0001032208us-gaap:SalesMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:ForeignExchangeMember2020-04-012020-06-30OtherNoncurrentAssetsMemberus-gaap:NondesignatedMember2020-12-31
| | |
|
| UNITED STATES |
| SECURITIES AND EXCHANGE COMMISSION |
| Washington, D.C. 20549 |
| FORM 10-Q |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Mark One) |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the quarterly period ended | JuneSeptember 30, 2021 |
| | | | | | | 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 | | | |
| | | | | | | | |
| | |
| SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: |
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
| SEMPRA ENERGY: |
| Common Stock, without par value | SRE | New York Stock Exchange |
|
| 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 August 2,November 1, 2021: |
| | | | | | | | |
| Sempra Energy | 319,328,331319,337,462 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 |
| | | | | | | | |
| TABLE OF CONTENTS |
| |
| | Page |
| |
| |
| | |
| PART I – FINANCIAL INFORMATION | |
| Item 1. | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Item 2. | | |
| | |
| | |
| | |
| | |
| | |
| Item 3. | | |
| Item 4. | | |
| | | |
| PART II – OTHER INFORMATION | |
| Item 1. | | |
| Item 1A. | | |
| Item 6. | | |
| | | |
| |
This combined Form 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 entities 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 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 |
| 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, 2020 |
| AOCI | accumulated other comprehensive income (loss) |
| ARO | asset retirement obligation |
| ASC | Accounting Standards Codification |
| ASEA | Agencia de Seguridad, Energía y Ambiente (Mexico’s National Agency for Industrial Safety and Environmental Protection) |
| ASR | accelerated share repurchase |
| ASU | Accounting Standards Update |
| Bechtel | Bechtel Oil, Gas and Chemicals, Inc. |
| Blade | Blade Energy Partners |
| bps | basis points |
| CalGEM | California Geologic Energy Management Division |
| California Utilities | San Diego Gas & Electric Company and Southern California Gas Company, collectively |
| Cameron LNG JV | Cameron LNG Holdings, LLC |
| 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 |
| COVID-19 | coronavirus disease 2019 |
| 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 | ECA LNG Phase 1 and ECA LNG Phase 2 |
| ECA LNG Phase 1 | ECA LNG Holdings B.V. |
| ECA LNG Phase 2 | ECA LNG II Holdings B.V. |
| ECA Regas Facility | Energía Costa Azul, S. de R.L. de C.V. LNG regasification |
| 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 (losses) per common share |
| ERCOT | Electric Reliability Council of Texas, Inc., the independent system operator and the regional coordinator of various electricity systems within Texas |
| 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 | Her Majesty’s Revenue and Customs (United Kingdom’s Revenue and Customs Department) |
| IEnova | Infraestructura Energética Nova, S.A.B. de C.V., renamed Infraestructura Energética Nova, S.A.P.I. de C.V. on November 1, 2021 |
| IMG JV | Infraestructura Marina del Golfo |
| IOU | investor-owned utility |
| ISO | Independent System Operator |
JV | joint venture |
LA Superior Court | Los Angeles County Superior Court |
| | | | | |
| GLOSSARY (CONTINUED) |
|
| JV | joint venture |
| KKR | KKR Pinnacle Investor L.P. (as successor-in-interest to KKR Pinnacle Aggregator L.P.), an affiliate of Kohlberg Kravis Roberts & Co. L.P. |
| LA Superior Court | Los Angeles County Superior Court |
| Leak | the leak at the SoCalGas Aliso Canyon natural gas storage facility injection-and-withdrawal well, SS25, discovered by SoCalGas on October 23, 2015 |
| LIBOR | London Interbank Offered Rate |
| LNG | liquefied natural gas |
| LPG | liquid petroleum gas |
| Luz del Sur | Luz del Sur S.A.A. and its subsidiaries |
| MD&A | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| Mexican Stock Exchange | Bolsa Mexicana de Valores, S.A.B. de C.V., or BMV |
| 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 |
| O&M | operation and maintenance expense |
| OCI | other comprehensive income (loss) |
| OII | Order Instituting Investigation |
| OIR | Order Instituting a Rulemaking |
| Oncor | Oncor Electric Delivery Company LLC |
| Oncor Holdings | Oncor Electric Delivery Holdings Company LLC |
| OSC | Order to Show Cause |
| PG&E | Pacific Gas and Electric Company |
| PP&E | property, plant and equipment |
| PPA | power purchase agreement |
| PSEP | Pipeline Safety Enhancement Plan |
| PUCT | Public Utility Commission of Texas |
| PXiSE | PXiSE Energy Solutions, LLC |
| RBS | The Royal Bank of Scotland plc |
| RBS SEE | RBS Sempra Energy Europe |
| RBS Sempra Commodities | RBS Sempra Commodities LLP |
| ROE | return on equity |
| ROU | right-of-use |
| RSU | restricted stock unit |
| S&P | S&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 |
| SEDATU | Secretaría de Desarrollo Agrario, Territorial y Urbano (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’s subsidiaries not subject to California or Texas utility
|
| SENER | Secretaría de Energía de México (Mexico’s Ministry of Energy) |
| series A preferred stock | Sempra’s 6% mandatory convertible preferred stock, series A |
| | | | | |
| GLOSSARY (CONTINUED) |
|
| series B preferred stock | Sempra’s 6.75% mandatory convertible preferred stock, series B |
| series C preferred stock | Sempra’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 |
| | | | | |
GLOSSARY (CONTINUED) |
| |
| Support Agreement | support agreement, dated July 28, 2020 and amended on June 29, 2021, among Sempra and Sumitomo Mitsui Banking Corporation |
| TAG JV | TAG Norte Holding, S. de R.L. de C.V. |
| TdM | Termoeléctrica de Mexicali |
| Technip Energies | TP Oil & Gas Mexico, S. De R.L. De C.V., an affiliate of Technip 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 |
| TTI | Texas Transmission Investment LLC |
| U.S. GAAP | generally accepted accounting principles 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 any forward-looking statements. These forward-looking statements represent our estimates and assumptions only as of the filing date of this report. We assume no obligation to update or revise any forward-looking statement as a result of new information, future events or other factors.
Forward-looking statements can be identified by words such as “believes,” “expects,” “anticipates,” “plans,” “estimates,” “projects,” “forecasts,” “should,” “could,” “would,” “will,” “confident,” “may,” “can,” “potential,” “possible,” “proposed,” “in process,” “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 expectations.
Factors, among others, that could cause actual results and events to differ materially from those described in any forward-looking statements include risks and uncertainties relating to:
▪California wildfires, including the risks that we may be found liable for damages regardless of fault and that we may not be able to recover costs from insurance, the Wildfire Fund or in rates from customers
▪decisions, investigations, regulations, issuances or revocations of permits and other authorizations, renewals of franchises, and other actions by (i) the CFE, CPUC, CRE, DOE, FERC, PUCT, and other regulatory and governmental bodies and (ii) states, counties, cities and other jurisdictions in the U.S., Mexico and other countries in which we do business
▪the success of business development efforts, construction projects and acquisitions and divestitures, including risks in (i) the ability to make a final investment decision, (ii) completing construction projects or other transactions on schedule and budget, (iii) the ability to realize anticipated benefits from any of these efforts if completed, and (iv) obtaining the consent or approval of partners or other third parties, including governmental entities
▪the resolution of civil and criminal litigation, regulatory inquiries, investigations and proceedings, and arbitrations, including among others, those related to the Leak
▪changes to laws, including proposed changes to the Mexican constitution that could materially limit access to the electric generation market and changes to Mexico’s trade rules that could materially limit our ability to import and export hydrocarbons
▪failure of foreign governments and state-owned entities to honor their contracts and commitments and property disputes
▪actions by credit rating agencies to downgrade our credit ratings or to place those ratings on negative outlook and our ability to borrow on favorable terms and meet our substantial debt service obligations
▪the impact of energy and climate goals, policies, legislation and rulemaking, including actions to reduce or eliminate reliance on natural gas includinggenerally and any deterioration of or increased uncertainty in the political or regulatory environment for localCalifornia natural gas distribution companies operating
▪the pace of the development and adoption of new technologies in Californiathe energy sector, including those designed to support governmental and private party energy and climate goals, and our ability to timely and economically incorporate them into our business
▪weather, natural disasters, pandemics, accidents, equipment failures, explosions, acts of terrorism, information system outages or other events that disrupt our operations, damage our facilities and systems, cause the release of harmful materials, cause fires or subject us to liability for property damage or personal injuries, fines and penalties, some of which may not be covered by insurance, may be disputed by insurers or may otherwise not be recoverable through regulatory mechanisms or may impact our ability to obtain satisfactory levels of affordable insurance
▪the availability of electric power and natural gas and natural gas storage capacity, including disruptions caused by failures in the transmission grid or limitations on the withdrawal of natural gas from storage facilities
▪the impact of the COVID-19 pandemic, including potential vaccination mandates, on capital projects, regulatory approvals and the execution of our operations
▪cybersecurity threats to the energy grid, storage and pipeline infrastructure, information and systems used to operate our businesses, and confidentiality of our proprietary information and personal information of our customers and employees, including ransomware attacks on our systems and the systems of third-party vendors and other parties with which we conduct business
▪expropriation of assets, failure of foreign governments and state-owned entities to honor their contracts, and property 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, and the risk of nonrecovery for stranded assets and contractual obligations
▪Oncor’s ability to eliminate or reduce its quarterly dividends due to regulatory and governance requirements and commitments, including by actions of Oncor’s independent directors or a minority member director
▪volatility in foreign currency exchange, inflation and interest rates and commodity prices and our ability to effectively hedge these risks and with respect to interest rates, the impact on the California Utilities’ cost of capital
▪changes in tax and trade policies, laws and regulations, including tariffs and revisions to international trade agreements that may increase our costs, reduce our competitiveness, or impair our ability to resolve trade disputes
▪other uncertainties, some of which may be difficult to predict and are beyond our control
We caution you not to rely unduly on any forward-looking statements. You should review and consider carefully the risks, uncertainties and other factors that affect our businesses as described herein, in our Annual Report and in other reports 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
June 30, | Six months ended
June 30, | | Three months ended
September 30, | Nine months ended
September 30, |
| | | 2021 | | 2020 | 2021 | | 2020 | | 2021 | | 2020 | 2021 | | 2020 |
| | | (unaudited) | | (unaudited) |
| REVENUES | REVENUES | | | | REVENUES | | | |
| Utilities | Utilities | $ | 2,434 | | | $ | 2,233 | | $ | 5,279 | | | $ | 4,898 | | Utilities | $ | 2,560 | | | $ | 2,301 | | $ | 7,839 | | | $ | 7,199 | |
| Energy-related businesses | Energy-related businesses | 307 | | | 293 | | 721 | | | 657 | | Energy-related businesses | 453 | | | 343 | | 1,174 | | | 1,000 | |
| Total revenues | Total revenues | 2,741 | | | 2,526 | | 6,000 | | | 5,555 | | Total revenues | 3,013 | | | 2,644 | | 9,013 | | | 8,199 | |
| | EXPENSES AND OTHER INCOME | EXPENSES AND OTHER INCOME | | | | EXPENSES AND OTHER INCOME | | | |
| Utilities: | Utilities: | | | | Utilities: | | | |
| Cost of natural gas | Cost of natural gas | (261) | | | (131) | | (610) | | | (468) | | Cost of natural gas | (282) | | | (114) | | (892) | | | (582) | |
| Cost of electric fuel and purchased power | Cost of electric fuel and purchased power | (284) | | | (260) | | (516) | | | (489) | | Cost of electric fuel and purchased power | (312) | | | (429) | | (828) | | | (918) | |
| Energy-related businesses cost of sales | Energy-related businesses cost of sales | (119) | | | (51) | | (228) | | | (110) | | Energy-related businesses cost of sales | (220) | | | (90) | | (448) | | | (200) | |
| Operation and maintenance | Operation and maintenance | (1,024) | | | (898) | | (2,025) | | | (1,749) | | Operation and maintenance | (1,073) | | | (1,018) | | (3,098) | | | (2,767) | |
| Aliso Canyon litigation and regulatory matters | Aliso Canyon litigation and regulatory matters | 0 | | | 0 | | 0 | | | (100) | | Aliso Canyon litigation and regulatory matters | (1,571) | | | (27) | | (1,571) | | | (127) | |
| Depreciation and amortization | Depreciation and amortization | (463) | | | (412) | | (905) | | | (824) | | Depreciation and amortization | (471) | | | (418) | | (1,376) | | | (1,242) | |
| Franchise fees and other taxes | Franchise fees and other taxes | (138) | | | (121) | | (291) | | | (258) | | Franchise fees and other taxes | (151) | | | (139) | | (442) | | | (397) | |
| | Other income (expense), net | 72 | | | 62 | | 107 | | | (192) | | |
| Other (expense) income, net | | Other (expense) income, net | (55) | | | 29 | | 52 | | | (163) | |
| Interest income | Interest income | 15 | | | 22 | | 34 | | | 49 | | Interest income | 16 | | | 27 | | 50 | | | 76 | |
| Interest expense | Interest expense | (258) | | | (274) | | (517) | | | (554) | | Interest expense | (259) | | | (264) | | (776) | | | (818) | |
| Income from continuing operations before income taxes and equity earnings | 281 | | | 463 | | 1,049 | | | 860 | | |
| Income tax (expense) benefit | (139) | | | (168) | | (297) | | | 39 | | |
(Loss) income from continuing operations before income taxes and equity earnings | | (Loss) income from continuing operations before income taxes and equity earnings | (1,365) | | | 201 | | (316) | | | 1,061 | |
| Income tax benefit (expense) | | Income tax benefit (expense) | 342 | | | (99) | | 45 | | | (60) | |
| Equity earnings | Equity earnings | 313 | | | 233 | | 631 | | | 496 | | Equity earnings | 391 | | | 326 | | 1,022 | | | 822 | |
| Income from continuing operations, net of income tax | 455 | | | 528 | | 1,383 | | | 1,395 | | |
| Income from discontinued operations, net of income tax | 0 | | | 1,777 | | 0 | | | 1,857 | | |
| Net income | 455 | | | 2,305 | | 1,383 | | | 3,252 | | |
| (Loss) income from continuing operations, net of income tax | | (Loss) income from continuing operations, net of income tax | (632) | | | 428 | | 751 | | | 1,823 | |
| (Loss) income from discontinued operations, net of income tax | | (Loss) income from discontinued operations, net of income tax | — | | | (7) | | — | | | 1,850 | |
| Net (loss) income | | Net (loss) income | (632) | | | 421 | | 751 | | | 3,673 | |
| Earnings attributable to noncontrolling interests | Earnings attributable to noncontrolling interests | (10) | | | (28) | | (43) | | | (179) | | Earnings attributable to noncontrolling interests | (5) | | | (22) | | (48) | | | (201) | |
| Preferred dividends | Preferred dividends | (20) | | | (37) | | (41) | | | (73) | | Preferred dividends | (11) | | | (48) | | (52) | | | (121) | |
| Preferred dividends of subsidiary | Preferred dividends of subsidiary | (1) | | | (1) | | (1) | | | (1) | | Preferred dividends of subsidiary | — | | | — | | (1) | | | (1) | |
| Earnings attributable to common shares | $ | 424 | | | $ | 2,239 | | $ | 1,298 | | | $ | 2,999 | | |
| (Losses) earnings attributable to common shares | | (Losses) earnings attributable to common shares | $ | (648) | | | $ | 351 | | $ | 650 | | | $ | 3,350 | |
| | Basic EPS: | Basic EPS: | | Basic EPS: | |
| Earnings from continuing operations | $ | 1.38 | | | $ | 1.58 | | $ | 4.27 | | | $ | 3.93 | | |
| Earnings from discontinued operations | $ | 0 | | | $ | 6.06 | | $ | 0 | | | $ | 6.31 | | |
| Earnings | $ | 1.38 | | | $ | 7.64 | | $ | 4.27 | | | $ | 10.24 | | |
| (Losses) earnings from continuing operations | | (Losses) earnings from continuing operations | $ | (2.03) | | | $ | 1.23 | | $ | 2.10 | | | $ | 5.17 | |
| (Losses) earnings from discontinued operations | | (Losses) earnings from discontinued operations | $ | — | | | $ | (0.02) | | $ | — | | | $ | 6.31 | |
| (Losses) earnings | | (Losses) earnings | $ | (2.03) | | | $ | 1.21 | | $ | 2.10 | | | $ | 11.48 | |
| Weighted-average common shares outstanding | Weighted-average common shares outstanding | 307,800 | | | 293,060 | | 304,372 | | | 292,925 | | Weighted-average common shares outstanding | 319,144 | | | 289,490 | | 309,350 | | | 291,771 | |
| | Diluted EPS: | Diluted EPS: | | Diluted EPS: | |
| Earnings from continuing operations | $ | 1.37 | | | $ | 1.58 | | $ | 4.24 | | | $ | 3.91 | | |
| Earnings from discontinued operations | $ | 0 | | | $ | 6.03 | | $ | 0 | | | $ | 6.00 | | |
| Earnings | $ | 1.37 | | | $ | 7.61 | | $ | 4.24 | | | $ | 9.91 | | |
| (Losses) earnings from continuing operations | | (Losses) earnings from continuing operations | $ | (2.03) | | | $ | 1.23 | | $ | 2.09 | | | $ | 5.15 | |
| (Losses) earnings from discontinued operations | | (Losses) earnings from discontinued operations | $ | — | | | $ | (0.02) | | $ | — | | | $ | 6.28 | |
| (Losses) earnings | | (Losses) earnings | $ | (2.03) | | | $ | 1.21 | | $ | 2.09 | | | $ | 11.43 | |
| Weighted-average common shares outstanding | Weighted-average common shares outstanding | 308,607 | | | 294,155 | | 306,284 | | | 307,962 | | Weighted-average common shares outstanding | 319,144 | | | 290,582 | | 310,854 | | | 292,935 | |
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
benefit (expense) | | Net-of-tax
amount | | Noncontrolling
interests
(after tax) | | Total |
| | | (unaudited) | | (unaudited) |
| | | Three months ended June 30, 2021 and 2020 | | Three months ended September 30, 2021 and 2020 |
| 2021: | 2021: | | | | | | | | | | 2021: | | | | | | | | | |
| Net income | $ | 584 | | | $ | (139) | | | $ | 445 | | | $ | 10 | | | $ | 455 | | |
| Net (loss) income | | Net (loss) income | $ | (979) | | | $ | 342 | | | $ | (637) | | | $ | 5 | | | $ | (632) | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | | | | | | | | | Other comprehensive income (loss): | | | | | | | | | |
| Foreign currency translation adjustments | Foreign currency translation adjustments | 5 | | | 0 | | | 5 | | | 1 | | | 6 | | Foreign currency translation adjustments | (4) | | | — | | | (4) | | | (2) | | | (6) | |
| Financial instruments | Financial instruments | (14) | | | 2 | | | (12) | | | (6) | | | (18) | | Financial instruments | 38 | | | (9) | | | 29 | | | — | | | 29 | |
| Pension and other postretirement benefits | Pension and other postretirement benefits | 1 | | | (1) | | | 0 | | | 0 | | | 0 | | Pension and other postretirement benefits | (7) | | | 2 | | | (5) | | | — | | | (5) | |
| Total other comprehensive loss | (8) | | | 1 | | | (7) | | | (5) | | | (12) | | |
| Comprehensive income | 576 | | | (138) | | | 438 | | | 5 | | | 443 | | |
| Preferred dividends of subsidiary | (1) | | | 0 | | | (1) | | | 0 | | | (1) | | |
Comprehensive income, after preferred dividends of subsidiary | $ | 575 | | | $ | (138) | | | $ | 437 | | | $ | 5 | | | $ | 442 | | |
| Total other comprehensive income (loss) | | Total other comprehensive income (loss) | 27 | | | (7) | | | 20 | | | (2) | | | 18 | |
| Comprehensive (loss) income | | Comprehensive (loss) income | $ | (952) | | | $ | 335 | | | $ | (617) | | | $ | 3 | | | $ | (614) | |
| | 2020: | 2020: | | | | | | | | | | 2020: | | | | | | | | | |
| Net income | Net income | $ | 3,619 | | | $ | (1,342) | | | $ | 2,277 | | | $ | 28 | | | $ | 2,305 | | Net income | $ | 489 | | | $ | (90) | | | $ | 399 | | | $ | 22 | | | $ | 421 | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | | | | | | | Other comprehensive income (loss): | | | | | | | |
| Foreign currency translation adjustments | Foreign currency translation adjustments | 662 | | | 0 | | | 662 | | | 5 | | | 667 | | Foreign currency translation adjustments | 9 | | | — | | | 9 | | | (1) | | | 8 | |
| Financial instruments | Financial instruments | (15) | | | 4 | | | (11) | | | (2) | | | (13) | | Financial instruments | 36 | | | (16) | | | 20 | | | 5 | | | 25 | |
| Pension and other postretirement benefits | Pension and other postretirement benefits | (3) | | | 0 | | | (3) | | | 0 | | | (3) | | Pension and other postretirement benefits | 6 | | | (1) | | | 5 | | | — | | | 5 | |
| Total other comprehensive income | Total other comprehensive income | 644 | | | 4 | | | 648 | | | 3 | | | 651 | | Total other comprehensive income | 51 | | | (17) | | | 34 | | | 4 | | | 38 | |
| Comprehensive income | Comprehensive income | 4,263 | | | (1,338) | | | 2,925 | | | 31 | | | 2,956 | | Comprehensive income | $ | 540 | | | $ | (107) | | | $ | 433 | | | $ | 26 | | | $ | 459 | |
| Preferred dividends of subsidiary | (1) | | | 0 | | | (1) | | | 0 | | | (1) | | |
Comprehensive income, after preferred dividends of subsidiary | $ | 4,262 | | | $ | (1,338) | | | $ | 2,924 | | | $ | 31 | | | $ | 2,955 | | |
| | | | | Six months ended June 30, 2021 and 2020 | | Nine months ended September 30, 2021 and 2020 |
| 2021: | 2021: | | | | | | | | | | 2021: | | | | | | | | | |
| Net income | Net income | $ | 1,637 | | | $ | (297) | | | $ | 1,340 | | | $ | 43 | | | $ | 1,383 | | Net income | $ | 658 | | | $ | 45 | | | $ | 703 | | | $ | 48 | | | $ | 751 | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | | | | | | | | | Other comprehensive income (loss): | | | | | | | | | |
| | Foreign currency translation adjustments | | Foreign currency translation adjustments | (4) | | | — | | | (4) | | | (2) | | | (6) | |
| Financial instruments | Financial instruments | 107 | | | (27) | | | 80 | | | 9 | | | 89 | | Financial instruments | 145 | | | (36) | | | 109 | | | 9 | | | 118 | |
| Pension and other postretirement benefits | Pension and other postretirement benefits | 18 | | | (4) | | | 14 | | | 0 | | | 14 | | Pension and other postretirement benefits | 11 | | | (2) | | | 9 | | | — | | | 9 | |
| Total other comprehensive income | Total other comprehensive income | 125 | | | (31) | | | 94 | | | 9 | | | 103 | | Total other comprehensive income | 152 | | | (38) | | | 114 | | | 7 | | | 121 | |
| Comprehensive income | Comprehensive income | 1,762 | | | (328) | | | 1,434 | | | 52 | | | 1,486 | | Comprehensive income | 810 | | | 7 | | | 817 | | | 55 | | | 872 | |
| Preferred dividends of subsidiary | Preferred dividends of subsidiary | (1) | | | 0 | | | (1) | | | 0 | | | (1) | | Preferred dividends of subsidiary | (1) | | | — | | | (1) | | | — | | | (1) | |
Comprehensive income, after preferred dividends of subsidiary | Comprehensive income, after preferred dividends of subsidiary | $ | 1,761 | | | $ | (328) | | | $ | 1,433 | | | $ | 52 | | | $ | 1,485 | | Comprehensive income, after preferred dividends of subsidiary | $ | 809 | | | $ | 7 | | | $ | 816 | | | $ | 55 | | | $ | 871 | |
| 2020: | 2020: | | | | | | | | | 2020: | | | | | | | | |
| Net income | Net income | $ | 4,229 | | | $ | (1,156) | | | $ | 3,073 | | | $ | 179 | | | $ | 3,252 | | Net income | $ | 4,718 | | | $ | (1,246) | | | $ | 3,472 | | | $ | 201 | | | $ | 3,673 | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | | | | | | | | | Other comprehensive income (loss): | | | | | | | | | |
| Foreign currency translation adjustments | Foreign currency translation adjustments | 524 | | | 0 | | | 524 | | | (15) | | | 509 | | Foreign currency translation adjustments | 533 | | | — | | | 533 | | | (16) | | | 517 | |
| Financial instruments | Financial instruments | (203) | | | 57 | | | (146) | | | (14) | | | (160) | | Financial instruments | (167) | | | 41 | | | (126) | | | (9) | | | (135) | |
| Pension and other postretirement benefits | Pension and other postretirement benefits | 21 | | | (2) | | | 19 | | | 0 | | | 19 | | Pension and other postretirement benefits | 27 | | | (3) | | | 24 | | | — | | | 24 | |
| Total other comprehensive income (loss) | Total other comprehensive income (loss) | 342 | | | 55 | | | 397 | | | (29) | | | 368 | | Total other comprehensive income (loss) | 393 | | | 38 | | | 431 | | | (25) | | | 406 | |
| Comprehensive income | Comprehensive income | 4,571 | | | (1,101) | | | 3,470 | | | 150 | | | 3,620 | | Comprehensive income | 5,111 | | | (1,208) | | | 3,903 | | | 176 | | | 4,079 | |
| Preferred dividends of subsidiary | Preferred dividends of subsidiary | (1) | | | 0 | | | (1) | | | 0 | | | (1) | | Preferred dividends of subsidiary | (1) | | | — | | | (1) | | | — | | | (1) | |
Comprehensive income, after preferred dividends of subsidiary | Comprehensive income, after preferred dividends of subsidiary | $ | 4,570 | | | $ | (1,101) | | | $ | 3,469 | | | $ | 150 | | | $ | 3,619 | | Comprehensive income, after preferred dividends of subsidiary | $ | 5,110 | | | $ | (1,208) | | | $ | 3,902 | | | $ | 176 | | | $ | 4,078 | |
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) |
| | June 30, | | December 31, | | September 30, | | December 31, |
| | | 2021 | | 2020(1) | | 2021 | | 2020(1) |
| | | (unaudited) | | | | (unaudited) | | |
| ASSETS | ASSETS | | | | ASSETS | | | |
| Current assets: | Current assets: | | | | Current assets: | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 335 | | | $ | 960 | | Cash and cash equivalents | $ | 873 | | | $ | 960 | |
| Restricted cash | Restricted cash | 33 | | | 22 | | Restricted cash | 31 | | | 22 | |
| Accounts receivable – trade, net | Accounts receivable – trade, net | 1,441 | | | 1,578 | | Accounts receivable – trade, net | 1,416 | | | 1,578 | |
| Accounts receivable – other, net | Accounts receivable – other, net | 413 | | | 403 | | Accounts receivable – other, net | 470 | | | 403 | |
| Due from unconsolidated affiliates | Due from unconsolidated affiliates | 11 | | | 20 | | Due from unconsolidated affiliates | 30 | | | 20 | |
| Income taxes receivable | Income taxes receivable | 74 | | | 113 | | Income taxes receivable | 93 | | | 113 | |
| Inventories | Inventories | 339 | | | 308 | | Inventories | 371 | | | 308 | |
| Regulatory assets | Regulatory assets | 251 | | | 190 | | Regulatory assets | 290 | | | 190 | |
| Greenhouse gas allowances | Greenhouse gas allowances | 555 | | | 553 | | Greenhouse gas allowances | 546 | | | 553 | |
| | Other current assets | Other current assets | 308 | | | 364 | | Other current assets | 473 | | | 364 | |
| Total current assets | Total current assets | 3,760 | | | 4,511 | | Total current assets | 4,593 | | | 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 | 702 | | | 780 | | Due from unconsolidated affiliates | 684 | | | 780 | |
| Regulatory assets | Regulatory assets | 2,216 | | | 1,822 | | Regulatory assets | 2,280 | | | 1,822 | |
| Nuclear decommissioning trusts | Nuclear decommissioning trusts | 1,024 | | | 1,019 | | Nuclear decommissioning trusts | 1,003 | | | 1,019 | |
| Investment in Oncor Holdings | Investment in Oncor Holdings | 12,655 | | | 12,440 | | Investment in Oncor Holdings | 12,475 | | | 12,440 | |
| Other investments | Other investments | 1,393 | | | 1,388 | | Other investments | 1,483 | | | 1,388 | |
| Goodwill | Goodwill | 1,602 | | | 1,602 | | Goodwill | 1,602 | | | 1,602 | |
| Other intangible assets | Other intangible assets | 382 | | | 202 | | Other intangible assets | 376 | | | 202 | |
| Dedicated assets in support of certain benefit plans | Dedicated assets in support of certain benefit plans | 523 | | | 512 | | Dedicated assets in support of certain benefit plans | 539 | | | 512 | |
| Insurance receivable for Aliso Canyon costs | Insurance receivable for Aliso Canyon costs | 414 | | | 445 | | Insurance receivable for Aliso Canyon costs | 414 | | | 445 | |
| Deferred income taxes | Deferred income taxes | 167 | | | 136 | | Deferred income taxes | 151 | | | 136 | |
| Greenhouse gas allowances | Greenhouse gas allowances | 259 | | | 101 | | Greenhouse gas allowances | 356 | | | 101 | |
| Right-of-use assets – operating leases | Right-of-use assets – operating leases | 513 | | | 543 | | Right-of-use assets – operating leases | 499 | | | 543 | |
| Wildfire fund | Wildfire fund | 349 | | | 363 | | Wildfire fund | 342 | | | 363 | |
| Other long-term assets | Other long-term assets | 730 | | | 753 | | Other long-term assets | 914 | | | 753 | |
| Total other assets | Total other assets | 22,932 | | | 22,109 | | Total other assets | 23,121 | | | 22,109 | |
| | Property, plant and equipment: | Property, plant and equipment: | | | | Property, plant and equipment: | | | |
| Property, plant and equipment | Property, plant and equipment | 56,466 | | | 53,928 | | Property, plant and equipment | 57,474 | | | 53,928 | |
| Less accumulated depreciation and amortization | Less accumulated depreciation and amortization | (14,550) | | | (13,925) | | Less accumulated depreciation and amortization | (14,716) | | | (13,925) | |
| Property, plant and equipment, net | Property, plant and equipment, net | 41,916 | | | 40,003 | | Property, plant and equipment, net | 42,758 | | | 40,003 | |
| Total assets | Total assets | $ | 68,608 | | | $ | 66,623 | | Total assets | $ | 70,472 | | | $ | 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) |
| | June 30, | | December 31, | | September 30, | | December 31, |
| | | 2021 | | 2020(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 | $ | 2,266 | | | $ | 885 | | Short-term debt | $ | 3,068 | | | $ | 885 | |
| Accounts payable – trade | Accounts payable – trade | 1,291 | | | 1,359 | | Accounts payable – trade | 1,400 | | | 1,359 | |
| Accounts payable – other | Accounts payable – other | 168 | | | 154 | | Accounts payable – other | 179 | | | 154 | |
| Due to unconsolidated affiliates | Due to unconsolidated affiliates | 42 | | | 45 | | Due to unconsolidated affiliates | 42 | | | 45 | |
| Dividends and interest payable | Dividends and interest payable | 588 | | | 551 | | Dividends and interest payable | 592 | | | 551 | |
| Accrued compensation and benefits | Accrued compensation and benefits | 365 | | | 446 | | Accrued compensation and benefits | 454 | | | 446 | |
| Regulatory liabilities | Regulatory liabilities | 426 | | | 140 | | Regulatory liabilities | 515 | | | 140 | |
| Current portion of long-term debt and finance leases | Current portion of long-term debt and finance leases | 507 | | | 1,540 | | Current portion of long-term debt and finance leases | 2,994 | | | 1,540 | |
| Reserve for Aliso Canyon costs | Reserve for Aliso Canyon costs | 153 | | | 150 | | Reserve for Aliso Canyon costs | 1,962 | | | 150 | |
| Greenhouse gas obligations | Greenhouse gas obligations | 555 | | | 553 | | Greenhouse gas obligations | 546 | | | 553 | |
| Other current liabilities | Other current liabilities | 951 | | | 1,016 | | Other current liabilities | 1,192 | | | 1,016 | |
| Total current liabilities | Total current liabilities | 7,312 | | | 6,839 | | Total current liabilities | 12,944 | | | 6,839 | |
| | Long-term debt and finance leases | Long-term debt and finance leases | 22,090 | | | 21,781 | | Long-term debt and finance leases | 20,042 | | | 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 | 262 | | | 234 | | Due to unconsolidated affiliates | 286 | | | 234 | |
| Pension and other postretirement benefit plan obligations, net of plan assets | Pension and other postretirement benefit plan obligations, net of plan assets | 1,037 | | | 1,059 | | Pension and other postretirement benefit plan obligations, net of plan assets | 964 | | | 1,059 | |
| Deferred income taxes | Deferred income taxes | 3,325 | | | 2,871 | | Deferred income taxes | 2,882 | | | 2,871 | |
| Regulatory liabilities | Regulatory liabilities | 3,352 | | | 3,372 | | Regulatory liabilities | 3,378 | | | 3,372 | |
| Reserve for Aliso Canyon costs | Reserve for Aliso Canyon costs | 269 | | | 301 | | Reserve for Aliso Canyon costs | 14 | | | 301 | |
| Greenhouse gas obligations | | Greenhouse gas obligations | 190 | | | — | |
| Asset retirement obligations | Asset retirement obligations | 3,150 | | | 3,113 | | Asset retirement obligations | 3,187 | | | 3,113 | |
| Greenhouse gas obligations | 104 | | | 0 | | |
| Deferred credits and other | Deferred credits and other | 2,015 | | | 2,119 | | Deferred credits and other | 1,981 | | | 2,119 | |
| Total deferred credits and other liabilities | Total deferred credits and other liabilities | 13,514 | | | 13,069 | | Total deferred credits and other liabilities | 12,882 | | | 13,069 | |
| | Commitments and contingencies (Note 11) | Commitments and contingencies (Note 11) | 0 | | 0 | 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 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 A (17.25 million shares outstanding at December 31, 2020) | — | | | 1,693 | |
Mandatory convertible preferred stock, series B (5.75 million shares outstanding) | 565 | | | 565 | | |
Mandatory convertible preferred stock, series B (5.75 million shares outstanding at December 31, 2020) | | Mandatory convertible preferred stock, series B (5.75 million shares outstanding at December 31, 2020) | — | | | 565 | |
Preferred stock, series C (0.9 million shares outstanding) | Preferred stock, series C (0.9 million shares outstanding) | 889 | | | 889 | | Preferred stock, series C (0.9 million shares outstanding) | 889 | | | 889 | |
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 | | |
Common stock (750 million shares authorized; 319 million and 288 million shares outstanding at September 30, 2021 and December 31, 2020, respectively; no par value) | | Common stock (750 million shares authorized; 319 million and 288 million shares outstanding at September 30, 2021 and December 31, 2020, respectively; no par value) | 10,791 | | | 7,053 | |
| Retained earnings | Retained earnings | 14,291 | | | 13,673 | | Retained earnings | 13,292 | | | 13,673 | |
| Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | (444) | | | (500) | | Accumulated other comprehensive income (loss) | (418) | | | (500) | |
| Total Sempra Energy shareholders’ equity | Total Sempra Energy shareholders’ equity | 25,451 | | | 23,373 | | Total Sempra Energy shareholders’ equity | 24,554 | | | 23,373 | |
| Preferred stock of subsidiary | Preferred stock of subsidiary | 20 | | | 20 | | Preferred stock of subsidiary | 20 | | | 20 | |
| Other noncontrolling interests | Other noncontrolling interests | 221 | | | 1,541 | | Other noncontrolling interests | 30 | | | 1,541 | |
| Total equity | Total equity | 25,692 | | | 24,934 | | Total equity | 24,604 | | | 24,934 | |
| Total liabilities and equity | Total liabilities and equity | $ | 68,608 | | | $ | 66,623 | | Total liabilities and equity | $ | 70,472 | | | $ | 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) |
| | | Six months ended June 30, | | Nine months ended September 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 |
| | | (unaudited) | | (unaudited) |
