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| UNITED STATES |
| SECURITIES AND EXCHANGE COMMISSION |
| Washington, D.C. 20549 |
| FORM 10-Q |
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| (Mark One) |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the quarterly period ended | SeptemberJune 30, 20202021 |
| | | | | | | or | | | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the transition period from | | | to | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Commission File No. | Exact Name of Registrant as Specified in its Charter,
Address of Principal Executive Office and Telephone Number | | State of Incorporation | I.R.S. Employer Identification No. | Former name, former address and former fiscal year, if changed since last report |
| 1-14201 | SEMPRA ENERGY | | | | California | 33-0732627 | No change |
| 488 8th Avenue | | | | | |
| San Diego, California 92101 | | | | | |
| (619) 696-2000 | | | | | |
| | | | | | | |
| 1-03779 | SAN DIEGO GAS & ELECTRIC COMPANY | | | | California | 95-1184800 | No change |
| 8326 Century Park Court | | | | | |
| San Diego, California 92123 | | | | | |
| (619) 696-2000 | | | | | |
| | | | | | | |
| 1-01402 | SOUTHERN CALIFORNIA GAS COMPANY | | | | California | 95-1240705 | No change |
| 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: |
Sempra Energy Common Stock, without par value | SRE | New York Stock Exchange |
|
Sempra Energy 6% Mandatory Convertible Preferred Stock, Series A,
$100 liquidation preference | SREPRA | New York Stock Exchange |
|
Sempra Energy 6.75% Mandatory Convertible Preferred Stock, Series B,
$100 liquidation preference | SREPRB | New York Stock Exchange |
|
Sempra Energy 5.75% Junior Subordinated Notes Due 2079, $25 par value | SREA | New York Stock Exchange |
|
| SAN DIEGO GAS & ELECTRIC COMPANY: |
| None | | |
|
| SOUTHERN CALIFORNIA GAS COMPANY: |
| None | | |
| | | | | | | | | | | | | | |
| | | | |
| Indicate by check mark whether the registrant (1) has 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |
|
| Sempra Energy | Yes | ☒ | No | ☐ |
| San Diego Gas & Electric Company | Yes | ☒ | No | ☐ |
| Southern California Gas Company | Yes | ☒ | No | ☐ |
| | | | | | | | | | | | | | |
| | | | |
| Indicate by check mark whether the registrant has 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 registrant was required to submit such files). |
|
| Sempra Energy | Yes | ☒ | No | ☐ |
| San Diego Gas & Electric Company | Yes | ☒ | No | ☐ |
| Southern California Gas Company | Yes | ☒ | No | ☐ |
|
| 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. |
| | | | | | | | | | | | | | |
| | | | |
| Sempra Energy: | | | | |
☒ Large Accelerated Filer | ☐ Accelerated Filer | ☐ Non-accelerated Filer | ☐ Smaller Reporting Company | ☐ Emerging Growth Company |
| | | | |
| San Diego Gas & Electric Company: | | | |
☐Large Accelerated Filer | ☐ Accelerated Filer | ☒ Non-accelerated Filer | ☐ Smaller Reporting Company | ☐ Emerging Growth Company |
| | | | |
| Southern California Gas Company | | | |
☐ Large Accelerated Filer | ☐ Accelerated Filer | ☒ Non-accelerated Filer | ☐ Smaller Reporting Company | ☐ Emerging Growth Company |
| | | | | | | | | | | | | | |
| 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. |
|
| Sempra Energy | Yes | ☐ | No | ☐ |
| San Diego Gas & Electric Company | Yes | ☐ | No | ☐ |
| Southern California Gas Company | Yes | ☐ | No | ☐ |
|
| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |
|
| Sempra Energy | Yes | ☐ | No | ☒ |
| San Diego Gas & Electric Company | Yes | ☐ | No | ☒ |
| Southern California Gas Company | Yes | ☐ | No | ☒ |
|
| Indicate the number of shares outstanding of each of the issuers’ classes of common stock, as of the latest practicable date. |
|
Common stock outstanding on NovemberAugust 2, 2020:2021: |
| | | | | | | | |
| Sempra Energy | 288,470,244319,328,331 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 |
| | | | | | | | |
SEMPRA ENERGY FORM 10-Q
SAN DIEGO GAS & ELECTRIC COMPANY FORM 10-Q
SOUTHERN CALIFORNIA GAS COMPANY FORM 10-Q
TABLE OF CONTENTS | |
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| PART I – FINANCIAL INFORMATION | |
| Item 1. | | |
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| Item 2. | | |
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| Item 3. | | |
| Item 4. | | |
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| PART II – OTHER INFORMATION | |
| Item 1. | | |
| Item 1A. | | |
Item 2. | | |
| Item 6. | | |
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This combined reportForm 10-Q 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 reporting entity makes statements herein only as to itself and its consolidated subsidiariesentities and makes no statement whatsoever as to any other reporting 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. Separate Part I – Item 1 sections are provided for each reporting entity, except for the Notes to Condensed Consolidated Financial Statements. The Notes to Condensed Consolidated Financial Statements for all of the reporting entities are combined. All Items other than Part I – Item 1 are combined for the three reporting entities.
None of the website references in this report are active hyperlinks, and the information contained on, or that can be accessed through, any such website is not, and shall not be deemed to be, part of this report.
The following terms and abbreviations appearing in the text of this report have the meanings indicated below.
| | | | | |
| GLOSSARY | |
| |
| 2019 GRC FD | final decision in the California Utilities’ 2019 General Rate Case |
| AB | California Assembly Bill |
AEP | American Electric Power Company, Inc. |
| AFUDC | allowance for funds used during construction |
| AMP | Arrearage Management Payment Plan |
| Annual Report | Annual Report on Form 10-K for the year ended December 31, 20192020 |
| AOCI | accumulated other comprehensive income (loss) |
| ARO | asset retirement obligation |
| ASC | Accounting Standards Codification |
ASR | accelerated share repurchase |
| ASU | Accounting Standards Update |
Bay Gas | Bay Gas Storage Company, Ltd. |
| Bechtel | Bechtel Oil, Gas and Chemicals, Inc. |
| Blade | Blade Energy Partners |
| bps | basis points |
| 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 |
| CCM | cost of capital adjustment mechanism |
| CENACE | Centro Nacional de Control de Energía (Mexico’s National Energy Control Center) |
| 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 |
COFECE | Comisión Federal de Competencia Económica (Mexico’s Competition Commission) |
| COVID-19 | coronavirus disease 2019 |
CPPMA | COVID-19 Pandemic Protections Memorandum Account |
| CPUC | California Public Utilities Commission |
| CRE | Comisión Reguladora de Energía (Mexico’s Energy Regulatory Commission) |
| CRR | congestion revenue right |
| DOE | U.S. Department of Energy |
ECA LNG JV | ECA LNG Phase 1 and ECA LNG Phase 2 |
| ECA LNG Phase 1 | ECA LNG Holdings B.V. |
ECA LNG RegasificationPhase 2 | ECA LNG II Holdings B.V. |
| ECA Regas Facility | Energía Costa Azul, S. de R.L. de C.V. LNG regasification |
| 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 |
| EPC | engineering, procurement and construction |
| EPS | earnings per common share |
| ERCOT | Electric Reliability Council of Texas, Inc., the independent system operator and the regional coordinator of various electricity systems within Texas |
| ESJ | Energía Sierra Juárez, S. de R.L. de C.V. |
| ETR | effective income tax rate |
| FERC | U.S. Federal Energy Regulatory Commission |
| Fitch | Fitch Ratings, Inc. |
| FTA | Free Trade Agreement |
| Gazprom | Gazprom Marketing & Trading México S. de R.L. de C.V. |
| 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. |
| IMG JV | Infraestructura Marina del Golfo |
InfraREIT | InfraREIT, Inc. |
| IOU | investor-owned utility |
IRS | Internal Revenue Service |
ISFSI | independent spent fuel storage installation |
| ISO | Independent System Operator |
| JV | joint venture |
| LA Superior Court | Los Angeles County Superior Court |
| | | | | |
| GLOSSARY (CONTINUED) |
| |
| Leak | the leak at the SoCalGas Aliso Canyon natural gas storage facility injection-and-withdrawal well, SS25, discovered by SoCalGas on October 23, 2015 |
| | | | | |
GLOSSARY (CONTINUED) |
| |
| LIBOR | London Interbank Offered Rate |
| LNG | liquefied natural gas |
| LPG | liquid petroleum gas |
| 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 |
Mississippi HubMexican Stock Exchange | Mississippi Hub, LLCBolsa Mexicana de Valores, S.A.B. de C.V., or BMV |
| MMBtu | million British thermal units (of natural gas) |
| Moody’s | Moody’s Investors Service |
| MOU | Memorandum of Understanding |
| Mtpa | million tonnes per annum |
| MW | megawatt |
| MWh | megawatt hour |
| NCI | noncontrolling interest(s) |
| NDT | nuclear decommissioning trusts |
| NEIL | Nuclear Electric Insurance Limited |
NOLO&M | net operating lossoperation and maintenance expense |
| OCI | other comprehensive income (loss) |
| OII | Order Instituting Investigation |
O&MOIR | operation and maintenance expenseOrder Instituting a Rulemaking |
| Oncor | Oncor Electric Delivery Company LLC |
| Oncor Holdings | Oncor Electric Delivery Holdings Company LLC |
Otay Mesa VIEOSC | Otay Mesa Energy Center LLC VIE |
PG&E | Pacific Gas and Electric Company |
PPA | power purchase agreementOrder to Show Cause |
| PP&E | property, plant and equipment |
| PPA | power purchase agreement |
| PUCT | Public Utility Commission of Texas |
| RBS | The Royal Bank of Scotland plc |
| RBS SEE | RBS Sempra Energy Europe |
| RBS Sempra Commodities | RBS Sempra Commodities LLP |
| ROE | return on equity |
| ROU | right-of-use |
| RSU | restricted stock unit |
| S&P | Standard & Poor’sS&P Global Ratings |
| Saavi Energía | Saavi Energía S. de R.L. de C.V. |
| SB | California Senate Bill |
| SDG&E | San Diego Gas & Electric Company |
| SDSRA | Senior Debt Service Reserve Account |
| SEC | U.S. Securities and Exchange Commission |
Securities Purchase Agreement | securities purchase agreement among Sharyland Utilities, LP, SU Investment Partners, L.P., Sempra Texas Utilities Holdings I, LLC (a wholly owned subsidiary of Sempra Energy) and Sempra Energy |
| 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 Global | holding company for most of Sempra Energy’sSempra’s subsidiaries not subject to California or Texas utility
regulation |
| SENER | Secretaría de Energía de México (Mexico’s Ministry of Energy) |
| series A preferred stock | Sempra Energy’sSempra’s 6% mandatory convertible preferred stock, series A |
| series B preferred stock | Sempra Energy’sSempra’s 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. |
| SoCalGas | Southern California Gas Company |
| SONGS | San Onofre Nuclear Generating Station |
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STIHGLOSSARY (CONTINUED) |
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. |
| 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 May 31, 2019 |
| TO5 | Electric Transmission Owner Formula Rate, effective June 1, 2019 |
TTHC | Texas Transmission Holdings Corporation |
| TTI | Texas Transmission Investment LLC |
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GLOSSARY (CONTINUED) |
| |
| U.S. GAAP | generally accepted accounting principles generally accepted in the United States of America |
| 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 |
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 theany 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.
In this report, forward-lookingForward-looking statements can be identified by words such as “believes,” “expects,” “anticipates,” “plans,” “estimates,” “projects,” “forecasts,” “should,” “could,” “would,” “will,” “confident,” “may,” “can,” “potential,” “possible,” “proposed,” “target,“in process,” “pursue,“under construction,” “in development,” “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 intentions.expectations.
Factors, among others, that could cause our actual results and future actionsevents to differ materially from those described in any forward-looking statements include risks and uncertainties relating to:
▪California wildfires, including the riskrisks that we may be found liable for damages regardless of fault and the risk that we may not be able to recover any such costs from insurance, the Wildfire Fund or in rates from customers;customers
▪decisions, investigations, regulations, issuances or revocations of permits and other authorizations, renewals of franchises, and other actions by (i) the CFE, CPUC, 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 operate or do business;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 onceif completed, and (iv) obtaining the consent of partners;
▪the impact of the COVID-19 pandemic on our (i) ability to commence and complete capital andpartners or other projects and obtain regulatory approvals, (ii) supply chain and current and prospective counterparties, contractors, customers, employees and partners, (iii) liquidity, resulting from bill payment challenges experienced by our customers, including in connection with a CPUC-ordered suspension of service disconnections, decreased stability and accessibility of the capital markets and other factors, and (iv) ability to sustain operations and satisfy compliance requirements due to social distancing measures or if employee absenteeism were to increase significantly;third parties
▪the resolution of civil and criminal litigation, regulatory inquiries, investigations and proceedings, and arbitrations;arbitrations, including, among others, those related to the Leak
▪actions by credit rating agencies to downgrade our credit ratings or to place those ratings on negative outlook and our ability to borrow aton favorable interest rates;terms and meet our substantial debt service obligations
▪movesactions to reduce or eliminate reliance on natural gas, andincluding any deterioration of or increased uncertainty in the impact of the extreme volatility of oil prices on our businesses and development projects;political or regulatory environment for local natural gas distribution companies operating in California
▪weather, natural disasters, pandemics, accidents, equipment failures, computerexplosions, acts of terrorism, information 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;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 on capital projects, regulatory approvals and equipment failures;the 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;employees, including ransomware attacks on our systems and the systems of third-party vendors and other parties with which we conduct business
▪expropriation of assets, the failure of foreign governments and state-owned entities to honor the terms oftheir contracts, and property disputes;disputes
▪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 Direct Access and Community Choice Aggregation, or other forms of distributed or local power generation, and the risk of nonrecovery for stranded assets and contractual obligations;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;director
▪volatility in foreign currency exchange, interestinflation and inflationinterest rates and commodity prices and our ability to effectively hedge the risk of such volatility;these risks
▪changes in tax and trade policies, laws and regulations, including tariffs and revisions to or replacement of international trade agreements such as the United States-Mexico-Canada Agreement, that may increase our costs, reduce our competitiveness, or impair our ability to resolve trade disputes; anddisputes
▪other uncertainties, some of which may be difficult to predict and are beyond our control.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 businessbusinesses as described herein, in our Annual Report and in other reports that we file with the SEC.
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
| | SEMPRA ENERGY | SEMPRA ENERGY | | | | | | | | SEMPRA ENERGY |
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | CONDENSED 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) |
| | | Three months ended
September 30, | | Nine months ended
September 30, | | Three months ended
June 30, | Six months ended
June 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | 2021 | | 2020 |
| | | (unaudited) | | (unaudited) |
| REVENUES | REVENUES | | | | | | | | REVENUES | | | |
| Utilities | Utilities | $ | 2,301 | | | $ | 2,398 | | | $ | 7,199 | | | $ | 6,808 | | Utilities | $ | 2,434 | | | $ | 2,233 | | $ | 5,279 | | | $ | 4,898 | |
| Energy-related businesses | Energy-related businesses | 343 | | | 360 | | | 1,000 | | | 1,078 | | Energy-related businesses | 307 | | | 293 | | 721 | | | 657 | |
| Total revenues | Total revenues | 2,644 | | | 2,758 | | | 8,199 | | | 7,886 | | Total revenues | 2,741 | | | 2,526 | | 6,000 | | | 5,555 | |
| | EXPENSES AND OTHER INCOME | EXPENSES AND OTHER INCOME | | | | | | | | EXPENSES AND OTHER INCOME | | | |
| Utilities: | Utilities: | | | | | | | | Utilities: | | | |
| Cost of natural gas | Cost of natural gas | (114) | | | (122) | | | (582) | | | (789) | | Cost of natural gas | (261) | | | (131) | | (610) | | | (468) | |
| Cost of electric fuel and purchased power | Cost of electric fuel and purchased power | (429) | | | (410) | | | (918) | | | (929) | | Cost of electric fuel and purchased power | (284) | | | (260) | | (516) | | | (489) | |
| Energy-related businesses cost of sales | Energy-related businesses cost of sales | (90) | | | (94) | | | (200) | | | (265) | | Energy-related businesses cost of sales | (119) | | | (51) | | (228) | | | (110) | |
| Operation and maintenance | Operation and maintenance | (1,044) | | | (845) | | | (2,893) | | | (2,515) | | Operation and maintenance | (1,024) | | | (898) | | (2,025) | | | (1,749) | |
| | Aliso Canyon litigation and regulatory matters | | Aliso Canyon litigation and regulatory matters | 0 | | | 0 | | 0 | | | (100) | |
| Depreciation and amortization | Depreciation and amortization | (418) | | | (402) | | | (1,242) | | | (1,174) | | Depreciation and amortization | (463) | | | (412) | | (905) | | | (824) | |
| Franchise fees and other taxes | Franchise fees and other taxes | (139) | | | (127) | | | (397) | | | (369) | | Franchise fees and other taxes | (138) | | | (121) | | (291) | | | (258) | |
| Impairment losses | (1) | | | (43) | | | (1) | | | (43) | | |
| (Loss) gain on sale of assets | 0 | | | (3) | | | 0 | | | 63 | | |
| | Other income (expense), net | Other income (expense), net | 29 | | | (7) | | | (163) | | | 103 | | Other income (expense), net | 72 | | | 62 | | 107 | | | (192) | |
| Interest income | Interest income | 27 | | | 22 | | | 76 | | | 64 | | Interest income | 15 | | | 22 | | 34 | | | 49 | |
| Interest expense | Interest expense | (264) | | | (279) | | | (818) | | | (797) | | Interest expense | (258) | | | (274) | | (517) | | | (554) | |
| Income from continuing operations before income taxes and equity earnings | Income from continuing operations before income taxes and equity earnings | 201 | | | 448 | | | 1,061 | | | 1,235 | | Income from continuing operations before income taxes and equity earnings | 281 | | | 463 | | 1,049 | | | 860 | |
| Income tax expense | (99) | | | (61) | | | (60) | | | (150) | | |
| Income tax (expense) benefit | | Income tax (expense) benefit | (139) | | | (168) | | (297) | | | 39 | |
| Equity earnings | Equity earnings | 326 | | | 266 | | | 822 | | | 485 | | Equity earnings | 313 | | | 233 | | 631 | | | 496 | |
| Income from continuing operations, net of income tax | Income from continuing operations, net of income tax | 428 | | | 653 | | | 1,823 | | | 1,570 | | Income from continuing operations, net of income tax | 455 | | | 528 | | 1,383 | | | 1,395 | |
| (Loss) income from discontinued operations, net of income tax | (7) | | | 256 | | | 1,850 | | | 292 | | |
| Income from discontinued operations, net of income tax | | Income from discontinued operations, net of income tax | 0 | | | 1,777 | | 0 | | | 1,857 | |
| Net income | Net income | 421 | | | 909 | | | 3,673 | | | 1,862 | | Net income | 455 | | | 2,305 | | 1,383 | | | 3,252 | |
| Earnings attributable to noncontrolling interests | Earnings attributable to noncontrolling interests | (22) | | | (60) | | | (201) | | | (146) | | Earnings attributable to noncontrolling interests | (10) | | | (28) | | (43) | | | (179) | |
| Preferred dividends | Preferred dividends | (48) | | | (36) | | | (121) | | | (107) | | Preferred dividends | (20) | | | (37) | | (41) | | | (73) | |
| Preferred dividends of subsidiary | Preferred dividends of subsidiary | 0 | | | 0 | | | (1) | | | (1) | | Preferred dividends of subsidiary | (1) | | | (1) | | (1) | | | (1) | |
| Earnings attributable to common shares | Earnings attributable to common shares | $ | 351 | | | $ | 813 | | | $ | 3,350 | | | $ | 1,608 | | Earnings attributable to common shares | $ | 424 | | | $ | 2,239 | | $ | 1,298 | | | $ | 2,999 | |
| | Basic EPS: | Basic EPS: | | Basic EPS: | |
| Earnings from continuing operations | Earnings from continuing operations | $ | 1.23 | | | $ | 2.04 | | | $ | 5.17 | | | $ | 4.86 | | Earnings from continuing operations | $ | 1.38 | | | $ | 1.58 | | $ | 4.27 | | | $ | 3.93 | |
| (Losses) earnings from discontinued operations | $ | (0.02) | | | $ | 0.89 | | | $ | 6.31 | | | $ | 0.97 | | |
| Earnings from discontinued operations | | Earnings from discontinued operations | $ | 0 | | | $ | 6.06 | | $ | 0 | | | $ | 6.31 | |
| Earnings | Earnings | $ | 1.21 | | | $ | 2.93 | | | $ | 11.48 | | | $ | 5.83 | | Earnings | $ | 1.38 | | | $ | 7.64 | | $ | 4.27 | | | $ | 10.24 | |
| Weighted-average common shares outstanding | Weighted-average common shares outstanding | 289,490 | | | 277,360 | | | 291,771 | | | 275,684 | | Weighted-average common shares outstanding | 307,800 | | | 293,060 | | 304,372 | | | 292,925 | |
| | Diluted EPS: | Diluted EPS: | | Diluted EPS: | |
| Earnings from continuing operations | Earnings from continuing operations | $ | 1.23 | | | $ | 2.00 | | | $ | 5.15 | | | $ | 4.79 | | Earnings from continuing operations | $ | 1.37 | | | $ | 1.58 | | $ | 4.24 | | | $ | 3.91 | |
| (Losses) earnings from discontinued operations | $ | (0.02) | | | $ | 0.84 | | | $ | 6.28 | | | $ | 0.95 | | |
| Earnings from discontinued operations | | Earnings from discontinued operations | $ | 0 | | | $ | 6.03 | | $ | 0 | | | $ | 6.00 | |
| Earnings | Earnings | $ | 1.21 | | | $ | 2.84 | | | $ | 11.43 | | | $ | 5.74 | | Earnings | $ | 1.37 | | | $ | 7.61 | | $ | 4.24 | | | $ | 9.91 | |
| Weighted-average common shares outstanding | Weighted-average common shares outstanding | 290,582 | | | 295,789 | | | 292,935 | | | 279,809 | | Weighted-average common shares outstanding | 308,607 | | | 294,155 | | 306,284 | | | 307,962 | |
See Notes to Condensed Consolidated Financial Statements.
| | SEMPRA ENERGY | SEMPRA ENERGY | SEMPRA ENERGY |
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | | Sempra Energy shareholders’ equity | | | | | | Sempra Energy shareholders’ equity | | | | |
| | | Pretax
amount | | Income tax
(expense) benefit | | Net-of-tax
amount | | Noncontrolling
interests
(after-tax) | | Total | | Pretax
amount | | Income tax
(expense) benefit | | Net-of-tax
amount | | Noncontrolling
interests
(after tax) | | Total |
| | | (unaudited) | | (unaudited) |
| | | Three months ended September 30, 2020 and 2019 | | Three months ended June 30, 2021 and 2020 |
| 2021: | | 2021: | | | | | | | | | |
| Net income | | Net income | $ | 584 | | | $ | (139) | | | $ | 445 | | | $ | 10 | | | $ | 455 | |
| Other comprehensive income (loss): | | Other comprehensive income (loss): | | | | | | | | | |
| Foreign currency translation adjustments | | Foreign currency translation adjustments | 5 | | | 0 | | | 5 | | | 1 | | | 6 | |
| Financial instruments | | Financial instruments | (14) | | | 2 | | | (12) | | | (6) | | | (18) | |
| Pension and other postretirement benefits | | Pension and other postretirement benefits | 1 | | | (1) | | | 0 | | | 0 | | | 0 | |
| Total other comprehensive loss | | Total other comprehensive loss | (8) | | | 1 | | | (7) | | | (5) | | | (12) | |
| Comprehensive income | | Comprehensive income | 576 | | | (138) | | | 438 | | | 5 | | | 443 | |
| Preferred dividends of subsidiary | | Preferred dividends of subsidiary | (1) | | | 0 | | | (1) | | | 0 | | | (1) | |
Comprehensive income, after preferred dividends of subsidiary | | Comprehensive income, after preferred dividends of subsidiary | $ | 575 | | | $ | (138) | | | $ | 437 | | | $ | 5 | | | $ | 442 | |
| 2020: | 2020: | | | | | | | | | | 2020: | | | | | | | | | |
| Net income | Net income | $ | 489 | | | $ | (90) | | | $ | 399 | | | $ | 22 | | | $ | 421 | | Net income | $ | 3,619 | | | $ | (1,342) | | | $ | 2,277 | | | $ | 28 | | | $ | 2,305 | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | | | | | | | | | Other comprehensive income (loss): | | | | | | | |
| Foreign currency translation adjustments | Foreign currency translation adjustments | 9 | | | 0 | | | 9 | | | (1) | | | 8 | | Foreign currency translation adjustments | 662 | | | 0 | | | 662 | | | 5 | | | 667 | |
| Financial instruments | Financial instruments | 36 | | | (16) | | | 20 | | | 5 | | | 25 | | Financial instruments | (15) | | | 4 | | | (11) | | | (2) | | | (13) | |
| Pension and other postretirement benefits | Pension and other postretirement benefits | 6 | | | (1) | | | 5 | | | 0 | | | 5 | | Pension and other postretirement benefits | (3) | | | 0 | | | (3) | | | 0 | | | (3) | |
| Total other comprehensive income | Total other comprehensive income | 51 | | | (17) | | | 34 | | | 4 | | | 38 | | Total other comprehensive income | 644 | | | 4 | | | 648 | | | 3 | | | 651 | |
| Comprehensive income | Comprehensive income | $ | 540 | | | $ | (107) | | | $ | 433 | | | $ | 26 | | | $ | 459 | | Comprehensive income | 4,263 | | | (1,338) | | | 2,925 | | | 31 | | | 2,956 | |
| Preferred dividends of subsidiary | | Preferred dividends of subsidiary | (1) | | | 0 | | | (1) | | | 0 | | | (1) | |
Comprehensive income, after preferred dividends of subsidiary | | Comprehensive income, after preferred dividends of subsidiary | $ | 4,262 | | | $ | (1,338) | | | $ | 2,924 | | | $ | 31 | | | $ | 2,955 | |
| | | | Six months ended June 30, 2021 and 2020 |
| 2019: | | | | | | | | | | |
| 2021: | | 2021: | | | | | | | | | |
| Net income | Net income | $ | 762 | | | $ | 87 | | | $ | 849 | | | $ | 60 | | | $ | 909 | | Net income | $ | 1,637 | | | $ | (297) | | | $ | 1,340 | | | $ | 43 | | | $ | 1,383 | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | | | | | | | Other comprehensive income (loss): | | | | | | | | | |
| Foreign currency translation adjustments | (91) | | | 0 | | | (91) | | | (8) | | | (99) | | |
| | Financial instruments | Financial instruments | (55) | | | 18 | | | (37) | | | (4) | | | (41) | | Financial instruments | 107 | | | (27) | | | 80 | | | 9 | | | 89 | |
| Pension and other postretirement benefits | Pension and other postretirement benefits | (3) | | | 1 | | | (2) | | | 0 | | | (2) | | Pension and other postretirement benefits | 18 | | | (4) | | | 14 | | | 0 | | | 14 | |
| Total other comprehensive loss | (149) | | | 19 | | | (130) | | | (12) | | | (142) | | |
| Total other comprehensive income | | Total other comprehensive income | 125 | | | (31) | | | 94 | | | 9 | | | 103 | |
| Comprehensive income | Comprehensive income | $ | 613 | | | $ | 106 | | | $ | 719 | | | $ | 48 | | | $ | 767 | | Comprehensive income | 1,762 | | | (328) | | | 1,434 | | | 52 | | | 1,486 | |
| | | | Nine months ended September 30, 2020 and 2019 | |
| Preferred dividends of subsidiary | | Preferred dividends of subsidiary | (1) | | | 0 | | | (1) | | | 0 | | | (1) | |
Comprehensive income, after preferred dividends of subsidiary | | Comprehensive income, after preferred dividends of subsidiary | $ | 1,761 | | | $ | (328) | | | $ | 1,433 | | | $ | 52 | | | $ | 1,485 | |
| 2020: | 2020: | | | | | | | | | | 2020: | | | | | | | | |
| Net income | Net income | $ | 4,718 | | | $ | (1,246) | | | $ | 3,472 | | | $ | 201 | | | $ | 3,673 | | Net income | $ | 4,229 | | | $ | (1,156) | | | $ | 3,073 | | | $ | 179 | | | $ | 3,252 | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | | | | | | | | | Other comprehensive income (loss): | | | | | | | | | |
| Foreign currency translation adjustments | Foreign currency translation adjustments | 533 | | | 0 | | | 533 | | | (16) | | | 517 | | Foreign currency translation adjustments | 524 | | | 0 | | | 524 | | | (15) | | | 509 | |
| Financial instruments | Financial instruments | (167) | | | 41 | | | (126) | | | (9) | | | (135) | | Financial instruments | (203) | | | 57 | | | (146) | | | (14) | | | (160) | |
| Pension and other postretirement benefits | Pension and other postretirement benefits | 27 | | | (3) | | | 24 | | | 0 | | | 24 | | Pension and other postretirement benefits | 21 | | | (2) | | | 19 | | | 0 | | | 19 | |
| Total other comprehensive income (loss) | Total other comprehensive income (loss) | 393 | | | 38 | | | 431 | | | (25) | | | 406 | | Total other comprehensive income (loss) | 342 | | | 55 | | | 397 | | | (29) | | | 368 | |
| Comprehensive income | Comprehensive income | 5,111 | | | (1,208) | | | 3,903 | | | 176 | | | 4,079 | | Comprehensive income | 4,571 | | | (1,101) | | | 3,470 | | | 150 | | | 3,620 | |
| Preferred dividends of subsidiary | Preferred dividends of subsidiary | (1) | | | 0 | | | (1) | | | 0 | | | (1) | | Preferred dividends of subsidiary | (1) | | | 0 | | | (1) | | | 0 | | | (1) | |
Comprehensive income, after preferred dividends of subsidiary | Comprehensive income, after preferred dividends of subsidiary | $ | 5,110 | | | $ | (1,208) | | | $ | 3,902 | | | $ | 176 | | | $ | 4,078 | | Comprehensive income, after preferred dividends of subsidiary | $ | 4,570 | | | $ | (1,101) | | | $ | 3,469 | | | $ | 150 | | | $ | 3,619 | |
| 2019: | | | | | | | | | |
| Net income | $ | 1,898 | | | $ | (182) | | | $ | 1,716 | | | $ | 146 | | | $ | 1,862 | | |
| Other comprehensive income (loss): | | | | | | | | | | |
| Foreign currency translation adjustments | (45) | | | 0 | | | (45) | | | (2) | | | (47) | | |
| Financial instruments | (213) | | | 70 | | | (143) | | | (16) | | | (159) | | |
| Pension and other postretirement benefits | 22 | | | (6) | | | 16 | | | 0 | | | 16 | | |
| Total other comprehensive loss | (236) | | | 64 | | | (172) | | | (18) | | | (190) | | |
| Comprehensive income | 1,662 | | | (118) | | | 1,544 | | | 128 | | | 1,672 | | |
| Preferred dividends of subsidiary | (1) | | | 0 | | | (1) | | | 0 | | | (1) | | |
Comprehensive income, after preferred dividends of subsidiary | $ | 1,661 | | | $ | (118) | | | $ | 1,543 | | | $ | 128 | | | $ | 1,671 | | |
See Notes to Condensed Consolidated Financial Statements.
| | SEMPRA ENERGY | SEMPRA ENERGY | SEMPRA ENERGY |
| CONDENSED CONSOLIDATED BALANCE SHEETS | CONDENSED CONSOLIDATED BALANCE SHEETS | CONDENSED CONSOLIDATED BALANCE SHEETS |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | September 30, | | December 31, | | June 30, | | December 31, |
| | | 2020 | | 2019(1) | | 2021 | | 2020(1) |
| | | (unaudited) | | | | (unaudited) | | |
| ASSETS | ASSETS | | | | ASSETS | | | |
| Current assets: | Current assets: | | | | Current assets: | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 3,515 | | | $ | 108 | | Cash and cash equivalents | $ | 335 | | | $ | 960 | |
| Restricted cash | Restricted cash | 28 | | | 31 | | Restricted cash | 33 | | | 22 | |
| Accounts receivable – trade, net | Accounts receivable – trade, net | 1,067 | | | 1,261 | | Accounts receivable – trade, net | 1,441 | | | 1,578 | |
| Accounts receivable – other, net | Accounts receivable – other, net | 418 | | | 455 | | Accounts receivable – other, net | 413 | | | 403 | |
| Due from unconsolidated affiliates | Due from unconsolidated affiliates | 46 | | | 32 | | Due from unconsolidated affiliates | 11 | | | 20 | |
| Income taxes receivable | Income taxes receivable | 152 | | | 112 | | Income taxes receivable | 74 | | | 113 | |
| Inventories | Inventories | 309 | | | 277 | | Inventories | 339 | | | 308 | |
| Regulatory assets | Regulatory assets | 386 | | | 222 | | Regulatory assets | 251 | | | 190 | |
| Greenhouse gas allowances | Greenhouse gas allowances | 66 | | | 72 | | Greenhouse gas allowances | 555 | | | 553 | |
| | Assets held for sale in discontinued operations | 0 | | | 445 | | |
| Other current assets | Other current assets | 407 | | | 324 | | Other current assets | 308 | | | 364 | |
| Total current assets | Total current assets | 6,394 | | | 3,339 | | Total current assets | 3,760 | | | 4,511 | |
| | Other assets: | Other assets: | | | | Other assets: | | | |
| Restricted cash | Restricted cash | 3 | | | 3 | | Restricted cash | 3 | | | 3 | |
| Due from unconsolidated affiliates | Due from unconsolidated affiliates | 617 | | | 742 | | Due from unconsolidated affiliates | 702 | | | 780 | |
| Regulatory assets | Regulatory assets | 1,740 | | | 1,930 | | Regulatory assets | 2,216 | | | 1,822 | |
| Nuclear decommissioning trusts | Nuclear decommissioning trusts | 1,057 | | | 1,082 | | Nuclear decommissioning trusts | 1,024 | | | 1,019 | |
| Investment in Oncor Holdings | Investment in Oncor Holdings | 11,962 | | | 11,519 | | Investment in Oncor Holdings | 12,655 | | | 12,440 | |
| Other investments | Other investments | 1,455 | | | 2,103 | | Other investments | 1,393 | | | 1,388 | |
| Goodwill | Goodwill | 1,602 | | | 1,602 | | Goodwill | 1,602 | | | 1,602 | |
| Other intangible assets | Other intangible assets | 205 | | | 213 | | Other intangible assets | 382 | | | 202 | |
| Dedicated assets in support of certain benefit plans | Dedicated assets in support of certain benefit plans | 469 | | | 488 | | Dedicated assets in support of certain benefit plans | 523 | | | 512 | |
| Insurance receivable for Aliso Canyon costs | Insurance receivable for Aliso Canyon costs | 504 | | | 339 | | Insurance receivable for Aliso Canyon costs | 414 | | | 445 | |
| Deferred income taxes | Deferred income taxes | 199 | | | 155 | | Deferred income taxes | 167 | | | 136 | |
| Greenhouse gas allowances | Greenhouse gas allowances | 598 | | | 470 | | Greenhouse gas allowances | 259 | | | 101 | |
| Right-of-use assets – operating leases | Right-of-use assets – operating leases | 563 | | | 591 | | Right-of-use assets – operating leases | 513 | | | 543 | |
| Wildfire fund | Wildfire fund | 371 | | | 392 | | Wildfire fund | 349 | | | 363 | |
| Assets held for sale in discontinued operations | 0 | | | 3,513 | | |
| Other long-term assets | Other long-term assets | 699 | | | 732 | | Other long-term assets | 730 | | | 753 | |
| Total other assets | Total other assets | 22,044 | | | 25,874 | | Total other assets | 22,932 | | | 22,109 | |
| | Property, plant and equipment: | Property, plant and equipment: | | | | Property, plant and equipment: | | | |
| Property, plant and equipment | Property, plant and equipment | 52,429 | | | 49,329 | | Property, plant and equipment | 56,466 | | | 53,928 | |
| Less accumulated depreciation and amortization | Less accumulated depreciation and amortization | (13,645) | | | (12,877) | | Less accumulated depreciation and amortization | (14,550) | | | (13,925) | |
| Property, plant and equipment, net | Property, plant and equipment, net | 38,784 | | | 36,452 | | Property, plant and equipment, net | 41,916 | | | 40,003 | |
| Total assets | Total assets | $ | 67,222 | | | $ | 65,665 | | Total assets | $ | 68,608 | | | $ | 66,623 | |
(1) Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.
| | SEMPRA ENERGY | SEMPRA ENERGY | SEMPRA ENERGY |
| CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) | CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) | CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | September 30, | | December 31, | | June 30, | | December 31, |
| | | 2020 | | 2019(1) | | 2021 | | 2020(1) |
| | | (unaudited) | | | | (unaudited) | | |
| LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | | | | LIABILITIES AND EQUITY | | | |
| Current liabilities: | Current liabilities: | | | | Current liabilities: | | | |
| Short-term debt | Short-term debt | $ | 772 | | | $ | 3,505 | | Short-term debt | $ | 2,266 | | | $ | 885 | |
| Accounts payable – trade | Accounts payable – trade | 1,129 | | | 1,234 | | Accounts payable – trade | 1,291 | | | 1,359 | |
| Accounts payable – other | Accounts payable – other | 163 | | | 179 | | Accounts payable – other | 168 | | | 154 | |
| Due to unconsolidated affiliates | Due to unconsolidated affiliates | 6 | | | 5 | | Due to unconsolidated affiliates | 42 | | | 45 | |
| Dividends and interest payable | Dividends and interest payable | 563 | | | 515 | | Dividends and interest payable | 588 | | | 551 | |
| Accrued compensation and benefits | Accrued compensation and benefits | 412 | | | 476 | | Accrued compensation and benefits | 365 | | | 446 | |
| Regulatory liabilities | Regulatory liabilities | 373 | | | 319 | | Regulatory liabilities | 426 | | | 140 | |
| Current portion of long-term debt and finance leases | Current portion of long-term debt and finance leases | 2,890 | | | 1,526 | | Current portion of long-term debt and finance leases | 507 | | | 1,540 | |
| Reserve for Aliso Canyon costs | Reserve for Aliso Canyon costs | 268 | | | 9 | | Reserve for Aliso Canyon costs | 153 | | | 150 | |
| Greenhouse gas obligations | Greenhouse gas obligations | 66 | | | 72 | | Greenhouse gas obligations | 555 | | | 553 | |
| Liabilities held for sale in discontinued operations | 0 | | | 444 | | |
| Other current liabilities | Other current liabilities | 993 | | | 866 | | Other current liabilities | 951 | | | 1,016 | |
| Total current liabilities | Total current liabilities | 7,635 | | | 9,150 | | Total current liabilities | 7,312 | | | 6,839 | |
| | Long-term debt and finance leases | Long-term debt and finance leases | 21,770 | | | 20,785 | | Long-term debt and finance leases | 22,090 | | | 21,781 | |
| | Deferred credits and other liabilities: | Deferred credits and other liabilities: | | | | Deferred credits and other liabilities: | | | |
| Due to unconsolidated affiliates | Due to unconsolidated affiliates | 271 | | | 195 | | Due to unconsolidated affiliates | 262 | | | 234 | |
| Pension and other postretirement benefit plan obligations, net of plan assets | Pension and other postretirement benefit plan obligations, net of plan assets | 999 | | | 1,067 | | Pension and other postretirement benefit plan obligations, net of plan assets | 1,037 | | | 1,059 | |
| Deferred income taxes | Deferred income taxes | 2,696 | | | 2,577 | | Deferred income taxes | 3,325 | | | 2,871 | |
| Deferred investment tax credits | 22 | | | 21 | | |
| Regulatory liabilities | Regulatory liabilities | 3,410 | | | 3,741 | | Regulatory liabilities | 3,352 | | | 3,372 | |
| Reserve for Aliso Canyon costs | | Reserve for Aliso Canyon costs | 269 | | | 301 | |
| Asset retirement obligations | Asset retirement obligations | 2,961 | | | 2,923 | | Asset retirement obligations | 3,150 | | | 3,113 | |
| Greenhouse gas obligations | Greenhouse gas obligations | 456 | | | 301 | | Greenhouse gas obligations | 104 | | | 0 | |
| Liabilities held for sale in discontinued operations | 0 | | | 1,052 | | |
| Deferred credits and other | Deferred credits and other | 2,146 | | | 2,048 | | Deferred credits and other | 2,015 | | | 2,119 | |
| Total deferred credits and other liabilities | Total deferred credits and other liabilities | 12,961 | | | 13,925 | | Total deferred credits and other liabilities | 13,514 | | | 13,069 | |
| | Commitments and contingencies (Note 11) | Commitments and contingencies (Note 11) | | Commitments and contingencies (Note 11) | 0 | | 0 |
| | Equity: | Equity: | | | | Equity: | | | |
| Preferred stock (50 million shares authorized): | Preferred stock (50 million shares authorized): | | 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 A (17.25 million shares outstanding at December 31, 2020) | | Mandatory convertible preferred stock, series A (17.25 million shares outstanding at December 31, 2020) | 0 | | | 1,693 | |
Mandatory convertible preferred stock, series B (5.75 million shares outstanding) | Mandatory convertible preferred stock, series B (5.75 million shares outstanding) | 565 | | | 565 | | Mandatory convertible preferred stock, series B (5.75 million shares outstanding) | 565 | | | 565 | |
Preferred stock, series C (0.9 million shares outstanding) | Preferred stock, series C (0.9 million shares outstanding) | 889 | | | 0 | | Preferred stock, series C (0.9 million shares outstanding) | 889 | | | 889 | |
Common stock (750 million shares authorized; 288 million and 292 million shares outstanding at September 30, 2020 and December 31, 2019, respectively; no par value) | 7,034 | | | 7,480 | | |
Common stock (750 million shares authorized; 315 million and 288 million shares outstanding at June 30, 2021 and December 31, 2020, respectively; no par value) | | Common stock (750 million shares authorized; 315 million and 288 million shares outstanding at June 30, 2021 and December 31, 2020, respectively; no par value) | 10,150 | | | 7,053 | |
| Retained earnings | Retained earnings | 13,560 | | | 11,130 | | Retained earnings | 14,291 | | | 13,673 | |
| Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | (513) | | | (939) | | Accumulated other comprehensive income (loss) | (444) | | | (500) | |
| Total Sempra Energy shareholders’ equity | Total Sempra Energy shareholders’ equity | 23,228 | | | 19,929 | | Total Sempra Energy shareholders’ equity | 25,451 | | | 23,373 | |
| Preferred stock of subsidiary | Preferred stock of subsidiary | 20 | | | 20 | | Preferred stock of subsidiary | 20 | | | 20 | |
| Other noncontrolling interests | Other noncontrolling interests | 1,608 | | | 1,856 | | Other noncontrolling interests | 221 | | | 1,541 | |
| Total equity | Total equity | 24,856 | | | 21,805 | | Total equity | 25,692 | | | 24,934 | |
| Total liabilities and equity | Total liabilities and equity | $ | 67,222 | | | $ | 65,665 | | Total liabilities and equity | $ | 68,608 | | | $ | 66,623 | |
(1) Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.
| | SEMPRA ENERGY | SEMPRA ENERGY | SEMPRA ENERGY |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | | Nine months ended September 30, | | Six months ended June 30, |
| | | 2020 | | 2019 | | 2021 | | 2020 |
| | | (unaudited) | | (unaudited) |
| CASH FLOWS FROM OPERATING ACTIVITIES | CASH FLOWS FROM OPERATING ACTIVITIES | | | | CASH FLOWS FROM OPERATING ACTIVITIES | | | |
| Net income | Net income | $ | 3,673 | | | $ | 1,862 | | Net income | $ | 1,383 | | | $ | 3,252 | |
| Less: Income from discontinued operations, net of income tax | Less: Income from discontinued operations, net of income tax | (1,850) | | | (292) | | Less: Income from discontinued operations, net of income tax | 0 | | | (1,857) | |
| Income from continuing operations, net of income tax | Income from continuing operations, net of income tax | 1,823 | | | 1,570 | | Income from continuing operations, net of income tax | 1,383 | | | 1,395 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | | | Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and amortization | Depreciation and amortization | 1,242 | | | 1,174 | | Depreciation and amortization | 905 | | | 824 | |
| Deferred income taxes and investment tax credits | Deferred income taxes and investment tax credits | (12) | | | 12 | | Deferred income taxes and investment tax credits | 193 | | | (94) | |
| Impairment losses | 1 | | | 43 | | |
| Gain on sale of assets | 0 | | | (63) | | |
| Equity earnings | Equity earnings | (822) | | | (485) | | Equity earnings | (631) | | | (496) | |
| Foreign currency transaction losses, net | 95 | | | 2 | | |
| Foreign currency transaction (gains) losses, net | | Foreign currency transaction (gains) losses, net | (7) | | | 110 | |
| Share-based compensation expense | Share-based compensation expense | 57 | | | 56 | | Share-based compensation expense | 34 | | | 36 | |
| | Fixed-price contracts and other derivatives | | Fixed-price contracts and other derivatives | 199 | | | 7 | |
| Other | Other | 131 | | | 2 | | Other | 54 | | | 42 | |
| | Intercompany activities with discontinued operations, net | 0 | | | 184 | | |
| Net change in other working capital components | (137) | | | (200) | | |
| Net change in working capital components | | Net change in working capital components | (63) | | | 375 | |
| Distributions from investments | Distributions from investments | 429 | | | 163 | | Distributions from investments | 532 | | | 220 | |
| Insurance receivable for Aliso Canyon costs | Insurance receivable for Aliso Canyon costs | (165) | | | 107 | | Insurance receivable for Aliso Canyon costs | 31 | | | (166) | |
| Wildfire fund, current and noncurrent | 0 | | | (323) | | |
| | Changes in other noncurrent assets and liabilities, net | Changes in other noncurrent assets and liabilities, net | 38 | | | (413) | | Changes in other noncurrent assets and liabilities, net | (375) | | | (185) | |
| Net cash provided by continuing operations | Net cash provided by continuing operations | 2,680 | | | 1,829 | | Net cash provided by continuing operations | 2,255 | | | 2,068 | |
| Net cash (used in) provided by discontinued operations | (1,051) | | | 289 | | |
| Net cash used in discontinued operations | | Net cash used in discontinued operations | 0 | | | (1,041) | |
| Net cash provided by operating activities | Net cash provided by operating activities | 1,629 | | | 2,118 | | Net cash provided by operating activities | 2,255 | | | 1,027 | |
| | CASH FLOWS FROM INVESTING ACTIVITIES | CASH FLOWS FROM INVESTING ACTIVITIES | | | | CASH FLOWS FROM INVESTING ACTIVITIES | | | |
| Expenditures for property, plant and equipment | Expenditures for property, plant and equipment | (3,313) | | | (2,590) | | Expenditures for property, plant and equipment | (2,424) | | | (2,198) | |
| Expenditures for investments and acquisitions | Expenditures for investments and acquisitions | (229) | | | (1,449) | | Expenditures for investments and acquisitions | (165) | | | (140) | |
| Proceeds from sale of assets | Proceeds from sale of assets | 22 | | | 899 | | Proceeds from sale of assets | 0 | | | 5 | |
| Distributions from investments | 761 | | | 9 | | |
| Purchases of nuclear decommissioning trust assets | Purchases of nuclear decommissioning trust assets | (1,091) | | | (728) | | Purchases of nuclear decommissioning trust assets | (542) | | | (797) | |
| Proceeds from sales of nuclear decommissioning trust assets | Proceeds from sales of nuclear decommissioning trust assets | 1,091 | | | 728 | | Proceeds from sales of nuclear decommissioning trust assets | 542 | | | 797 | |
| Advances to unconsolidated affiliates | Advances to unconsolidated affiliates | (32) | | | (16) | | Advances to unconsolidated affiliates | (8) | | | (25) | |
| Repayments of advances to unconsolidated affiliates | 7 | | | 12 | | |
| Intercompany activities with discontinued operations, net | 0 | | | (257) | | |
| | Other | Other | 13 | | | 16 | | Other | 9 | | | 17 | |
| Net cash used in continuing operations | Net cash used in continuing operations | (2,771) | | | (3,376) | | Net cash used in continuing operations | (2,588) | | | (2,341) | |
| Net cash provided by (used in) discontinued operations | 5,186 | | | (63) | | |
| Net cash provided by (used in) investing activities | 2,415 | | | (3,439) | | |
| Net cash provided by discontinued operations | | Net cash provided by discontinued operations | 0 | | | 5,195 | |
| Net cash (used in) provided by investing activities | | Net cash (used in) provided by investing activities | (2,588) | | | 2,854 | |
See Notes to Condensed Consolidated Financial Statements.
| | SEMPRA ENERGY | SEMPRA ENERGY | SEMPRA ENERGY |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | | Nine months ended September 30, | | Six months ended June 30, |
| | | 2020 | | 2019 | | 2021 | | 2020 |
| | | (unaudited) | | (unaudited) |
| CASH FLOWS FROM FINANCING ACTIVITIES | CASH FLOWS FROM FINANCING ACTIVITIES | | CASH FLOWS FROM FINANCING ACTIVITIES | |
| Common dividends paid | Common dividends paid | (872) | | | (734) | | Common dividends paid | $ | (634) | | | $ | (567) | |
| Preferred dividends paid | Preferred dividends paid | (107) | | | (107) | | Preferred dividends paid | (68) | | | (71) | |
| Issuances of preferred stock | Issuances of preferred stock | 890 | | | 0 | | Issuances of preferred stock | 0 | | | 891 | |
| Issuances of common stock | Issuances of common stock | 10 | | | 757 | | Issuances of common stock | 5 | | | 13 | |
| Repurchases of common stock | Repurchases of common stock | (565) | | | (23) | | Repurchases of common stock | (38) | | | (64) | |
| Issuances of debt (maturities greater than 90 days) | Issuances of debt (maturities greater than 90 days) | 5,934 | | | 3,269 | | Issuances of debt (maturities greater than 90 days) | 285 | | | 4,059 | |
| Payments on debt (maturities greater than 90 days) and finance leases | Payments on debt (maturities greater than 90 days) and finance leases | (4,387) | | | (2,500) | | Payments on debt (maturities greater than 90 days) and finance leases | (1,432) | | | (1,970) | |
| (Decrease) increase in short-term debt, net | (1,871) | | | 888 | | |
| Increase (decrease) in short-term debt, net | | Increase (decrease) in short-term debt, net | 1,584 | | | (1,871) | |
| Advances from unconsolidated affiliates | Advances from unconsolidated affiliates | 64 | | | 0 | | Advances from unconsolidated affiliates | 20 | | | 64 | |
| Proceeds from sale of noncontrolling interests | | Proceeds from sale of noncontrolling interests | 7 | | | 0 | |
| Purchases of noncontrolling interests | | Purchases of noncontrolling interests | (10) | | | (27) | |
| | Purchases of noncontrolling interests | (178) | | | (30) | | |
| Contributions from noncontrolling interests, net of distributions | 0 | | | 171 | | |
| Intercompany activities with discontinued operations, net | 0 | | | (128) | | |
| Other | Other | (29) | | | (37) | | Other | (1) | | | (16) | |
| Net cash (used in) provided by continuing operations | Net cash (used in) provided by continuing operations | (1,111) | | | 1,526 | | Net cash (used in) provided by continuing operations | (282) | | | 441 | |
| Net cash provided by discontinued operations | Net cash provided by discontinued operations | 401 | | | 49 | | Net cash provided by discontinued operations | 0 | | | 401 | |
| Net cash (used in) provided by financing activities | Net cash (used in) provided by financing activities | (710) | | | 1,575 | | Net cash (used in) provided by financing activities | (282) | | | 842 | |
| | Effect of exchange rate changes in continuing operations | Effect of exchange rate changes in continuing operations | (2) | | | 0 | | Effect of exchange rate changes in continuing operations | 1 | | | (7) | |
| Effect of exchange rate changes in discontinued operations | Effect of exchange rate changes in discontinued operations | (3) | | | (3) | | Effect of exchange rate changes in discontinued operations | 0 | | | (3) | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | Effect of exchange rate changes on cash, cash equivalents and restricted cash | (5) | | | (3) | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | 1 | | | (10) | |
| | Increase in cash, cash equivalents and restricted cash, including discontinued operations | 3,329 | | | 251 | | |
(Decrease) increase in cash, cash equivalents and restricted cash, including discontinued operations | | (Decrease) increase in cash, cash equivalents and restricted cash, including discontinued operations | (614) | | | 4,713 | |
| Cash, cash equivalents and restricted cash, including discontinued operations, January 1 | Cash, cash equivalents and restricted cash, including discontinued operations, January 1 | 217 | | | 246 | | Cash, cash equivalents and restricted cash, including discontinued operations, January 1 | 985 | | | 217 | |
| Cash, cash equivalents and restricted cash, including discontinued operations, September 30 | $ | 3,546 | | | $ | 497 | | |
| Cash, cash equivalents and restricted cash, including discontinued operations, June 30 | | Cash, cash equivalents and restricted cash, including discontinued operations, June 30 | $ | 371 | | | $ | 4,930 | |
| | SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | | | SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | | |
| Interest payments, net of amounts capitalized | Interest payments, net of amounts capitalized | $ | 781 | | | $ | 766 | | Interest payments, net of amounts capitalized | $ | 488 | | | $ | 540 | |
| Income tax payments, including discontinued operations, net of refunds | Income tax payments, including discontinued operations, net of refunds | 1,376 | | | 372 | | Income tax payments, including discontinued operations, net of refunds | 73 | | | 1,303 | |
| | SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | | | | SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | | | |
| Accrued interest receivable from unconsolidated affiliate | $ | 0 | | | $ | 55 | | |
| Increase in Cameron LNG JV investment for guarantee | | Increase in Cameron LNG JV investment for guarantee | 22 | | | 0 | |
| Accrued capital expenditures | Accrued capital expenditures | 460 | | | 390 | | Accrued capital expenditures | 526 | | | 434 | |
| | Increase in finance lease obligations for investment in property, plant and equipment | 72 | | | 27 | | |
| Increase in finance lease obligations for investment in PP&E | | Increase in finance lease obligations for investment in PP&E | 24 | | | 56 | |
| Issuance of common stock in exchange for NCI and related AOCI | | Issuance of common stock in exchange for NCI and related AOCI | 1,373 | | | 0 | |
| Distribution from Oncor Holdings | | Distribution from Oncor Holdings | 8 | | | 0 | |
| Equitization of long-term debt for deficit held by NCI | Equitization of long-term debt for deficit held by NCI | 22 | | | 0 | | Equitization of long-term debt for deficit held by NCI | 0 | | | 22 | |
| | Contribution to Cameron LNG JV | 50 | | | 0 | | |
| Distribution from Cameron LNG JV | 50 | | | 0 | | |
| Conversion of mandatory convertible preferred stock | | Conversion of mandatory convertible preferred stock | 1,693 | | | 0 | |
| Preferred dividends declared but not paid | Preferred dividends declared but not paid | 50 | | | 36 | | Preferred dividends declared but not paid | 20 | | | 37 | |
| Common dividends receivable from discontinued operation | 0 | | | 422 | | |
| Common dividends issued in stock | Common dividends issued in stock | 23 | | | 41 | | Common dividends issued in stock | 0 | | | 22 | |
| Common dividends declared but not paid | Common dividends declared but not paid | 301 | | | 272 | | Common dividends declared but not paid | 347 | | | 305 | |
See Notes to Condensed Consolidated Financial Statements.
