 | | | 19 | |
Total lease liabilities | $ | 1,789 | | | $ | 1,786 | | | $ | 1,376 | | | $ | 1,399 | | | $ | 128 | | | $ | 112 | |
| | | | | | | | | | | |
Weighted-average remaining lease term (in years): | | | | | | | | | | | |
Operating leases | 13 | | 13 | | 6 | | 6 | | 5 | | 6 |
Finance leases | 18 | | 19 | | 19 | | 20 | | 7 | | 6 |
Weighted-average discount rate: | | | | | | | | | | | |
Operating leases | 5.81 | % | | 6.01 | % | | 3.62 | % | | 3.55 | % | | 2.03 | % | | 3.73 | % |
Finance leases | 14.45 | % | | 14.76 | % | | 14.65 | % | | 14.83 | % | | 2.83 | % | | 3.23 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
LESSEE INFORMATION ON THE CONSOLIDATED BALANCE SHEETS |
(Dollars in millions) |
| Sempra | SDG&E | SoCalGas |
| December 31, |
| 2021 | | 2020 | | 2019 | 2021 | | 2020 | | 2019 | 2021 | | 2020 | | 2019 |
ROU assets: | | | | | | | | | | | | | | | |
Operating leases: | | | | | | | | | | | | | | | |
ROU assets | $ | 594 | | | $ | 543 | | | $ | 591 | | $ | 185 | | | $ | 102 | | | $ | 130 | | $ | 57 | | | $ | 74 | | | $ | 94 | |
| | | | | | | | | | | | | | | |
Finance leases: | | | | | | | | | | | | | | | |
PP&E | 1,473 | | | 1,429 | | | 1,353 | | 1,381 | | | 1,356 | | | 1,326 | | 92 | | | 73 | | | 27 | |
Accumulated depreciation | (138) | | | (99) | | | (64) | | (107) | | | (80) | | | (57) | | (31) | | | (19) | | | (7) | |
PP&E, net | 1,335 | | | 1,330 | | | 1,289 | | 1,274 | | | 1,276 | | | 1,269 | | 61 | | | 54 | | | 20 | |
Total ROU assets | $ | 1,929 | | | $ | 1,873 | | | $ | 1,880 | | $ | 1,459 | | | $ | 1,378 | | | $ | 1,399 | | $ | 118 | | | $ | 128 | | | $ | 114 | |
| | | | | | | | | | | | | | | |
Lease liabilities: | | | | | | | | | | | | | | | |
Operating leases: | | | | | | | | | | | | | | | |
Other current liabilities | $ | 49 | | | $ | 52 | | | $ | 52 | | $ | 26 | | | $ | 27 | | | $ | 27 | | $ | 15 | | | $ | 18 | | | $ | 18 | |
Deferred credits and other | 470 | | | 407 | | | 445 | | 159 | | | 73 | | | 102 | | 41 | | | 56 | | | 75 | |
| 519 | | | 459 | | | 497 | | 185 | | | 100 | | | 129 | | 56 | | | 74 | | | 93 | |
Finance leases: | | | | | | | | | | | | | | | |
Current portion of long-term debt and finance leases | 43 | | | 36 | | | 26 | | 32 | | | 26 | | | 20 | | 11 | | | 10 | | | 6 | |
Long-term debt and finance leases | 1,292 | | | 1,294 | | | 1,263 | | 1,242 | | | 1,250 | | | 1,250 | | 50 | | | 44 | | | 13 | |
| 1,335 | | | 1,330 | | | 1,289 | | 1,274 | | | 1,276 | | | 1,270 | | 61 | | | 54 | | | 19 | |
Total lease liabilities | $ | 1,854 | | | $ | 1,789 | | | $ | 1,786 | | $ | 1,459 | | | $ | 1,376 | | | $ | 1,399 | | $ | 117 | | | $ | 128 | | | $ | 112 | |
| | | | | | | | | | | | | | | |
Weighted-average remaining lease term (in years): | | | | | | | | | | | | | | | |
Operating leases | 14 | | 13 | | 13 | 11 | | 6 | | 6 | 4 | | 5 | | 6 |
Finance leases | 17 | | 18 | | 19 | 17 | | 19 | | 20 | 7 | | 7 | | 6 |
Weighted-average discount rate: | | | | | | | | | | | | | | | |
Operating leases | 5.45 | % | | 5.81 | % | | 6.01 | % | 3.22 | % | | 3.62 | % | | 3.55 | % | 1.98 | % | | 2.03 | % | | 3.73 | % |
Finance leases | 14.25 | % | | 14.45 | % | | 14.76 | % | 14.48 | % | | 14.65 | % | | 14.83 | % | 2.91 | % | | 2.83 | % | | 3.23 | % |
The components of lease costs were as follows:
| LESSEE INFORMATION ON THE CONSOLIDATED STATEMENTS OF OPERATIONS(1) | LESSEE INFORMATION ON THE CONSOLIDATED STATEMENTS OF OPERATIONS(1) | | LESSEE INFORMATION ON THE CONSOLIDATED STATEMENTS OF OPERATIONS(1) |
(Dollars in millions) | (Dollars in millions) | | (Dollars in millions) |
| | | Sempra | SDG&E | SoCalGas |
| | Sempra Energy Consolidated | | SDG&E | | SoCalGas | | Years ended December 31, |
| | Years ended December 31, | | 2021 | | 2020 | | 2019 | 2021 | | 2020 | | 2019 | 2021 | | 2020 | | 2019 |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | | | | |
Operating lease costs | Operating lease costs | $ | 92 | | | $ | 96 | | | $ | 31 | | | $ | 33 | | | $ | 24 | | | $ | 27 | | Operating lease costs | $ | 89 | | | $ | 92 | | | $ | 96 | | $ | 32 | | | $ | 31 | | | $ | 33 | | $ | 20 | | | $ | 24 | | | $ | 27 | |
| Finance lease costs: | Finance lease costs: | | Finance lease costs: | | | | | |
Amortization of ROU assets(2) | Amortization of ROU assets(2) | 35 | | | 24 | | | 23 | | | 18 | | | 12 | | | 6 | | Amortization of ROU assets(2) | 39 | | | 35 | | | 24 | | 27 | | | 23 | | | 18 | | 12 | | | 12 | | | 6 | |
Interest on lease liabilities | Interest on lease liabilities | 188 | | | 173 | | | 186 | | | 173 | | | 2 | | | 0 | | Interest on lease liabilities | 186 | | | 188 | | | 173 | | 184 | | | 186 | | | 173 | | 2 | | | 2 | | | — | |
Total finance lease costs | Total finance lease costs | 223 | | | 197 | | | 209 | | | 191 | | | 14 | | | 6 | | Total finance lease costs | 225 | | | 223 | | | 197 | | 211 | | | 209 | | | 191 | | 14 | | | 14 | | | 6 | |
| Short-term lease costs(3) | Short-term lease costs(3) | 7 | | | 6 | | | 3 | | | 2 | | | 0 | | | 0 | | Short-term lease costs(3) | 7 | | | 7 | | | 6 | | 1 | | | 3 | | | 2 | | — | | | — | | | — | |
Variable lease costs(3) | Variable lease costs(3) | 477 | | | 482 | | | 467 | | | 471 | | | 10 | | | 10 | | Variable lease costs(3) | 432 | | | 477 | | | 482 | | 422 | | | 467 | | | 471 | | 10 | | | 10 | | | 10 | |
Total lease costs | Total lease costs | $ | 799 | | | $ | 781 | | | $ | 710 | | | $ | 697 | | | $ | 48 | | | $ | 43 | | Total lease costs | $ | 753 | | | $ | 799 | | | $ | 781 | | $ | 666 | | | $ | 710 | | | $ | 697 | | $ | 44 | | | $ | 48 | | | $ | 43 | |
(1) Includes costs capitalized in PP&E.
(2) Included in O&M, except for $22 at Sempra, $21 at SDG&E and $1 at SoCalGas in 2021, $18 millionat Sempra and SDG&E in 2020, and $15 millionat Sempra and SDG&E in 2019, which is included in Depreciation and Amortization Expense at Sempra Energy Consolidated and SDG&E.Expense.
(3) Short-term leases with variable lease costs are recorded and presented as variable lease costs.
Cash paid for amounts included in the measurement of lease liabilities wasand supplemental noncash information were as follows:
| LESSEE INFORMATION ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS | LESSEE INFORMATION ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS | | LESSEE INFORMATION ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Dollars in millions) | (Dollars in millions) | | (Dollars in millions) |
| | Sempra Energy Consolidated | | SDG&E | | SoCalGas | | Sempra | SDG&E | SoCalGas |
| | Years ended December 31 | | Years ended December 31 |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | 2021 | | 2020 | | 2019 | 2021 | | 2020 | | 2019 |
Operating activities: | Operating activities: | | Operating activities: | | | | | |
Cash paid for operating leases | Cash paid for operating leases | $ | 79 | | | $ | 101 | | | $ | 31 | | | $ | 33 | | | $ | 24 | | | $ | 27 | | Cash paid for operating leases | $ | 78 | | | $ | 79 | | | $ | 101 | | $ | 32 | | | $ | 31 | | | $ | 33 | | $ | 20 | | | $ | 24 | | | $ | 27 | |
Cash paid for finance leases | Cash paid for finance leases | 173 | | | 173 | | | 171 | | | 173 | | | 2 | | | 0 | | Cash paid for finance leases | 171 | | | 173 | | | 173 | | 169 | | | 171 | | | 173 | | 2 | | | 2 | | | — | |
Financing activities: | Financing activities: | | Financing activities: | | | | | |
Cash paid for finance leases | Cash paid for finance leases | 35 | | | 24 | | | 23 | | | 18 | | | 12 | | | 6 | | Cash paid for finance leases | 39 | | | 35 | | | 24 | | 27 | | | 23 | | | 18 | | 12 | | | 12 | | | 6 | |
Increase (decrease) in operating lease obligations for right-of-use assets | 20 | | | 585 | | | (1) | | | 158 | | | 1 | | | 118 | | |
Increase (decrease) in operating lease obligations for ROU assets | | Increase (decrease) in operating lease obligations for ROU assets | 116 | | | 20 | | | 585 | | 112 | | | (1) | | | 158 | | 1 | | | 1 | | | 118 | |
Increase in finance lease obligations for investment in PP&E | Increase in finance lease obligations for investment in PP&E | 77 | | | 38 | | | 30 | | | 16 | | | 47 | | | 22 | | Increase in finance lease obligations for investment in PP&E | 43 | | | 77 | | | 38 | | 24 | | | 30 | | | 16 | | 19 | | | 47 | | | 22 | |
The table below presents the maturity analysis of our lease liabilities and reconciliation to the present value of lease liabilities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
LESSEE MATURITY ANALYSIS OF LIABILITIES |
(Dollars in millions) |
| December 31, 2020 |
| Sempra Energy Consolidated | | SDG&E | | SoCalGas |
| Operating leases | | Finance leases(1) | | Operating leases | | Finance leases(1) | | Operating leases | | Finance leases |
2021 | $ | 73 | | | $ | 206 | | | $ | 30 | | | $ | 194 | | | $ | 19 | | | $ | 12 | |
2022 | 64 | | | 203 | | | 22 | | | 194 | | | 17 | | | 9 | |
2023 | 55 | | | 203 | | | 17 | | | 194 | | | 13 | | | 9 | |
2024 | 51 | | | 198 | | | 15 | | | 189 | | | 11 | | | 9 | |
2025 | 40 | | | 193 | | | 5 | | | 185 | | | 9 | | | 8 | |
Thereafter | 415 | | | 2,465 | | | 22 | | | 2,453 | | | 8 | | | 12 | |
Total undiscounted lease payments | 698 | | | 3,468 | | | 111 | | | 3,409 | | | 77 | | | 59 | |
Less: imputed interest | (239) | | | (2,138) | | | (11) | | | (2,133) | | | (3) | | | (5) | |
Total lease liabilities | 459 | | | 1,330 | | | 100 | | | 1,276 | | | 74 | | | 54 | |
Less: current lease liabilities | (52) | | | (36) | | | (27) | | | (26) | | | (18) | | | (10) | |
Long-term lease liabilities | $ | 407 | | | $ | 1,294 | | | $ | 73 | | | $ | 1,250 | | | $ | 56 | | | $ | 44 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
LESSEE MATURITY ANALYSIS OF LIABILITIES |
(Dollars in millions) |
| December 31, 2021 |
| Sempra | SDG&E | SoCalGas |
| Operating leases(1) | | Finance leases(2) | Operating leases(1) | | Finance leases(2) | Operating leases | | Finance leases |
2022 | $ | 73 | | | $ | 209 | | $ | 30 | | | $ | 197 | | $ | 17 | | | $ | 12 | |
2023 | 66 | | | 208 | | 27 | | | 197 | | 13 | | | 11 | |
2024 | 62 | | | 203 | | 25 | | | 192 | | 11 | | | 11 | |
2025 | 50 | | | 199 | | 16 | | | 188 | | 10 | | | 11 | |
2026 | 48 | | | 196 | | 15 | | | 188 | | 8 | | | 8 | |
Thereafter | 493 | | | 2,292 | | 105 | | | 2,279 | | — | | | 13 | |
Total undiscounted lease payments | 792 | | | 3,307 | | 218 | | | 3,241 | | 59 | | | 66 | |
Less: imputed interest | (273) | | | (1,972) | | (33) | | | (1,967) | | (3) | | | (5) | |
Total lease liabilities | 519 | | | 1,335 | | 185 | | | 1,274 | | 56 | | | 61 | |
Less: current lease liabilities | (49) | | | (43) | | (26) | | | (32) | | (15) | | | (11) | |
Long-term lease liabilities | $ | 470 | | | $ | 1,292 | | $ | 159 | | | $ | 1,242 | | $ | 41 | | | $ | 50 | |
(1) Includes $9 in each of 2022 through 2026 and $87 thereafter related to purchased-power contracts.