| CASH FLOWS FROM OPERATING ACTIVITIES | CASH FLOWS FROM OPERATING ACTIVITIES | | | | CASH FLOWS FROM OPERATING ACTIVITIES | | | |
| Net income | Net income | $ | 1,383 | | | $ | 3,252 | | Net income | $ | 751 | | | $ | 3,673 | |
| Less: Income from discontinued operations, net of income tax | Less: Income from discontinued operations, net of income tax | 0 | | | (1,857) | | Less: Income from discontinued operations, net of income tax | — | | | (1,850) | |
| Income from continuing operations, net of income tax | Income from continuing operations, net of income tax | 1,383 | | | 1,395 | | Income from continuing operations, net of income tax | 751 | | | 1,823 | |
| 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 | 905 | | | 824 | | Depreciation and amortization | 1,376 | | | 1,242 | |
| Deferred income taxes and investment tax credits | Deferred income taxes and investment tax credits | 193 | | | (94) | | Deferred income taxes and investment tax credits | (159) | | | (12) | |
| Equity earnings | Equity earnings | (631) | | | (496) | | Equity earnings | (1,022) | | | (822) | |
| Foreign currency transaction (gains) losses, net | (7) | | | 110 | | |
| Foreign currency transaction losses, net | | Foreign currency transaction losses, net | 10 | | | 95 | |
| Share-based compensation expense | Share-based compensation expense | 34 | | | 36 | | Share-based compensation expense | 48 | | | 57 | |
| Fixed-price contracts and other derivatives | Fixed-price contracts and other derivatives | 199 | | | 7 | | Fixed-price contracts and other derivatives | 338 | | | 25 | |
| Other | Other | 54 | | | 42 | | Other | 70 | | | 107 | |
| Net change in working capital components | (63) | | | 375 | | |
| Reserve for Aliso Canyon costs | | Reserve for Aliso Canyon costs | 1,525 | | | 259 | |
| Net change in other working capital components | | Net change in other working capital components | (186) | | | (396) | |
| Distributions from investments | Distributions from investments | 532 | | | 220 | | Distributions from investments | 727 | | | 429 | |
| Insurance receivable for Aliso Canyon costs | Insurance receivable for Aliso Canyon costs | 31 | | | (166) | | Insurance receivable for Aliso Canyon costs | 31 | | | (165) | |
| | Changes in other noncurrent assets and liabilities, net | Changes in other noncurrent assets and liabilities, net | (375) | | | (185) | | Changes in other noncurrent assets and liabilities, net | (528) | | | 38 | |
| Net cash provided by continuing operations | Net cash provided by continuing operations | 2,255 | | | 2,068 | | Net cash provided by continuing operations | 2,981 | | | 2,680 | |
| Net cash used in discontinued operations | Net cash used in discontinued operations | 0 | | | (1,041) | | Net cash used in discontinued operations | — | | | (1,051) | |
| Net cash provided by operating activities | Net cash provided by operating activities | 2,255 | | | 1,027 | | Net cash provided by operating activities | 2,981 | | | 1,629 | |
| | 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 | (2,424) | | | (2,198) | | Expenditures for property, plant and equipment | (3,606) | | | (3,313) | |
| Expenditures for investments and acquisitions | Expenditures for investments and acquisitions | (165) | | | (140) | | Expenditures for investments and acquisitions | (216) | | | (229) | |
| Proceeds from sale of assets | Proceeds from sale of assets | 0 | | | 5 | | Proceeds from sale of assets | — | | | 22 | |
| Distributions from investments | | Distributions from investments | 365 | | | 761 | |
| Purchases of nuclear decommissioning trust assets | Purchases of nuclear decommissioning trust assets | (542) | | | (797) | | Purchases of nuclear decommissioning trust assets | (729) | | | (1,091) | |
| Proceeds from sales of nuclear decommissioning trust assets | Proceeds from sales of nuclear decommissioning trust assets | 542 | | | 797 | | Proceeds from sales of nuclear decommissioning trust assets | 729 | | | 1,091 | |
| Advances to unconsolidated affiliates | Advances to unconsolidated affiliates | (8) | | | (25) | | Advances to unconsolidated affiliates | (8) | | | (32) | |
| | Repayments of advances to unconsolidated affiliates | | Repayments of advances to unconsolidated affiliates | — | | | 7 | |
| Other | Other | 9 | | | 17 | | Other | 9 | | | 13 | |
| Net cash used in continuing operations | Net cash used in continuing operations | (2,588) | | | (2,341) | | Net cash used in continuing operations | (3,456) | | | (2,771) | |
| Net cash provided by discontinued operations | Net cash provided by discontinued operations | 0 | | | 5,195 | | Net cash provided by discontinued operations | — | | | 5,186 | |
| Net cash (used in) provided by investing activities | Net cash (used in) provided by investing activities | (2,588) | | | 2,854 | | Net cash (used in) provided by investing activities | (3,456) | | | 2,415 | |
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) |
| | | Six months ended June 30, | | Nine months ended September 30, |
| | | 2021 | | 2020 | | 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 | $ | (634) | | | $ | (567) | | Common dividends paid | $ | (981) | | | $ | (872) | |
| Preferred dividends paid | Preferred dividends paid | (68) | | | (71) | | Preferred dividends paid | (77) | | | (107) | |
| Issuances of preferred stock | Issuances of preferred stock | 0 | | | 891 | | Issuances of preferred stock | — | | | 890 | |
| Issuances of common stock | Issuances of common stock | 5 | | | 13 | | Issuances of common stock | 5 | | | 10 | |
| Repurchases of common stock | Repurchases of common stock | (38) | | | (64) | | Repurchases of common stock | (39) | | | (565) | |
| Issuances of debt (maturities greater than 90 days) | Issuances of debt (maturities greater than 90 days) | 285 | | | 4,059 | | Issuances of debt (maturities greater than 90 days) | 1,992 | | | 5,934 | |
| Payments on debt (maturities greater than 90 days) and finance leases | Payments on debt (maturities greater than 90 days) and finance leases | (1,432) | | | (1,970) | | Payments on debt (maturities greater than 90 days) and finance leases | (2,315) | | | (4,387) | |
| Increase (decrease) in short-term debt, net | Increase (decrease) in short-term debt, net | 1,584 | | | (1,871) | | Increase (decrease) in short-term debt, net | 1,999 | | | (1,871) | |
| Advances from unconsolidated affiliates | Advances from unconsolidated affiliates | 20 | | | 64 | | Advances from unconsolidated affiliates | 40 | | | 64 | |
| Proceeds from sale of noncontrolling interests | 7 | | | 0 | | |
| Proceeds from sales of noncontrolling interests | | Proceeds from sales of noncontrolling interests | 7 | | | — | |
| Purchases of noncontrolling interests | Purchases of noncontrolling interests | (10) | | | (27) | | Purchases of noncontrolling interests | (221) | | | (178) | |
| | Other | Other | (1) | | | (16) | | Other | (13) | | | (29) | |
| Net cash (used in) provided by continuing operations | (282) | | | 441 | | |
| Net cash provided by (used in) continuing operations | | Net cash provided by (used in) continuing operations | 397 | | | (1,111) | |
| Net cash provided by discontinued operations | Net cash provided by discontinued operations | 0 | | | 401 | | Net cash provided by discontinued operations | — | | | 401 | |
| Net cash (used in) provided by financing activities | (282) | | | 842 | | |
| Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | 397 | | | (710) | |
| | Effect of exchange rate changes in continuing operations | Effect of exchange rate changes in continuing operations | 1 | | | (7) | | Effect of exchange rate changes in continuing operations | — | | | (2) | |
| Effect of exchange rate changes in discontinued operations | Effect of exchange rate changes in discontinued operations | 0 | | | (3) | | Effect of exchange rate changes in discontinued operations | — | | | (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 | 1 | | | (10) | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | — | | | (5) | |
| (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 | | (Decrease) increase in cash, cash equivalents and restricted cash, including discontinued operations | (78) | | | 3,329 | |
| Cash, cash equivalents and restricted cash, including discontinued operations, January 1 | Cash, cash equivalents and restricted cash, including discontinued operations, January 1 | 985 | | | 217 | | Cash, cash equivalents and restricted cash, including discontinued operations, January 1 | 985 | | | 217 | |
| Cash, cash equivalents and restricted cash, including discontinued operations, June 30 | $ | 371 | | | $ | 4,930 | | |
| Cash, cash equivalents and restricted cash, including discontinued operations, September 30 | | Cash, cash equivalents and restricted cash, including discontinued operations, September 30 | $ | 907 | | | $ | 3,546 | |
| | 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 | $ | 488 | | | $ | 540 | | Interest payments, net of amounts capitalized | $ | 741 | | | $ | 781 | |
| Income tax payments, including discontinued operations, net of refunds | Income tax payments, including discontinued operations, net of refunds | 73 | | | 1,303 | | Income tax payments, including discontinued operations, net of refunds | 101 | | | 1,376 | |
| | SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | | | | SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | | | |
| Increase in Cameron LNG JV investment for guarantee | Increase in Cameron LNG JV investment for guarantee | 22 | | | 0 | | Increase in Cameron LNG JV investment for guarantee | $ | 22 | | | $ | — | |
| Accrued capital expenditures | Accrued capital expenditures | 526 | | | 434 | | Accrued capital expenditures | 572 | | | 460 | |
| Increase in ARO for investment in PP&E, net | | Increase in ARO for investment in PP&E, net | 33 | | | — | |
| Increase in finance lease obligations for investment in PP&E | Increase in finance lease obligations for investment in PP&E | 24 | | | 56 | | Increase in finance lease obligations for investment in PP&E | 35 | | | 72 | |
| Derecognized PP&E for net investment in sales-type lease | | Derecognized PP&E for net investment in sales-type lease | 44 | | | — | |
| 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 | | Issuance of common stock in exchange for NCI and related AOCI | 1,373 | | | — | |
| Contribution to Cameron LNG JV | | Contribution to Cameron LNG JV | — | | | 50 | |
| Distribution from Cameron LNG JV | | Distribution from Cameron LNG JV | — | | | 50 | |
| Distribution from Oncor Holdings | Distribution from Oncor Holdings | 8 | | | 0 | | Distribution from Oncor Holdings | 8 | | | — | |
| Equitization of long-term debt for deficit held by NCI | Equitization of long-term debt for deficit held by NCI | 0 | | | 22 | | Equitization of long-term debt for deficit held by NCI | — | | | 22 | |
| Conversion of mandatory convertible preferred stock | Conversion of mandatory convertible preferred stock | 1,693 | | | 0 | | Conversion of mandatory convertible preferred stock | 2,258 | | | — | |
| Preferred dividends declared but not paid | Preferred dividends declared but not paid | 20 | | | 37 | | Preferred dividends declared but not paid | 22 | | | 50 | |
| Common dividends issued in stock | Common dividends issued in stock | 0 | | | 22 | | Common dividends issued in stock | — | | | 23 | |
| Common dividends declared but not paid | Common dividends declared but not paid | 347 | | | 305 | | Common dividends declared but not paid | 351 | | | 301 | |
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 June 30, 2021 | | Three months ended September 30, 2021 |
| Balance at March 31, 2021 | $ | 1,454 | | | $ | 8,730 | | | $ | 14,214 | | | $ | (399) | | | $ | 23,999 | | | $ | 1,609 | | | $ | 25,608 | | |
| Balance at June 30, 2021 | | Balance at June 30, 2021 | $ | 1,454 | | | $ | 10,150 | | | $ | 14,291 | | | $ | (444) | | | $ | 25,451 | | | $ | 241 | | | $ | 25,692 | |
| | Net income | | 445 | | | 445 | | | 10 | | | 455 | | |
| Other comprehensive loss | | (7) | | | (7) | | | (5) | | | (12) | | |
| Net (loss) income | | Net (loss) income | | (637) | | | (637) | | | 5 | | | (632) | |
| Other comprehensive income (loss) | | Other comprehensive income (loss) | | 20 | | | 20 | | | (2) | | | 18 | |
| | 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 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) | | Series C preferred stock ($12.19/share) | | (11) | | | (11) | | | (11) | |
| Common stock ($1.10/share) | Common stock ($1.10/share) | | (347) | | | (347) | | | (347) | | Common stock ($1.10/share) | | (351) | | | (351) | | | (351) | |
| Preferred dividends of subsidiary | | (1) | | | (1) | | | (1) | | |
| | Issuances of common stock | | 5 | | | 5 | | | 5 | | |
| | Conversion of series B preferred stock | | Conversion of series B preferred stock | (565) | | | 565 | | | — | | | — | |
| | Repurchases of common stock | Repurchases of common stock | | (1) | | | (1) | | | (1) | | Repurchases of common stock | | (1) | | | (1) | | | (1) | |
| Noncontrolling interest activities: | Noncontrolling interest activities: | | Noncontrolling interest activities: | |
| | Purchases | Purchases | | 1,399 | | | (38) | | | 1,361 | | | (1,373) | | | (12) | | Purchases | | 63 | | | 6 | | | 69 | | | (194) | | | (125) | |
| | Balance at June 30, 2021 | $ | 1,454 | | | $ | 10,150 | | | $ | 14,291 | | | $ | (444) | | | $ | 25,451 | | | $ | 241 | | | $ | 25,692 | | |
| Balance at September 30, 2021 | | Balance at September 30, 2021 | $ | 889 | | | $ | 10,791 | | | $ | 13,292 | | | $ | (418) | | | $ | 24,554 | | | $ | 50 | | | $ | 24,604 | |
| | | | Three months ended June 30, 2020 | | Three months ended September 30, 2020 |
| Balance at March 31, 2020 | $ | 2,258 | | | $ | 7,472 | | | $ | 11,577 | | | $ | (1,190) | | | $ | 20,117 | | | $ | 1,998 | | | $ | 22,115 | | |
| Balance at June 30, 2020 | | Balance at June 30, 2020 | $ | 3,147 | | | $ | 7,490 | | | $ | 13,511 | | | $ | (542) | | | $ | 23,606 | | | $ | 1,780 | | | $ | 25,386 | |
| | Net income | Net income | | 2,277 | | | 2,277 | | | 28 | | | 2,305 | | Net income | | 399 | | | 399 | | | 22 | | | 421 | |
| Other comprehensive income | Other comprehensive income | | 648 | | | 648 | | | 3 | | | 651 | | Other comprehensive income | | 34 | | | 34 | | | 4 | | | 38 | |
| | Share-based compensation expense | Share-based compensation expense | | 14 | | | 14 | | | 14 | | Share-based compensation expense | | 19 | | | 19 | | | 19 | |
| 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 ($1.69/share) | | (9) | | | (9) | | | (9) | | |
| Series C preferred stock ($1.63/share) | | (2) | | | (2) | | | (2) | | |
| Common stock ($1.04/share) | | (305) | | | (305) | | | (305) | | |
| Preferred dividends of subsidiary | | (1) | | | (1) | | | (1) | | |
| Issuance of series C preferred stock | 889 | | | 889 | | | 889 | | |
| Issuances of common stock | | 10 | | | 10 | | | 10 | | |
| Series B preferred stock ($1.68/share) | | Series B preferred stock ($1.68/share) | | (10) | | | (10) | | | (10) | |
| Series C preferred stock ($14.08/share) | | Series C preferred stock ($14.08/share) | | (12) | | | (12) | | | (12) | |
| Common stock ($1.05/share) | | Common stock ($1.05/share) | | (302) | | | (302) | | | (302) | |
| | Repurchases of common stock | Repurchases of common stock | | (7) | | | (7) | | | (7) | | Repurchases of common stock | | (501) | | | (501) | | | (501) | |
| Noncontrolling interest activities: | Noncontrolling interest activities: | | Noncontrolling interest activities: | |
| | Distributions | | 0 | | (1) | | | (1) | | |
| | Purchases | Purchases | | 1 | | | 1 | | | (12) | | | (11) | | Purchases | | 26 | | | (5) | | | 21 | | | (178) | | | (157) | |
| | Deconsolidation | | (236) | | | (236) | | |
| Balance at June 30, 2020 | $ | 3,147 | | | $ | 7,490 | | | $ | 13,511 | | | $ | (542) | | | $ | 23,606 | | | $ | 1,780 | | | $ | 25,386 | | |
| | Balance at September 30, 2020 | | Balance at September 30, 2020 | $ | 3,147 | | | $ | 7,034 | | | $ | 13,560 | | | $ | (513) | | | $ | 23,228 | | | $ | 1,628 | | | $ | 24,856 | |
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 (CONTINUED) | | CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED) |
| (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) |
| | Six months ended June 30, 2021 | | Nine months ended September 30, 2021 |
| Balance at December 31, 2020 | Balance at December 31, 2020 | $ | 3,147 | | | $ | 7,053 | | | $ | 13,673 | | | $ | (500) | | | $ | 23,373 | | | $ | 1,561 | | | $ | 24,934 | | Balance at December 31, 2020 | $ | 3,147 | | | $ | 7,053 | | | $ | 13,673 | | | $ | (500) | | | $ | 23,373 | | | $ | 1,561 | | | $ | 24,934 | |
| | Net income | Net income | | 1,340 | | | 1,340 | | | 43 | | | 1,383 | | Net income | | 703 | | | 703 | | | 48 | | | 751 | |
| Other comprehensive income | Other comprehensive income | | 94 | | | 94 | | | 9 | | | 103 | | Other comprehensive income | | 114 | | | 114 | | | 7 | | | 121 | |
| | Share-based compensation expense | Share-based compensation expense | | 34 | | | 34 | | | 34 | | Share-based compensation expense | | 48 | | | 48 | | | 48 | |
| Dividends declared: | Dividends declared: | | Dividends declared: | |
| Series B preferred stock ($3.38/share) | Series B preferred stock ($3.38/share) | | (19) | | | (19) | | | (19) | | 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) | | |
| Series C preferred stock ($36.57/share) | | Series C preferred stock ($36.57/share) | | (33) | | | (33) | | | (33) | |
| Common stock ($3.30/share) | | Common stock ($3.30/share) | | (1,031) | | | (1,031) | | | (1,031) | |
| Preferred dividends of subsidiary | Preferred dividends of subsidiary | | (1) | | | (1) | | | (1) | | Preferred dividends of subsidiary | | (1) | | | (1) | | | (1) | |
| Conversion of series A preferred stock | Conversion of series A preferred stock | (1,693) | | | 1,693 | | | 0 | | | 0 | | Conversion of series A preferred stock | (1,693) | | | 1,693 | | | — | | | — | |
| Conversion of series B preferred stock | | Conversion of series B preferred stock | (565) | | | 565 | | | — | | | — | |
| Issuances of common stock | Issuances of common stock | | 5 | | | 5 | | | 5 | | Issuances of common stock | | 5 | | | 5 | | | 5 | |
| Repurchases of common stock | Repurchases of common stock | | (38) | | | (38) | | | (38) | | Repurchases of common stock | | (39) | | | (39) | | | (39) | |
| Noncontrolling interest activities: | Noncontrolling interest activities: | | Noncontrolling interest activities: | |
| | Purchases | Purchases | | 1,399 | | | (38) | | | 1,361 | | | (1,373) | | | (12) | | Purchases | | 1,462 | | | (32) | | | 1,430 | | | (1,567) | | | (137) | |
| Sale | | 4 | | | 4 | | | 1 | | | 5 | | |
| Sales | | Sales | | 4 | | | 4 | | | 1 | | | 5 | |
| | Balance at June 30, 2021 | $ | 1,454 | | | $ | 10,150 | | | $ | 14,291 | | | $ | (444) | | | $ | 25,451 | | | $ | 241 | | | $ | 25,692 | | |
| Balance at September 30, 2021 | | Balance at September 30, 2021 | $ | 889 | | | $ | 10,791 | | | $ | 13,292 | | | $ | (418) | | | $ | 24,554 | | | $ | 50 | | | $ | 24,604 | |
| | | | Six months ended June 30, 2020 | | Nine months ended September 30, 2020 |
| Balance at December 31, 2019 | Balance at December 31, 2019 | $ | 2,258 | | | $ | 7,480 | | | $ | 11,130 | | | $ | (939) | | | $ | 19,929 | | | $ | 1,876 | | | $ | 21,805 | | Balance at December 31, 2019 | $ | 2,258 | | | $ | 7,480 | | | $ | 11,130 | | | $ | (939) | | | $ | 19,929 | | | $ | 1,876 | | | $ | 21,805 | |
| Adoption of ASU 2016-13 | Adoption of ASU 2016-13 | | (7) | | | (7) | | | (2) | | | (9) | | Adoption of ASU 2016-13 | | (7) | | | (7) | | | (2) | | | (9) | |
| Adjusted balance at December 31, 2019 | Adjusted balance at December 31, 2019 | 2,258 | | | 7,480 | | | 11,123 | | | (939) | | | 19,922 | | | 1,874 | | | 21,796 | | Adjusted balance at December 31, 2019 | 2,258 | | | 7,480 | | | 11,123 | | | (939) | | | 19,922 | | | 1,874 | | | 21,796 | |
| | Net income | Net income | | 3,073 | | | 3,073 | | | 179 | | | 3,252 | | Net income | | 3,472 | | | 3,472 | | | 201 | | | 3,673 | |
| Other comprehensive income | | 397 | | | 397 | | | (29) | | | 368 | | |
| Other comprehensive income (loss) | | Other comprehensive income (loss) | | 431 | | | 431 | | | (25) | | | 406 | |
| | Share-based compensation expense | Share-based compensation expense | | 36 | | | 36 | | | 36 | | Share-based compensation expense | | 57 | | | 57 | | | 57 | |
| Dividends declared: | Dividends declared: | | 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) | | |
| Series A preferred stock ($4.50/share) | | Series A preferred stock ($4.50/share) | | (78) | | | (78) | | | (78) | |
| Series B preferred stock ($5.06/share) | | Series B preferred stock ($5.06/share) | | (29) | | | (29) | | | (29) | |
| Series C preferred stock ($15.71/share) | | Series C preferred stock ($15.71/share) | | (14) | | | (14) | | | (14) | |
| Common stock ($3.14/share) | | Common stock ($3.14/share) | | (913) | | | (913) | | | (913) | |
| Preferred dividends of subsidiary | Preferred dividends of subsidiary | | (1) | | | (1) | | | (1) | | Preferred dividends of subsidiary | | (1) | | | (1) | | | (1) | |
| Issuance of series C preferred stock | Issuance of series C preferred stock | 889 | | 889 | | | 889 | | Issuance of series C preferred stock | 889 | | 889 | | | 889 | |
| Issuances of common stock | Issuances of common stock | | 35 | | | 35 | | | 35 | | Issuances of common stock | | 33 | | | 33 | | | 33 | |
| Repurchases of common stock | Repurchases of common stock | | (64) | | | (64) | | | (64) | | Repurchases of common stock | | (565) | | | (565) | | | (565) | |
| Noncontrolling interest activities: | Noncontrolling interest activities: | | Noncontrolling interest activities: | |
| | Distributions | Distributions | | 0 | | (1) | | | (1) | | Distributions | | (1) | | | (1) | |
| Purchases | Purchases | | 3 | | | 3 | | | (30) | | | (27) | | Purchases | | 29 | | | (5) | | | 24 | | | (208) | | | (184) | |
| | Acquisition | Acquisition | | 1 | | | 1 | | Acquisition | | 1 | | | 1 | |
Equitization of long-term debt for deficit held by NCI | Equitization of long-term debt for deficit held by NCI | | 22 | | | 22 | | Equitization of long-term debt for deficit held by NCI | | 22 | | | 22 | |
| Deconsolidation | Deconsolidation | | (236) | | | (236) | | Deconsolidation | | (236) | | | (236) | |
| Balance at June 30, 2020 | $ | 3,147 | | | $ | 7,490 | | | $ | 13,511 | | | $ | (542) | | | $ | 23,606 | | | $ | 1,780 | | | $ | 25,386 | | |
| Balance at September 30, 2020 | | Balance at September 30, 2020 | $ | 3,147 | | | $ | 7,034 | | | $ | 13,560 | | | $ | (513) | | | $ | 23,228 | | | $ | 1,628 | | | $ | 24,856 | |
See Notes to Condensed Consolidated Financial Statements.
| | SAN DIEGO GAS & ELECTRIC COMPANY | SAN DIEGO GAS & ELECTRIC COMPANY | SAN DIEGO GAS & ELECTRIC 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 June 30, | | | Six months ended June 30, | | Three months ended
September 30, | | Nine months ended
September 30, |
| | | 2021 | | 2020 | | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
| | | (unaudited) | | (unaudited) |
| Operating revenues | Operating revenues | | | | | | Operating revenues | | | | | | | |
| Electric | Electric | $ | 1,158 | | | $ | 1,090 | | | | $ | 2,227 | | | $ | 2,140 | | Electric | $ | 1,307 | | | $ | 1,338 | | | $ | 3,534 | | | $ | 3,478 | |
| Natural gas | Natural gas | 160 | | | 145 | | | | 428 | | | 364 | | Natural gas | 157 | | | 134 | | | 585 | | | 498 | |
| Total operating revenues | Total operating revenues | 1,318 | | | 1,235 | | | | 2,655 | | | 2,504 | | Total operating revenues | 1,464 | | | 1,472 | | | 4,119 | | | 3,976 | |
| Operating expenses | Operating expenses | | | | | | Operating expenses | | | | | | | |
| Cost of electric fuel and purchased power | Cost of electric fuel and purchased power | 304 | | | 260 | | | | 545 | | | 491 | | Cost of electric fuel and purchased power | 324 | | | 430 | | | 869 | | | 921 | |
| Cost of natural gas | Cost of natural gas | 40 | | | 31 | | | | 122 | | | 91 | | Cost of natural gas | 37 | | | 27 | | | 159 | | | 118 | |
| Operation and maintenance | Operation and maintenance | 373 | | | 326 | | | | 763 | | | 636 | | Operation and maintenance | 389 | | | 414 | | | 1,152 | | | 1,050 | |
| Depreciation and amortization | Depreciation and amortization | 220 | | | 197 | | | | 433 | | | 398 | | Depreciation and amortization | 226 | | | 200 | | | 659 | | | 598 | |
| Franchise fees and other taxes | Franchise fees and other taxes | 83 | | | 73 | | | | 171 | | | 151 | | Franchise fees and other taxes | 93 | | | 86 | | | 264 | | | 237 | |
| Total operating expenses | Total operating expenses | 1,020 | | | 887 | | | | 2,034 | | | 1,767 | | Total operating expenses | 1,069 | | | 1,157 | | | 3,103 | | | 2,924 | |
| Operating income | Operating income | 298 | | | 348 | | | | 621 | | | 737 | | Operating income | 395 | | | 315 | | | 1,016 | | | 1,052 | |
| Other income, net | 22 | | | 18 | | | | 57 | | | 49 | | |
| Other income (expense), net | | Other income (expense), net | 4 | | | (2) | | | 61 | | | 47 | |
| Interest income | Interest income | 0 | | | 0 | | | | 1 | | | 1 | | Interest income | — | | | 1 | | | 1 | | | 2 | |
| Interest expense | Interest expense | (101) | | | (103) | | | | (203) | | | (204) | | Interest expense | (104) | | | (103) | | | (307) | | | (307) | |
| Income before income taxes | Income before income taxes | 219 | | | 263 | | | | 476 | | | 583 | | Income before income taxes | 295 | | | 211 | | | 771 | | | 794 | |
| Income tax expense | Income tax expense | (33) | | | (70) | | | | (78) | | | (128) | | Income tax expense | (90) | | | (33) | | | (168) | | | (161) | |
| Net Income/Earnings attributable to common shares | $ | 186 | | | $ | 193 | | | | $ | 398 | | | $ | 455 | | |
| Net income/Earnings attributable to common shares | | Net income/Earnings attributable to common shares | $ | 205 | | | $ | 178 | | | $ | 603 | | | $ | 633 | |
See Notes to Condensed Financial Statements.
| | SAN DIEGO GAS & ELECTRIC COMPANY | SAN DIEGO GAS & ELECTRIC COMPANY | SAN DIEGO GAS & ELECTRIC 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) |
| | | SDG&E shareholder’s equity | | | Pretax
amount | | Income tax expense | | Net-of-tax
amount | |
| | | Pretax
amount | | Income tax expense | | Net-of-tax
amount | | | (unaudited) |
| | | (unaudited) | | Three months ended September 30, 2021 and 2020 |
| | Three months ended June 30, 2021 and 2020 | |
| 2021: | 2021: | | | | | | | 2021: | | | | | | |
| Net income | | Net income | $ | 295 | | | $ | (90) | | | $ | 205 | | |
| Other comprehensive income (loss): | | Other comprehensive income (loss): | | | | | | |
| Pension and other postretirement benefits | | Pension and other postretirement benefits | 1 | | | — | | | 1 | | |
| Total other comprehensive income | | Total other comprehensive income | 1 | | | — | | | 1 | | |
| Comprehensive income | | Comprehensive income | $ | 296 | | | $ | (90) | | | $ | 206 | | |
| 2020: | | 2020: | | | | | | |
| | Net Income/Comprehensive income | $ | 219 | | | $ | (33) | | | $ | 186 | | | |
| | Net income/Comprehensive income | | Net income/Comprehensive income | $ | 211 | | | $ | (33) | | | $ | 178 | | |
| | | | | Nine months ended September 30, 2021 and 2020 |
| 2021: | | 2021: | | | | | | |
| Net income | | Net income | $ | 771 | | | $ | (168) | | | $ | 603 | | |
| Other comprehensive income (loss): | | Other comprehensive income (loss): | | | | | | |
| Pension and other postretirement benefits | | Pension and other postretirement benefits | 1 | | | — | | | 1 | | |
| Total other comprehensive income | | Total other comprehensive income | 1 | | | — | | | 1 | | |
| Comprehensive income | | Comprehensive income | $ | 772 | | | $ | (168) | | | $ | 604 | | |
| 2020: | 2020: | | | | | | | 2020: | | | | | | |
| Net income | Net income | $ | 263 | | | $ | (70) | | | $ | 193 | | | Net income | $ | 794 | | | $ | (161) | | | $ | 633 | | |
| 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 | | | Pension and other postretirement benefits | 5 | | | (1) | | | 4 | | |
| Total other comprehensive income | Total other comprehensive income | 5 | | | (1) | | | 4 | | | Total other comprehensive income | 5 | | | (1) | | | 4 | | |
| Comprehensive income | Comprehensive income | $ | 268 | | | $ | (71) | | | $ | 197 | | | Comprehensive income | $ | 799 | | | $ | (162) | | | $ | 637 | | |
| | | Six months ended June 30, 2021 and 2020 | |
| 2021: | | | | | | | |
| | Net Income/Comprehensive income | $ | 476 | | | $ | (78) | | | $ | 398 | | | |
| 2020: | | | | | | | |
| Net income | $ | 583 | | | $ | (128) | | | $ | 455 | | | |
| Other comprehensive income (loss): | | | | | | | |
| | Pension and other postretirement benefits | 5 | | | (1) | | | 4 | | | |
| Total other comprehensive income | 5 | | | (1) | | | 4 | | | |
| Comprehensive income | $ | 588 | | | $ | (129) | | | $ | 459 | | | |
See Notes to Condensed Financial Statements.
| | | | | | | | | | | |
| SAN DIEGO GAS & ELECTRIC COMPANY | | | |
| CONDENSED BALANCE SHEETS | | | |
| (Dollars in millions) | | | |
| June 30, | | December 31, |
| | 2021 | | 2020(1) |
| | (unaudited) | | |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 13 | | | $ | 262 | |
| Accounts receivable – trade, net | 635 | | | 573 | |
| Accounts receivable – other, net | 83 | | | 143 | |
| | | |
| | | |
| Inventories | 109 | | | 104 | |
| Prepaid expenses | 105 | | | 153 | |
| Regulatory assets | 243 | | | 174 | |
| Fixed-price contracts and other derivatives | 67 | | | 56 | |
| Greenhouse gas allowances | 113 | | | 113 | |
| Other current assets | 15 | | | 22 | |
| Total current assets | 1,383 | | | 1,600 | |
| | | |
| Other assets: | | | |
| Regulatory assets | 706 | | | 534 | |
| Nuclear decommissioning trusts | 1,024 | | | 1,019 | |
| Greenhouse gas allowances | 83 | | | 83 | |
| Right-of-use assets – operating leases | 89 | | | 102 | |
| Wildfire fund | 349 | | | 363 | |
| Other long-term assets | 156 | | | 189 | |
| Total other assets | 2,407 | | | 2,290 | |
| | | |
| Property, plant and equipment: | | | |
| Property, plant and equipment | 25,464 | | | 24,436 | |
| Less accumulated depreciation and amortization | (6,274) | | | (6,015) | |
| Property, plant and equipment, net | 19,190 | | | 18,421 | |
| Total assets | $ | 22,980 | | | $ | 22,311 | |
| | | | | | | | | | | |
| SAN DIEGO GAS & ELECTRIC COMPANY |
| CONDENSED BALANCE SHEETS |
| (Dollars in millions) |
| September 30, | | December 31, |
| | 2021 | | 2020(1) |
| | (unaudited) | | |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 239 | | | $ | 262 | |
| Accounts receivable – trade, net | 642 | | | 573 | |
| Accounts receivable – other, net | 96 | | | 143 | |
| Due from unconsolidated affiliates | 1 | | | — | |
| Income taxes receivable, net | 18 | | | — | |
| Inventories | 112 | | | 104 | |
| Prepaid expenses | 197 | | | 153 | |
| Regulatory assets | 253 | | | 174 | |
| Fixed-price contracts and other derivatives | 73 | | | 56 | |
| Greenhouse gas allowances | 113 | | | 113 | |
| Other current assets | 4 | | | 22 | |
| Total current assets | 1,748 | | | 1,600 | |
| | | |
| Other assets: | | | |
| Regulatory assets | 751 | | | 534 | |
| Nuclear decommissioning trusts | 1,003 | | | 1,019 | |
| Greenhouse gas allowances | 83 | | | 83 | |
| Right-of-use assets – operating leases | 82 | | | 102 | |
| Wildfire fund | 342 | | | 363 | |
| Other long-term assets | 213 | | | 189 | |
| Total other assets | 2,474 | | | 2,290 | |
| | | |
| Property, plant and equipment: | | | |
| Property, plant and equipment | 25,824 | | | 24,436 | |
| Less accumulated depreciation and amortization | (6,263) | | | (6,015) | |
| Property, plant and equipment, net | 19,561 | | | 18,421 | |
| Total assets | $ | 23,783 | | | $ | 22,311 | |
(1) Derived from audited financial statements.
See Notes to Condensed Financial Statements.
| | SAN DIEGO GAS & ELECTRIC COMPANY | SAN DIEGO GAS & ELECTRIC COMPANY | | SAN DIEGO GAS & ELECTRIC COMPANY |
| CONDENSED BALANCE SHEETS (CONTINUED) | CONDENSED BALANCE SHEETS (CONTINUED) | | CONDENSED BALANCE SHEETS (CONTINUED) |
| (Dollars in millions) | (Dollars in millions) | | (Dollars in millions) |
| | | June 30, | | December 31, | | September 30, | | December 31, |
| | 2021 | | 2020(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 | $ | 437 | | | $ | 0 | | Short-term debt | $ | 375 | | | $ | — | |
| Accounts payable | Accounts payable | 539 | | | 553 | | Accounts payable | 602 | | | 553 | |
| Due to unconsolidated affiliates | Due to unconsolidated affiliates | 44 | | | 64 | | Due to unconsolidated affiliates | 61 | | | 64 | |
| Interest payable | Interest payable | 46 | | | 46 | | Interest payable | 74 | | | 46 | |
| Accrued compensation and benefits | Accrued compensation and benefits | 104 | | | 135 | | Accrued compensation and benefits | 138 | | | 135 | |
| Accrued franchise fees | Accrued franchise fees | 44 | | | 56 | | Accrued franchise fees | 59 | | | 56 | |
| Regulatory liabilities | Regulatory liabilities | 67 | | | 61 | | Regulatory liabilities | 53 | | | 61 | |
| Current portion of long-term debt and finance leases | Current portion of long-term debt and finance leases | 414 | | | 611 | | Current portion of long-term debt and finance leases | 48 | | | 611 | |
| Customer deposits | Customer deposits | 36 | | | 56 | | Customer deposits | 33 | | | 56 | |
| Greenhouse gas obligations | Greenhouse gas obligations | 113 | | | 113 | | Greenhouse gas obligations | 113 | | | 113 | |
| Asset retirement obligations | Asset retirement obligations | 128 | | | 117 | | Asset retirement obligations | 130 | | | 117 | |
| Other current liabilities | Other current liabilities | 173 | | | 199 | | Other current liabilities | 233 | | | 199 | |
| Total current liabilities | Total current liabilities | 2,145 | | | 2,011 | | Total current liabilities | 1,919 | | | 2,011 | |
| | Long-term debt and finance leases | Long-term debt and finance leases | 6,848 | | | 6,866 | | Long-term debt and finance leases | 7,587 | | | 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 | 83 | | | 92 | | Pension obligation, net of plan assets | 61 | | | 92 | |
| Deferred income taxes | Deferred income taxes | 2,124 | | | 2,019 | | Deferred income taxes | 2,203 | | | 2,019 | |
| Deferred investment tax credits | Deferred investment tax credits | 13 | | | 13 | | Deferred investment tax credits | 13 | | | 13 | |
| Regulatory liabilities | Regulatory liabilities | 2,274 | | | 2,195 | | Regulatory liabilities | 2,311 | | | 2,195 | |
| Greenhouse gas obligations | | Greenhouse gas obligations | 30 | | | — | |
| Asset retirement obligations | Asset retirement obligations | 755 | | | 759 | | Asset retirement obligations | 744 | | | 759 | |
| Greenhouse gas obligations | 15 | | | 0 | | |
| Deferred credits and other | Deferred credits and other | 595 | | | 626 | | Deferred credits and other | 581 | | | 626 | |
| Total deferred credits and other liabilities | Total deferred credits and other liabilities | 5,859 | | | 5,704 | | Total deferred credits and other liabilities | 5,943 | | | 5,704 | |
| | Commitments and contingencies (Note 11) | Commitments and contingencies (Note 11) | 0 | | 0 | 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) | — | | | — | |
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 | 6,478 | | | 6,080 | | Retained earnings | 6,683 | | | 6,080 | |
| Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | (10) | | | (10) | | Accumulated other comprehensive income (loss) | (9) | | | (10) | |
| Total shareholder’s equity | Total shareholder’s equity | 8,128 | | | 7,730 | | Total shareholder’s equity | 8,334 | | | 7,730 | |
| Total liabilities and shareholder's equity | Total liabilities and shareholder's equity | $ | 22,980 | | | $ | 22,311 | | Total liabilities and shareholder's equity | $ | 23,783 | | | $ | 22,311 | |
(1) Derived from audited financial statements.