| | SEMPRA ENERGY | SEMPRA ENERGY | SEMPRA ENERGY |
| CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | | Preferred stock | | Common
stock | | Retained
earnings | | Accumulated
other
comprehensive
income (loss) | | Sempra
Energy
shareholders'
equity | | Non-
controlling
interests | | Total
equity | | Preferred stock | | Common
stock | | Retained
earnings | | Accumulated
other
comprehensive
income (loss) | | Sempra
Energy
shareholders'
equity | | Non-
controlling
interests | | Total
equity |
| | (unaudited) | | (unaudited) |
| | Three months ended September 30, 2020 | | Three months ended June 30, 2021 |
| Balance at June 30, 2020 | $ | 3,147 | | | $ | 7,490 | | | $ | 13,511 | | | $ | (542) | | | $ | 23,606 | | | $ | 1,780 | | | $ | 25,386 | | |
| Balance at March 31, 2021 | | Balance at March 31, 2021 | $ | 1,454 | | | $ | 8,730 | | | $ | 14,214 | | | $ | (399) | | | $ | 23,999 | | | $ | 1,609 | | | $ | 25,608 | |
| | Net income | Net income | | 399 | | | 399 | | | 22 | | | 421 | | Net income | | 445 | | | 445 | | | 10 | | | 455 | |
| Other comprehensive income | | 34 | | | 34 | | | 4 | | | 38 | | |
| Other comprehensive loss | | Other comprehensive loss | | (7) | | | (7) | | | (5) | | | (12) | |
| | Share-based compensation expense | Share-based compensation expense | | 19 | | | 19 | | | 19 | | Share-based compensation expense | | 17 | | | 17 | | | 17 | |
| Dividends declared: | Dividends declared: | | Dividends declared: | |
| Series A preferred stock ($1.50/share) | | (26) | | | (26) | | | (26) | | |
| Series B preferred stock ($1.68/share) | | (10) | | | (10) | | | (10) | | |
| Series C preferred stock ($14.08/share) | | (12) | | | (12) | | | (12) | | |
| Common stock ($1.05/share) | | (302) | | | (302) | | | (302) | | |
| | Series B preferred stock ($1.69/share) | | Series B preferred stock ($1.69/share) | | (9) | | | (9) | | | (9) | |
| Series C preferred stock ($12.19/share) | | Series C preferred stock ($12.19/share) | | (11) | | | (11) | | | (11) | |
| Common stock ($1.10/share) | | Common stock ($1.10/share) | | (347) | | | (347) | | | (347) | |
| Preferred dividends of subsidiary | | Preferred dividends of subsidiary | | (1) | | | (1) | | | (1) | |
| | Issuances of common stock | | Issuances of common stock | | 5 | | | 5 | | | 5 | |
| Repurchases of common stock | Repurchases of common stock | | (501) | | | (501) | | | (501) | | Repurchases of common stock | | (1) | | | (1) | | | (1) | |
| Noncontrolling interest activities: | Noncontrolling interest activities: | | Noncontrolling interest activities: | |
| | Purchases | Purchases | | 26 | | | (5) | | | 21 | | | (178) | | | (157) | | Purchases | | 1,399 | | | (38) | | | 1,361 | | | (1,373) | | | (12) | |
| | Balance at September 30, 2020 | $ | 3,147 | | | $ | 7,034 | | | $ | 13,560 | | | $ | (513) | | | $ | 23,228 | | | $ | 1,628 | | | $ | 24,856 | | |
| Balance at June 30, 2021 | | Balance at June 30, 2021 | $ | 1,454 | | | $ | 10,150 | | | $ | 14,291 | | | $ | (444) | | | $ | 25,451 | | | $ | 241 | | | $ | 25,692 | |
| | | | Three months ended September 30, 2019 | | Three months ended June 30, 2020 |
| Balance at June 30, 2019 | $ | 2,258 | | | $ | 5,605 | | | $ | 10,425 | | | $ | (848) | | | $ | 17,440 | | | $ | 1,994 | | | $ | 19,434 | | |
| Balance at March 31, 2020 | | Balance at March 31, 2020 | $ | 2,258 | | | $ | 7,472 | | | $ | 11,577 | | | $ | (1,190) | | | $ | 20,117 | | | $ | 1,998 | | | $ | 22,115 | |
| | Net income | Net income | | 849 | | | 849 | | | 60 | | | 909 | | Net income | | 2,277 | | | 2,277 | | | 28 | | | 2,305 | |
| Other comprehensive loss | | (130) | | | (130) | | | (12) | | | (142) | | |
| Other comprehensive income | | Other comprehensive income | | 648 | | | 648 | | | 3 | | | 651 | |
| | Share-based compensation expense | Share-based compensation expense | | 17 | | | 17 | | | 17 | | Share-based compensation expense | | 14 | | | 14 | | | 14 | |
| Dividends declared: | Dividends declared: | | Dividends declared: | |
| Series A preferred stock ($1.50/share) | Series A preferred stock ($1.50/share) | | (26) | | | (26) | | | (26) | | Series A preferred stock ($1.50/share) | | (26) | | | (26) | | | (26) | |
| Series B preferred stock ($1.68/share) | | (10) | | | (10) | | | (10) | | |
| Common stock ($0.96/share) | | (272) | | | (272) | | | (272) | | |
| | Series B preferred stock ($1.69/share) | | Series B preferred stock ($1.69/share) | | (9) | | | (9) | | | (9) | |
| Series C preferred stock ($1.63/share) | | Series C preferred stock ($1.63/share) | | (2) | | | (2) | | | (2) | |
| Common stock ($1.04/share) | | Common stock ($1.04/share) | | (305) | | | (305) | | | (305) | |
| Preferred dividends of subsidiary | | Preferred dividends of subsidiary | | (1) | | | (1) | | | (1) | |
| Issuance of series C preferred stock | | Issuance of series C preferred stock | 889 | | | 889 | | | 889 | |
| Issuances of common stock | Issuances of common stock | | 751 | | | 751 | | | 751 | | Issuances of common stock | | 10 | | | 10 | | | 10 | |
| Repurchases of common stock | Repurchases of common stock | | (5) | | | (5) | | | (5) | | Repurchases of common stock | | (7) | | | (7) | | | (7) | |
| Noncontrolling interest activities: | Noncontrolling interest activities: | | Noncontrolling interest activities: | |
| Contributions | | 175 | | | 175 | | |
| | Distributions | Distributions | | 2 | | | 2 | | | (7) | | | (5) | | Distributions | | 0 | | (1) | | | (1) | |
| Purchases | Purchases | | (2) | | | (2) | | Purchases | | 1 | | | 1 | | | (12) | | | (11) | |
| Sale | | 4 | | | 4 | | | 1 | | | 5 | | |
| Acquisition | | 3 | | | 3 | | |
| | Deconsolidation | Deconsolidation | | (281) | | | (281) | | Deconsolidation | | (236) | | | (236) | |
| Balance at September 30, 2019 | $ | 2,258 | | | $ | 6,374 | | | $ | 10,966 | | | $ | (978) | | | $ | 18,620 | | | $ | 1,931 | | | $ | 20,551 | | |
| See Notes to Condensed Consolidated Financial Statements. | |
| Balance at June 30, 2020 | | Balance at June 30, 2020 | $ | 3,147 | | | $ | 7,490 | | | $ | 13,511 | | | $ | (542) | | | $ | 23,606 | | | $ | 1,780 | | | $ | 25,386 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SEMPRA ENERGY |
| CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED) |
| (Dollars in millions) |
| | Preferred stock | | Common
stock | | Retained
earnings | | Accumulated
other
comprehensive
income (loss) | | Sempra
Energy
shareholders'
equity | | Non-
controlling
interests | | Total
equity |
| (unaudited) |
| Nine months ended September 30, 2020 |
| 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 | | | | | 3,472 | | | | | 3,472 | | | 201 | | | 3,673 | |
| Other comprehensive income (loss) | | | | | | | 431 | | | 431 | | | (25) | | | 406 | |
| | | | | | | | | | | | | |
| Share-based compensation expense | | | 57 | | | | | | | 57 | | | | | 57 | |
| Dividends declared: | | | | | | | | | | | | | |
| Series A preferred stock ($4.50/share) | | | | | (78) | | | | | (78) | | | | | (78) | |
| Series B preferred stock ($5.06/share) | | | | | (29) | | | | | (29) | | | | | (29) | |
| Series C preferred stock ($15.71/share) | | | | | (14) | | | | | (14) | | | | | (14) | |
| Common stock ($3.14/share) | | | | | (913) | | | | | (913) | | | | | (913) | |
| 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 | | | (565) | | | | | | | (565) | | | | | (565) | |
| Noncontrolling interest activities: | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Distributions | | | | | | | | | | | (1) | | | (1) | |
| Purchases | | | 29 | | | | | (5) | | | 24 | | | (208) | | | (184) | |
| | | | | | | | | | | | | |
| Acquisition | | | | | | | | | | | 1 | | | 1 | |
Equitization of long-term debt for deficit held by NCI | | | | | | | | | | | 22 | | | 22 | |
| Deconsolidation | | | | | | | | | | | (236) | | | (236) | |
| Balance at September 30, 2020 | $ | 3,147 | | | $ | 7,034 | | | $ | 13,560 | | | $ | (513) | | | $ | 23,228 | | | $ | 1,628 | | | $ | 24,856 | |
| | | | | | | | | | | | | |
| | Nine months ended September 30, 2019 |
| 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 | | | | | 1,716 | | | | | 1,716 | | | 146 | | | 1,862 | |
| Other comprehensive loss | | | | | | | (172) | | | (172) | | | (18) | | | (190) | |
| | | | | | | | | | | | | |
| Share-based compensation expense | | | 56 | | | | | | | 56 | | | | | 56 | |
| Dividends declared: | | | | | | | | | | | | | |
| Series A preferred stock ($4.50/share) | | | | | (78) | | | | | (78) | | | | | (78) | |
| Series B preferred stock ($5.06/share) | | | | | (29) | | | | | (29) | | | | | (29) | |
| Common stock ($2.90/share) | | | | | (803) | | | | | (803) | | | | | (803) | |
| Preferred dividends of subsidiary | | | | | (1) | | | | | (1) | | | | | (1) | |
| Issuances of common stock | | | 798 | | | | | | | 798 | | | | | 798 | |
| Repurchases of common stock | | | (23) | | | | | | | (23) | | | | | (23) | |
| Noncontrolling interest activities: | | | | | | | | | | | | | |
| Contributions | | | | | | | | | | | 175 | | | 175 | |
| Distributions | | | 2 | | | | | | | 2 | | | (19) | | | (17) | |
| Purchases | | | (3) | | | | | | | (3) | | | (27) | | | (30) | |
| Sale | | | 4 | | | | | | | 4 | | | 1 | | | 5 | |
| Acquisition | | | | | | | | | | | 3 | | | 3 | |
| Deconsolidations | | | | | | | | | | | (440) | | | (440) | |
| Balance at September 30, 2019 | $ | 2,258 | | | $ | 6,374 | | | $ | 10,966 | | | $ | (978) | | | $ | 18,620 | | | $ | 1,931 | | | $ | 20,551 | |
| See Notes to Condensed Consolidated Financial Statements. |
| | | | | | | | | | | | | | | | | | | | | | | |
| SAN DIEGO GAS & ELECTRIC COMPANY |
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
| (Dollars in millions) | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| | (unaudited) |
| Operating revenues | | | | | | | |
| Electric | $ | 1,338 | | | $ | 1,271 | | | $ | 3,478 | | | $ | 3,184 | |
| Natural gas | 134 | | | 156 | | | 498 | | | 482 | |
| Total operating revenues | 1,472 | | | 1,427 | | | 3,976 | | | 3,666 | |
| Operating expenses | | | | | | | |
| Cost of electric fuel and purchased power | 430 | | | 411 | | | 921 | | | 934 | |
| Cost of natural gas | 27 | | | 23 | | | 118 | | | 136 | |
| Operation and maintenance | 414 | | | 295 | | | 1,050 | | | 857 | |
| Depreciation and amortization | 200 | | | 196 | | | 598 | | | 571 | |
| Franchise fees and other taxes | 86 | | | 79 | | | 237 | | | 220 | |
| Total operating expenses | 1,157 | | | 1,004 | | | 2,924 | | | 2,718 | |
| Operating income | 315 | | | 423 | | | 1,052 | | | 948 | |
| Other (expense) income, net | (2) | | | 19 | | | 47 | | | 60 | |
| Interest income | 1 | | | 1 | | | 2 | | | 3 | |
| Interest expense | (103) | | | (106) | | | (307) | | | (311) | |
| Income before income taxes | 211 | | | 337 | | | 794 | | | 700 | |
| Income tax expense | (33) | | | (71) | | | (161) | | | (111) | |
| Net income | 178 | | | 266 | | | 633 | | | 589 | |
| Earnings attributable to noncontrolling interest | 0 | | | (3) | | | 0 | | | (7) | |
| Earnings attributable to common shares | $ | 178 | | | $ | 263 | | | $ | 633 | | | $ | 582 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SEMPRA ENERGY |
| CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
| (Dollars in millions) |
| | Preferred stock | | Common
stock | | Retained
earnings | | Accumulated
other
comprehensive
income (loss) | | Sempra
Energy
shareholders'
equity | | Non-
controlling
interests | | Total
equity |
| (unaudited) |
| Six months ended June 30, 2021 |
| Balance at December 31, 2020 | $ | 3,147 | | | $ | 7,053 | | | $ | 13,673 | | | $ | (500) | | | $ | 23,373 | | | $ | 1,561 | | | $ | 24,934 | |
| | | | | | | | | | | | | |
| Net income | | | | | 1,340 | | | | | 1,340 | | | 43 | | | 1,383 | |
| Other comprehensive income | | | | | | | 94 | | | 94 | | | 9 | | | 103 | |
| | | | | | | | | | | | | |
| Share-based compensation expense | | | 34 | | | | | | | 34 | | | | | 34 | |
| Dividends declared: | | | | | | | | | | | | | |
| Series B preferred stock ($3.38/share) | | | | | (19) | | | | | (19) | | | | | (19) | |
| Series C preferred stock ($24.38/share) | | | | | (22) | | | | | (22) | | | | | (22) | |
| Common stock ($2.20/share) | | | | | (680) | | | | | (680) | | | | | (680) | |
| Preferred dividends of subsidiary | | | | | (1) | | | | | (1) | | | | | (1) | |
| Conversion of series A preferred stock | (1,693) | | | 1,693 | | | | | | | 0 | | | | | 0 | |
| Issuances of common stock | | | 5 | | | | | | | 5 | | | | | 5 | |
| Repurchases of common stock | | | (38) | | | | | | | (38) | | | | | (38) | |
| Noncontrolling interest activities: | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Purchases | | | 1,399 | | | | | (38) | | | 1,361 | | | (1,373) | | | (12) | |
| Sale | | | 4 | | | | | | | 4 | | | 1 | | | 5 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance at June 30, 2021 | $ | 1,454 | | | $ | 10,150 | | | $ | 14,291 | | | $ | (444) | | | $ | 25,451 | | | $ | 241 | | | $ | 25,692 | |
| | | | | | | | | | | | | |
| | Six months ended June 30, 2020 |
| 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 | | | | | 3,073 | | | | | 3,073 | | | 179 | | | 3,252 | |
| Other comprehensive income | | | | | | | 397 | | | 397 | | | (29) | | | 368 | |
| | | | | | | | | | | | | |
| Share-based compensation expense | | | 36 | | | | | | | 36 | | | | | 36 | |
| Dividends declared: | | | | | | | | | | | | | |
| Series A preferred stock ($3.00/share) | | | | | (52) | | | | | (52) | | | | | (52) | |
| Series B preferred stock ($3.38/share) | | | | | (19) | | | | | (19) | | | | | (19) | |
| Series C preferred stock ($1.63/share) | | | | | (2) | | | | | (2) | | | | | (2) | |
| Common stock ($2.09/share) | | | | | (611) | | | | | (611) | | | | | (611) | |
| Preferred dividends of subsidiary | | | | | (1) | | | | | (1) | | | | | (1) | |
| Issuance of series C preferred stock | 889 | | | | | | | | 889 | | | | | 889 | |
| Issuances of common stock | | | 35 | | | | | | | 35 | | | | | 35 | |
| Repurchases of common stock | | | (64) | | | | | | | (64) | | | | | (64) | |
| Noncontrolling interest activities: | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Distributions | | | | | | | | | 0 | | (1) | | | (1) | |
| Purchases | | | 3 | | | | | | | 3 | | | (30) | | | (27) | |
| | | | | | | | | | | | | |
| Acquisition | | | | | | | | | | | 1 | | | 1 | |
Equitization of long-term debt for deficit held by NCI | | | | | | | | | | | 22 | | | 22 | |
| Deconsolidation | | | | | | | | | | | (236) | | | (236) | |
| Balance at June 30, 2020 | $ | 3,147 | | | $ | 7,490 | | | $ | 13,511 | | | $ | (542) | | | $ | 23,606 | | | $ | 1,780 | | | $ | 25,386 | |
See Notes to Condensed Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SAN DIEGO GAS & ELECTRIC COMPANY |
| CONDENSED STATEMENTS OF OPERATIONS |
| (Dollars in millions) | | |
| | Three months ended June 30, | | | | Six months ended June 30, |
| | 2021 | | 2020 | | | | | | 2021 | | 2020 |
| | (unaudited) |
| Operating revenues | | | | | | | | | | | |
| Electric | $ | 1,158 | | | $ | 1,090 | | | | | | | $ | 2,227 | | | $ | 2,140 | |
| Natural gas | 160 | | | 145 | | | | | | | 428 | | | 364 | |
| Total operating revenues | 1,318 | | | 1,235 | | | | | | | 2,655 | | | 2,504 | |
| Operating expenses | | | | | | | | | | | |
| Cost of electric fuel and purchased power | 304 | | | 260 | | | | | | | 545 | | | 491 | |
| Cost of natural gas | 40 | | | 31 | | | | | | | 122 | | | 91 | |
| Operation and maintenance | 373 | | | 326 | | | | | | | 763 | | | 636 | |
| Depreciation and amortization | 220 | | | 197 | | | | | | | 433 | | | 398 | |
| Franchise fees and other taxes | 83 | | | 73 | | | | | | | 171 | | | 151 | |
| Total operating expenses | 1,020 | | | 887 | | | | | | | 2,034 | | | 1,767 | |
| Operating income | 298 | | | 348 | | | | | | | 621 | | | 737 | |
| Other income, net | 22 | | | 18 | | | | | | | 57 | | | 49 | |
| Interest income | 0 | | | 0 | | | | | | | 1 | | | 1 | |
| Interest expense | (101) | | | (103) | | | | | | | (203) | | | (204) | |
| Income before income taxes | 219 | | | 263 | | | | | | | 476 | | | 583 | |
| Income tax expense | (33) | | | (70) | | | | | | | (78) | | | (128) | |
| Net Income/Earnings attributable to common shares | $ | 186 | | | $ | 193 | | | | | | | $ | 398 | | | $ | 455 | |
See Notes to Condensed Financial Statements.
| | SAN DIEGO GAS & ELECTRIC COMPANY | SAN DIEGO GAS & ELECTRIC COMPANY | SAN DIEGO GAS & ELECTRIC COMPANY |
| CONDENSED CONSOLIDATED 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) |
| | | SDG&E shareholder’s equity | | | | | | SDG&E shareholder’s equity | |
| | | Pretax
amount | | Income tax expense | | Net-of-tax
amount | | Noncontrolling
interest
(after-tax) | | Total | | Pretax
amount | | Income tax expense | | Net-of-tax
amount | |
| | | (unaudited) | | (unaudited) |
| | | Three months ended September 30, 2020 and 2019 | | Three months ended June 30, 2021 and 2020 |
| 2020: | | | | | | | | | | |
| 2021: | | 2021: | | | | | | |
| | Net income/Comprehensive income | $ | 211 | | | $ | (33) | | | $ | 178 | | | $ | 0 | | | $ | 178 | | |
| 2019: | | | | | | | | | | |
| Net Income/Comprehensive income | | Net Income/Comprehensive income | $ | 219 | | | $ | (33) | | | $ | 186 | | |
| 2020: | | 2020: | | | | | | |
| Net income | Net income | $ | 334 | | | $ | (71) | | | $ | 263 | | | $ | 3 | | | $ | 266 | | Net income | $ | 263 | | | $ | (70) | | | $ | 193 | | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | | | | | | | | | Other comprehensive income (loss): | | | | | | |
| Financial instruments | 0 | | | 0 | | | 0 | | | 1 | | | 1 | | |
| | Pension and other postretirement benefits | | Pension and other postretirement benefits | 5 | | | (1) | | | 4 | | |
| Total other comprehensive income | Total other comprehensive income | 0 | | | 0 | | | 0 | | | 1 | | | 1 | | Total other comprehensive income | 5 | | | (1) | | | 4 | | |
| Comprehensive income | Comprehensive income | $ | 334 | | | $ | (71) | | | $ | 263 | | | $ | 4 | | | $ | 267 | | Comprehensive income | $ | 268 | | | $ | (71) | | | $ | 197 | | |
| | | | Nine months ended September 30, 2020 and 2019 | | Six months ended June 30, 2021 and 2020 |
| 2021: | | 2021: | | | | | | |
| | Net Income/Comprehensive income | | Net Income/Comprehensive income | $ | 476 | | | $ | (78) | | | $ | 398 | | |
| 2020: | 2020: | | | | | | | | | | 2020: | | | | | | |
| Net income | Net income | $ | 794 | | | $ | (161) | | | $ | 633 | | | $ | 0 | | | $ | 633 | | Net income | $ | 583 | | | $ | (128) | | | $ | 455 | | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | | | | | | | | | Other comprehensive income (loss): | | | | | | |
| | Pension and other postretirement benefits | Pension and other postretirement benefits | 5 | | | (1) | | | 4 | | | 0 | | | 4 | | Pension and other postretirement benefits | 5 | | | (1) | | | 4 | | |
| Total other comprehensive income | Total other comprehensive income | 5 | | | (1) | | | 4 | | | 0 | | | 4 | | Total other comprehensive income | 5 | | | (1) | | | 4 | | |
| Comprehensive income | Comprehensive income | $ | 799 | | | $ | (162) | | | $ | 637 | | | $ | 0 | | | $ | 637 | | Comprehensive income | $ | 588 | | | $ | (129) | | | $ | 459 | | |
| 2019: | | | | | | | | | | |
| Net income | $ | 693 | | | $ | (111) | | | $ | 582 | | | $ | 7 | | | $ | 589 | | |
| Other comprehensive income (loss): | | | | | | | | | | |
| Financial instruments | 0 | | | 0 | | | 0 | | | 2 | | | 2 | | |
| Pension and other postretirement benefits | 1 | | | 0 | | | 1 | | | 0 | | | 1 | | |
| Total other comprehensive income | 1 | | | 0 | | | 1 | | | 2 | | | 3 | | |
| Comprehensive income | $ | 694 | | | $ | (111) | | | $ | 583 | | | $ | 9 | | | $ | 592 | | |
See Notes to Condensed Consolidated Financial Statements.
| | SAN DIEGO GAS & ELECTRIC COMPANY | SAN DIEGO GAS & ELECTRIC COMPANY | | SAN DIEGO GAS & ELECTRIC COMPANY | |
| CONDENSED CONSOLIDATED BALANCE SHEETS | | |
| CONDENSED BALANCE SHEETS | | CONDENSED BALANCE SHEETS | |
| (Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| | September 30, | | December 31, | | June 30, | | December 31, |
| | | 2020 | | 2019(1) | | 2021 | | 2020(1) |
| | | (unaudited) | | | | (unaudited) | | |
| ASSETS | ASSETS | | | | ASSETS | | | |
| Current assets: | Current assets: | | | | Current assets: | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 733 | | | $ | 10 | | Cash and cash equivalents | $ | 13 | | | $ | 262 | |
| | Accounts receivable – trade, net | Accounts receivable – trade, net | 462 | | | 398 | | Accounts receivable – trade, net | 635 | | | 573 | |
| Accounts receivable – other, net | Accounts receivable – other, net | 150 | | | 119 | | Accounts receivable – other, net | 83 | | | 143 | |
| Due from unconsolidated affiliates | 3 | | | 0 | | |
| Income taxes receivable, net | 23 | | | 128 | | |
| | Inventories | Inventories | 105 | | | 94 | | Inventories | 109 | | | 104 | |
| Prepaid expenses | Prepaid expenses | 202 | | | 120 | | Prepaid expenses | 105 | | | 153 | |
| Regulatory assets | Regulatory assets | 367 | | | 209 | | Regulatory assets | 243 | | | 174 | |
| Fixed-price contracts and other derivatives | Fixed-price contracts and other derivatives | 35 | | | 43 | | Fixed-price contracts and other derivatives | 67 | | | 56 | |
| Greenhouse gas allowances | Greenhouse gas allowances | 13 | | | 13 | | Greenhouse gas allowances | 113 | | | 113 | |
| Other current assets | Other current assets | 21 | | | 24 | | Other current assets | 15 | | | 22 | |
| Total current assets | Total current assets | 2,114 | | | 1,158 | | Total current assets | 1,383 | | | 1,600 | |
| | Other assets: | Other assets: | | | | Other assets: | | | |
| | Regulatory assets | Regulatory assets | 470 | | | 440 | | Regulatory assets | 706 | | | 534 | |
| Nuclear decommissioning trusts | Nuclear decommissioning trusts | 1,057 | | | 1,082 | | Nuclear decommissioning trusts | 1,024 | | | 1,019 | |
| Greenhouse gas allowances | Greenhouse gas allowances | 191 | | | 189 | | Greenhouse gas allowances | 83 | | | 83 | |
| Right-of-use assets – operating leases | Right-of-use assets – operating leases | 109 | | | 130 | | Right-of-use assets – operating leases | 89 | | | 102 | |
| Wildfire fund | Wildfire fund | 371 | | | 392 | | Wildfire fund | 349 | | | 363 | |
| Other long-term assets | Other long-term assets | 186 | | | 202 | | Other long-term assets | 156 | | | 189 | |
| Total other assets | Total other assets | 2,384 | | | 2,435 | | Total other assets | 2,407 | | | 2,290 | |
| | Property, plant and equipment: | Property, plant and equipment: | | | | Property, plant and equipment: | | | |
| Property, plant and equipment | Property, plant and equipment | 23,813 | | | 22,504 | | Property, plant and equipment | 25,464 | | | 24,436 | |
| Less accumulated depreciation and amortization | Less accumulated depreciation and amortization | (5,890) | | | (5,537) | | Less accumulated depreciation and amortization | (6,274) | | | (6,015) | |
| Property, plant and equipment, net | Property, plant and equipment, net | 17,923 | | | 16,967 | | Property, plant and equipment, net | 19,190 | | | 18,421 | |
| Total assets | Total assets | $ | 22,421 | | | $ | 20,560 | | Total assets | $ | 22,980 | | | $ | 22,311 | |
(1) Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.
| | SAN DIEGO GAS & ELECTRIC COMPANY | SAN DIEGO GAS & ELECTRIC COMPANY | | SAN DIEGO GAS & ELECTRIC COMPANY | |
| CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) | | |
| CONDENSED BALANCE SHEETS (CONTINUED) | | CONDENSED BALANCE SHEETS (CONTINUED) | |
| (Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| | | September 30, | | December 31, | | June 30, | | December 31, |
| | 2020 | | 2019(1) | | 2021 | | 2020(1) |
| | | (unaudited) | | | | (unaudited) | | |
| LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | | | | LIABILITIES AND EQUITY | | | |
| Current liabilities: | Current liabilities: | | | | Current liabilities: | | | |
| Short-term debt | Short-term debt | $ | 0 | | | $ | 80 | | Short-term debt | $ | 437 | | | $ | 0 | |
| Accounts payable | Accounts payable | 569 | | | 496 | | Accounts payable | 539 | | | 553 | |
| Due to unconsolidated affiliates | Due to unconsolidated affiliates | 61 | | | 53 | | Due to unconsolidated affiliates | 44 | | | 64 | |
| Interest payable | Interest payable | 70 | | | 43 | | Interest payable | 46 | | | 46 | |
| Accrued compensation and benefits | Accrued compensation and benefits | 123 | | | 138 | | Accrued compensation and benefits | 104 | | | 135 | |
| Accrued franchise fees | Accrued franchise fees | 46 | | | 53 | | Accrued franchise fees | 44 | | | 56 | |
| Regulatory liabilities | Regulatory liabilities | 69 | | | 76 | | Regulatory liabilities | 67 | | | 61 | |
| Current portion of long-term debt and finance leases | Current portion of long-term debt and finance leases | 861 | | | 56 | | Current portion of long-term debt and finance leases | 414 | | | 611 | |
| Customer deposits | Customer deposits | 65 | | | 74 | | Customer deposits | 36 | | | 56 | |
| Greenhouse gas obligations | Greenhouse gas obligations | 13 | | | 13 | | Greenhouse gas obligations | 113 | | | 113 | |
| Asset retirement obligations | Asset retirement obligations | 117 | | | 95 | | Asset retirement obligations | 128 | | | 117 | |
| Other current liabilities | Other current liabilities | 232 | | | 133 | | Other current liabilities | 173 | | | 199 | |
| Total current liabilities | Total current liabilities | 2,226 | | | 1,310 | | Total current liabilities | 2,145 | | | 2,011 | |
| | Long-term debt and finance leases | Long-term debt and finance leases | 6,863 | | | 6,306 | | Long-term debt and finance leases | 6,848 | | | 6,866 | |
| | Deferred credits and other liabilities: | Deferred credits and other liabilities: | | | | Deferred credits and other liabilities: | | | |
| Pension obligation, net of plan assets | Pension obligation, net of plan assets | 119 | | | 153 | | Pension obligation, net of plan assets | 83 | | | 92 | |
| Deferred income taxes | Deferred income taxes | 1,976 | | | 1,848 | | Deferred income taxes | 2,124 | | | 2,019 | |
| Deferred investment tax credits | Deferred investment tax credits | 14 | | | 14 | | Deferred investment tax credits | 13 | | | 13 | |
| Regulatory liabilities | Regulatory liabilities | 2,210 | | | 2,319 | | Regulatory liabilities | 2,274 | | | 2,195 | |
| Asset retirement obligations | Asset retirement obligations | 739 | | | 771 | | Asset retirement obligations | 755 | | | 759 | |
| Greenhouse gas obligations | Greenhouse gas obligations | 96 | | | 62 | | Greenhouse gas obligations | 15 | | | 0 | |
| Deferred credits and other | Deferred credits and other | 641 | | | 677 | | Deferred credits and other | 595 | | | 626 | |
| Total deferred credits and other liabilities | Total deferred credits and other liabilities | 5,795 | | | 5,844 | | Total deferred credits and other liabilities | 5,859 | | | 5,704 | |
| | Commitments and contingencies (Note 11) | Commitments and contingencies (Note 11) | | Commitments and contingencies (Note 11) | 0 | | 0 |
| | Shareholder's equity: | Shareholder's equity: | | | | Shareholder's equity: | | | |
| Preferred stock (45 million shares authorized; NaN issued) | Preferred stock (45 million shares authorized; NaN issued) | 0 | | | 0 | | Preferred stock (45 million shares authorized; NaN issued) | 0 | | | 0 | |
Common stock (255 million shares authorized; 117 million shares outstanding; no par value) | Common stock (255 million shares authorized; 117 million shares outstanding; no par value) | 1,660 | | | 1,660 | | Common stock (255 million shares authorized; 117 million shares outstanding; no par value) | 1,660 | | | 1,660 | |
| Retained earnings | Retained earnings | 5,889 | | | 5,456 | | Retained earnings | 6,478 | | | 6,080 | |
| Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | (12) | | | (16) | | Accumulated other comprehensive income (loss) | (10) | | | (10) | |
| Total shareholder’s equity | Total shareholder’s equity | 7,537 | | | 7,100 | | Total shareholder’s equity | 8,128 | | | 7,730 | |
| | Total liabilities and shareholder's equity | Total liabilities and shareholder's equity | $ | 22,421 | | | $ | 20,560 | | Total liabilities and shareholder's equity | $ | 22,980 | | | $ | 22,311 | |
(1) Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.
| | SAN DIEGO GAS & ELECTRIC COMPANY | SAN DIEGO GAS & ELECTRIC COMPANY | SAN DIEGO GAS & ELECTRIC COMPANY |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |
| CONDENSED STATEMENTS OF CASH FLOWS | | CONDENSED STATEMENTS OF CASH FLOWS |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | | Nine months ended September 30, | | Six months ended June 30, |
| | | 2020 | | 2019 | | 2021 | | 2020 |
| | | (unaudited) | | (unaudited) |
| CASH FLOWS FROM OPERATING ACTIVITIES | CASH FLOWS FROM OPERATING ACTIVITIES | | | | CASH FLOWS FROM OPERATING ACTIVITIES | | | |
| Net income | Net income | $ | 633 | | | $ | 589 | | Net income | $ | 398 | | | $ | 455 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
| Depreciation and amortization | Depreciation and amortization | 598 | | | 571 | | Depreciation and amortization | 433 | | | 398 | |
| Deferred income taxes and investment tax credits | Deferred income taxes and investment tax credits | 36 | | | (20) | | Deferred income taxes and investment tax credits | 41 | | | 29 | |
| Other | Other | 13 | | | 7 | | Other | (13) | | | (13) | |
| Net change in other working capital components | (184) | | | (60) | | |
| Wildfire fund, current and noncurrent | 0 | | | (323) | | |
| Changes in other noncurrent assets and liabilities, net | (113) | | | (10) | | |
| Net change in working capital components | | Net change in working capital components | (136) | | | (36) | |
| Changes in noncurrent assets and liabilities, net | | Changes in noncurrent assets and liabilities, net | (113) | | | (95) | |
| Net cash provided by operating activities | Net cash provided by operating activities | 983 | | | 754 | | Net cash provided by operating activities | 610 | | | 738 | |
| | CASH FLOWS FROM INVESTING ACTIVITIES | CASH FLOWS FROM INVESTING ACTIVITIES | | | | CASH FLOWS FROM INVESTING ACTIVITIES | | | |
| Expenditures for property, plant and equipment | Expenditures for property, plant and equipment | (1,323) | | | (1,071) | | Expenditures for property, plant and equipment | (1,072) | | | (850) | |
| Decrease in cash from deconsolidation of Otay Mesa VIE | 0 | | | (8) | | |
| Purchases of nuclear decommissioning trust assets | Purchases of nuclear decommissioning trust assets | (1,091) | | | (728) | | Purchases of nuclear decommissioning trust assets | (542) | | | (797) | |
| Proceeds from sales of nuclear decommissioning trust assets | Proceeds from sales of nuclear decommissioning trust assets | 1,091 | | | 728 | | Proceeds from sales of nuclear decommissioning trust assets | 542 | | | 797 | |
| Increase in loans to affiliate, net | 0 | | | (25) | | |
| Other | Other | 8 | | | 7 | | Other | 7 | | | 8 | |
| Net cash used in investing activities | Net cash used in investing activities | (1,315) | | | (1,097) | | Net cash used in investing activities | (1,065) | | | (842) | |
| | CASH FLOWS FROM FINANCING ACTIVITIES | CASH FLOWS FROM FINANCING ACTIVITIES | | | | CASH FLOWS FROM FINANCING ACTIVITIES | | | |
| Common dividends paid | Common dividends paid | (200) | | | 0 | | Common dividends paid | 0 | | | (200) | |
| Equity contribution from Sempra Energy | 0 | | | 322 | | |
| Issuances of debt (maturities greater than 90 days) | Issuances of debt (maturities greater than 90 days) | 1,598 | | | 400 | | Issuances of debt (maturities greater than 90 days) | 0 | | | 799 | |
| Payments on debt (maturities greater than 90 days) and finance leases | Payments on debt (maturities greater than 90 days) and finance leases | (252) | | | (269) | | Payments on debt (maturities greater than 90 days) and finance leases | (231) | | | (229) | |
| Decrease in short-term debt, net | (80) | | | (291) | | |
| Contributions from noncontrolling interest, net | 0 | | | 172 | | |
| Increase (decrease) in short-term debt, net | | Increase (decrease) in short-term debt, net | 437 | | | (80) | |
| Debt issuance costs | Debt issuance costs | (11) | | | (4) | | Debt issuance costs | 0 | | | (4) | |
| Net cash provided by financing activities | Net cash provided by financing activities | 1,055 | | | 330 | | Net cash provided by financing activities | 206 | | | 286 | |
| | Increase (decrease) in cash, cash equivalents and restricted cash | 723 | | | (13) | | |
| Cash, cash equivalents and restricted cash, January 1 | 10 | | | 37 | | |
| Cash and cash equivalents, September 30 | $ | 733 | | | $ | 24 | | |
| (Decrease) increase in cash and cash equivalents | | (Decrease) increase in cash and cash equivalents | (249) | | | 182 | |
| Cash and cash equivalents, January 1 | | Cash and cash equivalents, January 1 | 262 | | | 10 | |
| Cash and cash equivalents, June 30 | | Cash and cash equivalents, June 30 | $ | 13 | | | $ | 192 | |
| | SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | | | SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | | |
| Interest payments, net of amounts capitalized | Interest payments, net of amounts capitalized | $ | 276 | | | $ | 285 | | Interest payments, net of amounts capitalized | $ | 201 | | | $ | 198 | |
| Income tax payments, net of refunds | Income tax payments, net of refunds | 20 | | | 131 | | Income tax payments, net of refunds | 58 | | | 0 | |
| | SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | | | | SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | | | |
| Accrued capital expenditures | Accrued capital expenditures | $ | 184 | | | $ | 117 | | Accrued capital expenditures | $ | 192 | | | $ | 136 | |
| Increase in finance lease obligations for investment in property, plant and equipment | 26 | | | 12 | | |
| Increase in ARO for investment in PP&E | | Increase in ARO for investment in PP&E | 18 | | | 0 | |
| Increase in finance lease obligations for investment in PP&E | | Increase in finance lease obligations for investment in PP&E | 13 | | | 20 | |
|
See Notes to Condensed Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SAN DIEGO GAS & ELECTRIC COMPANY |
| CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
| (Dollars in millions) |
| | Common
stock | | Retained
earnings | | Accumulated
other
comprehensive
income (loss) | | SDG&E
shareholder's
equity | | Noncontrolling
interest | | Total
equity |
| (unaudited) |
| Three months ended September 30, 2020 |
| Balance at June 30, 2020 | $ | 1,660 | | | $ | 5,711 | | | $ | (12) | | | $ | 7,359 | | | $ | 0 | | | $ | 7,359 | |
| | | | | | | | | | | |
| Net income | | | 178 | | | | | 178 | | | 0 | | | 178 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Balance at September 30, 2020 | $ | 1,660 | | | $ | 5,889 | | | $ | (12) | | | $ | 7,537 | | | $ | 0 | | | $ | 7,537 | |
| | | | | | | | | | | |
| Three months ended September 30, 2019 |
| Balance at June 30, 2019 | $ | 1,338 | | | $ | 5,008 | | | $ | (11) | | | $ | 6,335 | | | $ | 103 | | | $ | 6,438 | |
| | | | | | | | | | | |
| Net income | | | 263 | | | | | 263 | | | 3 | | | 266 | |
| Other comprehensive income | | | | | | | | | 1 | | | 1 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Equity contribution from Sempra Energy | 322 | | | | | | | 322 | | | | | 322 | |
| Noncontrolling interest activities: | | | | | | | | | | | |
| Contributions | | | | | | | | | 175 | | | 175 | |
| Distributions | | | | | | | | | (1) | | | (1) | |
| Deconsolidation | | | | | | | | | (281) | | | (281) | |
| Balance at September 30, 2019 | $ | 1,660 | | | $ | 5,271 | | | $ | (11) | | | $ | 6,920 | | | $ | 0 | | | $ | 6,920 | |
| | | | | | | | | | | |
| | Nine months ended September 30, 2020 |
| Balance at December 31, 2019 | $ | 1,660 | | | $ | 5,456 | | | $ | (16) | | | $ | 7,100 | | | $ | 0 | | | $ | 7,100 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Net income | | | 633 | | | | | 633 | | | 0 | | | 633 | |
| Other comprehensive income | | | | | 4 | | | 4 | | | 0 | | | 4 | |
| | | | | | | | | | | |
| Common stock dividends declared ($1.72/share) | | | (200) | | | | | (200) | | | | | (200) | |
| | | | | | | | | | | |
| Balance at September 30, 2020 | $ | 1,660 | | | $ | 5,889 | | | $ | (12) | | | $ | 7,537 | | | $ | 0 | | | $ | 7,537 | |
| | | | | | | | | | | |
| Nine months ended September 30, 2019 |
| 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 | | | 582 | | | | | 582 | | | 7 | | | 589 | |
| Other comprehensive income | | | | | 1 | | | 1 | | | 2 | | | 3 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Equity contribution from Sempra Energy | 322 | | | | | | | 322 | | | | | 322 | |
| Noncontrolling interest activities: | | | | | | | | | | | |
| Contributions | | | | | | | | | 175 | | | 175 | |
| Distributions | | | | | | | | | (3) | | | (3) | |
| Deconsolidation | | | | | | | | | (281) | | | (281) | |
| Balance at September 30, 2019 | $ | 1,660 | | | $ | 5,271 | | | $ | (11) | | | $ | 6,920 | | | $ | 0 | | | $ | 6,920 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| SAN DIEGO GAS & ELECTRIC COMPANY |
| CONDENSED STATEMENTS OF CHANGES IN EQUITY |
| (Dollars in millions) |
| | Common
stock | | Retained
earnings | | Accumulated
other
comprehensive
income (loss) | | Total
shareholder's
equity |
| (unaudited) |
| Three months ended June 30, 2021 |
| Balance at March 31, 2021 | $ | 1,660 | | | $ | 6,292 | | | $ | (10) | | | $ | 7,942 | |
| | | | | | | |
| Net income | | | 186 | | | | | 186 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Balance at June 30, 2021 | $ | 1,660 | | | $ | 6,478 | | | $ | (10) | | | $ | 8,128 | |
| | | | | | | |
| Three months ended June 30, 2020 |
| Balance at March 31, 2020 | $ | 1,660 | | | $ | 5,518 | | | $ | (16) | | | $ | 7,162 | |
| | | | | | | |
| Net income | | | 193 | | | | | 193 | |
| Other comprehensive income | | | | | 4 | | | 4 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Balance at June 30, 2020 | $ | 1,660 | | | $ | 5,711 | | | $ | (12) | | | $ | 7,359 | |
| | | | | | | |
| | Six months ended June 30, 2021 |
| Balance at December 31, 2020 | $ | 1,660 | | | $ | 6,080 | | | $ | (10) | | | $ | 7,730 | |
| | | | | | | |
| Net income | | | 398 | | | | | 398 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Balance at June 30, 2021 | $ | 1,660 | | | $ | 6,478 | | | $ | (10) | | | $ | 8,128 | |
| | | | | | | |
| Six months ended June 30, 2020 |
| Balance at December 31, 2019 | $ | 1,660 | | | $ | 5,456 | | | $ | (16) | | | $ | 7,100 | |
| | | | | | | |
| Net income | | | 455 | | | | | 455 | |
| Other comprehensive income | | | | | 4 | | | 4 | |
| | | | | | | |
| Common stock dividends declared ($1.72/share) | | | (200) | | | | | (200) | |
| Balance at June 30, 2020 | $ | 1,660 | | | $ | 5,711 | | | $ | (12) | | | $ | 7,359 | |
See Notes to Condensed Consolidated Financial Statements.
| | SOUTHERN CALIFORNIA GAS COMPANY | SOUTHERN CALIFORNIA GAS COMPANY | SOUTHERN CALIFORNIA GAS COMPANY |
| CONDENSED STATEMENTS OF OPERATIONS | CONDENSED STATEMENTS OF OPERATIONS | CONDENSED STATEMENTS OF OPERATIONS |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended June 30, | | Six months ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| | | (unaudited) | | (unaudited) |
| | Operating revenues | Operating revenues | $ | 842 | | | $ | 975 | | | $ | 3,247 | | | $ | 3,142 | | Operating revenues | $ | 1,124 | | | $ | 1,010 | | | $ | 2,632 | | | $ | 2,405 | |
| Operating expenses | Operating expenses | | | Operating expenses | | |
| Cost of natural gas | Cost of natural gas | 92 | | | 101 | | | 476 | | | 660 | | Cost of natural gas | 223 | | | 106 | | | 496 | | | 384 | |
| Operation and maintenance | Operation and maintenance | 521 | | | 427 | | | 1,526 | | | 1,291 | | Operation and maintenance | 525 | | | 462 | | | 1,028 | | | 905 | |
| Aliso Canyon litigation and regulatory matters | | Aliso Canyon litigation and regulatory matters | 0 | | | 0 | | | 0 | | | 100 | |
| Depreciation and amortization | Depreciation and amortization | 165 | | | 154 | | | 486 | | | 449 | | Depreciation and amortization | 180 | | | 162 | | | 353 | | | 321 | |
| Franchise fees and other taxes | Franchise fees and other taxes | 48 | | | 43 | | | 142 | | | 132 | | Franchise fees and other taxes | 51 | | | 43 | | | 109 | | | 94 | |
| Impairment losses | 0 | | | 37 | | | 0 | | | 37 | | |
| Total operating expenses | Total operating expenses | 826 | | | 762 | | | 2,630 | | | 2,569 | | Total operating expenses | 979 | | | 773 | | | 1,986 | | | 1,804 | |
| Operating income | Operating income | 16 | | | 213 | | | 617 | | | 573 | | Operating income | 145 | | | 237 | | | 646 | | | 601 | |
| Other (expense) income, net | Other (expense) income, net | (7) | | | 1 | | | 21 | | | 18 | | Other (expense) income, net | (2) | | | (2) | | | 37 | | | 28 | |
| Interest income | Interest income | 0 | | | 0 | | | 2 | | | 1 | | Interest income | 0 | | | 1 | | | 0 | | | 2 | |
| Interest expense | Interest expense | (39) | | | (36) | | | (119) | | | (104) | | Interest expense | (40) | | | (40) | | | (79) | | | (80) | |
| (Loss) income before income taxes | (30) | | | 178 | | | 521 | | | 488 | | |
| Income tax benefit (expense) | 6 | | | (35) | | | (95) | | | (50) | | |
| Net (loss) income | (24) | | | 143 | | | 426 | | | 438 | | |
| Income before income taxes | | Income before income taxes | 103 | | | 196 | | | 604 | | | 551 | |
| Income tax expense | | Income tax expense | (8) | | | (49) | | | (102) | | | (101) | |
| Net income | | Net income | 95 | | | 147 | | | 502 | | | 450 | |
| Preferred dividends | Preferred dividends | 0 | | | 0 | | | (1) | | | (1) | | Preferred dividends | (1) | | | (1) | | | (1) | | | (1) | |
| (Losses) earnings attributable to common shares | $ | (24) | | | $ | 143 | | | $ | 425 | | | $ | 437 | | |
| Earnings attributable to common shares | | Earnings attributable to common shares | $ | 94 | | | $ | 146 | | | $ | 501 | | | $ | 449 | |
See Notes to Condensed Financial Statements.
| | SOUTHERN CALIFORNIA GAS COMPANY | SOUTHERN CALIFORNIA GAS COMPANY | SOUTHERN CALIFORNIA GAS COMPANY |
| 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) |
| | | Pretax
amount | | Income tax benefit (expense) | | Net-of-tax
amount | | Pretax
amount | | Income tax expense | | Net-of-tax
amount |
| | | (unaudited) | | (unaudited) |
| | | Three months ended September 30, 2020 and 2019 | | Three months ended June 30, 2021 and 2020 |
| 2020: | | | | | | |
| | Net loss/Comprehensive loss | $ | (30) | | | $ | 6 | | | $ | (24) | | |
| 2019: | | | | | | |
| 2021: | | 2021: | | | | | |
| Net income | Net income | $ | 178 | | | $ | (35) | | | $ | 143 | | Net income | $ | 103 | | | $ | (8) | | | $ | 95 | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | Other comprehensive income (loss): | |
| Financial instruments | 1 | | | 0 | | | 1 | | |
| | Pension and other postretirement benefits | | Pension and other postretirement benefits | 1 | | | 0 | | | 1 | |
| Total other comprehensive income | Total other comprehensive income | 1 | | | 0 | | | 1 | | Total other comprehensive income | 1 | | | 0 | | | 1 | |
| Comprehensive income | Comprehensive income | $ | 179 | | | $ | (35) | | | $ | 144 | | Comprehensive income | $ | 104 | | | $ | (8) | | | $ | 96 | |
| | | Nine months ended September 30, 2020 and 2019 | |
| 2020: | 2020: | | | | | | 2020: | | | | | |
| Net income | Net income | $ | 521 | | | $ | (95) | | | $ | 426 | | Net income | $ | 196 | | | $ | (49) | | | $ | 147 | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | Other comprehensive income (loss): | |
| | Pension and other postretirement benefits | Pension and other postretirement benefits | 1 | | | 0 | | | 1 | | Pension and other postretirement benefits | 1 | | | 0 | | | 1 | |
| Total other comprehensive income | Total other comprehensive income | 1 | | | 0 | | | 1 | | Total other comprehensive income | 1 | | | 0 | | | 1 | |
| Comprehensive income | Comprehensive income | $ | 522 | | | $ | (95) | | | $ | 427 | | Comprehensive income | $ | 197 | | | $ | (49) | | | $ | 148 | |
| 2019: | | | | | | |
| | | | Six months ended June 30, 2021 and 2020 |
| 2021: | | 2021: | | | | | |
| Net income | Net income | $ | 488 | | | $ | (50) | | | $ | 438 | | Net income | $ | 604 | | | $ | (102) | | | $ | 502 | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | Other comprehensive income (loss): | |
| Financial instruments | 1 | | | 0 | | | 1 | | |
| | Pension and other postretirement benefits | Pension and other postretirement benefits | 6 | | | (2) | | | 4 | | Pension and other postretirement benefits | 1 | | | 0 | | | 1 | |
| Total other comprehensive income | Total other comprehensive income | 7 | | | (2) | | | 5 | | Total other comprehensive income | 1 | | | 0 | | | 1 | |
| Comprehensive income | Comprehensive income | $ | 495 | | | $ | (52) | | | $ | 443 | | Comprehensive income | $ | 605 | | | $ | (102) | | | $ | 503 | |
| 2020: | | 2020: | | | | | |
| Net income | | Net income | $ | 551 | | | $ | (101) | | | $ | 450 | |
| Other comprehensive income (loss): | | Other comprehensive income (loss): | |
| | Pension and other postretirement benefits | | Pension and other postretirement benefits | 1 | | | 0 | | | 1 | |
| Total other comprehensive income | | Total other comprehensive income | 1 | | | 0 | | | 1 | |
| Comprehensive income | | Comprehensive income | $ | 552 | | | $ | (101) | | | $ | 451 | |
See Notes to Condensed Financial Statements.
| | SOUTHERN CALIFORNIA GAS COMPANY | SOUTHERN CALIFORNIA GAS COMPANY | SOUTHERN CALIFORNIA GAS COMPANY |
| CONDENSED BALANCE SHEETS | CONDENSED BALANCE SHEETS | CONDENSED BALANCE SHEETS |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | | September 30, | | December 31, | | June 30, | | December 31, |
| | 2020 | | 2019(1) | | 2021 | | 2020(1) |
| | | (unaudited) | | | | (unaudited) | | |
| ASSETS | ASSETS | | | | ASSETS | | | |
| Current assets: | Current assets: | | | | Current assets: | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 304 | | | $ | 10 | | Cash and cash equivalents | $ | 4 | | | $ | 4 | |
| Accounts receivable – trade, net | Accounts receivable – trade, net | 422 | | | 710 | | Accounts receivable – trade, net | 541 | | | 786 | |
| Accounts receivable – other, net | Accounts receivable – other, net | 82 | | | 87 | | Accounts receivable – other, net | 86 | | | 64 | |
| Due from unconsolidated affiliates | Due from unconsolidated affiliates | 1 | | | 11 | | Due from unconsolidated affiliates | 13 | | | 22 | |
| Income taxes receivable, net | 31 | | | 161 | | |
| Inventories | Inventories | 160 | | | 136 | | Inventories | 126 | | | 153 | |
| Regulatory assets | Regulatory assets | 18 | | | 7 | | Regulatory assets | 8 | | | 16 | |
| Greenhouse gas allowances | Greenhouse gas allowances | 53 | | | 52 | | Greenhouse gas allowances | 392 | | | 390 | |
| Other current assets | Other current assets | 51 | | | 44 | | Other current assets | 26 | | | 47 | |
| Total current assets | Total current assets | 1,122 | | | 1,218 | | Total current assets | 1,196 | | | 1,482 | |
| | Other assets: | Other assets: | | | | Other assets: | | | |
| Regulatory assets | Regulatory assets | 1,187 | | | 1,407 | | Regulatory assets | 1,430 | | | 1,208 | |
| Insurance receivable for Aliso Canyon costs | Insurance receivable for Aliso Canyon costs | 504 | | | 339 | | Insurance receivable for Aliso Canyon costs | 414 | | | 445 | |
| Greenhouse gas allowances | Greenhouse gas allowances | 361 | | | 248 | | Greenhouse gas allowances | 167 | | | 9 | |
| Right-of-use assets – operating leases | Right-of-use assets – operating leases | 82 | | | 94 | | Right-of-use assets – operating leases | 65 | | | 74 | |
| Other long-term assets | Other long-term assets | 460 | | | 447 | | Other long-term assets | 503 | | | 499 | |
| Total other assets | Total other assets | 2,594 | | | 2,535 | | Total other assets | 2,579 | | | 2,235 | |
| | Property, plant and equipment: | Property, plant and equipment: | | | | Property, plant and equipment: | | | |
| Property, plant and equipment | Property, plant and equipment | 20,558 | | | 19,362 | | Property, plant and equipment | 21,935 | | | 21,180 | |
| Less accumulated depreciation and amortization | Less accumulated depreciation and amortization | (6,331) | | | (6,038) | | Less accumulated depreciation and amortization | (6,619) | | | (6,437) | |
| Property, plant and equipment, net | Property, plant and equipment, net | 14,227 | | | 13,324 | | Property, plant and equipment, net | 15,316 | | | 14,743 | |
| Total assets | Total assets | $ | 17,943 | | | $ | 17,077 | | Total assets | $ | 19,091 | | | $ | 18,460 | |
(1) Derived from audited financial statements.
See Notes to Condensed Financial Statements.
| | SOUTHERN CALIFORNIA GAS COMPANY | SOUTHERN CALIFORNIA GAS COMPANY | SOUTHERN CALIFORNIA GAS COMPANY |
| CONDENSED BALANCE SHEETS (CONTINUED) | CONDENSED BALANCE SHEETS (CONTINUED) | CONDENSED BALANCE SHEETS (CONTINUED) |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | | September 30, | | December 31, | | June 30, | | December 31, |
| | 2020 | | 2019(1) | | 2021 | | 2020(1) |
| | | (unaudited) | | | | (unaudited) | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
| Current liabilities: | Current liabilities: | | | | Current liabilities: | | | |
| Short-term debt | Short-term debt | $ | 0 | | | $ | 630 | | Short-term debt | $ | 143 | | | $ | 113 | |
| Accounts payable – trade | Accounts payable – trade | 359 | | | 545 | | Accounts payable – trade | 424 | | | 600 | |
| Accounts payable – other | Accounts payable – other | 117 | | | 110 | | Accounts payable – other | 121 | | | 122 | |
| Due to unconsolidated affiliates | Due to unconsolidated affiliates | 101 | | | 47 | | Due to unconsolidated affiliates | 61 | | | 31 | |
| Accrued compensation and benefits | Accrued compensation and benefits | 174 | | | 182 | | Accrued compensation and benefits | 180 | | | 189 | |
| Regulatory liabilities | Regulatory liabilities | 304 | | | 243 | | Regulatory liabilities | 359 | | | 79 | |
| Current portion of long-term debt and finance leases | Current portion of long-term debt and finance leases | 11 | | | 6 | | Current portion of long-term debt and finance leases | 10 | | | 10 | |
| Customer deposits | Customer deposits | 58 | | | 71 | | Customer deposits | 16 | | | 48 | |
| Reserve for Aliso Canyon costs | Reserve for Aliso Canyon costs | 268 | | | 9 | | Reserve for Aliso Canyon costs | 153 | | | 150 | |
| Greenhouse gas obligations | Greenhouse gas obligations | 53 | | | 52 | | Greenhouse gas obligations | 392 | | | 390 | |
| Asset retirement obligations | Asset retirement obligations | 63 | | | 65 | | Asset retirement obligations | 58 | | | 59 | |
| Other current liabilities | Other current liabilities | 254 | | | 222 | | Other current liabilities | 272 | | | 291 | |
| Total current liabilities | Total current liabilities | 1,762 | | | 2,182 | | Total current liabilities | 2,189 | | | 2,082 | |
| | Long-term debt and finance leases | Long-term debt and finance leases | 4,764 | | | 3,788 | | Long-term debt and finance leases | 4,770 | | | 4,763 | |
| | Deferred credits and other liabilities: | Deferred credits and other liabilities: | | | | Deferred credits and other liabilities: | | | |
| Pension obligation, net of plan assets | Pension obligation, net of plan assets | 757 | | | 785 | | Pension obligation, net of plan assets | 846 | | | 853 | |
| Deferred income taxes | Deferred income taxes | 1,443 | | | 1,403 | | Deferred income taxes | 1,520 | | | 1,406 | |
| Deferred investment tax credits | Deferred investment tax credits | 8 | | | 7 | | Deferred investment tax credits | 7 | | | 8 | |
| Regulatory liabilities | Regulatory liabilities | 1,200 | | | 1,422 | | Regulatory liabilities | 1,078 | | | 1,177 | |
| Reserve for Aliso Canyon costs | | Reserve for Aliso Canyon costs | 269 | | | 301 | |
| Asset retirement obligations | Asset retirement obligations | 2,181 | | | 2,112 | | Asset retirement obligations | 2,345 | | | 2,309 | |
| Greenhouse gas obligations | Greenhouse gas obligations | 316 | | | 208 | | Greenhouse gas obligations | 78 | | | 0 | |
| Deferred credits and other | Deferred credits and other | 438 | | | 422 | | Deferred credits and other | 418 | | | 417 | |
| Total deferred credits and other liabilities | Total deferred credits and other liabilities | 6,343 | | | 6,359 | | Total deferred credits and other liabilities | 6,561 | | | 6,471 | |
| | Commitments and contingencies (Note 11) | Commitments and contingencies (Note 11) | | Commitments and contingencies (Note 11) | 0 | | 0 |
| | Shareholders’ equity: | Shareholders’ equity: | | | | Shareholders’ equity: | | | |
| Preferred stock (11 million shares authorized; 1 million shares outstanding) | Preferred stock (11 million shares authorized; 1 million shares outstanding) | 22 | | | 22 | | 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) | Common stock (100 million shares authorized; 91 million shares outstanding; no par value) | 866 | | | 866 | | Common stock (100 million shares authorized; 91 million shares outstanding; no par value) | 866 | | | 866 | |
| Retained earnings | Retained earnings | 4,208 | | | 3,883 | | Retained earnings | 4,713 | | | 4,287 | |
| Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | (22) | | | (23) | | Accumulated other comprehensive income (loss) | (30) | | | (31) | |
| Total shareholders’ equity | Total shareholders’ equity | 5,074 | | | 4,748 | | Total shareholders’ equity | 5,571 | | | 5,144 | |
| Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $ | 17,943 | | | $ | 17,077 | | Total liabilities and shareholders’ equity | $ | 19,091 | | | $ | 18,460 | |
(1) Derived from audited financial statements.
See Notes to Condensed Financial Statements.
| | SOUTHERN CALIFORNIA GAS COMPANY | SOUTHERN CALIFORNIA GAS COMPANY | SOUTHERN CALIFORNIA GAS COMPANY |
| CONDENSED STATEMENTS OF CASH FLOWS | CONDENSED STATEMENTS OF CASH FLOWS | CONDENSED STATEMENTS OF CASH FLOWS |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | | Nine months ended September 30, | | Six months ended June 30, |
| | | 2020 | | 2019 | | 2021 | | 2020 |
| | | (unaudited) | | (unaudited) |
| CASH FLOWS FROM OPERATING ACTIVITIES | CASH FLOWS FROM OPERATING ACTIVITIES | | | | CASH FLOWS FROM OPERATING ACTIVITIES | | | |
| Net income | Net income | $ | 426 | | | $ | 438 | | Net income | $ | 502 | | | $ | 450 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
| Depreciation and amortization | Depreciation and amortization | 486 | | | 449 | | Depreciation and amortization | 353 | | | 321 | |
| Deferred income taxes and investment tax credits | Deferred income taxes and investment tax credits | (38) | | | (79) | | Deferred income taxes and investment tax credits | 18 | | | (17) | |
| Impairment losses | 0 | | | 37 | | |
| Other | Other | 42 | | | (5) | | Other | 42 | | | 14 | |
| Net change in working capital components | Net change in working capital components | 513 | | | 194 | | Net change in working capital components | 297 | | | 713 | |
| Insurance receivable for Aliso Canyon costs | Insurance receivable for Aliso Canyon costs | (165) | | | 107 | | Insurance receivable for Aliso Canyon costs | 31 | | | (166) | |
| | Changes in other noncurrent assets and liabilities, net | Changes in other noncurrent assets and liabilities, net | 124 | | | (328) | | Changes in other noncurrent assets and liabilities, net | (280) | | | (117) | |
| Net cash provided by operating activities | Net cash provided by operating activities | 1,388 | | | 813 | | Net cash provided by operating activities | 963 | | | 1,198 | |
| | CASH FLOWS FROM INVESTING ACTIVITIES | CASH FLOWS FROM INVESTING ACTIVITIES | | | | CASH FLOWS FROM INVESTING ACTIVITIES | | | |
| Expenditures for property, plant and equipment | Expenditures for property, plant and equipment | (1,345) | | | (1,019) | | Expenditures for property, plant and equipment | (936) | | | (885) | |
| | Other | 0 | | | 1 | | |
| Net cash used in investing activities | Net cash used in investing activities | (1,345) | | | (1,018) | | Net cash used in investing activities | (936) | | | (885) | |
| | CASH FLOWS FROM FINANCING ACTIVITIES | CASH FLOWS FROM FINANCING ACTIVITIES | | CASH FLOWS FROM FINANCING ACTIVITIES | |
| Preferred dividends paid | | Preferred dividends paid | (1) | | | (1) | |
| Common dividends paid | Common dividends paid | (50) | | | 0 | | Common dividends paid | (50) | | | 0 | |
| Preferred dividends paid | (1) | | | (1) | | |
| Issuances of debt (maturities greater than 90 days) | Issuances of debt (maturities greater than 90 days) | 949 | | | 349 | | Issuances of debt (maturities greater than 90 days) | 0 | | | 649 | |
| Decrease in short-term debt, net | (630) | | | (148) | | |
| Payments on finance leases | Payments on finance leases | (9) | | | (4) | | Payments on finance leases | (6) | | | (5) | |
| Increase (decrease) in short-term debt, net | | Increase (decrease) in short-term debt, net | 30 | | | (630) | |
| Debt issuance costs | Debt issuance costs | (8) | | | (4) | | Debt issuance costs | 0 | | | (6) | |
| Net cash (used in) provided by financing activities | | Net cash (used in) provided by financing activities | (27) | | | 7 | |
| | Net cash provided by financing activities | 251 | | | 192 | | |
| | Increase (decrease) in cash and cash equivalents | 294 | | | (13) | | |
| Increase in cash and cash equivalents | | Increase in cash and cash equivalents | 0 | | | 320 | |
| Cash and cash equivalents, January 1 | Cash and cash equivalents, January 1 | 10 | | | 18 | | Cash and cash equivalents, January 1 | 4 | | | 10 | |
| Cash and cash equivalents, September 30 | $ | 304 | | | $ | 5 | | |
| Cash and cash equivalents, June 30 | | Cash and cash equivalents, June 30 | $ | 4 | | | $ | 330 | |
| | SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | | | SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | | |
| Interest payments, net of amounts capitalized | Interest payments, net of amounts capitalized | $ | 114 | | | $ | 92 | | Interest payments, net of amounts capitalized | $ | 76 | | | $ | 70 | |
| Income tax payments, net of refunds | Income tax payments, net of refunds | 1 | | | 115 | | Income tax payments, net of refunds | 82 | | | 0 | |
| | SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | | | | SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | | | |
| Accrued capital expenditures | Accrued capital expenditures | $ | 146 | | | $ | 167 | | Accrued capital expenditures | $ | 156 | | | $ | 158 | |
| Increase in finance lease obligations for investment in property, plant and equipment | 46 | | | 15 | | |
| Increase in finance lease obligations for investment in PP&E | | Increase in finance lease obligations for investment in PP&E | 11 | | | 36 | |
| Common dividends declared but not paid | Common dividends declared but not paid | 50 | | | 150 | | Common dividends declared but not paid | 25 | | | 50 | |
See Notes to Condensed Financial Statements.
| | SOUTHERN CALIFORNIA GAS COMPANY | SOUTHERN CALIFORNIA GAS COMPANY | SOUTHERN CALIFORNIA GAS COMPANY |
| CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY | CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY | CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | | Preferred
stock | | Common
stock | | Retained
earnings | | Accumulated
other
comprehensive
income (loss) | | Total
shareholders’
equity | | Preferred
stock | | Common
stock | | Retained
earnings | | Accumulated
other
comprehensive
income (loss) | | Total
shareholders’
equity |
| | (unaudited) | | (unaudited) |
| | Three months ended September 30, 2020 | | Three months ended June 30, 2021 |
| Balance at June 30, 2020 | $ | 22 | | | $ | 866 | | | $ | 4,282 | | | $ | (22) | | | $ | 5,148 | | |
| | Net loss | | (24) | | | (24) | | |
| | | Dividends declared: | | |
| Preferred stock ($0.38/share) | | 0 | | | 0 | | |
| Common stock ($0.55/share) | | (50) | | | (50) | | |
| Balance at September 30, 2020 | $ | 22 | | | $ | 866 | | | $ | 4,208 | | | $ | (22) | | | $ | 5,074 | | |
| | Three months ended September 30, 2019 | |
| Balance at June 30, 2019 | $ | 22 | | | $ | 866 | | | $ | 3,686 | | | $ | (20) | | | $ | 4,554 | | |
| Balance at March 31, 2021 | | Balance at March 31, 2021 | $ | 22 | | | $ | 866 | | | $ | 4,644 | | | $ | (31) | | | $ | 5,501 | |
| | Net income | Net income | | 143 | | | 143 | | Net income | | 95 | | | 95 | |
| Other comprehensive income | Other comprehensive income | | 1 | | | 1 | | Other comprehensive income | | 1 | | | 1 | |
| | Dividends declared: | Dividends declared: | | Dividends declared: | |
| Preferred stock ($0.38/share) | | 0 | | | 0 | | |
| Common stock ($1.64/share) | | (150) | | | (150) | | |
| Balance at September 30, 2019 | $ | 22 | | | $ | 866 | | | $ | 3,679 | | | $ | (19) | | | $ | 4,548 | | |
| Preferred stock ($0.37/share) | | Preferred stock ($0.37/share) | | (1) | | | (1) | |
| Common stock ($0.27/share) | | Common stock ($0.27/share) | | (25) | | | (25) | |
| Balance at June 30, 2021 | | Balance at June 30, 2021 | $ | 22 | | | $ | 866 | | | $ | 4,713 | | | $ | (30) | | | $ | 5,571 | |
| | | | Nine months ended September 30, 2020 | | Three months ended June 30, 2020 |
| Balance at December 31, 2019 | $ | 22 | | | $ | 866 | | | $ | 3,883 | | | $ | (23) | | | $ | 4,748 | | |
| | Balance at March 31, 2020 | | Balance at March 31, 2020 | $ | 22 | | | $ | 866 | | | $ | 4,186 | | | $ | (23) | | | $ | 5,051 | |
| | Net income | Net income | | 426 | | | 426 | | Net income | | 147 | | | 147 | |
| Other comprehensive income | Other comprehensive income | | 1 | | | 1 | | Other comprehensive income | | 1 | | | 1 | |
| | Dividends declared: | Dividends declared: | | Dividends declared: | |
| Preferred stock ($1.13/share) | | (1) | | | (1) | | |
| Common stock ($1.10/share) | | (100) | | | (100) | | |
| Balance at September 30, 2020 | $ | 22 | | | $ | 866 | | | $ | 4,208 | | | $ | (22) | | | $ | 5,074 | | |
| Preferred stock ($0.37/share) | | Preferred stock ($0.37/share) | | (1) | | | (1) | |
| Common stock ($0.55/share) | | Common stock ($0.55/share) | | (50) | | | (50) | |
| Balance at June 30, 2020 | | Balance at June 30, 2020 | $ | 22 | | | $ | 866 | | | $ | 4,282 | | | $ | (22) | | | $ | 5,148 | |
| | | Nine months ended September 30, 2019 | | Six months ended June 30, 2021 |
| 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 | | |
| Balance at December 31, 2020 | | Balance at December 31, 2020 | $ | 22 | | | $ | 866 | | | $ | 4,287 | | | $ | (31) | | | $ | 5,144 | |
| | Net income | Net income | | 438 | | | 438 | | Net income | | 502 | | | 502 | |
| Other comprehensive income | Other comprehensive income | | 5 | | | 5 | | Other comprehensive income | | 1 | | | 1 | |
| | Dividends declared: | Dividends declared: | | Dividends declared: | |
| Preferred stock ($1.13/share) | | (1) | | | (1) | | |
| Common stock ($1.64/share) | | (150) | | | (150) | | |
| Balance at September 30, 2019 | $ | 22 | | | $ | 866 | | | $ | 3,679 | | | $ | (19) | | | $ | 4,548 | | |
| Preferred stock ($0.75/share) | | Preferred stock ($0.75/share) | | (1) | | | (1) | |
| Common stock ($0.82/share) | | Common stock ($0.82/share) | | (75) | | | (75) | |
| Balance at June 30, 2021 | | Balance at June 30, 2021 | $ | 22 | | | $ | 866 | | | $ | 4,713 | | | $ | (30) | | | $ | 5,571 | |
| | | | Six months ended June 30, 2020 |
| Balance at December 31, 2019 | | Balance at December 31, 2019 | $ | 22 | | | $ | 866 | | | $ | 3,883 | | | $ | (23) | | | $ | 4,748 | |
| | Net income | | Net income | | 450 | | | 450 | |
| Other comprehensive income | | Other comprehensive income | | 1 | | | 1 | |
| | Dividends declared: | | Dividends declared: | |
| Preferred stock ($0.75/share) | | Preferred stock ($0.75/share) | | (1) | | | (1) | |
| Common stock ($0.55/share) | | Common stock ($0.55/share) | | (50) | | | (50) | |
| Balance at June 30, 2020 | | Balance at June 30, 2020 | $ | 22 | | | $ | 866 | | | $ | 4,282 | | | $ | (22) | | | $ | 5,148 | |
See Notes to Condensed Financial Statements.