(2) Substantially all amounts are related to purchased-power contracts.
Lease Disclosures Under Previous U.S. GAAPLeases That Have Not Yet Commenced
Rent expenseSDG&E has entered into three energy storage tolling agreements, of which SDG&E expects two will commence in the third quarter of 2022 and one will commence in the second quarter of 2023. SDG&E expects to account for these agreements as operating leases was as follows:
| | | | | |
RENT EXPENSE – OPERATING LEASES |
(Dollars in millions) |
| Year ended December 31, 2018 |
Sempra Energy Consolidated | $ | 122 | |
SDG&E | 27 | |
SoCalGas | 41 | |
The annual amortization charge for PPAs accounted for as capital leases at both Sempra Energy Consolidatedupon commencement and SDG&E was $11expects the future minimum lease payments to be $8 million in 2018. The annual depreciation charge2022, $17 million in 2023, $18 million in each of 2024 through 2026 and $101 million thereafter until expiration at various dates from 2032 through 2033.
SoCalGas has entered into a fleet vehicle agreement, which SoCalGas expects will commence in May 2022. SoCalGas expects to account for fleet vehiclesthe agreement as a finance lease upon commencement and other assetsexpects the future minimum lease payments to be $1 million in 2018 was $8 million at Sempra Energy Consolidated, including2022 and $2 million at SDG&Ein each of 2023 through 2026 and $6 million at SoCalGas.thereafter until expiration in 2029.
Lessor Accounting
Sempra MexicoInfrastructure is a lessor for certain of its natural gas and ethane pipelines, compressor stations, and LPG storage facilities.facilities, a rail facility and liquid fuels terminals, which we account for as operating or sales-type leases. These operating leases expire at various dates from 20212022 through 2039.2041.
Over the lease term, we monitor the underlying assets in operating leases for impairment, and we evaluate the net investment in sales-type leases for expected credit losses. Sempra MexicoInfrastructure expects to continue to derive value from the underlying assets associated with its pipelines following the end of their respective lease terms based on the expected remaining useful life, expected market conditions and plans to re-market and re-contract the underlying assets.
Generally, we recognize operating lease income on a straight-line basis over the lease term, and evaluatesales-type lease income based on the underlying asset for impairment.effective interest method over the lease term. Certain of our leases contain rate adjustments or are based on foreign currency exchange rates that may result in lease payments received that vary in amount from one period to the next.
In July 2021, a rail facility agreement commenced, which Sempra Infrastructure is accounting for as a sales-type lease. The rail facility is being used by the lessee to transport liquid fuels out of the Veracruz terminal. The lessee has the right to direct the use of the rail facility and will obtain substantially all of the economic benefits of the rail facility. At lease commencement, Sempra Infrastructure derecognized the $44 million carrying value of the rail facility from PP&E and recognized a net investment in sales-type lease asset of $62 million and a selling profit of $18 million. The agreement expires in 2041 and will automatically renew for successive five-year terms unless written notice is provided by Sempra Infrastructure or the lessee. Fixed lease payments are payable in the first five years of the agreement, which the lessee is required to pay even in the event of lease termination.
We provide information below for leases for which we are the lessor.
| LESSOR INFORMATION – SEMPRA ENERGY | | |
LESSOR INFORMATION – SEMPRA | | LESSOR INFORMATION – SEMPRA |
(Dollars in millions) | (Dollars in millions) | | (Dollars in millions) |
| | December 31, | | December 31, |
| | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Assets subject to operating leases: | Assets subject to operating leases: | | Assets subject to operating leases: | |
Property, plant and equipment(1) | Property, plant and equipment(1) | | $ | 1,092 | | | $ | 1,038 | | Property, plant and equipment(1) | $ | 1,499 | | | $ | 1,092 | | | $ | 1,038 | |
Accumulated depreciation | Accumulated depreciation | | (228) | | | (179) | | Accumulated depreciation | (276) | | | (228) | | | (179) | |
Property, plant and equipment, net | Property, plant and equipment, net | | | $ | 864 | | | $ | 859 | | Property, plant and equipment, net | $ | 1,223 | | | $ | 864 | | | $ | 859 | |
| | December 31, 2020 | |
Maturity analysis of operating lease payments: | | | |
2021 | | $ | 207 | | |
| | | December 31, 2021 |
Maturity analysis of lease payments: | | Maturity analysis of lease payments: | | Operating leases | | Sales-type leases |
2022 | 2022 | | 202 | | 2022 | | $ | 272 | | | $ | 16 | |
2023 | 2023 | | 202 | | 2023 | | 272 | | | 16 | |
2024 | 2024 | | 202 | | 2024 | | 273 | | | 17 | |
2025 | 2025 | | 202 | | 2025 | | 272 | | | 17 | |
2026 | | 2026 | | 272 | | | 9 | |
Thereafter | Thereafter | | 2,344 | | Thereafter | | 3,031 | | | — | |
Total undiscounted cash flows | Total undiscounted cash flows | | | $ | 3,359 | | Total undiscounted cash flows | | $ | 4,392 | | | 75 | |
Present value of lease payments (recognized as lease receivable)(2) | | Present value of lease payments (recognized as lease receivable)(2) | | | | 55 | |
Difference between undiscounted cash flows and discounted cash flows | | Difference between undiscounted cash flows and discounted cash flows | | | $ | 20 | |
(1) Included in Machinery and Equipment — Pipelines and Storage within the major functional categories of PP&E.
(2) Includes $9 in Other Current Assets and $46 in Other Long-Term Assets on the Consolidated Balance Sheet.
| LESSOR INFORMATION ON THE CONSOLIDATED STATEMENTS OF OPERATIONS – SEMPRA ENERGY | |
LESSOR INFORMATION ON THE CONSOLIDATED STATEMENTS OF OPERATIONS – SEMPRA | | LESSOR INFORMATION ON THE CONSOLIDATED STATEMENTS OF OPERATIONS – SEMPRA |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Sales-type leases: | | Sales-type leases: | |
Income recognized at lease commencement | | Income recognized at lease commencement | $ | 18 | | | $ | 1 | | | $ | — | |
Interest income | | Interest income | 4 | | | 1 | | | — | |
Total revenues from sales-type leases(1) | | Total revenues from sales-type leases(1) | $ | 22 | | | $ | 2 | | | — | |
| Operating leases: | | Operating leases: | |
Fixed lease payments | Fixed lease payments | $ | 195 | | | $ | 200 | | | $ | 194 | | Fixed lease payments | $ | 256 | | | $ | 195 | | | $ | 200 | |
Variable lease payments | Variable lease payments | 1 | | | 6 | | | 72 | | Variable lease payments | 10 | | | 1 | | | 6 | |
Total revenues from operating leases(1) | Total revenues from operating leases(1) | $ | 196 | | | $ | 206 | | | $ | 266 | | Total revenues from operating leases(1) | $ | 266 | | | $ | 196 | | | $ | 206 | |
| Depreciation expense | Depreciation expense | $ | 39 | | | $ | 38 | | | $ | 72 | | Depreciation expense | $ | 48 | | | $ | 39 | | | $ | 38 | |
(1) Included in Revenues: Energy-Related Businesses on the Consolidated Statements of Operations.
CONTRACTUAL COMMITMENTS
Natural Gas Contracts
SoCalGas has responsibility for procuring natural gas for both SDG&E’s and SoCalGas’ core customers in a combined portfolio. SoCalGas buys natural gas under short-term and long-term contracts for this portfolio from various producing regions in the southwestern U.S., U.S. Rockies and Canada, primarily based on published monthly bid-week indices.Canada. At December 31, 2021, SoCalGas’ natural gas purchase commitments under long-term contracts are negligible.
SoCalGas transports natural gas primarily under long-term firm interstate pipeline capacity agreements that provide for annual reservation charges, which are recovered in rates. SoCalGas has commitments with interstate pipeline companies for firm pipeline capacity under contracts that expire at various dates through 2032.
Sempra LNGInfrastructure has various capacity agreements for natural gas storage and transportation.transportation that expire at various dates through 2059. Transportation costs on these agreements vary based on pipeline capacity.
Payments on our natural gas contracts could exceed the minimum commitment based on portfolio needs. At December 31, 2020,2021, the future minimum payments under existing natural gas contracts and natural gas storage and transportation contracts are as follows:
| FUTURE MINIMUM PAYMENTS – SEMPRA ENERGY CONSOLIDATED | |
FUTURE MINIMUM PAYMENTS | | FUTURE MINIMUM PAYMENTS |
(Dollars in millions) | (Dollars in millions) | | | | | | (Dollars in millions) |
| | Storage and transportation | | Natural gas(1) | | Total(1) | | Sempra | SoCalGas |
2021 | $ | 216 | | | $ | 61 | | | $ | 277 | | |
| | | Storage and transportation | | Natural gas(1) | | Total(1) | Transportation |
2022 | 2022 | 203 | | | 13 | | | 216 | | 2022 | $ | 214 | | | $ | 20 | | | $ | 234 | | $ | 134 | |
2023 | 2023 | 189 | | | 12 | | | 201 | | 2023 | 204 | | | 39 | | | 243 | | 132 | |
2024 | 2024 | 166 | | | 12 | | | 178 | | 2024 | 181 | | | 15 | | | 196 | | 114 | |
2025 | 2025 | 131 | | | 6 | | | 137 | | 2025 | 141 | | | 7 | | | 148 | | 77 | |
2026 | | 2026 | 137 | | | — | | | 137 | | 75 | |
Thereafter | Thereafter | 1,014 | | | 0 | | | 1,014 | | Thereafter | 903 | | | — | | | 903 | | 310 | |
Total minimum payments | Total minimum payments | $ | 1,919 | | | $ | 104 | | | $ | 2,023 | | Total minimum payments | $ | 1,780 | | | $ | 81 | | | $ | 1,861 | | $ | 842 | |
(1) Excludes amounts related to the LNG purchase agreement discussed below.
| | | | | | | | | | | | | | | | | |
FUTURE MINIMUM PAYMENTS – SOCALGAS |
(Dollars in millions) | | | | | |
| Transportation | | Natural gas | | Total |
2021 | $ | 134 | | | $ | 41 | | | $ | 175 | |
2022 | 126 | | | 0 | | | 126 | |
2023 | 123 | | | 0 | | | 123 | |
2024 | 103 | | | 0 | | | 103 | |
2025 | 68 | | | 0 | | | 68 | |
Thereafter | 359 | | | 0 | | | 359 | |
Total minimum payments | $ | 913 | | | $ | 41 | | | $ | 954 | |
Total payments under natural gas contracts and natural gas storage and transportation contracts as well as payments to meet additional portfolio needs at Sempra Energy Consolidated and SoCalGas were as follows:
| PAYMENTS UNDER NATURAL GAS CONTRACTS | PAYMENTS UNDER NATURAL GAS CONTRACTS | PAYMENTS UNDER NATURAL GAS CONTRACTS |
(Dollars in millions) | (Dollars in millions) | | | | | | (Dollars in millions) | | | | | |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated | $ | 989 | | | $ | 1,326 | | | $ | 1,345 | | |
Sempra | | Sempra | $ | 1,691 | | | $ | 989 | | | $ | 1,326 | |
SoCalGas | SoCalGas | 935 | | | 1,181 | | | 1,169 | | SoCalGas | 1,590 | | | 935 | | | 1,181 | |
LNG Purchase Agreement
Sempra LNGInfrastructure has a sale and purchase agreement for the supply of LNG to the ECA Regas Facility. The commitment amount is calculated using a predetermined formula based on estimated forward prices of the index applicable from 20212022 to 2029. Although this agreement specifies a number of cargoes to be delivered, under its terms, the customer may divert certain cargoes, which would reduce amounts paid under the agreement by Sempra LNG.Infrastructure.