See Notes to Condensed Financial Statements.
| | SAN DIEGO GAS & ELECTRIC COMPANY | SAN DIEGO GAS & ELECTRIC COMPANY | SAN DIEGO GAS & ELECTRIC 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) |
| | | Six months ended June 30, | | Nine months ended September 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 |
| | | (unaudited) | | (unaudited) |
| CASH FLOWS FROM OPERATING ACTIVITIES | CASH FLOWS FROM OPERATING ACTIVITIES | | | | CASH FLOWS FROM OPERATING ACTIVITIES | | | |
| Net income | Net income | $ | 398 | | | $ | 455 | | Net income | $ | 603 | | | $ | 633 | |
| 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 | 433 | | | 398 | | Depreciation and amortization | 659 | | | 598 | |
| Deferred income taxes and investment tax credits | Deferred income taxes and investment tax credits | 41 | | | 29 | | Deferred income taxes and investment tax credits | 133 | | | 36 | |
| Other | Other | (13) | | | (13) | | Other | (1) | | | 13 | |
| Net change in working capital components | Net change in working capital components | (136) | | | (36) | | Net change in working capital components | (187) | | | (184) | |
| Changes in noncurrent assets and liabilities, net | Changes in noncurrent assets and liabilities, net | (113) | | | (95) | | Changes in noncurrent assets and liabilities, net | (183) | | | (113) | |
| Net cash provided by operating activities | Net cash provided by operating activities | 610 | | | 738 | | Net cash provided by operating activities | 1,024 | | | 983 | |
| | 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 | (1,072) | | | (850) | | Expenditures for property, plant and equipment | (1,560) | | | (1,323) | |
| Purchases of nuclear decommissioning trust assets | Purchases of nuclear decommissioning trust assets | (542) | | | (797) | | Purchases of nuclear decommissioning trust assets | (729) | | | (1,091) | |
| Proceeds from sales of nuclear decommissioning trust assets | Proceeds from sales of nuclear decommissioning trust assets | 542 | | | 797 | | Proceeds from sales of nuclear decommissioning trust assets | 729 | | | 1,091 | |
| Other | Other | 7 | | | 8 | | Other | 7 | | | 8 | |
| Net cash used in investing activities | Net cash used in investing activities | (1,065) | | | (842) | | Net cash used in investing activities | (1,553) | | | (1,315) | |
| | CASH FLOWS FROM FINANCING ACTIVITIES | CASH FLOWS FROM FINANCING ACTIVITIES | | | | CASH FLOWS FROM FINANCING ACTIVITIES | | | |
| Common dividends paid | Common dividends paid | 0 | | | (200) | | Common dividends paid | — | | | (200) | |
| Issuances of debt (maturities greater than 90 days) | Issuances of debt (maturities greater than 90 days) | 0 | | | 799 | | Issuances of debt (maturities greater than 90 days) | 1,120 | | | 1,598 | |
| Payments on debt (maturities greater than 90 days) and finance leases | Payments on debt (maturities greater than 90 days) and finance leases | (231) | | | (229) | | Payments on debt (maturities greater than 90 days) and finance leases | (606) | | | (252) | |
| Increase (decrease) in short-term debt, net | 437 | | | (80) | | |
| Decrease in short-term debt, net | | Decrease in short-term debt, net | — | | | (80) | |
| Debt issuance costs | Debt issuance costs | 0 | | | (4) | | Debt issuance costs | (8) | | | (11) | |
| Net cash provided by financing activities | Net cash provided by financing activities | 206 | | | 286 | | Net cash provided by financing activities | 506 | | | 1,055 | |
| | (Decrease) increase in cash and cash equivalents | (Decrease) increase in cash and cash equivalents | (249) | | | 182 | | (Decrease) increase in cash and cash equivalents | (23) | | | 723 | |
| Cash and cash equivalents, January 1 | Cash and cash equivalents, January 1 | 262 | | | 10 | | Cash and cash equivalents, January 1 | 262 | | | 10 | |
| Cash and cash equivalents, June 30 | $ | 13 | | | $ | 192 | | |
| Cash and cash equivalents, September 30 | | Cash and cash equivalents, September 30 | $ | 239 | | | $ | 733 | |
| | 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 | $ | 201 | | | $ | 198 | | Interest payments, net of amounts capitalized | $ | 275 | | | $ | 276 | |
| Income tax payments, net of refunds | Income tax payments, net of refunds | 58 | | | 0 | | Income tax payments, net of refunds | 64 | | | 20 | |
| | 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 | $ | 192 | | | $ | 136 | | Accrued capital expenditures | $ | 217 | | | $ | 184 | |
| Increase in ARO for investment in PP&E | Increase in ARO for investment in PP&E | 18 | | | 0 | | Increase in ARO for investment in PP&E | 18 | | | — | |
| Increase in finance lease obligations for investment in PP&E | Increase in finance lease obligations for investment in PP&E | 13 | | | 20 | | Increase in finance lease obligations for investment in PP&E | 23 | | | 26 | |
|
See Notes to Condensed Financial Statements.
| | SAN DIEGO GAS & ELECTRIC COMPANY | SAN DIEGO GAS & ELECTRIC COMPANY | SAN DIEGO GAS & ELECTRIC COMPANY |
| CONDENSED STATEMENTS OF CHANGES IN EQUITY | |
| CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY | | CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | | Common
stock | | Retained
earnings | | Accumulated
other
comprehensive
income (loss) | | Total
shareholder's
equity | | Common
stock | | Retained
earnings | | Accumulated
other
comprehensive
income (loss) | | Total
shareholder's
equity |
| | (unaudited) | | (unaudited) |
| | Three months ended June 30, 2021 | | Three months ended September 30, 2021 |
| Balance at March 31, 2021 | $ | 1,660 | | | $ | 6,292 | | | $ | (10) | | | $ | 7,942 | | |
| Balance at June 30, 2021 | | Balance at June 30, 2021 | $ | 1,660 | | | $ | 6,478 | | | $ | (10) | | | $ | 8,128 | |
| | Net income | | Net income | | 205 | | | 205 | |
| Other comprehensive income | | Other comprehensive income | | 1 | | | 1 | |
| | | Balance at September 30, 2021 | | Balance at September 30, 2021 | $ | 1,660 | | | $ | 6,683 | | | $ | (9) | | | $ | 8,334 | |
| | | | Three months ended September 30, 2020 |
| Balance at June 30, 2020 | | Balance at June 30, 2020 | $ | 1,660 | | | $ | 5,711 | | | $ | (12) | | | $ | 7,359 | |
| | Net income | Net income | | 186 | | | 186 | | Net income | | 178 | | | 178 | |
| | | | Balance at June 30, 2021 | $ | 1,660 | | | $ | 6,478 | | | $ | (10) | | | $ | 8,128 | | |
| Balance at September 30, 2020 | | Balance at September 30, 2020 | $ | 1,660 | | | $ | 5,889 | | | $ | (12) | | | $ | 7,537 | |
| | | Three months ended June 30, 2020 | | Nine months ended September 30, 2021 |
| Balance at March 31, 2020 | $ | 1,660 | | | $ | 5,518 | | | $ | (16) | | | $ | 7,162 | | |
| Balance at December 31, 2020 | | Balance at December 31, 2020 | $ | 1,660 | | | $ | 6,080 | | | $ | (10) | | | $ | 7,730 | |
| | Net income | Net income | | 193 | | | 193 | | Net income | | 603 | | | 603 | |
| Other comprehensive income | Other comprehensive income | | 4 | | | 4 | | Other comprehensive income | | 1 | | | 1 | |
| | | 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 | | |
| Balance at September 30, 2021 | | Balance at September 30, 2021 | $ | 1,660 | | | $ | 6,683 | | | $ | (9) | | | $ | 8,334 | |
| | | Six months ended June 30, 2020 | | Nine months ended September 30, 2020 |
| Balance at December 31, 2019 | Balance at December 31, 2019 | $ | 1,660 | | | $ | 5,456 | | | $ | (16) | | | $ | 7,100 | | Balance at December 31, 2019 | $ | 1,660 | | | $ | 5,456 | | | $ | (16) | | | $ | 7,100 | |
| | Net income | Net income | | 455 | | | 455 | | Net income | | 633 | | | 633 | |
| Other comprehensive income | Other comprehensive income | | 4 | | | 4 | | Other comprehensive income | | 4 | | | 4 | |
| | Common stock dividends declared ($1.72/share) | Common stock dividends declared ($1.72/share) | | (200) | | | (200) | | Common stock dividends declared ($1.72/share) | | (200) | | | (200) | |
| Balance at June 30, 2020 | $ | 1,660 | | | $ | 5,711 | | | $ | (12) | | | $ | 7,359 | | |
| Balance at September 30, 2020 | | Balance at September 30, 2020 | $ | 1,660 | | | $ | 5,889 | | | $ | (12) | | | $ | 7,537 | |
See Notes to Condensed 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 June 30, | | Six months ended June 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
| | | (unaudited) | | (unaudited) |
| | Operating revenues | Operating revenues | $ | 1,124 | | | $ | 1,010 | | | $ | 2,632 | | | $ | 2,405 | | Operating revenues | $ | 1,106 | | | $ | 842 | | | $ | 3,738 | | | $ | 3,247 | |
| Operating expenses | Operating expenses | | | Operating expenses | | |
| Cost of natural gas | Cost of natural gas | 223 | | | 106 | | | 496 | | | 384 | | Cost of natural gas | 240 | | | 92 | | | 736 | | | 476 | |
| Operation and maintenance | Operation and maintenance | 525 | | | 462 | | | 1,028 | | | 905 | | Operation and maintenance | 546 | | | 494 | | | 1,574 | | | 1,399 | |
| Aliso Canyon litigation and regulatory matters | Aliso Canyon litigation and regulatory matters | 0 | | | 0 | | | 0 | | | 100 | | Aliso Canyon litigation and regulatory matters | 1,571 | | | 27 | | | 1,571 | | | 127 | |
| Depreciation and amortization | Depreciation and amortization | 180 | | | 162 | | | 353 | | | 321 | | Depreciation and amortization | 180 | | | 165 | | | 533 | | | 486 | |
| Franchise fees and other taxes | Franchise fees and other taxes | 51 | | | 43 | | | 109 | | | 94 | | Franchise fees and other taxes | 54 | | | 48 | | | 163 | | | 142 | |
| Total operating expenses | Total operating expenses | 979 | | | 773 | | | 1,986 | | | 1,804 | | Total operating expenses | 2,591 | | | 826 | | | 4,577 | | | 2,630 | |
| Operating income | 145 | | | 237 | | | 646 | | | 601 | | |
| Operating (loss) income | | Operating (loss) income | (1,485) | | | 16 | | | (839) | | | 617 | |
| Other (expense) income, net | Other (expense) income, net | (2) | | | (2) | | | 37 | | | 28 | | Other (expense) income, net | (39) | | | (7) | | | (2) | | | 21 | |
| Interest income | Interest income | 0 | | | 1 | | | 0 | | | 2 | | Interest income | — | | | — | | | — | | | 2 | |
| Interest expense | Interest expense | (40) | | | (40) | | | (79) | | | (80) | | Interest expense | (39) | | | (39) | | | (118) | | | (119) | |
| Income before income taxes | 103 | | | 196 | | | 604 | | | 551 | | |
| Income tax expense | (8) | | | (49) | | | (102) | | | (101) | | |
| Net income | 95 | | | 147 | | | 502 | | | 450 | | |
| (Loss) income before income taxes | | (Loss) income before income taxes | (1,563) | | | (30) | | | (959) | | | 521 | |
| Income tax benefit (expense) | | Income tax benefit (expense) | 437 | | | 6 | | | 335 | | | (95) | |
| Net (loss) income | | Net (loss) income | (1,126) | | | (24) | | | (624) | | | 426 | |
| Preferred dividends | Preferred dividends | (1) | | | (1) | | | (1) | | | (1) | | Preferred dividends | — | | | — | | | (1) | | | (1) | |
| Earnings attributable to common shares | $ | 94 | | | $ | 146 | | | $ | 501 | | | $ | 449 | | |
| (Losses) earnings attributable to common shares | | (Losses) earnings attributable to common shares | $ | (1,126) | | | $ | (24) | | | $ | (625) | | | $ | 425 | |
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 expense | | Net-of-tax
amount | | Pretax
amount | | Income tax benefit (expense) | | Net-of-tax
amount |
| | | (unaudited) | | (unaudited) |
| | | Three months ended June 30, 2021 and 2020 | | Three months ended September 30, 2021 and 2020 |
| 2021: | 2021: | | | | | | 2021: | | | | | |
| Net income | $ | 103 | | | $ | (8) | | | $ | 95 | | |
| Net loss | | Net loss | $ | (1,563) | | | $ | 437 | | | $ | (1,126) | |
| 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 | | | — | | | 1 | |
| Total other comprehensive income | Total other comprehensive income | 1 | | | 0 | | | 1 | | Total other comprehensive income | 1 | | | — | | | 1 | |
| Comprehensive income | $ | 104 | | | $ | (8) | | | $ | 96 | | |
| Comprehensive loss | | Comprehensive loss | $ | (1,562) | | | $ | 437 | | | $ | (1,125) | |
| 2020: | | 2020: | | | | | |
| | Net loss/Comprehensive loss | | Net loss/Comprehensive loss | $ | (30) | | | $ | 6 | | | $ | (24) | |
| | | | Nine months ended September 30, 2021 and 2020 |
| 2021: | | 2021: | | | | | |
| Net loss | | Net loss | $ | (959) | | | $ | 335 | | | $ | (624) | |
| Other comprehensive income (loss): | | Other comprehensive income (loss): | |
| | Pension and other postretirement benefits | | Pension and other postretirement benefits | 2 | | | — | | | 2 | |
| Total other comprehensive income | | Total other comprehensive income | 2 | | | — | | | 2 | |
| Comprehensive loss | | Comprehensive loss | $ | (957) | | | $ | 335 | | | $ | (622) | |
| 2020: | 2020: | | | | | | 2020: | | | | | |
| Net income | Net income | $ | 196 | | | $ | (49) | | | $ | 147 | | Net income | $ | 521 | | | $ | (95) | | | $ | 426 | |
| 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 | | | — | | | 1 | |
| Total other comprehensive income | Total other comprehensive income | 1 | | | 0 | | | 1 | | Total other comprehensive income | 1 | | | — | | | 1 | |
| Comprehensive income | Comprehensive income | $ | 197 | | | $ | (49) | | | $ | 148 | | Comprehensive income | $ | 522 | | | $ | (95) | | | $ | 427 | |
| | Six months ended June 30, 2021 and 2020 | |
| 2021: | | | | | | |
| Net income | $ | 604 | | | $ | (102) | | | $ | 502 | | |
| Other comprehensive income (loss): | | |
| | Pension and other postretirement benefits | 1 | | | 0 | | | 1 | | |
| Total other comprehensive income | 1 | | | 0 | | | 1 | | |
| Comprehensive income | $ | 605 | | | $ | (102) | | | $ | 503 | | |
| 2020: | | | | | | |
| Net income | $ | 551 | | | $ | (101) | | | $ | 450 | | |
| Other comprehensive income (loss): | | |
| | Pension and other postretirement benefits | 1 | | | 0 | | | 1 | | |
| Total other comprehensive income | 1 | | | 0 | | | 1 | | |
| 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) |
| | | June 30, | | December 31, | | September 30, | | December 31, |
| | 2021 | | 2020(1) | | 2021 | | 2020(1) |
| | | (unaudited) | | | | (unaudited) | | |
| ASSETS | ASSETS | | | | ASSETS | | | |
| Current assets: | Current assets: | | | | Current assets: | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 4 | | | $ | 4 | | Cash and cash equivalents | $ | 226 | | | $ | 4 | |
| Accounts receivable – trade, net | Accounts receivable – trade, net | 541 | | | 786 | | Accounts receivable – trade, net | 462 | | | 786 | |
| Accounts receivable – other, net | Accounts receivable – other, net | 86 | | | 64 | | Accounts receivable – other, net | 86 | | | 64 | |
| Due from unconsolidated affiliates | Due from unconsolidated affiliates | 13 | | | 22 | | Due from unconsolidated affiliates | 11 | | | 22 | |
| Income taxes receivable, net | | Income taxes receivable, net | 16 | | | — | |
| Inventories | Inventories | 126 | | | 153 | | Inventories | 168 | | | 153 | |
| Regulatory assets | Regulatory assets | 8 | | | 16 | | Regulatory assets | 37 | | | 16 | |
| Greenhouse gas allowances | Greenhouse gas allowances | 392 | | | 390 | | Greenhouse gas allowances | 384 | | | 390 | |
| Other current assets | Other current assets | 26 | | | 47 | | Other current assets | 62 | | | 47 | |
| Total current assets | Total current assets | 1,196 | | | 1,482 | | Total current assets | 1,452 | | | 1,482 | |
| | Other assets: | Other assets: | | | | Other assets: | | | |
| Regulatory assets | Regulatory assets | 1,430 | | | 1,208 | | Regulatory assets | 1,449 | | | 1,208 | |
| Insurance receivable for Aliso Canyon costs | Insurance receivable for Aliso Canyon costs | 414 | | | 445 | | Insurance receivable for Aliso Canyon costs | 414 | | | 445 | |
| Greenhouse gas allowances | Greenhouse gas allowances | 167 | | | 9 | | Greenhouse gas allowances | 262 | | | 9 | |
| Right-of-use assets – operating leases | Right-of-use assets – operating leases | 65 | | | 74 | | Right-of-use assets – operating leases | 61 | | | 74 | |
| Other long-term assets | Other long-term assets | 503 | | | 499 | | Other long-term assets | 575 | | | 499 | |
| Total other assets | Total other assets | 2,579 | | | 2,235 | | Total other assets | 2,761 | | | 2,235 | |
| | Property, plant and equipment: | Property, plant and equipment: | | | | Property, plant and equipment: | | | |
| Property, plant and equipment | Property, plant and equipment | 21,935 | | | 21,180 | | Property, plant and equipment | 22,445 | | | 21,180 | |
| Less accumulated depreciation and amortization | Less accumulated depreciation and amortization | (6,619) | | | (6,437) | | Less accumulated depreciation and amortization | (6,739) | | | (6,437) | |
| Property, plant and equipment, net | Property, plant and equipment, net | 15,316 | | | 14,743 | | Property, plant and equipment, net | 15,706 | | | 14,743 | |
| Total assets | Total assets | $ | 19,091 | | | $ | 18,460 | | Total assets | $ | 19,919 | | | $ | 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) |
| | | June 30, | | December 31, | | September 30, | | December 31, |
| | 2021 | | 2020(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 | $ | 143 | | | $ | 113 | | Short-term debt | $ | — | | | $ | 113 | |
| Accounts payable – trade | Accounts payable – trade | 424 | | | 600 | | Accounts payable – trade | 488 | | | 600 | |
| Accounts payable – other | Accounts payable – other | 121 | | | 122 | | Accounts payable – other | 133 | | | 122 | |
| Due to unconsolidated affiliates | Due to unconsolidated affiliates | 61 | | | 31 | | Due to unconsolidated affiliates | 45 | | | 31 | |
| Accrued compensation and benefits | Accrued compensation and benefits | 180 | | | 189 | | Accrued compensation and benefits | 203 | | | 189 | |
| Regulatory liabilities | Regulatory liabilities | 359 | | | 79 | | Regulatory liabilities | 462 | | | 79 | |
| Current portion of long-term debt and finance leases | Current portion of long-term debt and finance leases | 10 | | | 10 | | Current portion of long-term debt and finance leases | 10 | | | 10 | |
| Customer deposits | Customer deposits | 16 | | | 48 | | Customer deposits | 15 | | | 48 | |
| Reserve for Aliso Canyon costs | Reserve for Aliso Canyon costs | 153 | | | 150 | | Reserve for Aliso Canyon costs | 1,962 | | | 150 | |
| Greenhouse gas obligations | Greenhouse gas obligations | 392 | | | 390 | | Greenhouse gas obligations | 384 | | | 390 | |
| Asset retirement obligations | Asset retirement obligations | 58 | | | 59 | | Asset retirement obligations | 58 | | | 59 | |
| Other current liabilities | Other current liabilities | 272 | | | 291 | | Other current liabilities | 310 | | | 291 | |
| Total current liabilities | Total current liabilities | 2,189 | | | 2,082 | | Total current liabilities | 4,070 | | | 2,082 | |
| | Long-term debt and finance leases | Long-term debt and finance leases | 4,770 | | | 4,763 | | Long-term debt and finance leases | 4,769 | | | 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 | 846 | | | 853 | | Pension obligation, net of plan assets | 784 | | | 853 | |
| Deferred income taxes | Deferred income taxes | 1,520 | | | 1,406 | | Deferred income taxes | 1,032 | | | 1,406 | |
| Deferred investment tax credits | Deferred investment tax credits | 7 | | | 8 | | Deferred investment tax credits | 7 | | | 8 | |
| Regulatory liabilities | Regulatory liabilities | 1,078 | | | 1,177 | | Regulatory liabilities | 1,067 | | | 1,177 | |
| Reserve for Aliso Canyon costs | Reserve for Aliso Canyon costs | 269 | | | 301 | | Reserve for Aliso Canyon costs | 14 | | | 301 | |
| Greenhouse gas obligations | | Greenhouse gas obligations | 140 | | | — | |
| Asset retirement obligations | Asset retirement obligations | 2,345 | | | 2,309 | | Asset retirement obligations | 2,377 | | | 2,309 | |
| Greenhouse gas obligations | 78 | | | 0 | | |
| Deferred credits and other | Deferred credits and other | 418 | | | 417 | | Deferred credits and other | 413 | | | 417 | |
| Total deferred credits and other liabilities | Total deferred credits and other liabilities | 6,561 | | | 6,471 | | Total deferred credits and other liabilities | 5,834 | | | 6,471 | |
| | Commitments and contingencies (Note 11) | Commitments and contingencies (Note 11) | 0 | | 0 | 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) | 1,666 | | | 866 | |
| Retained earnings | Retained earnings | 4,713 | | | 4,287 | | Retained earnings | 3,587 | | | 4,287 | |
| Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | (30) | | | (31) | | Accumulated other comprehensive income (loss) | (29) | | | (31) | |
| Total shareholders’ equity | Total shareholders’ equity | 5,571 | | | 5,144 | | Total shareholders’ equity | 5,246 | | | 5,144 | |
| Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $ | 19,091 | | | $ | 18,460 | | Total liabilities and shareholders’ equity | $ | 19,919 | | | $ | 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) |
| | | Six months ended June 30, | | Nine months ended September 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 |
| | | (unaudited) | | (unaudited) |
| CASH FLOWS FROM OPERATING ACTIVITIES | CASH FLOWS FROM OPERATING ACTIVITIES | | | | CASH FLOWS FROM OPERATING ACTIVITIES | | | |
| Net income | $ | 502 | | | $ | 450 | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | |
| Net (loss) income | | Net (loss) income | $ | (624) | | | $ | 426 | |
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |
| Depreciation and amortization | Depreciation and amortization | 353 | | | 321 | | Depreciation and amortization | 533 | | | 486 | |
| Deferred income taxes and investment tax credits | Deferred income taxes and investment tax credits | 18 | | | (17) | | Deferred income taxes and investment tax credits | (467) | | | (38) | |
| Other | Other | 42 | | | 14 | | Other | 47 | | | 42 | |
| Net change in working capital components | 297 | | | 713 | | |
| Reserve for Aliso Canyon costs | | Reserve for Aliso Canyon costs | 1,525 | | | 259 | |
| Net change in other working capital components | | Net change in other working capital components | 385 | | | 254 | |
| Insurance receivable for Aliso Canyon costs | Insurance receivable for Aliso Canyon costs | 31 | | | (166) | | Insurance receivable for Aliso Canyon costs | 31 | | | (165) | |
| | Changes in other noncurrent assets and liabilities, net | Changes in other noncurrent assets and liabilities, net | (280) | | | (117) | | Changes in other noncurrent assets and liabilities, net | (393) | | | 124 | |
| Net cash provided by operating activities | Net cash provided by operating activities | 963 | | | 1,198 | | Net cash provided by operating activities | 1,037 | | | 1,388 | |
| | 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 | (936) | | | (885) | | Expenditures for property, plant and equipment | (1,417) | | | (1,345) | |
| | Net cash used in investing activities | Net cash used in investing activities | (936) | | | (885) | | Net cash used in investing activities | (1,417) | | | (1,345) | |
| | CASH FLOWS FROM FINANCING ACTIVITIES | CASH FLOWS FROM FINANCING ACTIVITIES | | CASH FLOWS FROM FINANCING ACTIVITIES | |
| Common dividends paid | | Common dividends paid | (75) | | | (50) | |
| Preferred dividends paid | Preferred dividends paid | (1) | | | (1) | | Preferred dividends paid | (1) | | | (1) | |
| Common dividends paid | (50) | | | 0 | | |
| Equity contribution from Sempra Energy | | Equity contribution from Sempra Energy | 800 | | | — | |
| Issuances of debt (maturities greater than 90 days) | Issuances of debt (maturities greater than 90 days) | 0 | | | 649 | | Issuances of debt (maturities greater than 90 days) | — | | | 949 | |
| Payments on finance leases | Payments on finance leases | (6) | | | (5) | | Payments on finance leases | (9) | | | (9) | |
| Increase (decrease) in short-term debt, net | 30 | | | (630) | | |
| Decrease in short-term debt, net | | Decrease in short-term debt, net | (113) | | | (630) | |
| Debt issuance costs | Debt issuance costs | 0 | | | (6) | | Debt issuance costs | — | | | (8) | |
| Net cash (used in) provided by financing activities | (27) | | | 7 | | |
| Net cash provided by financing activities | | Net cash provided by financing activities | 602 | | | 251 | |
| | Increase in cash and cash equivalents | Increase in cash and cash equivalents | 0 | | | 320 | | Increase in cash and cash equivalents | 222 | | | 294 | |
| Cash and cash equivalents, January 1 | Cash and cash equivalents, January 1 | 4 | | | 10 | | Cash and cash equivalents, January 1 | 4 | | | 10 | |
| Cash and cash equivalents, June 30 | $ | 4 | | | $ | 330 | | |
| Cash and cash equivalents, September 30 | | Cash and cash equivalents, September 30 | $ | 226 | | | $ | 304 | |
| | 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 | $ | 76 | | | $ | 70 | | Interest payments, net of amounts capitalized | $ | 119 | | | $ | 114 | |
| Income tax payments, net of refunds | Income tax payments, net of refunds | 82 | | | 0 | | Income tax payments, net of refunds | 170 | | | 1 | |
| | 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 | $ | 156 | | | $ | 158 | | Accrued capital expenditures | $ | 205 | | | $ | 146 | |
| Increase in finance lease obligations for investment in PP&E | Increase in finance lease obligations for investment in PP&E | 11 | | | 36 | | Increase in finance lease obligations for investment in PP&E | 12 | | | 46 | |
| Common dividends declared but not paid | Common dividends declared but not paid | 25 | | | 50 | | Common dividends declared but not paid | — | | | 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 June 30, 2021 | | Three months ended September 30, 2021 |
| Balance at March 31, 2021 | $ | 22 | | | $ | 866 | | | $ | 4,644 | | | $ | (31) | | | $ | 5,501 | | |
| Balance at June 30, 2021 | | Balance at June 30, 2021 | $ | 22 | | | $ | 866 | | | $ | 4,713 | | | $ | (30) | | | $ | 5,571 | |
| | Net income | | 95 | | | 95 | | |
| Net loss | | Net loss | | (1,126) | | | (1,126) | |
| Other comprehensive income | Other comprehensive income | | 1 | | | 1 | | Other comprehensive income | | 1 | | | 1 | |
| | Dividends declared: | Dividends declared: | | Dividends declared: | |
| Preferred stock ($0.37/share) | | (1) | | | (1) | | |
| Common stock ($0.27/share) | | (25) | | | (25) | | |
| Balance at June 30, 2021 | $ | 22 | | | $ | 866 | | | $ | 4,713 | | | $ | (30) | | | $ | 5,571 | | |
| Preferred stock ($0.38/share) | | Preferred stock ($0.38/share) | | — | | | — | |
| | Equity contribution from Sempra Energy | | Equity contribution from Sempra Energy | | 800 | | | 800 | |
| Balance at September 30, 2021 | | Balance at September 30, 2021 | $ | 22 | | | $ | 1,666 | | | $ | 3,587 | | | $ | (29) | | | $ | 5,246 | |
| | | Three months ended June 30, 2020 | | Three months ended September 30, 2020 |
| Balance at March 31, 2020 | $ | 22 | | | $ | 866 | | | $ | 4,186 | | | $ | (23) | | | $ | 5,051 | | |
| Balance at June 30, 2020 | | Balance at June 30, 2020 | $ | 22 | | | $ | 866 | | | $ | 4,282 | | | $ | (22) | | | $ | 5,148 | |
| | Net income | | 147 | | | 147 | | |
| Other comprehensive income | | 1 | | | 1 | | |
| Net loss | | Net loss | | (24) | | | (24) | |
| | | Dividends declared: | Dividends declared: | | Dividends declared: | |
| Preferred stock ($0.37/share) | | (1) | | | (1) | | |
| Preferred stock ($0.38/share) | | Preferred stock ($0.38/share) | | — | | | — | |
| Common stock ($0.55/share) | Common stock ($0.55/share) | | (50) | | | (50) | | Common stock ($0.55/share) | | (50) | | | (50) | |
| Balance at June 30, 2020 | $ | 22 | | | $ | 866 | | | $ | 4,282 | | | $ | (22) | | | $ | 5,148 | | |
| Balance at September 30, 2020 | | Balance at September 30, 2020 | $ | 22 | | | $ | 866 | | | $ | 4,208 | | | $ | (22) | | | $ | 5,074 | |
| | | | Six months ended June 30, 2021 | | Nine months ended September 30, 2021 |
| Balance at December 31, 2020 | Balance at December 31, 2020 | $ | 22 | | | $ | 866 | | | $ | 4,287 | | | $ | (31) | | | $ | 5,144 | | Balance at December 31, 2020 | $ | 22 | | | $ | 866 | | | $ | 4,287 | | | $ | (31) | | | $ | 5,144 | |
| | Net income | | 502 | | | 502 | | |
| Net loss | | Net loss | | (624) | | | (624) | |
| Other comprehensive income | Other comprehensive income | | 1 | | | 1 | | Other comprehensive income | | 2 | | | 2 | |
| | Dividends declared: | Dividends declared: | | Dividends declared: | |
| Preferred stock ($0.75/share) | | (1) | | | (1) | | |
| Preferred stock ($1.13/share) | | Preferred stock ($1.13/share) | | (1) | | | (1) | |
| Common stock ($0.82/share) | Common stock ($0.82/share) | | (75) | | | (75) | | Common stock ($0.82/share) | | (75) | | | (75) | |
| Balance at June 30, 2021 | $ | 22 | | | $ | 866 | | | $ | 4,713 | | | $ | (30) | | | $ | 5,571 | | |
| Equity contribution from Sempra Energy | | Equity contribution from Sempra Energy | | 800 | | | 800 | |
| Balance at September 30, 2021 | | Balance at September 30, 2021 | $ | 22 | | | $ | 1,666 | | | $ | 3,587 | | | $ | (29) | | | $ | 5,246 | |
| | | Six months ended June 30, 2020 | | Nine months ended September 30, 2020 |
| Balance at December 31, 2019 | Balance at December 31, 2019 | $ | 22 | | | $ | 866 | | | $ | 3,883 | | | $ | (23) | | | $ | 4,748 | | Balance at December 31, 2019 | $ | 22 | | | $ | 866 | | | $ | 3,883 | | | $ | (23) | | | $ | 4,748 | |
| | Net income | Net income | | 450 | | | 450 | | Net income | | 426 | | | 426 | |
| Other comprehensive income | Other comprehensive income | | 1 | | | 1 | | Other comprehensive income | | 1 | | | 1 | |
| | Dividends declared: | Dividends declared: | | Dividends declared: | |
| Preferred stock ($0.75/share) | | (1) | | | (1) | | |
| Common stock ($0.55/share) | | (50) | | | (50) | | |
| Balance at June 30, 2020 | $ | 22 | | | $ | 866 | | | $ | 4,282 | | | $ | (22) | | | $ | 5,148 | | |
| Preferred stock ($1.13/share) | | Preferred stock ($1.13/share) | | (1) | | | (1) | |
| Common stock ($1.10/share) | | Common stock ($1.10/share) | | (100) | | | (100) | |
| Balance at September 30, 2020 | | Balance at September 30, 2020 | $ | 22 | | | $ | 866 | | | $ | 4,208 | | | $ | (22) | | | $ | 5,074 | |
See Notes to Condensed Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. GENERAL INFORMATION AND OTHER FINANCIAL DATA
PRINCIPLES OF CONSOLIDATION
Sempra
Sempra’s Condensed Consolidated Financial Statements include the accounts of Sempra Energy, a California-based holding company doing business as Sempra, and its consolidated entities. Sempra’s business activities are organized under 5 reportable segments, 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 common stock is wholly owned by Enova Corporation, which is a wholly owned subsidiary of Sempra.
SoCalGas
SoCalGas’ common stock is wholly owned by Pacific Enterprises, which is a wholly owned subsidiary of Sempra.
BASIS OF PRESENTATION
This is a combined report of Sempra, SDG&E and SoCalGas. We provide separate information for SDG&E and SoCalGas as required. References in this report to “we,” “our,” “us” and “Sempra” are to Sempra 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 GlobalInfrastructure Partners (formerly Sempra Global) is the holding company for our subsidiaries that are not subject to California or Texas utility regulation. We have eliminated intercompany accounts and transactions within the consolidated financial statements of each reporting entity.
Throughout these Notes, we refer to the following as 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;
▪the Condensed Financial Statements and related Notes of SDG&E; and
▪the Condensed Financial Statements and related Notes of SoCalGas.
We have prepared our 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 JuneSeptember 30, 2021 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.
All December 31, 2020 balance sheet information in the Condensed Consolidated Financial Statements has been derived from our audited 2020 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. 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’s Condensed Consolidated Balance Sheets to the sum of such amounts reported on Sempra’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) |
| | June 30, | December 31, | | September 30, | December 31, |
| | | 2021 | 2020 | | 2021 | 2020 |
| Cash and cash equivalents | Cash and cash equivalents | $ | 335 | | $ | 960 | | Cash and cash equivalents | $ | 873 | | $ | 960 | |
| Restricted cash, current | Restricted cash, current | 33 | | 22 | | Restricted cash, current | 31 | | 22 | |
| Restricted cash, noncurrent | Restricted cash, noncurrent | 3 | | 3 | | Restricted cash, noncurrent | 3 | | 3 | |
| 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 | $ | 371 | | $ | 985 | | Total cash, cash equivalents and restricted cash on the Condensed Consolidated Statements of Cash Flows | $ | 907 | | $ | 985 | |
|
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 Sempra’s guarantee related to Cameron LNG JV’s 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 implemented certain measures to assist customers, including suspending service disconnections due to nonpayment for all customers (except for SoCalGas’ noncore customers), waiving late payment fees, and offering flexible payment plans to customers experiencing difficulty paying their electric or gas bills.plans. Such measures ended on June 30, 2021, except for the suspension of service disconnections that will continue throughended on September 30, 2021. At the CPUC’s direction, the California Utilities have started to automatically enroll residential and small business customers with past-due balances 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.
As we discuss in Note 4, the CPUC authorized each of the California Utilities to track and request recovery of incremental costs, including uncollectible expenses, associated with complying with customer protection measures ordered by the CPUC related to the COVID-19 pandemic.
In connection with a separate CPUC decision addressing residential service disconnections, the California Utilities each 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. We discuss the AMP in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.
The California Utilities have recorded increases in their allowances for expected credit losses 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, 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. The California Utilities record changes in the allowances for credit losses related to Accounts Receivable – Trade in regulatory accounts.
| | TRADE AND OTHER ACCOUNTS RECEIVABLE – ALLOWANCES FOR CREDIT LOSSES | 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) | |
| | 2021 | 2020 | | 2021 | 2020 |
| Sempra: | Sempra: | | Sempra: | |
| Allowances for credit losses at January 1 | Allowances for credit losses at January 1 | $ | 138 | | $ | 29 | | 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 | | Incremental allowance upon adoption of ASU 2016-13 | — | | 1 | |
| Provisions for expected credit losses | Provisions for expected credit losses | 66 | | 21 | | Provisions for expected credit losses | 96 | | 84 | |
| Write-offs | Write-offs | (12) | | (7) | | Write-offs | (28) | | (11) | |
| Allowances for credit losses at June 30(1) | $ | 192 | | $ | 44 | | |
Allowances for credit losses at September 30(1) | | Allowances for credit losses at September 30(1) | $ | 206 | | $ | 103 | |
| SDG&E: | SDG&E: | | SDG&E: | |
| Allowances for credit losses at January 1 | Allowances for credit losses at January 1 | $ | 69 | | $ | 14 | | Allowances for credit losses at January 1 | $ | 69 | | $ | 14 | |
| Provisions for expected credit losses | Provisions for expected credit losses | 13 | | 9 | | Provisions for expected credit losses | 30 | | 44 | |
| Write-offs | Write-offs | (7) | | (4) | | Write-offs | (16) | | (6) | |
| Allowances for credit losses at June 30(2) | $ | 75 | | $ | 19 | | |
Allowances for credit losses at September 30(2) | | Allowances for credit losses at September 30(2) | $ | 83 | | $ | 52 | |
| SoCalGas: | SoCalGas: | | SoCalGas: | |
| Allowances for credit losses at January 1 | Allowances for credit losses at January 1 | $ | 68 | | $ | 15 | | Allowances for credit losses at January 1 | $ | 68 | | $ | 15 | |
| Provisions for expected credit losses | Provisions for expected credit losses | 52 | | 12 | | Provisions for expected credit losses | 64 | | 40 | |
| Write-offs | Write-offs | (5) | | (3) | | Write-offs | (12) | | (5) | |
Allowances for credit losses at June 30(3) | $ | 115 | | $ | 24 | | |
Allowances for credit losses at September 30(3) | | Allowances for credit losses at September 30(3) | $ | 120 | | $ | 50 | |
(1) At JuneSeptember 30, 2021, includes $153$146 million in Accounts Receivable – Trade, Net, and $39$50 million in Accounts Receivable – Other, Net.Net and $10 million in Other Long-Term Assets.