SEMPRA ENERGY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. GENERAL INFORMATION AND OTHER FINANCIAL DATA
PRINCIPLES OF CONSOLIDATION
Sempra Energy
Sempra Energy’sSempra’s Condensed Consolidated Financial Statements include the accounts of Sempra Energy, a California-based energy-services holding company doing business as Sempra, and its consolidated subsidiaries and VIEs. Sempra Global is the holding company for most of our subsidiaries thatentities. Sempra’s business activities are not subject to California or Texas utility regulation. Sempra Energy’s businesses were managed within 6 separateorganized under 5 reportable segments, until April 2019 and 5 separate reportable segments thereafter, which we discuss in Note 12. 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 Condensed 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. SDG&E’s common stock is wholly owned by Enova Corporation, which is a wholly owned subsidiary of Sempra Energy.Sempra.
SoCalGas
SoCalGas’ common stock is wholly owned by Pacific Enterprises, 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,” “us,“our,” “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 refer to SDG&E and SoCalGas collectively as the California Utilities. 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 this report,these Notes, we refer to the following as Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements when discussed together or collectively:
▪the Condensed Consolidated Financial Statements and related Notes of Sempra Energy and its subsidiaries and VIEs;Sempra;
▪the Condensed Consolidated Financial Statements and related Notes of SDG&E and its VIE (until deconsolidation of Otay Mesa VIE in August 2019);&E; and
▪the Condensed Financial Statements and related Notes of SoCalGas.
We have prepared theour Condensed Consolidated Financial Statements in conformity with U.S. GAAP and in accordance with the interim-period-reporting requirements of Form 10-Q and applicable rules of the SEC. The financial statements reflect all adjustments that are necessary for a fair presentation of the results for the interim periods. These adjustments are only of a normal, recurring nature. Results of operations for interim periods are not necessarily indicative of results for the entire year or for any other period. We evaluated events and transactions that occurred after SeptemberJune 30, 20202021 through the date the financial statements were issued and, in the opinion of management, the accompanying statements reflect all adjustments necessary for a fair presentation. These adjustments are only of a normal, recurring nature.
All December 31, 20192020 balance sheet information in the Condensed Consolidated Financial Statements has been derived from our audited 20192020 Consolidated Financial Statements in the Annual Report. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the interim-period-reporting provisions of U.S. GAAP and the SEC.
We describe our significant accounting policies in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report and the impact of the adoption of new accounting standards on those policies in Note 2 below. We follow the same accounting policies for interim period reporting purposes.
You should read the information in this report in conjunction with the Annual Report.
Discontinued Operations
In January 2019, our board of directors approved a plan to sell our South American businesses based on our strategic focus on North America. 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. These businesses are presented as discontinued operations, which we discuss further in Note 5, as the sales represent a strategic shift that will have a major effect on our operations and financial results.5. We completed the sales of our South American businesses in the second quarter of 2020. Our discussions in the Notes below relate only to our continuing operations unless otherwise noted.
Regulated Operations
The California Utilities and Sempra Mexico’s natural gas distribution utility, Ecogas, prepare their financial statements in accordance with the provisions of U.S. GAAP governing rate-regulated operations. We discuss revenue recognition and the effects of regulation at our utilities in Notes 3 and 4 below and in Notes 1, 3 and 4 of the Notes to Consolidated Financial Statements in the Annual Report.
Our Sempra Texas Utilities segment is comprised of our equity method investments in holding companies that own interests in regulated electric transmission and distribution utilities in Texas.
Our Sempra Mexico 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 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 and in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on Sempra Energy’sSempra’s Condensed Consolidated Balance Sheets to the sum of such amounts reported on Sempra Energy’sSempra’s Condensed Consolidated Statements of Cash Flows. We provide information about the nature of restricted cash in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.
| | 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) |
| | September 30, | December 31, | | June 30, | December 31, |
| | | 2020 | 2019 | | 2021 | 2020 |
| Sempra Energy Consolidated: | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 3,515 | | $ | 108 | | Cash and cash equivalents | $ | 335 | | $ | 960 | |
| Restricted cash, current | Restricted cash, current | 28 | | 31 | | Restricted cash, current | 33 | | 22 | |
| Restricted cash, noncurrent | Restricted cash, noncurrent | 3 | | 3 | | Restricted cash, noncurrent | 3 | | 3 | |
| Cash, cash equivalents and restricted cash in discontinued operations | 0 | | 75 | | |
| Total cash, cash equivalents and restricted cash on the Condensed Consolidated Statements of Cash Flows | Total cash, cash equivalents and restricted cash on the Condensed Consolidated Statements of Cash Flows | $ | 3,546 | | $ | 217 | | Total cash, cash equivalents and restricted cash on the Condensed Consolidated Statements of Cash Flows | $ | 371 | | $ | 985 | |
|
In the Sempra Energy Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 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. 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, historical and industry trends, counterparty creditworthiness, economic conditions and specific events, such as bankruptcies. 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, the California Utilities have implemented certain measures to assist customers, including suspending service disconnections due to nonpayment for residential and small businessall customers (except for SoCalGas’ noncore customers), waiving late payment fees, for business customers, and offering flexible payment plans forto customers experiencing difficulty paying their electric or gas bills. Such measures ended on June 30, 2021, except for the suspension of service disconnections that will continue through September 30, 2021. As we discuss in Note 4, the CPUC authorized each of the California Utilities to establish a CPPMA 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, allows each of the California Utilities to establisheach established 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 toamounts provided under the AMP. We discuss the AMP in Note 4 for further discussion.of the Notes to Consolidated Financial Statements in the Annual Report.
The California Utilities have recorded increases in their allowances for expected credit losses as of September 30, 2020 primarily related to expected forgiveness of outstanding utility bill amounts, including increases due to the effect of the COVID-19 pandemic, for participating, income-qualified residential customers eligible under the AMP. Our businesses will continue to monitor macroeconomic factors and customer payment patterns when evaluating their allowances for credit losses, in future reporting periods, which may increase significantly due to the effects of the COVID-19 pandemic or other factors.
We provide below allowances and changes in allowances for credit losses for trade and other accounts receivable, excludingreceivable. The California Utilities record changes in the allowances for credit losses related to amounts due from unconsolidated affiliates and off-balance sheet arrangements, which we discuss separately below the table.Accounts Receivable – Trade in regulatory accounts.
| | TRADE AND OTHER ACCOUNTS RECEIVABLE – ALLOWANCES FOR CREDIT LOSSES | TRADE AND OTHER ACCOUNTS RECEIVABLE – ALLOWANCES FOR CREDIT LOSSES | TRADE AND OTHER ACCOUNTS RECEIVABLE – ALLOWANCES FOR CREDIT LOSSES |
| (Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| | Sempra Energy Consolidated(1) | SDG&E(2) | SoCalGas(3) | | 2021 | 2020 |
| Allowances for credit losses at December 31, 2019 | $ | 29 | | $ | 14 | | $ | 15 | | |
| Sempra: | | Sempra: | |
| Allowances for credit losses at January 1 | | Allowances for credit losses at January 1 | $ | 138 | | $ | 29 | |
| Incremental allowance upon adoption of ASU 2016-13 | Incremental allowance upon adoption of ASU 2016-13 | 1 | | 0 | | — | | Incremental allowance upon adoption of ASU 2016-13 | — | | 1 | |
| Provisions for expected credit losses | Provisions for expected credit losses | 84 | | 44 | | 40 | | Provisions for expected credit losses | 66 | | 21 | |
| Write-offs | Write-offs | (11) | | (6) | | (5) | | Write-offs | (12) | | (7) | |
| | Allowances for credit losses at September 30, 2020 | $ | 103 | | $ | 52 | | $ | 50 | | |
Allowances for credit losses at June 30(1) | | Allowances for credit losses at June 30(1) | $ | 192 | | $ | 44 | |
| SDG&E: | | SDG&E: | |
| Allowances for credit losses at January 1 | | Allowances for credit losses at January 1 | $ | 69 | | $ | 14 | |
| Provisions for expected credit losses | | Provisions for expected credit losses | 13 | | 9 | |
| Write-offs | | Write-offs | (7) | | (4) | |
| Allowances for credit losses at June 30(2) | | Allowances for credit losses at June 30(2) | $ | 75 | | $ | 19 | |
| SoCalGas: | | SoCalGas: | |
| Allowances for credit losses at January 1 | | Allowances for credit losses at January 1 | $ | 68 | | $ | 15 | |
| Provisions for expected credit losses | | Provisions for expected credit losses | 52 | | 12 | |
| Write-offs | | Write-offs | (5) | | (3) | |
Allowances for credit losses at June 30(3) | | Allowances for credit losses at June 30(3) | $ | 115 | | $ | 24 | |
(1)Balance at SeptemberAt June 30, 20202021, includes $75 million and $28$153 million in Accounts Receivable – Trade, Net and $39 million in Accounts Receivable – Other, Net, respectively.Net.
(2) Balance at SeptemberAt June 30, 20202021, includes $37 million and $15$60 million in Accounts Receivable – Trade, Net and $15 million in Accounts Receivable – Other, Net, respectively.Net.
(3) Balance at SeptemberAt June 30, 20202021, includes $37 million and $13$91 million in Accounts Receivable – Trade, Net and $24 million in Accounts Receivable – Other, Net, respectively.Net.
For amounts due from unconsolidated affiliates, and off-balance sheet arrangements, on a quarterly basis, we evaluate credit losses and record allowances for expected credit losses, 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.
As we discuss below in “Transactions with Affiliates,” we haveSempra has loans due from unconsolidated affiliates with varying tenors, interest rates and currencies. We provide below the allowances and changes in allowances for credit losses for loans 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 December 31, 2019 | $ | 0 | |
Allowance established upon adoption of ASU 2016-13 | 6 | |
Reduction to expected credit losses | (3) | |
Allowances for credit losses at September 30, 2020 | $ | 3 | |
| | | | | | | | |
| AMOUNTS DUE FROM UNCONSOLIDATED AFFILIATES – ALLOWANCES FOR CREDIT LOSSES |
| (Dollars in millions) | |
| Sempra |
| 2021 | 2020 |
| Allowances for credit losses at January 1 | $ | 3 | | $ | 0 | |
| Allowance established upon adoption of ASU 2016-13 | 0 | | 6 | |
| Provisions for expected credit losses | (2) | | (3) | |
Allowances for credit losses at June 30(1) | $ | 1 | | $ | 3 | |
(1) Balance at SeptemberAt June 30, 2020 includes negligible amounts and $32021, $1 million is included in Due from Unconsolidated Affiliates – Current and Due from Unconsolidated Affiliates – Noncurrent, respectively.Noncurrent.
As we discuss in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report, Sempra Energy haspreviously provided guarantees for the benefit of Cameron LNG JV related to its construction-period debt obligations for a maximum aggregate amount of $4.0 billion associated withbillion. In March 2021, Cameron LNG JV’s debt obligations. We established a liability forJV reached financial completion of the three-train liquefaction project, which terminated the guarantees. There are no longer any expected credit losses related to these terminated guarantees.
As we discuss in Note 6, Sempra provided a guarantee for the benefit of $6 million for this off-balance sheet arrangement upon adoption of ASU 2016-13 on January 1, 2020 and we subsequently reduced this liabilityCameron LNG JV related to amounts withdrawn by $3 million inSempra LNG from the nine months ended SeptemberSDSRA. At June 30, 2020 through a reduction to credit loss expense, which is included in O&M on the Sempra Energy Condensed Consolidated Statement of Operations. At September 30, 2020,2021, expected credit losses of $3$7 million related to this guarantee are included in Deferred Credits and Other Current Liabilities on the Sempra EnergySempra’s Condensed 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.
In the nine months ended September 30, 2020, four customers each represented 10% or more of Sempra Mexico’s revenues (including intercompany transactions with affiliates consolidated by Sempra Energy). Additionally, for the same period, certain of our unconsolidated equity method investees (Oncor Holdings, Cameron LNG JV and IMG JV) had customers that each represented 10% or more of their respective revenues.
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 components of inventories are as follows:
| | INVENTORY BALANCES | INVENTORY BALANCES | INVENTORY BALANCES |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | | Natural gas | | LNG | | Materials and supplies | | Total | | Natural gas | | LNG | | Materials and supplies | | Total |
| | | September 30, 2020 | | December 31, 2019 | | September 30, 2020 | | December 31, 2019 | | September 30, 2020 | | December 31, 2019 | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 | | June 30, 2021 | | December 31, 2020 | | June 30, 2021 | | December 31, 2020 | | June 30, 2021 | | December 31, 2020 |
| Sempra Energy Consolidated | $ | 127 | | | $ | 110 | | | $ | 2 | | | $ | 9 | | | $ | 180 | | | $ | 158 | | | $ | 309 | | | $ | 277 | | |
| Sempra | | Sempra | $ | 139 | | | $ | 118 | | | $ | 13 | | | $ | 7 | | | $ | 187 | | | $ | 183 | | | $ | 339 | | | $ | 308 | |
| SDG&E | SDG&E | 0 | | | 1 | | | 0 | | | 0 | | | 105 | | | 93 | | | 105 | | | 94 | | SDG&E | 0 | | | 0 | | | 0 | | | 0 | | | 109 | | | 104 | | | 109 | | | 104 | |
| SoCalGas | SoCalGas | 104 | | | 90 | | | 0 | | | 0 | | | 56 | | | 46 | | | 160 | | | 136 | | SoCalGas | 62 | | | 94 | | | 0 | | | 0 | | | 64 | | | 59 | | | 126 | | | 153 | |
WILDFIRE FUND
OnIn July 12, 2019, the Wildfire Legislation was signed into law to address certain issues related to catastrophic wildfires in the State of California and their impact on electric IOUs. We discuss the Wildfire Legislation further in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.
In July 2021, the CPUC approved SDG&E’s 2021 Wildfire Mitigation Plan Update. In July 2021, the CPUC’s Wildfire Safety Division became the Office of Energy Infrastructure Safety (OEIS) under the California Natural Resources Agency. As successor to the Wildfire Safety Division, OEIS maintains the duties and responsibilities of the former Wildfire Safety Division with respect to Wildfire Mitigation Plans.
In a complaint filed in U.S. District Court for the Northern District of California in July 2019, plaintiffs seek to invalidate AB 1054 which established the Wildfire Fund, based on allegations that the legislation violates federal law. ThatThe district court dismissed the complaint and the plaintiffs have petitioned the U.S. Court of Appeals for the Ninth Circuit to review the dismissal.
In June 2020, the CPUC approved SDG&E’s 2020 wildfire mitigation plan, which will be effective until the CPUC approves a new plan. In addition, on September 14, 2020, SDG&E received its 2020 safety certification from the Wildfire Safety Division of the CPUC. The certificate is valid for 12 months from the issue date.
In July 2020, PG&E received bankruptcy court approval to participate in the Wildfire Fund and has made its required contributions to the Wildfire Fund. As a result of PG&E’s participation, the Wildfire Fund will be funded up to $21 billion.
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 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 is amortizing the Wildfire Fund asset on a straight-line basis over the estimated period of benefit, as adjusted for utilization by the participating IOUs. The estimated period of benefit of the Wildfire Fund asset is 15 years. SDG&E expects 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 periodically evaluates the estimated period of benefit of the Wildfire Fund asset based on actual experience and changes in assumptions. SDG&E may recognize a reduction of its Wildfire Fund asset and record 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 has 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.
The following table summarizes the location of balances related to the Wildfire Fund on Sempra Energy’s and SDG&E’s Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations.
| | | | | | | | | | | | | | | | | |
| WILDFIRE FUND |
| (Dollars in millions) |
| Location | | | September 30,
2020 | December 31,
2019 |
| Wildfire Fund asset: | | | | | |
| Current | Other Current Assets(1) | | | $ | 29 | | $ | 29 | |
| Noncurrent | Wildfire Fund | | | 371 | | 392 | |
| Wildfire Fund obligation: | | | | | |
| Current | Other Current Liabilities | | | $ | 13 | | $ | 13 | |
| Noncurrent | Deferred Credits and Other | | | 87 | | 86 | |
| | Three months ended September 30, | Nine months ended September 30, |
| | 2020 | 2019 | 2020 | 2019 |
| Amortization of Wildfire Fund asset | Operation and Maintenance | $ | 7 | | $ | 8 | | $ | 21 | | $ | 8 | |
| Accretion of Wildfire Fund obligation | Operation and Maintenance | 0 | | 0 | | 1 | | 0 | |
(1) Included in Prepaid Expenses for SDG&E.review.
CAPITALIZED FINANCING COSTS
Capitalized financing costs include capitalized interest costs and AFUDC related to both debt and equity financing of construction projects. 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 interest and AFUDC.
| | CAPITALIZED FINANCING COSTS | CAPITALIZED FINANCING COSTS | CAPITALIZED FINANCING COSTS |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Three months ended September 30, | | Nine months ended September 30, | | Three months ended June 30, | | Six months ended June 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Sempra Energy Consolidated | $ | 51 | | | $ | 46 | | | $ | 149 | | | $ | 144 | | |
| Sempra | | Sempra | $ | 55 | | | $ | 50 | | | $ | 114 | | | $ | 98 | |
| SDG&E | SDG&E | 26 | | | 19�� | | | 79 | | | 56 | | SDG&E | 28 | | | 26 | | | 58 | | | 53 | |
| SoCalGas | SoCalGas | 14 | | | 13 | | | 39 | | | 35 | | SoCalGas | 15 | | | 14 | | | 31 | | | 25 | |
OTHER INTANGIBLE ASSETS
Other Intangible Assets included on Sempra’s Condensed Consolidated Balance Sheets are as follows:
| | | | | | | | | | | | | | | | | |
| OTHER INTANGIBLE ASSETS |
| (Dollars in millions) |
| Amortization period (years) | | June 30,
2021 | | December 31,
2020 |
| Renewable energy transmission and consumption permits | 15 to 19 | | $ | 169 | | | $ | 169 | |
| O&M agreement | 23 | | 66 | | | 66 | |
| PPA | 14 | | 190 | | | 0 | |
| Other | 10 to indefinite | | 15 | | | 15 | |
| | | 440 | | | 250 | |
| Less accumulated amortization: | | | | | |
| Renewable energy transmission and consumption permits | | | (37) | | | (32) | |
| O&M agreement | | | (10) | | | (9) | |
| PPA | | | (3) | | | 0 | |
| Other | | | (8) | | | (7) | |
| | | (58) | | | (48) | |
| | | $ | 382 | | | $ | 202 | |
Other Intangible Assets at June 30, 2021 primarily includes:
▪renewable energy transmission and consumption permits previously granted by the CRE at the Ventika wind power generation facilities, Don Diego Solar and Border Solar;
▪a favorable O&M agreement acquired in connection with the acquisition of Ductos y Energéticos del Norte, S. de R.L. de C.V.; and
▪an intangible asset of $190 million, representing 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 $7 million, including $3 million recorded against revenues, and $2 million in the three months ended June 30, 2021 and 2020, respectively, and $10 million, including $3 million recorded against revenues, and $5 million in the six months ended June 30, 2021 and 2020, respectively. We estimate the remaining amortization expense in 2021 to be $13 million, including $7 million recorded against revenues, and amortization expense of $26 million per year for the next four years, including $13 million recorded against revenues.
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 contractsPPAs and tolling agreements resulted in SDG&E being the primary beneficiary of a VIE at SeptemberJune 30, 20202021 and December 31, 2019.2020. 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 that relate to SDG&E’s involvement with VIEs where SDG&E is not the primary beneficiaryunder these contracts are included in PP&E, net and finance lease liabilities with balances of $1,242$1,228 million and $1,255$1,237 million at SeptemberJune 30, 20202021 and December 31, 2019,2020, 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 of the Notes to Consolidated Financial Statements in the Annual Report. As a result, SDG&E’s potential exposure to loss from its variable interest in these VIEs is not significant.
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 the VIE because of the structural and operational ring-fencing and governance measures in place that prevent us 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 Note 6 of the Notes to Consolidated Financial Statements in the Annual Report 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 $11,962$12,655 million at SeptemberJune 30, 20202021 and $11,519$12,440 million at December 31, 2019.
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. If we are the primary beneficiary of these companies, we consolidate them. At December 31, 2019, Sempra Mexico consolidated a VIE with assets totaling approximately $126 million, which consisted primarily of PP&E and other long-term assets.2020.
Sempra LNG
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 the VIE because we do not have the power to direct the most significant activities of Cameron LNG JV, including LNG production and therefore,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 $433$416 million at SeptemberJune 30, 20202021 and $1,256$433 million at December 31, 2019.2020. 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 of the Notes to Consolidated Financial Statements in the Annual Report.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, thatwhich is a VIE. Since we do not have the power to direct the most significant activities of the VIE, we are not the primary beneficiary. The conditional obligations of the Support Agreement represent a variable interest that we measure at fair value on a recurring basis (see Note 9). Sempra Energy’sSempra’s maximum exposure to loss under the terms of the Support Agreement is $979 million.
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 its natural gas liquefaction export project. As a result, we consolidate ECA LNG Phase 1. Sempra LNG consolidated $425 million and $207 million of assets at June 30, 2021 and December 31, 2020, respectively, consisting primarily of PP&E, net, attributable to ECA LNG Phase 1 that could be used only to settle obligations of the VIE and that are not available to settle obligations of Sempra, and $267 million and $49 million of liabilities at June 30, 2021 and December 31, 2020, respectively, consisting primarily of long-term debt and accounts payable attributable to ECA LNG Phase 1 for which creditors do not have recourse to the general credit of Sempra. Additionally, as we discuss in Note 7 of the Notes to Consolidated Financial Statements in the Annual Report, Sempra, IEnova and TOTAL 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.
PENSION AND OTHER POSTRETIREMENT BENEFITS
Settlement Accounting for Lump Sum Payments
Sempra Energy recorded settlement charges of $13$7 million in the six months ended June 30, 2021 and $4 million and $22$9 million in the three months and ninesix months ended SeptemberJune 30, 2020, respectively, in net periodic benefit cost for lump sum payments from its nonqualified pension plan that were in excess of the plan’s service cost plus interest cost.
In the nine months ended September 30, 2019, Sempra Energy recorded settlement charges of $22 million in net periodic benefit cost for lump sum payments from its nonqualified pension plan that were in excess of the plan’s service cost plus interest cost.
Net Periodic Benefit Cost
The following three tables provide the components of net periodic benefit cost.
| | NET PERIODIC BENEFIT COST – SEMPRA ENERGY CONSOLIDATED | |
| NET PERIODIC BENEFIT COST – SEMPRA | | NET PERIODIC BENEFIT COST – SEMPRA |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | | Pension benefits | | Other postretirement benefits | | Pension benefits | | Other postretirement benefits |
| | | Three months ended September 30, | | Three months ended June 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Service cost | Service cost | $ | 31 | | | $ | 27 | | | $ | 5 | | | $ | 4 | | Service cost | $ | 36 | | | $ | 33 | | | $ | 5 | | | $ | 4 | |
| Interest cost | Interest cost | 32 | | | 34 | | | 8 | | | 9 | | Interest cost | 28 | | | 33 | | | 7 | | | 8 | |
| Expected return on assets | Expected return on assets | (41) | | | (36) | | | (14) | | | (17) | | Expected return on assets | (43) | | | (43) | | | (15) | | | (14) | |
| Amortization of: | Amortization of: | | | | | Amortization of: | | | | |
| Prior service cost (credit) | 3 | | | 3 | | | (1) | | | 0 | | |
| Prior service cost | | Prior service cost | 2 | | | 3 | | | 0 | | | 0 | |
| Actuarial loss (gain) | Actuarial loss (gain) | 9 | | | 8 | | | (2) | | | (3) | | Actuarial loss (gain) | 11 | | | 8 | | | (2) | | | (2) | |
| Settlement charges | Settlement charges | 13 | | | 4 | | | 0 | | | 0 | | Settlement charges | 0 | | | 4 | | | 0 | | | 0 | |
| | Net periodic benefit cost (credit) | Net periodic benefit cost (credit) | 47 | | | 40 | | | (4) | | | (7) | | Net periodic benefit cost (credit) | 34 | | | 38 | | | (5) | | | (4) | |
| Regulatory adjustments | Regulatory adjustments | 37 | | | 3 | | | 4 | | | 8 | | Regulatory adjustments | 22 | | | 22 | | | 5 | | | 4 | |
| Total expense recognized | Total expense recognized | $ | 84 | | | $ | 43 | | | $ | 0 | | | $ | 1 | | Total expense recognized | $ | 56 | | | $ | 60 | | | $ | 0 | | | $ | 0 | |
| | | | Nine months ended September 30, | | Six months ended June 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Service cost | Service cost | $ | 97 | | | $ | 82 | | | $ | 14 | | | $ | 12 | | Service cost | $ | 73 | | | $ | 66 | | | $ | 11 | | | $ | 9 | |
| Interest cost | Interest cost | 97 | | | 104 | | | 24 | | | 27 | | Interest cost | 56 | | | 65 | | | 14 | | | 16 | |
| Expected return on assets | Expected return on assets | (126) | | | (108) | | | (41) | | | (52) | | Expected return on assets | (86) | | | (85) | | | (30) | | | (27) | |
| Amortization of: | Amortization of: | | | | | | | | Amortization of: | | | | | | | |
| Prior service cost (credit) | Prior service cost (credit) | 9 | | | 9 | | | (2) | | | 0 | | Prior service cost (credit) | 5 | | | 6 | | | (1) | | | (1) | |
| Actuarial loss (gain) | Actuarial loss (gain) | 26 | | | 29 | | | (7) | | | (8) | | Actuarial loss (gain) | 22 | | | 17 | | | (4) | | | (5) | |
| Settlement charges | Settlement charges | 22 | | | 26 | | | 0 | | | 0 | | Settlement charges | 7 | | | 9 | | | 0 | | | 0 | |
| | Net periodic benefit cost (credit) | Net periodic benefit cost (credit) | 125 | | | 142 | | | (12) | | | (21) | | Net periodic benefit cost (credit) | 77 | | | 78 | | | (10) | | | (8) | |
| Regulatory adjustments | Regulatory adjustments | 31 | | | (30) | | | 12 | | | 22 | | Regulatory adjustments | (7) | | | (6) | | | 10 | | | 8 | |
| Total expense recognized | Total expense recognized | $ | 156 | | | $ | 112 | | | $ | 0 | | | $ | 1 | | Total expense recognized | $ | 70 | | | $ | 72 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| NET PERIODIC BENEFIT COST – SDG&E |
| (Dollars in millions) |
| | Pension benefits | | Other postretirement benefits |
| | Three months ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Service cost | $ | 9 | | | $ | 8 | | | $ | 1 | | | $ | 1 | |
| Interest cost | 6 | | | 8 | | | 2 | | | 1 | |
| Expected return on assets | (13) | | | (12) | | | (3) | | | (2) | |
| Amortization of: | | | | | | | |
| | | | | | | |
| Actuarial loss (gain) | 1 | | | 1 | | | (1) | | | 0 | |
| | | | | | | |
| | | | | | | |
| Net periodic benefit cost (credit) | 3 | | | 5 | | | (1) | | | 0 | |
| Regulatory adjustments | 11 | | | 9 | | | 1 | | | 0 | |
| Total expense recognized | $ | 14 | | | $ | 14 | | | $ | 0 | | | $ | 0 | |
| | | | | | | |
| | Six months ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Service cost | $ | 17 | | | $ | 16 | | | $ | 2 | | | $ | 2 | |
| Interest cost | 12 | | | 15 | | | 3 | | | 3 | |
| Expected return on assets | (25) | | | (25) | | | (5) | | | (5) | |
| Amortization of: | | | | | | | |
| Prior service cost | 0 | | | 1 | | | 0 | | | 0 | |
| Actuarial loss (gain) | 1 | | | 2 | | | (1) | | | (1) | |
| | | | | | | |
| | | | | | | |
| Net periodic benefit cost (credit) | 5 | | | 9 | | | (1) | | | (1) | |
| Regulatory adjustments | 9 | | | 6 | | | 1 | | | 1 | |
| Total expense recognized | $ | 14 | | | $ | 15 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| NET PERIODIC BENEFIT COST – SOCALGAS |
| (Dollars in millions) |
| | Pension benefits | | Other postretirement benefits |
| | Three months ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Service cost | $ | 25 | | | $ | 22 | | | $ | 4 | | | $ | 4 | |
| Interest cost | 20 | | | 22 | | | 6 | | | 6 | |
| Expected return on assets | (30) | | | (27) | | | (12) | | | (11) | |
| Amortization of: | | | | | | | |
| Prior service cost (credit) | 2 | | | 2 | | | 0 | | | (1) | |
| Actuarial loss (gain) | 10 | | | 7 | | | (2) | | | (2) | |
| | | | | | | |
| | | | | | | |
| Net periodic benefit cost (credit) | 27 | | | 26 | | | (4) | | | (4) | |
| Regulatory adjustments | 11 | | | 13 | | | 4 | | | 4 | |
| Total expense recognized | $ | 38 | | | $ | 39 | | | $ | 0 | | | $ | 0 | |
| | | | | | | |
| | Six months ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Service cost | $ | 50 | | | $ | 44 | | | $ | 8 | | | $ | 7 | |
| Interest cost | 40 | | | 44 | | | 11 | | | 12 | |
| Expected return on assets | (58) | | | (54) | | | (24) | | | (21) | |
| Amortization of: | | | | | | | |
| Prior service cost (credit) | 4 | | | 4 | | | (1) | | | (1) | |
| Actuarial loss (gain) | 19 | | | 13 | | | (3) | | | (4) | |
| | | | | | | |
| | | | | | | |
| Net periodic benefit cost (credit) | 55 | | | 51 | | | (9) | | | (7) | |
| Regulatory adjustments | (16) | | | (12) | | | 9 | | | 7 | |
| Total expense recognized | $ | 39 | | | $ | 39 | | | $ | 0 | | | $ | 0 | |
RABBI TRUST
| | | | | | | | | | | | | | | | | | | | | | | |
| NET PERIODIC BENEFIT COST – SDG&E |
| (Dollars in millions) |
| | Pension benefits | | Other postretirement benefits |
| | Three months ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Service cost | $ | 7 | | | $ | 7 | | | $ | 1 | | | $ | 1 | |
| Interest cost | 7 | | | 9 | | | 2 | | | 1 | |
| Expected return on assets | (12) | | | (9) | | | (3) | | | (3) | |
| Amortization of: | | | | | | | |
| Prior service cost | 1 | | | 0 | | | 0 | | | 1 | |
| Actuarial loss (gain) | 1 | | | 2 | | | (1) | | | 0 | |
| | | | | | | |
| | | | | | | |
| Net periodic benefit cost (credit) | 4 | | | 9 | | | (1) | | | 0 | |
| Regulatory adjustments | 22 | | | (1) | | | 1 | | | 0 | |
| Total expense recognized | $ | 26 | | | $ | 8 | | | $ | 0 | | | $ | 0 | |
| | | | | | | |
| | Nine months ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Service cost | $ | 23 | | | $ | 22 | | | $ | 3 | | | $ | 3 | |
| Interest cost | 22 | | | 26 | | | 5 | | | 5 | |
| Expected return on assets | (37) | | | (29) | | | (8) | | | (9) | |
| Amortization of: | | | | | | | |
| Prior service cost | 2 | | | 2 | | | 0 | | | 2 | |
| Actuarial loss (gain) | 3 | | | 9 | | | (2) | | | (1) | |
| | | | | | | |
| | | | | | | |
| Net periodic benefit cost (credit) | 13 | | | 30 | | | (2) | | | 0 | |
| Regulatory adjustments | 28 | | | (13) | | | 2 | | | 0 | |
| Total expense recognized | $ | 41 | | | $ | 17 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| NET PERIODIC BENEFIT COST – SOCALGAS |
| (Dollars in millions) |
| | Pension benefits | | Other postretirement benefits |
| | Three months ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Service cost | $ | 20 | | | $ | 17 | | | $ | 3 | | | $ | 3 | |
| Interest cost | 22 | | | 23 | | | 7 | | | 6 | |
| Expected return on assets | (27) | | | (24) | | | (11) | | | (14) | |
| Amortization of: | | | | | | | |
| Prior service cost (credit) | 2 | | | 2 | | | (1) | | | (1) | |
| Actuarial loss (gain) | 6 | | | 3 | | | (1) | | | (2) | |
| | | | | | | |
| | | | | | | |
| Net periodic benefit cost (credit) | 23 | | | 21 | | | (3) | | | (8) | |
| Regulatory adjustments | 15 | | | 4 | | | 3 | | | 8 | |
| Total expense recognized | $ | 38 | | | $ | 25 | | | $ | 0 | | | $ | 0 | |
| | | | | | | |
| | Nine months ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Service cost | $ | 64 | | | $ | 51 | | | $ | 10 | | | $ | 9 | |
| Interest cost | 66 | | | 68 | | | 19 | | | 20 | |
| Expected return on assets | (81) | | | (71) | | | (32) | | | (43) | |
| Amortization of: | | | | | | | |
| Prior service cost (credit) | 6 | | | 6 | | | (2) | | | (2) | |
| Actuarial loss (gain) | 19 | | | 14 | | | (5) | | | (6) | |
| | | | | | | |
| | | | | | | |
| Net periodic benefit cost (credit) | 74 | | | 68 | | | (10) | | | (22) | |
| Regulatory adjustments | 3 | | | (17) | | | 10 | | | 22 | |
| Total expense recognized | $ | 77 | | | $ | 51 | | | $ | 0 | | | $ | 0 | |
Benefit Plan Contributions
The following table shows our year-to-date contributions to pension and other postretirement benefit plans and the amounts we expect to contribute in 2020.
| | | | | | | | | | | | | | | | | | | | |
| BENEFIT PLAN CONTRIBUTIONS |
| (Dollars in millions) |
| | | Sempra Energy
Consolidated | | SDG&E | | SoCalGas |
| Contributions through September 30, 2020: | | | | | | |
| Pension plans | | $ | 202 | | | $ | 39 | | | $ | 76 | |
| Other postretirement benefit plans | | 6 | | | 1 | | | 1 | |
| Total expected contributions in 2020: | | | | | | |
| Pension plans | | $ | 298 | | | $ | 54 | | | $ | 155 | |
| Other postretirement benefit plans | | 8 | | | 1 | | | 1 | |
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 $469$523 million and $488$512 million at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively.
SEMPRA ENERGY 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) | |
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended June 30, | | Six months ended June 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| 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 | $ | 428 | | | $ | 653 | | | $ | 1,823 | | | $ | 1,570 | | Income from continuing operations, net of income tax | $ | 455 | | | $ | 528 | | | $ | 1,383 | | | $ | 1,395 | |
| Earnings attributable to noncontrolling interests | Earnings attributable to noncontrolling interests | (22) | | | (52) | | | (191) | | | (121) | | Earnings attributable to noncontrolling interests | (10) | | | (26) | | | (43) | | | (169) | |
| Preferred dividends | Preferred dividends | (48) | | | (36) | | | (121) | | | (107) | | Preferred dividends | (20) | | | (37) | | | (41) | | | (73) | |
| Preferred dividends of subsidiary | Preferred dividends of subsidiary | 0 | | | 0 | | | (1) | | | (1) | | Preferred dividends of subsidiary | (1) | | | (1) | | | (1) | | | (1) | |
| Earnings from continuing operations attributable to common shares for basic EPS | Earnings from continuing operations attributable to common shares for basic EPS | 358 | | | 565 | | | 1,510 | | | 1,341 | | Earnings from continuing operations attributable to common shares for basic EPS | 424 | | | 464 | | | 1,298 | | | 1,152 | |
Add back dividends for dilutive mandatory convertible preferred stock(1) | Add back dividends for dilutive mandatory convertible preferred stock(1) | 0 | | | 26 | | | 0 | | | 0 | | Add back dividends for dilutive mandatory convertible preferred stock(1) | 0 | | | 0 | | | 0 | | | 52 | |
| Earnings from continuing operations attributable to common shares for diluted EPS | Earnings from continuing operations attributable to common shares for diluted EPS | $ | 358 | | | $ | 591 | | | $ | 1,510 | | | $ | 1,341 | | Earnings from continuing operations attributable to common shares for diluted EPS | $ | 424 | | | $ | 464 | | | $ | 1,298 | | | $ | 1,204 | |
| | Numerator for discontinued operations: | Numerator for discontinued operations: | | Numerator for discontinued operations: | |
| (Loss) income from discontinued operations, net of income tax | $ | (7) | | | $ | 256 | | | $ | 1,850 | | | $ | 292 | | |
| Income from discontinued operations, net of income tax | | Income from discontinued operations, net of income tax | $ | 0 | | | $ | 1,777 | | | $ | 0 | | | $ | 1,857 | |
| Earnings attributable to noncontrolling interests | Earnings attributable to noncontrolling interests | 0 | | | (8) | | | (10) | | | (25) | | Earnings attributable to noncontrolling interests | 0 | | | (2) | | | 0 | | | (10) | |
| (Losses) earnings from discontinued operations attributable to common shares | $ | (7) | | | $ | 248 | | | $ | 1,840 | | | $ | 267 | | |
| Earnings from discontinued operations attributable to common shares | | Earnings from discontinued operations attributable to common shares | $ | 0 | | | $ | 1,775 | | | $ | 0 | | | $ | 1,847 | |
| | Numerator for earnings: | Numerator for earnings: | | Numerator for earnings: | |
| Earnings attributable to common shares for basic EPS | Earnings attributable to common shares for basic EPS | $ | 351 | | | $ | 813 | | | $ | 3,350 | | | $ | 1,608 | | Earnings attributable to common shares for basic EPS | $ | 424 | | | $ | 2,239 | | | $ | 1,298 | | | $ | 2,999 | |
Add back dividends for dilutive mandatory convertible preferred stock(1) | Add back dividends for dilutive mandatory convertible preferred stock(1) | 0 | | | 26 | | | 0 | | | 0 | | Add back dividends for dilutive mandatory convertible preferred stock(1) | 0 | | | 0 | | | 0 | | | 52 | |
| Earnings attributable to common shares for diluted EPS | Earnings attributable to common shares for diluted EPS | $ | 351 | | | $ | 839 | | | $ | 3,350 | | | $ | 1,608 | | Earnings attributable to common shares for diluted EPS | $ | 424 | | | $ | 2,239 | | | $ | 1,298 | | | $ | 3,051 | |
| | Denominator: | Denominator: | | | | | | | | Denominator: | | | | | | | |
Weighted-average common shares outstanding for basic EPS(2) | Weighted-average common shares outstanding for basic EPS(2) | 289,490 | | | 277,360 | | | 291,771 | | | 275,684 | | Weighted-average common shares outstanding for basic EPS(2) | 307,800 | | | 293,060 | | | 304,372 | | | 292,925 | |
Dilutive effect of stock options and RSUs(3) | Dilutive effect of stock options and RSUs(3) | 1,092 | | | 1,636 | | | 1,164 | | | 1,381 | | Dilutive effect of stock options and RSUs(3) | 807 | | | 1,095 | | | 846 | | | 1,199 | |
| Dilutive effect of common shares sold forward | 0 | | | 3,555 | | | 0 | | | 2,744 | | |
| Dilutive effect of mandatory convertible preferred stock | Dilutive effect of mandatory convertible preferred stock | 0 | | | 13,238 | | | 0 | | | 0 | | Dilutive effect of mandatory convertible preferred stock | 0 | | | 0 | | | 1,066 | | | 13,838 | |
| Weighted-average common shares outstanding for diluted EPS | Weighted-average common shares outstanding for diluted EPS | 290,582 | | | 295,789 | | | 292,935 | | | 279,809 | | Weighted-average common shares outstanding for diluted EPS | 308,607 | | | 294,155 | | | 306,284 | | | 307,962 | |
| | Basic EPS: | Basic EPS: | | Basic EPS: | |
| Earnings from continuing operations | Earnings from continuing operations | $ | 1.23 | | | $ | 2.04 | | | $ | 5.17 | | | $ | 4.86 | | Earnings from continuing operations | $ | 1.38 | | | $ | 1.58 | | | $ | 4.27 | | | $ | 3.93 | |
| (Losses) earnings from discontinued operations | $ | (0.02) | | | $ | 0.89 | | | $ | 6.31 | | | $ | 0.97 | | |
| Earnings from discontinued operations | | Earnings from discontinued operations | $ | 0 | | | $ | 6.06 | | | $ | 0 | | | $ | 6.31 | |
| Earnings | Earnings | $ | 1.21 | | | $ | 2.93 | | | $ | 11.48 | | | $ | 5.83 | | Earnings | $ | 1.38 | | | $ | 7.64 | | | $ | 4.27 | | | $ | 10.24 | |
| | Diluted EPS: | Diluted EPS: | | | | | | | | Diluted EPS: | | | | | | | |
| Earnings from continuing operations | Earnings from continuing operations | $ | 1.23 | | | $ | 2.00 | | | $ | 5.15 | | | $ | 4.79 | | Earnings from continuing operations | $ | 1.37 | | | $ | 1.58 | | | $ | 4.24 | | | $ | 3.91 | |
| (Losses) earnings from discontinued operations | $ | (0.02) | | | $ | 0.84 | | | $ | 6.28 | | | $ | 0.95 | | |
| Earnings from discontinued operations | | Earnings from discontinued operations | $ | 0 | | | $ | 6.03 | | | $ | 0 | | | $ | 6.00 | |
| Earnings | Earnings | $ | 1.21 | | | $ | 2.84 | | | $ | 11.43 | | | $ | 5.74 | | Earnings | $ | 1.37 | | | $ | 7.61 | | | $ | 4.24 | | | $ | 9.91 | |
(1) In the threesix months ended SeptemberJune 30, 2019,2020, due to the dilutive effect of ourthe series A preferred stock, the numerator used to calculate diluted EPS includesincluded an add-back of dividends declared on our series A preferred stock.
(2) Includes 535447 and 618 average530 fully vested RSUs held in our Deferred Compensation Plan for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively, and 536454 and 615536 of such RSUs for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. 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.
(3) 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 of the Notes to Consolidated Financial Statements in the Annual Report, 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 the three months and ninesix months ended SeptemberJune 30, 20202021 excludes 142,100145,247 and 204,426287,061 potentially dilutive shares, respectively, because to include them would be antidilutive for the period. The computation of diluted EPS for the three months and ninesix months ended SeptemberJune 30, 20192020 excludes 0216,922 and 107,042,235,589 potentially
dilutive shares, respectively, of such potentially dilutive shares. However, these shares could potentially dilute basic EPS in the future.
The potentially dilutive impact from mandatory convertible preferred stock is calculated under the forward sale of our common stock pursuant to forward sale agreements that we entered into in 2018 and fully settled by the end of 2019 is reflected in our diluted EPS calculation using the treasury stockif-converted method until settlement.the mandatory conversion date. After settlement, thosethe mandatory conversion date, the converted shares are included in weighted-average common shares outstanding for basic EPS.
As we discuss below in “Shareholders’ Equity and Noncontrolling Interests,” we converted our series A preferred stock into common stock on January 15, 2021. The computation of diluted EPS for both the three months and six months ended June 30, 2021 excludes 4,256,725 potentially dilutive impact from mandatory convertible preferred stock is calculated under the if-converted method.shares. The computation of diluted EPS for the three months and ninesix months ended SeptemberJune 30, 2020 excludes 19,292,64118,450,579 and 4,612,645 potentially dilutive shares, respectively. We discuss the conversion of the series B preferred stock into common stock on July 15, 2021 below in “Shareholders’ Equity and for the three months and nine months ended September 30, 2019 excludes 4,219,350 and 17,457,000 potentially dilutive shares, respectively, because to include them would be antidilutive for those periods. However, these shares could potentially dilute basic EPS in the future.Noncontrolling Interests.”
Pursuant to our Sempra EnergySempra’s share-based compensation plans, the compensation committeeCompensation and Talent Committee of Sempra Energy’sSempra’s board of directors granted 154,860222,620 nonqualified stock options, that vest over a three-year period, 265,236323,889 performance-based RSUs and 163,475142,105 service-based RSUs in the ninesix months ended SeptemberJune 30, 2020,2021, primarily in January.
We discuss share-based compensation plans and related awards and the terms and conditions of Sempra Energy’sSempra’s equity securities further in Notes 10, 13 and 14 of the Notes to Consolidated Financial Statements in the Annual Report.
COMPREHENSIVE INCOME
The following tables present the changes in AOCI by component and amounts reclassified out of AOCI to net income, excluding amounts attributable to NCI.
| | | | | | | | | | | | | | | | | | | | | | | |
CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT(1) |
| (Dollars in millions) |
| | Foreign
currency
translation
adjustments | | Financial
instruments | | Pension
and other
postretirement
benefits | | Total
accumulated other
comprehensive
income (loss) |
| | Three months ended September 30, 2020 and 2019 |
Sempra Energy Consolidated(2): | | | | | | | |
| Balance as of June 30, 2020 | $ | (83) | | | $ | (361) | | | $ | (98) | | | $ | (542) | |
| | | | | | | |
| OCI before reclassifications | 6 | | | 14 | | | (7) | | | 13 | |
| Amounts reclassified from AOCI | 0 | | | 4 | | | 12 | | | 16 | |
Net OCI(3) | 6 | | | 18 | | | 5 | | | 29 | |
| Balance as of September 30, 2020 | $ | (77) | | | $ | (343) | | | $ | (93) | | | $ | (513) | |
| | | | | | | |
| Balance as of June 30, 2019 | $ | (518) | | | $ | (213) | | | $ | (117) | | | $ | (848) | |
| | | | | | | |
| OCI before reclassifications | (91) | | | (41) | | | (7) | | | (139) | |
| Amounts reclassified from AOCI | 0 | | | 4 | | | 5 | | | 9 | |
| Net OCI | (91) | | | (37) | | | (2) | | | (130) | |
| Balance as of September 30, 2019 | $ | (609) | | | $ | (250) | | | $ | (119) | | | $ | (978) | |
| SDG&E: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Balance as of June 30, 2020 and September 30, 2020 | | | | | $ | (12) | | | $ | (12) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Balance as of June 30, 2019 and September 30, 2019 | | | | | $ | (11) | | | $ | (11) | |
| SoCalGas: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Balance as of June 30, 2020 and September 30, 2020 | | | $ | (13) | | | $ | (9) | | | $ | (22) | |
| | | | | | | |
| Balance as of June 30, 2019 | | | $ | (14) | | | $ | (6) | | | $ | (20) | |
| Amounts reclassified from AOCI | | | 1 | | | 0 | | | 1 | |
| Net OCI | | | 1 | | | 0 | | | 1 | |
| Balance as of September 30, 2019 | | | $ | (13) | | | $ | (6) | | | $ | (19) | |
| | | | | | | | | | | | | | | | | | | | | | | |
CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT(1) |
| (Dollars in millions) |
| | Foreign
currency
translation
adjustments | | Financial
instruments | | Pension
and other
postretirement
benefits | | Total
accumulated other
comprehensive
income (loss) |
| | Three months ended June 30, 2021 and 2020 |
Sempra(2): | | | | | | | |
| Balance at March 31, 2021 | $ | (69) | | | $ | (239) | | | $ | (91) | | | $ | (399) | |
| | | | | | | |
| OCI before reclassifications | (19) | | | (36) | | | (2) | | | (57) | |
| Amounts reclassified from AOCI | 0 | | | 10 | | | 2 | | | 12 | |
Net OCI(3) | (19) | | | (26) | | | 0 | | | (45) | |
| Balance at June 30, 2021 | $ | (88) | | | $ | (265) | | | $ | (91) | | | $ | (444) | |
| | | | | | | |
| Balance at March 31, 2020 | $ | (745) | | | $ | (350) | | | $ | (95) | | | $ | (1,190) | |
| | | | | | | |
OCI before reclassifications(4) | 17 | | | (13) | | | (14) | | | (10) | |
Amounts reclassified from AOCI(4) | 645 | | | 2 | | | 11 | | | 658 | |
| Net OCI | 662 | | | (11) | | | (3) | | | 648 | |
| Balance at June 30, 2020 | $ | (83) | | | $ | (361) | | | $ | (98) | | | $ | (542) | |
| SDG&E: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Balance at March 31, 2021 and June 30, 2021 | | | | | $ | (10) | | | $ | (10) | |
| | | | | | | |
| Balance at March 31, 2020 | | | | | $ | (16) | | | $ | (16) | |
| | | | | | | |
Amounts reclassified from AOCI(4) | | | | | 4 | | | 4 | |
| Net OCI | | | | | 4 | | | 4 | |
| Balance at June 30, 2020 | | | | | $ | (12) | | | $ | (12) | |
| SoCalGas: | | | | | | | |
| Balance at March 31, 2021 | | | $ | (13) | | | $ | (18) | | | $ | (31) | |
| | | | | | | |
| Amounts reclassified from AOCI | | | 0 | | | 1 | | | 1 | |
| Net OCI | | | 0 | | | 1 | | | 1 | |
| Balance at June 30, 2021 | | | $ | (13) | | | $ | (17) | | | $ | (30) | |
| | | | | | | |
| Balance at March 31, 2020 | | | $ | (13) | | | $ | (10) | | | $ | (23) | |
| Amounts reclassified from AOCI | | | 0 | | | 1 | | | 1 | |
| Net OCI | | | 0 | | | 1 | | | 1 | |
| Balance at June 30, 2020 | | | $ | (13) | | | $ | (9) | | | $ | (22) | |
(1) All amounts are net of income tax, if subject to tax, and exclude NCI.
(2) Includes discontinued operations in 2019.2020.
(3) Total AOCI includes $5$24 million of foreign currency translation adjustments and $14 million of financial instruments associated with purchases of NCI,the IEnova exchange offer, which we discuss below in “Other Noncontrolling Interests – Sempra Mexico,” and which does not impact the Condensed Consolidated Statement of Comprehensive Income (Loss).
(4) Pension and Other Postretirement Benefits and Total AOCI include $3 million in transfers of liabilities from SDG&E to Sempra in 2020 related to the nonqualified pension plans.
| CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT(1) (CONTINUED) | CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT(1) (CONTINUED) | CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT(1) (CONTINUED) |
| (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) |
| | | Nine months ended September 30, 2020 and 2019 | | Six months ended June 30, 2021 and 2020 |
Sempra Energy Consolidated(2): | | |
Sempra(2): | | Sempra(2): | |
| Balance as of December 31, 2020 | | Balance as of December 31, 2020 | $ | (64) | | | $ | (331) | | | $ | (105) | | | $ | (500) | |
| OCI before reclassifications(3) | | OCI before reclassifications(3) | (24) | | | 37 | | | 5 | | | 18 | |
| Amounts reclassified from AOCI | | Amounts reclassified from AOCI | 0 | | | 29 | | | 9 | | | 38 | |
Net OCI(4)(3) | | Net OCI(4)(3) | (24) | | | 66 | | | 14 | | | 56 | |
| Balance as of June 30, 2021 | | Balance as of June 30, 2021 | $ | (88) | | | $ | (265) | | | $ | (91) | | | $ | (444) | |
| | | | | | | |
| Balance as of December 31, 2019 | | Balance as of December 31, 2019 | $ | (607) | | | $ | (215) | | | $ | (117) | | | $ | (939) | |
OCI before reclassifications(4) | | OCI before reclassifications(4) | (121) | | | (167) | | | 2 | | | (286) | |
Amounts reclassified from AOCI(4) | | Amounts reclassified from AOCI(4) | 645 | | | 21 | | | 17 | | | 683 | |
| Net OCI | | Net OCI | 524 | | | (146) | | | 19 | | | 397 | |
| Balance as of June 30, 2020 | | Balance as of June 30, 2020 | $ | (83) | | | $ | (361) | | | $ | (98) | | | $ | (542) | |
| SDG&E: | | SDG&E: | |
| | Balance at December 31, 2020 and June 30, 2021 | | Balance at December 31, 2020 and June 30, 2021 | | $ | (10) | | | $ | (10) | |
| | Balance as of December 31, 2019 | Balance as of December 31, 2019 | $ | (607) | | | $ | (215) | | | $ | (117) | | | $ | (939) | | Balance as of December 31, 2019 | | $ | (16) | | | $ | (16) | |
| OCI before reclassifications(3) | (115) | | | (153) | | | (5) | | | (273) | | |
Amounts reclassified from AOCI(3) | 645 | | | 25 | | | 29 | | | 699 | | |
Net OCI(4)(3) | 530 | | | (128) | | | 24 | | | 426 | | |
| Balance as of September 30, 2020 | $ | (77) | | | $ | (343) | | | $ | (93) | | | $ | (513) | | |
| | | | | | |
| Balance as of December 31, 2018 | $ | (564) | | | $ | (82) | | | $ | (118) | | | $ | (764) | | |
| Adoption of ASU 2018-02 | 0 | | | (25) | | | (17) | | | (42) | | |
OCI before reclassifications(3) | (45) | | | (153) | | | (13) | | | (211) | | |
Amounts reclassified from AOCI(3) | 0 | | | 10 | | | 29 | | | 39 | | |
Amounts reclassified from AOCI(4) | | Amounts reclassified from AOCI(4) | | 4 | | | 4 | |
| Net OCI | Net OCI | (45) | | | (143) | | | 16 | | | (172) | | Net OCI | | 4 | | | 4 | |
| Balance as of September 30, 2019 | $ | (609) | | | $ | (250) | | | $ | (119) | | | $ | (978) | | |
| SDG&E: | | |
| Balance as of December 31, 2019 | | $ | (16) | | | $ | (16) | | |
| Amounts reclassified from AOCI(3) | | 4 | | | 4 | | |
| Net OCI | | 4 | | | 4 | | |
| Balance as of September 30, 2020 | | $ | (12) | | | $ | (12) | | |
| | Balance as of December 31, 2018 | | $ | (10) | | | $ | (10) | | |
| Adoption of ASU 2018-02 | | (2) | | | (2) | | |
| | Amounts reclassified from AOCI | | 1 | | | 1 | | |
| Net OCI | | 1 | | | 1 | | |
| Balance as of September 30, 2019 | | $ | (11) | | | $ | (11) | | |
| Balance as of June 30, 2020 | | Balance as of June 30, 2020 | | $ | (12) | | | $ | (12) | |
| SoCalGas: | SoCalGas: | | SoCalGas: | |
| Balance as of December 31, 2019 | | $ | (13) | | | $ | (10) | | | $ | (23) | | |
| Balance as of December 31, 2020 | | Balance as of December 31, 2020 | | $ | (13) | | | $ | (18) | | | $ | (31) | |
| | Amounts reclassified from AOCI | Amounts reclassified from AOCI | | 0 | | | 1 | | | 1 | | Amounts reclassified from AOCI | | 0 | | | 1 | | | 1 | |
| Net OCI | Net OCI | | 0 | | | 1 | | | 1 | | Net OCI | | 0 | | | 1 | | | 1 | |
| Balance as of September 30, 2020 | | $ | (13) | | | $ | (9) | | | $ | (22) | | |
| Balance as of June 30, 2021 | | Balance as of June 30, 2021 | | $ | (13) | | | $ | (17) | | | $ | (30) | |
| | Balance as of December 31, 2018 | | $ | (12) | | | $ | (8) | | | $ | (20) | | |
| Adoption of ASU 2018-02 | | (2) | | | (2) | | | (4) | | |
Amounts reclassified from AOCI(3) | | 1 | | | 4 | | | 5 | | |
| Balance as of December 31, 2019 | | Balance as of December 31, 2019 | | $ | (13) | | | $ | (10) | | | $ | (23) | |
| | Amounts reclassified from AOCI | | Amounts reclassified from AOCI | | 0 | | | 1 | | | 1 | |
| Net OCI | Net OCI | | 1 | | | 4 | | | 5 | | Net OCI | | 0 | | | 1 | | | 1 | |
| Balance as of September 30, 2019 | | $ | (13) | | | $ | (6) | | | $ | (19) | | |
| Balance as of June 30, 2020 | | Balance as of June 30, 2020 | | $ | (13) | | | $ | (9) | | | $ | (22) | |
(1) All amounts are net of income tax, if subject to tax, and exclude NCI.
(2) Includes discontinued operations.operations in 2020.
(3) Pension and Other Postretirement Benefits and Total AOCI include $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 $5$24 million of foreign currency translation adjustments and $14 million of financial instruments associated with purchases of NCI,the IEnova exchange offer, which we discuss below in “Other Noncontrolling Interests – Sempra Mexico,” and which does not impact the Condensed Consolidated Statement of Comprehensive Income (Loss).
(4) Pension and Other Postretirement Benefits and Total AOCI include $3 million in transfers of liabilities from SDG&E to Sempra in 2020 related to the nonqualified pension plans.
| | 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 Condensed
Consolidated Statements of Operations | Details about accumulated other
comprehensive income (loss) components | Amounts reclassified
from accumulated other
comprehensive income (loss) | | Affected line item on Condensed
Consolidated Statements of Operations |
| | | Three months ended September 30, | | | Three months ended June 30, | |
| | | 2020 | | 2019 | | | | 2021 | | 2020 | | |
| Sempra Energy Consolidated: | | | | | | |
| | Sempra: | | Sempra: | | | | | |
| Foreign currency translation adjustments | | Foreign currency translation adjustments | $ | 0 | | | $ | 645 | | | Income from Discontinued Operations, Net of Income Tax |
| | Financial instruments: | Financial instruments: | | | | | | Financial instruments: | | | | | |
Interest rate and foreign exchange instruments(1) | $ | 3 | | | $ | 1 | | | Interest Expense | |
| Interest rate instruments | | Interest rate instruments | $ | (1) | | | $ | 1 | | | Interest Expense |
| Interest rate instruments | | Interest rate instruments | 19 | | | 1 | | | Equity Earnings(1) |
| | (4) | | | 5 | | | Other Income (Expense), Net | |
| Foreign exchange instruments | | Foreign exchange instruments | 0 | | | 1 | | | Other Income (Expense), Net |
| | Interest rate and foreign exchange instruments | Interest rate and foreign exchange instruments | 5 | | | 2 | | | Equity Earnings | Interest rate and foreign exchange instruments | 0 | | | 1 | | | Interest Expense |
| | | | (7) | | | (4) | | | Other Income (Expense), Net |
| Total before income tax | Total before income tax | 4 | | | 8 | | | | Total before income tax | 11 | | | 0 | | | |
| | | 0 | | | (2) | | | Income Tax Expense | | (1) | | | 0 | | | Income Tax (Expense) Benefit |
| Net of income tax | Net of income tax | 4 | | | 6 | | | | Net of income tax | 10 | | | 0 | | | |
| | | 0 | | | (2) | | | Earnings Attributable to Noncontrolling Interests | | 0 | | | 2 | | | Earnings Attributable to Noncontrolling Interests |
| | | $ | 4 | | | $ | 4 | | | | | $ | 10 | | | $ | 2 | | | |
Pension and other postretirement benefits(2): | Pension and other postretirement benefits(2): | | | | | | Pension and other postretirement benefits(2): | | | | | |
| Amortization of actuarial loss | Amortization of actuarial loss | $ | 3 | | | $ | 3 | | | Other Income (Expense), Net | Amortization of actuarial loss | $ | 1 | | | $ | 1 | | | Other Income (Expense), Net |
| | Amortization of actuarial loss | | Amortization of actuarial loss | 0 | | | 6 | | | Income from Discontinued Operations, Net of Income Tax |
| Amortization of prior service cost | Amortization of prior service cost | 1 | | | 1 | | | Other Income (Expense), Net | Amortization of prior service cost | 1 | | | 1 | | | Other Income (Expense), Net |
| Settlement charges | Settlement charges | 13 | | | 4 | | | Other Income (Expense), Net | Settlement charges | 0 | | | 4 | | | Other Income (Expense), Net |
| Total before income tax | Total before income tax | 17 | | | 8 | | | Total before income tax | 2 | | | 12 | | |
| | | 0 | | | (2) | | | Income from Discontinued Operations, Net of Income Tax |
| | | (5) | | | (3) | | | Income Tax Expense | | 0 | | | (2) | | | Income Tax (Expense) Benefit |
| Net of income tax | Net of income tax | $ | 12 | | | $ | 5 | | | | Net of income tax | $ | 2 | | | $ | 8 | | | |
| | Total reclassifications for the period, net of tax | Total reclassifications for the period, net of tax | $ | 16 | | | $ | 9 | | | | Total reclassifications for the period, net of tax | $ | 12 | | | $ | 655 | | | |
| SDG&E: | SDG&E: | | | | | | SDG&E: | | | | | |
| Financial instruments: | | | | | | |
Interest rate instruments(1) | $ | 0 | | | $ | 1 | | | Interest Expense | |
| | | 0 | | | (1) | | | Earnings Attributable to Noncontrolling Interest | |
| Pension and other postretirement benefits(2): | | Pension and other postretirement benefits(2): | |
| Amortization of prior service cost | | Amortization of prior service cost | $ | 0 | | | $ | 1 | | | Other Income, Net |
| | Total reclassifications for the period, net of tax | Total reclassifications for the period, net of tax | $ | 0 | | | $ | 0 | | | | Total reclassifications for the period, net of tax | $ | 0 | | | $ | 1 | | | |
| SoCalGas: | SoCalGas: | | | | | | SoCalGas: | | | | | |
| Financial instruments: | | |
| Interest rate instruments | $ | 0 | | | $ | 1 | | | Interest Expense | |
| Pension and other postretirement benefits(2): | | Pension and other postretirement benefits(2): | | | | | |
| Amortization of prior service cost | | Amortization of prior service cost | $ | 1 | | | $ | 1 | | | Other Income, Net |
| | Total reclassifications for the period, net of tax | Total reclassifications for the period, net of tax | $ | 0 | | | $ | 1 | | | Total reclassifications for the period, net of tax | $ | 1 | | | $ | 1 | | |
(1) Amounts in 2019 include Otay Mesa VIE. All of SDG&E’s interest rate derivative activity relates to Otay Mesa VIE.Equity earnings at Sempra Mexico are recognized after tax.