At December 31, 2020,2021, the following LNG commitment amounts are based on the assumption that all LNG cargoes, less those already confirmed to be diverted, under the agreement are delivered:
| | | | | |
LNG COMMITMENT AMOUNTS |
(Dollars in millions) |
2021 | $ | 320 | |
2022 | 422 | |
2023 | 389 | |
2024 | 386 | |
2025 | 390 | |
Thereafter | 1,452 | |
Total | $ | 3,359 | |
| | | | | |
LNG COMMITMENT AMOUNTS |
(Dollars in millions) |
Sempra: | |
2022 | $ | 435 | |
2023 | 553 | |
2024 | 516 | |
2025 | 518 | |
2026 | 519 | |
Thereafter | 1,381 | |
Total | $ | 3,922 | |
Actual LNG purchases were approximately $27 million in 2021, $16 million in 2020 2019 and 2018 have been significantly lower than the maximum amount provided under the agreement$17 million in 2019 due to the customer electing to divert cargoes as allowed by the agreement.
Purchased-Power Contracts
For 2021,2022, SDG&E expects to meet its customer power requirements from the following resource types:
▪Long-term contracts: 28%60% (of which 27%57% is provided by renewable energy contracts expiring on various dates through 2041)2042)
▪Other SDG&E-owned generation and tolling contracts: 43%contracts expiring on various dates through 2039: 46%
▪Spot market purchases: 29%sales: (6)%
Payments on our purchased-power contracts could exceed the minimum commitments based on energy needs. At December 31, 2020,2021, the future minimum payments under long-term purchased-power contracts for Sempra Energy Consolidated and SDG&E are as follows:
| FUTURE MINIMUM PAYMENTS – PURCHASED-POWER CONTRACTS | FUTURE MINIMUM PAYMENTS – PURCHASED-POWER CONTRACTS | FUTURE MINIMUM PAYMENTS – PURCHASED-POWER CONTRACTS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
2021 | $ | 222 | | |
2022 | 2022 | 208 | | 2022 | $ | 218 | |
2023 | 2023 | 173 | | 2023 | 188 | |
2024 | 2024 | 145 | | 2024 | 162 | |
2025 | 2025 | 88 | | 2025 | 105 | |
2026 | | 2026 | 100 | |
Thereafter | Thereafter | 794 | | Thereafter | 817 | |
Total minimum payments(1) | Total minimum payments(1) | $ | 1,630 | | Total minimum payments(1) | $ | 1,590 | |
(1) Excludes purchase agreements accounted for as operating leases and finance leases.
Payments on these contracts represent capacity charges and minimum energy and transmission purchases that exceed the minimum commitment. SDG&E is required to pay additional amounts for actual purchases of energy that exceed the minimum energy commitments. SDG&E estimates these variable payments to be $66$63 million in each of 20212022 through 2026 and 2022, $67 million in 2023, $65 million in 2024, $66 million in 2025 and $541$430 million thereafter. Total payments under purchased-power contracts for Sempra Energy Consolidated and SDG&E were $495 million in 2021, $534 million in 2020 and $744 million in 2019 and $712 million in 2018.2019.
Construction and Development Projects
Sempra Energy Consolidated has various capital projects in progress in the U.S. and Mexico. Our total contractual commitments at December 31, 20202021 under these projects are approximately $696$389 million, requiring future payments of $525$223 million in 2021,2022, $22 million in 2022, $19 million in 2023, $16$18 million in each of 2024 and 2025, $5 million in 2026 and $98$103 million thereafter. The following is a summary by segment of contractual commitments and contingencies related to such projects.
SDG&E
At December 31, 2020,2021, SDG&E has commitments to make future payments of $25$27 million for construction projects that include:
▪$14 million for infrastructure improvements for electric and natural gas transmission and distribution systems; and
▪$2423 million related to spent fuel management at SONGS.
SDG&E expects future payments under these contractual commitments to be $2$3 million in 2021,each of 2022 and 2023, $1 million in each of 20222024 through 20252026 and $19$18 million thereafter.
Sempra MexicoInfrastructure
At December 31, 2020,2021, Sempra MexicoInfrastructure has commitments to make future payments of $610$362 million for construction and development projects that include:
▪$34943 million for liquid fuels terminals;
▪$249296 million for natural gas pipelines and ongoing maintenance services; and
▪$1223 million for renewables projects.
Sempra MexicoInfrastructure expects future payments under these contractual commitments to be $466$220 million in 2021,2022, $19 million in 2022, $16 million in 2023, $15$17 million in each of 2024 and 2025, $4 million in 2026 and $79$85 million thereafter.
Sempra LNG
At December 31, 2020, Sempra LNG has commitments to make future payments of $61 million primarily for natural gas liquefaction development costs and natural gas transportation projects. Sempra LNG expects future payments under these contractual commitments to be $57 million in 2021, $2 million in each of 2022 and 2023.
OTHER COMMITMENTS
SDG&E
We discuss nuclear insurance and nuclear fuel disposal related to SONGS in Note 15.
Fire Mitigation Fund
In connection with the completion of the Sunrise Powerlink project in 2012, the CPUC required that SDG&E establish a fire mitigation fund to minimize the risk of fire as well as reduce the potential wildfire impact on residences and structures near the Sunrise Powerlink. The future payments for these contractual commitments, for which a liability has been recorded, are expected
to be $4 million per year in 20212022 through 20252026 and $279$275 million thereafter, subject to escalation of 2% per year, for a remaining 49-year48-year period. At December 31, 2020,2021, the present value of these future payments of $121$122 million has been recorded as a regulatory asset as the amounts represent a cost that we expect will be recovered from customers in the future.
Franchise Agreements
In December 2020, the City of San Diego and SDG&E agreed to extend SDG&E’s natural gas and electric franchises for the city to June 1, 2021. After completing a competitive bid process, on June 8, 2021, the City of San Diego approved ordinances granting to SDG&E the natural gas and electric franchises for the city. These franchise agreements provide SDG&E the opportunity to serve the City of San Diego for the next 20 years, consisting of 10-year agreements that will automatically renew for an additional 10 years unless the City Council voids the automatic renewal with a supermajority vote. The agreements went into effect in July 2021. Over the 20-year term of the agreements, SDG&E will make principal payments of $110 million and interest payments of $13 million as consideration for the natural gas and electric franchise agreements. The consideration paid will not be recovered from customers and will be amortized over 20 years. SDG&E paid $11 million to the City of San Diego in 2021. At December 31, 2021, SDG&E has commitments to make future payments of $14 million per year in 2022 through 2024, $15 million in 2025, $4 million in 2026 and $51 million thereafter.
Two lawsuits have been filed in the California Superior Court challenging the City’s process for its award of the natural gas and electric franchises and seeking to declare the franchise agreements null and void.
Sempra LNGInfrastructure
Additional consideration for a 2006 comprehensive legal settlement with the State of California to resolve the Continental Forge litigation included an agreement that, for a period of 18 years beginning in 2011, Sempra LNGInfrastructure would sell to the California Utilities,SDG&E and SoCalGas, subject to annual CPUC approval, up to 500 MMcf per day of regasified LNG from Sempra Mexico’sInfrastructure’s ECA Regas Facility that is not delivered or sold in Mexico at the price indexed to the California border minus $0.02 per MMBtu. There are no specified minimums required, and to date, Sempra LNGInfrastructure has not been required to deliver any natural gas pursuant to this agreement.
ENVIRONMENTAL ISSUES
Our operations are subject to federal, state and local environmental laws. We also are subject to regulations related to hazardous wastes, air and water quality, land use, solid waste disposal and the protection of wildlife. These laws and regulations require that we investigate and correct the effects of the release or disposal of materials at sites associated with our past and our present operations. These sites include those at which we have been identified as a PRP under the federal Superfund laws and similar state laws.
In addition, we are required to obtain numerous governmental permits, licenses and other approvals to construct facilities and operate our businesses. The related costs of environmental monitoring, pollution control equipment, cleanup costs, and emissions fees are significant. Increasing national and international concerns regarding global warming and mercury, carbon dioxide, nitrogen oxide and sulfur dioxide emissions could result in requirements for additional pollution control equipment or significant emissions fees or taxes that could adversely affect Sempra LNGInfrastructure. SDG&E’s and Sempra Mexico. The California Utilities’SoCalGas’ costs to operate their facilities in compliance with these laws and regulations generally have been recovered in customer rates.
We disclose any proceeding under environmental laws to which a government authority is a party when the potential monetary sanctions, exclusive of interest and costs, exceed the lesser of $1 million or 1% of current assets, which was $45$44 million for Sempra, Energy Consolidated, $16$14 million for SDG&E and $15$16 million for SoCalGas at December 31, 2020.2021.
We discuss environmental matters related to the natural gas leak at SoCalGas’ Aliso Canyon natural gas storage facility above in “Legal Proceedings – SoCalGas – Aliso Canyon Natural Gas Storage Facility Gas Leak.”
Other Environmental Issues
We generally capitalize the significant costs we incur to mitigate or prevent future environmental contamination or extend the life, increase the capacity, or improve the safety or efficiency of property used in current operations. The following table shows our capital expenditures (including construction work in progress) in order to comply with environmental laws and regulations:
| CAPITAL EXPENDITURES FOR ENVIRONMENTAL ISSUES | CAPITAL EXPENDITURES FOR ENVIRONMENTAL ISSUES | CAPITAL EXPENDITURES FOR ENVIRONMENTAL ISSUES |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Sempra Energy Consolidated | $ | 76 | | | $ | 80 | | | $ | 100 | | |
Sempra | | Sempra | $ | 95 | | | $ | 76 | | | $ | 80 | |
SDG&E | SDG&E | 39 | | | 39 | | | 38 | | SDG&E | 32 | | | 39 | | | 39 | |
SoCalGas | SoCalGas | 37 | | | 41 | | | 62 | | SoCalGas | 63 | | | 37 | | | 41 | |
We have not identified any significant environmental issues outside the U.S.
At the California Utilities,SDG&E and SoCalGas, costs that relate to current operations or an existing condition caused by past operations are generally recorded as a regulatory asset due to the probability that these costs will be recovered in rates.
The environmental issues currently facing us, except for those related to the Aliso Canyon natural gas storage facility leakLeak as we discuss above or resolved during the last three years, include (1) investigation and remediation of the California Utilities’SDG&E’s and SoCalGas’ manufactured-gas sites, (2) cleanup of third-party waste-disposal sites used by the California UtilitiesSDG&E and SoCalGas at which we have been identified as a PRP and (3) mitigation of damage to the marine environment caused by the cooling-water discharge from SONGS.