(2) At JuneSeptember 30, 2021, includes $60$58 million in Accounts Receivable – Trade, Net, and $15$21 million in Accounts Receivable – Other, Net.Net and $4 million in Other Long-Term Assets.
(3) At JuneSeptember 30, 2021, includes $91$85 million in Accounts Receivable – Trade, Net, and $24$29 million in Accounts Receivable – Other, Net.Net and $6 million in Other Long-Term Assets.
For amounts due from unconsolidated affiliates, 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,” Sempra 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 |
| 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 | |
| | | | | | | | |
| AMOUNTS DUE FROM UNCONSOLIDATED AFFILIATES – ALLOWANCES FOR CREDIT LOSSES |
| (Dollars in millions) | |
| 2021 | 2020 |
| Sempra: | | |
| Allowances for credit losses at January 1 | $ | 3 | | $ | — | |
| Allowance established upon adoption of ASU 2016-13 | — | | 6 | |
| Reductions to expected credit losses | (2) | | (3) | |
Allowances for credit losses at September 30(1) | $ | 1 | | $ | 3 | |
(1) At JuneSeptember 30, 2021, $1 million is included in Due from Unconsolidated Affiliates – Noncurrent.
As we discuss in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report, Sempra previously 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. In March 2021, Cameron LNG JV 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 below in Note 6, Sempra provided a guarantee for the benefit of Cameron LNG JV related to amounts withdrawn by Sempra LNG from the SDSRA. At JuneSeptember 30, 2021, expected credit losses of $7 million related to this guarantee are included in Deferred Credits and Other on Sempra’s Condensed Consolidated Balance Sheet.
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 |
| | | June 30, 2021 | | December 31, 2020 | | June 30, 2021 | | December 31, 2020 | | June 30, 2021 | | December 31, 2020 | | June 30, 2021 | | December 31, 2020 | | September 30, 2021 | | December 31, 2020 | | September 30, 2021 | | December 31, 2020 | | September 30, 2021 | | December 31, 2020 | | September 30, 2021 | | December 31, 2020 |
| Sempra | Sempra | $ | 139 | | | $ | 118 | | | $ | 13 | | | $ | 7 | | | $ | 187 | | | $ | 183 | | | $ | 339 | | | $ | 308 | | Sempra | $ | 169 | | | $ | 118 | | | $ | 17 | | | $ | 7 | | | $ | 185 | | | $ | 183 | | | $ | 371 | | | $ | 308 | |
| SDG&E | SDG&E | 0 | | | 0 | | | 0 | | | 0 | | | 109 | | | 104 | | | 109 | | | 104 | | SDG&E | — | | | — | | | — | | | — | | | 112 | | | 104 | | | 112 | | | 104 | |
| SoCalGas | SoCalGas | 62 | | | 94 | | | 0 | | | 0 | | | 64 | | | 59 | | | 126 | | | 153 | | SoCalGas | 110 | | | 94 | | | — | | | — | | | 58 | | | 59 | | | 168 | | | 153 | |
WILDFIRE FUND
In July 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.
SDG&E submitted its request to OEIS for a 2021 wildfire safety certification in September 2021. OEIS has until December 7, 2021 to issue the certification or provide written notice explaining why additional time is needed. SDG&E’s existing safety certification remains valid until this pending request is resolved.
In a complaint filed in U.S. District Court for the Northern District of California in July 2019, plaintiffs seek to invalidate AB 1054 based on allegations that the legislation violates federal law. The district court dismissed the complaint and the plaintiffs have petitioned the U.S. Court of Appeals for the Ninth Circuit for 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 June 30, | | Six months ended June 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
| Sempra | Sempra | $ | 55 | | | $ | 50 | | | $ | 114 | | | $ | 98 | | Sempra | $ | 52 | | | $ | 51 | | | $ | 166 | | | $ | 149 | |
| SDG&E | SDG&E | 28 | | | 26 | | | 58 | | | 53 | | SDG&E | 24 | | | 26 | | | 82 | | | 79 | |
| SoCalGas | SoCalGas | 15 | | | 14 | | | 31 | | | 25 | | SoCalGas | 18 | | | 14 | | | 49 | | | 39 | |
OTHER INTANGIBLE ASSETS
Other Intangible Assets included on Sempra’s Condensed Consolidated Balance Sheets are as follows:
| | OTHER INTANGIBLE ASSETS | OTHER INTANGIBLE ASSETS | OTHER INTANGIBLE ASSETS |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Amortization period (years) | | June 30,
2021 | | December 31,
2020 | | Amortization period (years) | | September 30,
2021 | | December 31,
2020 |
| Renewable energy transmission and consumption permits | Renewable energy transmission and consumption permits | 15 to 19 | | $ | 169 | | | $ | 169 | | Renewable energy transmission and consumption permits | 15 to 19 | | $ | 169 | | | $ | 169 | |
| O&M agreement | O&M agreement | 23 | | 66 | | | 66 | | O&M agreement | 23 | | 66 | | | 66 | |
| PPA | PPA | 14 | | 190 | | | 0 | | PPA | 14 | | 190 | | | — | |
| Other | Other | 10 to indefinite | | 15 | | | 15 | | Other | 10 to indefinite | | 15 | | | 15 | |
| | 440 | | | 250 | | | 440 | | | 250 | |
| Less accumulated amortization: | Less accumulated amortization: | | | Less accumulated amortization: | | |
| Renewable energy transmission and consumption permits | Renewable energy transmission and consumption permits | | (37) | | | (32) | | Renewable energy transmission and consumption permits | | (38) | | | (32) | |
| O&M agreement | O&M agreement | | (10) | | | (9) | | O&M agreement | | (11) | | | (9) | |
| PPA | PPA | | (3) | | | 0 | | PPA | | (7) | | | — | |
| Other | Other | | (8) | | | (7) | | Other | | (8) | | | (7) | |
| | (58) | | | (48) | | | (64) | | | (48) | |
| | $ | 382 | | | $ | 202 | | | $ | 376 | | | $ | 202 | |
Other Intangible Assets at JuneSeptember 30, 2021 primarily includes:include:
▪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$6 million, including $3$4 million recorded against revenues, and $2$3 million in the three months ended JuneSeptember 30, 2021 and 2020, respectively, and $10$16 million, including $3$7 million recorded against revenues, and $5$8 million in the sixnine months ended JuneSeptember 30, 2021 and 2020, respectively. We estimate the remaining amortization expense in 2021 to be $13$7 million, including $7$3 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 indirectly Sempra, 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 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.
SDG&E determined that none of its PPAs and tolling agreements resulted in SDG&E being the primary beneficiary of a VIE at JuneSeptember 30, 2021 and December 31, 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 under these contracts are included in PP&E, net, and finance lease liabilities with balances of $1,228$1,223 million and $1,237 million at JuneSeptember 30, 2021 and December 31, 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 is not the primary beneficiary of thethis VIE because of the structural and operational ring-fencing and governance measures in place that prevent us from having the 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 $12,655$12,475 million at JuneSeptember 30, 2021 and $12,440 million at December 31, 2020.
Sempra LNG
Cameron LNG JV
Cameron LNG JV is a VIE principally due to contractual provisions that transfer certain risks to customers. Sempra is not the primary beneficiary of thethis VIE because we do not have the power to direct the most significant activities of Cameron LNG JV, including LNG production and operation and maintenance activities at the liquefaction facility. Therefore, we account for our investment in Cameron LNG JV under the equity method. The carrying value of our investment, including amounts recognized in AOCI related to interest-rate cash flow hedges at Cameron LNG JV, was $416$454 million at JuneSeptember 30, 2021 and $433 million at
December 31, 2020. Our maximum exposure to loss, which fluctuates over time, includes the carrying value of our investment and our obligation under the SDSRA, which we discuss in Note 6.
CFIN
As we discuss in Note 6, in July 2020, Sempra entered into a Support Agreement, which was amended in June 2021, for the benefit of CFIN, which is a VIE. SinceSempra is not the primary beneficiary of this VIE because we do not have the power to direct the most significant activities of CFIN, including modification, prepayment, and refinance decisions related to the VIE, we are notfinancing arrangement with external lenders and Cameron LNG JV’s four project owners as well as the primary beneficiary.ability to determine and enforce remedies in the event of default. The conditional obligations of the Support Agreement represent a variable interest that we measure at fair value on a recurring basis (see Note 9). Sempra’s maximum exposure to loss under the terms of the Support Agreement is $979 million.
ECA LNG Phase 1
ECA LNG Phase 1 is a VIE because its total equity at risk is not sufficient to finance its activities without additional subordinated financial support. We expect that ECA LNG Phase 1 will require future capital contributions or other financial support to finance the construction of the facility. Sempra is the primary beneficiary of thethis VIE because we have the power to direct the
development activities related to the construction of the liquefaction facility, which we consider to be the most significant activities of ECA LNG Phase 1 during the construction phase of its natural gas liquefaction export project. As a result, we consolidate ECA LNG Phase 1. Sempra LNG consolidated $425$522 million and $207 million of assets at JuneSeptember 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 thethis VIE and that are not available to settle obligations of Sempra, and $267$367 million and $49 million of liabilities at JuneSeptember 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 recorded settlement charges of $7 million in the sixnine months ended JuneSeptember 30, 2021 and $4$13 million and $9$22 million in the three months and sixnine months ended JuneSeptember 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.
Net Periodic Benefit Cost
The following three tables provide the components of net periodic benefit cost.
| | | | | | | | | | | | | | | | | | | | | | | |
| NET PERIODIC BENEFIT COST – SEMPRA |
| (Dollars in millions) |
| | Pension benefits | | Other postretirement benefits |
| | Three months ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Service cost | $ | 36 | | | $ | 33 | | | $ | 5 | | | $ | 4 | |
| Interest cost | 28 | | | 33 | | | 7 | | | 8 | |
| Expected return on assets | (43) | | | (43) | | | (15) | | | (14) | |
| Amortization of: | | | | | | | |
| Prior service cost | 2 | | | 3 | | | 0 | | | 0 | |
| Actuarial loss (gain) | 11 | | | 8 | | | (2) | | | (2) | |
| Settlement charges | 0 | | | 4 | | | 0 | | | 0 | |
| | | | | | | |
| Net periodic benefit cost (credit) | 34 | | | 38 | | | (5) | | | (4) | |
| Regulatory adjustments | 22 | | | 22 | | | 5 | | | 4 | |
| Total expense recognized | $ | 56 | | | $ | 60 | | | $ | 0 | | | $ | 0 | |
| | | | | | | |
| | Six months ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Service cost | $ | 73 | | | $ | 66 | | | $ | 11 | | | $ | 9 | |
| Interest cost | 56 | | | 65 | | | 14 | | | 16 | |
| Expected return on assets | (86) | | | (85) | | | (30) | | | (27) | |
| Amortization of: | | | | | | | |
| Prior service cost (credit) | 5 | | | 6 | | | (1) | | | (1) | |
| Actuarial loss (gain) | 22 | | | 17 | | | (4) | | | (5) | |
| Settlement charges | 7 | | | 9 | | | 0 | | | 0 | |
| | | | | | | |
| Net periodic benefit cost (credit) | 77 | | | 78 | | | (10) | | | (8) | |
| Regulatory adjustments | (7) | | | (6) | | | 10 | | | 8 | |
| Total expense recognized | $ | 70 | | | $ | 72 | | | $ | 0 | | | $ | 0 | |
| | NET PERIODIC BENEFIT COST – SDG&E | |
| 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 June 30, | | Three months ended September 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
| Service cost | Service cost | $ | 9 | | | $ | 8 | | | $ | 1 | | | $ | 1 | | Service cost | $ | 36 | | | $ | 31 | | | $ | 6 | | | $ | 5 | |
| Interest cost | Interest cost | 6 | | | 8 | | | 2 | | | 1 | | Interest cost | 28 | | | 32 | | | 7 | | | 8 | |
| Expected return on assets | Expected return on assets | (13) | | | (12) | | | (3) | | | (2) | | Expected return on assets | (44) | | | (41) | | | (14) | | | (14) | |
| Amortization of: | Amortization of: | | | | | Amortization of: | | | | |
| | Prior service cost (credit) | | Prior service cost (credit) | 3 | | | 3 | | | (1) | | | (1) | |
| Actuarial loss (gain) | Actuarial loss (gain) | 1 | | | 1 | | | (1) | | | 0 | | Actuarial loss (gain) | 12 | | | 9 | | | (3) | | | (2) | |
| | Settlement charges | | Settlement charges | — | | | 13 | | | — | | | — | |
| | Net periodic benefit cost (credit) | Net periodic benefit cost (credit) | 3 | | | 5 | | | (1) | | | 0 | | Net periodic benefit cost (credit) | 35 | | | 47 | | | (5) | | | (4) | |
| Regulatory adjustments | Regulatory adjustments | 11 | | | 9 | | | 1 | | | 0 | | Regulatory adjustments | 73 | | | 37 | | | 5 | | | 4 | |
| Total expense recognized | Total expense recognized | $ | 14 | | | $ | 14 | | | $ | 0 | | | $ | 0 | | Total expense recognized | $ | 108 | | | $ | 84 | | | $ | — | | | $ | — | |
| | | | Six months ended June 30, | | Nine months ended September 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
| Service cost | Service cost | $ | 17 | | | $ | 16 | | | $ | 2 | | | $ | 2 | | Service cost | $ | 109 | | | $ | 97 | | | $ | 17 | | | $ | 14 | |
| Interest cost | Interest cost | 12 | | | 15 | | | 3 | | | 3 | | Interest cost | 84 | | | 97 | | | 21 | | | 24 | |
| Expected return on assets | Expected return on assets | (25) | | | (25) | | | (5) | | | (5) | | Expected return on assets | (130) | | | (126) | | | (44) | | | (41) | |
| Amortization of: | Amortization of: | | | | | Amortization of: | | | | | | | |
| Prior service cost | 0 | | | 1 | | | 0 | | | 0 | | |
| Prior service cost (credit) | | Prior service cost (credit) | 8 | | | 9 | | | (2) | | | (2) | |
| Actuarial loss (gain) | Actuarial loss (gain) | 1 | | | 2 | | | (1) | | | (1) | | Actuarial loss (gain) | 34 | | | 26 | | | (7) | | | (7) | |
| | Settlement charges | | Settlement charges | 7 | | | 22 | | | — | | | — | |
| | Net periodic benefit cost (credit) | Net periodic benefit cost (credit) | 5 | | | 9 | | | (1) | | | (1) | | Net periodic benefit cost (credit) | 112 | | | 125 | | | (15) | | | (12) | |
| Regulatory adjustments | Regulatory adjustments | 9 | | | 6 | | | 1 | | | 1 | | Regulatory adjustments | 66 | | | 31 | | | 15 | | | 12 | |
| Total expense recognized | Total expense recognized | $ | 14 | | | $ | 15 | | | $ | 0 | | | $ | 0 | | Total expense recognized | $ | 178 | | | $ | 156 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 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, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Service cost | $ | 9 | | | $ | 7 | | | $ | 2 | | | $ | 1 | |
| Interest cost | 6 | | | 7 | | | 1 | | | 2 | |
| Expected return on assets | (11) | | | (12) | | | (2) | | | (3) | |
| Amortization of: | | | | | | | |
| Prior service cost | — | | | 1 | | | — | | | — | |
| Actuarial loss (gain) | 1 | | | 1 | | | (1) | | | (1) | |
| | | | | | | |
| | | | | | | |
| Net periodic benefit cost (credit) | 5 | | | 4 | | | — | | | (1) | |
| Regulatory adjustments | 21 | | | 22 | | | — | | | 1 | |
| Total expense recognized | $ | 26 | | | $ | 26 | | | $ | — | | | $ | — | |
| | | | | | | |
| | Nine months ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Service cost | $ | 26 | | | $ | 23 | | | $ | 4 | | | $ | 3 | |
| Interest cost | 18 | | | 22 | | | 4 | | | 5 | |
| Expected return on assets | (36) | | | (37) | | | (7) | | | (8) | |
| Amortization of: | | | | | | | |
| Prior service cost | — | | | 2 | | | — | | | — | |
| Actuarial loss (gain) | 2 | | | 3 | | | (2) | | | (2) | |
| | | | | | | |
| | | | | | | |
| Net periodic benefit cost (credit) | 10 | | | 13 | | | (1) | | | (2) | |
| Regulatory adjustments | 30 | | | 28 | | | 1 | | | 2 | |
| Total expense recognized | $ | 40 | | | $ | 41 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| NET PERIODIC BENEFIT COST – SOCALGAS |
| (Dollars in millions) |
| | Pension benefits | | Other postretirement benefits |
| | Three months ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Service cost | $ | 23 | | | $ | 20 | | | $ | 5 | | | $ | 3 | |
| Interest cost | 19 | | | 22 | | | 5 | | | 7 | |
| Expected return on assets | (27) | | | (27) | | | (12) | | | (11) | |
| Amortization of: | | | | | | | |
| Prior service cost (credit) | 2 | | | 2 | | | (1) | | | (1) | |
| Actuarial loss (gain) | 8 | | | 6 | | | (2) | | | (1) | |
| | | | | | | |
| | | | | | | |
| Net periodic benefit cost (credit) | 25 | | | 23 | | | (5) | | | (3) | |
| Regulatory adjustments | 52 | | | 15 | | | 5 | | | 3 | |
| Total expense recognized | $ | 77 | | | $ | 38 | | | $ | — | | | $ | — | |
| | | | | | | |
| | Nine months ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Service cost | $ | 73 | | | $ | 64 | | | $ | 13 | | | $ | 10 | |
| Interest cost | 59 | | | 66 | | | 16 | | | 19 | |
| Expected return on assets | (85) | | | (81) | | | (36) | | | (32) | |
| Amortization of: | | | | | | | |
| Prior service cost (credit) | 6 | | | 6 | | | (2) | | | (2) | |
| Actuarial loss (gain) | 27 | | | 19 | | | (5) | | | (5) | |
| | | | | | | |
| | | | | | | |
| Net periodic benefit cost (credit) | 80 | | | 74 | | | (14) | | | (10) | |
| Regulatory adjustments | 36 | | | 3 | | | 14 | | | 10 | |
| Total expense recognized | $ | 116 | | | $ | 77 | | | $ | — | | | $ | — | |
RABBI TRUST
In support of its Supplemental Executive Retirement, Cash Balance Restoration and Deferred Compensation Plans, Sempra maintains dedicated assets, including a Rabbi Trust and investments in life insurance contracts, which totaled $523$539 million and $512 million at JuneSeptember 30, 2021 and December 31, 2020, respectively.
SEMPRA 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 | | | | | | | |
| (Dollars in millions, except per share amounts; shares in thousands) | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Numerator for continuing operations: | | | | | | | |
| Income from continuing operations, net of income tax | $ | 455 | | | $ | 528 | | | $ | 1,383 | | | $ | 1,395 | |
| Earnings attributable to noncontrolling interests | (10) | | | (26) | | | (43) | | | (169) | |
| Preferred dividends | (20) | | | (37) | | | (41) | | | (73) | |
| Preferred dividends of subsidiary | (1) | | | (1) | | | (1) | | | (1) | |
| 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) | 0 | | | 0 | | | 0 | | | 52 | |
| Earnings from continuing operations attributable to common shares for diluted EPS | $ | 424 | | | $ | 464 | | | $ | 1,298 | | | $ | 1,204 | |
| | | | | | | |
| Numerator for discontinued operations: | | | | | | | |
| Income from discontinued operations, net of income tax | $ | 0 | | | $ | 1,777 | | | $ | 0 | | | $ | 1,857 | |
| Earnings attributable to noncontrolling interests | 0 | | | (2) | | | 0 | | | (10) | |
| Earnings from discontinued operations attributable to common shares | $ | 0 | | | $ | 1,775 | | | $ | 0 | | | $ | 1,847 | |
| | | | | | | |
| Numerator for earnings: | | | | | | | |
| 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) | 0 | | | 0 | | | 0 | | | 52 | |
| Earnings attributable to common shares for diluted EPS | $ | 424 | | | $ | 2,239 | | | $ | 1,298 | | | $ | 3,051 | |
| | | | | | | |
| Denominator: | | | | | | | |
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) | 807 | | | 1,095 | | | 846 | | | 1,199 | |
| Dilutive effect of mandatory convertible preferred stock | 0 | | | 0 | | | 1,066 | | | 13,838 | |
| Weighted-average common shares outstanding for diluted EPS | 308,607 | | | 294,155 | | | 306,284 | | | 307,962 | |
| | | | | | | |
| Basic EPS: | | | | | | | |
| Earnings from continuing operations | $ | 1.38 | | | $ | 1.58 | | | $ | 4.27 | | | $ | 3.93 | |
| Earnings from discontinued operations | $ | 0 | | | $ | 6.06 | | | $ | 0 | | | $ | 6.31 | |
| Earnings | $ | 1.38 | | | $ | 7.64 | | | $ | 4.27 | | | $ | 10.24 | |
| | | | | | | |
| Diluted EPS: | | | | | | | |
| Earnings from continuing operations | $ | 1.37 | | | $ | 1.58 | | | $ | 4.24 | | | $ | 3.91 | |
| Earnings from discontinued operations | $ | 0 | | | $ | 6.03 | | | $ | 0 | | | $ | 6.00 | |
| Earnings | $ | 1.37 | | | $ | 7.61 | | | $ | 4.24 | | | $ | 9.91 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| EARNINGS PER COMMON SHARE COMPUTATIONS | | | | | | | |
| (Dollars in millions, except per share amounts; shares in thousands) | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Numerator for continuing operations: | | | | | | | |
| (Loss) income from continuing operations, net of income tax | $ | (632) | | | $ | 428 | | | $ | 751 | | | $ | 1,823 | |
| Earnings attributable to noncontrolling interests | (5) | | | (22) | | | (48) | | | (191) | |
| Preferred dividends | (11) | | | (48) | | | (52) | | | (121) | |
| Preferred dividends of subsidiary | — | | | — | | | (1) | | | (1) | |
| | | | | | | |
| | | | | | | |
| (Losses) earnings from continuing operations attributable to common shares | $ | (648) | | | $ | 358 | | | $ | 650 | | | $ | 1,510 | |
| | | | | | | |
| Numerator for discontinued operations: | | | | | | | |
| (Loss) income from discontinued operations, net of income tax | $ | — | | | $ | (7) | | | $ | — | | | $ | 1,850 | |
| Earnings attributable to noncontrolling interests | — | | | — | | | — | | | (10) | |
| (Losses) earnings from discontinued operations attributable to common shares | $ | — | | | $ | (7) | | | $ | — | | | $ | 1,840 | |
| | | | | | | |
| Numerator for (losses) earnings: | | | | | | | |
| | | | | | | |
| | | | | | | |
| (Losses) earnings attributable to common shares | $ | (648) | | | $ | 351 | | | $ | 650 | | | $ | 3,350 | |
| | | | | | | |
| Denominator: | | | | | | | |
Weighted-average common shares outstanding for basic EPS(1) | 319,144 | | | 289,490 | | | 309,350 | | | 291,771 | |
Dilutive effect of stock options and RSUs(2)(3) | — | | | 1,092 | | | 797 | | | 1,164 | |
| Dilutive effect of mandatory convertible preferred stock | — | | | — | | | 707 | | | — | |
| Weighted-average common shares outstanding for diluted EPS | 319,144 | | | 290,582 | | | 310,854 | | | 292,935 | |
| | | | | | | |
| Basic EPS: | | | | | | | |
| (Losses) earnings from continuing operations | $ | (2.03) | | | $ | 1.23 | | | $ | 2.10 | | | $ | 5.17 | |
| (Losses) earnings from discontinued operations | $ | — | | | $ | (0.02) | | | $ | — | | | $ | 6.31 | |
| (Losses) earnings | $ | (2.03) | | | $ | 1.21 | | | $ | 2.10 | | | $ | 11.48 | |
| | | | | | | |
| Diluted EPS: | | | | | | | |
| (Losses) earnings from continuing operations | $ | (2.03) | | | $ | 1.23 | | | $ | 2.09 | | | $ | 5.15 | |
| (Losses) earnings from discontinued operations | $ | — | | | $ | (0.02) | | | $ | — | | | $ | 6.28 | |
| (Losses) earnings | $ | (2.03) | | | $ | 1.21 | | | $ | 2.09 | | | $ | 11.43 | |
(1) In the six months ended June 30, 2020, due to the dilutive effect of the series A preferred stock, the numerator used to calculate diluted EPS included an add-back of dividends declared on our series A preferred stock.
(2) Includes 447451 and 530535 fully vested RSUs held in our Deferred Compensation Plan for the three months ended JuneSeptember 30, 2021 and 2020, respectively, and 454453 and 536 of such RSUs for the sixnine months ended JuneSeptember 30, 2021 and 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.
(2) In the three months ended September 30, 2021, the total weighted-average number of potentially dilutive stock options and RSUs was 699. However, these securities were not included in the computation of EPS because to do so would have decreased losses per share.
(3) Due to market fluctuations of both Sempra 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 sixnine months ended JuneSeptember 30, 2021 excludes 145,247147,840 and 287,061240,654 potentially dilutive shares, respectively, because to include them would be antidilutive for the period. The computation of diluted EPS for the three months and sixnine months ended JuneSeptember 30, 2020 excludes 216,922142,100 and 235,589204,426 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 if-converted method until the mandatory conversion date. After the mandatory conversion date, the converted shares are included in weighted-average common shares outstanding for basic EPS. As we discuss below in “Shareholders’ Equity and Noncontrolling Interests,” we converted our
series A preferred stock into common stock on January 15, 2021 and our series B preferred stock into common stock on July 15, 2021. The computation of diluted EPS for the three months and nine months ended September 30, 2021 excludes 639,733 and 3,037,812 potentially dilutive shares, respectively. The computation of diluted EPS for both the three months and sixnine months ended June 30, 2021 excludes 4,256,725 potentially dilutive shares. The computation of diluted EPS for the three months and six months ended JuneSeptember 30, 2020 excludes 18,450,579 and 4,612,64519,292,641 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 Noncontrolling Interests.”shares.
Pursuant to Sempra’s share-based compensation plans, the Compensation and Talent Committee of Sempra’s board of directors granted 222,620 nonqualified stock options, 323,889 performance-based RSUs and 142,105143,980 service-based RSUs in the sixnine months ended JuneSeptember 30, 2021, primarily in January.
We discuss share-based compensation plans and related awards and the terms and conditions of Sempra’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, 2021 and 2020 |
| Sempra: | | | | | | | |
| Balance at June 30, 2021 | $ | (88) | | | $ | (265) | | | $ | (91) | | | $ | (444) | |
| | | | | | | |
| OCI before reclassifications | — | | | 15 | | | (8) | | | 7 | |
| Amounts reclassified from AOCI | — | | | 16 | | | 3 | | | 19 | |
Net OCI(2) | — | | | 31 | | | (5) | | | 26 | |
| Balance at September 30, 2021 | $ | (88) | | | $ | (234) | | | $ | (96) | | | $ | (418) | |
| | | | | | | |
| Balance at June 30, 2020 | $ | (83) | | | $ | (361) | | | $ | (98) | | | $ | (542) | |
| | | | | | | |
| OCI before reclassifications | 6 | | | 14 | | | (7) | | | 13 | |
| Amounts reclassified from AOCI | — | | | 4 | | | 12 | | | 16 | |
Net OCI(2) | 6 | | | 18 | | | 5 | | | 29 | |
| Balance at September 30, 2020 | $ | (77) | | | $ | (343) | | | $ | (93) | | | $ | (513) | |
| SDG&E: | | | | | | | |
| Balance at June 30, 2021 | | | | | $ | (10) | | | $ | (10) | |
| | | | | | | |
| Amounts reclassified from AOCI | | | | | 1 | | | 1 | |
| Net OCI | | | | | 1 | | | 1 | |
| Balance at September 30, 2021 | | | | | $ | (9) | | | $ | (9) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Balance as of June 30, 2020 and September 30, 2020 | | | | | $ | (12) | | | $ | (12) | |
| SoCalGas: | | | | | | | |
| Balance at June 30, 2021 | | | $ | (13) | | | $ | (17) | | | $ | (30) | |
| | | | | | | |
| Amounts reclassified from AOCI | | | — | | | 1 | | | 1 | |
| Net OCI | | | — | | | 1 | | | 1 | |
| Balance at September 30, 2021 | | | $ | (13) | | | $ | (16) | | | $ | (29) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Balance as of June 30, 2020 and September 30, 2020 | | | $ | (13) | | | $ | (9) | | | $ | (22) | |
(1) All amounts are net of income tax, if subject to tax, and exclude NCI.
(2) Total AOCI includes $(4) million and $3 million of foreign currency translation adjustments and $(2) million and $2 million of financial instruments associated with the IEnova cash tender offer in 2021 and purchases of NCI in 2020, respectively, which we discuss below in “Other Noncontrolling Interests – Sempra Mexico,” and which do not impact the Condensed Consolidated Statement of Comprehensive Income (Loss).
| CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT(1) | |
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) |
| | | Three months ended June 30, 2021 and 2020 | | Nine months ended September 30, 2021 and 2020 |
Sempra(2): | Sempra(2): | | Sempra(2): | |
| Balance at March 31, 2021 | $ | (69) | | | $ | (239) | | | $ | (91) | | | $ | (399) | | |
| Balance as of December 31, 2020 | | Balance as of December 31, 2020 | $ | (64) | | | $ | (331) | | | $ | (105) | | | $ | (500) | |
| | OCI before reclassifications | OCI before reclassifications | (19) | | | (36) | | | (2) | | | (57) | | OCI before reclassifications | (24) | | | 52 | | | (3) | | | 25 | |
| Amounts reclassified from AOCI | Amounts reclassified from AOCI | 0 | | | 10 | | | 2 | | | 12 | | Amounts reclassified from AOCI | — | | | 45 | | | 12 | | | 57 | |
Net OCI(3) | Net OCI(3) | (19) | | | (26) | | | 0 | | | (45) | | Net OCI(3) | (24) | | | 97 | | | 9 | | | 82 | |
| Balance at June 30, 2021 | $ | (88) | | | $ | (265) | | | $ | (91) | | | $ | (444) | | |
| Balance as of September 30, 2021 | | Balance as of September 30, 2021 | $ | (88) | | | $ | (234) | | | $ | (96) | | | $ | (418) | |
| | | | | | | | | | | | |
| Balance at March 31, 2020 | $ | (745) | | | $ | (350) | | | $ | (95) | | | $ | (1,190) | | |
| | Balance as of December 31, 2019 | | Balance as of December 31, 2019 | $ | (607) | | | $ | (215) | | | $ | (117) | | | $ | (939) | |
OCI before reclassifications(4) | OCI before reclassifications(4) | 17 | | | (13) | | | (14) | | | (10) | | OCI before reclassifications(4) | (115) | | | (153) | | | (5) | | | (273) | |
Amounts reclassified from AOCI(4) | Amounts reclassified from AOCI(4) | 645 | | | 2 | | | 11 | | | 658 | | Amounts reclassified from AOCI(4) | 645 | | | 25 | | | 29 | | | 699 | |
| Net OCI | 662 | | | (11) | | | (3) | | | 648 | | |
| Balance at June 30, 2020 | $ | (83) | | | $ | (361) | | | $ | (98) | | | $ | (542) | | |
Net OCI(3) | | Net OCI(3) | 530 | | | (128) | | | 24 | | | 426 | |
| Balance as of September 30, 2020 | | Balance as of September 30, 2020 | $ | (77) | | | $ | (343) | | | $ | (93) | | | $ | (513) | |
| SDG&E: | SDG&E: | | SDG&E: | |
| Balance as of December 31, 2020 | | Balance as of December 31, 2020 | | $ | (10) | | | $ | (10) | |
| | Amounts reclassified from AOCI | | Amounts reclassified from AOCI | | 1 | | | 1 | |
| Net OCI | | Net OCI | | 1 | | | 1 | |
| Balance at September 30, 2021 | | Balance at September 30, 2021 | | $ | (9) | | | $ | (9) | |
| | Balance at March 31, 2021 and June 30, 2021 | | $ | (10) | | | $ | (10) | | |
| | Balance at March 31, 2020 | | $ | (16) | | | $ | (16) | | |
| Balance as of December 31, 2019 | | Balance as of December 31, 2019 | | $ | (16) | | | $ | (16) | |
| Amounts reclassified from AOCI(4) | Amounts reclassified from AOCI(4) | | 4 | | | 4 | | Amounts reclassified from AOCI(4) | | 4 | | | 4 | |
| Net OCI | Net OCI | | 4 | | | 4 | | Net OCI | | 4 | | | 4 | |
| Balance at June 30, 2020 | | $ | (12) | | | $ | (12) | | |
| Balance as of September 30, 2020 | | Balance as of September 30, 2020 | | $ | (12) | | | $ | (12) | |
| SoCalGas: | SoCalGas: | | SoCalGas: | |
| Balance at March 31, 2021 | | $ | (13) | | | $ | (18) | | | $ | (31) | | |
| 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 | | — | | | 2 | | | 2 | |
| Net OCI | Net OCI | | 0 | | | 1 | | | 1 | | Net OCI | | — | | | 2 | | | 2 | |
| Balance at June 30, 2021 | | $ | (13) | | | $ | (17) | | | $ | (30) | | |
| Balance as of September 30, 2021 | | Balance as of September 30, 2021 | | $ | (13) | | | $ | (16) | | | $ | (29) | |
| | Balance at March 31, 2020 | | $ | (13) | | | $ | (10) | | | $ | (23) | | |
| 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 | | Amounts reclassified from AOCI | | — | | | 1 | | | 1 | |
| Net OCI | Net OCI | | 0 | | | 1 | | | 1 | | Net OCI | | — | | | 1 | | | 1 | |
| Balance at June 30, 2020 | | $ | (13) | | | $ | (9) | | | $ | (22) | | |
| Balance as of September 30, 2020 | | Balance as of September 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 2020.
(3) Total AOCI includes $24$20 million and $3 million of foreign currency translation adjustments and $14$12 million and $2 million of financial instruments associated with the IEnova exchange offer,and cash tender offers in 2021 and purchases of NCI in 2020, respectively, 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) |
| (Dollars in millions) |
| | Foreign
currency
translation
adjustments | | Financial
instruments | | Pension
and other
postretirement
benefits | | Total
accumulated other
comprehensive
income (loss) |
| | Six months ended June 30, 2021 and 2020 |
Sempra(2): | | | | | | | |
| Balance as of December 31, 2020 | $ | (64) | | | $ | (331) | | | $ | (105) | | | $ | (500) | |
| | | | | | | |
| OCI before reclassifications | (24) | | | 37 | | | 5 | | | 18 | |
| Amounts reclassified from AOCI | 0 | | | 29 | | | 9 | | | 38 | |
Net OCI(3) | (24) | | | 66 | | | 14 | | | 56 | |
| Balance as of June 30, 2021 | $ | (88) | | | $ | (265) | | | $ | (91) | | | $ | (444) | |
| | | | | | | |
| Balance as of December 31, 2019 | $ | (607) | | | $ | (215) | | | $ | (117) | | | $ | (939) | |
OCI before reclassifications(4) | (121) | | | (167) | | | 2 | | | (286) | |
Amounts reclassified from AOCI(4) | 645 | | | 21 | | | 17 | | | 683 | |
| Net OCI | 524 | | | (146) | | | 19 | | | 397 | |
| Balance as of June 30, 2020 | $ | (83) | | | $ | (361) | | | $ | (98) | | | $ | (542) | |
| SDG&E: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Balance at December 31, 2020 and June 30, 2021 | | | | | $ | (10) | | | $ | (10) | |
| | | | | | | |
| Balance as of December 31, 2019 | | | | | $ | (16) | | | $ | (16) | |
| | | | | | | |
Amounts reclassified from AOCI(4) | | | | | 4 | | | 4 | |
| Net OCI | | | | | 4 | | | 4 | |
| Balance as of June 30, 2020 | | | | | $ | (12) | | | $ | (12) | |
| SoCalGas: | | | | | | | |
| Balance as of December 31, 2020 | | | $ | (13) | | | $ | (18) | | | $ | (31) | |
| | | | | | | |
| | | | | | | |
| Amounts reclassified from AOCI | | | 0 | | | 1 | | | 1 | |
| Net OCI | | | 0 | | | 1 | | | 1 | |
| Balance as of June 30, 2021 | | | $ | (13) | | | $ | (17) | | | $ | (30) | |
| | | | | | | |
| Balance as of December 31, 2019 | | | $ | (13) | | | $ | (10) | | | $ | (23) | |
| | | | | | | |
| Amounts reclassified from AOCI | | | 0 | | | 1 | | | 1 | |
| Net OCI | | | 0 | | | 1 | | | 1 | |
| 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 in 2020.