(2) Amounts are included in the computation of net periodic benefit cost (see “Pension and Other Postretirement Benefits” above).
| | RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (CONTINUED) | RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (CONTINUED) | RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (CONTINUED) |
| (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 Condensed
Consolidated Statements of Operations | Details about accumulated other
comprehensive income (loss) components | Amounts reclassified
from accumulated other
comprehensive income (loss) | | Affected line item on Condensed
Consolidated Statements of Operations |
| | Nine months ended September 30, | | | Six months ended June 30, | |
| | 2020 | | 2019 | | | 2021 | | 2020 | |
| Sempra Energy Consolidated: | | | |
| Sempra: | | Sempra: | | |
| Foreign currency translation adjustments | Foreign currency translation adjustments | $ | 645 | | | $ | 0 | | | (Loss) Income from Discontinued Operations, Net of Income Tax | Foreign currency translation adjustments | $ | 0 | | | $ | 645 | | | Income from Discontinued Operations, Net of Income Tax |
| | Financial instruments: | Financial instruments: | | Financial instruments: | |
Interest rate and foreign exchange instruments(1) | $ | 7 | | | $ | 2 | | | Interest Expense | |
| Interest rate instruments | | Interest rate instruments | $ | 1 | | | $ | 3 | | | Interest Expense |
| Interest rate instruments | | Interest rate instruments | 38 | | | 3 | | | Equity Earnings(1) |
| Foreign exchange instruments | | Foreign exchange instruments | 1 | | | (2) | | | Revenues: Energy-Related Businesses |
| | 33 | | | 0 | | | Other Income (Expense), Net | | 0 | | | (1) | | | Other Income (Expense), Net |
| Interest rate instruments | 0 | | | 10 | | | (Loss) Gain on Sale of Assets | |
| Foreign exchange instruments | | Foreign exchange instruments | 1 | | | (2) | | | Equity Earnings(1) |
| Interest rate and foreign exchange instruments | Interest rate and foreign exchange instruments | 6 | | | 3 | | | Equity Earnings | Interest rate and foreign exchange instruments | 0 | | | 1 | | | Interest Expense |
| Foreign exchange instruments | (2) | | | 1 | | | Revenues: Energy-Related Businesses | |
| | (1) | | | 0 | | | Other Income (Expense), Net | | (1) | | | 37 | | | Other Income (Expense), Net |
| Total before income tax | Total before income tax | 43 | | | 16 | | | Total before income tax | 40 | | | 39 | | |
| | (12) | | | (3) | | | Income Tax Expense | | (9) | | | (12) | | | Income Tax (Expense) Benefit |
| Net of income tax | Net of income tax | 31 | | | 13 | | | Net of income tax | 31 | | | 27 | | |
| | (6) | | | (3) | | | Earnings Attributable to Noncontrolling Interests | | (2) | | | (6) | | | Earnings Attributable to Noncontrolling Interests |
| | $ | 25 | | | $ | 10 | | | | $ | 29 | | | $ | 21 | | |
Pension and other postretirement benefits(2): | Pension and other postretirement benefits(2): | | | | | Pension and other postretirement benefits(2): | | | | |
| Amortization of actuarial loss | Amortization of actuarial loss | $ | 6 | | | $ | 7 | | | Other Income (Expense), Net | Amortization of actuarial loss | $ | 3 | | | $ | 3 | | | Other Income (Expense), Net |
| Amortization of actuarial loss | Amortization of actuarial loss | 6 | | | 0 | | | (Loss) Income from Discontinued Operations, Net of Income Tax | Amortization of actuarial loss | 0 | | | 6 | | | Income from Discontinued Operations, Net of Income Tax |
| Amortization of prior service cost | Amortization of prior service cost | 3 | | | 2 | | | Other Income (Expense), Net | Amortization of prior service cost | 2 | | | 2 | | | Other Income (Expense), Net |
| Settlement charges | Settlement charges | 22 | | | 26 | | | Other Income (Expense), Net | Settlement charges | 7 | | | 9 | | | Other Income (Expense), Net |
| Total before income tax | Total before income tax | 37 | | | 35 | | | Total before income tax | 12 | | | 20 | | |
| | (2) | | | 0 | | | (Loss) Income from Discontinued Operations, Net of Income Tax | | 0 | | | (2) | | | Income from Discontinued Operations, Net of Income Tax |
| | (9) | | | (10) | | | Income Tax Expense | | (3) | | | (4) | | | Income Tax (Expense) Benefit |
| Net of income tax | Net of income tax | $ | 26 | | | $ | 25 | | | Net of income tax | $ | 9 | | | $ | 14 | | |
| | Total reclassifications for the period, net of tax | Total reclassifications for the period, net of tax | $ | 696 | | | $ | 35 | | | Total reclassifications for the period, net of tax | $ | 38 | | | $ | 680 | | |
| SDG&E: | SDG&E: | | | | | SDG&E: | | | | |
| Financial instruments: | | | | | |
Interest rate instruments(1) | $ | 0 | | | $ | 3 | | | Interest Expense | |
| | | 0 | | | (3) | | | Earnings Attributable to Noncontrolling Interest | |
| | $ | 0 | | | $ | 0 | | | |
Pension and other postretirement benefits(2): | Pension and other postretirement benefits(2): | | | Pension and other postretirement benefits(2): | |
| Amortization of prior service cost | Amortization of prior service cost | $ | 1 | | | $ | 1 | | | Other Income, Net | Amortization of prior service cost | $ | 0 | | | $ | 1 | | | Other Income, Net |
| | | Total reclassifications for the period, net of tax | Total reclassifications for the period, net of tax | $ | 1 | | | $ | 1 | | | | Total reclassifications for the period, net of tax | $ | 0 | | | $ | 1 | | | |
| SoCalGas: | SoCalGas: | | | | | | SoCalGas: | | | | | |
| Financial instruments: | | |
| Interest rate instruments | $ | 0 | | | $ | 1 | | | Interest Expense | |
| Pension and other postretirement benefits(2): | Pension and other postretirement benefits(2): | | | | | | Pension and other postretirement benefits(2): | | | | | |
| Amortization of prior service cost | Amortization of prior service cost | $ | 1 | | | $ | 0 | | | Other Income, Net | Amortization of prior service cost | $ | 1 | | | $ | 1 | | | Other Income, Net |
| | | Total reclassifications for the period, net of tax | Total reclassifications for the period, net of tax | $ | 1 | | | $ | 1 | | | Total reclassifications for the period, net of tax | $ | 1 | | | $ | 1 | | |
(1) Amounts in 2019 include Otay Mesa VIE. All of SDG&E’s interest rate derivative activity relates to Otay Mesa VIE.Equity earnings at Sempra Mexico are recognized after tax.
(2) Amounts are included in the computation of net periodic benefit cost (see “Pension and Other Postretirement Benefits” above).
SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS
Sempra Energy Series A 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.
Sempra Series B Preferred Stock
The terms of our series AB preferred stock require a notice to holders when the aggregate adjustment to the conversion rates at which shares of series AB preferred stock are convertible into shares of Sempra Energy common stock is more than 1%. On July 6, 2020,7, 2021, we notified the holders of the series AB 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,July 6, 2021, the ex-dividend date for such dividend, includeincluded adjustments to the minimum and maximum conversion rates and the related initial and threshold appreciation prices as shown in the following table:
| | | | | | | | |
| CONVERSION RATES |
| | |
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 AB preferred stock) |
Greater than $129.668$135.0804 (which is the adjusted threshold appreciation price) | | 0.77120.7403 shares (equal to $100.00 divided by the adjusted threshold appreciation price) |
Equal to or less than $129.668$135.0804 but greater than or equal to $105.8425$112.5746 | | Between 0.77120.7403 and 0.94480.8883 shares, determined by dividing $100.00 by the applicable market value of our common stock |
Less than $105.8425$112.5746 (which is the adjusted initial price) | | 0.94480.8883 shares (equal to $100.00 divided by the adjusted initial price) |
As of July 15, 2021, we had converted, pursuant to either early conversions at the election of the holder or the mandatory conversion of all outstanding shares, all 5,750,000 shares of series B preferred stock into an aggregate of 4,256,720 shares of our common stock and a nominal amount of cash in lieu of fractional share interests, based on a conversion rate of 0.7403 shares of our common stock for each issued and outstanding share of series B preferred stock. As a consequence, no shares of series B preferred stock were outstanding after July 15, 2021 and the 5,750,000 shares that were formerly series B preferred stock have returned to the status of authorized and unissued shares of preferred stock.
Sempra Energy Series C Preferred Stock
On June 19, 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;
▪whether or not the payment of such dividends is then permitted under California law;
▪whether or not such dividends are authorized or declared; and
▪whether or not any agreements to which we are a party prohibit the current payment of dividends, including any agreement relating to our indebtedness.
We accrue dividendsThe 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 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 of the second business day prior to such reset date, plus a spread of 4.550%, of the $1,000 liquidation preference per share.Sempra’s Condensed Consolidated Balance Sheets.
Voting Rights | | | | | | | | | | | | | | | | | | | | | | | |
| OTHER NONCONTROLLING INTERESTS |
| (Dollars in millions) | | |
| | Percent ownership held by noncontrolling interests | | Equity held by
noncontrolling interests |
| | June 30,
2021 | | December 31,
2020 | | June 30,
2021 | | December 31,
2020 |
| Sempra Mexico: | | | | | | | |
| IEnova | 3.6 | | % | 29.8 | | % | $ | 184 | | | $ | 1,487 | |
| ICM Ventures Holdings B.V. | 17.5 | | | 17.5 | | | 6 | | | 7 | |
| Sempra LNG: | | | | | | | |
| ECA LNG Phase 1 | 18.1 | | | 29.0 | | | 31 | | | 46 | |
| Parent and other: | | | | | | | |
| PXiSE Energy Solutions, LLC | 20.0 | | | 20.0 | | | 0 | | | 1 | |
| Total Sempra | | | | | $ | 221 | | | $ | 1,541 | |
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. Sempra Mexico
In addition, whenever dividends on anyMay 2021, we acquired 381,015,194 publicly held shares of series C preferred stock have not been declared and paid or have been declared but not paidIEnova in exchange 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 to fill such two12,306,777 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 outstanding series A preferred stock and 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.
Settlement of Sempra Energy Common Stock Forward Sale Agreements
In the third quarter of 2019, we received $728 million (net of underwriting discounts of $13 million) from the settlement of 7,156,185issued shares of our common stock at a forward sale priceupon completion of $101.74 relatedour exchange offer launched in the U.S. and Mexico. In addition to our January 2018 offering. We provide additional information regardingbeing traded on the New York Stock Exchange, Sempra’s common stock offering in Note 14is now also listed on the Mexican Stock Exchange under the ticker symbol SRE.MX. We acquired the IEnova shares at an exchange ratio of the Notes to Consolidated Financial Statements in the Annual Report.
Sempra Energy Common Stock Repurchases
On September 11, 2007, our board of directors authorized the repurchase of0.0323 shares of our common stock provided thatfor each one IEnova ordinary share. In connection with 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,exchange offer, 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 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 been repurchased under this authorization.
SoCalGas Preferred Stock
The preferred stock at SoCalGas is presented at Sempra Energy as a NCI. Sempra Energy records charges against income related to NCI for preferred dividends declared by SoCalGas. We provide additional information regarding preferred stock in Note 13 of the Notes to Consolidated Financial Statements in the Annual Report.
Other Noncontrolling Interests
SDG&E
As we discuss in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report, on August 23, 2019, SDG&E and Sempra Energy deconsolidated Otay Mesa VIE after SDG&E determined that it was no longer the primary beneficiary of the VIE.
Sempra Mexico
In the nine months ended September 30, 2020, IEnova repurchased 57,547,381 shares of its outstanding common stock held by NCI for $167 million, resulting inrecorded an increase in Sempra Energy’sSempra’s shareholders’ equity of $1,361 million, net of $12 million in transactions costs, and increased our ownership interest in IEnova from 66.6% at December 31, 201970.2% to 69.2% at September 30, 2020. Since October 1,96.4%.
We intend to launch a tender offer to acquire for cash the remaining 52,227,526 publicly held shares of IEnova that were not tendered in the exchange offer in the third quarter of 2021.
In the second quarter of 2020, IEnova repurchased a total of 19,575,399 shares for $64 million.
In the nine months ended September 30, 2019, IEnova repurchased 2,620,0003,694,156 shares of its outstanding common stock held by NCI for $10 million, resulting in an increase in Sempra Energy’sSempra’s ownership interest in IEnova from 66.5%66.6% at December 31, 20182019 to 66.6%66.8% at SeptemberJune 30, 2019.2020.
In the first quarter of 2020, IEnova purchased additional shares in ICM Ventures Holdings B.V. for $9 million, increasing its ownership from 53.7% to 82.5%. ICM Ventures Holdings B.V. owns certain permits and land where IEnova is building terminalsa terminal for the receipt, storage and delivery of liquid fuels.
Sempra Renewables
As we discuss On July 6, 2021, IEnova acquired the remaining 17.5% interest held by NCI in Note 5, in April 2019, Sempra Renewables sold its remaining wind assets and investments, which included its wind tax equity arrangements. The remaining ownership interest in PXiSE Energy Solutions, LLC was subsumed into Parent and other.ICM Ventures Holdings B.V. for $7 million.
Sempra LNG
In March 2020, Sempra LNG purchased for $7 million the 24.6% minority interest in Liberty Gas Storage LLC, which owns 100% of LA Storage, LLC, increasing Sempra LNG’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 LNG 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 LNG purchasedInfrastructure Partners
Sale of NCI. On April 4, 2021, Sempra and its wholly owned subsidiary, Sempra Global, entered into a purchase and contribution agreement (the Purchase Agreement) with KKR Pinnacle Aggregator L.P., an affiliate of Kohlberg Kravis Roberts & Co. L.P. (KKR), pursuant to which KKR will acquire for $20 million the 9.1% minority interest in Bay Gas immediately prioran aggregate purchase price of $3.37 billion (the Purchase Price), subject to the saleadjustments described below, newly designated Class A Units representing 20% of 100%the equity interests of Bay Gas.
Sempra Global. In preparation for closing the transaction, we are conducting an internal legal reorganization to consolidate the assets of Sempra LNG and our ownership in IEnova are jointly developingunder Sempra Global, which will be renamed Sempra Infrastructure Partners. We anticipate completing this transaction around the end of the third quarter of 2021.
As we discuss above, we currently own 96.4% of the outstanding ordinary shares of IEnova and intend to launch a proposed natural gas liquefaction project atcash tender offer to acquire the siteremaining 52,227,526 publicly held shares of IEnova’s existing ECA LNG Regasification terminal. Sempra LNG consolidatesIEnova for cash. Under the proposed ECA LNG JV liquefaction project. Thus, Sempra Energy’s NCI in IEnova’s 50% interest interms of the proposed project is reported at Sempra LNG.Purchase Agreement, to the extent we do not acquire all of the outstanding shares of IEnova prior to closing, the Purchase Price may be subject to downward adjustment based on the results of the exchange and tender offers.
We expect that Sempra Infrastructure Partners will have approximately $8.37 billion of direct and indirect net debt at the time of closing. There will be a customary adjustment to the Purchase Price to the extent Sempra Infrastructure Partners’ actual net debt at closing is greater or less than the expected amount. Direct and indirect net debt at Sempra Infrastructure Partners includes consolidated long-term and short-term debt less cash at Sempra LNG and IEnova plus their proportionate ownership share of equity method investees’ long-term and short-term debt less cash.
Pursuant to the Purchase Agreement, the parties made customary representations and warranties and agreed to various customary covenants that apply between the date the Purchase Agreement was signed and the closing. In addition, we have agreed to indemnify Sempra Infrastructure Partners for, among other things, certain losses arising from liabilities of Sempra Infrastructure Partners and its subsidiaries to the extent not primarily relating to the undertaking of the business of Sempra Infrastructure Partners, and we have agreed to indemnify KKR for losses attributable to pre-closing taxes. The consummation of the transaction is subject to receipt of regulatory approval in Mexico by the Comisión Federal de Competencia Económica (Mexico’s Competition Commission); certain other third-party approvals; the completion of our internal legal reorganization; and other customary closing conditions. We have agreed to pay at closing certain expenses KKR has incurred in connection with the transaction not to exceed $150 million. If the closing has not occurred on or before October 5, 2021, we and KKR would each have the right to unilaterally terminate the Purchase Agreement. We will be entitled to receive a reverse termination fee of $134.8 million from KKR if KKR fails to receive its financing proceeds by the closing and the transactions contemplated by the Purchase Agreement are otherwise ready to be consummated.
We have also entered into an accommodation and support agreement under which KKR, during the period beginning on the 31st day after the closing through December 31, 2025, may request one or more disbursements from Sempra up to an aggregate amount of $300 million. Any amounts disbursed will be repaid in full no later than the eighth anniversary of the date of closing and will bear compound interest at 5% per annum.
Limited Partnership Agreement. At the closing of the sale of NCI in Sempra Infrastructure Partners, Sempra will enter into a limited partnership agreement with KKR (the LP Agreement), which will govern our respective rights and obligations in respect of our ownership of Sempra Infrastructure Partners. We will maintain control of Sempra Infrastructure Partners with KKR having certain minority protections commensurate with the size of its investment, and we will own and control the general partner of Sempra Infrastructure Partners.
Sempra Infrastructure Partners will initially have 2 authorized classes of units, designated as “Class A Units” (which are common voting units) and “Sole Risk Interests.” The interests in the general partner will be owned separately by us. If KKR approves our request that a project proposed to be developed by Sempra Infrastructure Partners 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 will be permitted to proceed with such project either independently through a different investment vehicle or as a “Sole Risk Project” within Sempra Infrastructure Partners and receive Sole Risk Interests in respect thereof. Sole Risk Projects will be separated from other Sempra Infrastructure Partners projects and will be conducted at our sole cost, expense and liability and we will receive, through the acquisition of Sole Risk Interests, all economic and other benefits from any such proposed projects. KKR will not be entitled to any benefits or rights in respect of any Sole Risk Project. Upon the formation of Sempra Infrastructure Partners, the Guaymas-El Oro segment of the Sonora pipeline at IEnova will constitute a Sole Risk Project. After the closing date, KKR will have certain discretionary rights to cause the Guaymas-El Oro segment of the Sonora pipeline to cease to be a Sole Risk Project, until a specified date.
Under the LP Agreement, Sempra Infrastructure Partners’ general partner will delegate its authority to manage Sempra Infrastructure Partners to a board of managers comprised of members designated by us and by KKR. Matters will generally be decided by majority vote. The managers designated by us and the managers designated by KKR will each, as a group, have voting power equivalent to the ownership percentage of their respective designating member. However, Sempra Infrastructure Partners and its controlled subsidiaries will be prohibited from taking certain actions without the prior written approval of KKR (subject to KKR maintaining certain ownership thresholds in Sempra Infrastructure Partners).
The LP Agreement will contain certain default remedies if we or KKR fails to fund any amounts required to be funded under the LP Agreement.
The LP Agreement will also require that Sempra Infrastructure Partners distribute to us and to KKR at least 85% of distributable cash of Sempra Infrastructure Partners and its subsidiaries on a quarterly basis, subject to certain exceptions and reserves. Generally, distributions from Sempra Infrastructure Partners will be made to us and KKR on a pro rata basis in accordance with our and their respective ownership interests in Sempra Infrastructure Partners. However, KKR will be entitled to certain priority distributions in the event of material deviations between certain specified projected cash flows and actual cash flows. Additionally, KKR will be entitled to certain priority distributions in the event a specified project that has 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 positive final investment decisions by certain dates on certain 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 Sempra Infrastructure Partners and are subject to certain customary restrictions on transfers of their interests in Sempra Infrastructure Partners.
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 Condensed Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | | | | | | | |
| OTHER NONCONTROLLING INTERESTS |
| (Dollars in millions) | | |
| | Percent ownership held by noncontrolling interests | | Equity (deficit) held by
noncontrolling interests |
| | September 30,
2020 | | December 31,
2019 | | September 30,
2020 | | December 31,
2019 |
| Sempra Mexico: | | | | | | | |
| IEnova | 30.8 | | % | 33.4 | | % | $ | 1,586 | | | $ | 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 JV | 15.4 | | | 16.7 | | | 15 | | | 12 | |
| Parent and other: | | | | | | | |
| PXiSE Energy Solutions, LLC | 20.0 | | | 20.0 | | | 0 | | | 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 | | | | | $ | 1,608 | | | $ | 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.
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) |
| | | September 30,
2020 | | December 31,
2019 | | June 30,
2021 | | December 31,
2020 |
| Sempra Energy Consolidated: | | | | |
Total due from various unconsolidated affiliates – current, net of negligible allowance for credit losses at September 30, 2020(1)(2) | $ | 46 | | | $ | 32 | | |
| Sempra: | | Sempra: | | | |
| Total due from various unconsolidated affiliates – current | | Total due from various unconsolidated affiliates – current | $ | 11 | | | $ | 20 | |
| Total due from unconsolidated affiliates – noncurrent – Sempra Mexico – IMG JV – Note due March 15, 2022, net of allowance for credit losses of $3 at September 30, 2020(2)(3) | $ | 617 | | | $ | 742 | | |
Sempra Mexico(1): | | Sempra Mexico(1): | |
ESJ – Note due December 31, 2022, net of negligible allowance for credit losses at December 31, 2020(2) | | ESJ – Note due December 31, 2022, net of negligible allowance for credit losses at December 31, 2020(2) | $ | 0 | | | $ | 85 | |
IMG JV – Note due March 15, 2022, net of allowance for credit losses of $1 and $3 at June 30, 2021 and December 31, 2020, respectively(3) | | IMG JV – Note due March 15, 2022, net of allowance for credit losses of $1 and $3 at June 30, 2021 and December 31, 2020, respectively(3) | 702 | | | 695 | |
| Total due from unconsolidated affiliates – noncurrent | | Total due from unconsolidated affiliates – noncurrent | $ | 702 | | | $ | 780 | |
| Sempra Mexico – TAG Pipelines Norte, S. de. R.L. de C.V. – Note due December 20, 2021(1)(4) | | Sempra Mexico – TAG Pipelines Norte, S. de. R.L. de C.V. – Note due December 20, 2021(1)(4) | $ | (42) | | | $ | (41) | |
| Various affiliates | | Various affiliates | 0 | | | (4) | |
| Total due to various unconsolidated affiliates – current | Total due to various unconsolidated affiliates – current | $ | (6) | | | $ | (5) | | Total due to various unconsolidated affiliates – current | $ | (42) | | | $ | (45) | |
| Sempra Mexico(2): | | |
Sempra Mexico(1)(5): | | Sempra Mexico(1)(5): | |
| TAG Pipelines Norte, S. de. R.L. de C.V.: | 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(4) | $ | (41) | | | $ | (39) | | |
5.5% Note due January 9, 2024(5) | (67) | | | 0 | | |
TAG JV – 5.74% Note due December 17, 2029(5) | (163) | | | (156) | | |
| 5.5% Note due January 9, 2024 | | 5.5% Note due January 9, 2024 | $ | (70) | | | $ | (68) | |
| 5.5% Note due January 14, 2025 | | 5.5% Note due January 14, 2025 | (21) | | | 0 | |
| TAG JV – 5.74% Note due December 17, 2029 | | TAG JV – 5.74% Note due December 17, 2029 | (171) | | | (166) | |
| Total due to unconsolidated affiliates – noncurrent | Total due to unconsolidated affiliates – noncurrent | $ | (271) | | | $ | (195) | | Total due to unconsolidated affiliates – noncurrent | $ | (262) | | | $ | (234) | |
| SDG&E: | SDG&E: | | | | SDG&E: | | | |
| | Sempra | | Sempra | $ | (22) | | | $ | (38) | |
| SoCalGas | SoCalGas | $ | 2 | | | $ | 0 | | SoCalGas | (12) | | | (21) | |
| Various affiliates | 1 | | | 0 | | |
| Total due from unconsolidated affiliates – current | $ | 3 | | | $ | 0 | | |
| | Sempra Energy | $ | (56) | | | $ | (37) | | |
| SoCalGas | 0 | | | (10) | | |
| Various affiliates | Various affiliates | (5) | | | (6) | | Various affiliates | (10) | | | (5) | |
| Total due to unconsolidated affiliates – current | Total due to unconsolidated affiliates – current | $ | (61) | | | $ | (53) | | Total due to unconsolidated affiliates – current | $ | (44) | | | $ | (64) | |
| Income taxes due from Sempra Energy(6) | $ | 25 | | | $ | 130 | | |
Income taxes due from Sempra(6) | | Income taxes due from Sempra(6) | $ | 21 | | | $ | 0 | |
| SoCalGas: | SoCalGas: | | | | SoCalGas: | | | |
| SDG&E | SDG&E | $ | 0 | | | $ | 10 | | SDG&E | $ | 12 | | | $ | 21 | |
| Various affiliates | Various affiliates | 1 | | | 1 | | Various affiliates | 1 | | | 1 | |
| Total due from unconsolidated affiliates – current | Total due from unconsolidated affiliates – current | $ | 1 | | | $ | 11 | | Total due from unconsolidated affiliates – current | $ | 13 | | | $ | 22 | |
| | Sempra Energy | $ | (49) | | | $ | (45) | | |
| SDG&E | (2) | | | 0 | | |
| Sempra | | Sempra | $ | (36) | | | $ | (31) | |
| Pacific Enterprises | Pacific Enterprises | (50) | | | 0 | | Pacific Enterprises | (25) | | | 0 | |
| Various affiliates | 0 | | | (2) | | |
| | Total due to unconsolidated affiliates – current | Total due to unconsolidated affiliates – current | $ | (101) | | | $ | (47) | | Total due to unconsolidated affiliates – current | $ | (61) | | | $ | (31) | |
| Income taxes due from Sempra Energy(6) | $ | 20 | | | $ | 152 | | |
Income taxes due to Sempra(6) | | Income taxes due to Sempra(6) | $ | (39) | | | $ | (37) | |
(1) Amount at September 30, 2020 includes $25 million of outstandingAmounts include principal and a negligible amount of accruedbalances plus accumulated interest receivable from a outstanding.
(2) U.S. dollar-denominated loan from IEnova to ESJ at a variable interest rate based on 1-month LIBOR plus 196 bps (2.12%(2.11% at September 30, 2020) with a maturity date of December 31, 2020. Pursuant to the agreement, if ESJ is unable to meet certain conditions for an expansion project by2020). At December 31, 2020, $1 million of accrued interest receivable is included in Due from Unconsolidated Affiliates – Current. In March 2021, IEnova acquired the 50% equity interest in ESJ that it did not already own and ESJ havebecame a wholly owned, consolidated subsidiary, resulting in the option to convert the loan to a 10-year note.
(2) Amounts include principal balances plus accumulated interest outstanding.elimination of this note receivable.
(3) Mexican peso-denominated revolving line of credit for up to 14.2 billion Mexican pesos or approximately $641$711 million U.S. dollar-equivalent at June 30, 2021, at a variable interest rate based on the 91-day Interbank Equilibrium Interest Rate plus 220 bps (6.75%(6.79% at SeptemberJune 30, 2020)2021), to finance construction of a natural gas marine pipeline. At Septemberboth June 30, 2021 and December 31, 2020, $2 million of accrued interest receivable is included in Due from Unconsolidated Affiliates – Current. At June 30, 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) U.S. dollar-denominated loan at a variable interest rate based on 6-month LIBOR plus 290 bps (3.16%(3.06% at SeptemberJune 30, 2020)2021).
(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 revenues and cost of salesincome statement information from unconsolidated affiliates.
| | | | | | | | | | | | | | | | | | | | | | | |
| REVENUES AND COST OF SALES FROM UNCONSOLIDATED AFFILIATES | | | | |
| (Dollars in millions) | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Revenues: | | | | | | | |
| Sempra Energy Consolidated | $ | 9 | | | $ | 13 | | | $ | 31 | | | $ | 40 | |
| SDG&E | 1 | | | 2 | | | 4 | | | 5 | |
| SoCalGas | 23 | | | 16 | | | 61 | | | 50 | |
| Cost of Sales: | | | | | | | |
| Sempra Energy Consolidated | $ | 9 | | | $ | 12 | | | $ | 35 | | | $ | 40 | |
| SDG&E | 17 | | | 16 | | | 56 | | | 56 | |
| SoCalGas | 2 | | | 2 | | | 2 | | | 6 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| INCOME STATEMENT IMPACT FROM UNCONSOLIDATED AFFILIATES | | | | |
| (Dollars in millions) | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Sempra: | | | | | | | |
| Revenues | $ | 7 | | | $ | 10 | | | $ | 15 | | | $ | 22 | |
| Cost of sales | 0 | | | 15 | | | 11 | | | 26 | |
| Interest income | 12 | | | 15 | | | 27 | | | 32 | |
| Interest expense | 3 | | | 4 | | | 7 | | | 7 | |
| SDG&E: | | | | | | | |
| Revenues | $ | 2 | | | $ | 2 | | | $ | 4 | | | $ | 3 | |
| Cost of sales | 27 | | | 22 | | | 55 | | | 39 | |
| SoCalGas: | | | | | | | |
| Revenues | $ | 23 | | | $ | 20 | | | $ | 48 | | | $ | 38 | |
| Cost of sales | 0 | | | 0 | | | 3 | | | 0 | |
Guarantees
Sempra Energy has provided guarantees related to Cameron LNG JV,JV’s construction-period debt, which were terminated in March 2021, as wewell as guarantees related to Cameron LNG JV’s SDSRA and CFIN’s Support Agreement, which remain outstanding. We discuss these guarantees in Note 6 below and in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report.
OTHER INCOME (EXPENSE), NET
Other Income (Expense)income (expense), Net, on the Condensed Consolidated Statements of Operationsnet, consists of the following:
| | OTHER INCOME (EXPENSE), NET | OTHER INCOME (EXPENSE), NET | | | | | | | OTHER INCOME (EXPENSE), NET | | | | | | |
| (Dollars in millions) | (Dollars in millions) | | | | | | | | (Dollars in millions) | | | | | | |
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended June 30, | | Six months ended June 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Sempra Energy Consolidated: | | | | | | | | |
| Sempra: | | Sempra: | | | | | | | |
| Allowance for equity funds used during construction | Allowance for equity funds used during construction | $ | 34 | | | $ | 25 | | | $ | 96 | | | $ | 69 | | Allowance for equity funds used during construction | $ | 34 | | | $ | 31 | | | $ | 72 | | | $ | 62 | |
Investment gains(1) | 16 | | | 9 | | | 9 | | | 46 | | |
Investment gains (losses)(1) | | Investment gains (losses)(1) | 19 | | | 30 | | | 28 | | | (7) | |
| Gains (losses) on interest rate and foreign exchange instruments, net | Gains (losses) on interest rate and foreign exchange instruments, net | 19 | | | (17) | | | (129) | | | 7 | | Gains (losses) on interest rate and foreign exchange instruments, net | 7 | | | 5 | | | (23) | | | (148) | |
Foreign currency transaction gains (losses), net(2) | Foreign currency transaction gains (losses), net(2) | 15 | | | (13) | | | (95) | | | (2) | | Foreign currency transaction gains (losses), net(2) | 26 | | | 13 | | | 7 | | | (110) | |
| Non-service component of net periodic benefit cost | (48) | | | (13) | | | (45) | | | (19) | | |
| Fine related to Energy Efficiency Program inquiry | (6) | | | 0 | | | (6) | | | 0 | | |
| Penalties related to billing practices OII | 0 | | | 0 | | | 0 | | | (8) | | |
| Non-service component of net periodic benefit (cost) credit | | Non-service component of net periodic benefit (cost) credit | (15) | | | (23) | | | 14 | | | 3 | |
| Interest on regulatory balancing accounts, net | Interest on regulatory balancing accounts, net | 0 | | | 4 | | | 13 | | | 9 | | Interest on regulatory balancing accounts, net | 2 | | | 11 | | | 3 | | | 13 | |
| Sundry, net | Sundry, net | (1) | | | (2) | | | (6) | | | 1 | | Sundry, net | (1) | | | (5) | | | 6 | | | (5) | |
| Total | Total | $ | 29 | | | $ | (7) | | | $ | (163) | | | $ | 103 | | Total | $ | 72 | | | $ | 62 | | | $ | 107 | | | $ | (192) | |
| SDG&E: | SDG&E: | | | | | | | | SDG&E: | | | | | | | |
| Allowance for equity funds used during construction | Allowance for equity funds used during construction | $ | 21 | | | $ | 15 | | | $ | 61 | | | $ | 42 | | Allowance for equity funds used during construction | $ | 22 | | | $ | 19 | | | $ | 45 | | | $ | 40 | |
| Non-service component of net periodic benefit (cost) credit | Non-service component of net periodic benefit (cost) credit | (18) | | | — | | | (15) | | | 8 | | Non-service component of net periodic benefit (cost) credit | (4) | | | (5) | | | 5 | | | 3 | |
| Fine related to Energy Efficiency Program inquiry | (6) | | | 0 | | | (6) | | | 0 | | |
| Interest on regulatory balancing accounts, net | Interest on regulatory balancing accounts, net | 0 | | | 4 | | | 8 | | | 10 | | Interest on regulatory balancing accounts, net | 2 | | | 6 | | | 3 | | | 8 | |
| Sundry, net | Sundry, net | 1 | | | 0 | | | (1) | | | 0 | | Sundry, net | 2 | | | (2) | | | 4 | | | (2) | |
| Total | Total | $ | (2) | | | $ | 19 | | | $ | 47 | | | $ | 60 | | Total | $ | 22 | | | $ | 18 | | | $ | 57 | | | $ | 49 | |
| SoCalGas: | SoCalGas: | | | | | | | SoCalGas: | | | | | | |
| Allowance for equity funds used during construction | Allowance for equity funds used during construction | $ | 11 | | | $ | 9 | | | $ | 29 | | | $ | 25 | | Allowance for equity funds used during construction | $ | 11 | | | $ | 10 | | | $ | 23 | | | $ | 18 | |
| Non-service component of net periodic benefit (cost) credit | Non-service component of net periodic benefit (cost) credit | (15) | | | (5) | | | (3) | | | 9 | | Non-service component of net periodic benefit (cost) credit | (9) | | | (13) | | | 19 | | | 12 | |
| Penalties related to billing practices OII | 0 | | | 0 | | | 0 | | | (8) | | |
| Interest on regulatory balancing accounts, net | Interest on regulatory balancing accounts, net | 0 | | | 0 | | | 5 | | | (1) | | Interest on regulatory balancing accounts, net | 0 | | | 5 | | | 0 | | | 5 | |
| Sundry, net | Sundry, net | (3) | | | (3) | | | (10) | | | (7) | | Sundry, net | (4) | | | (4) | | | (5) | | | (7) | |
| Total | Total | $ | (7) | | | $ | 1 | | | $ | 21 | | | $ | 18 | | Total | $ | (2) | | | $ | (2) | | | $ | 37 | | | $ | 28 | |
(1) Represents investment gains (losses) on dedicated assets in support of our executive retirement and deferred compensation plans. These amounts are partially offset by corresponding changes in compensation expense related to the plans, recorded in O&M on the Condensed Consolidated Statements of Operations.
(2)Includes gains of $15$28 million and losses of $120$5 million in the three months and ninesix months ended SeptemberJune 30, 2020,2021, respectively, and gains of $14 million and losses of $17$135 million and a negligible amount in the three months and ninesix months ended SeptemberJune 30, 2019,2020, respectively, 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 Condensed Consolidated Statements of Operations.
INCOME TAXES
We provide our calculations of ETRs in the following table.
| | | | | | | | | | | | | | | | | | | | | | | |
| INCOME TAX EXPENSE (BENEFIT) AND EFFECTIVE INCOME TAX RATES |
| (Dollars in millions) |
| Three months ended September 30, | | Nine months ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| Sempra Energy Consolidated: | | | | | | | |
| Income tax expense from continuing operations | $ | 99 | | | $ | 61 | | | $ | 60 | | | $ | 150 | |
| | | | | | | |
Income from continuing operations before income taxes and equity earnings | $ | 201 | | | $ | 448 | | | $ | 1,061 | | | $ | 1,235 | |
Equity earnings, before income tax(1) | 117 | | | 17 | | | 158 | | | 24 | |
| Pretax income | $ | 318 | | | $ | 465 | | | $ | 1,219 | | | $ | 1,259 | |
| | | | | | | |
| Effective income tax rate | 31 | % | | 13 | % | | 5 | % | | 12 | % |
| SDG&E: | | | | | | | |
| Income tax expense | $ | 33 | | | $ | 71 | | | $ | 161 | | | $ | 111 | |
| Income before income taxes | $ | 211 | | | $ | 337 | | | $ | 794 | | | $ | 700 | |
| Effective income tax rate | 16 | % | | 21 | % | | 20 | % | | 16 | % |
| SoCalGas: | | | | | | | |
| Income tax (benefit) expense | $ | (6) | | | $ | 35 | | | $ | 95 | | | $ | 50 | |
| (Loss) income before income taxes | $ | (30) | | | $ | 178 | | | $ | 521 | | | $ | 488 | |
| Effective income tax rate | 20 | % | | 20 | % | | 18 | % | | 10 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| INCOME TAX EXPENSE (BENEFIT) AND EFFECTIVE INCOME TAX RATES |
| (Dollars in millions) |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Sempra: | | | | | | | |
| Income tax expense (benefit) from continuing operations | $ | 139 | | | $ | 168 | | | $ | 297 | | | $ | (39) | |
| | | | | | | |
Income from continuing operations before income taxes and equity earnings | $ | 281 | | | $ | 463 | | | $ | 1,049 | | | $ | 860 | |
Equity earnings, before income tax(1) | 185 | | | 84 | | | 320 | | | 41 | |
| Pretax income | $ | 466 | | | $ | 547 | | | $ | 1,369 | | | $ | 901 | |
| | | | | | | |
| Effective income tax rate | 30 | % | | 31 | % | | 22 | % | | (4) | % |
| SDG&E: | | | | | | | |
| Income tax expense | $ | 33 | | | $ | 70 | | | $ | 78 | | | $ | 128 | |
| Income before income taxes | $ | 219 | | | $ | 263 | | | $ | 476 | | | $ | 583 | |
| Effective income tax rate | 15 | % | | 27 | % | | 16 | % | | 22 | % |
| SoCalGas: | | | | | | | |
| Income tax expense | $ | 8 | | | $ | 49 | | | $ | 102 | | | $ | 101 | |
| Income before income taxes | $ | 103 | | | $ | 196 | | | $ | 604 | | | $ | 551 | |
| Effective income tax rate | 8 | % | | 25 | % | | 17 | % | | 18 | % |
(1) We discuss how we recognize equity earnings in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report.
Sempra, Energy, SDG&E and SoCalGas record income taxes for interim periods utilizing a forecasted ETR anticipated for the full year. Unusual and infrequent items and items that cannot be reliably estimated are recorded in the interim period in which they occur, which can result in variability in the ETR.
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 Mexico 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 partiallywere offset by net gains (losses) from foreign currency derivatives that arewere hedging Sempra Mexico parent’s exposure to movements in the MexicoMexican peso from its controlling interest in IEnova.
In the nine months ended September 30, 2019, SDG&E and SoCalGas recorded income tax benefits of $31 million and $38 million, respectively, 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.
Discontinued Operations
In January 2019, our board of directors approved a plan to sell our South American businesses and webusinesses. 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 assertasserted indefinite reinvestment of basis differences related to these basis differences.businesses. Accordingly, in the ninesix months ended SeptemberJune 30, 2020, we recorded the followinga $7 million income tax impactsbenefit from changes in outside basis differences in our discontinued operations in South America: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. The amount is comprised of $103 million of income tax expense recorded in the first quarter of 2019, which was then reduced by $192 million in the third quarter of 2019 as a result of a change in the anticipated structure of the sale; and
▪$7 million income tax benefit in 2020 compared to $32 million income tax expense in 2019 related to changes in outside basis differences from earnings and foreign currency effects since January 25, 2019.
We have not changed our indefinite reinvestment assertion or repatriation plan for our continuing international operations during 2020.
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, 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 or 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 |
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 will apply the standard on a prospective basis to our goodwill impairment tests.
ASU 2019-12, “Simplifying the Accounting for Income Taxes”: ASU 2019-12 simplifies certain areas of accounting for income taxes. In addition to other changes, this standard amends ASC 740, “Income Taxes,” as follows:
▪removes the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, including discontinued operations or other comprehensive income;
▪simplifies the recognition of deferred taxes related to basis differences as a result of ownership changes in investments;
▪specifies an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements; and
▪requires an entity to reflect the effect of an enacted change in tax laws or rates in the annual ETR computation in the interim period that includes the enactment date.
For public entities, ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods therein, with early adoption permitted. The transition method related to the amendments made by ASU 2019-12 varies based on the nature of the change. We will adopt the standard on January 1, 2021 and do not expect it will have a material impact on our financial statements.
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 that is affected or expected to be affected by reference rate reform. ASU 2020-04 is 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 ASC 260, “Earnings Per Share,” as follows:
▪requires an entity to apply the if-converted method when calculating diluted EPS for convertible instruments and no longer use the treasury stock method, which was previously allowed for certain convertible instruments;
▪requires 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.
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. 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 to adopt the standard on January 1, 2022 and are currently evaluating the effect of the standard on our ongoing financial reporting and have not yet selected the year in which we will adopt the standard.reporting.
NOTE 3. REVENUES
We discuss revenue recognition for revenues from contracts with customers and from sources other than contracts with customers in Note 3 of the Notes to Consolidated Financial Statements in the Annual Report.
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 for 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 three months and nine months ended September 30, 2020.
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 | | Consolidating adjustments and Parent and Other | | Sempra Energy Consolidated |
| Three months ended September 30, 2020 |
| By major service line: | | | | | | | | | | | | | |
| Utilities | $ | 1,301 | | | $ | 813 | | | $ | 12 | | | | | $ | 0 | | | $ | (25) | | | $ | 2,101 | |
| Energy-related businesses | 0 | | | 0 | | | 244 | | | | | 35 | | | (32) | | | 247 | |
| Revenues from contracts with customers | $ | 1,301 | | | $ | 813 | | | $ | 256 | | | | | $ | 35 | | | $ | (57) | | | $ | 2,348 | |
| | | | | | | | | | | | | |
| By market: | | | | | | | | | | | | | |
| Gas | $ | 126 | | | $ | 813 | | | $ | 159 | | | | | $ | 33 | | | $ | (54) | | | $ | 1,077 | |
| Electric | 1,175 | | | 0 | | | 97 | | | | | 2 | | | (3) | | | 1,271 | |
| Revenues from contracts with customers | $ | 1,301 | | | $ | 813 | | | $ | 256 | | | | | $ | 35 | | | $ | (57) | | | $ | 2,348 | |
| | | | | | | | | | | | | |
| Revenues from contracts with customers | $ | 1,301 | | | $ | 813 | | | $ | 256 | | | | | $ | 35 | | | $ | (57) | | | $ | 2,348 | |
| Utilities regulatory revenues | 171 | | | 29 | | | 0 | | | | | 0 | | | 0 | | | 200 | |
| Other revenues | 0 | | | 0 | | | 95 | | | | | 28 | | | (27) | | | 96 | |
| Total revenues | $ | 1,472 | | | $ | 842 | | | $ | 351 | | | | | $ | 63 | | | $ | (84) | | | $ | 2,644 | |
| | | | | | | | | | | | | |
| | Nine months ended September 30, 2020 |
| By major service line: | | | | | | | | | | | | | |
| Utilities | $ | 3,610 | | | $ | 3,261 | | | $ | 42 | | | | | $ | 0 | | | $ | (66) | | | $ | 6,847 | |
| Energy-related businesses | 0 | | | 0 | | | 616 | | | | | 56 | | | (40) | | | 632 | |
| Revenues from contracts with customers | $ | 3,610 | | | $ | 3,261 | | | $ | 658 | | | | | $ | 56 | | | $ | (106) | | | $ | 7,479 | |
| | | | | | | | | | | | | |
| By market: | | | | | | | | | | | | | |
| Gas | $ | 518 | | | $ | 3,261 | | | $ | 439 | | | | | $ | 51 | | | $ | (98) | | | $ | 4,171 | |
| Electric | 3,092 | | | 0 | | | 219 | | | | | 5 | | | (8) | | | 3,308 | |
| Revenues from contracts with customers | $ | 3,610 | | | $ | 3,261 | | | $ | 658 | | | | | $ | 56 | | | $ | (106) | | | $ | 7,479 | |
| | | | | | | | | | | | | |
| Revenues from contracts with customers | $ | 3,610 | | | $ | 3,261 | | | $ | 658 | | | | | $ | 56 | | | $ | (106) | | | $ | 7,479 | |
| Utilities regulatory revenues | 366 | | | (14) | | | 0 | | | | | 0 | | | 0 | | | 352 | |
| Other revenues | 0 | | | 0 | | | 277 | | | | | 199 | | | (108) | | | 368 | |
| Total revenues | $ | 3,976 | | | $ | 3,247 | | | $ | 935 | | | | | $ | 255 | | | $ | (214) | | | $ | 8,199 | |
| | DISAGGREGATED REVENUES (CONTINUED) | |
| DISAGGREGATED REVENUES | | DISAGGREGATED REVENUES |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | SDG&E | | SoCalGas | | Sempra Mexico | | Sempra Renewables | | Sempra LNG | | Consolidating adjustments and Parent and other | | Sempra Energy Consolidated | | SDG&E | | SoCalGas | | Sempra Mexico | | Sempra LNG | | Consolidating adjustments and Parent and Other | | Sempra |
| | Three months ended September 30, 2019 | | Three months ended June 30, 2021 |
| By major service line: | By major service line: | | By major service line: | |
| Utilities | Utilities | $ | 1,370 | | | $ | 765 | | | $ | 14 | | | $ | 0 | | | $ | 0 | | | $ | (18) | | | $ | 2,131 | | Utilities | $ | 1,170 | | | $ | 1,062 | | | $ | 17 | | | $ | 0 | | | $ | (25) | | | $ | 2,224 | |
| Energy-related businesses | Energy-related businesses | 0 | | | 0 | | | 242 | | | 0 | | | 50 | | | (40) | | | 252 | | Energy-related businesses | 0 | | | 0 | | | 254 | | | 48 | | | (56) | | | 246 | |
| Revenues from contracts with customers | Revenues from contracts with customers | $ | 1,370 | | | $ | 765 | | | $ | 256 | | | $ | 0 | | | $ | 50 | | | $ | (58) | | | $ | 2,383 | | Revenues from contracts with customers | $ | 1,170 | | | $ | 1,062 | | | $ | 271 | | | $ | 48 | | | $ | (81) | | | $ | 2,470 | |
| | By market: | By market: | | By market: | |
| Gas | Gas | $ | 100 | | | $ | 765 | | | $ | 171 | | | $ | 0 | | | $ | 48 | | | $ | (55) | | | $ | 1,029 | | Gas | $ | 162 | | | $ | 1,062 | | | $ | 180 | | | $ | 47 | | | $ | (66) | | | $ | 1,385 | |
| Electric | Electric | 1,270 | | | 0 | | | 85 | | | 0 | | | 2 | | | (3) | | | 1,354 | | Electric | 1,008 | | | 0 | | | 91 | | | 1 | | | (15) | | | 1,085 | |
| Revenues from contracts with customers | Revenues from contracts with customers | $ | 1,370 | | | $ | 765 | | | $ | 256 | | | $ | 0 | | | $ | 50 | | | $ | (58) | | | $ | 2,383 | | Revenues from contracts with customers | $ | 1,170 | | | $ | 1,062 | | | $ | 271 | | | $ | 48 | | | $ | (81) | | | $ | 2,470 | |
| | Revenues from contracts with customers | Revenues from contracts with customers | $ | 1,370 | | | $ | 765 | | | $ | 256 | | | $ | 0 | | | $ | 50 | | | $ | (58) | | | $ | 2,383 | | Revenues from contracts with customers | $ | 1,170 | | | $ | 1,062 | | | $ | 271 | | | $ | 48 | | | $ | (81) | | | $ | 2,470 | |
| Utilities regulatory revenues | Utilities regulatory revenues | 57 | | | 210 | | | 0 | | | 0 | | | 0 | | | 0 | | | 267 | | Utilities regulatory revenues | 148 | | | 62 | | | 0 | | | 0 | | | 0 | | | 210 | |
| Other revenues | Other revenues | 0 | | | 0 | | | 101 | | | 0 | | | 50 | | | (43) | | | 108 | | Other revenues | 0 | | | 0 | | | 133 | | | 4 | | | (76) | | | 61 | |
| Total revenues | Total revenues | $ | 1,427 | | | $ | 975 | | | $ | 357 | | | $ | 0 | | | $ | 100 | | | $ | (101) | | | $ | 2,758 | | Total revenues | $ | 1,318 | | | $ | 1,124 | | | $ | 404 | | | $ | 52 | | | $ | (157) | | | $ | 2,741 | |
| | | | Nine months ended September 30, 2019 | | Six months ended June 30, 2021 |
| By major service line: | By major service line: | | By major service line: | |
| Utilities | Utilities | $ | 3,604 | | | $ | 3,170 | | | $ | 56 | | | $ | 0 | | | $ | 0 | | | $ | (56) | | | $ | 6,774 | | Utilities | $ | 2,386 | | | $ | 2,719 | | | $ | 44 | | | $ | 0 | | | $ | (52) | | | $ | 5,097 | |
| Energy-related businesses | Energy-related businesses | 0 | | | 0 | | | 701 | | | 5 | | | 139 | | | (113) | | | 732 | | Energy-related businesses | 0 | | | 0 | | | 535 | | | 116 | | | (137) | | | 514 | |
| Revenues from contracts with customers | Revenues from contracts with customers | $ | 3,604 | | | $ | 3,170 | | | $ | 757 | | | $ | 5 | | | $ | 139 | | | $ | (169) | | | $ | 7,506 | | Revenues from contracts with customers | $ | 2,386 | | | $ | 2,719 | | | $ | 579 | | | $ | 116 | | | $ | (189) | | | $ | 5,611 | |
| | By market: | By market: | | By market: | |
| Gas | Gas | $ | 441 | | | $ | 3,170 | | | $ | 527 | | | $ | 0 | | | $ | 134 | | | $ | (160) | | | $ | 4,112 | | Gas | $ | 435 | | | $ | 2,719 | | | $ | 404 | | | $ | 114 | | | $ | (169) | | | $ | 3,503 | |
| Electric | Electric | 3,163 | | | 0 | | | 230 | | | 5 | | | 5 | | | (9) | | | 3,394 | | Electric | 1,951 | | | 0 | | | 175 | | | 2 | | | (20) | | | 2,108 | |
| Revenues from contracts with customers | Revenues from contracts with customers | $ | 3,604 | | | $ | 3,170 | | | $ | 757 | | | $ | 5 | | | $ | 139 | | | $ | (169) | | | $ | 7,506 | | Revenues from contracts with customers | $ | 2,386 | | | $ | 2,719 | | | $ | 579 | | | $ | 116 | | | $ | (189) | | | $ | 5,611 | |
| | Revenues from contracts with customers | Revenues from contracts with customers | $ | 3,604 | | | $ | 3,170 | | | $ | 757 | | | $ | 5 | | | $ | 139 | | | $ | (169) | | | $ | 7,506 | | Revenues from contracts with customers | $ | 2,386 | | | $ | 2,719 | | | $ | 579 | | | $ | 116 | | | $ | (189) | | | $ | 5,611 | |
| Utilities regulatory revenues | Utilities regulatory revenues | 62 | | | (28) | | | 0 | | | 0 | | | 0 | | | 0 | | | 34 | | Utilities regulatory revenues | 269 | | | (87) | | | 0 | | | 0 | | | 0 | | | 182 | |
| Other revenues | Other revenues | 0 | | | 0 | | | 301 | | | 5 | | | 188 | | | (148) | | | 346 | | Other revenues | 0 | | | 0 | | | 192 | | | 132 | | | (117) | | | 207 | |
| Total revenues | Total revenues | $ | 3,666 | | | $ | 3,142 | | | $ | 1,058 | | | $ | 10 | | | $ | 327 | | | $ | (317) | | | $ | 7,886 | | Total revenues | $ | 2,655 | | | $ | 2,632 | | | $ | 771 | | | $ | 248 | | | $ | (306) | | | $ | 6,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| DISAGGREGATED REVENUES (CONTINUED) |
| (Dollars in millions) |
| SDG&E | | SoCalGas | | Sempra Mexico | | Sempra LNG | | Consolidating adjustments and Parent and other | | Sempra |
| Three months ended June 30, 2020 |
| By major service line: | | | | | | | | | | | |
| Utilities | $ | 1,050 | | | $ | 904 | | | $ | 10 | | | $ | 0 | | | $ | (22) | | | $ | 1,942 | |
| Energy-related businesses | 0 | | | 0 | | | 174 | | | 9 | | | (1) | | | 182 | |
| Revenues from contracts with customers | $ | 1,050 | | | $ | 904 | | | $ | 184 | | | $ | 9 | | | $ | (23) | | | $ | 2,124 | |
| | | | | | | | | | | |
| By market: | | | | | | | | | | | |
| Gas | $ | 138 | | | $ | 904 | | | $ | 133 | | | $ | 7 | | | $ | (21) | | | $ | 1,161 | |
| Electric | 912 | | | 0 | | | 51 | | | 2 | | | (2) | | | 963 | |
| Revenues from contracts with customers | $ | 1,050 | | | $ | 904 | | | $ | 184 | | | $ | 9 | | | $ | (23) | | | $ | 2,124 | |
| | | | | | | | | | | |
| Revenues from contracts with customers | $ | 1,050 | | | $ | 904 | | | $ | 184 | | | $ | 9 | | | $ | (23) | | | $ | 2,124 | |
| Utilities regulatory revenues | 185 | | | 106 | | | 0 | | | 0 | | | 0 | | | 291 | |
| Other revenues | 0 | | | 0 | | | 91 | | | 60 | | | (40) | | | 111 | |
| Total revenues | $ | 1,235 | | | $ | 1,010 | | | $ | 275 | | | $ | 69 | | | $ | (63) | | | $ | 2,526 | |
| | | | | | | | | | | |
| | Six months ended June 30, 2020 |
| By major service line: | | | | | | | | | | | |
| Utilities | $ | 2,309 | | | $ | 2,448 | | | $ | 30 | | | $ | 0 | | | $ | (41) | | | $ | 4,746 | |
| Energy-related businesses | 0 | | | 0 | | | 372 | | | 21 | | | (8) | | | 385 | |
| Revenues from contracts with customers | $ | 2,309 | | | $ | 2,448 | | | $ | 402 | | | $ | 21 | | | $ | (49) | | | $ | 5,131 | |
| | | | | | | | | | | |
| By market: | | | | | | | | | | | |
| Gas | $ | 392 | | | $ | 2,448 | | | $ | 280 | | | $ | 18 | | | $ | (44) | | | $ | 3,094 | |
| Electric | 1,917 | | | 0 | | | 122 | | | 3 | | | (5) | | | 2,037 | |
| Revenues from contracts with customers | $ | 2,309 | | | $ | 2,448 | | | $ | 402 | | | $ | 21 | | | $ | (49) | | | $ | 5,131 | |
| | | | | | | | | | | |
| Revenues from contracts with customers | $ | 2,309 | | | $ | 2,448 | | | $ | 402 | | | $ | 21 | | | $ | (49) | | | $ | 5,131 | |
| Utilities regulatory revenues | 195 | | | (43) | | | 0 | | | 0 | | | 0 | | | 152 | |
| Other revenues | 0 | | | 0 | | | 182 | | | 171 | | | (81) | | | 272 | |
| Total revenues | $ | 2,504 | | | $ | 2,405 | | | $ | 584 | | | $ | 192 | | | $ | (130) | | | $ | 5,555 | |
Remaining Performance Obligations
For contracts greater than one year, at SeptemberJune 30, 2020,2021, we expect to recognize revenue related to the fixed fee component of the consideration as shown below. SoCalGas did not have any such remaining performance obligations at SeptemberJune 30, 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 |
| 2020 (excluding first nine months of 2020) | $ | 88 | | | $ | 1 | | |
| 2021 | 388 | | | 4 | | |
| 2021 (excluding first six months of 2021) | | 2021 (excluding first six months of 2021) | $ | 180 | | | $ | 2 | |
| 2022 | 2022 | 406 | | | 4 | | 2022 | 406 | | | 4 | |
| 2023 | 2023 | 407 | | | 4 | | 2023 | 407 | | | 4 | |
| 2024 | 2024 | 348 | | | 4 | | 2024 | 351 | | | 4 | |
| 2025 | | 2025 | 351 | | | 4 | |
| Thereafter | Thereafter | 4,712 | | | 71 | | Thereafter | 4,389 | | | 67 | |
| Total revenues to be recognized | Total revenues to be recognized | $ | 6,349 | | | $ | 88 | | Total revenues to be recognized | $ | 6,084 | | | $ | 85 | |
(1) Excludes intercompany transactions.
Contract BalancesLiabilities from Revenues from Contracts with Customers
Activities within Sempra Energy’sSempra’s and SDG&E’s contract liabilities are presented below. There were no contract liabilities at SoCalGas in the ninesix months ended SeptemberJune 30, 2020 and 2019.2021 or 2020.
| | CONTRACT LIABILITIES | CONTRACT LIABILITIES | | CONTRACT LIABILITIES |
| (Dollars in millions) | (Dollars in millions) | | (Dollars in millions) |
| | Sempra Energy Consolidated | | SDG&E | | 2021 | | 2020 |
| Balance at January 1, 2020 | $ | (163) | | | $ | (91) | | |
| Sempra: | | Sempra: | |
| Contract liabilities at January 1 | | Contract liabilities at January 1 | $ | (207) | | | $ | (163) | |
| | Revenue from performance obligations satisfied during reporting period | | Revenue from performance obligations satisfied during reporting period | 49 | | | 2 | |
| Payments received in advance | | Payments received in advance | (1) | | | 0 | |
Contract liabilities at June 30(1) | | Contract liabilities at June 30(1) | $ | (159) | | | $ | (161) | |
| SDG&E: | | SDG&E: | |
| Contract liabilities at January 1 | | Contract liabilities at January 1 | $ | (87) | | | $ | (91) | |
| Revenue from performance obligations satisfied during reporting period | Revenue from performance obligations satisfied during reporting period | 3 | | | 3 | | Revenue from performance obligations satisfied during reporting period | 2 | | | 2 | |
| Balance at September 30, 2020(1) | $ | (160) | | | $ | (88) | | |
| Balance at January 1, 2019 | $ | (70) | | | $ | 0 | | |
| Revenue from performance obligations satisfied during reporting period | 1 | | | 0 | | |
| Payments received in advance | (95) | | | (92) | | |
| Balance at September 30, 2019 | $ | (164) | | | $ | (92) | | |
Contract liabilities at June 30(1) | | Contract liabilities at June 30(1) | $ | (85) | | | $ | (89) | |
(1) Includes $4 At June 30, 2021, includes $6 million and $4 million in Other Current Liabilities and $156$153 million and $84$81 million in Deferred Credits and Other on the Sempra EnergySempra’s and SDG&E&E’s Condensed Consolidated Balance Sheets, respectively.