The table below shows the status at December 31, 20202021 of the California Utilities’SDG&E’s and SoCalGas’ manufactured-gas sites and the third-party waste-disposal sites for which we have been identified as a PRP:
| STATUS OF ENVIRONMENTAL SITES | STATUS OF ENVIRONMENTAL SITES | STATUS OF ENVIRONMENTAL SITES |
| | | # Sites complete(1) | | # Sites in process | | # Sites complete(1) | | # Sites in process |
SDG&E: | SDG&E: | | | | SDG&E: | | | |
Manufactured-gas sites | Manufactured-gas sites | 3 | | | 0 | | Manufactured-gas sites | 3 | | | — | |
Third-party waste-disposal sites | Third-party waste-disposal sites | 2 | | | 1 | | Third-party waste-disposal sites | 2 | | | 1 | |
SoCalGas: | SoCalGas: | | SoCalGas: | |
Manufactured-gas sites | Manufactured-gas sites | 39 | | | 3 | | Manufactured-gas sites | 39 | | | 3 | |
Third-party waste-disposal sites | Third-party waste-disposal sites | 5 | | | 2 | | Third-party waste-disposal sites | 5 | | | 2 | |
(1) There may be ongoing compliance obligations for completed sites, such as regular inspections, adherence to land use covenants and water quality monitoring.
We record environmental liabilities when our liability is probable and the costs can be reasonably estimated. In many cases, however, investigations are not yet at a stage where we can determine whether we are liable or, if the liability is probable, to reasonably estimate the amount or range of amounts of the costs. Estimates of our liability are further subject to uncertainties such as the nature and extent of site contamination, evolving cleanup standards and imprecise engineering evaluations. We review our accruals periodically and, as investigations and cleanups proceed, we make adjustments as necessary.
The following table shows our accrued liabilities for environmental matters at December 31, 2020.2021. Of the total liability, $9 million at SoCalGas is recorded on a discounted basis, with a discount rate of 1.5%.
| ACCRUED LIABILITIES FOR ENVIRONMENTAL MATTERS | ACCRUED LIABILITIES FOR ENVIRONMENTAL MATTERS | ACCRUED LIABILITIES FOR ENVIRONMENTAL MATTERS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Manufactured- gas sites | | Waste disposal sites (PRP)(1) | | Other hazardous waste sites | | Total(2) | | Manufactured- gas sites | | Waste disposal sites (PRP)(1) | | Other hazardous waste sites | | Total(2) |
SDG&E(3) | SDG&E(3) | $ | 0 | | | $ | 6 | | | $ | 13 | | | $ | 19 | | SDG&E(3) | $ | — | | | $ | 6 | | | $ | 12 | | | $ | 18 | |
SoCalGas(4) | SoCalGas(4) | 36 | | | 3 | | | 1 | | | 40 | | SoCalGas(4) | 34 | | | 3 | | | 1 | | | 38 | |
Other | Other | 0 | | | 1 | | | 0 | | | 1 | | Other | — | | | 1 | | | — | | | 1 | |
Total Sempra Energy | $ | 36 | | | $ | 10 | | | $ | 14 | | | $ | 60 | | |
Total Sempra | | Total Sempra | $ | 34 | | | $ | 10 | | | $ | 13 | | | $ | 57 | |
(1) Sites for which we have been identified as a PRP.
(2) Includes $11 million, $1 million$5, $2 and $10 million$3 classified as current liabilities, and $49 million, $18 million$52, $16 and $30 million$35 classified as noncurrent liabilities on Sempra Energy’s,Sempra’s, SDG&E’s and SoCalGas’ Consolidated Balance Sheets, respectively.
(3) Does not include SDG&E’s liability for SONGS marine environment mitigation.
(4) Does not include SoCalGas’ liability for environmental matters for the Leak. We discuss matters related to the Leak above in “Legal Proceedings – SoCalGas – Aliso Canyon Natural Gas Storage Facility Gas Leak.”
In connection with the issuance of operating permits, SDG&E and the other owners of SONGS previously reached an agreement with the CCC to mitigate the damage to the marine environment caused by the cooling-water discharge from SONGS during its operation. SONGS’ early retirement, described in Note 15, does not reduce SDG&E’s mitigation obligation. SDG&E’s share of the estimated mitigation costs is $84$97 million, of which $47$53 million has been incurred through December 31, 20202021 and $37$44 million is accrued for remaining costs through 2053, which is recoverable in rates and included in noncurrent Regulatory Assets on Sempra Energy’sSempra’s and SDG&E’s Consolidated Balance Sheets.
We expect future payments related to our environmental liabilities on an undiscounted basis to be $12 million in 2021, $16$6 million in 2022, $3$13 million in 2023, $6$9 million in 2024, $3$4 million in 2025, $17 million in 2026 and $58$53 million thereafter.
NOTE 17. SEGMENT INFORMATION
We have 54 separately managed reportable segments, as follows:
▪SDG&E provides electric service to San Diego and southern Orange counties and natural gas service to San Diego County.
▪SoCalGas is a natural gas distribution utility, serving customers throughout most of Southern California and part of central California.
▪Sempra Texas Utilitiesholds our investment in Oncor Holdings, which owns an 80.25% interest in Oncor, a regulated electric transmission and distribution utility serving customers in the north-central, eastern, western and panhandle regions of Texas; and our indirect, 50% interest in Sharyland Holdings, which owns Sharyland Utilities, a regulated electric transmission utility serving customers near the Texas-Mexico border. As we discuss in Note 5, we acquired our investment in Sharyland Holdings in May 2019.
▪Sempra MexicoInfrastructure includes the operating companies of our subsidiary, SI Partners, as well as a holding company and certain services companies. Sempra Infrastructure develops, builds, operates and invests in energy infrastructure to help enable the energy transition in North American markets and globally. Sempra Infrastructure owns and operates, or holds interests in, natural gas, electric, LNG, LPG, ethane and liquid fuels infrastructure, and has marketing operations for the purchase of LNG and the purchase and sale of natural gas in Mexico.
▪Sempra LNG develops and builds natural gas liquefaction export facilities, holds an 80% interest in SI Partners, which held a facility for the export of100% ownership interest in Sempra LNG ownsHolding, LP and operates natural gas pipelines, and buys, sells and transports natural gas through its marketing operations, all within the U.S. and Mexico. In February 2019, we completed the sale of our natural gas storage assetsa 99.9% ownership interest in IEnova at Mississippi Hub and Bay Gas.December 31, 2021.
In April 2019, Sempra Renewables completed the sale of its remaining wind assets and investments. Upon completion of this sale, remaining nominal business activities at Sempra Renewables were subsumed into Parent and other and the Sempra Renewables segment ceased to exist. The tables below include amounts from Sempra Renewables up until cessation of the segment.
As we discuss in Note 5, the financial information related to our businesses that constituted the Sempra South American Utilities segment is presented as discontinued operations for all periods presented. The information in the tables below excludes amounts from discontinued operations unless otherwise noted. We completed the sales of our discontinued operations in the second quarter of 2020.
We evaluate each segment’s performance based on its contribution to Sempra Energy’sSempra’s reported earnings and cash flows. The California UtilitiesSDG&E and SoCalGas operate in essentially separate service territories, under separate regulatory frameworks and rate structures set by the CPUC and, in the case of SDG&E, the FERC. We describe the accounting policies of all of our segments in Note 1.
The cost of common services shared by the business segments is assigned directly or allocated based on various cost factors, depending on the nature of the service provided. Interest income and expense is recorded on intercompany loans. The loan balances and related interest are eliminated in consolidation.
The following tables show selected information by segment from our Consolidated Statements of Operations and Consolidated Balance Sheets. We provide information about our equity method investments by segment in Note 6. Amounts labeled as “All other” in the following tables consist primarily of activities of parent organizations and include certain nominal amounts from our South American businesses that did not qualify for treatment as discontinued operations.
| SEGMENT INFORMATION | SEGMENT INFORMATION | | SEGMENT INFORMATION | |
(Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
REVENUES | REVENUES | | REVENUES | |
SDG&E | SDG&E | $ | 5,313 | | | $ | 4,925 | | | $ | 4,568 | | SDG&E | $ | 5,504 | | | $ | 5,313 | | | $ | 4,925 | |
SoCalGas | SoCalGas | 4,748 | | | 4,525 | | | 3,962 | | SoCalGas | 5,515 | | | 4,748 | | | 4,525 | |
Sempra Mexico | 1,256 | | | 1,375 | | | 1,376 | | |
Sempra LNG | 374 | | | 410 | | | 472 | | |
Sempra Infrastructure | | Sempra Infrastructure | 1,997 | | | 1,400 | | | 1,454 | |
Sempra Renewables | Sempra Renewables | 0 | | | 10 | | | 124 | | Sempra Renewables | — | | | — | | | 10 | |
All other | All other | 2 | | | 3 | | | 0 | | All other | 5 | | | 2 | | | 3 | |
Adjustments and eliminations | Adjustments and eliminations | (3) | | | (3) | | | (3) | | Adjustments and eliminations | (1) | | | (3) | | | (3) | |
Intersegment revenues(1) | Intersegment revenues(1) | (320) | | | (416) | | | (397) | | Intersegment revenues(1) | (163) | | | (90) | | | (85) | |
Total | Total | $ | 11,370 | | | $ | 10,829 | | | $ | 10,102 | | Total | $ | 12,857 | | | $ | 11,370 | | | $ | 10,829 | |
INTEREST EXPENSE | | |
SDG&E(2) | $ | 413 | | | $ | 411 | | | $ | 221 | | |
DEPRECIATION AND AMORTIZATION | | DEPRECIATION AND AMORTIZATION | |
SDG&E | | SDG&E | $ | 889 | | | $ | 801 | | | $ | 760 | |
SoCalGas | SoCalGas | 158 | | | 141 | | | 115 | | SoCalGas | 716 | | | 654 | | | 602 | |
Sempra Mexico | 132 | | | 119 | | | 120 | | |
Sempra LNG | 43 | | | 35 | | | 21 | | |
Sempra Infrastructure | | Sempra Infrastructure | 239 | | | 198 | | | 193 | |
All other | | All other | 11 | | | 13 | | | 14 | |
Total | | Total | $ | 1,855 | | | $ | 1,666 | | | $ | 1,569 | |
INTEREST INCOME | | INTEREST INCOME | |
SDG&E | | SDG&E | $ | 1 | | | $ | 2 | | | $ | 4 | |
SoCalGas | | SoCalGas | 1 | | | 2 | | | 2 | |
Sempra Infrastructure | | Sempra Infrastructure | 75 | | | 141 | | | 139 | |
Sempra Renewables | Sempra Renewables | 0 | | | 3 | | | 19 | | Sempra Renewables | — | | | — | | | 11 | |
All other | All other | 389 | | | 450 | | | 496 | | All other | 3 | | | 7 | | | 4 | |
Intercompany eliminations | Intercompany eliminations | (54) | | | (82) | | | (106) | | Intercompany eliminations | (11) | | | (56) | | | (73) | |
Total | Total | $ | 1,081 | | | $ | 1,077 | | | $ | 886 | | Total | $ | 69 | | | $ | 96 | | | $ | 87 | |
INTEREST INCOME | | |
INTEREST EXPENSE | | INTEREST EXPENSE | |