(3) Total AOCI includes $24 million of foreign currency translation adjustments and $14 million of financial instruments associated with the IEnova exchange offer, which we discuss below in “Other Noncontrolling Interests – Sempra Mexico,” and which doesdo 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 June 30, | | | Three months ended September 30, | |
| | | 2021 | | 2020 | | | | 2021 | | 2020 | | |
| Sempra: | Sempra: | | | | | | Sempra: | | | | | |
| Foreign currency translation adjustments | $ | 0 | | | $ | 645 | | | Income from Discontinued Operations, Net of Income Tax | |
| | | Financial instruments: | Financial instruments: | | | | | | Financial instruments: | | | | | |
| Interest rate instruments | Interest rate instruments | $ | (1) | | | $ | 1 | | | Interest Expense | Interest rate instruments | $ | (1) | | | $ | 3 | | | Interest Expense |
| Interest rate instruments | Interest rate instruments | 19 | | | 1 | | | Equity Earnings(1) | Interest rate instruments | 19 | | | 5 | | | Equity Earnings(1) |
| | Foreign exchange instruments | 0 | | | 1 | | | Other Income (Expense), Net | |
| | | Interest rate and foreign exchange instruments | Interest rate and foreign exchange instruments | 0 | | | 1 | | | Interest Expense | Interest rate and foreign exchange instruments | 5 | | | (4) | | | Other (Expense) Income, Net |
| (7) | | | (4) | | | Other Income (Expense), Net | |
| Total before income tax | Total before income tax | 11 | | | 0 | | | | Total before income tax | 23 | | | 4 | | | |
| | | (1) | | | 0 | | | Income Tax (Expense) Benefit | | (7) | | | — | | | Income Tax Benefit (Expense) |
| Net of income tax | 10 | | | 0 | | | | |
| | | 0 | | | 2 | | | Earnings Attributable to Noncontrolling Interests | |
| | | $ | 10 | | | $ | 2 | | | | |
| Net of income tax | | Net of income tax | $ | 16 | | | $ | 4 | | | |
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 | $ | 1 | | | $ | 1 | | | Other Income (Expense), Net | Amortization of actuarial loss | $ | 3 | | | $ | 3 | | | Other (Expense) Income, Net |
| 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 (Expense) Income, Net |
| Settlement charges | Settlement charges | 0 | | | 4 | | | Other Income (Expense), Net | Settlement charges | — | | | 13 | | | Other (Expense) Income, Net |
| Total before income tax | Total before income tax | 2 | | | 12 | | | Total before income tax | 4 | | | 17 | | |
| | 0 | | | (2) | | | Income from Discontinued Operations, Net of Income Tax | |
| | | 0 | | | (2) | | | Income Tax (Expense) Benefit | | (1) | | | (5) | | | Income Tax Benefit (Expense) |
| Net of income tax | Net of income tax | $ | 2 | | | $ | 8 | | | | Net of income tax | $ | 3 | | | $ | 12 | | | |
| | Total reclassifications for the period, net of tax | Total reclassifications for the period, net of tax | $ | 12 | | | $ | 655 | | | | Total reclassifications for the period, net of tax | $ | 19 | | | $ | 16 | | | |
| SDG&E: | SDG&E: | | | | | | SDG&E: | | | | | |
| 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 | $ | 0 | | | $ | 1 | | | Other Income, Net | Amortization of prior service cost | $ | 1 | | | $ | — | | | Other Income (Expense), 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 | | | $ | — | | | |
| SoCalGas: | SoCalGas: | | | | | | SoCalGas: | | | | | |
| Pension and other postretirement benefits(2): | Pension and other postretirement benefits(2): | | | | | | Pension and other postretirement benefits(2): | | | | | |
| Amortization of prior service cost | $ | 1 | | | $ | 1 | | | Other Income, Net | |
| Amortization of actuarial loss | | Amortization of actuarial loss | $ | 1 | | | $ | — | | | Other (Expense) 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) 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 |
| | Six months ended June 30, | | | Nine months ended September 30, | |
| | 2021 | | 2020 | | | 2021 | | 2020 | |
| Sempra: | Sempra: | | | Sempra: | | |
| Foreign currency translation adjustments | Foreign currency translation adjustments | $ | 0 | | | $ | 645 | | | Income from Discontinued Operations, Net of Income Tax | Foreign currency translation adjustments | $ | — | | | $ | 645 | | | (Loss) Income from Discontinued Operations, Net of Income Tax |
| | Financial instruments: | Financial instruments: | | Financial instruments: | |
| Interest rate instruments | Interest rate instruments | $ | 1 | | | $ | 3 | | | Interest Expense | Interest rate instruments | $ | — | | | $ | 6 | | | Interest Expense |
| Interest rate instruments | Interest rate instruments | 38 | | | 3 | | | Equity Earnings(1) | Interest rate instruments | 57 | | | 8 | | | Equity Earnings(1) |
| Foreign exchange instruments | Foreign exchange instruments | 1 | | | (2) | | | Revenues: Energy-Related Businesses | Foreign exchange instruments | 1 | | | (2) | | | Revenues: Energy-Related Businesses |
| | 0 | | | (1) | | | Other Income (Expense), Net | | — | | | (1) | | | Other (Expense) Income, Net |
| Foreign exchange instruments | Foreign exchange instruments | 1 | | | (2) | | | Equity Earnings(1) | Foreign exchange instruments | 1 | | | (2) | | | Equity Earnings(1) |
| Interest rate and foreign exchange instruments | Interest rate and foreign exchange instruments | 0 | | | 1 | | | Interest Expense | Interest rate and foreign exchange instruments | — | | | 1 | | | Interest Expense |
| | (1) | | | 37 | | | Other Income (Expense), Net | | 4 | | | 33 | | | Other (Expense) Income, Net |
| Total before income tax | Total before income tax | 40 | | | 39 | | | Total before income tax | 63 | | | 43 | | |
| | (9) | | | (12) | | | Income Tax (Expense) Benefit | | (16) | | | (12) | | | Income Tax Benefit (Expense) |
| Net of income tax | Net of income tax | 31 | | | 27 | | | Net of income tax | 47 | | | 31 | | |
| | (2) | | | (6) | | | Earnings Attributable to Noncontrolling Interests | | (2) | | | (6) | | | Earnings Attributable to Noncontrolling Interests |
| | $ | 29 | | | $ | 21 | | | | $ | 45 | | | $ | 25 | | |
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 | $ | 6 | | | $ | 6 | | | Other (Expense) Income, Net |
| Amortization of actuarial loss | Amortization of actuarial loss | 0 | | | 6 | | | Income from Discontinued Operations, Net of Income Tax | Amortization of actuarial loss | — | | | 6 | | | (Loss) Income from Discontinued Operations, Net of Income Tax |
| Amortization of prior service cost | Amortization of prior service cost | 2 | | | 2 | | | Other Income (Expense), Net | Amortization of prior service cost | 3 | | | 3 | | | Other (Expense) Income, Net |
| Settlement charges | Settlement charges | 7 | | | 9 | | | Other Income (Expense), Net | Settlement charges | 7 | | | 22 | | | Other (Expense) Income, Net |
| Total before income tax | Total before income tax | 12 | | | 20 | | | Total before income tax | 16 | | | 37 | | |
| | 0 | | | (2) | | | Income from Discontinued Operations, Net of Income Tax | | — | | | (2) | | | (Loss) Income from Discontinued Operations, Net of Income Tax |
| | (3) | | | (4) | | | Income Tax (Expense) Benefit | | (4) | | | (9) | | | Income Tax Benefit (Expense) |
| Net of income tax | Net of income tax | $ | 9 | | | $ | 14 | | | Net of income tax | $ | 12 | | | $ | 26 | | |
| | Total reclassifications for the period, net of tax | Total reclassifications for the period, net of tax | $ | 38 | | | $ | 680 | | | Total reclassifications for the period, net of tax | $ | 57 | | | $ | 696 | | |
| SDG&E: | SDG&E: | | | | | SDG&E: | | | | |
| 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 | $ | 0 | | | $ | 1 | | | Other Income, Net | Amortization of prior service cost | $ | 1 | | | $ | 1 | | | Other Income (Expense), 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 | | | |
| SoCalGas: | SoCalGas: | | | | | | SoCalGas: | | | | | |
| 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 | $ | 1 | | | $ | — | | | Other (Expense) Income, Net |
| Amortization of prior service cost | Amortization of prior service cost | $ | 1 | | | $ | 1 | | | Other Income, Net | Amortization of prior service cost | 1 | | | 1 | | | Other (Expense) 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 | $ | 2 | | | $ | 1 | | |
(1) 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 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 B preferred stock require a notice to holders when the aggregate adjustment to the conversion rates at which shares of series B preferred stock are convertible into shares of Sempra common stock is more than 1%. On July 7, 2021, we notified the holders of the series B 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 July 6, 2021, the ex-dividend date for such dividend, included 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 B preferred stock) |
Greater than $135.0804 (which is the adjusted threshold appreciation price) | | 0.7403 shares (equal to $100.00 divided by the adjusted threshold appreciation price) |
Equal to or less than $135.0804 but greater than or equal to $112.5746 | | Between 0.7403 and 0.8883 shares, determined by dividing $100.00 by the applicable market value of our common stock |
Less than $112.5746 (which is the adjusted initial price) | | 0.8883 shares (equal to $100.00 divided by the adjusted initial price) |
prices.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 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.
Sempra Common Stock Repurchases
On September 11, 2007, our board of directors authorized the repurchase of shares of our common stock, provided that the amounts spent for such purpose do not exceed the greater of $2 billion or amounts spent to purchase no more than 40,000,000 shares. On July 1, 2020, we entered into an ASR program under which we prepaid $500 million to repurchase shares of our common stock in a share forward transaction. The total number of shares purchased was determined by dividing the $500 million purchase price by the arithmetic average of the volume-weighted average trading prices of shares of our common stock during the valuation period of July 2, 2020 through August 4, 2020, minus a fixed discount. The program was completed on August 4, 2020 with an aggregate of 4,089,375 shares of Sempra 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.
Other Noncontrolling Interests
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’s Condensed Consolidated Balance Sheets.
| | OTHER NONCONTROLLING INTERESTS | OTHER NONCONTROLLING INTERESTS | OTHER NONCONTROLLING INTERESTS |
| (Dollars in millions) | (Dollars in millions) | | | (Dollars in millions) | | |
| | | Percent ownership held by noncontrolling interests | | Equity held by
noncontrolling interests | | Percent ownership held by noncontrolling interests | | Equity held by
noncontrolling interests |
| | | June 30,
2021 | | December 31,
2020 | | June 30,
2021 | | December 31,
2020 | | September 30,
2021 | | December 31,
2020 | | September 30,
2021 | | December 31,
2020 |
| Sempra Mexico: | Sempra Mexico: | | | | | | | | Sempra Mexico: | | | | | | | |
| IEnova | IEnova | 3.6 | | % | 29.8 | | % | $ | 184 | | | $ | 1,487 | | IEnova | 0.1 | % | | 29.8 | % | | $ | 2 | | | $ | 1,487 | |
| ICM Ventures Holdings B.V. | ICM Ventures Holdings B.V. | 17.5 | | | 17.5 | | | 6 | | | 7 | | ICM Ventures Holdings B.V. | — | | | 17.5 | | | — | | | 7 | |
| Sempra LNG: | Sempra LNG: | | Sempra LNG: | |
| ECA LNG Phase 1 | ECA LNG Phase 1 | 18.1 | | | 29.0 | | | 31 | | | 46 | | ECA LNG Phase 1 | 16.6 | | | 29.0 | | | 28 | | | 46 | |
| Parent and other: | Parent and other: | | Parent and other: | |
| PXiSE Energy Solutions, LLC | 20.0 | | | 20.0 | | | 0 | | | 1 | | |
| PXiSE | | PXiSE | 20.0 | | | 20.0 | | | — | | | 1 | |
| Total Sempra | Total Sempra | | | | | $ | 221 | | | $ | 1,541 | | Total Sempra | | | | | $ | 30 | | | $ | 1,541 | |
Sempra Mexico
In May 2021, we acquired 381,015,194 publicly heldowned shares of IEnova in exchange for 12,306,777 newly issued shares of our common stock upon completion of our exchange offer launched in the U.S. and Mexico. 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 tender offer to acquire for cash the remaining 52,227,526In September 2021, we acquired 51,014,545 publicly heldowned shares of IEnova that were not tenderedfor 4.0 billion Mexican pesos (approximately $202 million in U.S. dollars) in cash upon completion of our tender offer launched in the exchangeU.S. and Mexico in August 2021, which increased our ownership interest in IEnova from 96.4% to 99.9%. We acquired these IEnova shares at a price of 78.97 Mexican pesos per share (approximately $3.95 per share in U.S. dollars). Following the cash tender offer, we recorded a decrease in Sempra’s shareholders’ equity of $14 million, including $1 million in transaction costs. IEnova’s shares were delisted from the third quarterMexican Stock Exchange effective October 15, 2021. In connection with the delisting, we are maintaining a trust for the purpose of 2021.purchasing the 1,212,981 remaining publicly owned IEnova shares for 78.97 Mexican pesos per share, the same price per share that was offered in our cash tender offer. The trust will be in place through the earlier of April 14, 2022 or the date on which we acquire all the remaining publicly owned IEnova shares.
As a result of the increase in our ownership interest in IEnova, we recorded an increase in Sempra’s shareholders’ equity of $84 million offset by a deferred income tax asset related to the outside basis difference in IEnova’s shares. Upon completing the sale of a 20% equity interest in Sempra Infrastructure Partners in October 2021, which we discuss below, we recorded $72 million in net income tax expense related to the utilization of this deferred income tax asset, net of the income tax effect reclassified from AOCI to earnings.
In the second quarter ofnine months ended September 30, 2020, IEnova repurchased 3,694,15657,547,381 shares of its outstanding common stock held by NCI for $10$167 million, resulting in an increase in Sempra’s ownership interest in IEnova from 66.6% at December 31, 2019 to 66.8%69.2% at JuneSeptember 30, 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 a terminal for the receipt, storage and delivery of liquid fuels. OnIn July 6, 2021, IEnova acquired the remaining 17.5% interest held by NCI in 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’s shareholders’ equity of $2 million for the difference between the carrying value and fair value related to the change in ownership.
Sempra Infrastructure Partners
Sale of NCI. On April 4,October 1, 2021, Sempra, and its wholly owned subsidiary, Sempra Global, entered intoInfrastructure Partners (formerly Sempra Global), and KKR consummated the transactions contemplated under a purchase and contribution agreement (thedated April 4, 2021 (as amended on September 27, 2021 to reflect immaterial revisions prior to closing, the Purchase Agreement) with. Pursuant to the Purchase Agreement, KKR Pinnacle Aggregator L.P., an affiliate of Kohlberg Kravis Roberts & Co. L.P. (KKR), pursuant to which KKR will acquireacquired for an aggregatea purchase price of $3.37 billion, (the Purchase Price),which remains subject to thepost-closing adjustments, described below, newly designated Class A Units representing 20% of the equity interests of Sempra Global. In preparation forInfrastructure Partners. Prior to closing the transaction, we are conductingcompleted an internal legal reorganization to consolidate the assets of Sempra LNG and our ownership inof IEnova under Sempra Global, which will bewas renamed Sempra Infrastructure Partners. We anticipate completing this transaction aroundOn October 1, 2021, Sempra Infrastructure Partners paid $149 million to KKR for reimbursement of certain expenses that KKR incurred in connection with closing the endtransaction. As of September 30, 2021, the composition of our reportable segments did not change.
At the closing of the third quarter of 2021.
Astransactions contemplated under the Purchase Agreement on October 1, 2021, we discuss above, we currently own 96.4%owned 99.9% of the outstanding ordinary shares of IEnova and intend to launch a cash tender offer to acquire the remaining 52,227,526 publicly held shares of IEnova for cash.IEnova. Under the terms of the Purchase Agreement, to the extentbase purchase price was adjusted downward at closing by $1 million based on the number of IEnova ordinary shares we dodid not own at the closing. If we later acquire all of the outstandingadditional shares of IEnova prior toafter the closing, the Purchase Price maysuch additional shares will be subject to downward adjustment based on the resultsacquired by Sempra Infrastructure Partners and KKR will provide 20% of the exchange and tender offers.funding.
We expectestimate that Sempra Infrastructure Partners will havehad approximately $8.37 billion of direct and indirect net debt at the time of closing. Thereclosing, and there will be a customary upward or downward adjustment to the Purchase Pricepurchase price to the extent Sempra Infrastructure Partners’the actual net debt at closing iswas greater or less than the expectedsuch estimated 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 duringhas the period beginning on the 31st day after the closing through December 31, 2025, may request one or more disbursementsability to borrow from Sempra up to an aggregate amount$300 million plus reimbursement of $300 million. Any amounts disbursed willcertain fees related to such borrowing, which we fully funded on November 1, 2021. This loan is due to be repaid in full no later than the eighth anniversary of the date of closingOctober 1, 2029 and will bearbears compound interest at 5% per annum.
Limited Partnership Agreement. At the closing of the sale of NCI in Sempra Infrastructure Partners, Sempra will enterand KKR entered into a limited partnership agreement with KKR (the LP Agreement), which will governgoverns our and their respective rights and obligations in respect of our ownership of Sempra Infrastructure Partners. We will maintain control of Sempra Infrastructure Partners as the 80% owner 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.investment.
Sempra Infrastructure Partners will initially havehas 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 beare separated from other Sempra Infrastructure Partners projects and will beare conducted at our sole cost, expense and liability and we will receive, through the acquisition of Sole Risk Interests, allany economic and other benefits from any such proposed projects. KKR willis not be entitled to any benefits or rights in respect of any Sole Risk Project. Upon the formation of Sempra Infrastructure Partners, theThe Guaymas-El Oro segment of the Sonora pipeline at IEnova will constitutecurrently constitutes a Sole Risk Project. After the closingUntil a specified date, KKR will havehas 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.and be pursued jointly within Sempra Infrastructure Partners.
Under the LP Agreement, Sempra Infrastructure Partners’ general partner will delegate its authority to manage Sempra Infrastructure Partners tois managed by a board of managers comprised of members designated by us and by KKR. Matters willare 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 beare 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 containcontains 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 requirerequires that Sempra Infrastructure Partners distribute to us and to KKR at least 85% of distributable cash flow of Sempra Infrastructure Partners and its subsidiaries on a quarterly basis, subject to certain exceptions and reserves. Generally, distributions from Sempra Infrastructure Partners will beare 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 beis entitled to certain priority distributions in the event of material deviations between certain specified projected cash flows and actual cash flows. Additionally, KKR will beis entitled to certain priority distributions in the event a specified project that hasreaches a positive final
investment decision does not have projected internal rates of return over a specified threshold or in the event we have not made a positive final investment decisionsdecision by a certain datesdate on certainspecified 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 arewhich is subject to certain customary restrictions on transfersconsent rights of their interests inKKR.
Management Agreement. At the closing of the transactions contemplated under the Purchase Agreement, Sempra Infrastructure Partners.Partners entered into a management agreement with Sempra to engage Sempra for certain staffing and general and administrative services. The management agreement governs the services that Sempra will provide to Sempra Infrastructure Partners and the charges associated with those services.
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 Chilquinta Energía and its subsidiaries were deconsolidated upon the sale of our Chilean businesses in June 2020.
TRANSACTIONS WITH AFFILIATES
We summarize amounts due from and to unconsolidated affiliates at Sempra, SDG&E and SoCalGas in the following table.
| | | | | | | | | | | |
| AMOUNTS DUE FROM (TO) UNCONSOLIDATED AFFILIATES |
| (Dollars in millions) |
| | June 30,
2021 | | December 31,
2020 |
| Sempra: | | | |
| Total due from various unconsolidated affiliates – current | $ | 11 | | | $ | 20 | |
| | | |
Sempra Mexico(1): | | | |
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) | 702 | | | 695 | |
| 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) | $ | (42) | | | $ | (41) | |
| Various affiliates | 0 | | | (4) | |
| Total due to various unconsolidated affiliates – current | $ | (42) | | | $ | (45) | |
| | | |
Sempra Mexico(1)(5): | | | |
| TAG Pipelines Norte, S. de. R.L. de C.V.: | | | |
| 5.5% Note due January 9, 2024 | $ | (70) | | | $ | (68) | |
| 5.5% Note due January 14, 2025 | (21) | | | 0 | |
| TAG JV – 5.74% Note due December 17, 2029 | (171) | | | (166) | |
| Total due to unconsolidated affiliates – noncurrent | $ | (262) | | | $ | (234) | |
| SDG&E: | | | |
| | | |
| | | |
| | | |
| | | |
| Sempra | $ | (22) | | | $ | (38) | |
| SoCalGas | (12) | | | (21) | |
| | | |
| Various affiliates | (10) | | | (5) | |
| Total due to unconsolidated affiliates – current | $ | (44) | | | $ | (64) | |
| | | |
Income taxes due from Sempra(6) | $ | 21 | | | $ | 0 | |
| SoCalGas: | | | |
| SDG&E | $ | 12 | | | $ | 21 | |
| Various affiliates | 1 | | | 1 | |
| Total due from unconsolidated affiliates – current | $ | 13 | | | $ | 22 | |
| | | |
| Sempra | $ | (36) | | | $ | (31) | |
| Pacific Enterprises | (25) | | | 0 | |
| | | |
| Total due to unconsolidated affiliates – current | $ | (61) | | | $ | (31) | |
| | | |
Income taxes due to Sempra(6) | $ | (39) | | | $ | (37) | |
| | | | | | | | | | | |
| AMOUNTS DUE FROM (TO) UNCONSOLIDATED AFFILIATES |
| (Dollars in millions) |
| | September 30,
2021 | | December 31,
2020 |
| Sempra: | | | |
| Total due from various unconsolidated affiliates – current | $ | 30 | | | $ | 20 | |
| | | |
Sempra Mexico(1): | | | |
ESJ – Note due December 31, 2022, net of negligible allowance for credit losses at December 31, 2020(2) | $ | — | | | $ | 85 | |
IMG JV – Note due March 15, 2022, net of allowance for credit losses of $1 and $3 at September 30, 2021 and December 31, 2020, respectively(3) | 684 | | | 695 | |
| Total due from unconsolidated affiliates – noncurrent | $ | 684 | | | $ | 780 | |
| | | |
Sempra Mexico – TAG Pipelines Norte, S. de. R.L. de C.V. – Note due December 20, 2021(1)(4) | $ | (42) | | | $ | (41) | |
| Various affiliates | — | | | (4) | |
| Total due to unconsolidated affiliates – current | $ | (42) | | | $ | (45) | |
| | | |
Sempra Mexico(1)(5): | | | |
| TAG Pipelines Norte, S. de. R.L. de C.V.: | | | |
| 5.5% Note due January 9, 2024 | $ | (71) | | | $ | (68) | |
| 5.5% Note due January 14, 2025 | (21) | | | — | |
| 5.5% Note due July 16, 2025 | (20) | | | — | |
| TAG JV – 5.74% Note due December 17, 2029 | (174) | | | (166) | |
| Total due to unconsolidated affiliates – noncurrent | $ | (286) | | | $ | (234) | |
| SDG&E: | | | |
| | | |
| | | |
| Total due from various unconsolidated affiliates – current | $ | 1 | | | $ | — | |
| | | |
| Sempra | $ | (45) | | | $ | (38) | |
| SoCalGas | (9) | | | (21) | |
| | | |
| Various affiliates | (7) | | | (5) | |
| Total due to unconsolidated affiliates – current | $ | (61) | | | $ | (64) | |
| | | |
Income taxes due from Sempra(6) | $ | 29 | | | $ | — | |
| SoCalGas: | | | |
| SDG&E | $ | 9 | | | $ | 21 | |
| Various affiliates | 2 | | | 1 | |
| Total due from unconsolidated affiliates – current | $ | 11 | | | $ | 22 | |
| | | |
| Sempra | $ | (45) | | | $ | (31) | |
| | | |
| | | |
| Total due to unconsolidated affiliates – current | $ | (45) | | | $ | (31) | |
| | | |
Income taxes due from (to) Sempra(6) | $ | 1 | | | $ | (37) | |
(1) Amounts include principal balances plus accumulated interest outstanding.
(2) U.S. dollar-denominated loan at a variable interest rate based on 1-month LIBOR plus 196 bps (2.11% at December 31, 2020). At December 31, 2020, $1 million of accrued interest receivable is included in Due from Unconsolidated Affiliates – Current. In March 2021, IEnova acquired the 50% equity interest in ESJ that it did not already own and ESJ became a wholly owned, consolidated subsidiary, resulting in the elimination of this note receivable.
(3) Mexican peso-denominated revolving line of credit for up to 14.2 billion Mexican pesos or approximately $711$689 million U.S. dollar-equivalent at JuneSeptember 30, 2021, at a variable interest rate based on the 91-day Interbank Equilibrium Interest Rate plus 220 bps (6.79%(7.02% at JuneSeptember 30, 2021), to finance construction of a natural gas marine pipeline. At both JuneSeptember 30, 2021 and December 31, 2020, $2 million of accrued interest receivable is included in Due from Unconsolidated Affiliates – Current. At JuneSeptember 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 (3.06% at JuneSeptember 30, 2021).
(5) U.S. dollar-denominated loanloans at a fixed interest rate.rates.
(6) SDG&E and SoCalGas are included in the consolidated income tax return of Sempra, and their respective income tax expense is computed as an amount equal to that which would result from each company having always filed a separate return.
The following table summarizes income statement information from unconsolidated affiliates.
| | | | | | | | | | | | | | | | | | | | | | | |
| INCOME STATEMENT IMPACT FROM UNCONSOLIDATED AFFILIATES | | | | |
| (Dollars in millions) | | | | |
| | 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 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| INCOME STATEMENT IMPACT FROM UNCONSOLIDATED AFFILIATES | | | | |
| (Dollars in millions) | | | | |
| | Three months ended September 30, | | Nine months ended
September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Sempra: | | | | | | | |
| Revenues | $ | 7 | | | $ | 9 | | | $ | 22 | | | $ | 31 | |
| Cost of sales | — | | | 9 | | | 11 | | | 35 | |
| Interest income | 11 | | | 12 | | | 38 | | | 44 | |
| Interest expense | 4 | | | 4 | | | 11 | | | 11 | |
| SDG&E: | | | | | | | |
| Revenues | $ | 3 | | | $ | 1 | | | $ | 7 | | | $ | 4 | |
| Cost of sales | 20 | | | 17 | | | 75 | | | 56 | |
| SoCalGas: | | | | | | | |
| Revenues | $ | 24 | | | $ | 23 | | | $ | 72 | | | $ | 61 | |
Cost of sales(1) | (2) | | | 2 | | | 1 | | | 2 | |
(1) Includes net commodity costs from natural gas transactions with unconsolidated affiliates.
Guarantees
Sempra provided guarantees related to Cameron LNG JV’s construction-period debt, which were terminated in March 2021, as well 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 (EXPENSE) INCOME, (EXPENSE), NET
Other (expense) income, (expense), net, consists of the following:
| | OTHER INCOME (EXPENSE), NET | | | | | | | |
| OTHER (EXPENSE) INCOME, NET | | OTHER (EXPENSE) INCOME, NET | | | | | | |
| (Dollars in millions) | (Dollars in millions) | | | | | | | (Dollars in millions) | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
| Sempra: | Sempra: | | | | | | | | Sempra: | | | | | | | |
| Allowance for equity funds used during construction | Allowance for equity funds used during construction | $ | 34 | | | $ | 31 | | | $ | 72 | | | $ | 62 | | Allowance for equity funds used during construction | $ | 31 | | | $ | 34 | | | $ | 103 | | | $ | 96 | |
Investment gains (losses)(1) | 19 | | | 30 | | | 28 | | | (7) | | |
| Gains (losses) on interest rate and foreign exchange instruments, net | 7 | | | 5 | | | (23) | | | (148) | | |
Foreign currency transaction gains (losses), net(2) | 26 | | | 13 | | | 7 | | | (110) | | |
| Non-service component of net periodic benefit (cost) credit | (15) | | | (23) | | | 14 | | | 3 | | |
Investment gains, net(1) | | Investment gains, net(1) | — | | | 16 | | | 28 | | | 9 | |
| (Losses) gains on interest rate and foreign exchange instruments, net | | (Losses) gains on interest rate and foreign exchange instruments, net | (3) | | | 19 | | | (26) | | | (129) | |
Foreign currency transaction (losses) gains, net(2) | | Foreign currency transaction (losses) gains, net(2) | (17) | | | 15 | | | (10) | | | (95) | |
| Non-service component of net periodic benefit cost | | Non-service component of net periodic benefit cost | (66) | | | (48) | | | (52) | | | (45) | |
| Fine related to Energy Efficiency Program inquiry | | Fine related to Energy Efficiency Program inquiry | — | | | (6) | | | — | | | (6) | |
| Interest on regulatory balancing accounts, net | Interest on regulatory balancing accounts, net | 2 | | | 11 | | | 3 | | | 13 | | Interest on regulatory balancing accounts, net | 2 | | | — | | | 5 | | | 13 | |
| Sundry, net | Sundry, net | (1) | | | (5) | | | 6 | | | (5) | | Sundry, net | (2) | | | (1) | | | 4 | | | (6) | |
| Total | Total | $ | 72 | | | $ | 62 | | | $ | 107 | | | $ | (192) | | Total | $ | (55) | | | $ | 29 | | | $ | 52 | | | $ | (163) | |
| SDG&E: | SDG&E: | | | | | | | | SDG&E: | | | | | | | |
| Allowance for equity funds used during construction | Allowance for equity funds used during construction | $ | 22 | | | $ | 19 | | | $ | 45 | | | $ | 40 | | Allowance for equity funds used during construction | $ | 18 | | | $ | 21 | | | $ | 63 | | | $ | 61 | |
| Non-service component of net periodic benefit (cost) credit | (4) | | | (5) | | | 5 | | | 3 | | |
| Non-service component of net periodic benefit cost | | Non-service component of net periodic benefit cost | (15) | | | (18) | | | (10) | | | (15) | |
| Fine related to Energy Efficiency Program inquiry | | Fine related to Energy Efficiency Program inquiry | — | | | (6) | | | — | | | (6) | |
| Interest on regulatory balancing accounts, net | Interest on regulatory balancing accounts, net | 2 | | | 6 | | | 3 | | | 8 | | Interest on regulatory balancing accounts, net | 2 | | | — | | | 5 | | | 8 | |
| Sundry, net | Sundry, net | 2 | | | (2) | | | 4 | | | (2) | | Sundry, net | (1) | | | 1 | | | 3 | | | (1) | |
| Total | Total | $ | 22 | | | $ | 18 | | | $ | 57 | | | $ | 49 | | Total | $ | 4 | | | $ | (2) | | | $ | 61 | | | $ | 47 | |
| SoCalGas: | SoCalGas: | | | | | | | SoCalGas: | | | | | | |
| Allowance for equity funds used during construction | Allowance for equity funds used during construction | $ | 11 | | | $ | 10 | | | $ | 23 | | | $ | 18 | | Allowance for equity funds used during construction | $ | 13 | | | $ | 11 | | | $ | 36 | | | $ | 29 | |
| Non-service component of net periodic benefit (cost) credit | (9) | | | (13) | | | 19 | | | 12 | | |
| Non-service component of net periodic benefit cost | | Non-service component of net periodic benefit cost | (49) | | | (15) | | | (30) | | | (3) | |
| Interest on regulatory balancing accounts, net | Interest on regulatory balancing accounts, net | 0 | | | 5 | | | 0 | | | 5 | | Interest on regulatory balancing accounts, net | — | | | — | | | — | | | 5 | |
| Sundry, net | Sundry, net | (4) | | | (4) | | | (5) | | | (7) | | Sundry, net | (3) | | | (3) | | | (8) | | | (10) | |
| Total | Total | $ | (2) | | | $ | (2) | | | $ | 37 | | | $ | 28 | | Total | $ | (39) | | | $ | (7) | | | $ | (2) | | | $ | 21 | |
(1) Represents net investment gains (losses) on dedicated assets in support of our executive retirement and deferred compensation plans. These amounts are offset by corresponding changes in compensation expense related to the plans, recorded in O&M on the Condensed Consolidated Statements of Operations.
(2) Includes gainslosses of $28$18 million and $5$13 million in the three months and sixnine months ended JuneSeptember 30, 2021, respectively, and gains of $14$15 million and losses of $135$120 million in the three months and sixnine months ended JuneSeptember 30, 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 | |
| INCOME TAX (BENEFIT) EXPENSE AND EFFECTIVE INCOME TAX RATES | | INCOME TAX (BENEFIT) EXPENSE AND EFFECTIVE INCOME TAX RATES |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Three months ended June 30, | | Six months ended June 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
| Sempra: | Sempra: | | Sempra: | |
| Income tax expense (benefit) from continuing operations | $ | 139 | | | $ | 168 | | | $ | 297 | | | $ | (39) | | |
| Income tax (benefit) expense from continuing operations | | Income tax (benefit) expense from continuing operations | $ | (342) | | | $ | 99 | | | $ | (45) | | | $ | 60 | |
| Income from continuing operations before income taxes and equity earnings | $ | 281 | | | $ | 463 | | | $ | 1,049 | | | $ | 860 | | |
(Loss) income from continuing operations before income taxes and equity earnings | | (Loss) income from continuing operations before income taxes and equity earnings | $ | (1,365) | | | $ | 201 | | | $ | (316) | | | $ | 1,061 | |
Equity earnings, before income tax(1) | Equity earnings, before income tax(1) | 185 | | | 84 | | | 320 | | | 41 | | Equity earnings, before income tax(1) | 137 | | | 117 | | | 457 | | | 158 | |
| Pretax income | $ | 466 | | | $ | 547 | | | $ | 1,369 | | | $ | 901 | | |
| Pretax (loss) income | | Pretax (loss) income | $ | (1,228) | | | $ | 318 | | | $ | 141 | | | $ | 1,219 | |
| | Effective income tax rate | Effective income tax rate | 30 | % | | 31 | % | | 22 | % | | (4) | % | Effective income tax rate | 28 | % | | 31 | % | | (32) | % | | 5 | % |
| SDG&E: | SDG&E: | | SDG&E: | |
| Income tax expense | Income tax expense | $ | 33 | | | $ | 70 | | | $ | 78 | | | $ | 128 | | Income tax expense | $ | 90 | | | $ | 33 | | | $ | 168 | | | $ | 161 | |
| Income before income taxes | Income before income taxes | $ | 219 | | | $ | 263 | | | $ | 476 | | | $ | 583 | | Income before income taxes | $ | 295 | | | $ | 211 | | | $ | 771 | | | $ | 794 | |
| Effective income tax rate | Effective income tax rate | 15 | % | | 27 | % | | 16 | % | | 22 | % | Effective income tax rate | 31 | % | | 16 | % | | 22 | % | | 20 | % |
| SoCalGas: | SoCalGas: | | SoCalGas: | |
| Income tax expense | $ | 8 | | | $ | 49 | | | $ | 102 | | | $ | 101 | | |
| Income before income taxes | $ | 103 | | | $ | 196 | | | $ | 604 | | | $ | 551 | | |
| Income tax (benefit) expense | | Income tax (benefit) expense | $ | (437) | | | $ | (6) | | | $ | (335) | | | $ | 95 | |
| (Loss) income before income taxes | | (Loss) income before income taxes | $ | (1,563) | | | $ | (30) | | | $ | (959) | | | $ | 521 | |
| Effective income tax rate | Effective income tax rate | 8 | % | | 25 | % | | 17 | % | | 18 | % | Effective income tax rate | 28 | % | | 20 | % | | 35 | % | | 18 | % |
(1) We discuss how we recognize equity earnings in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report.
Sempra, 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. Through the first quarter of 2021, such effects were offset by net gains (losses) from foreign currency derivatives that were hedging Sempra Mexico parent’s exposure to movements in the Mexican peso from its controlling interest in IEnova.
Discontinued Operations
In January 2019, our board of directors approved a plan to sell our South American businesses. We completed the sales in the second quarter of 2020, as we discuss in Note 5. Because of our decision to sell our South American businesses, we no longer asserted indefinite reinvestment of basis differences related to these businesses. Accordingly, in the sixnine months ended JuneSeptember 30, 2020, we recorded a $7 million income tax benefit from changes in outside basis differences in our discontinued operations in South America.
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 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 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.
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.