Receivables from Revenues from Contracts with Customers
The table below shows receivable balances associated with revenues from contracts with customers on the Condensed Consolidated Balance Sheets.
| | | | | | | | | | | | | | |
| RECEIVABLES FROM REVENUES FROM CONTRACTS WITH CUSTOMERS | | | | |
| (Dollars in millions) | | | | | | |
| | September 30, 2020 | | | December 31, 2019 | |
| Sempra Energy Consolidated: | | | | | | |
| Accounts receivable – trade, net | | $ | 962 | | | | $ | 1,163 | | |
| Accounts receivable – other, net | | 13 | | | | 16 | | |
Due from unconsolidated affiliates – current(1) | | 3 | | | | 5 | | |
| | | | | | |
| | | | | | |
| Total | | $ | 978 | | | | $ | 1,184 | | |
| SDG&E: | | | | | | |
| Accounts receivable – trade, net | | $ | 462 | | | | $ | 398 | | |
| Accounts receivable – other, net | | 9 | | | | 5 | | |
Due from unconsolidated affiliates – current(1) | | 3 | | | | 2 | | |
| Total | | $ | 474 | | | | $ | 405 | | |
| SoCalGas: | | | | | | |
| Accounts receivable – trade, net | | $ | 422 | | | | $ | 710 | | |
| Accounts receivable – other, net | | 4 | | | | 11 | | |
| Total | | $ | 426 | | | | $ | 721 | | |
| | | | | | | | | | | | |
| RECEIVABLES FROM REVENUES FROM CONTRACTS WITH CUSTOMERS | |
| (Dollars in millions) | |
| June 30, 2021 | | December 31, 2020 | |
| Sempra: | | | | |
| Accounts receivable – trade, net | $ | 1,265 | | | $ | 1,447 | | |
| Accounts receivable – other, net | 15 | | | 12 | | |
Due from unconsolidated affiliates – current(1) | 2 | | | 3 | | |
| | | | |
| | | | |
| Total | $ | 1,282 | | | $ | 1,462 | | |
| SDG&E: | | | | |
| Accounts receivable – trade, net | $ | 635 | | | $ | 573 | | |
| Accounts receivable – other, net | 8 | | | 8 | | |
Due from unconsolidated affiliates – current(1) | 3 | | | 2 | | |
| Total | $ | 646 | | | $ | 583 | | |
| SoCalGas: | | | | |
| Accounts receivable – trade, net | $ | 541 | | | $ | 786 | | |
| Accounts receivable – other, net | 7 | | | 4 | | |
| Total | $ | 548 | | | $ | 790 | | |
(1) Amount is presented net of amounts due to unconsolidated affiliates on the Condensed Consolidated Balance Sheets, when right of offset exists.
NOTE 4. REGULATORY MATTERS
We discuss regulatory matters in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report and provide updates to those discussions and information about new regulatory matters below.
REGULATORY ASSETS AND LIABILITIES
We show the details of regulatory assets and liabilities in the following table.
| | REGULATORY ASSETS (LIABILITIES) | REGULATORY ASSETS (LIABILITIES) | REGULATORY ASSETS (LIABILITIES) |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | September 30,
2020 | | December 31,
2019 | | June 30,
2021 | | December 31,
2020 |
| | | | | |
| SDG&E: | SDG&E: | | | | SDG&E: | | | |
| Fixed-price contracts and other derivatives | Fixed-price contracts and other derivatives | $ | (21) | | | $ | 8 | | Fixed-price contracts and other derivatives | $ | (82) | | | $ | (53) | |
| Deferred income taxes refundable in rates | (20) | | | (108) | | |
| Deferred income taxes recoverable in rates | | Deferred income taxes recoverable in rates | 86 | | | 22 | |
| Pension and other postretirement benefit plan obligations | Pension and other postretirement benefit plan obligations | 72 | | | 103 | | Pension and other postretirement benefit plan obligations | 41 | | | 50 | |
| Removal obligations | Removal obligations | (2,131) | | | (2,056) | | Removal obligations | (2,199) | | | (2,121) | |
| Environmental costs | Environmental costs | 43 | | | 45 | | Environmental costs | 55 | | | 56 | |
| Sunrise Powerlink fire mitigation | Sunrise Powerlink fire mitigation | 120 | | | 121 | | Sunrise Powerlink fire mitigation | 120 | | | 121 | |
Regulatory balancing accounts(1)(2) | Regulatory balancing accounts(1)(2) | | Regulatory balancing accounts(1)(2) | |
| Commodity – electric | Commodity – electric | 173 | | | 102 | | Commodity – electric | 175 | | | 72 | |
| Gas transportation | Gas transportation | 15 | | | 22 | | Gas transportation | 10 | | | 35 | |
| Safety and reliability | Safety and reliability | 74 | | | 77 | | Safety and reliability | 61 | | | 67 | |
| Public purpose programs | Public purpose programs | (146) | | | (124) | | Public purpose programs | (110) | | | (158) | |
| 2019 GRC retroactive impacts | 2019 GRC retroactive impacts | 70 | | | 111 | | 2019 GRC retroactive impacts | 28 | | | 56 | |
| Other balancing accounts | Other balancing accounts | 284 | | | 106 | | Other balancing accounts | 328 | | | 233 | |
Other regulatory assets (liabilities), net(2) | 25 | | | (153) | | |
Other regulatory assets, net(2) | | Other regulatory assets, net(2) | 95 | | | 72 | |
| Total SDG&E | Total SDG&E | (1,442) | | | (1,746) | | Total SDG&E | (1,392) | | | (1,548) | |
| SoCalGas: | SoCalGas: | | | | SoCalGas: | | | |
| Deferred income taxes refundable in rates | (125) | | | (203) | | |
| Deferred income taxes recoverable (refundable) in rates | | Deferred income taxes recoverable (refundable) in rates | 13 | | | (82) | |
| Pension and other postretirement benefit plan obligations | Pension and other postretirement benefit plan obligations | 370 | | | 400 | | Pension and other postretirement benefit plan obligations | 406 | | | 417 | |
| Employee benefit costs | Employee benefit costs | 44 | | | 44 | | Employee benefit costs | 37 | | | 37 | |
| Removal obligations | Removal obligations | (698) | | | (728) | | Removal obligations | (662) | | | (685) | |
| Environmental costs | Environmental costs | 37 | | | 40 | | Environmental costs | 35 | | | 36 | |
Regulatory balancing accounts(1)(2) | Regulatory balancing accounts(1)(2) | | Regulatory balancing accounts(1)(2) | |
| Commodity – gas, including transportation | Commodity – gas, including transportation | (118) | | | (118) | | Commodity – gas, including transportation | (127) | | | (56) | |
| Safety and reliability | Safety and reliability | 358 | | | 295 | | Safety and reliability | 305 | | | 335 | |
| Public purpose programs | Public purpose programs | (349) | | | (273) | | Public purpose programs | (176) | | | (253) | |
| 2019 GRC retroactive impacts | 2019 GRC retroactive impacts | 252 | | | 400 | | 2019 GRC retroactive impacts | 101 | | | 202 | |
| Other balancing accounts | Other balancing accounts | (116) | | | (7) | | Other balancing accounts | (52) | | | (58) | |
Other regulatory assets (liabilities), net(2) | 46 | | | (101) | | |
Other regulatory assets, net(2) | | Other regulatory assets, net(2) | 121 | | | 75 | |
| Total SoCalGas | Total SoCalGas | (299) | | | (251) | | Total SoCalGas | 1 | | | (32) | |
| Sempra Mexico: | Sempra Mexico: | | Sempra Mexico: | |
| Deferred income taxes recoverable in rates | Deferred income taxes recoverable in rates | 83 | | | 83 | | Deferred income taxes recoverable in rates | 80 | | | 80 | |
| Other regulatory assets | 1 | | | 6 | | |
| Total Sempra Energy Consolidated | $ | (1,657) | | | $ | (1,908) | | |
| | Total Sempra | | Total Sempra | $ | (1,311) | | | $ | (1,500) | |
(1) At SeptemberJune 30, 20202021 and December 31, 2019,2020, the noncurrent portion of regulatory balancing accounts – net undercollected for SDG&E was $127$256 million and $108$139 million, respectively, and for SoCalGas was $291$388 million and $500$218 million, respectively.
(2) Includes regulatory assets earning a return.
CALIFORNIA UTILITIES
COVID-19 Pandemic Protections Memorandum Account
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 ofaffected by the COVID-19 pandemic.pandemic for up to one year. The customer protection measures which arewere mandatory for all residential and small business customers, are effective from March 2020, will continue for up to one year, and may becustomers. In February 2021, the CPUC extended by the CPUC.customer protection measures through June 2021. In June 2020,2021, the CPUC approved disaster relief plans coveringfurther extended the suspension of service disconnections for nonpayment by these customers through September 2021, which provides time for the California Utilities to notify residential and small business customers affectedin arrears and enroll such customers in long-term repayment plans. The CPUC is continuing to consider the impacts of any state or federal relief programs on customer arrearages and if further debt relief is warranted.
In April 2021, the CPUC expanded suspension of service disconnections to medium-large commercial and industrial customers through June 2021, thereby including the entire customer population except SoCalGas’ noncore customers. The measures were effective December 30, 2020. In June 2021, the CPUC extended suspensions of service disconnections for nonpayment by the COVID-19 pandemic that were submitted by each of the California Utilities. these customers through September 2021.
Each of the California Utilities also washas been authorized to establish a CPPMA 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 Utilities expect to pursue recovery of small and medium-large commercial and industrial customers’ tracked costs in rates of the costs recorded to the CPPMA in a future CPUC proceeding, which recovery is not assured. Uncollectible expenses related to residential customers are recorded in a two-way balancing account as we discuss below.
Arrearage Management Payment PlanDisconnection 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, allows each of the California Utilities to establishhas established 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. The California Utilities may also request, at a future date, to transfer any such costs from the CPPMA to this new balancing account.
CPUC General Rate CaseGRC
The CPUC uses GRC proceedingsGRCs to set rates designed to allow the California Utilities to recover their reasonable operating costs and to provide the opportunity to realize their authorized rates of return on their investments.
2019 General Rate Case
As we discuss in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report, in September 2019, the CPUC issued the 2019 GRC FD, which was effective retroactively to January 1, 2019. In the third quarter of 2019, SDG&E and SoCalGas recorded the retroactive after-tax earnings impact of $36 million and $84 million, respectively, for the first quarter of 2019 and $30 million and $46 million, respectively, for the second quarter of 2019.
The 2019 GRC FD approved SDG&E’s and SoCalGas’ test year revenues for 2019 and attrition year adjustments for 2020 and 2021. In January 2020, the CPUC issued a final decision implementing a four-year GRC cycle for California IOUs. TheIOUs and the California Utilities 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 have requested an increase in the revenue requirement for SDG&E and SoCalGas of approximately $95 million and $155 million, respectively, for 2022, and $96 million and $137 million, respectively, for 2023, reflecting certain adjustments. These amounts include revenues for both O&M and capital cost attrition. 2020.
In June 2020,May 2021, the CPUC issued a ruling to further clarify the issues for review infinal decision approving the California Utilities’ petition, which are mainly whether the proposed revenue requirements andrequest to continue 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. The procedural schedule provides$142 million (4.53%) for a proposed decision in the fourth quarter of 2020.2022 and $130 million (3.97%) for 2023.
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 Utilities released these regulatory liability balances to revenues and regulatory interest.
We provide additional information concerning the 2019 GRC FD in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.
CPUCSDG&E
FERC Rate Matters and Cost of Capital
In December 2019,SDG&E files separately with the CPUC approved the cost of capital and rate structures (shown in the table below)FERC for SDG&E and SoCalGas that are effective January 1, 2020 and will remain in effect through December 31, 2022. SDG&E did not propose a 2020 cost of preferred equity in this proceeding. In January 2020, SDG&E filed an advice letter to continue the cost of preferred equity for test year 2020 at 6.22%, which the CPUC approved in March 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | | % |
The CCM was reauthorized in the 2020 cost of capital proceeding to continue through 2022. The CCM benchmark rate for the 2020 cost of capital is the average monthly utility bond index, as published by Moody’s, for the 12-month period from October 2018 through September 2019. SDG&E’s CCM benchmark rate is 4.498%, based on Moody’s Baa- utility bond index. SoCalGas’ CCM benchmark rate is 4.029%, based on Moody’s A- utility bond index. The index applicable to each utility is based on such utility’s credit rating.
The CCM benchmark rates for SDG&E and SoCalGas are the basis of comparison to determine if future measurement periods “trigger” the CCM. For the 12 months ended September 2020, the first “CCM Period,” the trigger did not occur for SDG&E or SoCalGas. 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 1.000%. Accordingly, if a change of more than plus or minus 1.000% occurs, SDG&E’s, SoCalGas’, or both utilities’its authorized ROE would be adjusted, upward or downward, by one half of the difference between the CCM benchmark and the 12-month average determined during the CCM Period. In addition, the authorized recovery rate for the California Utilities’ cost of debt and preferred equity would be adjusted to their respective actual weighted-average cost, with no change to the authorized capital structure. In the event of a CCM trigger, the CCM benchmark is also re-established. These adjustments would become effective in authorized rates on January 1 of the year following the CCM trigger. The next CCM Period is from October 2020 to September 2021.
SDG&E
FERC Formulaic Rate Filing
In October 2018, SDG&E submitted its TO5 filing to the FERC to establish its transmission revenue requirement, including rate of return, for SDG&E’s FERC-regulated electric transmission operations and assets. In December 2018, the FERC issued its order accepting and suspending
SDG&E’s TO5 filing for five months, during which the existing TO4 rates remained in effect, and established hearing and settlement procedures. The suspension period ended on June 1, 2019, when the proposed TO5 rates took effect, subject to refund and the outcome of the rate filing. As a result, the 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.
2019 on SDG&E’s TO5 filing. The settlement agreement providesprovided 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 year until terminated by a notice at least six months before the annual right to terminate the agreement beginning in 2022.
end of a calendar year. In the first quarter of 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 includeincluded refunding certain costs and certain performance-based incentives to customers and incurring a fine.reducing certain performance-based incentives. Accordingly, in the three months and nine months ended September 30,second quarter of 2020, SDG&E reduced revenues by $15 million for aggregate amounts recognized in program years 2017, 2018 and 2019. In the third quarter of 2020, SDG&E reduced revenues by an additional $36 million and $51 million, respectively, and recorded a fine of $6 million in Other (Expense) Income, Net, on the SDG&E and Sempra Energy Condensed Consolidated Statements of Operations.million. The after-tax impact for the three months and nine monthsyear ended September 30,December 31, 2020 was $29 million and $44 million, respectively.million. In October 2020, SDG&E executed a settlement agreement with intervenors consistent with these concessions. In August 2021, the CPUC approval ofissued a proposed decision approving the settlement agreementagreement.
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 a short period of transitional energy efficiency (EE) codes and standards advocacy activities undertaken by SoCalGas in 2018, following a CPUC decision disallowing SoCalGas’ future engagement in EE statewide codes and standards advocacy. We expect a CPUC decision on this OSC in the fourth quarter of 2021.
In December 2019, the CPUC issued a second OSC to determine whether SoCalGas is required.entitled to the EE program’s shareholder incentives for codes and standards advocacy in 2016 and 2017, whether its shareholders should bear the costs of those advocacy activities, and to address whether any other remedies are appropriate. The scope of this OSC was later expanded to include EE program years 2014 and 2015, and SoCalGas’ engagement with local governments on proposed reach codes. In April 2021, the assigned Administrative Law Judge issued a Presiding Officer’s Decision (POD) on the second OSC. The POD 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 codes and standards advocacy. The POD, which is currently under appeal by intervenors, orders customer refunds that SoCalGas expects will be negligible (subject to a CPUC audit). Additionally, the POD proposed precluding SoCalGas from seeking cost recovery associated with EE codes and standards advocacy programs until lifted by the CPUC, and orders certain nonfinancial remedies.
Intervenors in these OSCs have suggested the CPUC order various financial and non-financial penalties. If the CPUC were to assess fines or penalties on SoCalGas associated with these OSCs, they could be material.
NOTE 5. ACQUISITIONS, DIVESTITURES AND DISCONTINUED OPERATIONS
ACQUISITION
We consolidate assets acquired and liabilities assumed as of the purchase date and include earnings from acquisitions in consolidated earnings after the purchase date.
ACQUISITIONSempra Mexico
Sempra Texas UtilitiesESJ
TTHC
In February 2020, STIH acquired an additional indirect 0.1975%On March 19, 2021, IEnova completed the acquisition of Saavi Energía’s 50% equity 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,ESJ for a total purchase price of approximately $23$65 million (net of $14 million of acquired cash and cash equivalents) plus the assumption of $277 million in cash, bringing Sempra Energy’s indirectdebt (including $94 million owed from ESJ to IEnova that eliminates upon consolidation). IEnova previously accounted for its 50% interest in ESJ as an equity method investment. This acquisition increased IEnova’s ownership interest in OncorESJ from 50% to approximately 80.45%100%. TTHC indirectly owns 100%We accounted for this asset acquisition using a cost accumulation model whereby the cost of TTI, which owns 19.75% of Oncor’s outstanding membership interests. At the acquisition date, we determinedand carrying value of our previously held interest in ESJ ($34 million) were allocated to assets acquired ($458 million) and liabilities assumed ($345 million) based on their relative fair values. ESJ owns a fully operating wind power generation facility with a nameplate capacity of 155 MW that is fully contracted by SDG&E under a long-term PPA. IEnova recorded a $190 million intangible asset for the relative fair value of the notes receivable was $7 million based onPPA that will be amortized over a discounted cash flow model, and attributed $16 million to the investment in TTHC, whichperiod of 14 years against revenues. ESJ is constructing a second wind power generation facility with a nameplate capacity of 108 MW that we recorded as an equity method investment.
STIH’s acquisition of the 1% interest was the subject of a lawsuit filedexpect will be completed in the Delaware Courtfirst quarter 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.
Sharyland Holdings
In May 2019, Sempra Energy acquired an indirect, 50% interest in Sharyland Holdings for $95 million (net of $7 million post-closing adjustments) pursuant to the Securities Purchase Agreement. In connection with and prior to the consummation of the Securities Purchase Agreement, 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.
DIVESTITURES
Sempra Renewables
In April 2019, Sempra Renewables completed the sale of its remaining wind assets and investments to AEP for $569 million, net of transaction costs, and recorded a $61 million ($45 million after tax and NCI) gain, which is included in (Loss) Gain on Sale of Assets on Sempra Energy’s Condensed Consolidated Statement of Operations for the nine months ended September 30, 2019.
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.
Sempra LNG
In February 2019, Sempra LNG 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, to an affiliate of ArcLight Capital Partners and received cash proceeds of $322 million, net of transaction costs. In January 2019, Sempra LNG completed the sale of other non-utility assets for $5 million.2022.
DISCONTINUED OPERATIONS
In January 2019, our board of directors approved a plan to sell our South American businesses. We determined that these businesses, which previously constituted the Sempra South American Utilities segment, and certain activities associated with those businesses, met the held-for-sale criteria. These businesses are presented as discontinued operations, as the sales represent a strategic shift that will have a major effect on our operations and financial results. Upon completion of these sales, we no longer have continuing involvement in or the ability to exercise significant influence on the operating or financial policies of these operations. Accordingly, the results of operations, financial position and cash flows for these businesses have been presented as discontinued operations for all periods presented.
Discontinued operations that were previously in the 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 2 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.
On April 24, 2020, we completed the sale of our equity interests in our Peruvian businesses, including our 83.6% interest in Luz del Sur and ourits 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).
OnIn June 24, 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$2,232 million, net of transaction costs and as adjusted forsubject to post-closing adjustments, and recorded a pretax gain of $628$644 million ($248255 million after tax).
In the three months and ninesix months ended SeptemberJune 30, 2020, the pretax gains from the sales of our South American businesses are included in (Loss) Gain on Sale of Discontinued Operations in the table below and the after-tax gains are included in (Loss) Income from Discontinued Operations, Net of Income Tax, on the Sempra EnergySempra’s Condensed 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) | | | |
| | | Three months ended September 30, | | Nine months ended September 30, | | | Three months ended June 30, 2020(1) | | Six months ended June 30, 2020(1) |
| | | 2020(1) | | 2019 | | 2020(2) | | 2019 | |
| Revenues | Revenues | $ | 0 | | | $ | 398 | | | $ | 570 | | | $ | 1,222 | | Revenues | | $ | 170 | | | $ | 570 | |
| Cost of sales | Cost of sales | 0 | | | (249) | | | (364) | | | (765) | | Cost of sales | | (111) | | | (364) | |
| (Loss) gain on sale of discontinued operations | (16) | | | 0 | | | 2,899 | | | 0 | | |
| Gain on sale of discontinued operations | | Gain on sale of discontinued operations | | 2,915 | | | 2,915 | |
| Operating expenses | Operating expenses | 0 | | | (38) | | | (66) | | | (123) | | Operating expenses | | (20) | | | (66) | |
| Interest and other | Interest and other | 0 | | | (3) | | | (3) | | | (12) | | Interest and other | | (3) | | | (3) | |
| Income before income taxes and equity earnings | (16) | | | 108 | | | 3,036 | | | 322 | | |
| Income tax benefit (expense) | 9 | | | 148 | | | (1,186) | | | (32) | | |
| Equity earnings | 0 | | | 0 | | | 0 | | | 2 | | |
| (Loss) income from discontinued operations, net of income tax | (7) | | | 256 | | | 1,850 | | | 292 | | |
| Income before income taxes | | Income before income taxes | | 2,951 | | | 3,052 | |
| Income tax expense | | Income tax expense | | (1,174) | | | (1,195) | |
| | Income from discontinued operations, net of income tax | | Income from discontinued operations, net of income tax | | 1,777 | | | 1,857 | |
| Earnings attributable to noncontrolling interests | Earnings attributable to noncontrolling interests | 0 | | | (8) | | | (10) | | | (25) | | Earnings attributable to noncontrolling interests | | (2) | | | (10) | |
(Losses) earnings from discontinued operations attributable to common shares | $ | (7) | | | $ | 248 | | | $ | 1,840 | | | $ | 267 | | |
| Earnings from discontinued operations attributable to Sempra | | Earnings from discontinued operations attributable to Sempra | | $ | 1,775 | | | $ | 1,847 | |
(1) Represents post-closing adjustments related to the sale of our equity interests in our Chilean businesses.
(2) Results include activity until deconsolidationthe sale of our Peruvian businesses on April 24, 2020 and Chilean businesses on June 24, 2020.
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 the second quarter of 2020, we reclassified $645 million of cumulative foreign currency translation losses from AOCI to (Loss) Gain on Sale of Discontinued Operations, which is included in (Loss) Income from Discontinued Operations, Net of Income Tax, on the Sempra EnergySempra’s Condensed 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 Condensed Consolidated Statements of Operations. See Note 12 for information on equity earnings and losses, both before and net of income tax, by segment. See Note 1 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 additional information concerning our equity method investments in Notes 5 and 6 of the Notes to Consolidated Financial Statements in the Annual Report.
SEMPRA TEXAS UTILITIES
Oncor Holdings
We account for our 100% ownership interest in Oncor Holdings, which owns an 80.25% interest in Oncor, as an equity method investment. Due to the ring-fencing measures, governance mechanisms and commitments in effect, we do not have the power to
direct the significant activities of Oncor Holdings and Oncor. See Note 6 of the Notes to Consolidated Financial Statements in the Annual Report for additional information related to the restrictions on our ability to direct the significant activities of Oncor Holdings and Oncor.
In the ninesix months ended SeptemberJune 30, 2021 and 2020, Sempra Energy contributed $209$100 million and $139 million, respectively, to Oncor Holdings, and Oncor Holdings distributed to Sempra Energy $220 million in dividends.
In the nine months ended September 30, 2019, Sempra Energy contributed $1,236 million to Oncor Holdings, which includes $1,067 million to fund Oncor’s May 2019 acquisition of interests in InfraREIT and certain acquisition-related expenses, which we discuss in Note 5 of the Notes to Consolidated Financial Statements in the Annual Report. In the nine months ended September 30, 2019, Oncor Holdings distributed to Sempra Energy $162 million and $146 million, respectively, in dividends.dividends to Sempra.
We provide summarized income statement 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) |
| | | Three months ended
September 30, | Nine months ended
September 30, | | Three months ended June 30, | | Six months ended June 30, |
| | 2020 | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Operating revenues | Operating revenues | $ | 1,232 | | $ | 1,211 | | | $ | 3,394 | | | $ | 3,268 | | Operating revenues | $ | 1,147 | | | $ | 1,090 | | | $ | 2,286 | | | $ | 2,162 | |
| Operating expenses | Operating expenses | (819) | | (787) | | | (2,387) | | | (2,319) | | Operating expenses | (836) | | | (767) | | | (1,665) | | | (1,568) | |
| Income from operations | Income from operations | 413 | | 424 | | | 1,007 | | | 949 | | Income from operations | 311 | | | 323 | | | 621 | | | 594 | |
| Interest expense | Interest expense | (102) | | (97) | | | (305) | | | (276) | | Interest expense | (102) | | | (102) | | | (204) | | | (203) | |
| Income tax expense | Income tax expense | (50) | | (53) | | | (115) | | | (106) | | Income tax expense | (34) | | | (37) | | | (70) | | | (65) | |
| Net income | Net income | 255 | | 261 | | | 557 | | | 511 | | Net income | 167 | | | 173 | | | 332 | | | 302 | |
| Noncontrolling interest held by TTI | Noncontrolling interest held by TTI | (50) | | (52) | | | (111) | | | (102) | | Noncontrolling interest held by TTI | (34) | | | (35) | | | (67) | | | (61) | |
| Earnings attributable to Sempra Energy | 205 | | 209 | | | 446 | | | 409 | | |
Earnings attributable to Sempra(1) | | Earnings attributable to Sempra(1) | 133 | | | 138 | | | 265 | | | 241 | |
(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.
SEMPRA MEXICO
ESJ
As we discuss in Note 5, on March 19, 2021, IEnova completed the acquisition of the remaining 50% equity interest in ESJ and ESJ became a wholly owned, consolidated subsidiary. Prior to the acquisition date, IEnova owned 50% of ESJ and accounted for its interest as an equity method investment. In each of the six months ended June 30, 2021 and 2020, ESJ distributed a $4 million return of investment to IEnova.
SEMPRA LNG
Cameron LNG JV
In the ninesix months ended SeptemberJune 30, 2021 and 2020, Sempra LNG contributed $54 million to Cameron LNG JV, and Cameron LNG JV distributed to Sempra LNG dividends of $209$378 million, of which $165 million relates to the distribution from Cameron LNG JV’s SDSRA that we discuss below, and a distribution in the form of a return of investment of $803 million.$74 million, respectively.
In the nine months ended September 30, 2019, Sempra LNG invested cash of $77 million inMarch 2021, Cameron LNG JV reached financial completion of the three-train liquefaction project, and prior to commencing commercial operations in August 2019, Sempra LNG capitalized $32 million of interestSempra’s related to its investment in Cameron LNG JV.
As of September 30, 2020, Sempra Energy has provided guarantees aggregatingfor a maximum aggregate amount of $4.0 billion with an aggregate carrying value of $1 million, which is included in Other Current Liabilities on the Sempra Energy Condensed Consolidated Balance Sheet associated with Cameron LNG JV’s debt obligations.were terminated. We discuss these guarantees in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report.
Sempra EnergyPromissory Note for SDSRA Distribution
Cameron LNG JV’s debt 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 on the next payment date. Both accounts can be funded with cash or authorized investments. In June 2021, Sempra LNG 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’s obligation to fund the SDSRA. Sempra’s maximum exposure to loss is replenishment of the amount withdrawn by Sempra LNG from the SDSRA, or $165 million. We recorded a guarantee liability of $1 million and $21 million in Other Current Liabilities and Deferred Credits and Other, respectively, on Sempra’s Condensed Consolidated Balance Sheet for the fair value of the promissory note, which will be reduced over the duration of the guarantee through Sempra LNG’s investment in Cameron LNG JV. 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 LNG from the SDSRA.
Sempra 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’sLNG’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 asLNG 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 EnergyLNG on the
five-year fifth, 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 EnergyLNG 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. LNG.
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 LNG 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 9). At SeptemberJune 30, 2020,2021, the fair value of the Support Agreement was $6$4 million, of which $7 million is included in Other Current Assets offset by $3 million included in Deferred Credits and Other on the Sempra EnergySempra’s Condensed Consolidated Balance Sheet.
RBS SEMPRA COMMODITIES
As we discuss in Note 11, in the first quarter of 2020, we recorded a charge of $100 million in Equity Earnings on Sempra Energy’sSempra’s Condensed Consolidated Statement of Operations for losses from our investment in RBS Sempra Commodities. We recognized a corresponding liability of $25 million in Other Current Liabilities and $75 million in Deferred Credits and Other forrepresenting our share of estimated losses in excess of the carrying value of our equity method investment.investment in RBS Sempra Commodities. In the second quarter of 2021, we reduced this charge by $50 million based on the favorable outcome of a settlement with HMRC and revised assumptions on the High Court of Justice case. At June 30, 2021, $50 million is included in Other Current Liabilities on Sempra’s Condensed Consolidated Balance Sheet.
NOTE 7. DEBT AND CREDIT FACILITIES
LINES OF CREDIT
Primary U.S. Committed Lines of Credit
In May 2021, Sempra Global assigned its $3.2 billion, five-year committed line of credit facility to Sempra and Sempra assumed all rights and responsibilities under the credit agreement. Also, in May 2021, Sempra established a commercial paper program to replace Sempra Global’s commercial paper program that was terminated in June 2021.
At SeptemberJune 30, 2020,2021, Sempra Energy Consolidated had an aggregate capacity of $6.7 billion in fourfrom primary U.S. committed lines of credit, which provide liquidity and support commercial paper. The principal terms of these committed lines of credit, which expire in May 2024, are described below and in Note 7 of the Notes to Consolidated Financial Statements in the Annual Report.
| | | | | | | | | | | | | | |
PRIMARY U.S. COMMITTED LINES OF CREDIT | | | | | | | | |
(Dollars in millions) | | | | | | | | |
| | September 30, 2020 |
| | Total facility(1)
| | | | | | |
Sempra Energy(2)
| | $ | 1,250 | | | | | | | |
Sempra Global | | 3,185 | | | | | | | |
SDG&E(3)
| | 1,500 | | | | | | | |
SoCalGas(3)
| | 750 | | | | | | | |
Total | | $ | 6,685 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| PRIMARY U.S. COMMITTED LINES OF CREDIT |
| (Dollars in millions) |
| | June 30, 2021 |
| | Total facility | | Commercial paper outstanding(1)(2) | | | | Available unused credit |
Sempra(3) | | $ | 4,435 | | | $ | (1,117) | | | | | $ | 3,318 | |
| | | | | | | | |
SDG&E(4) | | 1,500 | | | (437) | | | | | 1,063 | |
SoCalGas(4) | | 750 | | | (143) | | | | | 607 | |
| Total | | $ | 6,685 | | | $ | (1,697) | | | | | $ | 4,988 | |
(1) All amountsBecause the commercial paper programs are supported by these lines, we reflect the amount of commercial paper outstanding as a reduction to the available unused and available as of September 30, 2020.credit.
(2)Commercial paper outstanding is before reductions of a negligible amount of unamortized discount.
(3) 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 SeptemberJune 30, 2020.2021.
(3)(4) 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 SeptemberJune 30, 2020.2021.
Sempra, Energy, SDG&E and SoCalGas each 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 SeptemberJune 30, 2020,2021, each entity was in compliance with this ratio and all other financial covenants under its respective credit facility.
Foreign Committed Lines of Credit
IEnova hasOur foreign operations in Mexico have additional general-purposecommitted lines of credit facilities aggregating $1.8 billion at SeptemberJune 30, 2020.2021. The principal terms of these committed lines of credit facilities are described below.in Note 7 of the Notes to Consolidated Financial Statements in the Annual Report.
| | | | | | | | | | | | | | | | | | | | | | | |
| FOREIGN COMMITTED LINES OF CREDIT |
| (U.S. dollar equivalent in millions) |
| | | September 30, 2020 |
| Expiration date of facility | | Total facility | | Amounts outstanding | | Available unused credit |
February 2024(1) | | $ | 1,500 | | | $ | (492) | | | $ | 1,008 | |
September 2021(2) | | 280 | | | (280) | | | 0 | |
| Total | | $ | 1,780 | | | $ | (772) | | | $ | 1,008 | |
(1) Five-year revolving credit facility with a syndicate of 10 lenders. 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 may be made for up to two years from September 23, 2019 in U.S. dollars. Borrowings bear interest at a per annum rate equal to 3-month LIBOR plus 54 bps. | | | | | | | | | | | | | | | | | | | | | | | |
| FOREIGN COMMITTED LINES OF CREDIT |
| (U.S. dollar equivalent in millions) |
| | | June 30, 2021 |
| Expiration date of facility | | Total facility | | Amounts outstanding | | Available unused credit |
| February 2024 | | $ | 1,500 | | | $ | (189) | | | $ | 1,311 | |
| September 2021 | | 280 | | | (280) | | | 0 | |
| Total | | $ | 1,780 | | | $ | (469) | | | $ | 1,311 | |
In addition to its committed lines of credit, IEnova had a three-year $100 million uncommitted revolving credit facility with Scotiabank Inverlat S.A. that was canceled in October 2020. At September 30, 2020, available unused credit on this line was $100 million. In October 2020, IEnova entered intohas 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 canmay only be made in U.S. dollars). Both credit facilities expire in October 2023. At June 30, 2021, available unused credit on these lines was $20 million.
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 SeptemberJune 30, 2020,2021, we had approximately $560$680 million in standby letters of credit outstanding under these agreements.
TERM LOANSLOAN
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 June 30, 2021, with an option to extend the maturity date to September 16,there were no borrowings outstanding under this agreement. In July 2021, subject to receiving the consent of the lenders. Sempra Energy used the proceeds from the term loan to repay borrowings on its committed lines of credit and for other general corporate purposes. This term loan was repaid in full in September 2020.
In March 2020, SDG&E borrowed $200 million, net of negligible issuance costs, under a 364-daythe 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 bearloan. The borrowing bears interest at benchmark rates plus 80 bps (0.95% at September 30, 2020).62.5 bps. 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 September 30, 2020, this term loan was included in Current Portion of Long-Term Debt and Finance Leases on SDG&E’s Condensed Consolidated Balance Sheet.
WEIGHTED-AVERAGE INTEREST RATES
The weighted-average interest rates on the total short-term debt at SeptemberJune 30, 20202021 and December 31, 20192020 were as follows:
| | WEIGHTED-AVERAGE INTEREST RATES | WEIGHTED-AVERAGE INTEREST RATES | | WEIGHTED-AVERAGE INTEREST RATES | |
| | | | September 30, 2020 | | December 31, 2019 | | | June 30, 2021 | | December 31, 2020 |
| Sempra Energy Consolidated | 0.93 | % | | 2.31 | % | |
| Sempra | | Sempra | 0.34 | % | | 0.83 | % |
| SDG&E | SDG&E | N/A | | 1.97 | | SDG&E | 0.19 | | | 0 | |
| SoCalGas | SoCalGas | N/A | | 1.86 | | SoCalGas | 0.11 | | | 0.14 | |
LONG-TERM DEBT
Sempra Mexico
As we discuss in Note 5, through its acquisition of ESJ, Sempra Mexico assumed a $177 million (net of $6 million in unamortized debt issuance costs) variable rate loan payable to a syndicate of five lenders that matures in June 2033. To moderate exposure to interest rate and 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 bears interest at 6-month LIBOR plus a margin of 2.63% with an increase of 25 bps every four years (2.80% at June 30, 2021).
Sempra LNG
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. At June 30, 2021 and December 31, 2020, $202 million and $17 million, respectively, was
LONG-TERM DEBT
SDG&E
In September 2020, SDG&E issued $800 millionoutstanding, with a weighted-average interest rate of 1.70% first mortgage bonds maturing in 20302.85% and received proceeds2.82%, respectively. We discuss the details of $792 million (net of debt discount, underwriting discounts and debt issuance costs of $8 million). SDG&E intends to use a portion of the proceeds from the offering to repay approximately $250 million of debt, prior to its scheduled maturity. As a result, this amount was classified as Current Portion of Long-Term Debt and Finance Leases on the SDG&E and Sempra Energy Condensed Consolidated Balance Sheets at September 30, 2020. SDG&E intends to use the remaining proceeds for general corporate purposes, including repayment of commercial paper.
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 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. SoCalGas 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 to 100% of the principal amount of, plus accrued and unpaid interest on, the notes being redeemed. SoCalGas intends to use the proceeds from the offering for general corporate purposes, including repayment of commercial paper.
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.
Sempra Mexico
In September 2020, IEnova offered and sold in a private placement $800 million of 4.75% senior unsecured notes maturing in 2051 and received proceeds 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.
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 proceedsNote 7 of $98 million (net of debt issuance costs of $2 million). The loan maturesthe Notes to Consolidated Financial Statements 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%.
Sempra LNG
As we discuss in “Shareholders’ Equity and Noncontrolling Interests – Other Noncontrolling Interests – Sempra LNG” in Note 1, notes payable totaling $22 million due October 1, 2026 were converted to equity by the minority partner in Liberty Gas Storage LLC and are no longer outstanding.Annual Report.
NOTE 8. 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 Condensed Consolidated Balance Sheets. We 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 Utilities 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 as financing activities and settlements of other derivative instruments as operating activities on the Condensed 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 Utilities 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 Condensed 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 Condensed Consolidated Statements of Operations.
▪Sempra Mexico and Sempra LNG 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 Condensed 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 Condensed Consolidated Statements of Operations.
▪From time to time, our various businesses, including the California Utilities, may use other energy derivatives to hedge exposures such as the price of vehicle fuel and greenhouse gas allowances.
The following table summarizes net energy derivative volumes.
| | NET ENERGY DERIVATIVE VOLUMES | NET ENERGY DERIVATIVE VOLUMES | NET ENERGY DERIVATIVE VOLUMES |
| (Quantities in millions) | (Quantities in millions) | (Quantities in millions) |
| Commodity | Commodity | Unit of measure | | September 30, 2020 | | December 31, 2019 | Commodity | Unit of measure | | June 30, 2021 | | December 31, 2020 |
| Sempra Energy Consolidated: | | |
| Sempra: | | Sempra: | |
| Natural gas | Natural gas | MMBtu | | 19 | | | 32 | | Natural gas | MMBtu | | (34) | | | 5 | |
| Electricity | Electricity | MWh | | 2 | | | 2 | | Electricity | MWh | | 1 | | | 1 | |
| Congestion revenue rights | Congestion revenue rights | MWh | | 43 | | | 48 | | Congestion revenue rights | MWh | | 43 | | | 43 | |
| | SDG&E: | SDG&E: | | SDG&E: | |
| Natural gas | Natural gas | MMBtu | | 23 | | | 37 | | Natural gas | MMBtu | | 14 | | | 16 | |
| Electricity | Electricity | MWh | | 1 | | | 2 | | Electricity | MWh | | 1 | | | 1 | |
| Congestion revenue rights | Congestion revenue rights | MWh | | 43 | | | 48 | | Congestion revenue rights | MWh | | 43 | | | 43 | |
| SoCalGas: | SoCalGas: | | SoCalGas: | |
| Natural gas | Natural gas | MMBtu | | 0 | | | 2 | | Natural gas | MMBtu | | 0 | | | 1 | |
|
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.
INTEREST RATE DERIVATIVES
We are exposed to interest rates primarily as a result of our current and expected use of financing. The California Utilities, 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.
| | INTEREST RATE DERIVATIVES | INTEREST RATE DERIVATIVES | INTEREST RATE DERIVATIVES |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
| | | Notional debt | | Maturities | | Notional debt | | Maturities | | Notional debt | | Maturities | | Notional debt | | Maturities |
| Sempra Energy Consolidated: | | | | | | | | |
| Sempra: | | Sempra: | | | | | | | |
| Cash flow hedges | Cash flow hedges | $ | 1,500 | | | 2020-2034 | | $ | 1,445 | | | 2020-2034 | Cash flow hedges | $ | 763 | | | 2021-2034 | | $ | 1,486 | | | 2021-2034 |
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 Mexico 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 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.
| | FOREIGN CURRENCY DERIVATIVES | FOREIGN CURRENCY DERIVATIVES | FOREIGN CURRENCY DERIVATIVES |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
| | | Notional amount | | Maturities | | Notional amount | | Maturities | | Notional amount | | Maturities | | Notional amount | | Maturities |
| Sempra Energy Consolidated: | | | | | | | | |
| Sempra: | | Sempra: | | | | | | | |
| Cross-currency swaps | Cross-currency swaps | $ | 306 | | | 2020-2023 | | $ | 306 | | | 2020-2023 | Cross-currency swaps | $ | 306 | | | 2021-2023 | | $ | 306 | | | 2021-2023 |
| Other foreign currency derivatives | Other foreign currency derivatives | 1,341 | | | 2020-2022 | | 1,796 | | | 2020-2021 | Other foreign currency derivatives | 64 | | | 2021-2022 | | 1,764 | | | 2021-2022 |
FINANCIAL STATEMENT PRESENTATION
The Condensed 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 Condensed 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 CONDENSED CONSOLIDATED BALANCE SHEETS | DERIVATIVE INSTRUMENTS ON THE CONDENSED CONSOLIDATED BALANCE SHEETS | DERIVATIVE INSTRUMENTS ON THE CONDENSED CONSOLIDATED BALANCE SHEETS |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | | September 30, 2020 | | June 30, 2021 |
| | | Other current assets(1) | | Other long-term assets | | Other current liabilities | | Deferred credits and other | | Other current assets(1) | | 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 and foreign exchange instruments | Interest rate and foreign exchange instruments | $ | 6 | | | $ | 2 | | | $ | (22) | | | $ | (188) | | Interest rate and foreign exchange instruments | $ | 0 | | | $ | 5 | | | $ | (25) | | | $ | (158) | |
| | Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | | | | | | | Derivatives not designated as hedging instruments: | | | | | | | |
| Foreign exchange instruments | 13 | | | 0 | | | (22) | | | 0 | | |
| Associated offsetting foreign exchange instruments | (13) | | | 0 | | | 13 | | | 0 | | |
| | Commodity contracts not subject to rate recovery | Commodity contracts not subject to rate recovery | 102 | | | 7 | | | (114) | | | (7) | | Commodity contracts not subject to rate recovery | 125 | | | 19 | | | (153) | | | (23) | |
| Associated offsetting commodity contracts | Associated offsetting commodity contracts | (100) | | | (4) | | | 100 | | | 4 | | Associated offsetting commodity contracts | (122) | | | (18) | | | 122 | | | 18 | |
| | Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | 17 | | | 84 | | | (32) | | | (29) | | Commodity contracts subject to rate recovery | 57 | | | 77 | | | (21) | | | (12) | |
| Associated offsetting commodity contracts | Associated offsetting commodity contracts | (2) | | | 0 | | | 2 | | | 0 | | Associated offsetting commodity contracts | (8) | | | (1) | | | 8 | | | 1 | |
| | Net amounts presented on the balance sheet | Net amounts presented on the balance sheet | 23 | | | 89 | | | (75) | | | (220) | | Net amounts presented on the balance sheet | 52 | | | 82 | | | (69) | | | (174) | |
Additional cash collateral for commodity contracts not subject to rate recovery | Additional cash collateral for commodity contracts not subject to rate recovery | 41 | | | 0 | | | 0 | | | 0 | | Additional cash collateral for commodity contracts not subject to rate recovery | 59 | | | 0 | | | 0 | | | 0 | |
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 | 27 | | | 0 | | | 0 | | | 0 | |
Total(2) | Total(2) | $ | 88 | | | $ | 89 | | | $ | (75) | | | $ | (220) | | Total(2) | $ | 138 | | | $ | 82 | | | $ | (69) | | | $ | (174) | |
| 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 | $ | 14 | | | $ | 84 | | | $ | (26) | | | $ | (29) | | Commodity contracts subject to rate recovery | $ | 48 | | | $ | 77 | | | $ | (15) | | | $ | (10) | |
| Associated offsetting commodity contracts | Associated offsetting commodity contracts | (2) | | | 0 | | | 2 | | | 0 | | Associated offsetting commodity contracts | (8) | | | (1) | | | 8 | | | 1 | |
| | Net amounts presented on the balance sheet | Net amounts presented on the balance sheet | 12 | | | 84 | | | (24) | | | (29) | | Net amounts presented on the balance sheet | 40 | | | 76 | | | (7) | | | (9) | |
| Additional cash collateral for commodity contracts subject to rate recovery | Additional cash collateral for commodity contracts subject to rate recovery | 22 | | | 0 | | | 0 | | | 0 | | Additional cash collateral for commodity contracts subject to rate recovery | 26 | | | 0 | | | 0 | | | 0 | |
Total(2) | Total(2) | $ | 34 | | | $ | 84 | | | $ | (24) | | | $ | (29) | | Total(2) | $ | 66 | | | $ | 76 | | | $ | (7) | | | $ | (9) | |
| 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 | | | $ | (6) | | | $ | 0 | | Commodity contracts subject to rate recovery | $ | 9 | | | $ | 0 | | | $ | (6) | | | $ | (2) | |
| | Net amounts presented on the balance sheet | Net amounts presented on the balance sheet | 3 | | | 0 | | | (6) | | | 0 | | Net amounts presented on the balance sheet | 9 | | | 0 | | | (6) | | | (2) | |
| Additional cash collateral for commodity contracts subject to rate recovery | Additional cash collateral for commodity contracts subject to rate recovery | 2 | | | 0 | | | 0 | | | 0 | | Additional cash collateral for commodity contracts subject to rate recovery | 1 | | | 0 | | | 0 | | | 0 | |
| Total | Total | $ | 5 | | | $ | 0 | | | $ | (6) | | | $ | 0 | | Total | $ | 10 | | | $ | 0 | | | $ | (6) | | | $ | (2) | |
(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 CONDENSED CONSOLIDATED BALANCE SHEETS | DERIVATIVE INSTRUMENTS ON THE CONDENSED CONSOLIDATED BALANCE SHEETS | DERIVATIVE INSTRUMENTS ON THE CONDENSED 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(1) | | 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 and foreign exchange instruments | Interest rate and foreign exchange instruments | $ | 0 | | | $ | 3 | | | $ | (17) | | | $ | (140) | | Interest rate and foreign exchange instruments | $ | 0 | | | $ | 1 | | | $ | (26) | | | $ | (160) | |
| | 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 | | | 0 | | | 0 | | | 0 | |
| 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) | | | 0 | | | 2 | | | 0 | |
| 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 | | | 0 | | | 0 | | | 0 | |
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 | | | 0 | | | 0 | | | 0 | |
Total(2) | Total(2) | $ | 126 | | | $ | 85 | | | $ | (53) | | | $ | (192) | | Total(2) | $ | 108 | | | $ | 100 | | | $ | (72) | | | $ | (188) | |
| 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 | $ | 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) | | | 0 | | | 1 | | | 0 | |
| 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 | | | 0 | | | 0 | | | 0 | |
Total(2) | Total(2) | $ | 42 | | | $ | 73 | | | $ | (23) | | | $ | (44) | | Total(2) | $ | 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 | | | $ | 0 | | | $ | (7) | | | $ | 0 | |
| Associated offsetting commodity contracts | Associated offsetting commodity contracts | (2) | | | 0 | | | 2 | | | 0 | | Associated offsetting commodity contracts | (1) | | | 0 | | | 1 | | | 0 | |
| | 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 | | | 0 | | | (6) | | | 0 | |
| 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 | | | 0 | | | 0 | | | 0 | |
| Total | Total | $ | 18 | | | $ | 0 | | | $ | (4) | | | $ | 0 | | Total | $ | 8 | | | $ | 0 | | | $ | (6) | | | $ | 0 | |
(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.
The following table below includes the effects of derivative instruments designated as cash flow hedges on the Condensed Consolidated Statements of Operations and in OCI and AOCI:AOCI.
| | CASH FLOW HEDGE IMPACTS | CASH FLOW HEDGE IMPACTS | CASH FLOW HEDGE IMPACTS |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Pretax gain (loss)
recognized in OCI | | Pretax (loss) gain reclassified
from AOCI into earnings | | Pretax (loss) gain
recognized in OCI | | Pretax gain (loss) reclassified
from AOCI into earnings |
| | Three months ended September 30, | | | | Three months ended September 30, | | Three months ended June 30, | | | | Three months ended June 30, |
| | | 2020 | | 2019 | | Location | | 2020 | | 2019 | | 2021 | | 2020 | | Location | | 2021 | | 2020 |
| Sempra Energy Consolidated: | | | | | | | | | | |
Interest rate and foreign exchange instruments(1) | $ | 14 | | | $ | (7) | | | Interest Expense(1) | | $ | (3) | | | $ | (1) | | |
| Other Income (Expense), Net | | 4 | | | (5) | | |
| Interest rate and foreign exchange instruments | 24 | | | (62) | | | Equity Earnings | | (5) | | | (2) | | |
| Sempra: | | Sempra: | | | | | | | | | |
| Interest rate instruments | | Interest rate instruments | $ | (6) | | | $ | (3) | | | Interest Expense | | $ | 1 | | | $ | (1) | |
| Interest rate instruments | | Interest rate instruments | (32) | | | (15) | | | Equity Earnings(1) | | (19) | | | (1) | |
| Foreign exchange instruments | Foreign exchange instruments | (2) | | | 1 | | | Foreign exchange instruments | (1) | | | (5) | | | Revenues: Energy- Related Businesses | | 0 | | | 0 | |
| | | Other Income (Expense), Net | | 0 | | | (1) | |
| Foreign exchange instruments | | Foreign exchange instruments | (1) | | | (3) | | | Equity Earnings(1) | | 0 | | | 0 | |
Interest rate and foreign exchange instruments | | Interest rate and foreign exchange instruments | 7 | | | 8 | | | Interest Expense | | 0 | | | (1) | |
| | | Other Income (Expense), Net | | 7 | | | 4 | |
| Total | Total | $ | 36 | | | $ | (68) | | | | | $ | (4) | | | $ | (8) | | Total | $ | (33) | | | $ | (18) | | | | | $ | (11) | | | $ | 0 | |
| SDG&E: | | | | | | | | | | |
Interest rate instruments(1) | $ | 0 | | | $ | 0 | | | Interest Expense(1) | | $ | 0 | | | $ | (1) | | |
| SoCalGas: | | |
| Interest rate instruments | $ | 0 | | | $ | 0 | | | Interest Expense | | $ | 0 | | | $ | (1) | | |
| | | | Nine months ended September 30, | | | | Nine months ended September 30, | |
| | | 2020 | | 2019 | | Location | | 2020 | | 2019 | |
| Sempra Energy Consolidated: | | | | | | | | | | |
Interest rate and foreign exchange instruments(1) | $ | (73) | | | $ | (25) | | | Interest Expense(1) | | $ | (7) | | | $ | (2) | | |
| | Other Income (Expense), Net | | (33) | | | 0 | | |
| | | | | Six months ended June 30, | | | | Six months ended June 30, |
| | | | 2021 | | 2020 | | Location | | 2021 | | 2020 |
| Sempra: | | Sempra: | | | | | | | | | |
| Interest rate instruments | Interest rate instruments | 0 | | | 0 | | | (Loss) Gain on Sale of Assets | | 0 | | | (10) | | Interest rate instruments | $ | 20 | | | $ | (50) | | | Interest Expense | | $ | (1) | | | $ | (3) | |
Interest rate and foreign
exchange instruments | (166) | | | (222) | | | Equity Earnings | | (6) | | | (3) | | |
| Interest rate instruments | | Interest rate instruments | 51 | | | (200) | | | Equity Earnings(1) | | (38) | | | (3) | |
| Foreign exchange instruments | Foreign exchange instruments | 14 | | | (3) | | | Revenues: Energy-
Related Businesses | | 2 | | | (1) | | Foreign exchange instruments | 2 | | | 16 | | | Revenues: Energy- Related Businesses | | (1) | | | 2 | |
| | Other Income (Expense), Net | | 1 | | | 0 | | | Other Income (Expense), Net | | 0 | | | 1 | |
| Foreign exchange instruments | | Foreign exchange instruments | 2 | | | 10 | | | Equity Earnings(1) | | (1) | | | 2 | |
Interest rate and foreign exchange instruments | | Interest rate and foreign exchange instruments | 1 | | | (37) | | | Interest Expense | | 0 | | | (1) | |
| | | Other Income (Expense), Net | | 1 | | | (37) | |
| Total | Total | $ | (225) | | | $ | (250) | | | | | $ | (43) | | | $ | (16) | | Total | $ | 76 | | | $ | (261) | | | | | $ | (40) | | | $ | (39) | |
| SDG&E: | | | | | | | | | | |
Interest rate instruments(1) | $ | 0 | | | $ | (1) | | | Interest Expense(1) | | $ | 0 | | | $ | (3) | | |
| SoCalGas: | | |
| Interest rate instruments | $ | 0 | | | $ | 0 | | | Interest Expense | | $ | 0 | | | $ | (1) | | |
|
(1) Amounts in 2019 include Otay Mesa VIE. All of SDG&E’s interest rate derivative activity relates to Otay Mesa VIE. On August 14, 2019, Otay Mesa Energy Center LLC paid in full its variable-rate loan and terminated its interest rate swaps.Equity earnings at Sempra Mexico are recognized after tax.
For Sempra, Energy Consolidated, we expect that net losses of $72$82 million, which are 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. 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 SeptemberJune 30, 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 Condensed Consolidated Statements of Operations.
| | UNDESIGNATED DERIVATIVE IMPACTS | UNDESIGNATED DERIVATIVE IMPACTS | | UNDESIGNATED DERIVATIVE IMPACTS | |
| (Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| | | | Pretax gain (loss) on derivatives recognized in earnings | | | Pretax (loss) gain on derivatives recognized in earnings |
| | | | Three months ended
September 30, | | Nine months ended
September 30, | | | Three months ended
June 30, | | Six months ended
June 30, |
| | | Location | 2020 | | 2019 | | 2020 | | 2019 | | Location | 2021 | | 2020 | | 2021 | | 2020 |
| Sempra Energy Consolidated: | | | | | | | | |
| Foreign exchange instruments | Other Income (Expense), Net | $ | 15 | | | $ | (12) | | | $ | (97) | | | $ | 7 | | |
| Sempra: | | Sempra: | | | | | | | |
| Commodity contracts not subject to rate recovery | Commodity contracts not subject to rate recovery | Revenues: Energy-Related Businesses | (39) | | | (8) | | | 25 | | | 9 | | Commodity contracts not subject to rate recovery | Revenues: Energy-Related Businesses | $ | (142) | | | $ | 13 | | | $ | (190) | | | $ | 64 | |
| Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | Cost of Electric Fuel and Purchased Power | 41 | | | 18 | | | 41 | | | (7) | | Commodity contracts subject to rate recovery | Cost of Natural Gas | 0 | | | (3) | | | 2 | | | (6) | |
Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | Cost of Natural Gas | 0 | | | (3) | | | (6) | | | (1) | | Commodity contracts subject to rate recovery | Cost of Electric Fuel and Purchased Power | 41 | | | 9 | | | 43 | | | 0 | |
| Foreign exchange instruments | | Foreign exchange instruments | Other Income (Expense), Net | 0 | | | 2 | | | (24) | | | (112) | |
| Total | Total | | $ | 17 | | | $ | (5) | | | $ | (37) | | | $ | 8 | | Total | | $ | (101) | | | $ | 21 | | | $ | (169) | | | $ | (54) | |
| SDG&E: | SDG&E: | | | | | | | | SDG&E: | | | | | | | |
| Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | Cost of Electric Fuel and Purchased Power | $ | 41 | | | $ | 18 | | | $ | 41 | | | $ | (7) | | Commodity contracts subject to rate recovery | Cost of Electric Fuel and Purchased Power | $ | 41 | | | $ | 9 | | | $ | 43 | | | $ | 0 | |
| | SoCalGas: | SoCalGas: | | | | | | | | SoCalGas: | | | | | | | |
| Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | Cost of Natural Gas | $ | 0 | | | $ | (3) | | | $ | (6) | | | $ | (1) | | Commodity contracts subject to rate recovery | Cost of Natural Gas | $ | 0 | | | $ | (3) | | | $ | 2 | | | $ | (6) | |
|
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 net liability position at SeptemberJune 30, 20202021 and December 31, 20192020 was $8$26 million and $21$16 million, respectively. For SoCalGas, the total fair value of this group of derivative instruments in a net liability position at SeptemberJune 30, 20202021 and December 31, 20192020 was $7$8 million and $4$6 million, respectively. At SeptemberJune 30, 2020,2021, if the credit ratings of Sempra Energy or SoCalGas were reduced below investment grade, $8$26 million and $7$8 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 9. FAIR VALUE MEASUREMENTS
We discuss the valuation techniques and inputs we use to measure fair value and the definition of the three levels of the fair value hierarchy in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.
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 SeptemberJune 30, 20202021 and December 31, 2019.2020. 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. We have not changed the valuation techniques or types of inputs we use to measure recurring fair value since December 31, 2019.2020.
The fair value of commodity derivative assets and liabilities is presented in accordance with our netting policy, as we discuss in Note 8 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 net asset value):following:
▪Nuclear decommissioning trusts reflect the assets of SDG&E’s NDT, excluding cash balances.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 securities 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 both SeptemberJune 30, 20202021 and December 31, 2019.2020.