SDG&E | SDG&E | $ | 2 | | | $ | 4 | | | $ | 4 | | SDG&E | $ | 412 | | | $ | 413 | | | $ | 411 | |
SoCalGas | SoCalGas | 2 | | | 2 | | | 2 | | SoCalGas | 157 | | | 158 | | | 141 | |
Sempra Mexico | 60 | | | 78 | | | 65 | | |
Sempra LNG | 81 | | | 61 | | | 49 | | |
Sempra Infrastructure | | Sempra Infrastructure | 205 | | | 174 | | | 155 | |
Sempra Renewables | Sempra Renewables | 0 | | | 11 | | | 12 | | Sempra Renewables | — | | | — | | | 3 | |
All other | All other | 7 | | | 4 | | | 14 | | All other | 444 | | | 390 | | | 450 | |
Intercompany eliminations | Intercompany eliminations | (56) | | | (73) | | | (61) | | Intercompany eliminations | (20) | | | (54) | | | (83) | |
Total | $ | 96 | | | $ | 87 | | | $ | 85 | | |
DEPRECIATION AND AMORTIZATION | | |
SDG&E | $ | 801 | | | $ | 760 | | | $ | 688 | | |
SoCalGas | 654 | | | 602 | | | 556 | | |
Sempra Mexico | 189 | | | 183 | | | 175 | | |
Sempra LNG | 9 | | | 10 | | | 26 | | |
Sempra Renewables | 0 | | | 0 | | | 27 | | |
All other | 13 | | | 14 | | | 19 | | |
Total | Total | $ | 1,666 | | | $ | 1,569 | | | $ | 1,491 | | Total | $ | 1,198 | | | $ | 1,081 | | | $ | 1,077 | |
INCOME TAX EXPENSE (BENEFIT) | INCOME TAX EXPENSE (BENEFIT) | | INCOME TAX EXPENSE (BENEFIT) | |
SDG&E | SDG&E | $ | 190 | | | $ | 171 | | | $ | 173 | | SDG&E | $ | 201 | | | $ | 190 | | | $ | 171 | |
SoCalGas | SoCalGas | 96 | | | 120 | | | 92 | | SoCalGas | (310) | | | 96 | | | 120 | |
Sempra Texas Utilities | Sempra Texas Utilities | 1 | | | 0 | | | 0 | | Sempra Texas Utilities | — | | | 1 | | | — | |
Sempra Mexico | 57 | | | 227 | | | 185 | | |
Sempra LNG | 92 | | | (5) | | | (435) | | |
Sempra Infrastructure | | Sempra Infrastructure | 238 | | | 149 | | | 222 | |
Sempra Renewables | Sempra Renewables | 0 | | | 4 | | | 71 | | Sempra Renewables | — | | | — | | | 4 | |
All other | All other | (187) | | | (202) | | | (135) | | All other | (30) | | | (187) | | | (202) | |
Total | Total | $ | 249 | | | $ | 315 | | | $ | (49) | | Total | $ | 99 | | | $ | 249 | | | $ | 315 | |
EARNINGS (LOSSES) ATTRIBUTABLE TO COMMON SHARES | | EARNINGS (LOSSES) ATTRIBUTABLE TO COMMON SHARES | | | | | |
SDG&E | | SDG&E | $ | 819 | | | $ | 824 | | | $ | 767 | |
SoCalGas | | SoCalGas | (427) | | | 504 | | | 641 | |
Sempra Texas Utilities | | Sempra Texas Utilities | 616 | | | 579 | | | 528 | |
Sempra Infrastructure | | Sempra Infrastructure | 682 | | | 580 | | | 247 | |
Sempra Renewables | | Sempra Renewables | — | | | — | | | 59 | |
Discontinued operations | | Discontinued operations | — | | | 1,840 | | | 328 | |
All other | | All other | (436) | | | (563) | | | (515) | |
Total | | Total | $ | 1,254 | | | $ | 3,764 | | | $ | 2,055 | |
| SEGMENT INFORMATION (CONTINUED) | SEGMENT INFORMATION (CONTINUED) | SEGMENT INFORMATION (CONTINUED) |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Years ended December 31 or at December 31, | | Years ended December 31 or at December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
| EARNINGS (LOSSES) ATTRIBUTABLE TO COMMON SHARES | | | | | | |
SDG&E | $ | 824 | | | $ | 767 | | | $ | 669 | | |
SoCalGas | 504 | | | 641 | | | 400 | | |
Sempra Texas Utilities | 579 | | | 528 | | | 371 | | |
Sempra Mexico | 259 | | | 253 | | | 237 | | |
Sempra LNG | 320 | | | (6) | | | (617) | | |
Sempra Renewables | 0 | | | 59 | | | 328 | | |
Discontinued operations | 1,840 | | | 328 | | | 156 | | |
All other | (562) | | | (515) | | | (620) | | |
Total | $ | 3,764 | | | $ | 2,055 | | | $ | 924 | | |
EXPENDITURES FOR PROPERTY, PLANT & EQUIPMENT | EXPENDITURES FOR PROPERTY, PLANT & EQUIPMENT | | | | | | EXPENDITURES FOR PROPERTY, PLANT & EQUIPMENT | | | | | |
SDG&E | SDG&E | $ | 1,942 | | | $ | 1,522 | | | $ | 1,542 | | SDG&E | $ | 2,220 | | | $ | 1,942 | | | $ | 1,522 | |
SoCalGas | SoCalGas | 1,843 | | | 1,439 | | | 1,538 | | SoCalGas | 1,984 | | | 1,843 | | | 1,439 | |
Sempra Mexico | 611 | | | 624 | | | 368 | | |
Sempra LNG | 268 | | | 112 | | | 31 | | |
Sempra Infrastructure | | Sempra Infrastructure | 802 | | | 879 | | | 736 | |
Sempra Renewables | Sempra Renewables | 0 | | | 2 | | | 51 | | Sempra Renewables | — | | | — | | | 2 | |
All other | All other | 12 | | | 9 | | | 14 | | All other | 9 | | | 12 | | | 9 | |
Total | Total | $ | 4,676 | | | $ | 3,708 | | | $ | 3,544 | | Total | $ | 5,015 | | | $ | 4,676 | | | $ | 3,708 | |
ASSETS | ASSETS | | | | | | ASSETS | | | | | |
SDG&E | SDG&E | $ | 22,311 | | | $ | 20,560 | | | $ | 19,225 | | SDG&E | $ | 24,058 | | | $ | 22,311 | | | $ | 20,560 | |
SoCalGas | SoCalGas | 18,460 | | | 17,077 | | | 15,389 | | SoCalGas | 20,324 | | | 18,460 | | | 17,077 | |
Sempra Texas Utilities | Sempra Texas Utilities | 12,542 | | | 11,619 | | | 9,652 | | Sempra Texas Utilities | 13,047 | | | 12,542 | | | 11,619 | |
Sempra Mexico | 10,752 | | | 9,938 | | | 9,165 | | |
Sempra LNG | 2,205 | | | 3,901 | | | 4,060 | | |
Sempra Renewables | 0 | | | 0 | | | 2,549 | | |
Sempra Infrastructure | | Sempra Infrastructure | 14,408 | | | 12,772 | | | 13,660 | |
Discontinued operations | Discontinued operations | 0 | | | 3,958 | | | 3,718 | | Discontinued operations | — | | | — | | | 3,958 | |
All other | All other | 1,209 | | | 749 | | | 1,070 | | All other | 1,399 | | | 1,215 | | | 763 | |
Intersegment receivables | Intersegment receivables | (856) | | | (2,137) | | | (4,190) | | Intersegment receivables | (1,191) | | | (677) | | | (1,972) | |
Total | Total | $ | 66,623 | | | $ | 65,665 | | | $ | 60,638 | | Total | $ | 72,045 | | | $ | 66,623 | | | $ | 65,665 | |
GEOGRAPHIC INFORMATION | GEOGRAPHIC INFORMATION | | GEOGRAPHIC INFORMATION | |
Long-lived assets(3): | | |
Long-lived assets(2): | | Long-lived assets(2): | |
United States | | United States | $ | 50,657 | | | $ | 46,902 | | | $ | 43,719 | |
Mexico | | Mexico | $ | 7,708 | | | $ | 6,929 | | | $ | 6,355 | |
Asia | | Asia | 1 | | | — | | | — | |
Total | | Total | $ | 58,366 | | | $ | 53,831 | | | $ | 50,074 | |
Revenues(3): | | Revenues(3): | | | | | |
United States | United States | $ | 46,902 | | | $ | 43,719 | | | $ | 40,611 | | United States | $ | 11,154 | | | $ | 10,205 | | | $ | 9,574 | |
Mexico | Mexico | 6,929 | | | 6,355 | | | 5,800 | | Mexico | 1,703 | | | 1,165 | | | 1,255 | |
Total | Total | $ | 53,831 | | | $ | 50,074 | | | $ | 46,411 | | Total | $ | 12,857 | | | $ | 11,370 | | | $ | 10,829 | |
Revenues(4): | | | | | | |
United States | $ | 10,205 | | | $ | 9,574 | | | $ | 8,840 | | |
Mexico | 1,165 | | | 1,255 | | | 1,262 | | |
Total | $ | 11,370 | | | $ | 10,829 | | | $ | 10,102 | | |
(1)Revenues for reportable segments include intersegment revenues of $10, $98, and $55 for 2021; $5, million, $88, million, $91 million and $136 million$(3) for 2020; and $5, million, $69, million, $120 million and $222 million$11 for 2019; and $4 million, $64 million, $114 million and $215 million for 20182019 for SDG&E, SoCalGas, Sempra Mexico and Sempra LNG,Infrastructure, respectively.
(2)In accordance with adoption of the lease standard on January 1, 2019, on a prospective basis, a significant portion of finance lease costs for PPAs that have historically been presented in Cost of Electric Fuel and Purchased Power are now presented in Interest Expense.
(3)Includes net PP&E and investments.
(4)(3)Amounts are based on where the revenue originated, after intercompany eliminations.
NOTE 18. QUARTERLY FINANCIAL DATA (UNAUDITED)
We provide quarterly financial information for Sempra Energy Consolidated, SDG&E and SoCalGas below:
| | | | | | | | | | | | | | | | | | | | | | | |
SEMPRA ENERGY |
(In millions, except per share amounts) |
| Quarters ended |
| March 31 | | June 30 | | September 30 | | December 31 |
2020: | | | | | | | |
Revenues | $ | 3,029 | | | $ | 2,526 | | | $ | 2,644 | | | $ | 3,171 | |
Expenses and other income | $ | 2,632 | | | $ | 2,063 | | | $ | 2,443 | | | $ | 2,743 | |
| | | | | | | |
Income from continuing operations, net of income tax | $ | 867 | | | $ | 528 | | | $ | 428 | | | $ | 432 | |
Income (loss) from discontinued operations, net of income tax | 80 | | | 1,777 | | | (7) | | | 0 | |
Net income | $ | 947 | | | $ | 2,305 | | | $ | 421 | | | $ | 432 | |
| | | | | | | |
Earnings attributable to common shares | $ | 760 | | | $ | 2,239 | | | $ | 351 | | | $ | 414 | |
| | | | | | | |
Basic EPS(1): | | | | | | | |
Earnings from continuing operations | $ | 2.35 | | | $ | 1.58 | | | $ | 1.23 | | | $ | 1.43 | |
Earnings (losses) from discontinued operations | $ | 0.25 | | | $ | 6.06 | | | $ | (0.02) | | | $ | 0 | |
Earnings | $ | 2.60 | | | $ | 7.64 | | | $ | 1.21 | | | $ | 1.43 | |
Weighted-average common shares outstanding | 292.8 | | | 293.1 | | | 289.5 | | | 289.0 | |
| | | | | | | |
Diluted EPS(1): | | | | | | | |
Earnings from continuing operations(2) | $ | 2.30 | | | $ | 1.58 | | | $ | 1.23 | | | $ | 1.43 | |
Earnings (losses) from discontinued operations | $ | 0.23 | | | $ | 6.03 | | | $ | (0.02) | | | $ | 0 | |
Earnings(2) | $ | 2.53 | | | $ | 7.61 | | | $ | 1.21 | | | $ | 1.43 | |
Weighted-average common shares outstanding | 313.9 | | | 294.2 | | | 290.6 | | | 290.2 | |
2019: | | | | | | | |
Revenues | $ | 2,898 | | | $ | 2,230 | | | $ | 2,758 | | | $ | 2,943 | |
Expenses and other income | $ | 2,397 | | | $ | 1,944 | | | $ | 2,310 | | | $ | 2,444 | |
| | | | | | | |
Income from continuing operations, net of income tax | $ | 560 | | | $ | 357 | | | $ | 653 | | | $ | 429 | |
(Loss) income from discontinued operations, net of income tax | (42) | | | 78 | | | 256 | | | 71 | |
Net income | $ | 518 | | | $ | 435 | | | $ | 909 | | | $ | 500 | |
| | | | | | | |
Earnings attributable to common shares | $ | 441 | | | $ | 354 | | | $ | 813 | | | $ | 447 | |
| | | | | | | |
Basic EPS(1): | | | | | | | |
Earnings from continuing operations | $ | 1.79 | | | $ | 1.03 | | | $ | 2.04 | | | $ | 1.36 | |
(Losses) earnings from discontinued operations | $ | (0.19) | | | $ | 0.26 | | | $ | 0.89 | | | $ | 0.21 | |
Earnings | $ | 1.60 | | | $ | 1.29 | | | $ | 2.93 | | | $ | 1.57 | |
Weighted-average common shares outstanding | 274.7 | | | 275.0 | | | 277.4 | | | 284.6 | |
| | | | | | | |
Diluted EPS(1): | | | | | | | |
Earnings from continuing operations(2) | $ | 1.78 | | | $ | 1.01 | | | $ | 2.00 | | | $ | 1.34 | |
(Losses) earnings from discontinued operations | $ | (0.19) | | | $ | 0.25 | | | $ | 0.84 | | | $ | 0.21 | |
Earnings(2) | $ | 1.59 | | | $ | 1.26 | | | $ | 2.84 | | | $ | 1.55 | |
Weighted-average common shares outstanding | 277.2 | | | 279.6 | | | 295.8 | | | 288.8 | |
(2) In the quarters ended March 31, 2020 and September 30, 2019, due to the dilutive effect of certain mandatory convertible preferred stock, the numerator used to calculate diluted EPS included an add-back of related mandatory convertible preferred dividends declared in those quarters.