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 |
| Three months ended September 30, 2021 |
| By major service line: | | | | | | | | | | | |
| Utilities | $ | 1,369 | | | $ | 966 | | | $ | 17 | | | $ | — | | | $ | (27) | | | $ | 2,325 | |
| Energy-related businesses | — | | | — | | | 324 | | | 144 | | | (145) | | | 323 | |
| Revenues from contracts with customers | $ | 1,369 | | | $ | 966 | | | $ | 341 | | | $ | 144 | | | $ | (172) | | | $ | 2,648 | |
| | | | | | | | | | | |
| By market: | | | | | | | | | | | |
| Gas | $ | 145 | | | $ | 966 | | | $ | 231 | | | $ | 143 | | | $ | (165) | | | $ | 1,320 | |
| Electric | 1,224 | | | — | | | 110 | | | 1 | | | (7) | | | 1,328 | |
| Revenues from contracts with customers | $ | 1,369 | | | $ | 966 | | | $ | 341 | | | $ | 144 | | | $ | (172) | | | $ | 2,648 | |
| | | | | | | | | | | |
| Revenues from contracts with customers | $ | 1,369 | | | $ | 966 | | | $ | 341 | | | $ | 144 | | | $ | (172) | | | $ | 2,648 | |
| Utilities regulatory revenues | 95 | | | 140 | | | — | | | — | | | — | | | 235 | |
| Other revenues | — | | | — | | | 256 | | | (25) | | | (101) | | | 130 | |
| Total revenues | $ | 1,464 | | | $ | 1,106 | | | $ | 597 | | | $ | 119 | | | $ | (273) | | | $ | 3,013 | |
| | | | | | | | | | | |
| | Nine months ended September 30, 2021 |
| By major service line: | | | | | | | | | | | |
| Utilities | $ | 3,755 | | | $ | 3,685 | | | $ | 61 | | | $ | — | | | $ | (79) | | | $ | 7,422 | |
| Energy-related businesses | — | | | — | | | 859 | | | 260 | | | (282) | | | 837 | |
| Revenues from contracts with customers | $ | 3,755 | | | $ | 3,685 | | | $ | 920 | | | $ | 260 | | | $ | (361) | | | $ | 8,259 | |
| | | | | | | | | | | |
| By market: | | | | | | | | | | | |
| Gas | $ | 580 | | | $ | 3,685 | | | $ | 635 | | | $ | 257 | | | $ | (334) | | | $ | 4,823 | |
| Electric | 3,175 | | | — | | | 285 | | | 3 | | | (27) | | | 3,436 | |
| Revenues from contracts with customers | $ | 3,755 | | | $ | 3,685 | | | $ | 920 | | | $ | 260 | | | $ | (361) | | | $ | 8,259 | |
| | | | | | | | | | | |
| Revenues from contracts with customers | $ | 3,755 | | | $ | 3,685 | | | $ | 920 | | | $ | 260 | | | $ | (361) | | | $ | 8,259 | |
| Utilities regulatory revenues | 364 | | | 53 | | | — | | | — | | | — | | | 417 | |
| Other revenues | — | | | — | | | 448 | | | 107 | | | (218) | | | 337 | |
| Total revenues | $ | 4,119 | | | $ | 3,738 | | | $ | 1,368 | | | $ | 367 | | | $ | (579) | | | $ | 9,013 | |
| | DISAGGREGATED REVENUES | |
| DISAGGREGATED REVENUES (CONTINUED) | | DISAGGREGATED REVENUES (CONTINUED) |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | SDG&E | | SoCalGas | | Sempra Mexico | | Sempra LNG | | Consolidating adjustments and Parent and Other | | Sempra | | SDG&E | | SoCalGas | | Sempra Mexico | | Sempra LNG | | Consolidating adjustments and Parent and other | | Sempra |
| | Three months ended June 30, 2021 | | Three months ended September 30, 2020 |
| By major service line: | By major service line: | | By major service line: | |
| Utilities | Utilities | $ | 1,170 | | | $ | 1,062 | | | $ | 17 | | | $ | 0 | | | $ | (25) | | | $ | 2,224 | | Utilities | $ | 1,301 | | | $ | 813 | | | $ | 12 | | | $ | — | | | $ | (25) | | | $ | 2,101 | |
| Energy-related businesses | Energy-related businesses | 0 | | | 0 | | | 254 | | | 48 | | | (56) | | | 246 | | Energy-related businesses | — | | | — | | | 244 | | | 35 | | | (32) | | | 247 | |
| Revenues from contracts with customers | Revenues from contracts with customers | $ | 1,170 | | | $ | 1,062 | | | $ | 271 | | | $ | 48 | | | $ | (81) | | | $ | 2,470 | | Revenues from contracts with customers | $ | 1,301 | | | $ | 813 | | | $ | 256 | | | $ | 35 | | | $ | (57) | | | $ | 2,348 | |
| | By market: | By market: | | By market: | |
| Gas | Gas | $ | 162 | | | $ | 1,062 | | | $ | 180 | | | $ | 47 | | | $ | (66) | | | $ | 1,385 | | Gas | $ | 126 | | | $ | 813 | | | $ | 159 | | | $ | 33 | | | $ | (54) | | | $ | 1,077 | |
| Electric | Electric | 1,008 | | | 0 | | | 91 | | | 1 | | | (15) | | | 1,085 | | Electric | 1,175 | | | — | | | 97 | | | 2 | | | (3) | | | 1,271 | |
| Revenues from contracts with customers | Revenues from contracts with customers | $ | 1,170 | | | $ | 1,062 | | | $ | 271 | | | $ | 48 | | | $ | (81) | | | $ | 2,470 | | Revenues from contracts with customers | $ | 1,301 | | | $ | 813 | | | $ | 256 | | | $ | 35 | | | $ | (57) | | | $ | 2,348 | |
| | Revenues from contracts with customers | Revenues from contracts with customers | $ | 1,170 | | | $ | 1,062 | | | $ | 271 | | | $ | 48 | | | $ | (81) | | | $ | 2,470 | | Revenues from contracts with customers | $ | 1,301 | | | $ | 813 | | | $ | 256 | | | $ | 35 | | | $ | (57) | | | $ | 2,348 | |
| Utilities regulatory revenues | Utilities regulatory revenues | 148 | | | 62 | | | 0 | | | 0 | | | 0 | | | 210 | | Utilities regulatory revenues | 171 | | | 29 | | | — | | | — | | | — | | | 200 | |
| Other revenues | Other revenues | 0 | | | 0 | | | 133 | | | 4 | | | (76) | | | 61 | | Other revenues | — | | | — | | | 95 | | | 28 | | | (27) | | | 96 | |
| Total revenues | Total revenues | $ | 1,318 | | | $ | 1,124 | | | $ | 404 | | | $ | 52 | | | $ | (157) | | | $ | 2,741 | | Total revenues | $ | 1,472 | | | $ | 842 | | | $ | 351 | | | $ | 63 | | | $ | (84) | | | $ | 2,644 | |
| | | | Six months ended June 30, 2021 | | Nine months ended September 30, 2020 |
| By major service line: | By major service line: | | By major service line: | |
| Utilities | Utilities | $ | 2,386 | | | $ | 2,719 | | | $ | 44 | | | $ | 0 | | | $ | (52) | | | $ | 5,097 | | Utilities | $ | 3,610 | | | $ | 3,261 | | | $ | 42 | | | $ | — | | | $ | (66) | | | $ | 6,847 | |
| Energy-related businesses | Energy-related businesses | 0 | | | 0 | | | 535 | | | 116 | | | (137) | | | 514 | | Energy-related businesses | — | | | — | | | 616 | | | 56 | | | (40) | | | 632 | |
| Revenues from contracts with customers | Revenues from contracts with customers | $ | 2,386 | | | $ | 2,719 | | | $ | 579 | | | $ | 116 | | | $ | (189) | | | $ | 5,611 | | Revenues from contracts with customers | $ | 3,610 | | | $ | 3,261 | | | $ | 658 | | | $ | 56 | | | $ | (106) | | | $ | 7,479 | |
| | By market: | By market: | | By market: | |
| Gas | Gas | $ | 435 | | | $ | 2,719 | | | $ | 404 | | | $ | 114 | | | $ | (169) | | | $ | 3,503 | | Gas | $ | 518 | | | $ | 3,261 | | | $ | 439 | | | $ | 51 | | | $ | (98) | | | $ | 4,171 | |
| Electric | Electric | 1,951 | | | 0 | | | 175 | | | 2 | | | (20) | | | 2,108 | | Electric | 3,092 | | | — | | | 219 | | | 5 | | | (8) | | | 3,308 | |
| Revenues from contracts with customers | Revenues from contracts with customers | $ | 2,386 | | | $ | 2,719 | | | $ | 579 | | | $ | 116 | | | $ | (189) | | | $ | 5,611 | | Revenues from contracts with customers | $ | 3,610 | | | $ | 3,261 | | | $ | 658 | | | $ | 56 | | | $ | (106) | | | $ | 7,479 | |
| | Revenues from contracts with customers | Revenues from contracts with customers | $ | 2,386 | | | $ | 2,719 | | | $ | 579 | | | $ | 116 | | | $ | (189) | | | $ | 5,611 | | Revenues from contracts with customers | $ | 3,610 | | | $ | 3,261 | | | $ | 658 | | | $ | 56 | | | $ | (106) | | | $ | 7,479 | |
| Utilities regulatory revenues | Utilities regulatory revenues | 269 | | | (87) | | | 0 | | | 0 | | | 0 | | | 182 | | Utilities regulatory revenues | 366 | | | (14) | | | — | | | — | | | — | | | 352 | |
| Other revenues | Other revenues | 0 | | | 0 | | | 192 | | | 132 | | | (117) | | | 207 | | Other revenues | — | | | — | | | 277 | | | 199 | | | (108) | | | 368 | |
| Total revenues | Total revenues | $ | 2,655 | | | $ | 2,632 | | | $ | 771 | | | $ | 248 | | | $ | (306) | | | $ | 6,000 | | Total revenues | $ | 3,976 | | | $ | 3,247 | | | $ | 935 | | | $ | 255 | | | $ | (214) | | | $ | 8,199 | |
REVENUES FROM CONTRACTS WITH CUSTOMERS
Utilities Revenues
In connection with the COVID-19 pandemic, the California Utilities implemented certain measures to assist customers, including suspending service disconnections due to nonpayment for all customers (except for SoCalGas’ noncore customers), waiving late payment fees, and offering flexible payment plans. Such measures ended on June 30, 2021, except for the suspension of service disconnections that ended on September 30, 2021. At the CPUC’s direction, the California Utilities have started to automatically enroll residential and small business customers with past-due balances 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 JuneSeptember 30, 2021, we expect to recognize revenue related to the fixed fee component of the consideration as shown below. SoCalGas did not have any such performance obligations at JuneSeptember 30, 2021.
| REMAINING PERFORMANCE OBLIGATIONS(1) | REMAINING PERFORMANCE OBLIGATIONS(1) | REMAINING PERFORMANCE OBLIGATIONS(1) |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Sempra | | SDG&E | | Sempra | | SDG&E |
| 2021 (excluding first six months of 2021) | $ | 180 | | | $ | 2 | | |
| 2021 (excluding first nine months of 2021) | | 2021 (excluding first nine months of 2021) | $ | 88 | | | $ | 1 | |
| 2022 | 2022 | 406 | | | 4 | | 2022 | 368 | | | 4 | |
| 2023 | 2023 | 407 | | | 4 | | 2023 | 367 | | | 4 | |
| 2024 | 2024 | 351 | | | 4 | | 2024 | 367 | | | 4 | |
| 2025 | 2025 | 351 | | | 4 | | 2025 | 364 | | | 4 | |
| Thereafter | Thereafter | 4,389 | | | 67 | | Thereafter | 4,129 | | | 67 | |
| Total revenues to be recognized | Total revenues to be recognized | $ | 6,084 | | | $ | 85 | | Total revenues to be recognized | $ | 5,683 | | | $ | 84 | |
(1) Excludes intercompany transactions.
Contract Liabilities from Revenues from Contracts with Customers
Activities within Sempra’s and SDG&E’s contract liabilities are presented below. There were no contract liabilities at SoCalGas in the sixnine months ended JuneSeptember 30, 2021 or 2020.
| | CONTRACT LIABILITIES | CONTRACT LIABILITIES | CONTRACT LIABILITIES |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Sempra: | Sempra: | | Sempra: | |
| Contract liabilities at January 1 | Contract liabilities at January 1 | $ | (207) | | | $ | (163) | | 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 | | Revenue from performance obligations satisfied during reporting period | 36 | | | 3 | |
| Payments received in advance | Payments received in advance | (1) | | | 0 | | Payments received in advance | (1) | | | — | |
Contract liabilities at June 30(1) | $ | (159) | | | $ | (161) | | |
Contract liabilities at September 30(1) | | Contract liabilities at September 30(1) | $ | (172) | | | $ | (160) | |
| SDG&E: | SDG&E: | | SDG&E: | |
| Contract liabilities at January 1 | Contract liabilities at January 1 | $ | (87) | | | $ | (91) | | Contract liabilities at January 1 | $ | (87) | | | $ | (91) | |
| Revenue from performance obligations satisfied during reporting period | Revenue from performance obligations satisfied during reporting period | 2 | | | 2 | | Revenue from performance obligations satisfied during reporting period | 3 | | | 3 | |
| Contract liabilities at June 30(1) | $ | (85) | | | $ | (89) | | |
Contract liabilities at September 30(1) | | Contract liabilities at September 30(1) | $ | (84) | | | $ | (88) | |
(1) At JuneSeptember 30, 2021, includes $6$8 million and $4 million in Other Current Liabilities and $153$164 million and $81$80 million in Deferred Credits and Other on Sempra’s and SDG&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 | RECEIVABLES FROM REVENUES FROM CONTRACTS WITH CUSTOMERS | | RECEIVABLES FROM REVENUES FROM CONTRACTS WITH CUSTOMERS | |
| (Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| | June 30, 2021 | | December 31, 2020 | | | September 30, 2021 | | December 31, 2020 | |
| Sempra: | Sempra: | | | Sempra: | | |
| Accounts receivable – trade, net | Accounts receivable – trade, net | $ | 1,265 | | | $ | 1,447 | | | Accounts receivable – trade, net | $ | 1,216 | | | $ | 1,447 | | |
| Accounts receivable – other, net | Accounts receivable – other, net | 15 | | | 12 | | | Accounts receivable – other, net | 17 | | | 12 | | |
Due from unconsolidated affiliates – current(1) | Due from unconsolidated affiliates – current(1) | 2 | | | 3 | | | Due from unconsolidated affiliates – current(1) | 2 | | | 3 | | |
| | Other long-term assets | | Other long-term assets | 115 | | | — | | |
| Total | Total | $ | 1,282 | | | $ | 1,462 | | | Total | $ | 1,350 | | | $ | 1,462 | | |
| SDG&E: | SDG&E: | | | SDG&E: | | |
| Accounts receivable – trade, net | Accounts receivable – trade, net | $ | 635 | | | $ | 573 | | | Accounts receivable – trade, net | $ | 642 | | | $ | 573 | | |
| Accounts receivable – other, net | Accounts receivable – other, net | 8 | | | 8 | | | Accounts receivable – other, net | 11 | | | 8 | | |
Due from unconsolidated affiliates – current(1) | Due from unconsolidated affiliates – current(1) | 3 | | | 2 | | | Due from unconsolidated affiliates – current(1) | 3 | | | 2 | | |
| Other long-term assets | | Other long-term assets | 47 | | | — | | |
| Total | Total | $ | 646 | | | $ | 583 | | | Total | $ | 703 | | | $ | 583 | | |
| SoCalGas: | SoCalGas: | | | SoCalGas: | | |
| Accounts receivable – trade, net | Accounts receivable – trade, net | $ | 541 | | | $ | 786 | | | Accounts receivable – trade, net | $ | 462 | | | $ | 786 | | |
| Accounts receivable – other, net | Accounts receivable – other, net | 7 | | | 4 | | | Accounts receivable – other, net | 6 | | | 4 | | |
| Other long-term assets | | Other long-term assets | 68 | | | — | | |
| Total | Total | $ | 548 | | | $ | 790 | | | Total | $ | 536 | | | $ | 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. With the exception of regulatory balancing accounts, we generally do not earn a return on our regulatory assets until such time as a related cash expenditure has been made. Upon the occurrence of a cash expenditure associated with a regulatory asset, the related amounts are recoverable through a regulatory account mechanism for which we earn a return authorized by applicable regulators, which currently approximates the three-month commercial paper rate. The periods during which we recognize a regulatory asset while we do not earn a return vary by regulatory asset.
REGULATORY ASSETS 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) |
| | June 30,
2021 | | December 31,
2020 | | September 30,
2021 | | December 31,
2020 |
| | | | | |
| SDG&E: | SDG&E: | | | | SDG&E: | | | |
| Fixed-price contracts and other derivatives | Fixed-price contracts and other derivatives | $ | (82) | | | $ | (53) | | Fixed-price contracts and other derivatives | $ | (88) | | | $ | (53) | |
| Deferred income taxes recoverable in rates | Deferred income taxes recoverable in rates | 86 | | | 22 | | Deferred income taxes recoverable in rates | 72 | | | 22 | |
| Pension and other postretirement benefit plan obligations | Pension and other postretirement benefit plan obligations | 41 | | | 50 | | Pension and other postretirement benefit plan obligations | 19 | | | 50 | |
| Removal obligations | Removal obligations | (2,199) | | | (2,121) | | Removal obligations | (2,228) | | | (2,121) | |
| Environmental costs | Environmental costs | 55 | | | 56 | | Environmental costs | 55 | | | 56 | |
| Sunrise Powerlink fire mitigation | Sunrise Powerlink fire mitigation | 120 | | | 121 | | Sunrise Powerlink fire mitigation | 121 | | | 121 | |
Regulatory balancing accounts(1)(2) | Regulatory balancing accounts(1)(2) | | Regulatory balancing accounts(1)(2) | |
| Commodity – electric | Commodity – electric | 175 | | | 72 | | Commodity – electric | 85 | | | 72 | |
| Gas transportation | Gas transportation | 10 | | | 35 | | Gas transportation | 23 | | | 35 | |
| Safety and reliability | Safety and reliability | 61 | | | 67 | | Safety and reliability | 60 | | | 67 | |
| Public purpose programs | Public purpose programs | (110) | | | (158) | | Public purpose programs | (138) | | | (158) | |
| 2019 GRC retroactive impacts | 2019 GRC retroactive impacts | 28 | | | 56 | | 2019 GRC retroactive impacts | 14 | | | 56 | |
| Other balancing accounts | Other balancing accounts | 328 | | | 233 | | Other balancing accounts | 535 | | | 233 | |
Other regulatory assets, net(2) | Other regulatory assets, net(2) | 95 | | | 72 | | Other regulatory assets, net(2) | 110 | | | 72 | |
| Total SDG&E | Total SDG&E | (1,392) | | | (1,548) | | Total SDG&E | (1,360) | | | (1,548) | |
| SoCalGas: | SoCalGas: | | | | SoCalGas: | | | |
| Deferred income taxes recoverable (refundable) in rates | Deferred income taxes recoverable (refundable) in rates | 13 | | | (82) | | Deferred income taxes recoverable (refundable) in rates | 9 | | | (82) | |
| Pension and other postretirement benefit plan obligations | Pension and other postretirement benefit plan obligations | 406 | | | 417 | | Pension and other postretirement benefit plan obligations | 342 | | | 417 | |
| Employee benefit costs | Employee benefit costs | 37 | | | 37 | | Employee benefit costs | 37 | | | 37 | |
| Removal obligations | Removal obligations | (662) | | | (685) | | Removal obligations | (649) | | | (685) | |
| Environmental costs | Environmental costs | 35 | | | 36 | | 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 | (127) | | | (56) | | Commodity – gas, including transportation | (138) | | | (56) | |
| Safety and reliability | Safety and reliability | 305 | | | 335 | | Safety and reliability | 299 | | | 335 | |
| Public purpose programs | Public purpose programs | (176) | | | (253) | | Public purpose programs | (274) | | | (253) | |
| 2019 GRC retroactive impacts | 2019 GRC retroactive impacts | 101 | | | 202 | | 2019 GRC retroactive impacts | 51 | | | 202 | |
| Other balancing accounts | Other balancing accounts | (52) | | | (58) | | Other balancing accounts | 85 | | | (58) | |
Other regulatory assets, net(2) | Other regulatory assets, net(2) | 121 | | | 75 | | Other regulatory assets, net(2) | 160 | | | 75 | |
| Total SoCalGas | Total SoCalGas | 1 | | | (32) | | Total SoCalGas | (43) | | | (32) | |
| Sempra Mexico: | Sempra Mexico: | | Sempra Mexico: | |
| Deferred income taxes recoverable in rates | Deferred income taxes recoverable in rates | 80 | | | 80 | | Deferred income taxes recoverable in rates | 80 | | | 80 | |
| | Total Sempra | Total Sempra | $ | (1,311) | | | $ | (1,500) | | Total Sempra | $ | (1,323) | | | $ | (1,500) | |
(1) At JuneSeptember 30, 2021 and December 31, 2020, the noncurrent portion of regulatory balancing accounts – net undercollected for SDG&E was $256$331 million and $139 million, respectively, and for SoCalGas was $388$472 million and $218 million, respectively.
(2) Includes regulatory assets earning a return.return authorized by applicable regulators, which currently approximates the three-month commercial paper rate.
CALIFORNIA UTILITIES
COVID-19 Pandemic Protections
In March 2020,connection with the CPUC required that all energy companies under its jurisdiction, includingCOVID-19 pandemic, the California Utilities take action to implement several emergency customer protectionimplemented certain measures to support Californiaassist customers, affected by the COVID-19 pandemic for upincluding suspending service disconnections due to one year. The customer protection measures were mandatorynonpayment for all residentialcustomers (except for SoCalGas’ noncore customers), waiving late payment fees, and small business customers. In Februaryoffering flexible payment plans. Such measures ended on June 30, 2021, the CPUC extended the customer protection measures through June 2021. In June 2021, the CPUC further extendedexcept for the suspension of service disconnections for nonpayment by these customers throughthat ended on September 2021, which provides time for30, 2021. At the CPUC’s direction, the California Utilities have started to notifyautomatically enroll residential and small business customers in arrears and enroll such customerswith past-due balances 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 these customers through September 2021.
Each of the California Utilities has been authorized to track and request recovery of incremental costs associated with complying with customer protection measures implemented by the CPUC related to the COVID-19 pandemic, including costs associated
with suspending service disconnections and uncollectible expenses that arise from customers’ failure to pay. The California Utilities expect to pursue recovery of small and medium-large commercial and industrial customers’ tracked costs in rates 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.
Disconnection OIR
In June 2020, the CPUC issued a decision to adopt certain customer protections to reduce residential customer disconnections and improve reconnection processes, including, among other things, imposing limitations on service disconnections, elimination of deposit requirements and reconnection fees, establishment of the AMP that provides successfully participating, income-qualified residential customers with relief from outstanding utility bill amounts, and increased outreach and marketing efforts. As permitted by the decision, each of the California Utilities has 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.
CPUC GRC
The CPUC uses GRCs 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.
In January 2020, the CPUC issued a final decision implementing a four-year GRC cycle for California IOUs 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.
In May 2021, the CPUC issued a final decision approving the California Utilities’ request to continue their authorized post-test year mechanisms for 2022 and 2023. For SDG&E, the decision authorizes revenue requirement increases of $87 million (3.92%) for 2022 and $86 million (3.70%) for 2023. For SoCalGas, the decision authorizes revenue requirement increases of $142 million (4.53%) for 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.
CPUC Cost of Capital
A CPUC cost of capital proceeding determines a utility’s authorized capital structure and authorized return on rate base. In December 2019, the CPUC approved the cost of capital and rate structures for SDG&E and SoCalGas that became effective on January 1, 2020 and will remain in effect through December 31, 2022, subject to the CCM. The CCM considers changes in interest rates based on the applicable utility bond index published by Moody’s (the CCM benchmark rate) for each 12-month period ending September 30 (the measurement period). The CCM benchmark rate is the basis of comparison to determine if the CCM is triggered, which occurs if the change in the applicable Moody’s utility bond index relative to the CCM benchmark rate is larger than plus or minus 1.000% at the end of the measurement period. The index applicable to SDG&E and SoCalGas is based on each utility’s credit rating. SDG&E’s CCM benchmark rate is 4.498% based on Moody’s Baa- utility bond index, and SoCalGas’ CCM benchmark rate is 4.029% based on Moody’s A- utility bond index.
Alternatively, under the CCM, each of the California Utilities is permitted to file a cost of capital application in an interim year in which an extraordinary or catastrophic event materially impacts its cost of capital. In August 2021, SDG&E filed an application with the CPUC to update its cost of capital effective January 1, 2022 due to the ongoing effects of the COVID-19 pandemic. In this application, SDG&E proposed to adjust its authorized capital structure by increasing its common equity ratio from 52% to 54%. SDG&E also proposed to increase its authorized ROE from 10.20% to 10.55% and decrease its authorized cost of debt from 4.59% to 3.84%. As a result, SDG&E’s proposed return on rate base would decrease from 7.55% to 7.46% if such application is approved by the CPUC as filed. SDG&E filed a joint motion with PG&E and Edison to consolidate all three utilities’ cost of capital applications given the overlapping issues of law and fact, which joint motion was granted in October 2021.
For the measurement period ended September 30, 2021, the CCM would trigger for SDG&E because the average Moody’s Baa- utility bond index between October 1, 2020 and September 30, 2021 was 1.17% below SDG&E’s CCM benchmark rate of
4.498%. However, SDG&E’s application to update its cost of capital effective January 1, 2022, if accepted by the CPUC, would supersede the CCM from applying. If such application is not accepted, the CCM would be effective January 1, 2022 and would automatically adjust SDG&E’s authorized ROE from 10.20% to 9.62% and adjust its authorized cost of debt to reflect the then current embedded cost and projected interest rate. SDG&E has requested that a final CPUC decision on its interim cost of capital application be issued in the first half of 2022.
For the measurement period ended September 30, 2021, the CCM was not triggered for SoCalGas. SoCalGas expects to file its next cost of capital application in April 2022 for a January 1, 2023 effective date.
SDG&E
FERC Rate Matters and Cost of Capital
SDG&E files separately with the FERC for its authorized ROE on FERC-regulated electric transmission operations and assets.
SDG&E’s TO4 ROE of 10.05% was the basis of SDG&E’s FERC-related revenue recognition until March 2020, when the FERC approved the settlement terms that SDG&E and all settling parties reached in October 2019 on SDG&E’s TO5 filing. The settlement agreement provided for a ROE of 10.60%, consisting of a base ROE of 10.10% plus an additional 50 bps for participation in the California ISO (the California ISO adder). If the FERC issues an order ruling that California IOUs are no longer eligible for the California ISO adder, SDG&E would refund the California ISO adder as of the refund effective date (June 1, 2019) 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 each calendar year until terminated by a notice at least six months before the 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 Programs designed to produce energy efficiency savings for which SDG&E could earn a performance-based incentive.
Pursuant to the CPUC ruling, intervenors representing ratepayers 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, SDG&E concluded some concessions were appropriate, which included refunding certain costs to customers and reducing certain performance-based incentives. Accordingly, in the second quarter ofthree months and nine months ended September 30, 2020, SDG&E reduced revenues by $15$36 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$51 million, respectively, and recorded a fine of $6 million.million in Other (Expense) Income, Net, on the SDG&E and Sempra Condensed Consolidated Statements of Operations. The after-tax impact for the yearthree months and nine months ended December 31,September 30, 2020 was $29 million and $44 million.million, respectively. In October 2020, SDG&E executed a settlement agreement with intervenors consistent with these concessions. In AugustSeptember 2021, the CPUC issued a proposed decision approvingapproved the settlement agreement.
SOCALGAS
OSCs – Energy Efficiency and Advocacy
In October 2019, the CPUC issued an OSC to determine whether SoCalGas should be sanctioned for violation of certain CPUC code sections and orders. The OSC stemmed from 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 expectare awaiting a CPUC decision on this OSC in the fourth quarter of 2021.decision.
In December 2019, the CPUC issued a second OSC to determine whether SoCalGas is entitled to the EE program’s shareholder incentives for codes and standards advocacy in 2016 and 2017, 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 precludingprecludes 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.
Sempra Mexico
ESJ
OnIn March 19, 2021, IEnova completed the acquisition of 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). IEnova previously accounted for its 50% interest in ESJ as an equity method investment. This acquisition increased IEnova’s ownership interest in ESJ from 50% to 100%. We accounted for this asset acquisition using a cost accumulation model whereby the cost of the acquisition and 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 PPA that will be amortized over a period of 14 years against revenues. 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.
DISCONTINUED OPERATIONS
In April 2020, we completed the sale of our equity interests in our Peruvian businesses, including our 83.6% interest in Luz del Sur and its interest in Tecsur, to an affiliate of China Yangtze Power International (Hongkong) Co., Limited for cash proceeds of $3,549 million, net of transaction costs and as adjusted for post-closing adjustments, and recorded a pretax gain of $2,271 million ($1,499 million after tax).
In June 2020, we completed the sale of our equity interests in our Chilean businesses, including our 100% interest in Chilquinta Energía and Tecnored and our 50% interest in Eletrans, to State Grid International Development Limited for cash proceeds of $2,232$2,216 million, net of transaction costs and subject toas adjusted for post-closing adjustments, and recorded a pretax gain of $644$628 million ($255248 million after tax).
In the three months and sixnine months ended JuneSeptember 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 Sempra’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 June 30, 2020(1) | | Six months ended June 30, 2020(1) | | Three months ended September 30, 2020(1) | | Nine months ended September 30, 2020(2) |
| | Revenues | Revenues | | $ | 170 | | | $ | 570 | | Revenues | $ | — | | | $ | 570 | |
| Cost of sales | Cost of sales | | (111) | | | (364) | | Cost of sales | — | | | (364) | |
| Gain on sale of discontinued operations | | 2,915 | | | 2,915 | | |
| (Loss) gain on sale of discontinued operations | | (Loss) gain on sale of discontinued operations | (16) | | | 2,899 | |
| Operating expenses | Operating expenses | | (20) | | | (66) | | Operating expenses | — | | | (66) | |
| Interest and other | Interest and other | | (3) | | | (3) | | Interest and other | — | | | (3) | |
| Income before income taxes | Income before income taxes | | 2,951 | | | 3,052 | | Income before income taxes | (16) | | | 3,036 | |
| Income tax expense | | (1,174) | | | (1,195) | | |
| | Income from discontinued operations, net of income tax | | 1,777 | | | 1,857 | | |
| Income tax benefit (expense) | | Income tax benefit (expense) | 9 | | | (1,186) | |
| (Loss) income from discontinued operations, net of income tax | | (Loss) income from discontinued operations, net of income tax | (7) | | | 1,850 | |
| Earnings attributable to noncontrolling interests | Earnings attributable to noncontrolling interests | | (2) | | | (10) | | Earnings attributable to noncontrolling interests | — | | | (10) | |
| Earnings from discontinued operations attributable to Sempra | | $ | 1,775 | | | $ | 1,847 | | |
| (Losses) earnings from discontinued operations attributable to Sempra | | (Losses) earnings from discontinued operations attributable to Sempra | $ | (7) | | | $ | 1,840 | |
(1)Represents post-closing adjustments related to the sale of our equity interests in our Chilean businesses.
(2) Results include activity until the sale of our Peruvian businesses on April 24, 2020 and Chilean businesses on June 24, 2020.
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 Sempra’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 sixnine months ended JuneSeptember 30, 2021 and 2020, Sempra contributed $100$151 million and $139$209 million, respectively, to Oncor Holdings, and Oncor Holdings distributed $162$239 million and $146$220 million, respectively, to Sempra. Additionally, in dividendsthe nine months ended September 30, 2021, Oncor Holdings distributed a $361 million return of investment to Sempra.
We provide summarized income statement information for Oncor Holdings in the following table.
| | | | | | | | | | | | | | | | | | | | | | | |
| SUMMARIZED FINANCIAL INFORMATION – ONCOR HOLDINGS |
| (Dollars in millions) |
| | Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Operating revenues | $ | 1,147 | | | $ | 1,090 | | | $ | 2,286 | | | $ | 2,162 | |
| Operating expenses | (836) | | | (767) | | | (1,665) | | | (1,568) | |
| Income from operations | 311 | | | 323 | | | 621 | | | 594 | |
| Interest expense | (102) | | | (102) | | | (204) | | | (203) | |
| Income tax expense | (34) | | | (37) | | | (70) | | | (65) | |
| Net income | 167 | | | 173 | | | 332 | | | 302 | |
| Noncontrolling interest held by TTI | (34) | | | (35) | | | (67) | | | (61) | |
Earnings attributable to Sempra(1) | 133 | | | 138 | | | 265 | | | 241 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| SUMMARIZED FINANCIAL INFORMATION – ONCOR HOLDINGS |
| (Dollars in millions) |
| | Three months ended September 30, | | Nine months ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Operating revenues | $ | 1,286 | | | $ | 1,232 | | | $ | 3,572 | | | $ | 3,394 | |
| Operating expenses | (866) | | | (819) | | | (2,531) | | | (2,387) | |
| Income from operations | 420 | | | 413 | | | 1,041 | | | 1,007 | |
| Interest expense | (104) | | | (102) | | | (308) | | | (305) | |
| Income tax expense | (54) | | | (50) | | | (124) | | | (115) | |
| Net income | 255 | | | 255 | | | 587 | | | 557 | |
| Noncontrolling interest held by TTI | (51) | | | (50) | | | (118) | | | (111) | |
Earnings attributable to Sempra(1) | 204 | | | 205 | | | 469 | | | 446 | |
(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, onin 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 sixnine months ended JuneSeptember 30, 2021 and 2020, ESJ distributed a $4 million and $8 million, respectively, return of investment to IEnova.
SEMPRA LNG
Cameron LNG JV
In the sixnine months ended JuneSeptember 30, 2021, and 2020, Cameron LNG JV distributed to Sempra LNG dividends of $378$496 million, of which $165 million relates to the distribution from Cameron LNG JV’s SDSRA that we discuss below,below.
In the nine months ended September 30, 2020, Sempra LNG contributed $54 million to Cameron LNG JV, and $74Cameron LNG JV distributed to Sempra LNG $209 million respectively. and a return of investment of $803 million.
In March 2021, Cameron LNG JV reached financial completion of the three-train liquefaction project, and Sempra’s related guarantees for a maximum aggregate amount of $4.0 billion were terminated. We discuss these guarantees in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report.
Sempra Promissory 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$22 million in Other Current Liabilities and Deferred Credits and Other, respectively, on Sempra’s Condensed Consolidated Balance SheetJune 2021, with an associated carrying value of $22 million at September 30, 2021, for the fair value of the promissory note, which will beis being 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 used its $753 million share of the proceeds for working capital and other general corporate purposes, including the repayment of indebtedness.
Sempra LNG’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 eight8 banks (the bank debt) to whom Sempra has provided a guarantee pursuant to a Support Agreement, as amended on June 29, 2021, under which:
▪Sempra has severally guaranteed repayment of the bank debt plus accrued and unpaid interest if CFIN fails to pay the external lenders;
▪the external lenders may exercise an option to put the bank debt to Sempra LNG upon the occurrence of certain events, including a failure by CFIN to meet its payment obligations under the bank debt;
▪the external lenders will put some or all of the bank debt to Sempra LNG on the fifth, tenth, or fifteenth anniversary date of the affiliate loans, except the portion of the debt owed to any external lender that has elected not to participate in the put option six months prior to the respective anniversary date;
▪Sempra LNG also has a right to call the bank debt back from, or to refinance the bank debt with, the external lenders at any time; 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 LNG.
In exchange for this guarantee, the external lenders will pay a guarantee fee that is based on the credit rating of Sempra’s long-term senior unsecured non-credit enhanced debt rating, which guarantee fee Sempra LNG will recognize as interest income as earned. Sempra’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 JuneSeptember 30, 2021, the fair value of the Support Agreement was $4$5 million, of which $7 million is included in Other Current Assets offset by $3$2 million included in Deferred Credits and Other on Sempra’s Condensed Consolidated Balance Sheet.
RBS SEMPRA COMMODITIESSempra Commodities
As we discuss in Note 11, in the first quarter ofnine months ended September 30, 2020, we recorded a charge of $100 million in Equity Earnings on Sempra’s Condensed Consolidated Statement of Operations representing our share of estimated losses in excess of the carrying value of our equity method investment in RBS Sempra Commodities. In the second quarter ofnine months ended September 30, 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 JuneSeptember 30, 2021, Sempra had an aggregate capacity of $6.7 billion from 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) |
| | 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 | |
| | | | | | | | | | | | | | | | | | | | | | |
| PRIMARY U.S. COMMITTED LINES OF CREDIT |
| (Dollars in millions) |
| | September 30, 2021 |
| | Total facility | | Commercial paper outstanding(1)(2) | | | | Available unused credit |
Sempra(3) | | $ | 4,435 | | | $ | (2,112) | | | | | $ | 2,323 | |
| | | | | | | | |
SDG&E(4) | | 1,500 | | | — | | | | | 1,500 | |
SoCalGas(4) | | 750 | | | — | | | | | 750 | |
| Total | | $ | 6,685 | | | $ | (2,112) | | | | | $ | 4,573 | |
(1) Because the commercial paper programs are supported by these lines, we reflect the amount of commercial paper outstanding as a reduction to the available unused 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 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 has the right to increase the letter of credit commitment up to $500 million. No letters of credit were outstanding at JuneSeptember 30, 2021.
(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 JuneSeptember 30, 2021.
Sempra, 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 JuneSeptember 30, 2021, each entity was in compliance with this ratio under its respective credit facility.
Foreign Committed Lines of Credit
Our foreign operations in Mexico have additional committed lines of credit aggregating $1.8with an aggregate capacity of $1.9 billion at JuneSeptember 30, 2021. The principal terms of these committed lines of credit are described in Note 7 of the Notes to Consolidated Financial Statements in the Annual Report.
| | FOREIGN COMMITTED LINES OF CREDIT | FOREIGN COMMITTED LINES OF CREDIT | FOREIGN COMMITTED LINES OF CREDIT |
| (U.S. dollar equivalent in millions) | (U.S. dollar equivalent in millions) | (U.S. dollar equivalent in millions) |
| | June 30, 2021 | | September 30, 2021 |
| Expiration date of facility | Expiration date of facility | | Total facility | | Amounts outstanding | | Available unused credit | Expiration date of facility | | Total facility | | Amounts outstanding | | Available unused credit |
| February 2024 | February 2024 | | $ | 1,500 | | | $ | (189) | | | $ | 1,311 | | February 2024 | | $ | 1,500 | | | $ | — | | | $ | 1,500 | |
| September 2021 | | 280 | | | (280) | | | 0 | | |
September 2023(1) | | September 2023(1) | | 350 | | | (294) | | | 56 | |
| Total | Total | | $ | 1,780 | | | $ | (469) | | | $ | 1,311 | | Total | | $ | 1,850 | | | $ | (294) | | | $ | 1,556 | |
(1) In September 2021, IEnova amended this revolving credit facility to increase the amount available under the facility from $280 million to $350 million and extend the expiration of the facility from September 2021 to September 2023. Borrowings continue to bear interest at a per annum rate equal to 3-month LIBOR plus 54 bps.
Foreign Uncommitted Lines of Credit
In addition to itsour committed lines of credit, IEnova hasour foreign operations in Mexico have uncommitted lines of credit with an aggregate capacity of $470 million at September 30, 2021, which are generally used for working capital requirements.
| | | | | | | | | | | | | | | | | | | | | | | |
| FOREIGN UNCOMMITTED LINES OF CREDIT |
| (U.S. dollar equivalent in millions) |
| | | September 30, 2021 |
| Expiration date of facility | Borrowing denomination | | Total facility | | Amounts outstanding | | Available unused credit |
September 2022(1) | U.S. dollars | | $ | 250 | | | $ | (250) | | | $ | — | |
August 2023(2) | U.S. dollars or Mexican pesos | | 100 | | | (37) | | | 63 | |
October 2023(3) | U.S. dollars | | 100 | | | — | | | 100 | |
October 2023(4) | U.S. dollars or Mexican pesos | | 20 | | | — | | | 20 | |
| Total | | $ | 470 | | | $ | (287) | | | $ | 183 | |
(1) IEnova’s one-year credit agreement under which borrowings bear interest at a three-year $20 million uncommitted revolvingper annum rate equal to 3-month LIBOR plus 10 bps.