▪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.”
| | 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 September 30, 2020 | | Fair value at June 30, 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: | | | | | | | |
| Equity securities | Equity securities | $ | 382 | | | $ | 7 | | | $ | 0 | | | $ | 389 | | Equity securities | $ | 361 | | | $ | 6 | | | $ | 0 | | | $ | 367 | |
| 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 | 26 | | | 23 | | | 0 | | | 49 | | Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | 48 | | | 13 | | | 0 | | | 61 | |
| Municipal bonds | Municipal bonds | 0 | | | 335 | | | 0 | | | 335 | | Municipal bonds | 0 | | | 324 | | | 0 | | | 324 | |
| Other securities | Other securities | 0 | | | 271 | | | 0 | | | 271 | | Other securities | 0 | | | 268 | | | 0 | | | 268 | |
| Total debt securities | Total debt securities | 26 | | | 629 | | | 0 | | | 655 | | Total debt securities | 48 | | | 605 | | | 0 | | | 653 | |
Total nuclear decommissioning trusts(1) | Total nuclear decommissioning trusts(1) | 408 | | | 636 | | | 0 | | | 1,044 | | Total nuclear decommissioning trusts(1) | 409 | | | 611 | | | 0 | | | 1,020 | |
| Interest rate and foreign exchange instruments | Interest rate and foreign exchange instruments | 0 | | | 8 | | | 0 | | | 8 | | Interest rate and foreign exchange instruments | 0 | | | 5 | | | 0 | | | 5 | |
| Commodity contracts not subject to rate recovery | Commodity contracts not subject to rate recovery | 0 | | | 5 | | | 0 | | | 5 | | Commodity contracts not subject to rate recovery | 0 | | | 4 | | | 0 | | | 4 | |
Effect of netting and allocation of collateral(2) | Effect of netting and allocation of collateral(2) | 41 | | | 0 | | | 0 | | | 41 | | Effect of netting and allocation of collateral(2) | 59 | | | 0 | | | 0 | | | 59 | |
| Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | 9 | | | 4 | | | 86 | | | 99 | | Commodity contracts subject to rate recovery | 14 | | | 15 | | | 96 | | | 125 | |
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) | 21 | | | 0 | | | 6 | | | 27 | |
| Support Agreement, net of related guarantee fees | Support Agreement, net of related guarantee fees | 0 | | | 0 | | | 6 | | | 6 | | Support Agreement, net of related guarantee fees | 0 | | | 0 | | | 7 | | | 7 | |
| Total | Total | $ | 476 | | | $ | 653 | | | $ | 98 | | | $ | 1,227 | | Total | $ | 503 | | | $ | 635 | | | $ | 109 | | | $ | 1,247 | |
| | Liabilities: | Liabilities: | | | | | | | | Liabilities: | | | | | | | |
| Interest rate and foreign exchange instruments | Interest rate and foreign exchange instruments | $ | 0 | | | $ | 219 | | | $ | 0 | | | $ | 219 | | Interest rate and foreign exchange instruments | $ | 0 | | | $ | 183 | | | $ | 0 | | | $ | 183 | |
| Commodity contracts not subject to rate recovery | Commodity contracts not subject to rate recovery | 0 | | | 17 | | | 0 | | | 17 | | Commodity contracts not subject to rate recovery | 0 | | | 36 | | | 0 | | | 36 | |
| Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | 0 | | | 6 | | | 53 | | | 59 | | Commodity contracts subject to rate recovery | 0 | | | 8 | | | 16 | | | 24 | |
| | Support Agreement, net of related guarantee fees | | Support Agreement, net of related guarantee fees | 0 | | | 0 | | | 3 | | | 3 | |
| Total | Total | $ | 0 | | | $ | 242 | | | $ | 53 | | | $ | 295 | | Total | $ | 0 | | | $ | 227 | | | $ | 19 | | | $ | 246 | |
| | | | 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: | | | | | | | |
| Nuclear decommissioning trusts: | Nuclear decommissioning trusts: | | | | | | | | Nuclear decommissioning trusts: | | | | | | | |
| Equity securities | Equity securities | $ | 503 | | | $ | 6 | | | $ | 0 | | | $ | 509 | | Equity securities | $ | 358 | | | $ | 6 | | | $ | 0 | | | $ | 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 | 46 | | | 11 | | | 0 | | | 57 | | Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | 41 | | | 24 | | | 0 | | | 65 | |
| Municipal bonds | Municipal bonds | 0 | | | 282 | | | 0 | | | 282 | | Municipal bonds | 0 | | | 326 | | | 0 | | | 326 | |
| Other securities | Other securities | 0 | | | 226 | | | 0 | | | 226 | | Other securities | 0 | | | 270 | | | 0 | | | 270 | |
| Total debt securities | Total debt securities | 46 | | | 519 | | | 0 | | | 565 | | Total debt securities | 41 | | | 620 | | | 0 | | | 661 | |
Total nuclear decommissioning trusts(1) | Total nuclear decommissioning trusts(1) | 549 | | | 525 | | | 0 | | | 1,074 | | Total nuclear decommissioning trusts(1) | 399 | | | 626 | | | 0 | | | 1,025 | |
| Interest rate and foreign exchange instruments | Interest rate and foreign exchange instruments | 0 | | | 24 | | | 0 | | | 24 | | Interest rate and foreign exchange instruments | 0 | | | 25 | | | 0 | | | 25 | |
| Commodity contracts not subject to rate recovery | Commodity contracts not subject to rate recovery | 0 | | | 11 | | | 0 | | | 11 | | Commodity contracts not subject to rate recovery | 0 | | | 4 | | | 0 | | | 4 | |
Effect of netting and allocation of collateral(2) | Effect of netting and allocation of collateral(2) | 43 | | | 0 | | | 0 | | | 43 | | Effect of netting and allocation of collateral(2) | 21 | | | 0 | | | 0 | | | 21 | |
| Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | 5 | | | 8 | | | 95 | | | 108 | | 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) | 11 | | | 8 | | | 6 | | | 25 | | 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 | 0 | | | 0 | | | 7 | | | 7 | |
| Total | Total | $ | 608 | | | $ | 576 | | | $ | 101 | | | $ | 1,285 | | Total | $ | 445 | | | $ | 661 | | | $ | 134 | | | $ | 1,240 | |
| | Liabilities: | Liabilities: | | | | | | | | Liabilities: | | | | | | | |
| Interest rate and foreign exchange instruments | Interest rate and foreign exchange instruments | $ | 0 | | | $ | 157 | | | $ | 0 | | | $ | 157 | | Interest rate and foreign exchange instruments | $ | 0 | | | $ | 186 | | | $ | 0 | | | $ | 186 | |
| Commodity contracts not subject to rate recovery | Commodity contracts not subject to rate recovery | 0 | | | 17 | | | 0 | | | 17 | | Commodity contracts not subject to rate recovery | 0 | | | 16 | | | 0 | | | 16 | |
| Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | 14 | | | 4 | | | 67 | | | 85 | | Commodity contracts subject to rate recovery | 0 | | | 6 | | | 52 | | | 58 | |
Effect of netting and allocation of collateral(2) | (14) | | | 0 | | | 0 | | | (14) | | |
| | Support Agreement, net of related guarantee fees | | Support Agreement, net of related guarantee fees | 0 | | | 0 | | | 4 | | | 4 | |
| Total | Total | $ | 0 | | | $ | 178 | | | $ | 67 | | | $ | 245 | | Total | $ | 0 | | | $ | 208 | | | $ | 56 | | | $ | 264 | |
cash equivalents.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 | RECURRING FAIR VALUE MEASURES – SDG&E | RECURRING FAIR VALUE MEASURES – SDG&E |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | | Fair value at September 30, 2020 | | Fair value at June 30, 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: | | | | | | | |
| Equity securities | Equity securities | $ | 382 | | | $ | 7 | | | $ | 0 | | | $ | 389 | | Equity securities | $ | 361 | | | $ | 6 | | | $ | 0 | | | $ | 367 | |
| 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 | 26 | | | 23 | | | 0 | | | 49 | | Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | 48 | | | 13 | | | 0 | | | 61 | |
| Municipal bonds | Municipal bonds | 0 | | | 335 | | | 0 | | | 335 | | Municipal bonds | 0 | | | 324 | | | 0 | | | 324 | |
| Other securities | Other securities | 0 | | | 271 | | | 0 | | | 271 | | Other securities | 0 | | | 268 | | | 0 | | | 268 | |
| Total debt securities | Total debt securities | 26 | | | 629 | | | 0 | | | 655 | | Total debt securities | 48 | | | 605 | | | 0 | | | 653 | |
Total nuclear decommissioning trusts(1) | Total nuclear decommissioning trusts(1) | 408 | | | 636 | | | 0 | | | 1,044 | | Total nuclear decommissioning trusts(1) | 409 | | | 611 | | | 0 | | | 1,020 | |
| | Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | 9 | | | 1 | | | 86 | | | 96 | | Commodity contracts subject to rate recovery | 14 | | | 6 | | | 96 | | | 116 | |
Effect of netting and allocation of collateral(2) | Effect of netting and allocation of collateral(2) | 16 | | | 0 | | | 6 | | | 22 | | Effect of netting and allocation of collateral(2) | 20 | | | 0 | | | 6 | | | 26 | |
| Total | Total | $ | 433 | | | $ | 637 | | | $ | 92 | | | $ | 1,162 | | Total | $ | 443 | | | $ | 617 | | | $ | 102 | | | $ | 1,162 | |
| | Liabilities: | Liabilities: | | | | | | | | Liabilities: | | | | | | | |
| | Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | $ | 0 | | | $ | 0 | | | $ | 53 | | | $ | 53 | | Commodity contracts subject to rate recovery | $ | 0 | | | $ | 0 | | | $ | 16 | | | $ | 16 | |
| | Total | Total | $ | 0 | | | $ | 0 | | | $ | 53 | | | $ | 53 | | Total | $ | 0 | | | $ | 0 | | | $ | 16 | | | $ | 16 | |
| | | | 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: | | | | | | | |
| Nuclear decommissioning trusts: | Nuclear decommissioning trusts: | | | | | | | | Nuclear decommissioning trusts: | | | | | | | |
| Equity securities | Equity securities | $ | 503 | | | $ | 6 | | | $ | 0 | | | $ | 509 | | Equity securities | $ | 358 | | | $ | 6 | | | $ | 0 | | | $ | 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 | 46 | | | 11 | | | 0 | | | 57 | | Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | 41 | | | 24 | | | 0 | | | 65 | |
| Municipal bonds | Municipal bonds | 0 | | | 282 | | | 0 | | | 282 | | Municipal bonds | 0 | | | 326 | | | 0 | | | 326 | |
| Other securities | Other securities | 0 | | | 226 | | | 0 | | | 226 | | Other securities | 0 | | | 270 | | | 0 | | | 270 | |
| Total debt securities | Total debt securities | 46 | | | 519 | | | 0 | | | 565 | | Total debt securities | 41 | | | 620 | | | 0 | | | 661 | |
Total nuclear decommissioning trusts(1) | Total nuclear decommissioning trusts(1) | 549 | | | 525 | | | 0 | | | 1,074 | | Total nuclear decommissioning trusts(1) | 399 | | | 626 | | | 0 | | | 1,025 | |
| Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | 1 | | | 3 | | | 95 | | | 99 | | Commodity contracts subject to rate recovery | 5 | | | 0 | | | 121 | | | 126 | |
Effect of netting and allocation of collateral(2) | Effect of netting and allocation of collateral(2) | 10 | | | 0 | | | 6 | | | 16 | | Effect of netting and allocation of collateral(2) | 18 | | | 0 | | | 6 | | | 24 | |
| Total | Total | $ | 560 | | | $ | 528 | | | $ | 101 | | | $ | 1,189 | | Total | $ | 422 | | | $ | 626 | | | $ | 127 | | | $ | 1,175 | |
| | Liabilities: | Liabilities: | | | | | | | | Liabilities: | | | | | | | |
| | Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | $ | 14 | | | $ | 0 | | | $ | 67 | | | $ | 81 | | Commodity contracts subject to rate recovery | $ | 0 | | | $ | 0 | | | $ | 52 | | | $ | 52 | |
Effect of netting and allocation of collateral(2) | (14) | | | 0 | | | 0 | | | (14) | | |
| | Total | Total | $ | 0 | | | $ | 0 | | | $ | 67 | | | $ | 67 | | Total | $ | 0 | | | $ | 0 | | | $ | 52 | | | $ | 52 | |
(1) Excludes cash, cash equivalents and cash equivalents.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 September 30, 2020 | | Fair value at June 30, 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 | $ | 0 | | | $ | 3 | | | $ | 0 | | | $ | 3 | | Commodity contracts subject to rate recovery | $ | 0 | | | $ | 9 | | | $ | 0 | | | $ | 9 | |
Effect of netting and allocation of collateral(1) | Effect of netting and allocation of collateral(1) | 2 | | | 0 | | | 0 | | | 2 | | Effect of netting and allocation of collateral(1) | 1 | | | 0 | | | 0 | | | 1 | |
| Total | Total | $ | 2 | | | $ | 3 | | | $ | 0 | | | $ | 5 | | Total | $ | 1 | | | $ | 9 | | | $ | 0 | | | $ | 10 | |
| | 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 | $ | 0 | | | $ | 8 | | | $ | 0 | | | $ | 8 | |
| Total | Total | $ | 0 | | | $ | 6 | | | $ | 0 | | | $ | 6 | | Total | $ | 0 | | | $ | 8 | | | $ | 0 | | | $ | 8 | |
| | | | 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 | $ | 4 | | | $ | 5 | | | $ | 0 | | | $ | 9 | | Commodity contracts subject to rate recovery | $ | 1 | | | $ | 1 | | | $ | 0 | | | $ | 2 | |
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 | | | 5 | | | 0 | | | 6 | |
| Total | Total | $ | 5 | | | $ | 13 | | | $ | 0 | | | $ | 18 | | Total | $ | 2 | | | $ | 6 | | | $ | 0 | | | $ | 8 | |
| | 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 | $ | 0 | | | $ | 6 | | | $ | 0 | | | $ | 6 | |
| Total | Total | $ | 0 | | | $ | 4 | | | $ | 0 | | | $ | 4 | | Total | $ | 0 | | | $ | 6 | | | $ | 0 | | | $ | 6 | |
(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) |
| | | Three months ended September 30, | | Three months ended June 30, |
| | | 2020 | | 2019 | | 2021 | | 2020 |
| Balance at July 1 | $ | 17 | | | $ | 176 | | |
| Realized and unrealized losses | (4) | | | (24) | | |
| Balance at April 1 | | Balance at April 1 | $ | 62 | | | $ | 16 | |
| Realized and unrealized gains (losses) | | Realized and unrealized gains (losses) | 8 | | | (9) | |
| Allocated transmission instruments | Allocated transmission instruments | 1 | | | 0 | | Allocated transmission instruments | (2) | | | 1 | |
| Settlements | Settlements | 19 | | | 27 | | Settlements | 12 | | | 9 | |
| Balance at September 30 | $ | 33 | | | $ | 179 | | |
| Change in unrealized gains (losses) relating to instruments still held at September 30 | $ | 7 | | | $ | 1 | | |
| Balance at June 30 | | Balance at June 30 | $ | 80 | | | $ | 17 | |
| Change in unrealized gains (losses) relating to instruments still held at June 30 | | Change in unrealized gains (losses) relating to instruments still held at June 30 | $ | 14 | | | $ | (5) | |
| | Nine months ended September 30, | | Six months ended June 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| Balance at January 1 | Balance at January 1 | $ | 28 | | | $ | 179 | | Balance at January 1 | $ | 69 | | | $ | 28 | |
| Realized and unrealized losses | (18) | | | (32) | | |
| Realized and unrealized gains (losses) | | Realized and unrealized gains (losses) | 6 | | | (14) | |
| Allocated transmission instruments | Allocated transmission instruments | 2 | | | 0 | | Allocated transmission instruments | (2) | | | 1 | |
| Settlements | Settlements | 21 | | | 32 | | Settlements | 7 | | | 2 | |
| Balance at September 30 | $ | 33 | | | $ | 179 | | |
| Change in unrealized gains (losses) relating to instruments still held at September 30 | $ | (1) | | | $ | 12 | | |
| Balance at June 30 | | Balance at June 30 | $ | 80 | | | $ | 17 | |
| Change in unrealized gains (losses) relating to instruments still held at June 30 | | Change in unrealized gains (losses) relating to instruments still held at June 30 | $ | 12 | | | $ | (13) | |
(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 |
| 2021 | | 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 8.
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 SeptemberJune 30 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 | $ | 22.45 | | to | $ | 151.90 | | $ | 49.27 | |
| 2020 | 2020 | $ | 19.45 | | to | $ | 71.25 | | $ | 38.14 | | 2020 | | 20.35 | | to | | 51.60 | | | 34.68 | |
| 2019 | | 21.60 | | to | | 57.20 | | | 38.29 | | |
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 8.
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 Condensed Consolidated Statements of Operations. Because unrealized gains and losses are recorded as regulatory assets and liabilities, they do not affect earnings.
Sempra LNG
The table below sets forth a reconciliation 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.
| | | | | | | |
| LEVEL 3 RECONCILIATION |
| (Dollars in millions) |
| | Three months ended SeptemberJune 30, 20202021 | | |
| | | |
Balance at JulyApril 1 | $ | 03 | | | |
Realized and unrealized gains(1) | 73 | | | |
| Settlements | (1)(2) | | | |
Balance at SeptemberJune 30(2) | $ | 64 | | | |
Change in unrealized gains (losses) relating to instruments still held at SeptemberJune 30 | $ | 62 | | | |
| Six months ended June 30, 2021 |
| Balance at January 1 | $ | 3 | | | |
Realized and unrealized gains(1) | 5 | | | |
| Settlements | (4) | | | |
Balance at June 30(2) | $ | 4 | | | |
| Change in unrealized gains (losses) relating to instruments still held at June 30 | $ | | |
| | | |
| 4 | | | |
(1) Net gains are included in Interest Income and net losses are included in Interest Expense on the Sempra EnergySempra’s Condensed Consolidated StatementsStatement of Operations.
(2) IncludedIncludes $7 million in Other Current Assets offset by $3 million in Deferred Credits and Other on the Sempra EnergySempra’s Condensed Consolidated Balance Sheets.Sheet.
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 Condensed Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FAIR VALUE OF FINANCIAL INSTRUMENTS |
| (Dollars in millions) |
| | September 30, 2020 |
| | Carrying
amount | | Fair value |
| | | Level 1 | | Level 2 | | Level 3 | | Total |
| Sempra Energy Consolidated: | | | | | | | | | |
Long-term amounts due from unconsolidated affiliates(1) | $ | 620 | | | $ | 0 | | | $ | 649 | | | $ | 0 | | | $ | 649 | |
| Long-term amounts due to unconsolidated affiliates | 271 | | | 0 | | | 280 | | | 0 | | | 280 | |
Total long-term debt(2) | 23,588 | | | 0 | | | 26,105 | | | 0 | | | 26,105 | |
| SDG&E: | | | | | | | | | |
Total long-term debt(3) | $ | 6,505 | | | $ | 0 | | | $ | 7,481 | | | $ | 0 | | | $ | 7,481 | |
| SoCalGas: | | | | | | | | | |
Total long-term debt(4) | $ | 4,759 | | | $ | 0 | | | $ | 5,573 | | | $ | 0 | | | $ | 5,573 | |
| | | | | | | | | |
| | December 31, 2019 |
| | Carrying
amount | | Fair value |
| | | Level 1 | | Level 2 | | Level 3 | | Total |
| Sempra Energy Consolidated: | | | | | | | | | |
| Long-term amounts due from unconsolidated affiliates | $ | 742 | | | $ | 0 | | | $ | 759 | | | $ | — | | | $ | 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FAIR VALUE OF FINANCIAL INSTRUMENTS |
| (Dollars in millions) |
| | June 30, 2021 |
| | Carrying
amount | | Fair value |
| | | Level 1 | | Level 2 | | Level 3 | | Total |
| Sempra: | | | | | | | | | |
Long-term amounts due from unconsolidated affiliates(1) | $ | 705 | | | $ | 0 | | | $ | 722 | | | $ | 0 | | | $ | 722 | |
| Long-term amounts due to unconsolidated affiliates | 304 | | | 0 | | | 325 | | | 0 | | | 325 | |
Total long-term debt(2) | 21,520 | | | 0 | | | 24,003 | | | 0 | | | 24,003 | |
| SDG&E: | | | | | | | | | |
Total long-term debt(3) | $ | 6,036 | | | $ | 0 | | | $ | 6,948 | | | $ | 0 | | | $ | 6,948 | |
| SoCalGas: | | | | | | | | | |
Total long-term debt(4) | $ | 4,759 | | | $ | 0 | | | $ | 5,424 | | | $ | 0 | | | $ | 5,424 | |
| | | | | | | | | |
| | December 31, 2020 |
| | Carrying
amount | | Fair value |
| | | Level 1 | | Level 2 | | Level 3 | | Total |
| Sempra: | | | | | | | | | |
Long-term amounts due from unconsolidated affiliates(1) | $ | 786 | | | $ | — | | | $ | 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 | |
(1) Before allowances for credit losses of $1 million and $3 million at SeptemberJune 30, 2020.2021 and December 31, 2020, respectively. Includes $2 million and $3 million in Due From Unconsolidated Affiliates – Current at June 30, 2021 and December 31, 2020, respectively.
(2) Before reductions of unamortized discount and debt issuance costs of $263$258 million and $225$268 million at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively, and excluding finance lease obligations of $1,335 million and $1,289$1,330 million at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively.
(3) Before reductions of unamortized discount and debt issuance costs of $59$50 million and $48$52 million at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively, and excluding finance lease obligations of $1,278 million and $1,270$1,276 million at Septemberboth June 30, 20202021 and December 31, 2019, respectively.2020.
(4) Before reductions of unamortized discount and debt issuance costs of $41$38 million and $34$40 million at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively, and excluding finance lease obligations of $57$59 million and $19$54 million at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively.
We provide the fair values for the securities held in the NDT related to SONGS in Note 10.
NOTE 10. SAN ONOFRE NUCLEAR GENERATING STATION
We provide below updates to ongoing matters related to SONGS, a nuclear generating facility near San Clemente, California that permanently ceased operations in June 2013, and in which SDG&E has a 20% ownership interest. We discuss SONGS further in Note 15 of the Notes to Consolidated Financial Statements in the Annual Report.
NUCLEAR DECOMMISSIONING AND FUNDING
As a result of Edison’s decision to permanently retire SONGS Units 2 and 3, Edison began the decommissioning phase of the plant. 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 California Coastal Commission’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 contract price.decommissioning 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. A tentative ruling was issued in June 2021, denying the petition. In September 2020, the foundation filed another writ petition under the California Coastal Act in LA Superior Court seeking to set aside the California Coastal Commission’s July 2020 approval of the
inspection and maintenance plan for the SONGS’ canisters and to obtain injunctive relief to stop decommissioning work. A trial date for this petition has been set for April 2022. 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 amounts collected in rates for SONGS’ decommissioning are invested in the NDT, which is comprised of externally managed trust funds. Amounts held by the NDT are invested in accordance with CPUC regulations. SDG&E classifies debt and equity securities held in the NDT as available-for-sale. The NDT assets are presented on the Sempra Energy and SDG&E Condensed Consolidated Balance Sheets at fair value with the offsetting credits recorded in noncurrent Regulatory Liabilities.
Except for the use of funds for the planning of decommissioning activities or NDT administrative costs, CPUC approval is required for SDG&E to access the NDT assets to fund SONGS decommissioning costs for Units 2 and 3. In MarchDecember 2020, SDG&E received authorization from the CPUC to access NDT funds of up to $109$89 million for forecasted 20202021 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.
The following table shows the fair values and gross unrealized gains and losses for the securities held in the NDT. We provide additional fair value disclosures for the NDT in Note 9.
| | NUCLEAR DECOMMISSIONING TRUSTS | 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 September 30, 2020: | | | | | | | | |
| At June 30, 2021: | | At June 30, 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) | $ | 48 | | | $ | 1 | | | $ | 0 | | | $ | 49 | | Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies(1) | $ | 61 | | | $ | 0 | | | $ | 0 | | | $ | 61 | |
Municipal bonds(2) | Municipal bonds(2) | 318 | | | 18 | | | (1) | | | 335 | | Municipal bonds(2) | 308 | | | 16 | | | 0 | | | 324 | |
Other securities(3) | Other securities(3) | 258 | | | 14 | | | (1) | | | 271 | | Other securities(3) | 257 | | | 12 | | | (1) | | | 268 | |
| Total debt securities | Total debt securities | 624 | | | 33 | | | (2) | | | 655 | | Total debt securities | 626 | | | 28 | | | (1) | | | 653 | |
| Equity securities | Equity securities | 147 | | | 254 | | | (12) | | | 389 | | Equity securities | 104 | | | 264 | | | (1) | | | 367 | |
| Cash and cash equivalents | Cash and cash equivalents | 13 | | | 0 | | | 0 | | | 13 | | Cash and cash equivalents | 8 | | | 0 | | | 0 | | | 8 | |
| Payables, net | | Payables, net | (4) | | | 0 | | | 0 | | | (4) | |
| Total | Total | $ | 784 | | | $ | 287 | | | $ | (14) | | | $ | 1,057 | | Total | $ | 734 | | | $ | 292 | | | $ | (2) | | | $ | 1,024 | |
| At December 31, 2019: | | | | | | | | |
| At December 31, 2020: | | At December 31, 2020: | | | | | | | |
| 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 | $ | 64 | | | $ | 1 | | | $ | 0 | | | $ | 65 | |
| Municipal bonds | Municipal bonds | 270 | | | 12 | | | 0 | | | 282 | | Municipal bonds | 308 | | | 18 | | | 0 | | | 326 | |
| Other securities | Other securities | 218 | | | 9 | | | (1) | | | 226 | | Other securities | 253 | | | 17 | | | 0 | | | 270 | |
| Total debt securities | Total debt securities | 545 | | | 21 | | | (1) | | | 565 | | Total debt securities | 625 | | | 36 | | | 0 | | | 661 | |
| Equity securities | Equity securities | 176 | | | 339 | | | (6) | | | 509 | | Equity securities | 112 | | | 254 | | | (2) | | | 364 | |
| Cash and cash equivalents | Cash and cash equivalents | 8 | | | 0 | | | 0 | | | 8 | | Cash and cash equivalents | 3 | | | 0 | | | 0 | | | 3 | |
| Payables, net | | Payables, net | (9) | | | 0 | | | 0 | | | (9) | |
| Total | Total | $ | 729 | | | $ | 360 | | | $ | (7) | | | $ | 1,082 | | Total | $ | 731 | | | $ | 290 | | | $ | (2) | | | $ | 1,019 | |
(1) Maturity dates are 2022-2050.2022-2051.
(2) Maturity dates are 2020-2056.2021-2056.
(3) Maturity dates are 2020-2072.2022-2072.
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 NDT | | SALES OF SECURITIES IN THE NDT | |
| (Dollars in millions) | (Dollars in millions) | | | (Dollars in millions) | |
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended June 30, | | Six months ended June 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Proceeds from sales | Proceeds from sales | $ | 294 | | | $ | 231 | | | $ | 1,091 | | | $ | 728 | | Proceeds from sales | $ | 254 | | | $ | 245 | | | $ | 542 | | | $ | 797 | |
| Gross realized gains | Gross realized gains | 9 | | | 5 | | | 108 | | | 18 | | Gross realized gains | 18 | | | 7 | | | 39 | | | 99 | |
| Gross realized losses | Gross realized losses | (2) | | | (1) | | | (13) | | | (4) | | Gross realized losses | (1) | | | (6) | | | (3) | | | (11) | |
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 Condensed Consolidated Balance Sheets. We determine the cost of securities in the trusts on the basis of specific identification.
ASSET RETIREMENT OBLIGATION AND SPENT NUCLEAR FUEL
The present value of SDG&E’s ARO related to decommissioning costs for the SONGS units was $593$563 million at SeptemberJune 30, 2020.2021. That amount includes the cost to decommission Units 2 and 3, and the remaining cost to complete the decommissioning of Unit 1, which is substantially complete. The ARO for all three units is based on a cost study prepared in 2017 that is pending CPUC approval. The ARO for Units 2 and 3 reflects the acceleration of the start of decommissioning of these units as a result of the early closure of the plant. SDG&E’s share of total decommissioning costs in 20202021 dollars is approximately $860$886 million.
U.S. DEPARTMENT OF ENERGY NUCLEAR FUEL DISPOSAL
Spent nuclear fuel from SONGS is currently stored on-site in an ISFSI licensed by the Nuclear Regulatory Commission. In October 2015, the California Coastal Commission 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. 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 ownersco-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 11. 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 applicable insurance coverage and could materially adversely affect our business, cash flows, results of operations, financial condition andand/or prospects. Unless otherwise indicated, we are unable to estimate reasonably possible losses in excess of any amounts accrued.
At SeptemberJune 30, 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 $444$523 million for Sempra, Energy Consolidated, including $299$445 million for SoCalGas. Amounts for Sempra Energy Consolidated and SoCalGas include $273$419 million for matters related to the Aliso Canyon natural gas storage facility gas leak,Leak, which we discuss below.
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. As of NovemberAugust 2, 2020, 3942021, 396 lawsuits, including approximately 36,000 plaintiffs, are 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, which named only Sempra, 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, through which their separate lawsuits will be 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 with certain causes of action also naming Sempra Energy.and Sempra. 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 violation of requirements for warning about certain chemical exposures), and attorneys’ fees. The initialcourt has scheduled trial previously scheduled for June 2020 for a small number of randomly selected individual plaintiffs was postponed, with a new trial date to be determined by the court.for February 2022.
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.
ThreeFive property developers filed complaints in July and October of 2018 against SoCalGas and Sempra Energy alleging causes of action for strict liability, negligence per se, negligence, continuing nuisance, permanent nuisance and violation of the California Unfair Competition Law, 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 and 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 against SoCalGas and Sempra Energy assert causes 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’sattorneys’ fees.
NaN shareholder derivative actions are also pendingwere filed alleging breach of fiduciary duties against certain officers and certain directors of Sempra Energy and/or SoCalGas, threeSoCalGas. Three of whichthe actions were joined in an Amended Consolidated Shareholder Derivative Complaint, which was dismissed with prejudice in January 2021. The plaintiffs have filed in February 2020.a notice of appeal. The remaining action was also dismissed but plaintiffs were given leave to amend their complaint.
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. The plaintiffs have appealed the dismissal.
In February 2019, the LA Superior Court approved a settlement between SoCalGasprejudice, and the Los Angeles City Attorney’s Office, the County of Los Angeles, the California Office of the Attorney General and CARB of 3 actions filed by these entities under which SoCalGas made payments and agreed 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 by2021, 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 theU.S. Court of Appeal to vacateAppeals for the judgment, contending they should be granted restitution. In July 2019,Ninth Circuit affirmed 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.dismissal.
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.
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 Safety Enforcement Division (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,The SED, based largely on the Blade report, has alleged a total of 330324 violations, asserting that SoCalGas violated
California Public Utilities Code Section 451 and failed to cooperate in the investigation and to keep proper records. We expect hearingsHearings on a subset of issues began in the first phase of the OII to begin in the first quarter ofMarch 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, which could result in little or no recovery of such costs by SoCalGas. SoCalGas ishas 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. The CPUC is scheduled to issue its report for Phase 2 by March 31, 2021. In December 2019, the CPUC added a third phase of the proceeding to considerand engaged a consultant who is analyzing alternative means for meeting or avoiding the demand for the facility’s services if it were eliminated in either the 2027 or 2045.2035 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.
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 significantly higher than expected operating costs and/or additional capital expenditures, and natural gas reliability and electric generation could be jeopardized. At SeptemberJune 30, 2020,2021, the Aliso Canyon natural gas storage facility had a net book value of $788$858 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, could have a material adverse effect on SoCalGas’ and Sempra Energy’sSempra’s results of operations, financial condition and cash flows.
Cost Estimates, Accounting Impact and Insurance. SoCalGas has incurred significant costs 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 SeptemberJune 30, 2020,2021, SoCalGas estimates these costs related to the Leak are $1,440$1,627 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 $268$422 million is accrued as Reserve for Aliso Canyon Costs and $7 million is accrued in Deferred Credits and Other as of SeptemberJune 30, 20202021 on SoCalGas’ and Sempra Energy’sSempra’s Condensed Consolidated Balance Sheets.
In the first quarter of 2020, SoCalGas recorded an accrual of $277 million in costs, inclusive of estimated legal costs, of whichrelated to settlement discussions in connection with civil litigation described above in “Civil Litigation.” Of this amount, $177 million was recorded in Insurance Receivable for Aliso Canyon Costs on the SoCalGas and Sempra Energy Condensed
Consolidated Balance Sheets and $100 million ($72 million after tax) was recorded in O&MAliso Canyon Litigation and Regulatory Matters on the SoCalGas and Sempra Energy Condensed Consolidated Statements of Operations related to settlement discussions in connection with the private plaintiffs’ actions described in “Civil and Criminal Litigation” above. SoCalGas continues to monitor and evaluate the status of the private plaintiffs’ actions and the OII described in “Regulatory Proceedings” above and, in the third quarter of 2020, recorded an additional accrual of $27 million ($22 million after tax) in O&M on SoCalGas’ and Sempra Energy’s Condensed Consolidated Statement of Operations. These accruals are included in the cost estimate that we describe above.
Except for the amounts paid or estimated to settle certain actions,legal and regulatory matters as described in “Civil and Criminal Litigation” above, the cost estimate does not include all litigation, regulatory proceedings or regulatory costs to the extent it is not possible to predict, at this time, the outcome of these actions or reasonably estimate the costs to defend or resolve the actions or the amount of damages, restitution, civil or civil, administrative or criminal fines, sanctions, penalties 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. These costs not included in the cost estimate could be significant and could have a material adverse effect on SoCalGas’ and Sempra Energy’sSempra’s cash flows, financial condition and results of operations.
We have received insurance payments for many of the 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 June 30, 2021, we recorded the expected recovery of the cost estimate related to the Leak of $414 million as Insurance Receivable for Aliso Canyon Costs on SoCalGas’ and Sempra’s Condensed Consolidated Balance Sheets. This amount is exclusive of insurance retentions and $865 million of insurance proceeds we received through June 30, 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, insurance, after taking into consideration the additional accrual related to litigation matters described above, we have exhausted all of our insurance in this matter, except as to certain defense costs we may incur in the future, including those related to the shareholder derivative lawsuits described above.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, for all or a substantial portion of these costs, 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’s cash flows, financial condition and results of operations.
As of September 30, 2020, we recorded the expected recovery of the cost estimate related to the Leak of $504 million as Insurance Receivable for Aliso Canyon Costs on SoCalGas’ and Sempra Energy’s Condensed Consolidated Balance Sheets. This amount is exclusive of insurance retentions and $775 million of insurance proceeds we received through September 30, 2020. If we were to conclude that this receivable or a portion of it is no longer probable of recovery from insurers, some or all of this receivable would be charged against earnings, which could have a material adverse effect on SoCalGas’ and Sempra Energy’sSempra’s cash flows, financial condition and results of operations.
Sempra Mexico
Energía Costa Azul
IEnova has been engaged in a long-running land dispute relating to property adjacent to its ECA LNG Regasification facilityRegas Facility that allegedly overlaps with land owned by the ECA LNG Regasification facilityRegas 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 IEnova 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▪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.
Four other cases involving two adjacent areas of real property on which part of the ECA LNG Regasification facilityRegas 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 LNG Regasification facilityRegas Facility is situated and to obtain possession of a different parcel that allegedly overlaps with the site of the ECA LNG Regasification facility. Regas Facility. The Agrarian Court proceeding, which seeks an order that SEDATU annul the ECA Regas Facility’s competing property title, was initiated in 2013 and, in May 2021, a decision was issued in favor of the plaintiff. IEnova appealed the ruling, which is pending resolution.
▪The second disputed area is one parcel adjacent to the ECA LNG Regasification facilityRegas Facility that allegedly overlaps with land on which the ECA LNG Regasification facilityRegas Facility is situated, which is subject to a claim in the Agrarian Court and two claims in civil courts. The Agrarian Court proceeding,ruled in favor of the plaintiff. IEnova appealed the ruling, which seeks an order that SEDATU issueis pending resolution. The ECA Regas Facility continues to hold a separate property title toover 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 LNG Regasification facilityRegas Facility purchased the applicable parcel of land on which the ECA LNG Regasification facilityRegas 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 lower court ruled in favor of the ECA LNG Regasification facilityRegas Facility, and the ruling has been appealed by the plaintiff. The descendants of the same plaintiff filed the second civil case in 2019, which is in its initial stages.
Certain of these land disputes involve land on which portions of the proposed ECA LNG liquefaction facilityfacilities are anticipatedproposed to be situated or on which portions of the ECA LNG Regasification facilityRegas Facility that would be necessary for the operation of the proposed ECA LNG liquefaction facilityfacilities are situated.
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 LNG Regasification facilityRegas 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, 2two 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) and SENER to ECA LNG JV authorizing natural gas liquefaction activities at the ECA LNG Regasification facility. Regas 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 issuance ofcourt; therefore, the injunction in the second case is under further appeal.natural gas liquefaction activities have not been affected.
In September 2020, parties claiming a property interest in the land on which the ECA LNG Regasification facility is situated and the proposed ECA LNG liquefaction facility is anticipated to be situated filed an administrative proceeding with the Municipality of Ensenada against the construction permit for the construction of the proposed liquefaction export projects at the ECA LNG Regasification facility. The construction permit has been suspended pending resolution of the claim and the ECA LNG Regasification facility and ECA LNG JV are contesting the validity of the claim.
In May 2020, the two third-party capacity customers at the ECA LNG Regasification facility,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. IEnova will avail itself of its available claims, defensesdispute and remedies inalthough Gazprom has joined the arbitration proceeding.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. In October 2020,As a consequence, IEnova was informed by Gazpromis not currently drawing on Gazprom’s letter of credit but expects to continue to draw on Shell Mexico’s letter of credit. IEnova intends to avail itself of its consent to joinavailable claims, defenses, rights and remedies in the arbitration proceeding, initiated by Shell Mexico againstincluding seeking dismissal of the ECA LNG Regasification facility and is awaiting the formalization of Gazprom’s recognition as a claimant party in such arbitration. IEnova intendscustomers’ claims. In addition to enforce its rights in the arbitration process, seeking to dismiss the customers’ claims.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 in October 2020, and subsequently,the claim regarding the liquefaction permit issuance was denied in March 2021. Shell Mexico filed an appeal of that decision.has appealed both decisions.
One or more unfavorable final decisions on these disputes or challenges could materially and adversely affect our existing natural gas regasification operations and proposed LNGnatural gas liquefaction projects at the site of the ECA LNG Regasification facility.Regas Facility and have a material adverse effect on Sempra’s business, cash flows, financial condition, results of operations and/or prospects.
Guaymas-El Oro Segment of the Sonora Pipeline
IEnova’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, IEnova 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, IEnova 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, IEnova 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 IEnova from making repairs to put the pipeline back in service. In July 2019, a federal district court ruled in favor of IEnova 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 IEnova 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.
IEnova 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 IEnova 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, IEnova 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 date to March 14, 2021. 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 MarchSeptember 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.
IfAt June 30, 2021, Sempra Mexico had $439 million in PP&E, net, related to the Guaymas-El Oro segment of the Sonora pipeline, which could be subject to impairment if IEnova is unable to make such repairs (which have not commenced) or re-route the pipeline (which has not been agreed to by the parties) and resume operations in the Guaymas-El Oro segment of the Sonora pipeline within this time frame or if IEnova terminates the contract and is unable to obtain recovery, there may bewhich in each case could have a material adverse impact on Sempra Energy’sSempra’s results of operations, andfinancial condition, cash flows and our ability to recover the carrying value of our investment. At September 30, 2020, the Guaymas-El Oro segment of the Sonora pipeline had a net book value of $446 million.and/or prospects. The Sasabe-Puerto Libertad-Guaymas segment of the Sonora pipeline remains in full operation and is not impacted by these developments.
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 mainA primary provision of the order suspends all legally mandated pre-operative testing that would be needed 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.
In May 2020, Mexico’s SENER published a resolution to establish guidelines intended to guarantee IEnova has since achieved commercial operations on its solar power generation projects that were impacted by the security and reliabilityorder. The second phase of ESJ is not impacted by the national grid’s electricity supply by reducing the threat thatorder because it claims is caused by clean, intermittent energy. The resolution includes the following key elements:
▪provides non-renewable electricity generation facilities, primarily non-renewable power plants, preferential access or easier accessnot interconnected to Mexico’s national power grid, while increasing restrictions on access to the grid by renewable energy facilities;
▪grants the CRE and CENACE broad authority to approve or deny permits and interconnection requests by producers of renewable energy; and
▪imposes restrictive measures on the renewable energy sector, including requiring all permits and interconnection agreements to include an early termination clause in the event the renewable energy project fails to make certain additional improvements, at the request of the CRE or CENACE, in accordance with a specific schedule.
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. COFECE’s complaint was upheld by the court and, pending the court’s final ruling, the decision suspends indefinitely the resolution.electric grid.
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 renewables’renewable energy facilities (Don Diego Solar, Border Solar and Ventika) are currently holders of contracts with such legacy rates, and any increases in the transmission rates would be passed through directly to their customers. IEnova filed amparoThese renewable energy facilities have obtained injunctive relief but are required to guarantee the difference in tariffs until the claims for its affectedare definitively resolved by the courts, which could be material. The three facilities obtained favorable resolutions from a lower court and in August 2020, was granted injunctive relief.
IEnova andthe CRE has appealed one of these decisions. We anticipate that the CRE will challenge the 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 or, with respect to the SENER resolution, until Mexico’s Supreme
Court issues its final ruling on COFECE’s complaint, the timing of which is uncertain. 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 solar facilities, or to complete themtwo decisions 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.higher court.
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 currently in construction) and the Ventika wind power generation facilities are holders of legacy self-supply permits and are impacted by the Offtaker Resolution. If IEnova is not able to obtain legal protection for these impacted facilities, IEnova 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. At June 30, 2021, Sempra Mexico had $15 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 IEnova is evaluatingunable to obtain adequate legal protection. IEnova has filed lawsuits against the Offtaker Resolution and received injunctive relief pending final resolution.
IEnova and other companies affected by these resolutions, orders and regulations have challenged them by filing amparo and other claims, some of which have been granted injunctive relief. The court-ordered injunctions provide temporary relief until Mexico’s Federal District Court or Supreme Court ultimately resolves the amparo and other claims. An unfavorable decision on one or more of these amparo or other challenges, or the potential for an extended dispute, may impact our ability to operate our wind and solar facilities at existing levels or at all, may result in increased costs for IEnova and its customers, and may adversely affect our ability to develop new projects, any of which may have a material adverse impact on our business, financial condition, results of operations, cash flows and/or prospects, as well as our ability to recover the carrying values of our renewable energy investments in Mexico.
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 changes 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 proceduresstandard that is ambiguous and not well defined under the 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 IEnova’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 several of the provisions of the amendments with general application across the sector. If IEnova were to receive one or more unfavorable decisions with respect to these lawsuits, this could have a material adverse effect on Sempra’s business, cash flows, financial condition, results of operations and/or prospects.
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 (1) obtaining LDA authorizations, which affect new projects that have not obtained such approval, and (2) 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 Offtaker Resolution.newly introduced barrier to renew 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, IEnova filed amparo claims to challenge such amendments that prevent them from obtaining LDA authorizations in the future. An unfavorable judgment that does not allow the claimants to secure new or renew existing LDA authorizations could have a material adverse effect on Sempra’s business, results of operations, financial condition, cash flows and/or prospects.
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 been 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, RBS filed a Notice of Appeal of the assessment with the First-Tier Tribunal. Trial onIn July 2021, RBS reached a settlement with HMRC. As a result, hearing by the matter, which could includeFirst-Tier Tribunal has been canceled and the assessment of a penalty of up to 100% of the claimed amount, is scheduled to begin in June 2021.appeal has concluded.
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 $58$62 million in U.S. dollars at SeptemberJune 30, 2020)2021), plus costs and interest. In October 2020, the High Court of Justice issued an order grantingassessed costs and interest to be approximately £21 million (approximately $29 million in U.S. dollars at June 30, 2021) as of that date, with interest continuing to accrue. The Defendants appealed the Defendants permission to appeal itsHigh Court of Justice’s March 2020 judgment tojudgment. 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 Appeals’ 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 Condensed Consolidated Statement of Operations in the nine months ended September 30,first quarter of 2020, which representsrepresented an estimate of our obligations to settle pending taxVAT matters and related legal costs. In the second quarter of 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 are defendants in personal injury lawsuits brought in state courts throughout the U.S. As of NovemberAugust 2, 2020, 2752021, 3 such lawsuits are pending, with 182 such lawsuits havingall of which have been served. These cases allege 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 seek compensatory and punitive damages. 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. We anticipate additional lawsuits will be filed. 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 cash flows, financial condition and results of operations.
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
We discuss leases further in Note 16 of the Notes to Consolidated Financial Statements in the Annual Report.
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 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 finance leases for PPAs with renewable energy and peaker plant facilities.
We provide supplemental noncash informationLeases that Have Not Yet Commenced
SDG&E has entered into a battery storage tolling agreement that it expects will commence in the second half of 2021. SDG&E expects to account for the tolling agreement as an operating lease upon commencement and finance leases below.
| | | | | | | | | | | | | | | | | |
| SUPPLEMENTAL NONCASH INFORMATION |
| (Dollars in millions) |
| Nine months ended September 30, 2020 |
| Sempra Energy Consolidated | | SDG&E | | SoCalGas |
| Increase in operating lease obligations for right-of-use assets | $ | 24 | | | $ | 0 | | | $ | 4 | |
| Increase in finance lease obligations for investment in PP&E | 72 | | | 26 | | | 46 | |
| Nine months ended September 30, 2019 |
| Sempra Energy Consolidated | | SDG&E | | SoCalGas |
| Increase in operating lease obligations for right-of-use assets | $ | 571 | | | $ | 147 | | | $ | 117 | |
| Increase in finance lease obligations for investment in PP&E | 27 | | | 12 | | | 15 | |
Lessor Accounting
Sempra Mexico is a lessor for certain of its natural gas and ethane pipelines, compressor stations, and LPG storage facilities.facilities and a liquid fuels terminal.
Generally, we recognize operating lease income on a straight-line basis over the lease term and evaluate the underlying asset for impairment. 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.
We provide information below for leases for which we are the lessor.
| | | | | | | | | | | | | | | | | | | | | | | |
| LESSOR INFORMATION ON THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – SEMPRA ENERGY |
| (Dollars in millions) |
| Three months ended September 30, | | Nine months ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| Fixed lease payments | $ | 48 | | | $ | 51 | | | $ | 145 | | | $ | 150 | |
| Variable lease payments | 1 | | | 0 | | | 1 | | | 6 | |
Total revenues from operating leases(1) | $ | 49 | | | $ | 51 | | | $ | 146 | | | $ | 156 | |
| | | | | | | |
| Depreciation expense | $ | 10 | | | $ | 10 | | | $ | 29 | | | $ | 29 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| LESSOR INFORMATION ON THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – SEMPRA |
| (Dollars in millions) |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Fixed lease payments | $ | 59 | | | $ | 47 | | | $ | 112 | | | $ | 97 | |
| Variable lease payments | 1 | | | 0 | | | 1 | | | 0 | |
Total revenues from operating leases(1) | $ | 60 | | | $ | 47 | | | $ | 113 | | | $ | 97 | |
| | | | | | | |
| Depreciation expense | $ | 12 | | | $ | 9 | | | $ | 22 | | | $ | 19 | |
(1) Included in Revenues: Energy-Related Businesses on the Condensed Consolidated Statements of Operations.
CONTRACTUAL COMMITMENTS
We discuss below significant changes in the first ninesix months of 20202021 to contractual commitments discussed in Notes 1 and 16 of the Notes to Consolidated Financial Statements in the Annual Report.
Natural Gas Contracts
SoCalGas’ minimum purchase obligations for natural gas have increased by $54 million since December 31, 2019 primarily due to new purchase obligations entered into in the first nine months of 2020. Net future payments are expected to increase by $11 million in 2020, $43 million in 2021 and decrease by negligible amounts thereafter compared to December 31, 2019.
SoCalGas’ interstate pipeline capacity agreement commitments have increased by $597 million since December 31, 2019 primarily due to new capacity agreements entered into in the first nine months of 2020, which replace existing or expiring agreements. Net future payments are expected to decrease by $90 million in 2020, and increase by $17 million in 2021, $88 million in 2022, $100 million in 2023, $90 million in 2024 and $392 million thereafter compared to December 31, 2019.
Sempra LNG’s natural gas contracts and natural gas storage and transportation commitments have increased by $567 million since December 31, 2019, primarily from entering into new storage and transportation contracts in the first nine months of 2020. We expect future payments to decrease by $44 million in 2020, and increase by $73 million in 2021, $38 million in 2022, $34 million in 2023, $30 million in 2024 and $436 million thereafter compared to December 31, 2019.
LNG Purchase Agreement
Sempra LNG has a sale and purchase agreement for the supply of LNG to the ECA LNG Regasification facility.Regas Facility. The commitment amount is calculated using a predetermined formula based on estimated forward prices of the index applicable from 20202021 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. At SeptemberJune 30, 2020,2021, we expect the commitment amount to decrease by $238 million in 2020, increase by $94$106 million in 2021 and then increase by $40$150 million in 2022, increase by $7$89 million in 2023, decrease by $12$70 million in 2024, $70 million in 2025 and decrease by $56$219 million thereafter (through contract termination in 2029) compared to December 31, 2019,2020, reflecting changes in estimated forward prices since December 31, 20192020 and actual transactions for the first ninesix months of 2020.2021. These LNG commitment amounts are based on the assumption that all LNG cargoes, less those already confirmed to be diverted, under the agreement are delivered. Actual LNG purchases in the current and prior years have been significantly lower than the maximum amount provided under the agreement due to the customer electing to divert cargoes as allowed by the agreement.
NOTE 12. SEGMENT INFORMATION
We have 5 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 Utilities holds 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, and western and panhandle regions of Texas; and our indirect, 50% interest in Sharyland Holdings, which owns Sharyland Utilities, L.L.C., a regulated electric transmission and distribution utility serving customers near the Texas-Mexico border. As we discuss in Note 5 of the Notes to Consolidated Financial Statements in the Annual Report, we acquired our investment in Sharyland Holdings in May 2019.
▪Sempra Mexico develops, 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, projects for the export of LNG, holds an interestbuilds, operates and invests in a facility for the export of LNG, owns and operates natural gas liquefaction export facilities, including natural gas pipelines and infrastructure, 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 assets at Mississippi Hub and Bay Gas.North America.
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 Utilities operate in essentially separate service territories, under separate regulatory frameworks and rate structures set by the CPUC and, for SDG&E, the FERC. We describe the accounting policies of all of our segments in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.
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 Condensed Consolidated Statements of Operations and Condensed Consolidated Balance Sheets. 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) | | | | | | |
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended June 30, | | Six months ended June 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| REVENUES | REVENUES | | | | | | | | REVENUES | | | | | | | |
| SDG&E | SDG&E | $ | 1,472 | | | $ | 1,427 | | | $ | 3,976 | | | $ | 3,666 | | SDG&E | $ | 1,318 | | | $ | 1,235 | | | $ | 2,655 | | | $ | 2,504 | |
| SoCalGas | SoCalGas | 842 | | | 975 | | | 3,247 | | | 3,142 | | SoCalGas | 1,124 | | | 1,010 | | | 2,632 | | | 2,405 | |
| Sempra Mexico | Sempra Mexico | 351 | | | 357 | | | 935 | | | 1,058 | | Sempra Mexico | 404 | | | 275 | | | 771 | | | 584 | |
| Sempra Renewables | 0 | | | 0 | | | 0 | | | 10 | | |
| Sempra LNG | Sempra LNG | 63 | | | 100 | | | 255 | | | 327 | | Sempra LNG | 52 | | | 69 | | | 248 | | | 192 | |
| All other | All other | 0 | | | 1 | | | 1 | | | 1 | | All other | 1 | | | 0 | | | 2 | | | 1 | |
| Adjustments and eliminations | Adjustments and eliminations | 2 | | | (2) | | | 0 | | | (3) | | Adjustments and eliminations | (1) | | | (1) | | | (1) | | | (2) | |
Intersegment revenues(1) | Intersegment revenues(1) | (86) | | | (100) | | | (215) | | | (315) | | Intersegment revenues(1) | (157) | | | (62) | | | (307) | | | (129) | |
| Total | Total | $ | 2,644 | | | $ | 2,758 | | | $ | 8,199 | | | $ | 7,886 | | Total | $ | 2,741 | | | $ | 2,526 | | | $ | 6,000 | | | $ | 5,555 | |
| INTEREST EXPENSE | INTEREST EXPENSE | | | | | | | | INTEREST EXPENSE | | | | | | | |
| SDG&E | SDG&E | $ | 103 | | | $ | 106 | | | $ | 307 | | | $ | 311 | | SDG&E | $ | 101 | | | $ | 103 | | | $ | 203 | | | $ | 204 | |
| SoCalGas | SoCalGas | 39 | | | 36 | | | 119 | | | 104 | | SoCalGas | 40 | | | 40 | | | 79 | | | 80 | |
| Sempra Mexico | Sempra Mexico | 31 | | | 30 | | | 95 | | | 89 | | Sempra Mexico | 41 | | | 32 | | | 79 | | | 64 | |
| Sempra Renewables | 0 | | | 0 | | | 0 | | | 3 | | |
| Sempra LNG | Sempra LNG | 8 | | | 11 | | | 39 | | | 18 | | Sempra LNG | 3 | | | 15 | | | 6 | | | 31 | |
| All other | All other | 93 | | | 117 | | | 304 | | | 336 | | All other | 80 | | | 102 | | | 163 | | | 211 | |
| Intercompany eliminations | Intercompany eliminations | (10) | | | (21) | | | (46) | | | (64) | | Intercompany eliminations | (7) | | | (18) | | | (13) | | | (36) | |
| Total | Total | $ | 264 | | | $ | 279 | | | $ | 818 | | | $ | 797 | | Total | $ | 258 | | | $ | 274 | | | $ | 517 | | | $ | 554 | |
| INTEREST INCOME | INTEREST INCOME | | | | | | | | INTEREST INCOME | | | | | | | |
| SDG&E | SDG&E | $ | 1 | | | $ | 1 | | | $ | 2 | | | $ | 3 | | SDG&E | $ | 0 | | | $ | 0 | | | $ | 1 | | | $ | 1 | |
| SoCalGas | SoCalGas | 0 | | | 0 | | | 2 | | | 1 | | SoCalGas | 0 | | | 1 | | | 0 | | | 2 | |
| Sempra Mexico | Sempra Mexico | 14 | | | 20 | | | 47 | | | 58 | | Sempra Mexico | 12 | | | 15 | | | 24 | | | 33 | |
| Sempra Renewables | 0 | | | 0 | | | 0 | | | 11 | | |
| Sempra LNG | Sempra LNG | 25 | | | 15 | | | 65 | | | 45 | | Sempra LNG | 8 | | | 18 | | | 17 | | | 40 | |
| All other | All other | 0 | | | 1 | | | 3 | | | 2 | | All other | 1 | | | 3 | | | 1 | | | 3 | |
| Intercompany eliminations | Intercompany eliminations | (13) | | | (15) | | | (43) | | | (56) | | Intercompany eliminations | (6) | | | (15) | | | (9) | | | (30) | |
| Total | Total | $ | 27 | | | $ | 22 | | | $ | 76 | | | $ | 64 | | Total | $ | 15 | | | $ | 22 | | | $ | 34 | | | $ | 49 | |
| DEPRECIATION AND AMORTIZATION | DEPRECIATION AND AMORTIZATION | | | | | DEPRECIATION AND AMORTIZATION | | | | |
| SDG&E | SDG&E | $ | 200 | | | $ | 196 | | | $ | 598 | | | $ | 571 | | SDG&E | $ | 220 | | | $ | 197 | | | $ | 433 | | | $ | 398 | |
| SoCalGas | SoCalGas | 165 | | | 154 | | | 486 | | | 449 | | SoCalGas | 180 | | | 162 | | | 353 | | | 321 | |
| Sempra Mexico | Sempra Mexico | 47 | | | 46 | | | 141 | | | 136 | | Sempra Mexico | 57 | | | 47 | | | 108 | | | 94 | |
| | Sempra LNG | Sempra LNG | 2 | | | 2 | | | 7 | | | 7 | | Sempra LNG | 2 | | | 3 | | | 5 | | | 5 | |
| All other | All other | 4 | | | 4 | | | 10 | | | 11 | | All other | 4 | | | 3 | | | 6 | | | 6 | |
| Total | Total | $ | 418 | | | $ | 402 | | | $ | 1,242 | | | $ | 1,174 | | Total | $ | 463 | | | $ | 412 | | | $ | 905 | | | $ | 824 | |
| INCOME TAX EXPENSE (BENEFIT) | INCOME TAX EXPENSE (BENEFIT) | | | | | INCOME TAX EXPENSE (BENEFIT) | | | | |
| SDG&E | SDG&E | $ | 33 | | | $ | 71 | | | $ | 161 | | | $ | 111 | | SDG&E | $ | 33 | | | $ | 70 | | | $ | 78 | | | $ | 128 | |
| SoCalGas | SoCalGas | (6) | | | 35 | | | 95 | | | 50 | | SoCalGas | 8 | | | 49 | | | 102 | | | 101 | |
| Sempra Mexico | Sempra Mexico | 92 | | | 0 | | | (161) | | | 116 | | Sempra Mexico | 113 | | | 54 | | | 121 | | | (253) | |
| Sempra Renewables | 0 | | | 0 | | | 0 | | | 4 | | |
| Sempra LNG | Sempra LNG | 18 | | | (2) | | | 59 | | | 4 | | Sempra LNG | (19) | | | 18 | | | 30 | | | 41 | |
| All other | All other | (38) | | | (43) | | | (94) | | | (135) | | All other | 4 | | | (23) | | | (34) | | | (56) | |
| Total | Total | $ | 99 | | | $ | 61 | | | $ | 60 | | | $ | 150 | | Total | $ | 139 | | | $ | 168 | | | $ | 297 | | | $ | (39) | |
| EQUITY EARNINGS (LOSSES) | EQUITY EARNINGS (LOSSES) | | | | | | | | EQUITY EARNINGS (LOSSES) | | | | | | | |
| Equity earnings (losses), before income tax: | Equity earnings (losses), before income tax: | | | | | | | | Equity earnings (losses), before income tax: | | | | | | | |
| Sempra Texas Utilities | Sempra Texas Utilities | $ | 1 | | | $ | 0 | | | $ | 1 | | | $ | 1 | | Sempra Texas Utilities | $ | 2 | | | $ | 0 | | | $ | 3 | | | $ | 0 | |
| Sempra Renewables | 0 | | | 0 | | | 0 | | | 5 | | |
| Sempra LNG | Sempra LNG | 116 | | | 17 | | | 257 | | | 19 | | Sempra LNG | 133 | | | 84 | | | 267 | | | 141 | |
| All other | All other | 0 | | | 0 | | | (100) | | | (1) | | All other | 50 | | | 0 | | | 50 | | | (100) | |
| | 117 | | | 17 | | | 158 | | | 24 | | | 185 | | | 84 | | | 320 | | | 41 | |
| Equity earnings, net of income tax: | | | | | | | |
| Equity earnings (losses), net of income tax: | | Equity earnings (losses), net of income tax: | | | | | | |
| Sempra Texas Utilities | Sempra Texas Utilities | 208 | | | 212 | | | 457 | | | 418 | | Sempra Texas Utilities | 137 | | | 143 | | | 273 | | | 249 | |
| Sempra Mexico | Sempra Mexico | 1 | | | 37 | | | 207 | | | 43 | | Sempra Mexico | (9) | | | 6 | | | 38 | | | 206 | |
| | 209 | | | 249 | | | 664 | | | 461 | | | 128 | | | 149 | | | 311 | | | 455 | |
| Total | Total | $ | 326 | | | $ | 266 | | | $ | 822 | | | $ | 485 | | Total | $ | 313 | | | $ | 233 | | | $ | 631 | | | $ | 496 | |
| | SEGMENT INFORMATION (CONTINUED) | SEGMENT INFORMATION (CONTINUED) | | SEGMENT INFORMATION (CONTINUED) | |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) | |
| | Three months ended September 30, | | Nine months ended
September 30, | | Three months ended June 30, | | Six months ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| EARNINGS (LOSSES) ATTRIBUTABLE TO COMMON SHARES | EARNINGS (LOSSES) ATTRIBUTABLE TO COMMON SHARES | | | | | | | EARNINGS (LOSSES) ATTRIBUTABLE TO COMMON SHARES | | | |
| SDG&E | SDG&E | $ | 178 | | | $ | 263 | | | $ | 633 | | | $ | 582 | | SDG&E | $ | 186 | | | $ | 193 | | | $ | 398 | | | $ | 455 | |
| SoCalGas | SoCalGas | (24) | | | 143 | | | 425 | | | 437 | | SoCalGas | 94 | | | 146 | | | 501 | | | 449 | |
| Sempra Texas Utilities | Sempra Texas Utilities | 209 | | | 212 | | | 458 | | | 419 | | Sempra Texas Utilities | 138 | | | 144 | | | 273 | | | 249 | |
| Sempra Mexico | Sempra Mexico | 50 | | | 84 | | | 302 | | | 214 | | Sempra Mexico | 4 | | | 61 | | | 61 | | | 252 | |
| Sempra Renewables | 0 | | | 0 | | | 0 | | | 59 | | |
| Sempra LNG | Sempra LNG | 71 | | | 2 | | | 207 | | | 13 | | Sempra LNG | 47 | | | 61 | | | 193 | | | 136 | |
| Discontinued operations | Discontinued operations | (7) | | | 248 | | | 1,840 | | | 267 | | Discontinued operations | 0 | | | 1,775 | | | 0 | | | 1,847 | |
| All other | All other | (126) | | | (139) | | | (515) | | | (383) | | All other | (45) | | | (141) | | | (128) | | | (389) | |
| Total | Total | $ | 351 | | | $ | 813 | | | $ | 3,350 | | | $ | 1,608 | | Total | $ | 424 | | | $ | 2,239 | | | $ | 1,298 | | | $ | 2,999 | |
| EXPENDITURES FOR PROPERTY, PLANT & EQUIPMENT | EXPENDITURES FOR PROPERTY, PLANT & EQUIPMENT | | | | | EXPENDITURES FOR PROPERTY, PLANT & EQUIPMENT | |
| SDG&E | SDG&E | | $ | 1,323 | | | $ | 1,071 | | SDG&E | | $ | 1,072 | | | $ | 850 | |
| SoCalGas | SoCalGas | | 1,345 | | | 1,019 | | SoCalGas | | 936 | | | 885 | |
| Sempra Mexico | Sempra Mexico | | 443 | | | 420 | | Sempra Mexico | | 166 | | | 321 | |
| Sempra Renewables | | 0 | | | 2 | | |
| Sempra LNG | Sempra LNG | | 196 | | | 74 | | Sempra LNG | | 249 | | | 136 | |
| All other | All other | | 6 | | | 4 | | All other | | 1 | | | 6 | |
| Total | Total | | $ | 3,313 | | | $ | 2,590 | | Total | | $ | 2,424 | | | $ | 2,198 | |
| | | | | September 30,
2020 | | December 31,
2019 | | June 30,
2021 | | December 31,
2020 |
| ASSETS | ASSETS | | ASSETS | |
| SDG&E | SDG&E | | $ | 22,421 | | | $ | 20,560 | | SDG&E | | $ | 22,980 | | | $ | 22,311 | |
| SoCalGas | SoCalGas | | 17,943 | | | 17,077 | | SoCalGas | | 19,091 | | | 18,460 | |
| Sempra Texas Utilities | Sempra Texas Utilities | | 12,063 | | | 11,619 | | Sempra Texas Utilities | | 12,760 | | | 12,542 | |
| Sempra Mexico | Sempra Mexico | | 10,730 | | | 9,938 | | Sempra Mexico | | 11,114 | | | 10,752 | |
| Sempra LNG | Sempra LNG | | 3,643 | | | 3,901 | | Sempra LNG | | 3,078 | | | 2,205 | |
| Discontinued operations | | 0 | | | 3,958 | | |
| All other | All other | | 2,398 | | | 749 | | All other | | 1,029 | | | 1,209 | |
| Intersegment receivables | Intersegment receivables | | (1,976) | | | (2,137) | | Intersegment receivables | | (1,444) | | | (856) | |
| Total | Total | | | $ | 67,222 | | | $ | 65,665 | | Total | | $ | 68,608 | | | $ | 66,623 | |
| EQUITY METHOD AND OTHER INVESTMENTS | EQUITY METHOD AND OTHER INVESTMENTS | | EQUITY METHOD AND OTHER INVESTMENTS | |
| Sempra Texas Utilities | Sempra Texas Utilities | | $ | 12,063 | | | $ | 11,619 | | Sempra Texas Utilities | | $ | 12,760 | | | $ | 12,542 | |
| Sempra Mexico | Sempra Mexico | | 920 | | | 741 | | Sempra Mexico | | 871 | | | 852 | |
| Sempra LNG | Sempra LNG | | 433 | | | 1,256 | | Sempra LNG | | 416 | | | 433 | |
| All other | All other | | 1 | | | 6 | | All other | | 1 | | | 1 | |
| Total | Total | | $ | 13,417 | | | $ | 13,622 | | Total | | $ | 14,048 | | | $ | 13,828 | |
(1) Revenues for reportable segments include intersegment revenues of $1$2 million, $23 million, $12$52 million and $50$80 million for the three months ended SeptemberJune 30, 2020;2021; $4 million, $61$48 million, $69$62 million and $81$193 million for the ninesix months ended SeptemberJune 30, 2020; $12021; $2 million, $16$20 million, $29 million and $54$11 million for the three months ended SeptemberJune 30, 2019;2020 and $4$3 million, $50$38 million, $89$51 million and $172$37 million for the ninesix months ended SeptemberJune 30, 20192020 for SDG&E, SoCalGas, Sempra Mexico and Sempra LNG, respectively.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the Condensed Consolidated Financial Statements and the Notes thereto and “Part II – Item 1A. Risk Factors” contained in this report, and the Consolidated Financial Statements and the Notes thereto, “Part I – Item 1A. Risk Factors” and “Part II – Item 7. MD&A” contained in the Annual Report.
OVERVIEW
Sempra Energy is a California-based energy-services holding company whosewith energy infrastructure investments in North America. On July 2, 2021, Sempra Energy began doing business as Sempra. Our businesses invest in, develop and operate energy infrastructure, and provide electric and gas services to customers in North America.through regulated public utilities. As we discuss in Note 12 of the Notes to Condensed Consolidated Financial Statements, our businesses consist of five separately managed reportable segments.