In April 2020, we completed the sale of our equity interests in our Peruvian businesses for cash proceeds of $3,549 million, net of transaction costs and as adjusted for post-closing adjustments, and recorded a pretax gain of $2,271 million ($1,499 million after tax). In June 2020, we completed the sale of our equity interests in our Chilean businesses for cash proceeds of $2,216 million, net of transaction costs and as adjusted for post-closing adjustments, and recorded a pretax gain of $628 million ($248 million after tax). We discuss the sale of these discontinued operations and related gains in Note 5.
In March, September and December of 2020, SoCalGas recorded charges of $100 million ($72 million after tax), $27 million ($22 million after tax) and $180 million ($139 million after tax), respectively, in Aliso Canyon Litigation and Regulatory Matters on the SoCalGas and Sempra Energy Consolidated Statements of Operations related to settlement discussions in connection with civil litigation and regulatory matters. We discuss these matters in Note 16.
In April 2019, Sempra Renewables completed the sale of its remaining wind assets and investments and recognized a pretax gain on sale of $61 million ($45 million after tax). We discuss the sale and related gain in Note 5.
| | | | | | | | | | | | | | | | | | | | | | | |
SDG&E |
(Dollars in millions) |
| Quarters ended |
| March 31 | | June 30 | | September 30 | | December 31 |
2020: | | | | | | | |
Operating revenues | $ | 1,269 | | | $ | 1,235 | | | $ | 1,472 | | | $ | 1,337 | |
Operating expenses | 880 | | | 887 | | | 1,157 | | | 1,016 | |
Operating income | $ | 389 | | | $ | 348 | | | $ | 315 | | | $ | 321 | |
| | | | | | | |
Net income/Earnings attributable to common shares | $ | 262 | | | $ | 193 | | | $ | 178 | | | $ | 191 | |
2019: | | | | | | | |
Operating revenues | $ | 1,145 | | | $ | 1,094 | | | $ | 1,427 | | | $ | 1,259 | |
Operating expenses | 883 | | | 831 | | | 1,004 | | | 894 | |
Operating income | $ | 262 | | | $ | 263 | | | $ | 423 | | | $ | 365 | |
| | | | | | | |
Net income | $ | 177 | | | $ | 146 | | | $ | 266 | | | $ | 185 | |
Earnings attributable to noncontrolling interest | (1) | | | (3) | | | (3) | | | 0 | |
Earnings attributable to common shares | $ | 176 | | | $ | 143 | | | $ | 263 | | | $ | 185 | |
| | | | | | | | | | | | | | | | | | | | | | | |
SOCALGAS |
(Dollars in millions) |
| Quarters ended |
| March 31 | | June 30 | | September 30 | | December 31 |
2020: | | | | | | | |
Operating revenues | $ | 1,395 | | | $ | 1,010 | | | $ | 842 | | | $ | 1,501 | |
Operating expenses | 1,031 | | | 773 | | | 826 | | | 1,333 | |
Operating income | $ | 364 | | | $ | 237 | | | $ | 16 | | | $ | 168 | |
| | | | | | | |
Net income (loss) | $ | 303 | | | $ | 147 | | | $ | (24) | | | $ | 79 | |
Dividends on preferred stock | 0 | | | (1) | | | 0 | | | 0 | |
Earnings (losses) attributable to common shares | $ | 303 | | | $ | 146 | | | $ | (24) | | | $ | 79 | |
2019: | | | | | | | |
Operating revenues | $ | 1,361 | | | $ | 806 | | | $ | 975 | | | $ | 1,383 | |
Operating expenses | 1,060 | | | 747 | | | 762 | | | 1,000 | |
Operating income | $ | 301 | | | $ | 59 | | | $ | 213 | | | $ | 383 | |
| | | | | | | |
Net income | $ | 264 | | | $ | 31 | | | $ | 143 | | | $ | 204 | |
Dividends on preferred stock | 0 | | | (1) | | | 0 | | | 0 | |
Earnings attributable to common shares | $ | 264 | | | $ | 30 | | | $ | 143 | | | $ | 204 | |
SoCalGas recognizes annual authorized revenue for core natural gas customers using seasonal factors established in the Triennial Cost Allocation Proceeding. Accordingly, a significant portion of SoCalGas’ annual earnings are recognized in the first and fourth quarters each year.
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SCHEDULE I – SEMPRA ENERGY | |
INDEX TO CONDENSED FINANCIAL INFORMATION OF PARENT | |
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| SEMPRA ENERGY | SEMPRA ENERGY | SEMPRA ENERGY |
CONDENSED STATEMENTS OF OPERATIONS | CONDENSED STATEMENTS OF OPERATIONS | CONDENSED STATEMENTS OF OPERATIONS |
(Dollars in millions, except per share amounts; shares in thousands) | (Dollars in millions, except per share amounts; shares in thousands) | (Dollars in millions, except per share amounts; shares in thousands) |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Interest income | Interest income | $ | 4 | | | $ | 3 | | | $ | 14 | | Interest income | $ | 11 | | | $ | 4 | | | $ | 3 | |
Interest expense | Interest expense | (495) | | | (521) | | | (495) | | Interest expense | (576) | | | (495) | | | (521) | |
Operating expenses | Operating expenses | (86) | | | (124) | | | (82) | | Operating expenses | (92) | | | (86) | | | (124) | |
Other (expense) income, net | (38) | | | 59 | | | (16) | | |
Other income (expense), net | | Other income (expense), net | 20 | | | (38) | | | 59 | |
Income tax benefit | Income tax benefit | 176 | | | 163 | | | 154 | | Income tax benefit | 190 | | | 176 | | | 163 | |
Loss before equity in earnings of subsidiaries | Loss before equity in earnings of subsidiaries | (439) | | | (420) | | | (425) | | Loss before equity in earnings of subsidiaries | (447) | | | (439) | | | (420) | |
Equity in earnings of subsidiaries, net of income taxes | Equity in earnings of subsidiaries, net of income taxes | 4,371 | | | 2,617 | | | 1,474 | | Equity in earnings of subsidiaries, net of income taxes | 1,764 | | | 4,371 | | | 2,617 | |
Net income | Net income | 3,932 | | | 2,197 | | | 1,049 | | Net income | 1,317 | | | 3,932 | | | 2,197 | |
Preferred dividends | Preferred dividends | (168) | | | (142) | | | (125) | | Preferred dividends | (63) | | | (168) | | | (142) | |
Earnings | Earnings | $ | 3,764 | | | $ | 2,055 | | | $ | 924 | | Earnings | $ | 1,254 | | | $ | 3,764 | | | $ | 2,055 | |
| Basic EPS: | Basic EPS: | | Basic EPS: | |
Earnings | Earnings | $ | 12.93 | | | $ | 7.40 | | | $ | 3.45 | | Earnings | $ | 4.03 | | | $ | 12.93 | | | $ | 7.40 | |
Weighted-average common shares outstanding | Weighted-average common shares outstanding | 291,077 | | | 277,904 | | | 268,072 | | Weighted-average common shares outstanding | 311,755 | | | 291,077 | | | 277,904 | |
| Diluted EPS: | Diluted EPS: | | Diluted EPS: | |
Earnings | Earnings | $ | 12.88 | | | $ | 7.29 | | | $ | 3.42 | | Earnings | $ | 4.01 | | | $ | 12.88 | | | $ | 7.29 | |
Weighted-average common shares outstanding | Weighted-average common shares outstanding | 292,252 | | | 282,033 | | | 269,852 | | Weighted-average common shares outstanding | 313,036 | | | 292,252 | | | 282,033 | |
See Notes to Condensed Financial Information of Parent.
| SEMPRA ENERGY | SEMPRA ENERGY | SEMPRA ENERGY |
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Years ended December 31, 2020, 2019 and 2018 | | Years ended December 31, 2021, 2020 and 2019 |
| | Pretax amount | | Income tax benefit (expense) | | Net-of-tax amount | | Pretax amount | | Income tax benefit (expense) | | Net-of-tax amount |
2021: | | 2021: | | | | | |
Net income | | Net income | $ | 1,127 | | | $ | 190 | | | $ | 1,317 | |
Other comprehensive income (loss): | | Other comprehensive income (loss): | | | | | |
Foreign currency translation adjustments | | Foreign currency translation adjustments | (6) | | | — | | | (6) | |
Financial instruments | | Financial instruments | 191 | | | (47) | | | 144 | |
Pension and other postretirement benefits | | Pension and other postretirement benefits | 28 | | | (6) | | | 22 | |
Total other comprehensive income | | Total other comprehensive income | 213 | | | (53) | | | 160 | |
Comprehensive income | | Comprehensive income | $ | 1,340 | | | $ | 137 | | | $ | 1,477 | |
2020: | 2020: | | | | | | 2020: | | | | | |
Net income | Net income | $ | 3,756 | | | $ | 176 | | | $ | 3,932 | | Net income | $ | 3,756 | | | $ | 176 | | | $ | 3,932 | |
Other comprehensive income (loss): | Other comprehensive income (loss): | | | | | | Other comprehensive income (loss): | | | | | |
Foreign currency translation adjustments | Foreign currency translation adjustments | 547 | | | 0 | | | 547 | | Foreign currency translation adjustments | 547 | | | — | | | 547 | |
Financial instruments | Financial instruments | (146) | | | 33 | | | (113) | | Financial instruments | (146) | | | 33 | | | (113) | |
Pension and other postretirement benefits | Pension and other postretirement benefits | 11 | | | 1 | | | 12 | | Pension and other postretirement benefits | 11 | | | 1 | | | 12 | |
Total other comprehensive income | Total other comprehensive income | 412 | | | 34 | | | 446 | | Total other comprehensive income | 412 | | | 34 | | | 446 | |
Comprehensive income | Comprehensive income | $ | 4,168 | | | $ | 210 | | | $ | 4,378 | | Comprehensive income | $ | 4,168 | | | $ | 210 | | | $ | 4,378 | |
2019: | 2019: | | | | | | 2019: | | | | | |
Net income | Net income | $ | 2,034 | | | $ | 163 | | | $ | 2,197 | | Net income | $ | 2,034 | | | $ | 163 | | | $ | 2,197 | |
Other comprehensive income (loss): | Other comprehensive income (loss): | | | | | | Other comprehensive income (loss): | | | | | |
Foreign currency translation adjustments | Foreign currency translation adjustments | (43) | | | 0 | | | (43) | | Foreign currency translation adjustments | (43) | | | — | | | (43) | |
Financial instruments | Financial instruments | (161) | | | 53 | | | (108) | | Financial instruments | (161) | | | 53 | | | (108) | |
Pension and other postretirement benefits | Pension and other postretirement benefits | 25 | | | (7) | | | 18 | | Pension and other postretirement benefits | 25 | | | (7) | | | 18 | |
Total other comprehensive loss | Total other comprehensive loss | (179) | | | 46 | | | (133) | | Total other comprehensive loss | (179) | | | 46 | | | (133) | |
Comprehensive income | Comprehensive income | $ | 1,855 | | | $ | 209 | | | $ | 2,064 | | Comprehensive income | $ | 1,855 | | | $ | 209 | | | $ | 2,064 | |
2018: | | | | | | |
Net income | $ | 895 | | | $ | 154 | | | $ | 1,049 | | |
Other comprehensive income (loss): | | | | | | |
Foreign currency translation adjustments | (144) | | | 0 | | | (144) | | |
Financial instruments | 64 | | | (21) | | | 43 | | |
Pension and other postretirement benefits | (38) | | | 4 | | | (34) | | |
Total other comprehensive loss | (118) | | | (17) | | | (135) | | |
Comprehensive income | $ | 777 | | | $ | 137 | | | $ | 914 | | |
See Notes to Condensed Financial Information of Parent.