(2) ECA LNG Phase 1’s two-year credit facility with Scotiabank Inverlat S.A. (borrowings may be madeagreement under which outstanding amounts were borrowed in either U.S. dollars or Mexican pesos)pesos and bear interest at a three-year $100 million uncommitted revolving credit facility with The Bank of Nova Scotia (borrowings may only bevariable rate based on the 28-day Interbank Equilibrium Interest Rate plus 105 bps and are before reductions from negligible unamortized discount. Borrowings made in U.S. dollars). Bothdollars bear interest at a variable rate based on the 1-month or 3-month LIBOR plus 105 bps.
(3) IEnova’s three-year credit facilities expireagreement under which borrowings bear interest at a per annum rate equal to 6-month LIBOR plus 52 bps.
(4) IEnova’s three-year credit agreement under which borrowings made in October 2023. At June 30, 2021, available unused creditMexican pesos bear interest at a variable rate based on these lines was $20 million.the 28-day Interbank Equilibrium Interest Rate plus an applicable margin. Borrowings made in U.S. dollars bear interest at a variable rate based on 1-month LIBOR plus an applicable margin. The applicable margin is determined on the date of borrowing.
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 JuneSeptember 30, 2021, we had approximately $680$697 million in standby letters of credit outstanding under these agreements.
TERM LOAN
In June 2021, SDG&E entered into a $375 million, 364-day term loan with a maturity date of June 27, 2022. At JuneSeptember 30, 2021, there were no borrowings outstanding under this agreement. In July 2021, SDG&E borrowed $200$375 million, net of negligible issuance costs, was outstanding 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.
WEIGHTED-AVERAGE INTEREST RATES
The weighted-average interest rates on the total short-term debt at JuneSeptember 30, 2021 and December 31, 2020 were as follows:
| | WEIGHTED-AVERAGE INTEREST RATES | WEIGHTED-AVERAGE INTEREST RATES | | WEIGHTED-AVERAGE INTEREST RATES | |
| | | | June 30, 2021 | | December 31, 2020 | | | September 30, 2021 | | December 31, 2020 |
| Sempra | Sempra | 0.34 | % | | 0.83 | % | Sempra | 0.39 | % | | 0.83 | % |
| SDG&E | SDG&E | 0.19 | | | 0 | | SDG&E | 0.76 | | | — | |
| SoCalGas | SoCalGas | 0.11 | | | 0.14 | | SoCalGas | — | | | 0.14 | |
LONG-TERM DEBT
SDG&E
In August 2021, SDG&E issued $750 million of 2.95% green first mortgage bonds maturing in 2051 and received proceeds of $737 million (net of debt discount, underwriting discounts and debt issuance costs of $13 million). SDG&E intends to use the net proceeds to finance or refinance eligible projects that fall into one or more of the following categories: climate change adaptation, clean energy solutions and clean transportation.
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 JuneSeptember 30, 2021). On October 8, 2021, Sempra Mexico used proceeds from borrowings against its committed and uncommitted lines of credit to fully repay $175 million of outstanding principal plus accrued and unpaid interest on the ESJ loan prior to its scheduled maturity in 2033, and recognized approximately $16 million ($10 million after tax and NCI) in charges associated with hedge termination costs and a write-off of unamortized debt issuance costs.
On October 13, 2021, Sempra Mexico used proceeds from borrowings against its committed and uncommitted lines of credit to fully repay $375 million of outstanding principal plus accrued and unpaid interest on the Ventika fixed- and variable-rate loans prior to scheduled maturity dates through 2032, and recognized approximately $34 million ($20 million after tax and NCI) in charges associated with hedge termination costs and a write-off of unamortized debt issuance costs.
Sempra LNG
In December 2020, ECA LNG Phase 1 entered into a five-year loan agreement with a syndicate of nine9 banks for an aggregate principal amount of up to $1.6 billion. At JuneSeptember 30, 2021 and December 31, 2020, $202$291 million and $17 million, respectively, was
outstanding, with a weighted-average interest rate of 2.85%2.84% and 2.82%, respectively. We discuss the details of this agreement in Note 7 of the Notes to Consolidated Financial Statements in the Annual Report.
Parent and Other
On November 1, 2021, Sempra issued notices to redeem, at respective make-whole redemption prices, an aggregate principal amount of $2.35 billion of senior unsecured notes prior to scheduled maturities in 2022 through 2025. Upon redemption, which is scheduled to occur in December 2021, we expect to recognize approximately $128 million ($93 million after tax) in charges associated with the make-whole premiums from the early redemptions and write-off of unamortized discount and debt issuance costs. As a result of our expected early redemption, this debt was classified as Current Portion of Long-Term Debt and Finance Leases on Sempra’s Condensed Consolidated Balance Sheet at September 30, 2021.
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 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 | | June 30, 2021 | | December 31, 2020 | Commodity | Unit of measure | | September 30, 2021 | | December 31, 2020 |
| Sempra: | Sempra: | | Sempra: | |
| Natural gas | Natural gas | MMBtu | | (34) | | | 5 | | Natural gas | MMBtu | | (14) | | | 5 | |
| Electricity | Electricity | MWh | | 1 | | | 1 | | Electricity | MWh | | 1 | | | 1 | |
| Congestion revenue rights | Congestion revenue rights | MWh | | 43 | | | 43 | | Congestion revenue rights | MWh | | 48 | | | 43 | |
| | SDG&E: | SDG&E: | | SDG&E: | |
| Natural gas | Natural gas | MMBtu | | 14 | | | 16 | | Natural gas | MMBtu | | 10 | | | 16 | |
| Electricity | Electricity | MWh | | 1 | | | 1 | | Electricity | MWh | | 1 | | | 1 | |
| Congestion revenue rights | Congestion revenue rights | MWh | | 43 | | | 43 | | Congestion revenue rights | MWh | | 48 | | | 43 | |
| SoCalGas: | SoCalGas: | | SoCalGas: | |
| Natural gas | Natural gas | MMBtu | | 0 | | | 1 | | Natural gas | MMBtu | | — | | | 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 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) |
| | | June 30, 2021 | | December 31, 2020 | | September 30, 2021 | | December 31, 2020 |
| | | Notional debt | | Maturities | | Notional debt | | Maturities | | Notional debt | | Maturities | | Notional debt | | Maturities |
| Sempra: | Sempra: | | | | | | | | Sempra: | | | | | | | |
| Cash flow hedges | Cash flow hedges | $ | 763 | | | 2021-2034 | | $ | 1,486 | | | 2021-2034 | Cash flow hedges | $ | 747 | | | 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) |
| | | June 30, 2021 | | December 31, 2020 | | September 30, 2021 | | December 31, 2020 |
| | | Notional amount | | Maturities | | Notional amount | | Maturities | | Notional amount | | Maturities | | Notional amount | | Maturities |
| Sempra: | Sempra: | | | | | | | | Sempra: | | | | | | | |
| Cross-currency swaps | Cross-currency swaps | $ | 306 | | | 2021-2023 | | $ | 306 | | | 2021-2023 | Cross-currency swaps | $ | 306 | | | 2021-2023 | | $ | 306 | | | 2021-2023 |
| Other foreign currency derivatives | Other foreign currency derivatives | 64 | | | 2021-2022 | | 1,764 | | | 2021-2022 | Other foreign currency derivatives | 130 | | | 2021-2023 | | 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 |
| (Dollars in millions) |
| | June 30, 2021 |
| | Other current assets(1) | | Other long-term assets | | Other current liabilities | | Deferred credits and other |
| Sempra: | | | | | | | |
| Derivatives designated as hedging instruments: | | | | | | | |
| Interest rate and foreign exchange instruments | $ | 0 | | | $ | 5 | | | $ | (25) | | | $ | (158) | |
| | | | | | | |
| Derivatives not designated as hedging instruments: | | | | | | | |
| | | | | | | |
| | | | | | | |
| Commodity contracts not subject to rate recovery | 125 | | | 19 | | | (153) | | | (23) | |
| Associated offsetting commodity contracts | (122) | | | (18) | | | 122 | | | 18 | |
| | | | | | | |
| Commodity contracts subject to rate recovery | 57 | | | 77 | | | (21) | | | (12) | |
| Associated offsetting commodity contracts | (8) | | | (1) | | | 8 | | | 1 | |
| | | | | | | |
| Net amounts presented on the balance sheet | 52 | | | 82 | | | (69) | | | (174) | |
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 | 27 | | | 0 | | | 0 | | | 0 | |
Total(2) | $ | 138 | | | $ | 82 | | | $ | (69) | | | $ | (174) | |
| SDG&E: | | | | | | | |
| | | | | | | |
| | | | | | | |
| Derivatives not designated as hedging instruments: | | | | | | | |
| Commodity contracts subject to rate recovery | $ | 48 | | | $ | 77 | | | $ | (15) | | | $ | (10) | |
| Associated offsetting commodity contracts | (8) | | | (1) | | | 8 | | | 1 | |
| | | | | | | |
| Net amounts presented on the balance sheet | 40 | | | 76 | | | (7) | | | (9) | |
| | | | | | | |
Additional cash collateral for commodity contracts subject to rate recovery | 26 | | | 0 | | | 0 | | | 0 | |
Total(2) | $ | 66 | | | $ | 76 | | | $ | (7) | | | $ | (9) | |
| SoCalGas: | | | | | | | |
| Derivatives not designated as hedging instruments: | | | | | | | |
| | | | | | | |
| | | | | | | |
| Commodity contracts subject to rate recovery | $ | 9 | | | $ | 0 | | | $ | (6) | | | $ | (2) | |
| | | | | | | |
| | | | | | | |
| Net amounts presented on the balance sheet | 9 | | | 0 | | | (6) | | | (2) | |
| | | | | | | |
Additional cash collateral for commodity contracts subject to rate recovery | 1 | | | 0 | | | 0 | | | 0 | |
| Total | $ | 10 | | | $ | 0 | | | $ | (6) | | | $ | (2) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| DERIVATIVE INSTRUMENTS ON THE CONDENSED CONSOLIDATED BALANCE SHEETS |
| (Dollars in millions) |
| | September 30, 2021 |
| | Other current assets(1) | | Other long-term assets | | Other current liabilities | | Deferred credits and other |
| Sempra: | | | | | | | |
| Derivatives designated as hedging instruments: | | | | | | | |
| Interest rate and foreign exchange instruments | $ | — | | | $ | 6 | | | $ | (42) | | | $ | (134) | |
| | | | | | | |
| Derivatives not designated as hedging instruments: | | | | | | | |
| | | | | | | |
| | | | | | | |
| Commodity contracts not subject to rate recovery | 252 | | | 19 | | | (300) | | | (21) | |
| Associated offsetting commodity contracts | (225) | | | (15) | | | 225 | | | 15 | |
| Associated offsetting cash collateral | — | | | — | | | 11 | | | — | |
| Commodity contracts subject to rate recovery | 50 | | | 76 | | | (52) | | | (3) | |
| Associated offsetting commodity contracts | (4) | | | — | | | 4 | | | — | |
| | | | | | | |
| Net amounts presented on the balance sheet | 73 | | | 86 | | | (154) | | | (143) | |
Additional cash collateral for commodity contracts not subject to rate recovery | 47 | | | — | | | — | | | — | |
Additional cash collateral for commodity contracts subject to rate recovery | 30 | | | — | | | — | | | — | |
Total(2) | $ | 150 | | | $ | 86 | | | $ | (154) | | | $ | (143) | |
| SDG&E: | | | | | | | |
| | | | | | | |
| | | | | | | |
| Derivatives not designated as hedging instruments: | | | | | | | |
| Commodity contracts subject to rate recovery | $ | 47 | | | $ | 76 | | | $ | (18) | | | $ | (2) | |
| Associated offsetting commodity contracts | (3) | | | — | | | 3 | | | — | |
| | | | | | | |
| Net amounts presented on the balance sheet | 44 | | | 76 | | | (15) | | | (2) | |
| | | | | | | |
Additional cash collateral for commodity contracts subject to rate recovery | 28 | | | — | | | — | | | — | |
Total(2) | $ | 72 | | | $ | 76 | | | $ | (15) | | | $ | (2) | |
| SoCalGas: | | | | | | | |
| Derivatives not designated as hedging instruments: | | | | | | | |
| | | | | | | |
| | | | | | | |
| Commodity contracts subject to rate recovery | $ | 3 | | | $ | — | | | $ | (34) | | | $ | (1) | |
| Associated offsetting commodity contracts | (1) | | | — | | | 1 | | | — | |
| | | | | | | |
| Net amounts presented on the balance sheet | 2 | | | — | | | (33) | | | (1) | |
| | | | | | | |
Additional cash collateral for commodity contracts subject to rate recovery | 2 | | | — | | | — | | | — | |
| Total | $ | 4 | | | $ | — | | | $ | (33) | | | $ | (1) | |
(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, 2020 | | 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: | 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 | | | $ | 1 | | | $ | (26) | | | $ | (160) | | Interest rate and foreign exchange instruments | $ | — | | | $ | 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 | 24 | | | 0 | | | 0 | | | 0 | | Foreign exchange instruments | 24 | | | — | | | — | | | — | |
| | Commodity contracts not subject to rate recovery | Commodity contracts not subject to rate recovery | 82 | | | 17 | | | (95) | | | (16) | | Commodity contracts not subject to rate recovery | 82 | | | 17 | | | (95) | | | (16) | |
| Associated offsetting commodity contracts | Associated offsetting commodity contracts | (82) | | | (13) | | | 82 | | | 13 | | Associated offsetting commodity contracts | (82) | | | (13) | | | 82 | | | 13 | |
| | Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | 35 | | | 95 | | | (35) | | | (25) | | Commodity contracts subject to rate recovery | 35 | | | 95 | | | (35) | | | (25) | |
| Associated offsetting commodity contracts | Associated offsetting commodity contracts | (2) | | | 0 | | | 2 | | | 0 | | Associated offsetting commodity contracts | (2) | | | — | | | 2 | | | — | |
| | Net amounts presented on the balance sheet | Net amounts presented on the balance sheet | 57 | | | 100 | | | (72) | | | (188) | | Net amounts presented on the balance sheet | 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 | 21 | | | 0 | | | 0 | | | 0 | | Additional cash collateral for commodity contracts not subject to rate recovery | 21 | | | — | | | — | | | — | |
Additional cash collateral for commodity contracts subject to rate recovery | Additional cash collateral for commodity contracts subject to rate recovery | 30 | | | 0 | | | 0 | | | 0 | | Additional cash collateral for commodity contracts subject to rate recovery | 30 | | | — | | | — | | | — | |
Total(2) | Total(2) | $ | 108 | | | $ | 100 | | | $ | (72) | | | $ | (188) | | 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 | $ | 32 | | | $ | 95 | | | $ | (28) | | | $ | (25) | | Commodity contracts subject to rate recovery | $ | 32 | | | $ | 95 | | | $ | (28) | | | $ | (25) | |
| Associated offsetting commodity contracts | Associated offsetting commodity contracts | (1) | | | 0 | | | 1 | | | 0 | | Associated offsetting commodity contracts | (1) | | | — | | | 1 | | | — | |
| | Net amounts presented on the balance sheet | Net amounts presented on the balance sheet | 31 | | | 95 | | | (27) | | | (25) | | Net amounts presented on the balance sheet | 31 | | | 95 | | | (27) | | | (25) | |
| 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 | 24 | | | — | | | — | | | — | |
Total(2) | Total(2) | $ | 55 | | | $ | 95 | | | $ | (27) | | | $ | (25) | | 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 | $ | 3 | | | $ | 0 | | | $ | (7) | | | $ | 0 | | Commodity contracts subject to rate recovery | $ | 3 | | | $ | — | | | $ | (7) | | | $ | — | |
| Associated offsetting commodity contracts | Associated offsetting commodity contracts | (1) | | | 0 | | | 1 | | | 0 | | Associated offsetting commodity contracts | (1) | | | — | | | 1 | | | — | |
| | Net amounts presented on the balance sheet | Net amounts presented on the balance sheet | 2 | | | 0 | | | (6) | | | 0 | | Net amounts presented on the balance sheet | 2 | | | — | | | (6) | | | — | |
| Additional cash collateral for commodity contracts subject to rate recovery | Additional cash collateral for commodity contracts subject to rate recovery | 6 | | | 0 | | | 0 | | | 0 | | Additional cash collateral for commodity contracts subject to rate recovery | 6 | | | — | | | — | | | — | |
| Total | Total | $ | 8 | | | $ | 0 | | | $ | (6) | | | $ | 0 | | Total | $ | 8 | | | $ | — | | | $ | (6) | | | $ | — | |
(1) Included in Current Assets: Fixed-Price Contracts and Other Derivatives for SDG&E.
(2) Normal purchase contracts previously measured at fair value are excluded.
The following table includes the effects of derivative instruments designated as cash flow hedges on the Condensed Consolidated Statements of Operations and in OCI and AOCI.
| | CASH FLOW HEDGE IMPACTS | CASH FLOW HEDGE IMPACTS | CASH FLOW HEDGE IMPACTS |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Pretax (loss) gain
recognized in OCI | | Pretax gain (loss) reclassified
from AOCI into earnings | | Pretax gain (loss)
recognized in OCI | | Pretax gain (loss) reclassified
from AOCI into earnings |
| | Three months ended June 30, | | | | Three months ended June 30, | | Three months ended September 30, | | | | Three months ended September 30, |
| | | 2021 | | 2020 | | Location | | 2021 | | 2020 | | 2021 | | 2020 | | Location | | 2021 | | 2020 |
| Sempra: | Sempra: | | | | | | | | | | Sempra: | | | | | | | | | |
| Interest rate instruments | Interest rate instruments | $ | (6) | | | $ | (3) | | | Interest Expense | | $ | 1 | | | $ | (1) | | Interest rate instruments | $ | 7 | | | $ | 8 | | | Interest Expense | | $ | 1 | | | $ | (3) | |
| Interest rate instruments | Interest rate instruments | (32) | | | (15) | | | Equity Earnings(1) | | (19) | | | (1) | | Interest rate instruments | 3 | | | 25 | | | Equity Earnings(1) | | (19) | | | (5) | |
| Foreign exchange instruments | Foreign exchange instruments | (1) | | | (5) | | | Revenues: Energy- Related Businesses | | 0 | | | 0 | | Foreign exchange instruments | 5 | | | (2) | | | Revenues: Energy- Related Businesses | | — | | | — | |
| | Other Income (Expense), Net | | 0 | | | (1) | | |
| Foreign exchange instruments | Foreign exchange instruments | (1) | | | (3) | | | Equity Earnings(1) | | 0 | | | 0 | | Foreign exchange instruments | 3 | | | (1) | | | Equity Earnings(1) | | — | | | — | |
Interest rate and foreign exchange instruments | Interest rate and foreign exchange instruments | 7 | | | 8 | | | Interest Expense | | 0 | | | (1) | | Interest rate and foreign exchange instruments | (3) | | | 6 | | | Other (Expense) Income, Net | | (5) | | | 4 | |
| | Other Income (Expense), Net | | 7 | | | 4 | | |
| Total | Total | $ | (33) | | | $ | (18) | | | | | $ | (11) | | | $ | 0 | | Total | $ | 15 | | | $ | 36 | | | | | $ | (23) | | | $ | (4) | |
| | | | | Six months ended June 30, | | | | Six months ended June 30, | | Nine months ended September 30, | | | | Nine months ended September 30, |
| | | 2021 | | 2020 | | Location | | 2021 | | 2020 | | 2021 | | 2020 | | Location | | 2021 | | 2020 |
| Sempra: | Sempra: | | | | | | | | | | Sempra: | | | | | | | | | |
| Interest rate instruments | Interest rate instruments | $ | 20 | | | $ | (50) | | | Interest Expense | | $ | (1) | | | $ | (3) | | Interest rate instruments | $ | 27 | | | $ | (42) | | | Interest Expense | | $ | — | | | $ | (6) | |
| Interest rate instruments | Interest rate instruments | 51 | | | (200) | | | Equity Earnings(1) | | (38) | | | (3) | | Interest rate instruments | 54 | | | (175) | | | Equity Earnings(1) | | (57) | | | (8) | |
| Foreign exchange instruments | Foreign exchange instruments | 2 | | | 16 | | | Revenues: Energy- Related Businesses | | (1) | | | 2 | | Foreign exchange instruments | 7 | | | 14 | | | Revenues: Energy- Related Businesses | | (1) | | | 2 | |
| | Other Income (Expense), Net | | 0 | | | 1 | | | Other (Expense) Income, Net | | — | | | 1 | |
| Foreign exchange instruments | Foreign exchange instruments | 2 | | | 10 | | | Equity Earnings(1) | | (1) | | | 2 | | Foreign exchange instruments | 5 | | | 9 | | | Equity Earnings(1) | | (1) | | | 2 | |
Interest rate and foreign exchange instruments | Interest rate and foreign exchange instruments | 1 | | | (37) | | | Interest Expense | | 0 | | | (1) | | Interest rate and foreign exchange instruments | (2) | | | (31) | | | Interest Expense | | — | | | (1) | |
| | Other Income (Expense), Net | | 1 | | | (37) | | | Other (Expense) Income, Net | | (4) | | | (33) | |
| Total | Total | $ | 76 | | | $ | (261) | | | | | $ | (40) | | | $ | (39) | | Total | $ | 91 | | | $ | (225) | | | | | $ | (63) | | | $ | (43) | |
|
(1) Equity earnings at Sempra Mexico are recognized after tax.
For Sempra, we expect that net losses of $82$104 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 JuneSeptember 30, 2021 is approximately 13 years for Sempra. The maximum remaining term for which we are hedging exposure to the variability of cash flows at our equity method investees is 18 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 (loss) gain on derivatives recognized in earnings | | | Pretax (loss) gain on derivatives recognized in earnings |
| | | | Three months ended
June 30, | | Six months ended
June 30, | | | Three months ended
September 30, | | Nine months ended
September 30, |
| | | Location | 2021 | | 2020 | | 2021 | | 2020 | | Location | 2021 | | 2020 | | 2021 | | 2020 |
| Sempra: | Sempra: | | | | | | | | Sempra: | | | | | | | |
| Commodity contracts not subject to rate recovery | Commodity contracts not subject to rate recovery | Revenues: Energy-Related Businesses | $ | (142) | | | $ | 13 | | | $ | (190) | | | $ | 64 | | Commodity contracts not subject to rate recovery | Revenues: Energy-Related Businesses | $ | (154) | | | $ | (39) | | | $ | (344) | | | $ | 25 | |
Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | Cost of Natural Gas | 0 | | | (3) | | | 2 | | | (6) | | Commodity contracts subject to rate recovery | Cost of Natural Gas | (26) | | | — | | | (24) | | | (6) | |
Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | Cost of Electric Fuel and Purchased Power | 41 | | | 9 | | | 43 | | | 0 | | Commodity contracts subject to rate recovery | Cost of Electric Fuel and Purchased Power | 8 | | | 41 | | | 51 | | | 41 | |
| Foreign exchange instruments | Foreign exchange instruments | Other Income (Expense), Net | 0 | | | 2 | | | (24) | | | (112) | | Foreign exchange instruments | Other (Expense) Income, Net | 2 | | | 15 | | | (22) | | | (97) | |
| Total | Total | | $ | (101) | | | $ | 21 | | | $ | (169) | | | $ | (54) | | Total | | $ | (170) | | | $ | 17 | | | $ | (339) | | | $ | (37) | |
| 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 | | | $ | 9 | | | $ | 43 | | | $ | 0 | | Commodity contracts subject to rate recovery | Cost of Electric Fuel and Purchased Power | $ | 8 | | | $ | 41 | | | $ | 51 | | | $ | 41 | |
| | SoCalGas: | SoCalGas: | | | | | | | | SoCalGas: | | | | | | | |
| Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | Cost of Natural Gas | $ | 0 | | | $ | (3) | | | $ | 2 | | | $ | (6) | | Commodity contracts subject to rate recovery | Cost of Natural Gas | $ | (26) | | | $ | — | | | $ | (24) | | | $ | (6) | |
|
CONTINGENT FEATURES
For Sempra, 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, the total fair value of this group of derivative instruments in a liability position at JuneSeptember 30, 2021 and December 31, 2020 was $26$63 million and $16 million, respectively. For SoCalGas, the total fair value of this group of derivative instruments in a liability position at JuneSeptember 30, 2021 and December 31, 2020 was $8$34 million and $6 million, respectively. At JuneSeptember 30, 2021, if the credit ratings of Sempra or SoCalGas were reduced below investment grade, $26$63 million and $8$34 million, respectively, of additional assets could be required to be posted as collateral for these derivative contracts.
For Sempra, 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 JuneSeptember 30, 2021 and December 31, 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, 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:
▪Nuclear decommissioning trusts reflect the assets of SDG&E’s NDT, excluding cash balances, accounts receivable and accounts payable. A third-party trustee values the trust assets using prices from a pricing service based on a market approach. We validate these prices by comparison to prices from other independent data sources. Securities are valued using quoted prices listed on nationally recognized securities exchanges or based on closing prices reported in the active market in which the identical security is traded (Level 1). Other securities are valued based on yields that are currently available for comparable securities of issuers with similar credit ratings (Level 2).
▪For commodity contracts, interest rate derivatives and foreign exchange instruments, we primarily use a market or income approach with market participant assumptions to value these derivatives. Market participant assumptions include those about risk, and the risk inherent in the inputs to the valuation techniques. These inputs can be readily observable, market corroborated, or generally unobservable. We have exchange-traded derivatives that are valued based on quoted prices in active markets for the identical instruments (Level 1). We also may have other commodity derivatives that are valued using industry standard models that consider quoted forward prices for commodities, time value, current market and contractual prices for the underlying instruments, volatility factors, and other relevant economic measures (Level 2). Level 3 recurring items relate to CRRs and long-term, fixed-price electricity positions at SDG&E, as we discuss below in “Level 3 Information – SDG&E.”
▪Rabbi Trust investments include marketable 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 JuneSeptember 30, 2021 and December 31, 2020.
▪As we discuss in Note 6, in July 2020, Sempra 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 | RECURRING FAIR VALUE MEASURES – SEMPRA | RECURRING FAIR VALUE MEASURES – SEMPRA |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | | | Fair value at September 30, 2021 |
| | | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | | Assets: | | | | | | | |
| Nuclear decommissioning trusts: | | Nuclear decommissioning trusts: | | | | | | | |
| Equity securities | | Equity securities | $ | 350 | | | $ | 6 | | | $ | — | | | $ | 356 | |
| 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 | 40 | | | 12 | | | — | | | 52 | |
| Municipal bonds | | Municipal bonds | — | | | 320 | | | — | | | 320 | |
| Other securities | | Other securities | — | | | 270 | | | — | | | 270 | |
| Total debt securities | | Total debt securities | 40 | | | 602 | | | — | | | 642 | |
Total nuclear decommissioning trusts(1) | | Total nuclear decommissioning trusts(1) | 390 | | | 608 | | | — | | | 998 | |
| Interest rate and foreign exchange instruments | | Interest rate and foreign exchange instruments | — | | | 6 | | | — | | | 6 | |
| Commodity contracts not subject to rate recovery | | Commodity contracts not subject to rate recovery | — | | | 31 | | | — | | | 31 | |
Effect of netting and allocation of collateral(2) | | Effect of netting and allocation of collateral(2) | 47 | | | — | | | — | | | 47 | |
| Commodity contracts subject to rate recovery | | Commodity contracts subject to rate recovery | 32 | | | 2 | | | 88 | | | 122 | |
Effect of netting and allocation of collateral(2) | | Effect of netting and allocation of collateral(2) | 24 | | | — | | | 6 | | | 30 | |
| Support Agreement, net of related guarantee fees | | Support Agreement, net of related guarantee fees | — | | | — | | | 7 | | | 7 | |
| Total | | Total | $ | 493 | | | $ | 647 | | | $ | 101 | | | $ | 1,241 | |
| | Liabilities: | | Liabilities: | | | | | | | |
| Interest rate and foreign exchange instruments | | Interest rate and foreign exchange instruments | $ | — | | | $ | 176 | | | $ | — | | | $ | 176 | |
| Commodity contracts not subject to rate recovery | | Commodity contracts not subject to rate recovery | — | | | 81 | | | — | | | 81 | |
Effect of netting and allocation of collateral(2) | | Effect of netting and allocation of collateral(2) | — | | | (11) | | | — | | | (11) | |
| Commodity contracts subject to rate recovery | | Commodity contracts subject to rate recovery | — | | | 35 | | | 16 | | | 51 | |
| | Support Agreement, net of related guarantee fees | | Support Agreement, net of related guarantee fees | — | | | — | | | 2 | | | 2 | |
| Total | | Total | $ | — | | | $ | 281 | | | $ | 18 | | | $ | 299 | |
| | | Fair value at June 30, 2021 | | 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 | $ | 361 | | | $ | 6 | | | $ | 0 | | | $ | 367 | | Equity securities | $ | 358 | | | $ | 6 | | | $ | — | | | $ | 364 | |
| Debt securities: | Debt securities: | | | | | | | | Debt securities: | | | | | | |
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | 48 | | | 13 | | | 0 | | | 61 | | Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | 41 | | | 24 | | | — | | | 65 | |
| Municipal bonds | Municipal bonds | 0 | | | 324 | | | 0 | | | 324 | | Municipal bonds | — | | | 326 | | | — | | | 326 | |
| Other securities | Other securities | 0 | | | 268 | | | 0 | | | 268 | | Other securities | — | | | 270 | | | — | | | 270 | |
| Total debt securities | Total debt securities | 48 | | | 605 | | | 0 | | | 653 | | Total debt securities | 41 | | | 620 | | | — | | | 661 | |
Total nuclear decommissioning trusts(1) | Total nuclear decommissioning trusts(1) | 409 | | | 611 | | | 0 | | | 1,020 | | Total nuclear decommissioning trusts(1) | 399 | | | 626 | | | — | | | 1,025 | |
| Interest rate and foreign exchange instruments | Interest rate and foreign exchange instruments | 0 | | | 5 | | | 0 | | | 5 | | Interest rate and foreign exchange instruments | — | | | 25 | | | — | | | 25 | |
| Commodity contracts not subject to rate recovery | Commodity contracts not subject to rate recovery | 0 | | | 4 | | | 0 | | | 4 | | Commodity contracts not subject to rate recovery | — | | | 4 | | | — | | | 4 | |
Effect of netting and allocation of collateral(2) | Effect of netting and allocation of collateral(2) | 59 | | | 0 | | | 0 | | | 59 | | Effect of netting and allocation of collateral(2) | 21 | | | — | | | — | | | 21 | |
| Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | 14 | | | 15 | | | 96 | | | 125 | | 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) | 21 | | | 0 | | | 6 | | | 27 | | 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 | | Support Agreement, net of related guarantee fees | — | | | — | | | 7 | | | 7 | |
| Total | Total | $ | 503 | | | $ | 635 | | | $ | 109 | | | $ | 1,247 | | Total | $ | 445 | | | $ | 661 | | | $ | 134 | | | $ | 1,240 | |
| | Liabilities: | Liabilities: | | | | | | | | Liabilities: | | | | | | | |
| Interest rate and foreign exchange instruments | Interest rate and foreign exchange instruments | $ | 0 | | | $ | 183 | | | $ | 0 | | | $ | 183 | | Interest rate and foreign exchange instruments | $ | — | | | $ | 186 | | | $ | — | | | $ | 186 | |
| Commodity contracts not subject to rate recovery | Commodity contracts not subject to rate recovery | 0 | | | 36 | | | 0 | | | 36 | | Commodity contracts not subject to rate recovery | — | | | 16 | | | — | | | 16 | |
| Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | 0 | | | 8 | | | 16 | | | 24 | | Commodity contracts subject to rate recovery | — | | | 6 | | | 52 | | | 58 | |
| | Support Agreement, net of related guarantee fees | Support Agreement, net of related guarantee fees | 0 | | | 0 | | | 3 | | | 3 | | Support Agreement, net of related guarantee fees | — | | | — | | | 4 | | | 4 | |
| Total | Total | $ | 0 | | | $ | 227 | | | $ | 19 | | | $ | 246 | | Total | $ | — | | | $ | 208 | | | $ | 56 | | | $ | 264 | |
| | | Fair value at December 31, 2020 | |
| | Level 1 | | Level 2 | | Level 3 | | Total | |
| Assets: | | | | | | | | |
| Nuclear decommissioning trusts: | | | | | | | | |
| Equity securities | $ | 358 | | | $ | 6 | | | $ | 0 | | | $ | 364 | | |
| Debt securities: | | | | | | | |
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | 41 | | | 24 | | | 0 | | | 65 | | |
| Municipal bonds | 0 | | | 326 | | | 0 | | | 326 | | |
| Other securities | 0 | | | 270 | | | 0 | | | 270 | | |
| Total debt securities | 41 | | | 620 | | | 0 | | | 661 | | |
Total nuclear decommissioning trusts(1) | 399 | | | 626 | | | 0 | | | 1,025 | | |
| Interest rate and foreign exchange instruments | 0 | | | 25 | | | 0 | | | 25 | | |
| Commodity contracts not subject to rate recovery | 0 | | | 4 | | | 0 | | | 4 | | |
Effect of netting and allocation of collateral(2) | 21 | | | 0 | | | 0 | | | 21 | | |
| Commodity contracts subject to rate recovery | 6 | | | 1 | | | 121 | | | 128 | | |
Effect of netting and allocation of collateral(2) | 19 | | | 5 | | | 6 | | | 30 | | |
| Support Agreement, net of related guarantee fees | 0 | | | 0 | | | 7 | | | 7 | | |
| Total | $ | 445 | | | $ | 661 | | | $ | 134 | | | $ | 1,240 | | |
| | Liabilities: | | | | | | | | |
| Interest rate and foreign exchange instruments | $ | 0 | | | $ | 186 | | | $ | 0 | | | $ | 186 | | |
| Commodity contracts not subject to rate recovery | 0 | | | 16 | | | 0 | | | 16 | | |
| Commodity contracts subject to rate recovery | 0 | | | 6 | | | 52 | | | 58 | | |
| | Support Agreement, net of related guarantee fees | 0 | | | 0 | | | 4 | | | 4 | | |
| Total | $ | 0 | | | $ | 208 | | | $ | 56 | | | $ | 264 | | |
(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 June 30, 2021 | | Fair value at September 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 | $ | 361 | | | $ | 6 | | | $ | 0 | | | $ | 367 | | Equity securities | $ | 350 | | | $ | 6 | | | $ | — | | | $ | 356 | |
| 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 | 48 | | | 13 | | | 0 | | | 61 | | Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | 40 | | | 12 | | | — | | | 52 | |
| Municipal bonds | Municipal bonds | 0 | | | 324 | | | 0 | | | 324 | | Municipal bonds | — | | | 320 | | | — | | | 320 | |
| Other securities | Other securities | 0 | | | 268 | | | 0 | | | 268 | | Other securities | — | | | 270 | | | — | | | 270 | |
| Total debt securities | Total debt securities | 48 | | | 605 | | | 0 | | | 653 | | Total debt securities | 40 | | | 602 | | | — | | | 642 | |
Total nuclear decommissioning trusts(1) | Total nuclear decommissioning trusts(1) | 409 | | | 611 | | | 0 | | | 1,020 | | Total nuclear decommissioning trusts(1) | 390 | | | 608 | | | — | | | 998 | |
| | Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | 14 | | | 6 | | | 96 | | | 116 | | Commodity contracts subject to rate recovery | 32 | | | — | | | 88 | | | 120 | |
Effect of netting and allocation of collateral(2) | Effect of netting and allocation of collateral(2) | 20 | | | 0 | | | 6 | | | 26 | | Effect of netting and allocation of collateral(2) | 22 | | | — | | | 6 | | | 28 | |
| Total | Total | $ | 443 | | | $ | 617 | | | $ | 102 | | | $ | 1,162 | | Total | $ | 444 | | | $ | 608 | | | $ | 94 | | | $ | 1,146 | |
| | Liabilities: | Liabilities: | | | | | | | | Liabilities: | | | | | | | |
| | Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | $ | 0 | | | $ | 0 | | | $ | 16 | | | $ | 16 | | Commodity contracts subject to rate recovery | $ | — | | | $ | 1 | | | $ | 16 | | | $ | 17 | |
| | Total | Total | $ | 0 | | | $ | 0 | | | $ | 16 | | | $ | 16 | | Total | $ | — | | | $ | 1 | | | $ | 16 | | | $ | 17 | |
| | | | Fair value at December 31, 2020 | | Fair value at December 31, 2020 |
| | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | Assets: | | | | | | | | Assets: | | | | | | | |
| Nuclear decommissioning trusts: | Nuclear decommissioning trusts: | | | | | | | | Nuclear decommissioning trusts: | | | | | | | |
| Equity securities | Equity securities | $ | 358 | | | $ | 6 | | | $ | 0 | | | $ | 364 | | Equity securities | $ | 358 | | | $ | 6 | | | $ | — | | | $ | 364 | |
| Debt securities: | Debt securities: | | | | | | | | Debt securities: | | | | | | | |
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | 41 | | | 24 | | | 0 | | | 65 | | Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | 41 | | | 24 | | | — | | | 65 | |
| Municipal bonds | Municipal bonds | 0 | | | 326 | | | 0 | | | 326 | | Municipal bonds | — | | | 326 | | | — | | | 326 | |
| Other securities | Other securities | 0 | | | 270 | | | 0 | | | 270 | | Other securities | — | | | 270 | | | — | | | 270 | |
| Total debt securities | Total debt securities | 41 | | | 620 | | | 0 | | | 661 | | Total debt securities | 41 | | | 620 | | | — | | | 661 | |
Total nuclear decommissioning trusts(1) | Total nuclear decommissioning trusts(1) | 399 | | | 626 | | | 0 | | | 1,025 | | Total nuclear decommissioning trusts(1) | 399 | | | 626 | | | — | | | 1,025 | |
| Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | 5 | | | 0 | | | 121 | | | 126 | | Commodity contracts subject to rate recovery | 5 | | | — | | | 121 | | | 126 | |
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) | 18 | | | — | | | 6 | | | 24 | |
| Total | Total | $ | 422 | | | $ | 626 | | | $ | 127 | | | $ | 1,175 | | Total | $ | 422 | | | $ | 626 | | | $ | 127 | | | $ | 1,175 | |
| | Liabilities: | Liabilities: | | | | | | | | Liabilities: | | | | | | | |
| | Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | $ | 0 | | | $ | 0 | | | $ | 52 | | | $ | 52 | | Commodity contracts subject to rate recovery | $ | — | | | $ | — | | | $ | 52 | | | $ | 52 | |
| | Total | Total | $ | 0 | | | $ | 0 | | | $ | 52 | | | $ | 52 | | Total | $ | — | | | $ | — | | | $ | 52 | | | $ | 52 | |
(1) Excludes cash, cash equivalents and receivables (payables), net.