In January 2019, our board of directors approved a plan to sell our South American businesses, which were previously included in our Sempra South American Utilities segment. We completed the sales in the second quarter of 2020. Our South American businesses and certain activities associated with those businesses are presented as discontinued operations for all periods presented. Nominal activities that are not classified as discontinued operations have been subsumed into Parent and other. Our discussions below exclude discontinued operations, unless otherwise noted.
We provide additional information about discontinued operations in Note 5 of the Notes to Condensed Consolidated Financial Statements and about our reportable segments in Note 12 of the Notes to Condensed Consolidated Financial Statements in this report and in “Part I – Item 1. Business” in the Annual Report.Report, our business activities are organized under five separately managed reportable segments.
Our former South American businesses and certain activities associated with those businesses are presented as discontinued 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.
This report includes information for the following separate registrants:
▪Sempra Energy and its consolidated entities;Sempra;
▪SDG&E and its consolidated VIE (until deconsolidation of Otay Mesa VIE in August 2019);&E; and
▪SoCalGas.
References in this report to “we,” “our,” “us,” “our”“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 refer to SDG&E and SoCalGas collectively as the California Utilities, which do not include our Texasthe utilities or the utility in our Sempra Texas Utilities or Sempra Mexico segment. It also does not includesegments or the utilities withinin our former South American businesses that have been presented asincluded in discontinued operations. All references in this MD&Areport 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 Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements when discussed together or collectively:
▪•the Condensed Consolidated Financial Statements and related Notes of Sempra Energy and its subsidiaries and VIEs;Sempra;
▪•the Condensed Consolidated Financial Statements and related Notes of SDG&E and its VIE (until deconsolidation of Otay Mesa VIE in August 2019);&E; and
▪•the Condensed Financial Statements and related Notes of SoCalGas.
RESULTS OF OPERATIONS
We discuss the following in Results of Operations:
▪Overall results of operations of Sempra Energy;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
In the three months ended SeptemberJune 30, 2020,2021, we reported earnings of $351$424 million and diluted EPS of $1.21$1.37 compared to earnings of $813$2,239 million and diluted EPS of $2.84$7.61 for the same period in 2019.2020. In the ninesix months ended SeptemberJune 30, 2020,2021, we reported earnings of $3.35 billion$1,298 million and diluted EPS of $11.43$4.24 compared to earnings of $1.61 billion$2,999 million and diluted EPS of $5.74$9.91 for the same period in 2019.2020. The change in diluted EPS in the three months ended SeptemberJune 30, 20202021 compared to the same period in 20192020 included a decrease of $0.07 due to an increase in weighted-average common shares outstanding. The change in diluted EPS in the six months ended June 30, 2021 compared to the same period in 2020 included an increase of $0.02 due to a decrease in weighted-average common shares outstanding. The change in diluted EPS in the nine months ended September 30, 2020 compared to the same period in 2019 included a decrease of $0.53 due to an increase in weighted-average common shares outstanding. Our resultsearnings and diluted EPS were impacted by variances discussed in “Segment Results” below.
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 Sempra Energy 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) | | |
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended June 30, | | Six months ended June 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| SDG&E | SDG&E | $ | 178 | | | $ | 263 | | | $ | 633 | | | $ | 582 | | SDG&E | $ | 186 | | | $ | 193 | | | $ | 398 | | | $ | 455 | |
| SoCalGas | SoCalGas | (24) | | | 143 | | | 425 | | | 437 | | SoCalGas | 94 | | | 146 | | | 501 | | | 449 | |
| Sempra Texas Utilities | Sempra Texas Utilities | 209 | | | 212 | | | 458 | | | 419 | | Sempra Texas Utilities | 138 | | | 144 | | | 273 | | | 249 | |
| Sempra Mexico | Sempra Mexico | 50 | | | 84 | | | 302 | | | 214 | | Sempra Mexico | 4 | | | 61 | | | 61 | | | 252 | |
| Sempra Renewables | — | | | — | | | — | | | 59 | | |
| Sempra LNG | Sempra LNG | 71 | | | 2 | | | 207 | | | 13 | | Sempra LNG | 47 | | | 61 | | | 193 | | | 136 | |
Parent and other(1) | Parent and other(1) | (126) | | | (139) | | | (515) | | | (383) | | Parent and other(1) | (45) | | | (141) | | | (128) | | | (389) | |
| Discontinued operations | Discontinued operations | (7) | | | 248 | | | 1,840 | | | 267 | | Discontinued operations | — | | | 1,775 | | | — | | | 1,847 | |
| Earnings attributable to common shares | Earnings attributable to common shares | $ | 351 | | | $ | 813 | | | $ | 3,350 | | | $ | 1,608 | | Earnings attributable to common shares | $ | 424 | | | $ | 2,239 | | | $ | 1,298 | | | $ | 2,999 | |
(1) Includes intercompany eliminations recorded in consolidation and certain corporate costs.
Due to the delay in the issuance of the CPUC’s 2019 GRC FD, the California Utilities recorded revenues in the first half of 2019 based on levels authorized for 2018 under the 2016 GRC. The 2019 GRC FD, which was issued by the CPUC in September 2019, was effective retroactively to January 1, 2019. The California Utilities recorded the retroactive impacts of the 2019 GRC FD in the third quarter of 2019. We provide additional information on the 2019 GRC FD in Note 4 of the Notes to Condensed Consolidated Financial Statements in this report and in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.
SDG&E
The decrease in earnings of $85$7 million (32%(4%) in the three months ended SeptemberJune 30, 2020 was primarily due to:
▪$66 million favorable impact in 2019 from the retroactive application of the 2019 GRC FD for the first six months of 2019;
▪$29 million expected to be refunded to customers and a fine related2021 compared to the Energy Efficiency Program inquiry, which we discusssame period in Note 4 of the Notes to Condensed Consolidated Financial Statements; and
▪$10 million lower CPUC base operating margin, including higher non-refundable operating costs in 2020, due to the timing impact of the delayed 2019 GRC FD; offset by
▪$13 million higher electric transmission margin; and
▪$6 million higher AFUDC equity.
The increase in earnings of $51 million (9%) in the first nine months of 2020 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 Condensed Consolidated Financial Statements;account; offset by
▪$5720 million higher income tax benefits primarily from forecasted flow-through items;
▪$15 million charge in 2020 for amounts expected to be refunded to customers related to the Energy Efficiency Program inquiry;
▪$7 million higher electric transmission margin; and
▪$6 million higher CPUC base operating margin, net of operating expenses.
The decrease in earnings of $57 million (13%) in the six months ended June 30, 2021 compared to the same period in 2020 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;
▪$19 million lower electric transmission margin, including an increase in authorized ROE and the following impacts in 2020 from the March 2020 FERC-approved TO5 settlement:settlement proceeding:
◦$18 million to conclude a rate base matter, and
◦$9 million favorable impact from the retroactive application of the final TO5 settlement for 2019;
▪$19 million higher AFUDC equity; and
▪$515 million higherlower CPUC base operating margin, authorized for 2020, net of higher non-refundable operating costs;expenses, primarily due to favorable resolution of regulatory matters in 2020; offset by
▪$4415 million charge in 2020 for amounts expected to be refunded to customers and a fine related to the Energy Efficiency Program inquiry;
▪$3113 million higher income tax benefit in 2019benefits primarily 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;forecasted flow-through items; and
▪$115 million higher amortization and accretion of the Wildfire Fund asset and liability, respectively.AFUDC equity.
SoCalGas
Losses of $24 million in the three months ended September 30, 2020 compared to earnings of $143 million for the same period in 2019 was primarily due to:
▪$130 million favorable impact in 2019 from the retroactive application of the 2019 GRC FD for the first six months of 2019;
▪$32 million lower income tax benefits primarily from flow-through items due to higher pretax income in 2019 resulting from the implementation of the 2019 GRC FD; and
▪$22 million from impacts associated with Aliso Canyon natural gas storage facility litigation and regulatory matters; offset by
▪$21 million impairment of non-utility native gas assets in 2019.
The decrease in earnings of $12$52 million (3%(36%) in the first ninethree months ofended June 30, 2021 compared to the same period in 2020 was primarily due to:
▪$9464 million from impacts associated with Aliso Canyon natural gas storage facility litigation and regulatory matters; and
▪$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; offset by
▪$64 milliondecrease 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
▪$9 million lower CPUC base operating margin, net of operating expenses; offset by
▪$14 million higher income tax benefits from forecasted flow-through items.
The increase in earnings of $52 million (12%) in the six months ended June 30, 2021 compared to the same period in 2020 was primarily due to:
▪$72 million charge in 2020 from impacts associated with the Aliso Canyon natural gas storage facility litigation;
▪$26 million higher CPUC base operating margin, authorized for 2020, net of operating expenses;
▪$21 million impairment of non-utility native gas assets in 2019; and
▪$813 million higher income tax benefits from forecasted flow-through items; offset by
▪$64 million decrease due to the release of a regulatory liability in penalties in 20192020 related to 2016-2018 forecasting differences that are not subject to tracking in the SoCalGas billing practices OII.income tax expense memorandum account.
Sempra Texas Utilities
The decrease in earnings of $3$6 million (1%(4%) in the three months ended SeptemberJune 30, 2021 compared to the same period in 2020 was primarily due to lower equity earnings from Oncor Holdings in 2020, driven mainly by:
▪unfavorable weather and increased operating costs and expenses attributable to invested capital, including depreciation and amortization expense, interest expense and taxes other than income;capital; offset by
▪increased revenues from rate updates to reflect increases in invested capital.capital and customer growth (net of lower consumption primarily due to weather).
The increase in earnings of $39$24 million (9%(10%) in the first ninesix months ofended June 30, 2021 compared to the same period in 2020 was primarily due to higher equity earnings from Oncor Holdings in 2020, driven mainly by:
▪increased revenues from rate updates to reflect increases in invested capital;
▪the impact of Oncor’s acquisition of InfraREIT in May 2019;capital and
▪higher AFUDC equity; customer growth; offset by
▪unfavorable weather and increased operating costs and expenses attributable to invested capital.
Sempra Mexico
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 decrease in earnings of $34$57 million (40%) in the three months ended SeptemberJune 30, 2021 compared to the same period in 2020 was primarily due to:
▪$5763 million unfavorable impact from foreign currency and inflation effects net of foreign currency derivativesderivative effects comprised of:
◦in 2020, $44of an $83 million unfavorable foreign currency and inflation effects, offset by an $11impact in 2021 compared to a $20 million gain from foreign currency derivatives, and
◦unfavorable impact in 2019, $33 million favorable foreign currency and inflation effects, offset by a $9 million loss from foreign currency derivatives;
▪$12 million higher income tax expense in 2020 primarily from the outside basis differences in JV investments and a valuation allowance;2020; and
▪$6 million higher interest expense;income tax expense in 2021 from the remeasurement of certain deferred income taxes; offset by
▪$2210 million earnings attributable to NCI at IEnova in 20202021 compared to $50$27 million earnings in 2019; and
▪$7 million higher earnings primarily due to2020, including the start of commercial operationseffects of the Sur de Texas-Tuxpan marine pipeline at IMG JVincrease in September 2019.our ownership of IEnova.
The increasedecrease in earnings of $88$191 million (41%) in the first ninesix months ofended June 30, 2021 compared to the same period in 2020 was primarily due to:
▪$191289 million favorableunfavorable impact from foreign currency and inflation effects net of foreign currency derivativesderivative effects comprised of:
◦of a $71 million unfavorable impact in 2020, $2512021 compared to a $218 million favorable foreign currency and inflation effects, offset by a $68 million loss from foreign currency derivatives, and
◦impact in 2019, $13 million unfavorable foreign currency and inflation effects, offset by a $5 million gain from foreign currency derivatives;2020; and
▪$2832 million higher earningsincome tax expense in 2021 primarily due tofrom outside basis differences in JV investments and the startremeasurement of commercial operations of the Sur de Texas-Tuxpan marine pipeline at IMG JV in September 2019;certain deferred income taxes; offset by
▪$19344 million earnings attributable to NCI at IEnova in 20202021 compared to $114$171 million earnings in 2019;
▪$21 million lower earnings at2020, including the Guaymas-El Oro segmenteffects of the Sonora pipeline primarily from force majeure payments that endedincrease in August 2019;
▪$13 million higher interest expense;
▪$11 million higher income tax expense in 2020 primarily from lower income tax credits associated with a two-year tax abatement that expires in 2020, and from a valuation allowance and outside basis differences in JV investments; and
▪$5 million lower earnings at TdM primarily due to lower volumes.
Sempra Renewables
As we discuss in Note 5our ownership of the Notes to Consolidated Financial Statements in the Annual Report, Sempra Renewables sold its remaining wind assets and investments in April 2019, upon which date the segment ceased to exist.IEnova.
Sempra LNG
The increasedecrease in earnings of $69$14 million (23%) in the three months ended SeptemberJune 30, 2021 compared to the same period in 2020 was primarily due to:
▪$7963 million lower earnings from marketing operations due to losses in 2021 compared to gains in 2020, primarily driven by changes in natural gas prices; offset by
▪$38 million higher equity earnings from Cameron LNG JV primarily due to commencement of Phase 1the three-train liquefaction project achieving full commercial operations; offset byoperations in August 2020; and
▪$1722 million lower earningsincome tax benefit in 2021 from Sempra LNG’s marketing operations primarily driven by changes in natural gas prices.the remeasurement of certain deferred income taxes.
The increase in earnings of $194$57 million (42%) in the first ninesix months ofended June 30, 2021 compared to the same period in 2020 was primarily due to:
▪$185100 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; and
▪$2022 million higherincome tax benefit in 2021 from the remeasurement of certain deferred income taxes; offset by
▪$57 million lower earnings from Sempra LNG’s marketing operations, primarily driven by changes in natural gas prices.
Parent and Other
The decrease in losses of $13$96 million (9%) in the three months ended SeptemberJune 30, 2021 compared to the same period in 2020 was primarily due to:
▪$14 million lower operating costs retained at Parent; and
▪$13 million lower net interest expense; offset by
▪$12 million higher preferred stock dividends due to the issuance of series C preferred stock in June 2020.
The increase in losses of $132 million (34%) in the first nine months of 2020 was primarily due to:
▪$10050 million equity losses fromearnings in 2021 related to our investment in RBS Sempra Commodities to settle pending taxVAT matters and related legal costs, which we discuss in Note 11 of the Notes to Condensed Consolidated Financial Statements;
▪$2017 million lower preferred dividends as a result of $26 million lower dividends due to the mandatory conversion of all series A preferred stock in January 2021, offset by $9 million higher dividends due to the issuance of series C preferred stock in June 2020;
▪$14 million lower net interest expense; and
▪$11 million loss from foreign currency derivatives in 2020 used to hedge exposure to fluctuations in the Peruvian sol and Chilean peso related to the sales of our South American businesses.
The decrease in losses of $261 million in the six months ended June 30, 2021 compared to the same period in 2020 was primarily due to:
▪$50 million equity earnings in 2021 compared to $100 million equity losses in 2020 related to our investment in RBS Sempra Commodities to settle pending VAT matters and related legal costs, which we discuss in Note 11 of the Notes to Condensed Consolidated Financial Statements;
▪$33 million lower net interest expense;
▪$32 million lower preferred dividends as a result of $52 million lower dividends due to the mandatory conversion of all series A preferred stock in January 2021, offset by $20 million higher dividends due to the issuance of series C preferred stock in June 2020;
▪$17 million net investment gains in 2021 compared to $2 million net investment losses in 2020 on dedicated assets in support of our employee nonqualified benefit plan and deferred compensation obligations;
▪$14 million income tax expense in 2020 compared to a $6 million income tax benefit in 2019 primarily due to:
◦$19 million consolidated California state income tax expense in 2020 associated with income from our investments in Sempra LNG entities, 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, offset by
◦$10 million income tax benefit in 2020 compared to a $3 million income tax expense in 2019 related to share-based compensation; and
▪$14 million higher preferred stock dividends due to the issuance of series C preferred stock in June 2020; offset by
▪$2118 million lower net interest expense.operating costs retained at Parent and other.
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 Condensed Consolidated Financial Statements in the Annual Report, we completed the sales of our South American businesses in the second quarter of 2020. On April 24, 2020, we sold our equity interests in our Peruvian businesses, including our 83.6% interest in Luz del Sur and its interest in Tecsur, for cash proceeds of $3,549 million, net of transaction costs and as adjusted for post-closing adjustments, and on 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$2,232 million, net of transaction costs and as adjusted forsubject to post-closing adjustments.
LossesEarnings from our discontinued operations of $7$1,775 million in the three months ended SeptemberJune 30, 2020 compared to earnings of $248 million for the same period in 2019 from our discontinued operations was primarily due to:
▪$192 million income tax benefit in 2019 associated with outside basis in our South American businesses primarily related to a change in the anticipated structure of the sale of those businesses;
▪$80 million lower operational earnings mainly as a result of the sales of our Peruvian businesses in April 2020 and Chilean businesses in June 2020;and
▪$7 million reduction to the gain on sale of our Chilean businesses as a result of post-closing adjustments; offset by
▪$12 million income tax expense in 2019 related to changes in outside basis differences from earnings since January 25, 2019.
The increase in earnings from our discontinued operations of $1,573 million in the first nine months of 2020 was primarily due to:included:
▪$1,499 million gain on the sale of our Peruvian businesses;
▪$248255 million gain on the sale of our Chilean businesses, subject to post-closing adjustments; and
▪$28 million operational earnings prior to the sale of our Peruvian and Chilean businesses.
Earnings from our discontinued operations of $1,847 million in the six months ended June 30, 2020 included:
▪$1,499 million gain on the sale of our Peruvian businesses;
▪$255 million gain on the sale of our Chilean businesses, subject to post-closing adjustments;
▪$98 million operational earnings prior to the sale of our Peruvian and Chilean businesses; and
▪$7 million income tax benefit in 2020 compared to $32 million income tax expense in 2019 related to changes in outside basis differences from earnings and foreign currency effects since January 25, 2019; offset byeffects.
▪$134 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 the January 25, 2019 approval of our plan to sell our South American businesses.
SIGNIFICANT CHANGES IN REVENUES, COSTS AND EARNINGS
This section contains a discussion of the differences between periods in the specific line items of the Condensed 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 Utilities and Sempra Mexico’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 Condensed 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’ Gas Cost Incentive Mechanism 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. We provide further discussion in Note 3 of the Notes to Consolidated Financial Statements and in “Part I – Item 1. Business – Ratemaking Mechanisms” in the Annual Report.
▪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 Utilities 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 a difference between customer billings and recorded or authorized costs. 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 Condensed Consolidated Financial Statements in this report and in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.
The California Utilities’ revenues are decoupled from, or not tied to, actual sales volumes. SoCalGas recognizes annual authorized revenue for core natural gas customers using seasonal factors established in the Triennial Cost Allocation Proceeding. Accordingly,Proceeding, resulting in a significant portion of SoCalGas’ annual earnings arebeing recognized 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. We discuss this decoupling mechanism and its effects further in Note 3 of the Notes to Consolidated Financial Statements in the Annual Report.
The table below summarizes utilities revenues and cost of sales for our consolidated utilities.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) | |
| | | | Three months ended September 30, | | Nine months ended September 30, | | | Three months ended June 30, | | Six months ended June 30, |
| | | | 2020 | | 2019 | | 2020 | | 2019 | | | 2021 | | 2020 | | 2021 | | 2020 |
| Natural gas revenues: | Natural gas revenues: | | | | | Natural gas revenues: | |
| SoCalGas | SoCalGas | | $ | 842 | | | $ | 975 | | | $ | 3,247 | | | $ | 3,142 | | SoCalGas | | $ | 1,124 | | | $ | 1,010 | | | $ | 2,632 | | | $ | 2,405 | |
| SDG&E | SDG&E | | 134 | | | 156 | | | 498 | | | 482 | | SDG&E | | 160 | | | 145 | | | 428 | | | 364 | |
| Sempra Mexico | Sempra Mexico | | 12 | | | 14 | | | 42 | | | 56 | | Sempra Mexico | | 17 | | | 10 | | | 44 | | | 30 | |
| Eliminations and adjustments | Eliminations and adjustments | | (23) | | | (16) | | | (62) | | | (52) | | Eliminations and adjustments | | (23) | | | (22) | | | (49) | | | (39) | |
| Total | Total | | 965 | | | 1,129 | | | 3,725 | | | 3,628 | | Total | | 1,278 | | | 1,143 | | | 3,055 | | | 2,760 | |
| Electric revenues: | Electric revenues: | | | Electric revenues: | | |
| SDG&E | SDG&E | | 1,338 | | | 1,271 | | | 3,478 | | | 3,184 | | SDG&E | | 1,158 | | | 1,090 | | | 2,227 | | | 2,140 | |
| Eliminations and adjustments | Eliminations and adjustments | | (2) | | | (2) | | | (4) | | | (4) | | Eliminations and adjustments | | (2) | | | — | | | (3) | | | (2) | |
| Total | Total | | 1,336 | | | 1,269 | | | 3,474 | | | 3,180 | | Total | | 1,156 | | | 1,090 | | | 2,224 | | | 2,138 | |
| Total utilities revenues | Total utilities revenues | | $ | 2,301 | | | $ | 2,398 | | | $ | 7,199 | | | $ | 6,808 | | Total utilities revenues | | $ | 2,434 | | | $ | 2,233 | | | $ | 5,279 | | | $ | 4,898 | |
Cost of natural gas(1): | Cost of natural gas(1): | | Cost of natural gas(1): | |
| SoCalGas | SoCalGas | | $ | 92 | | | $ | 101 | | | $ | 476 | | | $ | 660 | | SoCalGas | | $ | 223 | | | $ | 106 | | | $ | 496 | | | $ | 384 | |
| SDG&E | SDG&E | | 27 | | | 23 | | | 118 | | | 136 | | SDG&E | | 40 | | | 31 | | | 122 | | | 91 | |
| Sempra Mexico | Sempra Mexico | | 2 | | | 2 | | | 8 | | | 10 | | Sempra Mexico | | 6 | | | 3 | | | 12 | | | 6 | |
| Eliminations and adjustments | Eliminations and adjustments | | (7) | | | (4) | | | (20) | | | (17) | | Eliminations and adjustments | | (8) | | | (9) | | | (20) | | | (13) | |
| Total | Total | | $ | 114 | | | $ | 122 | | | $ | 582 | | | $ | 789 | | Total | | $ | 261 | | | $ | 131 | | | $ | 610 | | | $ | 468 | |
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 | | $ | 430 | | | $ | 411 | | | $ | 921 | | | $ | 934 | | SDG&E | | $ | 304 | | | $ | 260 | | | $ | 545 | | | $ | 491 | |
| Eliminations and adjustments | Eliminations and adjustments | | (1) | | | (1) | | | (3) | | | (5) | | Eliminations and adjustments | | (20) | | | — | | | (29) | | | (2) | |
| Total | Total | | $ | 429 | | | $ | 410 | | | $ | 918 | | | $ | 929 | | Total | | $ | 284 | | | $ | 260 | | | $ | 516 | | | $ | 489 | |
(1) Excludes depreciation and amortization, which are presented separately on the Sempra, Energy, SDG&E and SoCalGas Condensed Consolidated Statements of Operations.
Natural Gas Revenues and Cost of Natural Gas
The table below summarizes the average cost of natural gas sold by the California Utilities and included in Costcost of Natural Gas on the Condensed 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 | CALIFORNIA UTILITIES AVERAGE COST OF NATURAL GAS | | CALIFORNIA UTILITIES AVERAGE COST OF NATURAL GAS | |
| (Dollars per thousand cubic feet) | (Dollars per thousand cubic feet) | | | (Dollars per thousand cubic feet) | |
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended June 30, | | Six months ended June 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| SoCalGas | SoCalGas | $ | 1.95 | | | $ | 2.12 | | | $ | 2.21 | | | $ | 2.89 | | SoCalGas | $ | 3.73 | | | $ | 1.81 | | | $ | 3.01 | | | $ | 2.29 | |
| SDG&E | SDG&E | 3.79 | | | 3.29 | | | 3.56 | | | 3.96 | | SDG&E | 4.42 | | | 3.10 | | | 4.44 | | | 3.51 | |
In the three months ended SeptemberJune 30, 2020,2021, our natural gas revenues decreasedincreased by $164$135 million (15%(12%) to $965 million$1.3 billion compared to the same period in 2020 primarily due to:
▪$133114 million decreaseincrease at SoCalGas, which included:
◦$181117 million favorable impact in 2019 from the retroactive application of the 2019 GRC FD for the first six months of 2019, and
◦$9 million decreaseincrease in cost of natural gas sold, which we discuss below,offset by
◦$59 million lower authorized revenues from incremental capital projects in 2019 due to implementation of the 2019 GRC FD, and
◦$1844 million higher recovery of costs associated with CPUC-authorized refundable programs, which revenues are offset in O&M; and
▪$22 million decrease at SDG&E, which included:&M,
◦$3820 million favorable impact in 2019higher revenues from the retroactive application of the 2019 GRC FD for the first six months of 2019,incremental and balanced capital projects, and
◦$9 million higher CPUC-authorized revenues, offset by
◦$884 million higher recovery of costs associated with CPUC-authorized refundable programs, which revenues are offset in O&M, and
◦$5 million higher non-service component of net periodic benefit cost in 2020, which fully offsets in Other Income (Expense), Net.
In the three months ended September 30, 2020 our cost of natural gas decreased by $8 million (7%) to $114 million primarily due to:
▪$9 million decrease at SoCalGas primarily due to lower average natural gas prices; offset by
▪$4 million increase at SDG&E primarily due to higher average natural gas prices.
In the first nine months of 2020, our natural gas revenues increased by $97 million (3%) to $3.7 billion primarily due to:
▪$105 million increase at SoCalGas, which included:
◦$132 million higher CPUC-authorized revenues,
◦$84 million 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,
◦$54 million higher recovery of costs associated with CPUC-authorized refundable programs, which revenues are offset in O&M, and
◦$34 million higher net revenues from incremental capital projects, offset by
◦$184 million decrease in cost of natural gas sold, which we discuss below;memorandum account; and
▪$1615 million increase at SDG&E, which included:
◦$119 million increase in cost of natural gas sold, which we discuss below,
◦$4 million higher revenues primarily associated with the Pipeline Safety Enhancement Plan (PSEP), and
◦$4 million higher CPUC-authorized revenues,offset by
◦
$9 million higher recovery of costs associated with CPUC-authorized refundable programs, which revenues are offset in O&M,
◦$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 forecasting differences,memorandum account.
In the three months ended June 30, 2021, our cost of natural gas increased by $130 million to $261 million compared to the same period in 2020 primarily due to:
▪$117 million increase at SoCalGas primarily due to higher average natural gas prices; and
▪$9 million increase at SDG&E, including $12 million due to higher average natural gas prices, offset by $3 million due to lower volumes primarily driven by weather.
In the six months ended June 30, 2021, our natural gas revenues increased by $295 million (11%) to $3.1 billion compared to the same period in 2020 primarily due to:
▪$227 million increase at SoCalGas, which included:
◦$3112 million non-service component of net periodic benefit cost in 2020 compared to a $3 million credit in 2019, which fully offsets in Other Income (Expense), Net, offset by
◦$18 million decreaseincrease in cost of natural gas sold, which we discuss below;below,
◦$85 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M,
◦$68 million higher CPUC-authorized revenues, and
◦$38 million higher revenues from incremental and balanced capital projects, 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
▪$64 million increase at SDG&E, which included:
◦$31 million increase in cost of natural gas sold, which we discuss below,
◦$16 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M,
◦$14 million higher CPUC-authorized revenues, and
◦$8 million higher revenues primarily associated with PSEP, offset by
◦$6 million decrease at Sempra Mexico primarily due to the release of a regulatory rate adjustment and foreign currency effects.liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account.
In the first ninesix months of 2020,ended June 30, 2021, our cost of natural gas decreasedincreased by $207$142 million (26%(30%) to $582$610 million compared to the same period in 2020 primarily due to:
▪$184112 million decreaseincrease at SoCalGas primarily due to $145higher average natural gas prices; and
▪$31 million from lowerincrease at SDG&E, including $25 million due to higher average natural gas prices and $39$6 million from lower volumes driven primarily by weather; and
▪$18 million decrease at SDG&E due to lower average natural gas prices and lowerhigher volumes primarily driven primarily by weather.
Electric Revenues and Cost of Electric Fuel and Purchased Power
In the three months ended SeptemberJune 30, 2020,2021, our electric revenues, substantially all of which are at SDG&E, increased by $67$66 million (5%(6%) remaining at $1.3to $1.2 billion including:compared to the same period in 2020 primarily due to:
▪$9644 million higher cost of electric fuel and purchased power, which we discuss below;
▪$36 million higher recovery of costs associated with CPUC-authorized refundable programs, which revenues are offset in O&M;
▪$2717 million higher revenuesrevenue from transmission operations;
▪$1315 million higher non-service component of net periodic benefit costcharge in 2020 which fully offsets in Other Income (Expense), Net; and
▪$12 million higher CPUC-authorized revenues; offset by
▪$54 million favorable impact in 2019 from the retroactive application of the 2019 GRC FD for the first six months of 2019, including $50 million of liability insurance premium that are now balanced; and
▪$36 millionamounts expected to be refunded to customers related to the Energy Efficiency Program inquiry.inquiry;
In▪$11 million higher revenues associated with SDG&E’s wildfire mitigation plan; and
▪$10 million higher CPUC-authorized revenues; offset by
▪$77 million decrease due to the three months ended September 30,release of a regulatory liability in 2020 ourrelated to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account.
Our utility cost of electric fuel and purchased power, substantially all of which is at SDG&E, increased by $19$24 million (5%(9%) to $429$284 million in the three months ended June 30, 2021 compared to the same period in 2020 primarily due to $17 million associated with Otay Mesa VIE, which we deconsolidatedan increase in August 2019.market costs, offset by a decrease in demand from the adoption of rooftop solar.
In the first ninesix months of 2020,ended June 30, 2021, our electric revenues, substantially all of which are at SDG&E, increased by $294$86 million (9%(4%) to $3.5$2.2 billion including:compared to the same period in 2020 primarily due to:
▪$15790 million higher recovery of costs associated with CPUC-authorized refundable programs, which revenues are offset in O&M;
▪$11054 million higher cost of electric fuel and purchased power, which we discuss below;
▪$20 million higher CPUC-authorized revenues;
▪$18 million higher revenues associated with SDG&E’s wildfire mitigation plan; and
▪$15 million charge in 2020 for amounts expected to be refunded to customers related to the Energy Efficiency Program inquiry; offset by
▪$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;
▪$22 million lower revenues due to favorable resolution of regulatory matters in 2020; and
▪$18 million lower revenues from transmission operations, including an increase in authorized ROE and the following impacts in 2020 related to 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;2019.
▪$77 million due to the release of a regulatory liability in 2020 related to 2016-2018 income tax expense forecasting differences;
▪$26 million higher CPUC-authorized revenues;
▪$19 million higher revenues associated with SDG&E’s wildfire mitigation plan; and
▪$9 million non-service component of net periodic benefit cost in 2020 compared to a $7 million credit in 2019, which fully offsets in Other Income (Expense), Net; offset by
▪$65 million lower cost of electric fuel and purchased power, which we discuss below; and
▪$51 million expected to be refunded to customers related to the Energy Efficiency Program inquiry.
In the first nine months of 2020, ourOur utility cost of electric fuel and purchased power, substantially all of which is at SDG&E, decreasedincreased by $11$27 million (1%(6%) to $918$516 million primarily due to:
▪$65 million lower recoverable cost of electric fuel and purchased powerin the six months ended June 30, 2021 compared to the same period in 2020 primarily due to an increase in market costs, offset by a decrease in residential demand mainly from an increase inthe adoption of rooftop solar adoption; offset bysolar.
▪$52 million associated with Otay Mesa VIE, which we deconsolidated in August 2019.
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) |
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended June 30, | | Six months ended June 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| REVENUES | REVENUES | | | | | REVENUES | | | | |
| Sempra Mexico | Sempra Mexico | $ | 339 | | | $ | 343 | | | $ | 893 | | | $ | 1,002 | | Sempra Mexico | $ | 387 | | | $ | 265 | | | $ | 727 | | | $ | 554 | |
| Sempra Renewables | — | | | — | | | — | | | 10 | | |
| Sempra LNG | Sempra LNG | 63 | | | 100 | | | 255 | | | 327 | | Sempra LNG | 52 | | | 69 | | | 248 | | | 192 | |
Parent and other(1) | Parent and other(1) | (59) | | | (83) | | | (148) | | | (261) | | Parent and other(1) | (132) | | | (41) | | | (254) | | | (89) | |
| Total revenues | Total revenues | $ | 343 | | | $ | 360 | | | $ | 1,000 | | | $ | 1,078 | | Total revenues | $ | 307 | | | $ | 293 | | | $ | 721 | | | $ | 657 | |
COST OF SALES(2) | COST OF SALES(2) | | | | | COST OF SALES(2) | | | | |
| Sempra Mexico | Sempra Mexico | $ | 89 | | | $ | 99 | | | $ | 202 | | | $ | 284 | | Sempra Mexico | $ | 122 | | | $ | 44 | | | $ | 241 | | | $ | 113 | |
| Sempra LNG | Sempra LNG | 62 | | | 78 | | | 145 | | | 235 | | Sempra LNG | 111 | | | 44 | | | 212 | | | 83 | |
Parent and other(1) | Parent and other(1) | (61) | | | (83) | | | (147) | | | (254) | | Parent and other(1) | (114) | | | (37) | | | (225) | | | (86) | |
| Total cost of sales | Total cost of sales | $ | 90 | | | $ | 94 | | | $ | 200 | | | $ | 265 | | Total cost of sales | $ | 119 | | | $ | 51 | | | $ | 228 | | | $ | 110 | |
(1) Includes eliminations of intercompany activity.
(2) Excludes depreciation and amortization, which are presented separately on the Sempra EnergySempra’s Condensed Consolidated Statements of Operations.
In the three months ended SeptemberJune 30, 2020,2021, revenues from our energy-related businesses decreasedincreased by $17$14 million (5%) to $343$307 million compared to the same period in 2020 primarily due to:
▪$37122 million increase at Sempra Mexico primarily due to:
◦$64 million from the marketing business primarily due to higher natural gas prices and volumes,
◦$22 million higher revenues from TdM primarily due to higher volumes, and
◦$18 million 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; offset by
▪$17 million decrease at Sempra LNG primarily due to:
◦$1966 million decrease from natural gas marketing operations primarily due to losses in 2021 compared to gains in 2020, mainly driven by changes in natural gas prices, offset by
◦$49 million increase in revenues from LNG marketing operations primarily from lowerhigher natural gas sales to Sempra Mexico mainly as a result of lower volumes and natural gas prices,
◦$11 million decrease from natural gas marketing operations primarily due to changes inhigher natural gas prices and
◦$6 million lower volumes, and from higher diversion revenues from the expiration of capacity release contracts in the fourth quarter of 2019; offset bydue to higher natural gas prices; and
▪$2491 million increasedecrease primarily from lowerhigher intercompany eliminations associated with sales between Sempra LNG and Sempra Mexico.
In the three months ended SeptemberJune 30, 2020,2021, the cost of sales for our energy-related businesses decreasedincreased by $4$68 million (4%) to $90$119 million compared to the same period in 2020 primarily due to:
▪$1678 million decreaseincrease at Sempra Mexico primarily due to higher natural gas prices and volumes at the marketing business and primarily higher volumes at TdM; and
▪$67 million increase at Sempra LNG mainly from natural gas marketing activities primarily from lowerdue to higher natural gas purchases; andoffset by
▪$1077 million decrease at Sempra Mexico primarily due to lower natural gas prices offset by higher volumes at the marketing business and lower volumes at TdM; offset by
▪$22 million increase primarily from lowerhigher intercompany eliminations associated with sales between Sempra LNG and Sempra Mexico.
In the first ninesix months of 2020,ended June 30, 2021, revenues from our energy-related businesses decreasedincreased by $78$64 million (7%(10%) to $1 billion$721 million compared to the same period in 2020 primarily due to:
▪$109173 million decreaseincrease at Sempra Mexico primarily due to:
◦$63123 million from the marketing business primarily due to lowerhigher natural gas prices and volumes,
◦$2623 million lower revenuesfrom the renewables business primarily from force majeure payments that ended in August 2019 with respectdue to the Guaymas-El Oro segmentacquisition of the Sonora pipeline,ESJ in March 2021 and renewable assets placed in service in December 2020 and March 2021, and
◦$259 million lowerhigher revenues from TdM primarilymainly due to lowerhigher power prices and volumes, offset by higher natural gas prices;unrealized losses on commodity derivatives in 2021 compared to unrealized gains in 2020; and
▪$7256 million decreaseincrease at Sempra LNG primarily due to:
◦$89110 million decreaseincrease in revenues from LNG marketing operations primarily from lowerhigher natural gas sales to Sempra Mexico mainly as a result of lower volumes andhigher natural gas prices and volumes, and from lowerhigher diversion fees mainlyrevenues due to lowerhigher natural gas prices, and
◦$16 million lower revenues from the expiration of capacity release contracts in the fourth quarter of 2019, offset by
◦$3453 million increasedecrease from natural gas marketing operations primarily due to changes in natural gas prices; offset by
▪$113165 million increasedecrease primarily from lowerhigher intercompany eliminations associated with sales between Sempra LNG and Sempra Mexico.
In the first ninesix months of 2020,ended June 30, 2021, the cost of sales for our energy-related businesses decreasedincreased by $65$118 million (25%) to $200$228 million compared to the same period in 2020 primarily due to:
▪$90129 million decreaseincrease at Sempra LNG mainly from natural gas marketing activities primarily due to lowerhigher natural gas purchases; and
▪$82128 million decreaseincrease at Sempra Mexico mainly associated with lower revenues fromprimarily due to higher natural gas prices and volumes at the marketing business and from TdM as a result of lower natural gas prices and volumes;at TdM; offset by
▪$107139 million increasedecrease primarily from lowerhigher intercompany eliminations associated with sales between Sempra LNG and Sempra Mexico.
Operation and Maintenance
OurIn the three months ended June 30, 2021, O&M increased by $199$126 million (24%(14%) to $1.0 billion incompared to the three months ended September 30,same period in 2020 primarily due to:
▪$12463 million increase at SDG&E, excluding impairment losses discussed below, but including:SoCalGas primarily due to:
◦$10444 million higher expenses associated with CPUC-authorized refundable programs, for which costs incurred are recovered in revenue, and
◦$2019 million higher non-refundable operating costs;
▪$47 million increase at SDG&E primarily due to:
◦$36 million higher expenses associated with refundable programs, which costs incurred are recovered in revenue, and
◦$11 million higher non-refundable operating costs; and
▪$9426 million increase at Sempra Mexico primarily due to expenses associated with the growth in the business; offset by
▪$29 million decrease at Parent and other primarily from lower deferred compensation expense and retained operating costs.
In the six months ended June 30, 2021, O&M increased by $276 million (16%) to $2.0 billion compared to the same period in 2020 primarily due to:
▪$127 million increase at SDG&E primarily due to:
◦$106 million higher expenses associated with refundable programs, which costs incurred are recovered in revenue, and
◦$21 million higher non-refundable operating costs;
▪$123 million increase at SoCalGas primarily due to:
◦$49 million higher non-refundable operating costs,
◦$27 million from impacts associated with Aliso Canyon natural gas storage facility litigation and regulatory matters, and
◦$1885 million higher expenses associated with CPUC-authorized refundable programs;programs, which costs incurred are recovered in revenue, and
◦$38 million higher non-refundable operating costs; and
▪$28 million increase at Sempra Mexico primarily due to expenses associated with the growth in the business; offset by
▪$1914 million decrease at Parent and other primarily from lower retained operating costs.costs offset by higher deferred compensation expense.
Aliso Canyon Litigation and Regulatory Matters
In the first nine monthsMarch 2020, SoCalGas recorded a charge of 2020, O&M increased by $378$100 million (15%)in Aliso Canyon Litigation and Regulatory Matters related to $2.9 billion primarily due to:
▪$235 million increase at SoCalGas primarily due to:
◦$127 million from impactssettlement discussions in connection with civil litigation associated with Aliso Canyon natural gas storage facility litigation and regulatory matters,
◦$54 million higher expenses associated with CPUC-authorized refundable programs, and
◦$54 million higher non-refundable operating costs; and
▪$198 million increase at SDG&E, excluding impairment losses discussed below, but including:
◦$166 million higher expenses associated with CPUC-authorized refundable programs, and
◦$32 million higher non-refundable operating costs, including $14 million from amortization of the Wildfire Fund asset and accretion of the Wildfire Fund obligation; offset by
▪$41 million decrease at Parent and other primarily from lower deferred compensation expense; and
▪$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.
Impairment Losses
In September 2019, SoCalGas recognized a $29 million impairment loss related to non-utility native gas assets. In September 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.
Gain on Sale of Assets
In April 2019, Sempra Renewables recognized a $61 million gain on the sale of its remaining wind assets and investments to AEP, asLeak, which we discussdescribe in Note 511 of the Notes to Condensed Consolidated Financial Statements.
Other Income (Expense), Net
As part of our central risk management function, we may enter into foreign currency derivatives to hedge Sempra Mexico parent’s 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), Net, as described below, and partially mitigate the transactional effects of foreign currency and inflation included in Income Tax Expense for Sempra Mexico’s consolidated entities and in Equity Earnings for Sempra Mexico’s equity method investments. We also utilized foreign currency derivatives in 2020 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 in “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in the Annual Report.
Other income, net, inIn the three months ended SeptemberJune 30, 2020 was $292021, other income, net, increased by $10 million (16%) to $72 million compared to other expense, net, of $7 million in the same period in 2019.2020. The change was primarily due to:
▪$3415 million higher net gains in 2020 from impacts associated with interest rate and foreign exchange instruments and foreign currency transactions compared to net losses of $30 million for the same period in 2019 primarily due to:
◦$1514 million gainsnet losses in 2020 comparedof foreign currency derivatives used to $17hedge exposure to fluctuations in the Peruvian sol and Chilean peso related to the sales of our businesses in Peru and Chile, and
◦$14 million losses in 2019higher foreign currency gains on a Mexican peso-denominated loan to IMG JV, which is offset in Equity Earnings, andoffset by
◦$1516 million gains in 2020 compared to $12 million losses in 2019 on foreign currency derivatives as a result of fluctuation of the Mexican peso;
▪$9 million higher AFUDC equity, including $6 million at SDG&E; and
▪$78 million higherlower non-service component of net periodic benefit cost in 2021; offset by
▪$11 million lower investment gains in 20202021 on dedicated assets in support of our executive retirement and deferred compensation plans; offset by
▪$35 million higher non-service component of net periodic benefit cost in 2020, including $13 million settlement charges in 2020 for lump sum payments from one of our nonqualified pension plans; and
▪$6 million fine at SDG&E related to the Energy Efficiency Program inquiry.
Other expense, net, in the first nine months of 2020 was $163 million compared to other income, net, of $103 million in the same period in 2019. The change was primarily due to:
▪$224 million net losses in 2020 from interest rate and foreign exchange instruments and foreign currency transactions compared to net gains of $5 million for the same period in 2019 primarily due to:
◦$120 million higher foreign currency losses on a Mexican peso-denominated loan to IMG JV, which is offset in Equity Earnings, and
◦$94 million losses in 2020 compared to $7 million gains in 2019 on foreign currency derivatives as a result of fluctuation of the Mexican peso;
▪$37 million lower investment gains in 2020 on dedicated assets in support of our executive retirement and deferred compensation plans;
▪$26 million higher non-service component of net periodic benefit cost in 2020; and
▪$6 million fine at SDG&E related to the Energy Efficiency Program inquiry; offset by
▪$27 million higher AFUDC equity, including $19 million at SDG&E and $4 million at SoCalGas;
▪$8 million increasedecrease in regulatory interest at the California Utilities 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.
Other income, net, in the six months ended June 30, 2021 was $107 million compared to other expense, net, of $192 million in the same period in 2020. The change was primarily due to:
▪$242 million lower net losses from impacts associated with interest rate and foreign exchange instruments and foreign currency transactions primarily due to:
◦$5 million foreign currency gains in 2021 compared to $135 million foreign currency losses in 2020 on a Mexican peso-denominated loan to IMG JV, which is offset in Equity Earnings, and
◦$85 million lower losses on foreign currency derivatives as a result of fluctuation of the Mexican peso;
▪$28 million investment gains in 2021 compared to $7 million investment losses in 2020 on dedicated assets in support of our executive retirement and deferred compensation plans;
▪$11 million higher non-service component of net periodic benefit credit in 2021; and
▪$10 million higher AFUDC equity, including $5 million at both SDG&E and SoCalGas; offset by
▪$8 million decrease in penaltiesregulatory interest at the California Utilities due to the release of a regulatory liability in 20192020 related to 2016-2018 forecasting differences that are not subject to tracking in the SoCalGas billing practices OII.income tax expense memorandum account.
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) | |
| | Three months ended September 30, | | Nine months ended September 30, | | Three months ended June 30, | | Six months ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Sempra Energy Consolidated: | | |
| Income tax expense from continuing operations | $ | 99 | | | $ | 61 | | | $ | 60 | | | $ | 150 | | |
| Sempra: | | Sempra: | | | |
| Income tax expense (benefit) from continuing operations | | Income tax expense (benefit) from continuing operations | $ | 139 | | | $ | 168 | | | $ | 297 | | | $ | (39) | |
| Income from continuing operations before income taxes and equity earnings | Income from continuing operations before income taxes and equity earnings | $ | 201 | | | $ | 448 | | | $ | 1,061 | | | $ | 1,235 | | Income from continuing operations before income taxes and equity earnings | $ | 281 | | | $ | 463 | | | $ | 1,049 | | | $ | 860 | |
Equity earnings, before income tax(1) | Equity earnings, before income tax(1) | 117 | | | 17 | | | 158 | | | 24 | | Equity earnings, before income tax(1) | 185 | | | 84 | | | 320 | | | 41 | |
| Pretax income | Pretax income | $ | 318 | | | $ | 465 | | | $ | 1,219 | | | $ | 1,259 | | Pretax income | $ | 466 | | | $ | 547 | | | $ | 1,369 | | | $ | 901 | |
| | Effective income tax rate | Effective income tax rate | 31 | % | | 13 | % | | 5 | % | | 12 | % | Effective income tax rate | 30 | % | | 31 | % | | 22 | % | | (4) | % |
| SDG&E: | SDG&E: | | SDG&E: | |
| Income tax expense | Income tax expense | $ | 33 | | | $ | 71 | | | $ | 161 | | | $ | 111 | | Income tax expense | $ | 33 | | | $ | 70 | | | $ | 78 | | | $ | 128 | |
| Income before income taxes | Income before income taxes | $ | 211 | | | $ | 337 | | | $ | 794 | | | $ | 700 | | Income before income taxes | $ | 219 | | | $ | 263 | | | $ | 476 | | | $ | 583 | |
| Effective income tax rate | Effective income tax rate | 16 | % | | 21 | % | | 20 | % | | 16 | % | Effective income tax rate | 15 | % | | 27 | % | | 16 | % | | 22 | % |
| SoCalGas: | SoCalGas: | | SoCalGas: | |
| Income tax (benefit) expense | $ | (6) | | | $ | 35 | | | $ | 95 | | | $ | 50 | | |
| (Loss) income before income taxes | $ | (30) | | | $ | 178 | | | $ | 521 | | | $ | 488 | | |
| Income tax expense | | Income tax expense | $ | 8 | | | $ | 49 | | | $ | 102 | | | $ | 101 | |
| Income before income taxes | | Income before income taxes | $ | 103 | | | $ | 196 | | | $ | 604 | | | $ | 551 | |
| Effective income tax rate | Effective income tax rate | 20 | % | | 20 | % | | 18 | % | | 10 | % | Effective income tax rate | 8 | % | | 25 | % | | 17 | % | | 18 | % |
(1) We discuss how we recognize equity earnings in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report.
Sempra Energy Consolidated
The increase inSempra’s income tax expense decreased in the three months ended SeptemberJune 30, 2021 compared to the same period in 2020 was due to a higher ETR offset by lower pretax income. The changeincome, higher income tax benefits from forecasted flow-through items, and the following items:
▪$22 million income tax benefit in ETR was primarily due2021 from the remeasurement of certain deferred income taxes; offset by
▪$83 million income tax expense in 2021 compared to $41$30 million income tax expense in 2020 compared to $32 million income tax benefit in 2019 from foreign currency and inflation effects primarily as a result of fluctuation of the Mexican peso.and associated derivatives.
The decrease inSempra’s income tax expense in the first ninesix months ofended June 30, 2021 compared to an income tax benefit in the same period in 2020 was due to lowerhigher pretax income offset by higher income tax benefits from forecasted flow-through items and a lower ETR. The change in ETR was primarily due to:the following items:
▪$23741 million income tax expense in 2021 compared to $307 million income tax benefit in 2020 compared to $7 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; and
▪$1910 million lower income tax benefit in 2020 compared to $5 million income tax expense in 20192021 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
▪$1022 million income tax benefit in 20192021 from a reduction in a valuation allowance againstthe remeasurement of certain NOL carryforwards as a result of our decision to sell our South American businesses.deferred income taxes.
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 Note 1 of the Notes to Condensed Consolidated Financial Statements in this report and Notes 1 and 8 of the Notes to Consolidated Financial Statements in the Annual Report for further details about our accounting for income taxes and items subject to flow-through treatment.
SDG&E
The decrease in SDG&E’s income tax expense decreased in both the three months and six months ended SeptemberJune 30, 2021 compared to the same periods in 2020 wasprimarily due to lower pretax income and a lower ETR. The changehigher income tax benefits from forecasted flow-through items.
SoCalGas
SoCalGas’ income tax expense decreased in ETR wasthe three months ended June 30, 2021 compared to the same period in 2020 primarily due to lower pretax income and higher income tax benefits from forecasted flow-through items as a percentage of pretax income.items.
The increase in SDG&E’sSoCalGas’ income tax expense increased in the first ninesix months ofended June 30, 2021 compared to the same period in 2020 wasprimarily due to higher pretax income and aoffset by higher ETR. The change in ETR was primarily due to $31 million income tax benefit in 2019benefits 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.forecasted flow-through items.
SoCalGas
SoCalGas’ income tax benefit in the three months ended September 30, 2020 compared to an income tax expense in the same period in 2019 was due to a pretax loss in the three months ended September 30, 2020 compared to pretax income in the same period in 2019.
The increase in SoCalGas’ income tax expense in the first nine months of 2020 was due to higher pretax income and a higher ETR. The change in ETR was primarily due to $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.
Equity Earnings
In the three months ended SeptemberJune 30, 2020,2021, equity earnings increased by $60$80 million (23%(34%) to $326$313 million compared to the same period in 2020 primarily due to:
▪$9950 million equity earnings in 2021 related to our investment in RBS Sempra Commodities to settle pending VAT matters and related legal costs; and
▪$49 million higher equity earnings at Cameron LNG JV primarily due to commencement of Phase 1the three-train liquefaction project achieving full commercial operations;operations in August 2020; offset by
▪•$2912 million lower equity earnings at IMG JV, primarily due to foreign currency effects, including $15$14 million higher foreign currency losses in 2020 compared to $17 million foreign currency gains in 2019 on IMG JV’s Mexican peso-denominated loans from its JV owners, which is fully offset in Other Income (Expense), Net,Net; and
▪$6 million lower AFUDC equity earnings at Oncor Holdings primarily due to increased operating costs and expenses attributable to invested capital, offset by higher revenues from the startrate updates to reflect increases in invested capital and customer growth (net of commercial operations of the Sur de Texas-Tuxpan marine pipeline.lower consumption primarily due to weather).
In the first ninesix months of 2020,ended June 30, 2021, equity earnings increased by $337$135 million (27%) to $822$631 million compared to the same period in 2020 primarily due to:
▪$23850 million equity earnings in 2021 compared to $100 million equity losses in 2020 related to our investment in RBS Sempra Commodities to settle pending VAT matters and related legal costs;
▪$126 million higher equity earnings at Cameron LNG JV primarily due to commencement of Phase 1the three-train liquefaction project achieving full commercial operations;operations in August 2020; and
▪$14424 million higher equity earnings at Oncor Holdings primarily due to higher revenues from rate updates to reflect increases in invested capital and customer growth, offset by increased operating costs and expenses attributable to invested capital; offset by
▪$168 million lower equity earnings at Sempra Mexico, which included:
◦$143 million lower equity earnings at IMG JV, primarily due to foreign currency effects, including $120$5 million higherforeign currency losses in 2021 compared to $135 million foreign currency gains in 2020 on IMG JV’s Mexican peso-denominated loans from its JV owners, which is fully offset in Other Income (Expense), Net, and higher revenues from the start of commercial operations of the Sur de Texas-Tuxpan marine pipeline, offset by lower AFUDC equity;
▪◦$3920 million higher equity earnings at Oncor Holdings primarily due to increased revenues, the acquisition of InfraREIT in May 2019 and higher AFUDC equity, offset by unfavorable weather and increased operating costs; and
▪$18 million higherlower equity earnings at TAG JV primarily due to income tax expense in 2021 compared to a benefit in 2020 compared to income tax expense in 2019; offset by
▪$100 million equity losses at RBS Sempra Commodities in 2020, which represents an estimate of our obligations to settle pending tax matters and related legal costs at our equity method investment.2020.
Earnings Attributable to Noncontrolling Interests
In the three months and six months ended SeptemberJune 30, 2020,2021, earnings attributable to NCI decreased by $38$18 million to $22$10 million and $136 million to $43 million, respectively, compared to the same periods in 2020 primarily due to a decrease in earnings attributable to NCI at Sempra Mexico mainlyand from foreign currency effectsthe increase in our ownership interest in IEnova as a result of fluctuationthe exchange offer, which we discuss in Note 1 of the Mexico peso, and from the sales of our Peruvian businesses in April 2020 and Chilean businesses in June 2020.Notes to Condensed Consolidated Financial Statements.
Preferred Dividends
In the first ninethree months ofand six months ended June 30, 2021, preferred dividends decreased by $17 million to $20 million and $32 million to $41 million, respectively, compared to the same periods in 2020 earnings attributable to NCI increased by $55 million (38%) to $201 million, primarily due to an increasethe conversion of series A preferred stock in earnings attributable to NCI at Sempra Mexico mainly from foreign currency effects as a result of fluctuation of the Mexico peso,January 2021, offset by a decrease due to the salesissuance of our Peruvian businesses in April 2020 and Chilean businessesseries C preferred stock in June 2020.
IMPACT OF FOREIGN CURRENCY AND INFLATION RATES ON RESULTS OF OPERATIONS
Because operations in South America and our natural gas distribution utility in Mexico, use theirEcogas, uses its local currency as theirits functional currency, 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 to the sales of our South American businesses in 2020, our operations in South America used their local currency as their functional currency. We discuss further the impact of foreign currency and inflation rates on results of operations, including impacts on income taxes and related hedging activity, in “Part II – Item 7. MD&A – Impact of Foreign Currency and Inflation Rates on Results of Operations” in the Annual Report.
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. In the three months and ninesix months ended SeptemberJune 30, 2020 compared to the prior-year periods,2021, the change in our earnings as a result of foreign currency translation rates was not material.material compared to the same period in 2020.
Transactional Impacts
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 GAINS (LOSSES) FROM FOREIGN CURRENCY AND INFLATION | |
| TRANSACTIONAL (LOSSES) GAINS FROM FOREIGN CURRENCY AND INFLATION EFFECTS AND ASSOCIATED DERIVATIVES | | TRANSACTIONAL (LOSSES) GAINS FROM FOREIGN CURRENCY AND INFLATION EFFECTS AND ASSOCIATED DERIVATIVES |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | | Total reported amounts | | | Transactional gains (losses) included in reported amounts | | Total reported amounts | | | Transactional gains (losses) included in reported amounts |
| | | Three months ended September 30, | | Three months ended June 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Other income (expense), net | Other income (expense), net | $ | 29 | | | $ | (7) | | | | $ | 34 | | | $ | (30) | | Other income (expense), net | $ | 72 | | | $ | 62 | | | | $ | 33 | | | $ | 18 | |
| Income tax expense | (99) | | | (61) | | | | (41) | | | 32 | | |
| Income tax (expense) benefit | | Income tax (expense) benefit | (139) | | | (168) | | | | (83) | | | (30) | |
| Equity earnings | Equity earnings | 326 | | | 266 | | | | (23) | | | 17 | | Equity earnings | 313 | | | 233 | | | | (35) | | | (17) | |
| Income from continuing operations, net of income tax | Income from continuing operations, net of income tax | 428 | | | 653 | | | | (33) | | | 21 | | Income from continuing operations, net of income tax | 455 | | | 528 | | | | (85) | | | (29) | |
| (Loss) income from discontinued operations, net of income tax | (7) | | | 256 | | | | — | | | — | | |
| Income from discontinued operations, net of income tax | | Income from discontinued operations, net of income tax | — | | | 1,777 | | | | — | | | (1) | |
| Earnings attributable to noncontrolling interests | | Earnings attributable to noncontrolling interests | (10) | | | (28) | | | | 13 | | | 9 | |
| Earnings attributable to common shares | Earnings attributable to common shares | 351 | | | 813 | | | | (18) | | | 11 | | Earnings attributable to common shares | 424 | | | 2,239 | | | | (72) | | | (21) | |
| | | Nine months ended September 30, | | Six months ended June 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Other income (expense), net | Other income (expense), net | $ | (163) | | | $ | 103 | | | | $ | (224) | | | $ | 5 | | Other income (expense), net | $ | 107 | | | $ | (192) | | | | $ | (16) | | | $ | (258) | |
| Income tax expense | (60) | | | (150) | | | | 237 | | | (7) | | |
| Income tax (expense) benefit | | Income tax (expense) benefit | (297) | | | 39 | | | | (41) | | | 307 | |
| Equity earnings | Equity earnings | 822 | | | 485 | | | | 141 | | | (5) | | Equity earnings | 631 | | | 496 | | | | (16) | | | 164 | |
| Income from continuing operations, net of income tax | Income from continuing operations, net of income tax | 1,823 | | | 1,570 | | | | 179 | | | (10) | | Income from continuing operations, net of income tax | 1,383 | | | 1,395 | | | | (73) | | | 213 | |
| (Loss) income from discontinued operations, net of income tax | 1,850 | | | 292 | | | | 15 | | | 1 | | |
| Income from discontinued operations, net of income tax | | Income from discontinued operations, net of income tax | — | | | 1,857 | | | | — | | | 15 | |
| Earnings attributable to noncontrolling interests | | Earnings attributable to noncontrolling interests | (43) | | | (179) | | | | 4 | | | (99) | |
| Earnings attributable to common shares | Earnings attributable to common shares | 3,350 | | | 1,608 | | | | 111 | | | (4) | | Earnings attributable to common shares | 1,298 | | | 2,999 | | | | (69) | | | 129 | |
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. President Donald Trump 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 having a significant impact on the economy and people’s livelihoods, including substantial volatility in financial markets and a historic surge in unemployment claims, and has resulted in sweeping 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 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 for all customers experiencing difficulty paying their electric or gas bills. The CPUC approved a resolution authorizing each of the California Utilities to establish a CPPMA 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 to recover 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 Condensed 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 expect to benefit from deferring 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. Sempra Energy has filed a refund claim for its corporate AMT credits and expects to receive approximately $56 million in 2020 rather than 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-placesocial distancing and other orders. We have implemented precautionary measures across our businesses, 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. Through the end of the third quarter of 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, including a slowdown of certain of our capital spending, 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, record-high unemployment rates, potential reduction in customer collections, 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 considered whether these events or changes in circumstances triggered the need for an interim impairment analysis for our long-lived assets, intangible assets and goodwill. We determined that, given the nominal impact on our cash flows, assessment of the impact of these conditions on our businesses and existing headroom in our prior quantitative tests for goodwill, there was no triggering event in the nine months ended September 30, 2020. However, as the effects of the COVID-19 pandemic continue to evolve, we will continue to periodically assess the need to perform an interim impairment test and, consistent with prior years, plan to perform our annual goodwill impairment test on October 1, 2020. To the extent the results of any such impairment test reveal that the recorded (carrying) value is in excess of the fair value, we would record an impairment charge in the period of such test. 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.
For a further discussion of risks and uncertainties related to the COVID-19 pandemic, see below in“Part I – Item 1A. Risk Factors” and “Part II – Item 1A. Risk Factors.”7. MD&A – Capital Resources and Liquidity” in the Annual Report.
In April 2021, we entered into an agreement to sell a 20% equity interest in Sempra Infrastructure Partners, which generally represents the combined businesses of Sempra LNG and IEnova under Sempra Global, for cash proceeds of $3.37 billion, subject
to adjustments. We anticipate completing this transaction around the end of the third quarter of 2021. We intend to use the expected proceeds from the sale to fund capital investments in support of additional growth opportunities and strengthen our balance sheet by reducing debt.
The completion of the sale of NCI in Sempra Infrastructure Partners will reduce our ownership interest in Sempra Infrastructure Partners and require us to share control over certain business decisions with our minority partner, which introduces a number of risks similar to those associated with sharing business control. Moreover, 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.
Our ability to complete this transaction is subject to a number of risks, including, among others, the ability to obtain governmental, regulatory and third-party approvals and satisfy other customary closing conditions. If we are not able to obtain these approvals and satisfy all other closing conditions in a timely manner or on satisfactory terms, then the proposed transaction may be abandoned and/or our prospects could be materially adversely affected. This transaction is subject to a number of risks and uncertainties that we discuss further in “Part I – Item 1A. Risk Factors” in the Annual Report.
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, distributions from our equity method investments, issuances of debt, project financing and partnering in JVs.with NCI investors. We believe that these cash flow sources, combined with available funds, will be adequate to fund our current operations, including to:
▪finance capital expenditures
▪meet liquidity requirements
▪fund dividends
▪fund new business or asset acquisitions or start-ups
▪fund capital contribution requirements
▪repay maturing long-term debt
▪fund expenditures related to the natural gas leak at SoCalGas’ Aliso Canyon natural gas storage facility
Sempra Energy and the California Utilities currently have reasonable access to the long-term debtmoney 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 capital markets in general, including particularly the commercial paper markets, and the availability of financing from commercial banks have experienced distress 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 or continue for an extended period.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. 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 intention to maintain our investment-grade credit ratings and capital structure.