| SEMPRA ENERGY | SEMPRA ENERGY | SEMPRA ENERGY |
CONDENSED BALANCE SHEETS | CONDENSED BALANCE SHEETS | CONDENSED BALANCE SHEETS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | December 31, 2020 | | December 31, 2019 | | December 31, |
| | | 2021 | | 2020 | | 2019 |
Assets: | Assets: | | | | Assets: | | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 366 | | | $ | 6 | | Cash and cash equivalents | $ | 186 | | | $ | 366 | | | $ | 6 | |
Restricted cash | | Restricted cash | 2 | | | — | | | — | |
Due from affiliates | Due from affiliates | 58 | | | 98 | | Due from affiliates | 446 | | | 58 | | | 98 | |
Income taxes receivable, net | Income taxes receivable, net | 42 | | | 0 | | Income taxes receivable, net | — | | | 42 | | | — | |
Other current assets | Other current assets | 26 | | | 34 | | Other current assets | 31 | | | 26 | | | 34 | |
Total current assets | Total current assets | 492 | | | 138 | | Total current assets | 665 | | | 492 | | | 138 | |
| Investments in subsidiaries | Investments in subsidiaries | 33,898 | | | 32,604 | | Investments in subsidiaries | 33,308 | | | 33,898 | | | 32,604 | |
Due from affiliates | Due from affiliates | 1 | | | 3 | | Due from affiliates | 21 | | | 1 | | | 3 | |
Deferred income taxes | Deferred income taxes | 2,187 | | | 1,766 | | Deferred income taxes | 626 | | | 2,187 | | | 1,766 | |
Other long-term assets | Other long-term assets | 717 | | | 682 | | Other long-term assets | 1,090 | | | 717 | | | 682 | |
Total assets | Total assets | $ | 37,295 | | | $ | 35,193 | | Total assets | $ | 35,710 | | | $ | 37,295 | | | $ | 35,193 | |
| Liabilities and shareholders’ equity: | Liabilities and shareholders’ equity: | | | | Liabilities and shareholders’ equity: | | | | |
Short-term debt | | Short-term debt | $ | 1,240 | | | $ | — | | | $ | — | |
Current portion of long-term debt | Current portion of long-term debt | $ | 850 | | | $ | 1,399 | | Current portion of long-term debt | — | | | 850 | | | 1,399 | |
Due to affiliates | Due to affiliates | 224 | | | 369 | | Due to affiliates | 185 | | | 224 | | | 369 | |
Income taxes payable, net | Income taxes payable, net | 0 | | | 274 | | Income taxes payable, net | 4 | | | — | | | 274 | |
Other current liabilities | Other current liabilities | 536 | | | 561 | | Other current liabilities | 531 | | | 536 | | | 561 | |
Total current liabilities | Total current liabilities | 1,610 | | | 2,603 | | Total current liabilities | 1,960 | | | 1,610 | | | 2,603 | |
| Long-term debt | Long-term debt | 7,317 | | | 8,856 | | Long-term debt | 5,969 | | | 7,317 | | | 8,856 | |
Due to affiliates | Due to affiliates | 4,375 | | | 3,138 | | Due to affiliates | 1,151 | | | 4,375 | | | 3,138 | |
Other long-term liabilities | Other long-term liabilities | 620 | | | 667 | | Other long-term liabilities | 649 | | | 620 | | | 667 | |
| Commitments and contingencies (Note 4) | Commitments and contingencies (Note 4) | 0 | | 0 | Commitments and contingencies (Note 4) | 0 | | 0 | | 0 |
| Shareholders’ equity | Shareholders’ equity | 23,373 | | | 19,929 | | Shareholders’ equity | 25,981 | | | 23,373 | | | 19,929 | |
Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $ | 37,295 | | | $ | 35,193 | | Total liabilities and shareholders’ equity | $ | 35,710 | | | $ | 37,295 | | | $ | 35,193 | |
See Notes to Condensed Financial Information of Parent.
| SEMPRA ENERGY | SEMPRA ENERGY | SEMPRA ENERGY |
CONDENSED STATEMENTS OF CASH FLOWS | CONDENSED STATEMENTS OF CASH FLOWS | CONDENSED STATEMENTS OF CASH FLOWS |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Years ended December 31, | | Years ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 |
Net cash (used in) provided by operating activities | Net cash (used in) provided by operating activities | (978) | | | $ | 294 | | | $ | 213 | | Net cash (used in) provided by operating activities | $ | (255) | | | $ | (978) | | | $ | 294 | |
| Expenditures for property, plant and equipment | Expenditures for property, plant and equipment | (9) | | | (8) | | | (11) | | Expenditures for property, plant and equipment | (8) | | | (9) | | | (8) | |
Expenditures for acquisition | 0 | | | 0 | | | (329) | | |
Capital contributions to investees | Capital contributions to investees | (364) | | | (1,528) | | | (9,457) | | Capital contributions to investees | (1,005) | | | (364) | | | (1,528) | |
Disbursement for note receivable | | Disbursement for note receivable | (305) | | | — | | | — | |
Distribution from investments | Distribution from investments | 3,616 | | | 0 | | | 0 | | Distribution from investments | 1,552 | | | 3,616 | | | — | |
Decrease (increase) in loans to affiliates, net | 2 | | | 0 | | | (1) | | |
(Increase) decrease in loans to affiliates, net | | (Increase) decrease in loans to affiliates, net | (20) | | | 2 | | | — | |
Other | Other | 0 | | | 4 | | | 0 | | Other | — | | | — | | | 4 | |
Net cash provided by (used in) investing activities | Net cash provided by (used in) investing activities | 3,245 | | | (1,532) | | | (9,798) | | Net cash provided by (used in) investing activities | 214 | | | 3,245 | | | (1,532) | |
| Common stock dividends paid | Common stock dividends paid | (1,174) | | | (993) | | | (877) | | Common stock dividends paid | (1,331) | | | (1,174) | | | (993) | |
Preferred dividends paid | Preferred dividends paid | (157) | | | (142) | | | (89) | | Preferred dividends paid | (99) | | | (157) | | | (142) | |
Issuances of preferred stock, net | Issuances of preferred stock, net | 891 | | | 0 | | | 2,258 | | Issuances of preferred stock, net | — | | | 891 | | | — | |
Issuances of common stock, net | Issuances of common stock, net | 11 | | | 1,830 | | | 2,272 | | Issuances of common stock, net | 5 | | | 11 | | | 1,830 | |
Repurchases of common stock | Repurchases of common stock | (566) | | | (26) | | | (21) | | Repurchases of common stock | (339) | | | (566) | | | (26) | |
Issuances of long-term debt | Issuances of long-term debt | 1,599 | | | 758 | | | 4,969 | | Issuances of long-term debt | 990 | | | 1,599 | | | 758 | |
Payments on long-term debt | Payments on long-term debt | (3,700) | | | (1,500) | | | (500) | | Payments on long-term debt | (3,200) | | | (3,700) | | | (1,500) | |
Increase in short-term debt | | Increase in short-term debt | 1,240 | | | — | | | — | |
Increase in loans from affiliates, net | Increase in loans from affiliates, net | 1,194 | | | 1,328 | | | 1,520 | | Increase in loans from affiliates, net | 1,092 | | | 1,194 | | | 1,328 | |
Purchases of noncontrolling interest | | Purchases of noncontrolling interest | (217) | | | — | | | — | |
Proceeds from sale of noncontrolling interest | | Proceeds from sale of noncontrolling interest | 1,846 | | | — | | | — | |
Equity transaction costs with third parties | Equity transaction costs with third parties | (4) | | | 0 | | | 0 | | Equity transaction costs with third parties | — | | | (4) | | | — | |
Debt issuance costs | Debt issuance costs | (1) | | | (25) | | | (37) | | Debt issuance costs | — | | | (1) | | | (25) | |
Make-whole premiums related to early redemptions of debt | | Make-whole premiums related to early redemptions of debt | (121) | | | — | | | — | |
Other financing | | Other financing | (2) | | | — | | | — | |
Net cash (used in) provided by financing activities | Net cash (used in) provided by financing activities | (1,907) | | | 1,230 | | | 9,495 | | Net cash (used in) provided by financing activities | (136) | | | (1,907) | | | 1,230 | |
| Increase (decrease) in cash and cash equivalents | 360 | | | (8) | | | (90) | | |
Effect of exchange rate changes on cash and cash equivalents | | Effect of exchange rate changes on cash and cash equivalents | (1) | | | — | | | — | |
| (Decrease) increase in cash and cash equivalents | | (Decrease) increase in cash and cash equivalents | (178) | | | 360 | | | (8) | |
Cash and cash equivalents, January 1 | Cash and cash equivalents, January 1 | 6 | | | 14 | | | 104 | | Cash and cash equivalents, January 1 | 366 | | | 6 | | | 14 | |
Cash and cash equivalents, December 31 | $ | 366 | | | $ | 6 | | | $ | 14 | | |
Cash, cash equivalents and restricted cash, December 31 | | Cash, cash equivalents and restricted cash, December 31 | $ | 188 | | | $ | 366 | | | $ | 6 | |
| SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | | | | | | SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | | | | | |
Preferred dividends declared but not paid | $ | 47 | | | $ | 36 | | | $ | 36 | | |
Issuance of common stock in exchange for NCI and related AOCI | | Issuance of common stock in exchange for NCI and related AOCI | $ | 1,373 | | | $ | — | | | $ | — | |
Common dividends issued in stock | Common dividends issued in stock | 22 | | | 55 | | | 54 | | Common dividends issued in stock | — | | | 22 | | | 55 | |
Common dividends declared but not paid | Common dividends declared but not paid | 301 | | | 283 | | | 245 | | Common dividends declared but not paid | 349 | | | 301 | | | 283 | |
Conversion of mandatory convertible preferred stock | | Conversion of mandatory convertible preferred stock | 2,258 | | | — | | | — | |
Preferred dividends declared but not paid | | Preferred dividends declared but not paid | 11 | | | 47 | | | 36 | |
Equitization of amounts due from affiliates | | Equitization of amounts due from affiliates | 4,351 | | | — | | | — | |
See Notes to Condensed Financial Information of Parent.
SEMPRA ENERGY
NOTES TO CONDENSED FINANCIAL INFORMATION OF PARENT
NOTE 1. BASIS OF PRESENTATION
The condensed financial information of Sempra Energy has been prepared in accordance with SEC Regulation S-X Rule 5-04 and Rule 12-04. We apply the same accounting policies as in the financial statements of Sempra, Energy Consolidated, except that Sempra Energy accounts for the earnings of its subsidiaries under the equity method in this unconsolidated financial information.