We have significant investments in several trusts to provide for future payments of pensions and other postretirement benefits and nuclear decommissioning. Changes in asset values, which are dependent on activity in the equity and fixed income markets, have not materially and adversely affected the trust funds’ abilities to make required payments. However, changes in asset 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 for SDG&E’s NDT could also be impacted by the timing and amount of SONGS decommissioning costs. At the California Utilities, funding requirements are generally recoverable in rates. We discuss our employee benefit plans and SDG&E’s NDT, including our investment allocation strategies for assets in these trusts, in Notes 9 and 15, respectively, of the Notes to Consolidated Financial Statements in the Annual Report.
Available Funds
Our committed lines of credit provide liquidity and support commercial paper. As we discuss in Note 7 of the Notes to Condensed Consolidated Financial Statements, Sempra, Energy, Sempra Global, SDG&E and SoCalGas each have five-year credit agreements expiring in 2024. In addition, Sempra Mexico has general-purposecommitted lines of credit facilities that expire in 2021 and 2024. 2024 and uncommitted revolving credit facilities
that expire in 2023. Sempra Infrastructure Partners may enter into its own revolving credit facility, although such a credit facility and its timing remain uncertain.
The table below shows the amount of available funds at SeptemberJune 30, 2020,2021, including available unused credit on these primary U.S. and foreign lines of credit.
| | AVAILABLE FUNDS AT SEPTEMBER 30, 2020 | |
| AVAILABLE FUNDS AT JUNE 30, 2021 | | AVAILABLE FUNDS AT JUNE 30, 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) | $ | 3,515 | | | $ | 733 | | | $ | 304 | | Unrestricted cash and cash equivalents(1) | $ | 335 | | | $ | 13 | | | $ | 4 | |
Available unused credit(2)(3) | Available unused credit(2)(3) | 7,793 | | | 1,500 | | | 750 | | Available unused credit(2)(3) | 6,319 | | | 1,063 | | | 607 | |
(1) Amounts at Sempra Energy Consolidated include $439$140 million held in non-U.S. jurisdictions. We discuss repatriation in Note 18 of the Notes to Condensed Consolidated Financial Statements.Statements in the Annual Report.
(2) Available unused credit is the total available on Sempra Energy’s, Sempra Global’s,Sempra’s, SDG&E’s, SoCalGas’ and Sempra Mexico’s credit facilities that we discuss in Note 7 of the Notes to Condensed Consolidated Financial Statements.
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 Utilities 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 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 were our primary sources of short-term debt funding in the first ninesix months of 2020.2021. In June 2021, SDG&E entered into a $375 million, 364-day term loan with a maturity date of June 27, 2022. At June 30, 2021, there were no borrowings outstanding under this agreement. In July 2021, SDG&E borrowed $200 million, net of negligible issuance costs, under the term loan. The borrowing bears interest at benchmark rates plus 62.5 bps. The term loan provides SDG&E with additional liquidity outside of its line of credit.
We discuss our short-term debt activities in Note 7 of the Notes to Condensed Consolidated Financial Statements.
Long-Term Debt Activities
Major issuancesIssuances of and payments on long-term debt in the first ninesix months of 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% notes | | 100 | | | 2034 |
| Sempra Mexico 2.90% notes | | 241 | | | 2034 |
| Sempra Mexico 4.75% senior unsecured notes | | 800 | | | 2051 |
| | | | | |
| Payments: | | Payments | | Maturity |
| Sempra Energy 2.4% notes | | $ | 500 | | | 2020 |
| Sempra Energy 2.4% notes | | 500 | | | 2020 |
| SDG&E 1.914% amortizing first mortgage bonds | | 36 | | | 2020-2022 |
| SDG&E variable rate revolving line of credit | | 200 | | | 2024 |
| Sempra Mexico variable rate notes | | 46 | | | 2024-2032 |
SDG&E intends to use the proceeds from its long-term debt offerings to repay commercial paper and its line of credit borrowings, for working capital and other general corporate purposes. Additionally, SDG&E intends to use a portion of the proceeds from its $800 million 1.70% first mortgage bonds offering to repay approximately $250 million of debt, prior to its scheduled maturity.
SoCalGas intends to use the proceeds from its long-term debt offerings to repay commercial paper and for general corporate purposes.
Sempra Mexico used the proceeds from its issuances of long-term debt to finance the construction of solar generation projects, repay line of credit borrowings and for other general corporate purposes. | | | | | | | | | | | | | | |
| LONG-TERM DEBT ISSUANCES AND PAYMENTS |
| (Dollars in millions) | | | | |
| Issuances: | | Amount at issuance | | Maturity |
| | | | |
| Sempra LNG variable rate notes | | $ | 185 | | | 2025 |
| | | | |
| Payments: | | Payments | | Maturity |
| Sempra variable rate notes | | $ | 850 | | | 2021 |
| SDG&E 1.914% amortizing first mortgage bonds | | 18 | | | 2021 |
| SDG&E variable rate 364-day term loan | | 200 | | | 2021 |
| Sempra Mexico variable rate notes | | 22 | | | 2021 |
| Sempra Mexico variable and fixed rate loans | | 20 | | | 2021 |
We discuss our long-term debt activities in Note 7 of the Notes to Condensed Consolidated Financial Statements.
Sempra Energy Series C Preferred Stock Offering
On June 19, 2020, we issued 900,000 shares of our 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. We provide additional discussion about this equity offering in Note 1 of the Notes to Condensed Consolidated Financial Statements.
Sempra Energy Common Stock Repurchase Programs
As we discuss in Note 1 of the Notes to Condensed Consolidated Financial Statements and below in “Part II – Item 2. Unregistered Sales of Equity Securities and Use of Proceeds,” 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 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. We funded the $500 million share repurchase with a portion of the proceeds received from the sale of our South American businesses.
Credit Ratings
We provide additional information about the credit ratings of Sempra, Energy, SDG&E and SoCalGas in “Part I – Item 1A. Risk Factors” and “Part II – Item 2. MD&A – Capital Resources and Liquidity” in the Annual Report.
The credit ratings of Sempra, Energy, SDG&E and SoCalGas remained at investment grade levels duringin the first ninesix months of 2020. On May 29, 2020, Moody’s downgraded SoCalGas’ senior unsecured credit rating to A2 with a stable outlook. On June 9, 2020, Moody’s downgraded Sempra Energy’s senior unsecured and issuer credit ratings to Baa2 with a stable outlook. On September 16, 2020, S&P revised its outlook on SDG&E from stable to negative and affirmed its BBB+ issuer credit rating.2021.
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CREDIT RATINGS AT SEPTEMBERJUNE 30, 20202021 | | | | |
| | | | | |
| | 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 |
Our credit ratings may affect the rates at which borrowings bear interest and the commitment fees on available unused credit.
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, Energy, SDG&E, SoCalGas and Sempra Energy’sSempra’s other subsidiaries to issue debt securities, to borrow under credit facilities and to raise certain other types of financing.
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 SeptemberJune 30, 2020.2021.
Loans to/fromwith Affiliates
At SeptemberJune 30, 2020,2021, Sempra Energy had $642$704 million in loans due from unconsolidated affiliates and $271$304 million in loans due to unconsolidated affiliates.
California 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 the other matters described in this report and the Annual Report.
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 Utilities are continuing to monitor the impacts of the COVID-19 pandemic on cash flows 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 Utilities manage their capital structure and pay dividends when appropriate and as approved by their respective boards of directors.
As we discuss in Note 4 of the Notes to Condensed Consolidated Financial Statements in this report and in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report, 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 in rates through billings to customers.
Arrearage Management Payment PlanCOVID-19 Pandemic Protections
The California Utilities 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.
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 affected by the COVID-19 pandemic. The California Utilities implemented certain measures to assist all customers (except for SoCalGas’ noncore customers) in response to these requirements, including 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. The customer protection measures were in place through June 2021. In June 2021, the CPUC further extended the suspension of service disconnections for nonpayment through September 2021, which provides time for the California Utilities to notify residential and small business customers in arrears and enroll such customers in long-term repayment plans. The CPUC is continuing to consider the impacts of any state or federal relief programs on customer arrearages and if further debt relief is warranted.
The CPUC authorized each of the California Utilities to track and request recovery of incremental costs associated with complying with residential 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. 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, SDG&E and SoCalGas. We discuss regulatory mechanisms in Note 4 of the Notes to Condensed Consolidated Financial Statements.
Disconnection OIR
In June 2020, the CPUC issued a decision addressing residential service disconnections that, among other things, allows 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 also directs the California Utilities to establish an AMP that provides successfully participating, income-qualified residential customers with relief from outstanding utility bill amounts.amounts and became effective in February 2021. The California Utilities have recorded increases in their allowances for uncollectible accounts as of September 30, 2020 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’ 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 of Sempra, Energy, SDG&E and SoCalGas.
Pipeline Safety Enhancement Plan (PSEP)CCM
In November 2018, SoCalGasA CPUC cost of capital proceeding determines a utility’s authorized capital structure and authorized return on rate base. A cost of capital proceeding also addresses the CCM, which considers changes in interest rates based on the applicable utility bond index published by Moody’s (the CCM benchmark rate) for the 12-month period from October 2020 through September 2021. The CCM benchmark rate is the basis of comparison to determine if further measurement periods “trigger” the CCM. The trigger 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%. The index applicable to 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.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 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. SoCalGas’ CCM benchmark rate is 4.029%, based on Moody’s A- utility bond index.
The final decision was implemented in rates onaverage Moody’s Baa- utility bond index between October 1, 2020.2020 and July 30, 2021 was more than 1.000% below SDG&E’s CCM benchmark rate of 4.498%. The CCM, if triggered in 2021 by SDG&E or SoCalGas, would be effective January 1, 2022, and would automatically update their respective authorized cost of debt based on actual costs and update their respective authorized ROE. A trigger of the CCM that requires a downward adjustment beginning January 1, 2022 could materially adversely affect the results of operations and cash flows of Sempra and, depending on the CCM that is triggered, SDG&E or SoCalGas. We discuss the CCM further in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.
SDG&E
Wildfire Fund
In 2019,The carrying value of SDG&E recorded a&E’s Wildfire Fund asset for committed shareholder contributions to the Wildfire Fund.totals $378 million at June 30, 2021. We describe the Wildfire Legislation and related accounting treatment in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.
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. In such a situation, SDG&E may recognize a reduction of its Wildfire Fund asset and record 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. As a result, 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 has experienced some of the largest wildfires in its history (measured by acres burned), including fires in SDG&E’s service territory, and there can be 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 cause a material adverse effect on SDG&E’s and Sempra Energy’sSempra’s cash flows, results of operations and financial condition.
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 would be subject to reasonableness review.
Franchise Agreements
In December 2020, the City of San Diego and SDG&E agreed to extend the natural gas and electric franchises 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. 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. SDG&E will pay
$110 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.
Two lawsuits have been filed in 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 as null and void.
SoCalGas
SoCalGas’ future performance and liquidity will depend onbe impacted by the resolution of legal, regulatory and other matters concerning the Leak, at the Aliso Canyon natural gas storage facility, which we discuss furtherbelow and in Note 11 of the Notes to Condensed Consolidated Financial Statements in this report and in “Part 1I – Item 1A. Risk Factors” in the Annual Report.
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, Accounting Impact and Insurance. At SeptemberJune 30, 2020,2021, SoCalGas estimates certain costs related to the Leak are $1,440$1,627 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 $268$422 million is accrued as Reserve for Aliso Canyon Costs and $7 million is accrued in Deferred Credits and Other as of September 30, 2020 on SoCalGas’ and Sempra Energy’sSempra’s Condensed Consolidated Balance Sheets.
Except for the amounts paid or estimated to settle certain actions,legal and regulatory matters, the cost estimate does not include all litigation, regulatory proceedings or regulatory costs to the extent it is not possible to predict at this time the outcome of these actions or reasonably estimate the costs to defend or resolve the actions or the amount of damages, restitution, civil or civil, administrative or criminal fines, sanctions, penalties 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. These costs not included in the cost estimate could be significant and could have a material adverse effect on SoCalGas’ and Sempra Energy’sSempra’s cash flows, financial condition and results of operations.
We have received insurance payments for many of the 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 June 30, 2021, we recorded the expected recovery of the cost estimate related to the Leak of $414 million as Insurance Receivable for Aliso Canyon Costs on SoCalGas’ and Sempra’s Condensed Consolidated Balance Sheets. This amount is exclusive of insurance retentions and $865 million of insurance proceeds we received through June 30, 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, insurance, after taking into consideration the additional accrual related to litigation matters described in Note 11 of the Notes to Condensed Consolidated Financial Statements, we have exhausted all of our insurance in this matter, except as to certain defense costs we may incur in the future, including those related to the shareholder derivative lawsuits.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, for all or a substantial portion of these costs, 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’s cash flows, financial condition and results of operations.
As of September 30, 2020, we recorded the expected recovery of the cost estimate related to the Leak of $504 million as Insurance Receivable for Aliso Canyon Costs on SoCalGas’ and Sempra Energy’s Condensed Consolidated Balance Sheets. This amount is exclusive of insurance retentions and $775 million of insurance proceeds we received through September 30, 2020. If we were to conclude that this receivable or a portion of it is no longer probable of recovery from insurers, some or all of this receivable would be charged against earnings, which could have a material adverse effect on SoCalGas’ and Sempra Energy’sSempra’s cash flows, financial condition and results of operations.
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 limited injection operations in July 2017.
During the suspension period, SoCalGas advised the California ISO, California Energy Commission, CPUC and Pipeline and Hazardous Materials Safety Administration of its concerns that the inability to inject natural gas into the Aliso Canyon natural gas storage facility posed a risk to energy reliability in Southern California. The CPUC has issued a series of directives to SoCalGas specifying the range of working gas to be maintained in the Aliso Canyon natural gas storage facility as well as protocols for the withdrawal of gas, to help ensuresupport safe and reliable natural gas service, while helping to maintain stable energy prices in Southern California. Limited withdrawals of natural gas from the facility were made in 2018, 2019 and 2020 to augment natural gas supplies during critical demand periods.
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. 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 significantly higher than expected operating costs and/or additional capital expenditures, and natural gas reliability and electric generation could be jeopardized. At SeptemberJune 30, 2020,2021, the Aliso Canyon natural gas storage
facility had a net book value of $788$858 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, could have a material adverse effect on SoCalGas’ and Sempra Energy’sSempra’s results of operations, financial
condition and cash flows.
Sempra Texas Utilities
Oncor’s business is capital intensive, and itOncor 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 we may be required to make additional capital contributions to Oncor, or if Oncor 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 and prospects.
Oncor’s ability to pay dividends may be limited by factors such as its credit ratings, regulatory capital requirements, debt-to-equity ratio approved by the PUCT and other restrictions. 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.
In July 2021, Sempra contributed $50 million to Oncor Holdings, and Oncor Holdings distributed a $438 million return of investment to Sempra.
Winter Weather Event
In February 2021, ERCOT required transmission companies, including Oncor, to significantly reduce demand on the grid due to insufficient electricity generation caused by extreme winter weather, resulting in power outages throughout ERCOT. As a result of the winter weather event, the PUCT issued a moratorium on customer disconnections due to nonpayment until June 18, 2021, and it or 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, 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.
Sempra Mexico
Construction Projects
Sempra Mexico began commercial operations of its new terminals for the receipt, storage and Related Regulatory Mattersdelivery 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 2.6 million barrels. The storage capacity for both terminals is contracted with Valero Energy Corporation. Sempra Mexico also completed construction and began commercial operations of a new solar facility (Border Solar) in Juárez, Chihuahua on March 25, 2021.
Sempra Mexico is currently building or developingconstructing additional terminals for the receipt, storage, and delivery of liquid fuels in the new port of Veracruz and vicinity of Mexico City, Puebla Topolobampo, Manzanillo, and Ensenada.Topolobampo. We expect these projects to commence commercial operations in 2021. However, expected 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 Mexico is also constructing new solar facilities in Juárez, Chihuahua,continuing to monitor the impacts of the COVID-19 pandemic on cash flows and Benjamin Hill, Sonora, through which it intends to supply renewable energy to several private companies.results of operations. We expect to fund these capital expenditures, investments and investments, operations and dividends at IEnova with available funds, including credit facilities, and funds internally generated by 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 to commence commercial operations on various dates in 2020 and 2021. However, expected commencement dates could be delayed by worsening or extended disruptions of project construction or development caused by the COVID-19 pandemic. Sempra Mexico is continuing to monitoralso developing terminals for the impactsreceipt, storage, and delivery of the COVID-19 pandemic on cash flows and results of operations. See “Part II – Item 1A. Risk Factors” below.
As we discuss in Note 11 of the Notes to Condensed Consolidated Financial Statements,liquid fuels in the second quartervicinity of 2020, certain Mexican governmental agencies issued ordersManzanillo, Guadalajara 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) or, with respect to the SENER resolution, until Mexico’s Supreme Court issues its final ruling on COFECE’s complaint, the timing of which is uncertain. 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 solar facilities, or to complete them 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.Ensenada.
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” in the Annual Report.
Other Legal and Regulatory Matters
As we discuss in Note 11 of the Notes to Condensed Consolidated Financial Statements, IEnova received force majeure payments for the Guaymas-El Oro segment of the Sonora pipeline fromhas been inoperable since August 2017 to August 2019.2017. 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 MarchSeptember 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
At June 30, 2021, Sempra Mexico had $439 million in PP&E, net, related to the Guaymas-El Oro segment of the Sonora pipeline, which could be subject to impairment if IEnova is unable to make such repairs (which have not commenced) or re-route the pipeline (which has not been agreed to by the parties) 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 bewhich in each case could have a material adverse impact on Sempra Energy’sSempra’s results of operations, andfinancial condition, cash flows, and our ability to recover the carrying value of our investment. At September 30, 2020, the Guaymas-El Oro segment of the Sonora pipeline had a net book value of $446 million.and/or prospects.
In May 2020, the two third-party capacity customers at the ECA LNG Regasification facility,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. IEnova will avail itself of its available claims, defensesdispute and remedies inalthough Gazprom has joined the arbitration proceeding.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. In October 2020,As a consequence, IEnova was informed by Gazpromis not currently drawing on Gazprom’s letter of credit but expects to continue to draw on Shell Mexico’s letter of credit. IEnova intends to avail itself of its consent to joinavailable claims, defenses, rights and remedies in the arbitration proceeding, initiated by Shell Mexico againstincluding seeking dismissal of the ECA LNG Regasification facility and is awaiting the formalization of Gazprom’s recognition as a claimant party in such arbitration. IEnova intendscustomers’ claims. In addition to enforce its rights in the arbitration process, seeking to dismiss the customers’ claims.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 in October 2020, and subsequently,the claim regarding the liquefaction permit issuance was denied in March 2021. Shell Mexico filed an appealhas appealed both decisions.
As we discuss in Note 11 of the Notes to Condensed Consolidated Financial Statements, the Mexican government and certain Mexican governmental agencies have amended existing laws and rules, updated transmission rates, and issued orders, decrees and regulations that decision.could materially impact IEnova’s participation in the country’s energy market. Those actions would, among other things, create barriers for renewable energy facilities to enter the wholesale electricity market, threaten the prospects for private-party renewable energy generation in the country, limit the ability to dispatch renewable energy and to receive or maintain operation permits (including self-supply permits impacted by the Offtaker Resolution), and increase costs of electricity for legacy renewables and cogeneration energy contract holders. In addition, those actions (i) require that only state-owned companies may import and export hydrocarbons, refined products, petrochemicals, and biofuels through channels other than those authorized, which could adversely affect new projects that have not obtained such authorizations and projects under construction, in development or in operation, and (ii) grant SENER and the CRE additional powers to suspend and revoke permits related to the midstream and downstream sectors. Some of these newly enacted amendments, orders, rules, decrees and regulations have been challenged or temporarily suspended through litigation and judicial rulings obtained by businesses operating in the power sector, including by IEnova. If the ongoing litigation is unsuccessful or if new orders, rules, decrees or regulations or further amendments to existing laws are adopted or enacted that adversely impact IEnova’s participation in the Mexican energy market, this could have a material adverse effect on our business, financial condition, results of operations, cash flows and/or prospects, our ability to recover the carrying values of our renewable energy and other investments in Mexico, and our ability to operate existing facilities and develop new energy projects in the country.
Acquisition of ESJ
As we discuss in Note 5 of the Notes to Condensed Consolidated Financial Statements, on March 19, 2021, IEnova increased its ownership interest in ESJ from 50% to 100% by acquiring Saavi Energía’s 50% equity interest in ESJ for a purchase price of approximately $65 million (net of $14 million of acquired cash and cash equivalents) plus the assumption of $277 million in debt (including $94 million owed from ESJ to IEnova that eliminates upon consolidation). ESJ owns a fully operating wind power generation facility with a nameplate capacity of 155 MW that is fully contracted by SDG&E under a long-term PPA. ESJ is constructing a second wind power generation facility with a nameplate capacity of 108 MW that we expect will be completed in the first quarter of 2022.
IEnova Common Stock Repurchase FundExchange Offer and Cash Tender Offer
In April 2020, IEnova’s shareholders approved an increase to a previously approved fund for IEnova to repurchaseMay 2021, we acquired 381,015,194 publicly held shares of itsIEnova 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. In addition to being traded on the New York Stock Exchange, Sempra’s common stock is now also listed on the Mexican Stock Exchange under the ticker symbol SRE.MX. We acquired the IEnova shares at an exchange ratio of 0.0323 shares of our common stock for each one IEnova ordinary share. In connection with the exchange offer, we recorded an increase in Sempra’s shareholders’ equity of $1,361 million, net of $12 million in transactions costs, and increased our ownership interest in IEnova from 70.2% to 96.4%.
We intend to launch a maximum amount of $500 million, increased from $250 million. As of November 5, 2020, IEnova has repurchased 81,742,780tender offer to acquire for cash the remaining 52,227,526 publicly held shares of its outstanding common stock held by NCI for approximately $248 million sinceIEnova that were not tendered in the inceptionexchange offer in the third quarter of the fund in 2018.2021.
Sempra LNG
Sempra LNG owns a 50.2% interest in Cameron LNG JV and is currently developingpursuing development of additional LNG export facilities on the Gulf coastCoast and Pacific coastCoast of North America through its proposed Cameron LNG JV Phase 2 liquefaction expansion project in Louisiana, ECA LNG JV liquefaction export projectprojects in Mexico, and Port Arthur LNG liquefaction export project in Texas. We expect Sempra LNG towill require 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, bank financing, project financing and participating in JVs, including ECA LNG JV with IEnova.
North American natural gas prices, when in decline, negatively affect profitability at Sempra LNG. Our LNG projects currently under development have been delayed and could face additional delays due to, among other reasons, the worldwide economic slowdown as a result of the COVID-19 pandemic and the current uncertainty in the global oil and gas markets, or a combination of these factors. For a discussion of these risks and other risks involving changing commodity prices and the risk of completing LNG development projects, see “Part I – Item 1A. Risk Factors” in the Annual Report and in “Part II – Item 1A. Risk Factors” below.
Cameron LNG JV Three-Train Liquefaction Project (Phase 1)
Sempra LNG, through its interest in Cameron LNG JV, operates a three-train natural gas liquefaction facility with an export capability of 12 Mtpa of LNG. Construction on the three-train liquefaction export project began in the second half of 2014. The majority 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.
While construction of the Phase 1 facility has been completed, many of the risks related to the construction of the facility continue to apply after completion, including among others, the potential for unforeseen design flaws, engineering challenges, equipment failures, severe weather events, global pandemics, and other operational issues, which could cause the facility to suspend operations or operate at a reduced capacity or could materially increase the facility’s operating costs. The occurrence of any of these events could have a material adverse effect on Sempra Energy’s financial condition, results of operations, cash flows and prospects.
As we discuss below in “Off-Balance Sheet Arrangements” and in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report, Sempra Energy has guaranteed a maximum of up to $4.0 billion related to Cameron LNG JV’s project financing and financing-related agreements. These guarantees terminate upon Cameron LNG JV achieving “financial completion”
of the initial three-train liquefaction project, including all three trains achieving commercial operation and meeting certain operational performance tests. 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 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). Pursuant to the financing agreements, Cameron LNG JV is restricted from making distributions to its project owners during the nine-month period ending September 30, 2021 until it has achieved financial completion. Given the impacts of weather-related events in August and September of 2020 on Cameron LNG JV’s operations, including the ability to commence certain operational performance tests, there will be delays in Cameron LNG JV making distributions to its project owners, including Sempra LNG, until achieving 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 terminated approximately nine months after all three trains achieved commercial operation. 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, results of operations, cash flows, financial condition and/or prospects.
For additional discussion about our investment in Cameron LNG JV, JV financing, the risks discussed above and other risks relating to the Cameron LNG JV liquefaction export project that could adversely affect our future performance, see “Part I – Item 1A. Risk Factors” in the Annual Report.JVs.
Cameron LNG JV Liquefaction Expansion Project (Phase 2)
Cameron LNG JV has received the major permits and FTA and non-FTA approvals necessary to expand the current configuration of the Cameron LNG JV liquefaction project beyond Phase 1. The permits obtained for the Phase 2 project include up to two additional liquefaction trains and up to two additional full containment LNG storage tanks (onetanks. We expect the proposed expansion project will initially have one train with offtake capacity of which was permittedover 6 Mtpa, with the original three-train project).ability to increase capacity with debottlenecking, and the site can accommodate additional trains beyond Phase 2.
Sempra has entered MOUs with TOTAL 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 TOTAL SE, Mitsui & Co., Ltd. and Mitsubishi Corporation remains subject to negotiation and finalization of definitive agreements, among other factors, and TOTAL SE, Mitsui & Co., Ltd. and Mitsubishi Corporation have no commitment to participate in or enter into offtake agreements with the Phase 2 project until 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 and we expect that discussions will continue. There can beAlthough we are working towards making a final investment decision around the end of 2022, 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, couldwould materially and adversely impact the development of the expansionPhase 2 project. In light of this and other considerations described below, we are unable to predict whether or when Cameron LNG JV might be able to move forward on expansion of the Cameron LNG JV liquefaction facility beyond the first three trains.
In November 2018, Sempra Energy and TOTAL SE entered into an MOU that provides a framework for cooperation for the development of the potential Cameron LNG JV expansion project and the potential ECA LNG JV liquefaction export project that we describe below. The MOU contemplates TOTAL SE potentially contracting for up to approximately 9 Mtpa of LNG offtake across these two development projects. In addition, in October 2019, Sempra Energy and Mitsui & Co., Ltd. entered into an MOU that provides a framework for potential offtake by Mitsui & Co., Ltd. from the potential Cameron LNG JV expansion project and the second phase of the potential ECA LNG JV liquefaction project. In May 2020, Sempra Energy and Mitsubishi Corporation entered into an MOU that provides a framework for development of and potential offtake by Mitsubishi Corporation from the potential Cameron LNG JV expansion project. The ultimate participation of and offtake by TOTAL SE, Mitsui & Co., Ltd. and Mitsubishi Corporation remains subject to negotiation and finalization of definitive agreements, among other factors, and TOTAL SE, Mitsui & Co., Ltd. and Mitsubishi Corporation have no commitment to participate in or offtake from the projects.
The development of the potential Cameron LNG JV expansionPhase 2 project is subject to numerous other risks and uncertainties, including securing binding customer commitments; reaching unanimous agreement with our partners to proceed; obtaining 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” in the Annual Report.
ECA LNG JV Liquefaction Export Projects
Through a JV agreement, Sempra LNG and IEnova are developing two proposed natural gas liquefaction export projects at IEnova’s existing ECA LNG Regasification facility.Regas Facility. The proposed liquefaction export projects, which are planned for development in two phases (a mid-scale project referred to asby ECA LNG JV Phase 1 that is under construction and a proposed large-scale project referred to asby ECA LNG JV Phase 2), are being developed to provide buyers with direct access to West CoastNorth American west coast LNG supplies. TheWe do not expect the construction of the ECA LNG Regasification facilityPhase 1 project to disrupt operations at the ECA Regas Facility. However, construction of the 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, which historically have been profitable (however, see the discussion under “Sempra Mexico” in Note 11 of the Notes to Condensed Consolidated Financial Statements regarding ongoing disputes with the two third-party capacity customers at the ECA LNG Regasification facility), making the decisions on whether and how to pursue the ECA LNG JV 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 do not believe that the developmenthave planned measures to limit disruption of ECA LNG JV Phase 1 will disrupt operations at the ECA Regas Facility with the construction of the ECA LNG Regasification facility.Phase 1 project.
In March 2019, ECA LNG JV 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 proposed ECA LNG JV 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 JV Phase 2 project each of whichthat is in development.
OnIn 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 TOTAL SE for approximately 1.7 Mtpa of LNG. In December 2020, an affiliate of TOTAL SE acquired a 16.6% ownership interest in ECA LNG Phase 1, with Sempra LNG and IEnova each retaining a 41.7% 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 27, 2020, we entered into an EPC contract with TechnipFMCTechnip Energies for the engineering, procurement and construction of the ECA LNG JV Phase 1. We have no obligation to move forward on the EPC contract, and we may release TechnipFMC to perform portions of the work pursuant to limited notices to proceed. We plan to fully release TechnipFMC to perform all of the work to construct ECA LNG JV Phase 1 only after we reachproject. Since reaching a positive final investment decision with respect to the project and after certain other conditions are met.in November 2020, we released Technip Energies to commence work to construct the ECA LNG Phase 1 project. The total price of the EPC contract for ECA LNG JV Phase 1 is estimated at approximately $1.5 billion, which TechnipFMC has agreed to uphold until November 13, 2020, at which time the EPC contract, including the price, may be subject to renegotiation.billion. We estimate that capital expenditures for the proposed ECA LNG JV Phase 1 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 AprilDecember 2020, ECA LNG JV executed definitive 20-year LNG sale and purchase agreements with Mitsui & Co., Ltd. and an affiliate of TOTAL SE for approximately 0.8 Mtpa of LNG and 1.7 Mtpa of LNG from ECA LNG JV Phase 1 respectively. Eachentered into a five-year loan agreement remains subjectfor an aggregate principal amount of up to certain customary conditions$1.6 billion, of effectiveness, including our final investment decision for the project. The MOU with TOTAL SE, provides a framework for it to acquire an equity interest in ECA LNG JV Phase 1. In addition, the 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 JV Phase 2. We discuss these MOUs further under “Cameron LNG JV Liquefaction Expansion Project (Phase 2)” above.
A final investment decision for ECA LNG JV Phase 1 is contingent on the receipt of an export permitwhich $202 million was outstanding at June 30, 2021. Proceeds from the Mexican government. Operations at certain relevant regulatory agencies in Mexico remain limited dueloan are being used to finance the COVID-19 pandemic, which has added to the uncertaintycost of the timingconstruction of the receipt of this permit and is contributing to a delay of our final investment decision.
The development of both the ECA LNG JV Phase 1 project. We discuss the details of this loan in Note 7 of the Notes to Condensed Consolidated Financial Statements in this report and in Note 7 of the Notes to Consolidated Financial Statements in the Annual Report.
The construction of the ECA LNG JVPhase 1 project and the development of the potential ECA LNG Phase 2 projects isproject are subject to numerous risks and uncertainties, includinguncertainties. For Phase 1, these include maintaining permits and regulatory approvals; construction delays; securing and maintaining commercial arrangements, such as gas supply and transportation agreements; and other factors associated with the project and its construction. For Phase 2, these include obtaining binding customer commitments for Phase 2;commitments; the receipt of a number of permits and regulatory approvals; obtaining financing; negotiating and completing suitable commercial agreements, including a definitive EPC contract, for Phase 2, equity acquisition and governance agreements, LNG sales agreements and gas supply and transportation agreements; reaching a positive final investment decision for Phase 1 and Phase 2;decision; and other factors associated with this potential investment. In addition, as we discuss in Note 11 of the Notes to Condensed Consolidated Financial Statements, an unfavorable decision on certain property disputes or permit challenges, an unfavorable judgment that does not allow IEnova to secure new or renew existing LDA authorizations, or an extended dispute with existing customers at the ECA LNG Regasification facility,Regas Facility, could materially and adversely affect the development and construction of these projects and Sempra Energy’sSempra’s financial condition, results of operations, cash flows and 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” in the Annual Report.
Port Arthur LNG Liquefaction Export Project
Sempra LNG 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 LNG 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 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, assuming the project is completed. In February 2020, Sempra LNG filed a FERC application for the siting, construction and operation of a second phase at the proposed Port Arthur LNG facility, including the potential addition of two liquefaction trains.
OnIn February 28, 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 planhave the option to fully release Bechtel to perform all of the work to construct the Port Arthur LNG liquefaction export project only after we reach a positive final investment decision with respect to the project and after certain other conditions are met, including obtaining project financing. WhenIn December 2020, we amended and restated the EPC contract was executed, theto reflect an estimated price was estimated to beof approximately $8.9 billion, depending on the timing of a full notice to proceed.$8.7 billion. Since we did not issue a full notice to proceed by OctoberJuly 15, 2020, we are in discussions with Bechtel regarding changes to the project schedule and renegotiating the EPC contract price. Any changes2021, agreement by both parties on an amendment to the EPC contract will requireis necessary. 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 prior to Port Arthur LNG having the right to issue a full notice to proceed thereunder. Any 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 was terminated and PGNiG and Sempra LNG purchases by PGNiG from Port Arthur LNG will be made on a free-on-board basis, with PGNiG responsible for shippingentered into an MOU to collaborate to transition the LNG from the Port Arthur facility2 Mtpa 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 failureSempra LNG’s portfolio of these conditions precedent to be satisfied or waived within the agreed timelines could result in the termination of the agreement.projects.
In May 2019, Aramco Services Company and Sempra LNG 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 LNG signed an Interim Project Participation Agreement which sets forth certain mechanisms forrelated to the partiesproposed project. In June 2021, Aramco Services Company and Sempra LNG 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.expire.
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.
In February 2020, Sempra LNG filed a FERC application for the siting, construction and operation of a second phase at the proposed Port Arthur LNG facility, including the potential addition of two liquefaction trains.
We continue 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. Theand are evaluating design changes that could reduce overall emissions, including electric drives, renewable power sourcing and other technological solutions. Given the impact of the COVID-19 pandemic on the global economy and the current uncertaintyremaining uncertainties in the energy markets, including real-time developments of new technologies that could impact the design, scale and financial markets has delayedstructure of the expectedproject, we are working with our partners and customers to evaluate the timing of oura final investment decision. At this time, we do not expect to make a final investment decision from 2020 toin 2021.
Development of the Port Arthur LNG liquefaction export project is subject to a number of risks and uncertainties, including obtaining additional customer commitments; completing the required commercial agreements, such as equity acquisitions and governance agreements, LNG sales agreements and gas supply and transportation agreements; completing construction contracts; securing 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’sSempra’s financial condition, results of operations and 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” in the Annual Report.
Discontinued Operations
As we discuss in Note 5 of the Notes to Condensed Consolidated Financial Statements, in January 2019, our board of directors approved a plan to sell our South American businesses. On April 24, 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. On June 24, 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.
Our utilities in South America have 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 short-term 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 investment will exceed the absence of cash flows from these discontinued operations. However, there can be no assurance that we will derive these anticipated benefits. Further, there can be 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.
| | | | | | | | | | | | | | | | | | | | |
| CASH FLOWS FROM OPERATING ACTIVITIES |
| (Dollars in millions) |
| Nine months ended September 30, | | Sempra Energy Consolidated | | SDG&E | | SoCalGas |
| 2020 | | $ | 1,629 | | | $ | 983 | | | $ | 1,388 | |
| 2019 | | 2,118 | | | 754 | | | 813 | |
| Change | | $ | (489) | | | $ | 229 | | | $ | 575 | |
| | | | | | |
Net increase in Insurance Receivable for Aliso Canyon primarily due to $149 higher accruals and $121 lower insurance proceeds received | | $ | (272) | | | | | $ | (272) | |
Change in intercompany activities with discontinued operations, net, primarily due to $208 in common dividends received from our Peruvian businesses in 2019 | | (184) | | | | | |
Release of a regulatory liability related to 2016-2018 income tax expense forecasting differences | | (175) | | | $ | (86) | | | (89) | |
| Change in accounts receivable | | (95) | | | (53) | | | |
| Increase in prepaid insurance premiums | | | | (44) | | | |
| Change in income taxes receivable/payable, net | | | | 105 | | | 117 | |
| Higher net margin posted at Sempra LNG’s marketing operations | | 46 | | | | | |
| Higher distributions of earnings from Oncor Holdings | | 58 | | | | | |
| Change in accounts payable | | 85 | | | | | 72 | |
| Decrease in funding for Rabbi Trust | | 112 | | | | | |
Change in net undercollected regulatory balancing accounts (including long-term amounts in regulatory assets) | | 203 | | | (118) | | | 321 | |
| Higher net income, adjusted for noncash items included in earnings | | 204 | | | 133 | | | 76 | |
| Distributions of earnings from Cameron LNG JV in 2020 | | 209 | | | | | |
| SDG&E’s initial shareholder contribution to the Wildfire Fund in September 2019 | | 323 | | | 323 | | | |
Net increase in Reserve for Aliso Canyon Costs primarily due to $280 higher accruals and $85 lower payments | | 365 | | | | | 365 | |
| Other | | (28) | | | (31) | | | (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 | | (1,340) | | | | | |
| | $ | (489) | | | $ | 229 | | | $ | 575 | |
| | | | | | | | | | | | | | | | | | | | |
| CASH FLOWS FROM OPERATING ACTIVITIES |
| (Dollars in millions) |
| Six months ended June 30, | | Sempra | | SDG&E | | SoCalGas |
| 2021 | | $ | 2,255 | | | $ | 610 | | | $ | 963 | |
| 2020 | | 1,027 | | | 738 | | | 1,198 | |
| Change | | $ | 1,228 | | | $ | (128) | | | $ | (235) | |
| | | | | | |
| Higher (lower) net income, adjusted for noncash items included in earnings | | $ | 306 | | | $ | (10) | | | $ | 147 | |
| Higher dividends received from Cameron LNG JV | | 304 | | | | | |
| Decrease in prepaid insurance | | 197 | | | 152 | | | 45 | |
Net decrease in Insurance Receivable for Aliso Canyon primarily due to $191 lower accruals offset by $6 higher insurance proceeds received | | 197 | | | | | 197 | |
Release of a regulatory liability related to the 2016-2018 income tax expense
forecasting differences in 2020 | | 175 | | | 86 | | | 89 | |
| Change in income taxes receivable/payable, net | | 115 | | | (113) | | | (116) | |
| Change in due to/from unconsolidated affiliates, net | | 42 | | | (138) | | | (38) | |
| Decrease in customer deposits | | (34) | | | (16) | | | (32) | |
| Increase in greenhouse gas allowance purchases | | (68) | | | | | (79) | |
| (Increase) decrease in accounts receivable | | (109) | | | 12 | | | (88) | |
| Change in accounts payable | | (180) | | | (38) | | | 2 | |
Change in net undercollected regulatory balancing accounts (including long-term amounts in regulatory assets) | | (192) | | | (99) | | | (93) | |
Net decrease in Reserve for Aliso Canyon Costs primarily due to $295 lower accruals offset by $19 lower payments | | (276) | | | | | (276) | |
| Change in net margin posted at Sempra LNG’s marketing operations | | (291) | | | | | |
| Other | | 1 | | | 36 | | | 7 | |
| Cash used in discontinued operations in 2020 primarily due to $1,159 income taxes paid related to the sale of our South American businesses | | 1,041 | | | | | |
| | $ | 1,228 | | | $ | (128) | | | $ | (235) | |
| | | | | | | | | | | | | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES |
| (Dollars in millions) |
| Six months ended June 30, | | Sempra | | SDG&E | | SoCalGas |
| 2021 | | $ | (2,588) | | | $ | (1,065) | | | $ | (936) | |
| 2020 | | 2,854 | | | (842) | | | (885) | |
| Change | | $ | (5,442) | | | $ | (223) | | | $ | (51) | |
| | | | | | |
| Increase in capital expenditures | | $ | (226) | | | $ | (222) | | | $ | (51) | |
| Acquisition of 50% interest in ESJ in March 2021 for $79, net of $14 cash and cash equivalents acquired | | (65) | | | | | |
| Lower contributions to Oncor Holdings | | 39 | | | | | |
| Other | | 5 | | | (1) | | | |
| Cash provided by discontinued operations in 2020 primarily due to $5,797 proceeds, net of transaction costs paid, offset by $502 cash sold from the sale of our South American businesses | | (5,195) | | | | | |
| | $ | (5,442) | | | $ | (223) | | | $ | (51) | |
| | | | | | | | | | | | | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES |
| (Dollars in millions) |
| Nine months ended September 30, | | Sempra Energy Consolidated | | SDG&E | | SoCalGas |
| 2020 | | $ | 2,415 | | | $ | (1,315) | | | $ | (1,345) | |
| 2019 | | (3,439) | | | (1,097) | | | (1,018) | |
| Change | | $ | 5,854 | | | $ | (218) | | | $ | (327) | |
| | | | | | |
| 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 | | 102 | | | | | |
| Dividends received from Chilean businesses in discontinued operations in 2019 | | (129) | | | | | |
| Net proceeds from the February 2019 sale of Sempra LNG’s non-utility natural gas storage assets | | (322) | | | | | |
| Net proceeds from the April 2019 sale of Sempra Renewables’ wind assets and investments | | (569) | | | | | |
| Dividends received from Peruvian businesses in discontinued operations in 2019 | | (583) | | | | | |
| Increase in capital expenditures | | (723) | | | $ | (252) | | | $ | (326) | |
| Increase in loans to affiliate, net in 2019 | | | | 25 | | | |
| Other | | 32 | | | 9 | | | (1) | |
| Change in net cash flows from discontinued operations mainly due to $5,781 proceeds, net of transaction costs paid, offset by $502 cash sold from the sale of our South American businesses | | 5,249 | | | | | |
| | $ | 5,854 | | | $ | (218) | | | $ | (327) | |
| | | | | | | | | | | | | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES |
| (Dollars in millions) |
| Six months ended June 30, | | Sempra | | SDG&E | | SoCalGas |
| 2021 | | $ | (282) | | | $ | 206 | | | $ | (27) | |
| 2020 | | 842 | | | 286 | | | 7 | |
| Change | | $ | (1,124) | | | $ | (80) | | | $ | (34) | |
| | | | | | |
| Lower issuances of short-term debt with maturities greater than 90 days | | $ | (2,170) | | | | | |
| Lower issuances of long-term debt | | (1,604) | | | $ | (799) | | | $ | (649) | |
| Net proceeds from issuance of series C preferred stock in 2020 | | (891) | | | | | |
| (Higher) lower common dividends paid | | (67) | | | 200 | | | (50) | |
| Lower advances from unconsolidated affiliates | | (44) | | | | | |
| Lower repurchases of common stock | | 26 | | | | | |
| Lower purchases of NCI | | 17 | | | | | |
| Lower (higher) payments on long-term debt and finance leases | | 148 | | | (2) | | | |
| Lower payments for commercial paper and other short-term debt with maturities greater than 90 days | | 390 | | | | | |
| Change in borrowings and repayments of short-term debt, net | | 3,455 | | | 517 | | | 660 | |
| Other | | 17 | | | 4 | | | 5 | |
| Cash provided by discontinued operations in 2020 primarily from a $250 intercompany loan and $165 net increase in short term debt | | (401) | | | | | |
| | $ | (1,124) | | | $ | (80) | | | $ | (34) | |
| | | | | | | | | | | | | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES |
| (Dollars in millions) |
| Nine months ended September 30, | | Sempra Energy Consolidated | | SDG&E | | SoCalGas |
| 2020 | | $ | (710) | | | $ | 1,055 | | | $ | 251 | |
| 2019 | | 1,575 | | | 330 | | | 192 | |
| Change | | $ | (2,285) | | | $ | 725 | | | $ | 59 | |
| | | | | | |
| Change in short-term debt, net | | $ | (2,759) | | | $ | 211 | | | $ | (482) | |
| Higher payments for commercial paper and other short-term debt with maturities greater than 90 days | | (1,886) | | | | | |
| Net proceeds from issuance of common stock from settlement of forward sale agreements in 2019 | | (728) | | | | | |
| Repurchase of common stock under ASR program in 2020 | | (500) | | | | | |
| Capital contribution from Otay Mesa Energy Center LLC in 2019 to repay Otay Mesa VIE’s loan | | (175) | | | (175) | | | |
| Equity contribution from Sempra Energy to fund initial shareholder contribution to the Wildfire Fund in September 2019 | | | | (322) | | | |
| Higher common dividends paid | | (138) | | | (200) | | | (50) | |
| Higher issuances of short-term debt with maturities greater than 90 days | | 514 | | | | | |
| Net proceeds from issuance of series C preferred stock | | 890 | | | | | |
| Higher issuances of long-term debt | | 2,151 | | | 1,198 | | | 600 | |
| Other | | (6) | | | 13 | | | (9) | |
| Change in net cash flows from discontinued operations primarily from a $250 intercompany loan and $29 net increase in short-term debt in 2020 and $977 equity contribution from Sempra Energy, partially offset by $920 common dividends paid in 2019 | | 352 | | | | | |
| | $ | (2,285) | | | $ | 725 | | | $ | 59 | |
Capital Expenditures, Investments and Acquisitions
| | EXPENDITURES FOR PP&E, INVESTMENTS AND ACQUISITIONS | EXPENDITURES FOR PP&E, INVESTMENTS AND ACQUISITIONS | EXPENDITURES FOR PP&E, INVESTMENTS AND ACQUISITIONS |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Nine months ended September 30, | | Six months ended June 30, |
| | | 2020 | | 2019 | | 2021 | | 2020 |
| SDG&E | SDG&E | $ | 1,323 | | | $ | 1,071 | | SDG&E | $ | 1,072 | | | $ | 850 | |
| SoCalGas | SoCalGas | 1,345 | | | 1,019 | | SoCalGas | 936 | | | 885 | |
| Sempra Texas Utilities | Sempra Texas Utilities | 225 | | | 1,338 | | Sempra Texas Utilities | 100 | | | 139 | |
| Sempra Mexico | Sempra Mexico | 443 | | | 420 | | Sempra Mexico | 231 | | | 321 | |
| Sempra Renewables | — | | | 2 | | |
| Sempra LNG | Sempra LNG | 200 | | | 183 | | Sempra LNG | 249 | | | 137 | |
| Parent and other | Parent and other | 6 | | | 6 | | Parent and other | 1 | | | 6 | |
| Total | Total | $ | 3,542 | | | $ | 4,039 | | Total | $ | 2,589 | | | $ | 2,338 | |
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. Excluding discontinued operations,PUCT, and various other factors described in 2020,this MD&A and in “Part I – Item 1A. Risk Factors” in the Annual Report. In 2021, we expect to make capital expenditures and investments of approximately $5.6$5.9 billion, a decreasean increase from the $5.9$5.8 billion projected in “Part II – Item 7. MD&A – Capital Resources and Liquidity” in the Annual Report. The decreaseincrease is primarily attributable to pipeline expansion projects at Sempra Mexico, offset by a deferralshift in timing of capital expenditures related to 2021ECA LNG Phase 1 at Sempra Mexico and a delay in our final investment decision for Phase 1 of the ECA LNG JV liquefaction export project at Sempra LNG, partially offset by an increase in contributions to Oncor Holdings.LNG.
COMMITMENTS
We discuss significant changes to contractual commitments in the first ninesix months of 2020,2021, none of which were outside the ordinary course of our business, in Notes 7 and 11 of the Notes to Condensed Consolidated Financial Statements.
OFF-BALANCE SHEET ARRANGEMENTS
In August 2014 and December 2019,June 2021, Sempra Energy provided guaranteesa promissory note, which constitutes a guarantee, for 50.2%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 financing obligations for a maximumdebt, scheduled to occur in 2039, or replenishment of the amount of up to $4.0 billion. The guarantees will terminate upon satisfaction of certain conditions, including all three trains achieving financial completionwithdrawn by September 30, 2021 (with up to an additional 365-day extension beyond such date permitted in cases of force majeure). However, if CameronSempra LNG JV fails to satisfyfrom 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.SDSRA. We discuss these guarantees above in “Overview – Sempra LNG – Cameron LNG JV Three-Train Liquefaction Project (Phase 1),”this guarantee in Note 6 of the Notes to Condensed Consolidated Financial StatementsStatements.
In March 2021, Cameron LNG JV reached financial completion of the three-train liquefaction project and “Part I – Item 1A. Risk Factors” in the Annual Report.Sempra’s guarantees for a maximum aggregate amount of $4.0 billion were terminated.
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.Sempra. We discuss this guarantee in Notes 1, 6 and 9 of the Notes to Condensed 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 and our Support Agreement for the benefit of CFIN are variable interests. Sempra Energy’sSempra’s other businesses may also enter into arrangements that could include variable interests. We discuss variable interests in Note 1 of the Notes to Condensed Consolidated Financial Statements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We view certain accounting policies 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 discuss these accounting policies in “Part II – Item 7. MD&A” in the Annual Report.
We describe our significant accounting policies in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report. We follow the same accounting policies for interim reporting purposes.
NEW ACCOUNTING STANDARDS
We discuss the relevant pronouncements that have recently been issued or become effective and have had or may have an impact on our financial statements and/or disclosures in Note 2 of the Notes to Condensed Consolidated Financial Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We provide disclosure regarding derivative activity in Note 8 of the Notes to Condensed Consolidated Financial Statements. We discuss our market risk and risk policies in detail in “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in the Annual Report.
COMMODITY PRICE RISK
In the first ninesix months of 2020,2021, there were no significant changes in our exposure to commodity price risk.
INTEREST RATE RISK
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) |
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
| | | Sempra Energy
Consolidated | | SDG&E | | SoCalGas | | Sempra Energy
Consolidated | | SDG&E | | SoCalGas | | Sempra | | SDG&E | | SoCalGas | | Sempra | | SDG&E | | SoCalGas |
| Short-term: | Short-term: | | | | Short-term: | | | |
| California Utilities | California Utilities | $ | — | | | $ | — | | | $ | — | | | $ | 710 | | | $ | 80 | | | $ | 630 | | California Utilities | $ | 580 | | | $ | 437 | | | $ | 143 | | | $ | 113 | | | $ | — | | | $ | 113 | |
| Other | Other | 772 | | | — | | | — | | | 2,798 | | | — | | | — | | Other | 1,686 | | | — | | | — | | | 772 | | | — | | | — | |
| Long-term: | Long-term: | | | | Long-term: | | | |
| California Utilities fixed-rate | California Utilities fixed-rate | $ | 10,764 | | | $ | 6,305 | | | $ | 4,459 | | | $ | 8,949 | | | $ | 5,140 | | | $ | 3,809 | | California Utilities fixed-rate | $ | 10,495 | | | $ | 6,036 | | | $ | 4,459 | | | $ | 10,512 | | | $ | 6,053 | | | $ | 4,459 | |
| California Utilities variable-rate | California Utilities variable-rate | 500 | | | 200 | | | 300 | | | — | | | — | | | — | | California Utilities variable-rate | 300 | | | — | | | 300 | | | 500 | | | 200 | | | 300 | |
| Other fixed-rate | Other fixed-rate | 11,598 | | | — | | | — | | | 11,561 | | | — | | | — | | Other fixed-rate | 10,481 | | | — | | | — | | | 11,204 | | | — | | | — | |
| Other variable-rate | Other variable-rate | 734 | | | — | | | — | | | 746 | | | — | | | — | | Other variable-rate | 251 | | | — | | | — | | | 51 | | | — | | | — | |
(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 SeptemberJune 30, 20202021 increased or decreased by 10%, the change in earnings over the next 12-month period ended Septemberending June 30, 20212022 would be negligible.approximately $1 million. If interest rates increased or decreased by 10% on all variable-rate long-term debt at SeptemberJune 30, 2020,2021, after considering the effects of interest rate swaps, the change in earnings over the next 12-month period ended Septemberending June 30, 20212022 would be approximately $1 million.
FOREIGN CURRENCY AND INFLATION RATE RISK
We discuss our foreign currency and inflation exposure in “Part I – Item 2. MD&A – Impact of Foreign Currency and Inflation Rates on Results of Operations” in this report and in “Part II – Item 7. MD&A – Impact of Foreign Currency and Inflation Rates on Results of Operations” in the Annual Report. We completed the sales of our South American businesses in the second quarter of 2020 and are no longer exposed to changes in foreign currency and inflation rates in Peru and Chile. At SeptemberJune 30, 2020,2021, there were no other significant changes to our exposure to foreign currency rate risk since December 31, 2019.2020.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
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 Securities Exchange Act of 1934, as amended, 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 SeptemberJune 30, 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.
INTERNAL CONTROL OVER FINANCIAL REPORTING
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. SDG&E continues to conduct post-implementation monitoring and process modifications in order to maintain an effective control framework.
In January 2021, IEnova implemented a new enterprise resource planning system (ERP system) to replace its legacy system. The implementation increases user access security and automation of internal controls in certain of IEnova’s business processes, including accounting, back office and financial reporting, which we consider to be material to Sempra. Management has taken steps to help ensure that controls were appropriately designed and implemented in connection with the integration of and transition to the new ERP system. In the second quarter of 2021, IEnova continued to review and enhance the design and related documentation of its internal control over financial reporting in connection with its implementation of the new ERP system in order to maintain an effective control framework.
Other than SDG&E’s implementation of a new customer information system and IEnova’s continued review and enhancement of its internal controls in connection with its implementation of a new ERP system, there have been no changes in Sempra Energy’s,Sempra’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, the companies’any such company’s internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. 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 (1) described in Notes 10 and 11 of the Notes to Condensed Consolidated Financial Statements in this report and in Notes 15 and 16 of the Notes to Consolidated Financial Statements in the Annual Report, or (2) referred to in “Part I – Item 2. MD&A” in this report or in “Part I – Item 1A. Risk Factors” or “Part II – Item 7. MD&A” in the Annual Report.
ITEM 1A. RISK FACTORS
When evaluating our company and its subsidiaries and any investment in our or their securities, you should consider carefully the risk factors and all other information contained in this report, including the factors discussed above in “Part I – Item 2. MD&A” and in this section, and in the other documents we file with the SEC (including those filed subsequent to this report), including the factors disclosed in “Part I – Item 1A. Risk Factors” in the Annual Report. Except as set forth below, thereThere have been no material changes from the risk factors as previously disclosed in the Annual Report. Any of the risk factorsrisks and other information discussed in this report or any of the risk factors disclosed in “Part I – Item 1A. Risk Factors” in the Annual Report, as well as additional risks and uncertainties not currently known to us or that we currently deem to be immaterial, could materially and adversely affect our businesses, cash flows, results of operations, financial condition, prospects and/or the trading prices of our securities or those of our subsidiaries.
Risks Related to All Sempra Energy Businesses
Our business faces risks related to the COVID-19 pandemic.
The COVID-19 pandemic is currently materially impacting communities, supply chains and markets around the world. The U.S. economy is experiencing a significant slowdown and claims for unemployment have increased to historic levels. To date, the COVID-19 pandemic has not had a material impact on our results of operations. However, we are conducting business with substantial modifications to employee travel, employee work locations, and virtualization or cancellation of certain business activities, among other modifications. If these 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 impacts that could jeopardize our ability to sustain operations and satisfy compliance requirements. We also have observed other companies, including 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, preemptive and responsive actions to address the effects of the COVID-19 pandemic, and they may take further actions that alter their normal operations. These actions by third parties could materially impact 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 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 for 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 to recover these costs could have a material adverse effect on the cash flows, financial condition and results of operations for Sempra Energy, SDG&E and SoCalGas. As another example, our final investment decision on Phase 1 of the proposed ECA LNG JV natural gas liquefaction project has been delayed due in part to the closure of non-essential activities in Mexico in response to the COVID-19 pandemic, which has further hindered our ability to obtain an export permit from the Mexican government that is necessary for the project to proceed. If this 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.
In addition, the economic slowdown caused by the COVID-19 pandemic and the current uncertainty in the global oil and gas markets, or a combination of these factors, have contributed to the delay of our projected final investment decision on our proposed Port Arthur LNG liquefaction export project from 2020 to 2021. These conditions, as well as potential disruptions of construction and development activity if our project counterparties implement or are required to implement stay-at-home or limited workforce measures in response to the pandemic, could result in substantial further delays of our LNG and other projects currently under development.
Further, the COVID-19 pandemic has adversely affected conditions in the capital markets and may adversely affect our cost of and access to capital, including from the capital markets generally, from commercial paper markets and from commercial banks. 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 conditions worsen or continue for an extended period, which could have a material negative effect on our liquidity, results of operations, strategic initiatives and prospects. To date, the COVID-19 pandemic has resulted in a slowdown of our capital spending, which could worsen if conditions deteriorate or fail to improve in the near term and 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 in the best interests of our employees, customers, partners and suppliers. However, we cannot at this time predict the extent to which the COVID-19 pandemic will further impact our liquidity, financial condition, results of operations and prospects.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
The following table sets forth information about our common stock repurchase activity for the three months ended September 30, 2020:
| | | | | | | | | | | | | | |
| PURCHASES OF EQUITY SECURITIES |
| (Dollars in millions, except per share amounts) |
| Total number of shares purchased(1) | Average price paid per share(1) | 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(2) |
| July 1, 2020 - July 31, 2020 | 3,296,251 | | $ | 122.27 | | 3,296,251 | | $ | 2,097 | |
| August 1, 2020 - August 31, 2020 | 793,124 | | $ | 122.27 | | 793,124 | | $ | 2,000 | |
| Total | 4,089,375 | | $ | 122.27 | | 4,089,375 | | $ | 2,000 | |
(1) 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. This repurchase authorization had no expiration date. On July 1, 2020, we entered into an ASR program with Citibank, N.A. 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, upon which date the aggregate dollar amount authorized by the September 11, 2007 share repurchase authorization was exhausted.
(2) 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 shares have been repurchased under this authorization.
We may also, from time to time, purchase shares of our common stock to which participants would otherwise be entitled from long-term incentive plan 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. EXHIBITS
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).
| | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference |
| Exhibit Number | | Exhibit Description | Filed or Furnished Herewith | Form | Exhibit or Appendix | Filing Date |
| | | | | | |
| EXHIBIT 3 -- ARTICLES OF INCORPORATION AND BYLAWS |
| 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 |
| | | | | | |
| 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. |
| | | | | | |
| San Diego Gas & Electric Company | | | |
| 4.1 | | | | 8-K | 4.1 | 09/28/20 |
| | | | | | |
| Southern California Gas Company | | | |
| 4.2 | | | | 8-K | 4.1 | 09/21/20 |
| | | | | | |
| 4.3 | | | | 8-K | 4.2 | 09/21/20 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| EXHIBIT INDEX |
| | | | Incorporated by Reference |
| Exhibit Number | | Exhibit Description | Filed or Furnished Herewith | Form | Exhibit or Appendix | Filing Date |
| | | | | | |
| EXHIBIT 3 -- ARTICLES OF INCORPORATION AND BYLAWS |
| Sempra | | | |
| 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 |
| | | | | | |
| Southern California Gas Company | | | |
| 3.8 | | | | 10-K | 3.01 | 03/28/97 |
| | | | | | |
| 3.9 | | | | 8-K | 3.1 | 01/31/17 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | Filed or Furnished Herewith | Form | Exhibit or Appendix | Filing Date |
| | | | | | |
| | | | | | |
EXHIBIT 10 -- MATERIAL CONTRACTSINDEX (CONTINUED) | | | | |
Management Contract or Compensatory Plan, Contract or Arrangement | | | |
Sempra Energy / San Diego Gas & Electric Company / Southern California Gas Company | | | |
10.1 | | | X | | | |
| | | | | | |
Sempra Energy | | | |
10.2 | | | X | | | |
| | | | | | |
10.3 | | | X | | | |
| | | | | | |
Sempra Energy / San Diego Gas & Electric Company | | | |
10.4 | | | X | | | |
| | | | | | |
| | | | | | | | | | | | | | |
| Exhibit Number | | Exhibit Description | | Filed or Furnished Herewith |
| | | | |
| 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 |
| | | | |
| Southern California Gas Company | | |
| 32.5 | | | | X |
| | | | |
| 32.6 | | | | X |
| | | | |
| | | | | | | | | | | | | | |
| EXHIBIT INDEX (CONTINUED) |
| Exhibit Number | | Exhibit Description | | Filed or Furnished Herewith |
| | | | |
| 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 | | Inline XBRL Taxonomy Extension Schema Document. | | X |
| | | | |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | X |
| | | | |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | X |
| | | | |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. | | X |
| | | | |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | X |
| | | | |
| EXHIBIT 104 -- COVER PAGE INTERACTIVE DATA FILE | | |
| | | | |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | | |
| | | | |
SIGNATURES
| | | | | | | | |
| Sempra Energy: |
| Pursuant to the requirements 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) |
| | | |
Date: NovemberAugust 5, 20202021 | | By: /s/ Peter R. Wall |
| | | Peter R. Wall |
| | Senior Vice President, Controller and |
| | Chief Accounting Officer (Duly Authorized Officer) |
| | | | | | | | |
| San Diego Gas & Electric Company: |
| Pursuant to the requirements 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) |
| | | |
Date: NovemberAugust 5, 20202021 | | By: /s/ Valerie A. Bille |
| | | Valerie A. Bille |
| | Vice President, Controller and Chief Accounting Officer |
| | (Duly (Duly Authorized Officer) |
| | | | | | | | |
| Southern California Gas Company: |
| Pursuant to the requirements 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. |
| | | SOUTHERN CALIFORNIA GAS COMPANY,
(Registrant) |
| | | |
Date: NovemberAugust 5, 20202021 | | By: /s/ Mia L. DeMontigny |
| | | Mia L. DeMontigny |
| | Vice President, Controller, Chief Financial Officer and |
| | Chief Accounting Officer (Duly Authorized Officer) |