Other (Expense) Income, Net, on the Condensed Statements of Operations includes:
▪$41 million, $61 million and $(6) million of gains (losses) on dedicated assets in support of our executive retirement and deferred compensation plans in 2020, 2019 and 2018, respectively;
▪$3 million net gains primarily from the settlement of foreign currency derivatives to hedge Sempra Mexico parent’s exposure to movements in the Mexican peso from its controlling interest in IEnova in 2018; and
▪$3 million and $15 million of losses in 2020 and 2019, respectively, from foreign currency derivatives used to hedge exposure to fluctuations in the Peruvian sol and Chilean peso related to the sale of our operations in Peru and Chile.
Sempra Energy received cash dividends from its consolidated subsidiaries totaling $375 million, $300 million and $150 million in 2021, 2020 and $300 million in 2020, 2019, and 2018, respectively.
Additional information on Sempra Energy’s foreign currency derivatives is provided in Note 11 of the Notes to Consolidated Financial Statements.
NOTE 2. NEW ACCOUNTING STANDARDS
We describe below and in Note 2 of the Notes to Consolidated Financial Statements recent pronouncements that have had or may have a significant effect on Sempra Energy’s financial condition, results of operations, financial condition, cash flows or disclosures.
ASU 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting”: ASU 2020-04 provides optional expedients and exceptions for applying U.S. GAAP to contract modifications that replace LIBOR or another reference rate affected by reference rate reform and to hedging relationships that reference LIBOR or another reference rate affected or expected to be affected by reference rate reform. ASU 2020-04 was effective March 12, 2020 and can be applied through December 31, 2022, with certain exceptions for hedging relationships that continue to exist after this date, and may be applied from January 1, 2020. For contract modifications, the standard allows entities to account for modifications as an event that does not require reassessment or remeasurement (i.e., as a continuation of the existing contract). The standard also allows entities to amend their formal designation and documentation of hedging relationships affected or expected to be affected by reference rate reform, without having to de-designate the hedging relationship. Entities may elect the optional expedients and exceptions on an individual hedging relationship basis and independently from one another. We elected the optional expedients for contract modifications. We elected the cash flow hedging expedients to disregard the potential discontinuation of a reference rate when assessing whether a hedged forecasted interest payment is probable and to disregard certain mismatches between the designated hedging instrument and the hedged item when assessing the hedge effectiveness. We are applying these expedients prospectively from January 1, 2020. Application of these expedients preserves the presentation of derivatives consistent with the past presentation.
ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”: ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. In addition to other changes, this standard amends ASC 470-20, “Debt with Conversion and Other Options,” by removing the accounting models for instruments with beneficial conversion features and cash conversion features. The standard also amends certain guidance in ASC 260, “Earnings Per Share,” as follows:
▪requires an entity to applyfor the if-converted method when calculating dilutedcomputation of EPS for convertible instruments and no longer use the treasury stock method, which was previously allowed for certain convertible instruments;
▪requirescontracts on an entity to include the effect of potential share settlement in the diluted EPS calculation when an instrument may be settled in cash or shares, and no longer allows an entity to rebut the presumption of share settlement if it has a history or policy of cash settlement;
▪requires an entity to include equity-classified convertible preferred stock that contains down-round features whereby, if the down-round feature is triggered, its effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS;
▪clarifies that the average market price should be used to calculate the diluted EPS denominator when the exercise price or the number of shares that may be issued is variable, except for certain contingently issuable shares; and
▪clarifies that the weighted-average share count from each quarter should be used when calculating the year-to-date weighted-average share count.
entity’s own equity. For public entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods therein, with early adoption permitted for fiscal years beginning after December 15, 2020.permitted. An entity can use either a full or modified retrospective approach to adopt ASU 2020-06 and must disclose, in the period of adoption, EPS transition information about the effect of the change on affected per-share amounts. We plan towill adopt the standard on January 1, 2022 using a modified retrospective approach and are currently evaluatingdo not expect the effect of the standard onadoption will materially impact our ongoing financial reporting.statements or per-share amounts.
NOTE 3. DEBT AND CREDIT FACILITY
SHORT-TERM DEBT
Committed Line of Credit
At December 31, 2021, Sempra Energy had an aggregate capacity of $4.4 billion under two primary committed lines of credit and available unused credit of $3.1 billion, which provide liquidity and support its commercial paper program. The amount of commercial paper outstanding, before reduction of any unamortized discount, and any letters of credit outstanding is reflected as a reduction to the available unused credit.
The principal terms of Sempra Energy’s committed lines of credit include the following:
▪Each facility has a syndicate of 23 lenders. No single lender has greater than a 6% share in the facility.
▪One facility provides for the issuance of $200 million of letters of credit. Subject to obtaining commitments from existing or new lenders and satisfaction of other specified conditions, Sempra Energy has the right to increase its letter of credit commitment to $500 million. No letters of credit were outstanding at December 31, 2021.
▪Borrowings bear interest at a benchmark rate plus a margin that varies with Sempra Energy’s credit rating.
▪Sempra Energy must maintain a ratio of indebtedness to total capitalization (as defined in its credit facility) of no more than 65% at the end of each quarter. At December 31, 2021, Sempra Energy was in compliance with this ratio under credit facility.
LONG-TERM DEBT
The following table shows the detail and maturities of long-term debt outstanding:
| LONG-TERM DEBT | LONG-TERM DEBT | LONG-TERM DEBT |
(Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | December 31, | | December 31, |
| | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
2.4% Notes February 1, 2020 | 2.4% Notes February 1, 2020 | $ | 0 | | | $ | 500 | | 2.4% Notes February 1, 2020 | $ | — | | | $ | — | | | $ | 500 | |
2.4% Notes March 15, 2020 | 2.4% Notes March 15, 2020 | 0 | | | 500 | | 2.4% Notes March 15, 2020 | — | | | — | | | 500 | |
2.85% Notes November 15, 2020 | 2.85% Notes November 15, 2020 | 0 | | | 400 | | 2.85% Notes November 15, 2020 | — | | | — | | | 400 | |
Notes at variable rates (2.50% at December 31, 2019) January 15, 2021(1) | Notes at variable rates (2.50% at December 31, 2019) January 15, 2021(1) | 0 | | | 700 | | Notes at variable rates (2.50% at December 31, 2019) January 15, 2021(1) | — | | | — | | | 700 | |
Notes at variable rates (3.069% after floating-to-fixed rate swaps effective 2019) March 15, 2021 | Notes at variable rates (3.069% after floating-to-fixed rate swaps effective 2019) March 15, 2021 | 850 | | | 850 | | Notes at variable rates (3.069% after floating-to-fixed rate swaps effective 2019) March 15, 2021 | — | | | 850 | | | 850 | |
2.875% Notes October 1, 2022 | 2.875% Notes October 1, 2022 | 500 | | | 500 | | 2.875% Notes October 1, 2022 | — | | | 500 | | | 500 | |
2.9% Notes February 1, 2023 | 2.9% Notes February 1, 2023 | 500 | | | 500 | | 2.9% Notes February 1, 2023 | — | | | 500 | | | 500 | |
4.05% Notes December 1, 2023 | 4.05% Notes December 1, 2023 | 500 | | | 500 | | 4.05% Notes December 1, 2023 | — | | | 500 | | | 500 | |
3.55% Notes June 15, 2024 | 3.55% Notes June 15, 2024 | 500 | | | 500 | | 3.55% Notes June 15, 2024 | — | | | 500 | | | 500 | |
3.75% Notes November 15, 2025 | 3.75% Notes November 15, 2025 | 350 | | | 350 | | 3.75% Notes November 15, 2025 | — | | | 350 | | | 350 | |
3.25% Notes June 15, 2027 | 3.25% Notes June 15, 2027 | 750 | | | 750 | | 3.25% Notes June 15, 2027 | 750 | | | 750 | | | 750 | |
3.4% Notes February 1, 2028 | 3.4% Notes February 1, 2028 | 1,000 | | | 1,000 | | 3.4% Notes February 1, 2028 | 1,000 | | | 1,000 | | | 1,000 | |
3.8% Notes February 1, 2038 | 3.8% Notes February 1, 2038 | 1,000 | | | 1,000 | | 3.8% Notes February 1, 2038 | 1,000 | | | 1,000 | | | 1,000 | |
6% Notes October 15, 2039 | 6% Notes October 15, 2039 | 750 | | | 750 | | 6% Notes October 15, 2039 | 750 | | | 750 | | | 750 | |
4% Notes February 1, 2048 | 4% Notes February 1, 2048 | 800 | | | 800 | | 4% Notes February 1, 2048 | 800 | | | 800 | | | 800 | |
4.125% Junior Subordinated Notes April 1, 2052(1) | | 4.125% Junior Subordinated Notes April 1, 2052(1) | 1,000 | | | — | | | — | |
5.75% Junior Subordinated Notes July 1, 2079(1) | 5.75% Junior Subordinated Notes July 1, 2079(1) | 758 | | | 758 | | 5.75% Junior Subordinated Notes July 1, 2079(1) | 758 | | | 758 | | | 758 | |
| | 8,258 | | | 10,358 | | | 6,058 | | | 8,258 | | | 10,358 | |
Current portion of long-term debt | Current portion of long-term debt | (850) | | | (1,399) | | Current portion of long-term debt | — | | | (850) | | | (1,399) | |
Unamortized discount on long-term debt | Unamortized discount on long-term debt | (32) | | | (35) | | Unamortized discount on long-term debt | (37) | | | (32) | | | (35) | |
Unamortized debt issuance costs | Unamortized debt issuance costs | (59) | | | (68) | | Unamortized debt issuance costs | (52) | | | (59) | | | (68) | |
Total long-term debt | Total long-term debt | $ | 7,317 | | | $ | 8,856 | | Total long-term debt | $ | 5,969 | | | $ | 7,317 | | | $ | 8,856 | |
(1) Callable long-term debt not subject to make-whole provisions.
In October 2020,December 2021, Sempra Energy redeemed, $700 millionat respective make-whole redemption prices, an aggregate principal amount of floating-rate$2.35 billion of senior unsecured notes prior to scheduled maturities in 2022 through 2025. Upon the early redemptions, we recognized $126 million ($92 million after tax) in charges associated with the make-whole premiums and a scheduled maturitywrite-off of unamortized discount and debt issuance costs.
In November 2021, we issued $1.0 billion of 4.125% fixed-to-fixed reset rate junior subordinated notes maturing on April 1, 2052. Interest on the notes accrues from and including November 19, 2021 and is payable semi-annually in Januaryarrears on April 1 and October 1 of each year, beginning on April 1, 2022. The notes will bear interest (i) from and including November 19, 2021 utilizingto, but excluding, April 1, 2027 at the rate of 4.125% per annum and (ii) from and including April 1, 2027, during each subsequent five-year period beginning on April 1 of every fifth year, at a rate per annum equal to the Five-year U.S. Treasury Rate (as defined in the notes) as of the day falling two business days before the first day of such five-year period plus a spread of 2.868%, to be reset on April 1 of every fifth year beginning in 2027. We received proceeds of $988 million (net of underwriting discounts and debt issuance costs of $12 million). We used the proceeds from the offering to repay a portion of the proceeds received fromaggregate principal amount of the sales$2.35 billion of our South American businesses.senior unsecured notes that we discuss above.
Maturities ofAt December 31, 2021, long-term debt at December 31, 2020 are $850 million in 2021, $500 million in 2022, $1.0maturities totaling $6.1 billion in 2023, $500 million in 2024, $350 million in 2025 and $5.1 billion thereafter.commence after 2026.
Additional information on Sempra Energy’s long-term debt is provided in Note 7 of the Notes to Consolidated Financial Statements.
NOTE 4. COMMITMENTS AND CONTINGENCIES
Sempra Energy has an operating lease commitment related to its corporate headquarters building of approximately $257$279 million. Sempra Energy expects payments for its operating lease to be $10 million in 2021, $11 million in 2022, $12 million in each of 2023 $12 million in 2024, $12 million in 2025through 2026 and $200$220 million thereafter.
For other contingencies and guarantees related to Sempra Energy, refer to Notes 6 7 and 16 of the Notes to Consolidated Financial Statements.