(2) Includes the effect of the contractual ability to settle contracts under master netting agreements and with cash collateral, as well as cash collateral not offset.
| | 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 June 30, 2021 | | Fair value at September 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 | | | $ | 9 | | | $ | 0 | | | $ | 9 | | Commodity contracts subject to rate recovery | $ | — | | | $ | 2 | | | $ | — | | | $ | 2 | |
Effect of netting and allocation of collateral(1) | Effect of netting and allocation of collateral(1) | 1 | | | 0 | | | 0 | | | 1 | | Effect of netting and allocation of collateral(1) | 2 | | | — | | | — | | | 2 | |
| Total | Total | $ | 1 | | | $ | 9 | | | $ | 0 | | | $ | 10 | | Total | $ | 2 | | | $ | 2 | | | $ | — | | | $ | 4 | |
| | Liabilities: | Liabilities: | | | | | | | | Liabilities: | | | | | | | |
| Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | $ | 0 | | | $ | 8 | | | $ | 0 | | | $ | 8 | | Commodity contracts subject to rate recovery | $ | — | | | $ | 34 | | | $ | — | | | $ | 34 | |
| Total | Total | $ | 0 | | | $ | 8 | | | $ | 0 | | | $ | 8 | | Total | $ | — | | | $ | 34 | | | $ | — | | | $ | 34 | |
| | | | Fair value at December 31, 2020 | | Fair value at December 31, 2020 |
| | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | Assets: | | | | | | | | Assets: | | | | | | | |
| Commodity contracts subject to rate recovery | Commodity contracts subject to rate recovery | $ | 1 | | | $ | 1 | | | $ | 0 | | | $ | 2 | | Commodity contracts subject to rate recovery | $ | 1 | | | $ | 1 | | | $ | — | | | $ | 2 | |
Effect of netting and allocation of collateral(1) | Effect of netting and allocation of collateral(1) | 1 | | | 5 | | | 0 | | | 6 | | Effect of netting and allocation of collateral(1) | 1 | | | 5 | | | — | | | 6 | |
| Total | Total | $ | 2 | | | $ | 6 | | | $ | 0 | | | $ | 8 | | Total | $ | 2 | | | $ | 6 | | | $ | — | | | $ | 8 | |
| | 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 | $ | — | | | $ | 6 | | | $ | — | | | $ | 6 | |
| Total | Total | $ | 0 | | | $ | 6 | | | $ | 0 | | | $ | 6 | | Total | $ | — | | | $ | 6 | | | $ | — | | | $ | 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 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 June 30, | | Three months ended September 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 |
| Balance at April 1 | $ | 62 | | | $ | 16 | | |
| Realized and unrealized gains (losses) | 8 | | | (9) | | |
| Balance at July 1 | | Balance at July 1 | $ | 80 | | | $ | 17 | |
| Realized and unrealized losses | | Realized and unrealized losses | (35) | | | (4) | |
| Allocated transmission instruments | Allocated transmission instruments | (2) | | | 1 | | Allocated transmission instruments | 1 | | | 1 | |
| Settlements | Settlements | 12 | | | 9 | | Settlements | 26 | | | 19 | |
| Balance at June 30 | $ | 80 | | | $ | 17 | | |
| Change in unrealized gains (losses) relating to instruments still held at June 30 | $ | 14 | | | $ | (5) | | |
| Balance at September 30 | | Balance at September 30 | $ | 72 | | | $ | 33 | |
| Change in unrealized gains (losses) relating to instruments still held at September 30 | | Change in unrealized gains (losses) relating to instruments still held at September 30 | $ | 9 | | | $ | 7 | |
| | | Six months ended June 30, | | Nine months ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Balance at January 1 | Balance at January 1 | $ | 69 | | | $ | 28 | | Balance at January 1 | $ | 69 | | | $ | 28 | |
| Realized and unrealized gains (losses) | 6 | | | (14) | | |
| Realized and unrealized losses | | Realized and unrealized losses | (29) | | | (18) | |
| Allocated transmission instruments | Allocated transmission instruments | (2) | | | 1 | | Allocated transmission instruments | (1) | | | 2 | |
| Settlements | Settlements | 7 | | | 2 | | Settlements | 33 | | | 21 | |
| Balance at June 30 | $ | 80 | | | $ | 17 | | |
| Change in unrealized gains (losses) relating to instruments still held at June 30 | $ | 12 | | | $ | (13) | | |
| Balance at September 30 | | Balance at September 30 | $ | 72 | | | $ | 33 | |
| Change in unrealized gains (losses) relating to instruments still held at September 30 | | Change in unrealized gains (losses) relating to instruments still held at September 30 | $ | 5 | | | $ | (1) | |
(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 |
| |
| Settlement year | Price per MWh | Median price per MWh |
| 2021 | $ | (1.81) | | to | $ | 14.11 | | $ | (0.12) | |
| 2020 | (3.77) | | to | 6.03 | | (1.58) | |
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 JuneSeptember 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 | | 2021 | $ | 24.05 | | to | $ | 130.40 | | $ | 57.36 | |
| 2020 | 2020 | | 20.35 | | to | | 51.60 | | | 34.68 | | 2020 | | 19.45 | | to | | 71.25 | | | 38.14 | |
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’s Support Agreement for the benefit of CFIN classified as Level 3 in the fair value hierarchy for Sempra.
| | | | | | | |
LEVEL 3 RECONCILIATION |
(Dollars in millions) |
| Three months ended June 30, 2021 | | |
Balance at April 1 | $ | 3 | | | |
Realized and unrealized gains(1)
| 3 | | | |
Settlements | (2) | | | |
Balance at June 30(2)
| $ | 4 | | | |
Change in unrealized gains (losses) relating to instruments still held at June 30 | $ | 2 | | | |
| 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 | | | |
| | | | | | | | | | | |
| LEVEL 3 RECONCILIATION |
| (Dollars in millions) |
| Three months ended September 30, |
| | 2021 | | 2020 |
| Balance at July 1 | $ | 4 | | | $ | — | |
Realized and unrealized gains(1) | 3 | | | 7 | |
| Settlements | (2) | | | (1) | |
Balance at September 30(2) | $ | 5 | | | $ | 6 | |
| Change in unrealized gains (losses) relating to instruments still held at September 30 | $ | 3 | | | $ | 6 | |
| | | |
| Nine months ended September 30, |
| 2021 | | 2020 |
| Balance at January 1 | $ | 3 | | | $ | — | |
Realized and unrealized gains(1) | 8 | | | 7 | |
| Settlements | (6) | | | (1) | |
Balance at September 30(2) | $ | 5 | | | $ | 6 | |
| Change in unrealized gains (losses) relating to instruments still held at September 30 | $ | 7 | | | $ | 6 | |
(1) Net gains are included in Interest Income and net losses are included in Interest Expense on Sempra’s Condensed Consolidated Statement of Operations.
(2) Includes $7 million in Other Current Assets offset by $3$2 million in Deferred Credits and Other at September 30, 2021 on Sempra’s Condensed Consolidated Balance 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 could 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 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 | FAIR VALUE OF FINANCIAL INSTRUMENTS | FAIR VALUE OF FINANCIAL INSTRUMENTS |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | | June 30, 2021 | | September 30, 2021 |
| | | Carrying
amount | | Fair value | | Carrying
amount | | Fair value |
| | | | Level 1 | | Level 2 | | Level 3 | | Total | | | Level 1 | | Level 2 | | Level 3 | | Total |
| Sempra: | Sempra: | | | | | | | | | | Sempra: | | | | | | | | | |
Long-term amounts due from unconsolidated affiliates(1) | Long-term amounts due from unconsolidated affiliates(1) | $ | 705 | | | $ | 0 | | | $ | 722 | | | $ | 0 | | | $ | 722 | | Long-term amounts due from unconsolidated affiliates(1) | $ | 687 | | | $ | — | | | $ | 697 | | | $ | — | | | $ | 697 | |
| Long-term amounts due to unconsolidated affiliates | Long-term amounts due to unconsolidated affiliates | 304 | | | 0 | | | 325 | | | 0 | | | 325 | | Long-term amounts due to unconsolidated affiliates | 328 | | | — | | | 347 | | | — | | | 347 | |
Total long-term debt(2) | Total long-term debt(2) | 21,520 | | | 0 | | | 24,003 | | | 0 | | | 24,003 | | Total long-term debt(2) | 21,966 | | | — | | | 24,288 | | | — | | | 24,288 | |
| SDG&E: | SDG&E: | | | | | | | | | | SDG&E: | | | | | | | | | |
Total long-term debt(3) | Total long-term debt(3) | $ | 6,036 | | | $ | 0 | | | $ | 6,948 | | | $ | 0 | | | $ | 6,948 | | Total long-term debt(3) | $ | 6,418 | | | $ | — | | | $ | 7,263 | | | $ | — | | | $ | 7,263 | |
| SoCalGas: | SoCalGas: | | | | | | | | | | SoCalGas: | | | | | | | | | |
Total long-term debt(4) | Total long-term debt(4) | $ | 4,759 | | | $ | 0 | | | $ | 5,424 | | | $ | 0 | | | $ | 5,424 | | Total long-term debt(4) | $ | 4,759 | | | $ | — | | | $ | 5,373 | | | $ | — | | | $ | 5,373 | |
| | | | December 31, 2020 | | December 31, 2020 |
| | | Carrying
amount | | Fair value | | Carrying
amount | | Fair value |
| | | | Level 1 | | Level 2 | | Level 3 | | Total | | | Level 1 | | Level 2 | | Level 3 | | Total |
| Sempra: | Sempra: | | | | | | | | | | Sempra: | | | | | | | | | |
Long-term amounts due from unconsolidated affiliates(1) | Long-term amounts due from unconsolidated affiliates(1) | $ | 786 | | | $ | — | | | $ | 817 | | | $ | 0 | | | $ | 817 | | Long-term amounts due from unconsolidated affiliates(1) | $ | 786 | | | $ | — | | | $ | 817 | | | $ | — | | | $ | 817 | |
| Long-term amounts due to unconsolidated affiliates | Long-term amounts due to unconsolidated affiliates | 275 | | | 0 | | | 266 | | | 0 | | | 266 | | Long-term amounts due to unconsolidated affiliates | 275 | | | — | | | 266 | | | — | | | 266 | |
Total long-term debt(2) | Total long-term debt(2) | 22,259 | | | 0 | | | 25,478 | | | 0 | | | 25,478 | | Total long-term debt(2) | 22,259 | | | — | | | 25,478 | | | — | | | 25,478 | |
| SDG&E: | SDG&E: | | | | | | | | | | SDG&E: | | | | | | | | | |
Total long-term debt(3) | Total long-term debt(3) | $ | 6,253 | | | $ | 0 | | | $ | 7,384 | | | $ | 0 | | | $ | 7,384 | | Total long-term debt(3) | $ | 6,253 | | | $ | — | | | $ | 7,384 | | | $ | — | | | $ | 7,384 | |
| SoCalGas: | SoCalGas: | | | | | | | | | | SoCalGas: | | | | | | | | | |
Total long-term debt(4) | Total long-term debt(4) | $ | 4,759 | | | $ | 0 | | | $ | 5,655 | | | $ | 0 | | | $ | 5,655 | | Total long-term debt(4) | $ | 4,759 | | | $ | — | | | $ | 5,655 | | | $ | — | | | $ | 5,655 | |
(1) Before allowances for credit losses of $1 million and $3 million at JuneSeptember 30, 2021 and December 31, 2020, respectively. Includes $2 million and $3 million in Due From Unconsolidated Affiliates – Current at JuneSeptember 30, 2021 and December 31, 2020, respectively.
(2) Before reductions of unamortized discount and debt issuance costs of $258$266 million and $268 million at JuneSeptember 30, 2021 and December 31, 2020, respectively, and excluding finance lease obligations of $1,335$1,336 million and $1,330 million at JuneSeptember 30, 2021 and December 31, 2020, respectively.
(3) Before reductions of unamortized discount and debt issuance costs of $50$62 million and $52 million at JuneSeptember 30, 2021 and December 31, 2020, respectively, and excluding finance lease obligations of $1,279 million and $1,276 million at both JuneSeptember 30, 2021 and December 31, 2020.2020, respectively.
(4) Before reductions of unamortized discount and debt issuance costs of $38$37 million and $40 million at JuneSeptember 30, 2021 and December 31, 2020, respectively, and excluding finance lease obligations of $59$57 million and $54 million at JuneSeptember 30, 2021 and December 31, 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. Decommissioning of Unit 1, removed from service in 1992, is largely complete. The remaining work for Unit 1 will be completed once Units 2 and 3 are dismantled and the spent fuel is removed from the site. The spent fuel is currently being stored on-site, until the DOE identifies a spent fuel storage facility and puts in place a program for the fuel’s disposal, as we discuss below. SDG&E is responsible for approximately 20% of the total decommissioning 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 rulingThe petition was issueddenied in June 2021, denying the petition.September 2021. 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 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 December 2020, SDG&E received authorization from the CPUC to access NDT funds of up to $89 million for forecasted 2021 costs.
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 June 30, 2021: | | | | | | | | |
| At September 30, 2021: | | At September 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) | $ | 61 | | | $ | 0 | | | $ | 0 | | | $ | 61 | | Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies(1) | $ | 52 | | | $ | — | | | $ | — | | | $ | 52 | |
Municipal bonds(2) | Municipal bonds(2) | 308 | | | 16 | | | 0 | | | 324 | | Municipal bonds(2) | 307 | | | 14 | | | (1) | | | 320 | |
Other securities(3) | Other securities(3) | 257 | | | 12 | | | (1) | | | 268 | | Other securities(3) | 261 | | | 10 | | | (1) | | | 270 | |
| Total debt securities | Total debt securities | 626 | | | 28 | | | (1) | | | 653 | | Total debt securities | 620 | | | 24 | | | (2) | | | 642 | |
| Equity securities | Equity securities | 104 | | | 264 | | | (1) | | | 367 | | Equity securities | 103 | | | 255 | | | (2) | | | 356 | |
| Cash and cash equivalents | Cash and cash equivalents | 8 | | | 0 | | | 0 | | | 8 | | Cash and cash equivalents | 7 | | | — | | | — | | | 7 | |
| Payables, net | Payables, net | (4) | | | 0 | | | 0 | | | (4) | | Payables, net | (2) | | | — | | | — | | | (2) | |
| Total | Total | $ | 734 | | | $ | 292 | | | $ | (2) | | | $ | 1,024 | | Total | $ | 728 | | | $ | 279 | | | $ | (4) | | | $ | 1,003 | |
| At December 31, 2020: | 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 | $ | 64 | | | $ | 1 | | | $ | 0 | | | $ | 65 | | Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | $ | 64 | | | $ | 1 | | | $ | — | | | $ | 65 | |
| Municipal bonds | Municipal bonds | 308 | | | 18 | | | 0 | | | 326 | | Municipal bonds | 308 | | | 18 | | | — | | | 326 | |
| Other securities | Other securities | 253 | | | 17 | | | 0 | | | 270 | | Other securities | 253 | | | 17 | | | — | | | 270 | |
| Total debt securities | Total debt securities | 625 | | | 36 | | | 0 | | | 661 | | Total debt securities | 625 | | | 36 | | | — | | | 661 | |
| Equity securities | Equity securities | 112 | | | 254 | | | (2) | | | 364 | | Equity securities | 112 | | | 254 | | | (2) | | | 364 | |
| Cash and cash equivalents | Cash and cash equivalents | 3 | | | 0 | | | 0 | | | 3 | | Cash and cash equivalents | 3 | | | — | | | — | | | 3 | |
| Payables, net | Payables, net | (9) | | | 0 | | | 0 | | | (9) | | Payables, net | (9) | | | — | | | — | | | (9) | |
| Total | Total | $ | 731 | | | $ | 290 | | | $ | (2) | | | $ | 1,019 | | Total | $ | 731 | | | $ | 290 | | | $ | (2) | | | $ | 1,019 | |
(1) Maturity dates are 2022-2051.2021-2051.
(2) Maturity dates are 2021-2056.2022-2056.
(3) Maturity dates are 2022-2072.2021-2072.
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 June 30, | | Six months ended June 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
| Proceeds from sales | Proceeds from sales | $ | 254 | | | $ | 245 | | | $ | 542 | | | $ | 797 | | Proceeds from sales | $ | 187 | | | $ | 294 | | | $ | 729 | | | $ | 1,091 | |
| Gross realized gains | Gross realized gains | 18 | | | 7 | | | 39 | | | 99 | | Gross realized gains | 9 | | | 9 | | | 48 | | | 108 | |
| Gross realized losses | Gross realized losses | (1) | | | (6) | | | (3) | | | (11) | | Gross realized losses | (1) | | | (2) | | | (4) | | | (13) | |
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’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 $563$551 million at JuneSeptember 30, 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 2021 dollars is approximately $886 million.
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.
The SONGS co-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 $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, and in some cases have exceeded, applicable insurance coverage and could materially adversely affect our business, cash flows, results of operations, financial condition and/or prospects. Unless otherwise indicated, we are unable to estimate reasonably possible losses or a range of losses in excess of any amounts accrued.
At JuneSeptember 30, 2021, loss contingency accruals for legal matters, including associated legal fees and regulatory matters related to the Leak, that are probable and estimable were $523$2,076 million for Sempra, including $445$1,998 million for SoCalGas. Amounts for Sempra and SoCalGas include $419$1,973 million for matters related to the 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 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 Litigation.Litigation – Litigation Subject to Agreements to Resolve. As of August 2,November 1, 2021, 396416 lawsuits including approximately 36,000 plaintiffs are(the Individual Plaintiffs) were pending against SoCalGas and Sempra related to the Leak. All these cases other than 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 was filed on behalf of the Individual Plaintiffs, through which their separate lawsuits will beare managed for pretrial purposes. The consolidated complaint asserts causes of action for negligence, negligence per se, private and public nuisance (continuing and permanent), trespass, inverse condemnation, strict liability, negligent and intentional infliction of emotional distress, fraudulent concealment, loss of consortium, wrongful death and violations of Proposition 65 against SoCalGas and Sempra.Sempra (excluding the Proposition 65 claims, the Individual Plaintiff Litigation). The consolidated complaint seeks compensatory and punitive damages for personal injuries, lost wages and/or lost profits, property damage and diminution in property value, injunctive relief, costs of future medical monitoring, civil penalties, (including penalties associated with Proposition 65 claims alleging violationand attorneys’ fees.
In October 2018 and January 2019, complaints were filed on behalf of requirements51 firefighters stationed near the Aliso Canyon natural gas storage facility who allege they were injured by exposure to chemicals released during the Leak. The complaints against SoCalGas and Sempra assert causes of actions for warning about certain chemical exposures)negligence, negligence per se, private and public nuisance (continuing and permanent), trespass, inverse condemnation, strict liability, negligent and intentional infliction of emotional distress, fraudulent concealment and loss of consortium. The complaints seek compensatory and punitive damages for personal injuries, lost wages and/or lost profits, property damage and diminution in property value, and attorneys’ fees. The court has scheduled trialThese complaints are included in the coordinated proceeding and the Individual Plaintiff Litigation.
On September 26, 2021, SoCalGas and Sempra entered into an agreement with counsel representing over 80% of the plaintiffs in the Individual Plaintiff Litigation to resolve the claims of all Individual Plaintiffs for a smallpayment of up to $1.8 billion. The agreement is subject to acceptance by no fewer than roughly 97% of all plaintiffs in the Individual Plaintiff Litigation by June 1, 2022, although SoCalGas and Sempra have the right to waive such condition. The agreement, which requires each plaintiff who accepts a settlement to release all such plaintiff’s claims against SoCalGas, Sempra and their respective affiliates related to the Individual Plaintiff Litigation and the Leak, provides that the settlement amount will be reduced based on the number of individual plaintiffs for February 2022.who do not accept. The agreement is further subject to LA Superior Court approval of the process to allocate payments among the plaintiffs and a stay of the Individual Plaintiff Litigation. The plaintiffs who do not agree to participate in the settlement will be able to continue to pursue their claims.
In January 2017, 2 consolidated class action complaints were filed against SoCalGas and Sempra, 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.
On September 26, 2021, SoCalGas and Sempra entered into an agreement to settle the Property Class Action for a total amount of $40 million. If, following a fairness hearing at which any objections to the settlement will be heard, the LA Superior Court gives final approval of the settlement, the agreement provides for a release of SoCalGas, Sempra and their respective affiliates from all claims related to the Leak by all property class members who do not opt out of the class. Members of the property class who opt out of the settlement will have the right to pursue their claims on an individual basis.
On September 27, 2021, SoCalGas and Sempra entered into an agreement to settle the individual claims of the named plaintiffs in the Business Class Action for a total amount of $100,000 in exchange for a dismissal and release of SoCalGas, Sempra and their respective affiliates from all claims related to the Leak.
The Third Amended Consolidated Master Case Complaint for Individual Actions includes claims for violation of Proposition 65 seeking penalties for alleged violation of requirements to warn about certain chemical exposures as a result of the Leak. On November 4, 2021, SoCalGas entered into an agreement to settle these claims for a payment of approximately $2 million; in
addition, SoCalGas agreed to implement certain measures to reduce emissions at the Aliso Canyon natural gas storage facility and to provide warnings to residents if benzene measured at the facility’s fence line exceeds certain levels. The settlement of these claims requires the approval of the LA Superior Court.
An adverse ruling in any of the lawsuits in the Individual Plaintiff Litigation filed by plaintiffs who do not agree to settle, any lawsuits filed by property class members who opt out of the Property Class Action settlement or by members of the putative Business Class Action, or the Proposition 65 claims described above if that settlement is not approved by the court, could have a material adverse effect on SoCalGas’ and Sempra’s cash flows, financial condition and results of operations. In addition, there can be no assurance that the conditions to resolve the Individual Plaintiff Litigation will be satisfied or that the LA Superior Court will approve the settlement for the Property Class Action.
In addition, a federal securities class action alleging violation of the federal securities laws was filed against Sempra 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, and in February 2021, the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal. The time for appeal has passed and, as a result, this represents the final judgment in this proceeding.
Civil Litigation – Unresolved Litigation. Five property developers filed complaints in July and October of 2018 against SoCalGas and Sempra 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 The LA Superior Court has scheduled a trial for one or more 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 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 diminutiondevelopers in property value, and attorneys’ fees.February 2022.
NaN shareholder derivative actions were filed alleging breach of fiduciary duties against certain officers and certain directors of Sempra and/or SoCalGas. Three of the actions were joined in an Amended Consolidated Shareholder Derivative Complaint, which was dismissed with prejudice in January 2021. The plaintiffs have filed 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 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, and in February 2021, the U.S. Court of Appeals for the Ninth Circuit affirmed the 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.SoCalGas.
In June 2019, the CPUC opened an OII to consider penalties against SoCalGas for the Leak, which it later bifurcated into two phases. The first phase will consider whether SoCalGas violated California Public Utilities Code Section 451 or other laws, CPUC orders or decisions, rules or requirements, whether SoCalGas engaged in unreasonable and/or imprudent practices with respect to its operation and maintenance of the Aliso Canyon natural gas storage facility or its related record-keeping practices, whether SoCalGas cooperated sufficiently with the 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. The SED, based largely on the Blade report, has alleged a total of 324 violations in the first phase, asserting that SoCalGas violated
California Public Utilities Code Section 451 and failed to cooperate in the investigation and to keep proper records. Hearings on a subset of issues began in March 2021. The second phase will consider whether SoCalGas should be sanctioned for the Leak and what damages, fines or other penalties, or sanctions, if any, should be imposed for any violations, unreasonable or imprudent practices, or failure to sufficiently cooperate with the SED as determined by the CPUC in the first phase. In addition, the second phase will determine the amounts of various costs incurred by SoCalGas and other parties in connection with the Leak and the ratemaking treatment or other disposition of such costs, which could result in little or no recovery of such costs by SoCalGas. SoCalGas has engaged in settlement discussions with the SED in connection with this proceeding.
In February 2017, the CPUC opened a proceeding pursuant to the SB 380 OII to determine the feasibility of minimizing or eliminating the use of the Aliso Canyon natural gas storage facility while still maintaining energy and electric reliability for the region, but excluding issues with respect to air quality, public health, causation, culpability or cost responsibility regarding the Leak. The CPUC issued a decision on the interim range of gas inventory levels at the Aliso Canyon natural gas storage facility in November 2020 with a final determination to be made within the SB 380 OII proceeding. The first phase of the proceeding established a framework for the hydraulic, production cost and economic modeling assumptions for the potential reduction in usage or elimination of the Aliso Canyon natural gas storage facility. Phase 2 of the proceeding, which is evaluating the impacts of reducing or eliminating the Aliso Canyon natural gas storage facility using the established framework and models, began in the first quarter of 2019. In December 2019, the CPUC added a third phase of the proceeding and engaged a consultant 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 2035 timeframe. In July 2021, the CPUC combined Phase 2 and Phase 3 and
modified the scope of Phase 3 to also address potential implementation of alternatives to the Aliso Canyon natural gas storage facility if the CPUC determines that the Aliso Canyon natural gas storage facility should be permanently closed. The CPUC also added all California IOUs as parties to the proceeding and encouraged all load serving entities in the Los Angeles Basin to join the proceeding.
In November 2020, the CPUC issued a decision on the interim range of gas inventory levels at the Aliso Canyon natural gas storage facility, setting the interim range between 0 Bcf and 34 Bcf. In November 2021, the CPUC issued a decision approving a new interim range of gas inventory levels of up to 41.16 Bcf. The CPUC may issue future changes to this interim range of authorized gas inventory levels before issuing a final inventory determination within the SB 380 OII proceeding.
At September 30, 2021, the Aliso Canyon natural gas storage facility had a net book value of $863 million. If the Aliso Canyon natural gas storage facility were to be permanently closed or if future cash flows from its operation were otherwise insufficient to recover its carrying value, it could result inwe may record an impairment of the facility, and significantlyincur higher than expected operating costs and/or be required to make additional capital expenditures (any or all of which may not be recoverable in rates), and natural gas reliability and electric generation could be jeopardized. At June 30, 2021, the Aliso Canyon natural gas storage facility had a net book value of $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,such outcome could have a material adverse effect on SoCalGas’ and Sempra’s results of operations, financial condition and cash flows.
Cost Estimates,Estimate, 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 JuneSeptember 30, 2021, SoCalGas estimates these costs related to the Leak are $1,627$3,199 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 $422$1,976 million is accrued as Reserve for Aliso Canyon Costs as of Juneat September 30, 2021 on SoCalGas’ and Sempra’s Condensed Consolidated Balance Sheets.
In the first quarter of 2020, SoCalGas recorded $277 million in costs, inclusive of estimated legal costs, related to settlement discussions in connection with civil litigation described above in “Civil Litigation.”above. Of this amount, $177 million was recorded in Insurance Receivable for Aliso Canyon Costs on the SoCalGas and Sempra Condensed Consolidated Balance Sheets and $100 million ($72 million after tax) was recorded in Aliso Canyon Litigation and Regulatory Matters on the SoCalGas and Sempra Condensed Consolidated Statements of Operations. These accruals are includedIn the third quarter of 2020, SoCalGas recorded an additional charge of $27 million ($22 million after tax) related to the OII described above in “Regulatory Proceedings.”
As a result of entering into the September 26 and 27, 2021 agreements described above, SoCalGas recorded an additional charge of $1.57 billion ($1.13 billion after tax) in the cost estimatethird quarter of 2021 in Aliso Canyon Litigation and Regulatory Matters on the SoCalGas and Sempra Condensed Consolidated Statements of Operations. Sempra has elected to make equity contributions to SoCalGas that we describe above.are sufficient to maintain SoCalGas’ approved capital structure in connection with the accruals related to these agreements. In connection with this election, in September 2021, Sempra made an initial equity contribution of $800 million to SoCalGas.
Except for the amounts paid or estimated to settle certain legal and regulatory matters as described above, the cost estimate does not include litigation, regulatory proceedings or regulatory coststhe matters that we describe above in “Civil Litigation – Unresolved Litigation” and “Regulatory Proceedings.” to the extent it is not possible to predict at this time the outcome of these actions or reasonably estimate the possible costs to defend or resolve the actions or the amounta range of possible costs for damages, restitution, civil or administrative fines sanctions,or penalties, defense, settlement or other costs or remedies that may be imposed or incurred. The cost estimate also does not include certain other costs incurred by Sempra associated with defending against shareholder derivative lawsuits and other potential costs that we currently do not anticipate incurring or that we cannot reasonably estimate. Further, we are not able to reasonably estimate the possible loss or a range of possible losses in excess of the amounts accrued. These costs or losses not included in the cost estimate could be significant and could have a material adverse effect on SoCalGas’ and Sempra’s cash flows, financial condition and results of operations.
We have received insurance payments for many of the categories of costs included in the cost estimate, including temporary relocation and associated processing costs, control-of-well expenses, costs of the government-ordered response to the Leak, certain legal costs and lost gas. As of JuneAt September 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 JuneSeptember 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, we have exhausted all of our insurance in this matter. We continue to pursue other sources of insurance coverage for costs related to this matter, but we may
not be successful in obtaining additional insurance recovery for any of these costs. If we are not able to secure additional insurance recovery, if any costs we have recorded as an insurance receivable are not collected, if there are delays in receiving insurance recoveries, or if the insurance recoveries are subject to income taxes while the associated costs are not tax deductible, such amounts, which could be significant, could have a material adverse effect on SoCalGas’ and Sempra’s cash flows, financial condition and results of operations.
Sempra Mexico
Energía Costa Azul
We describe below certain land and customer disputes and permit challenges affecting our ECA Regas Facility and our proposed ECA LNG liquefaction projects. One or more unfavorable final decisions on these disputes or challenges could materially adversely affect our existing natural gas regasification operations and proposed natural gas liquefaction projects at the site of the ECA Regas Facility and have a material adverse effect on Sempra’s business, cash flows, financial condition, results of operations and/or prospects.
Land Disputes.IEnova has been engaged in a long-running land dispute relating to property adjacent to its ECA Regas Facility that allegedly overlaps with land owned by the ECA Regas Facility (the facility, however, is not situated on the land that is the subject of this dispute), as follows:
▪A claimant to the adjacent property filed complaints in the federal Agrarian Court challenging the refusal of SEDATU in 2006 to issue title to him for the disputed property. In November 2013, the federal Agrarian Court ordered that SEDATU issue the requested title to the claimant and cause it to be registered. Both SEDATU and 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, which is pending resolution.
▪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 otherIn addition, four cases involving two adjacent areas of real property on which part of the ECA Regas Facility is situated, each brought by a single plaintiff or her descendants, remain pending against the facility, 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 plaintiff seeks to annul the property title for a portion of the land on which the ECA Regas Facility is situated and to obtain possession of a different parcel that allegedly overlaps with the site of the ECA Regas Facility. The Agrarian Court proceeding, which seeks an order that SEDATU annul the ECA Regas Facility’s competing property title, was initiated in 20132006 and, in MayJuly 2021, a decision was issued in favor of the plaintiff. IEnova appealedECA Regas Facility. We expect the ruling, which is pending resolution.plaintiff may appeal.
▪The second disputed area is one parcel adjacent to the ECA Regas Facility that allegedly overlaps with land on which the ECA Regas Facility is situated, which is subject to a claim in the federal Agrarian Court and two claims in Mexican civil courts. The ECA Regas Facility first bought the property from the federal government in 2003; however, to resolve an ownership controversy, the ECA Regas Facility bought the property a second time in 2008 from the plaintiff. Nevertheless, the plaintiff sued in 2013 for the nullity of both titles. The Agrarian Court ruled in favor of the plaintiff.plaintiff in May 2021, nullifying the first property title. IEnova appealed the ruling in July 2021, which is pending resolution. The ECA Regas Facility continues to hold a separatethe second property title overto the land. The two civil court proceedings, which seek to invalidate the contract by which the ECA Regas Facility purchased for the second time the applicable parcel of land on which the ECA Regas Facility is situated on the grounds that the purchase price was allegedly unfair, are progressing at different stages. In the first civil case, initiated in 2013, a lowerthe court ruled in favor of the ECA Regas Facility, and the ruling has been appealed by the plaintiff.decision was affirmed on appeal. The descendants of the same plaintiff filed the second civil case in 2019, which was dismissed by the court. However, we expect the descendants of the plaintiff will appeal the dismissal.dismissal has been appealed.
Certain of these land disputes involve land on which portions of the ECA LNG liquefaction facilities, including ECA LNG Phase 1 currently under construction, are proposed to be situated or on which portions of the ECA Regas Facility that would be necessary for the operation of the proposed ECA LNG liquefaction facilities are situated.
Environmental and Social Impact Permits. Several administrative challenges are pending before Mexico’s Secretariat of Environment and Natural Resources (the Mexican environmental protection agency) and Federal Tax and Administrative Courts, seeking revocation of the environmental impact authorization issued to the ECA Regas Facility in 2003. These cases generally allege that the conditions and mitigation measures in the environmental impact authorization are inadequate and challenge findings that the activities of the terminal are consistent with regional development guidelines.
In 2018 twoand 2021, three related claimants filed separate challenges in the federal district court in Ensenada, Baja California in relation to the environmental and social impact permits issued by each of Agencia de Seguridad, Energía y Ambiente (ASEA)ASEA and SENER to ECA LNG authorizing natural gas liquefaction activities at the ECA Regas Facility, 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; therefore, the natural gas liquefaction activities have not been affected.
▪In the third case, a group of residents filed a complaint in June 2021 against various federal and state authorities alleging deficiencies in the public consultation process for the issuance of the permits. The case is awaiting proceedings.
Customer Dispute.In May 2020, the two third-party capacity customers at the ECA Regas Facility, Shell Mexico and Gazprom, asserted that a 2019 update of the general terms and conditions for service at the facility, as approved by the CRE, resulted in a breach of contract by 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 on the customers’ letters of credit provided as payment security. The parties engaged in discussions under the applicable contractual dispute resolution procedures without coming to a mutually acceptable resolution. In July 2020, Shell Mexico submitted a request for arbitration of the dispute and although Gazprom has joined the proceeding, Gazprom has since replenished the amounts drawn on its letter of credit and has resumed making regular monthly payments under its LNG storage and regasification agreement. As a consequence, IEnova is 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 available claims, defenses, rights and remedies in the arbitration proceeding, including seeking dismissal of the customers’ claims. In addition to the arbitration proceeding, Shell Mexico also filed a constitutional challenge to the CRE’s approval of the update to the general terms and conditions 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 upheld on appeal. A decision on the merits is pending. The claim regarding the liquefaction permit issuance was denied in March 2021 and upheld on appeal. A hearing on the merits of the arbitration case was held in October 2021. Shell Mexico 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 natural gas liquefaction projects at the site of the ECA 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
Guaymas-El Oro Segment.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 multiple times, most recently to SeptemberMarch 14, 2021.2022. Under the revised agreement, the CFE will resume making payments only when the damaged section
of the Guaymas-El Oro segment of the Sonora pipeline is repaired. If the pipeline is not repaired by SeptemberMarch 14, 2021,2022, 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.
At JuneSeptember 30, 2021, Sempra Mexico had $439$436 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, which in each case could have a material adverse impacteffect on Sempra’s business, results of operations, financial condition, cash flows and/or prospects. The
Sasabe-Puerto Libertad-Guaymas Segment. In June 2014, IEnova and a landowner agreed to enter into a voluntary right-of-way easement agreement for the construction and operation of a seven-mile section of the 314-mile Sasabe-Puerto Libertad-Guaymas segment of the Sonora natural gas pipeline remainson the landowner’s property. However, in full operation2015, the landowner filed a complaint demanding the easement agreement be nullified. In September 2021, a definitive and is not impacted by these developments.non-appealable judgment was issued declaring the easement agreement nullified and ordering the removal of the pipeline from the landowner’s property. IEnova intends to file a special judicial action whereby it will ask a civil court to acknowledge the existence of the easement and to determine the consideration the landowner should receive in exchange for the easement. The failure to stay this judgment pending the resolution of IEnova’s planned special judicial action or prevail in preserving the easement in the special judicial action could require us to modify the route of the pipeline and could require a temporary shutdown of this portion of the pipeline, which could have a material adverse effect on Sempra’s business, results of operations, financial condition, cash flows and/or prospects.
Regulatory and Other Actions by the Mexican Government
In April 2020, CENACE issued an orderWe describe below certain actions by the Mexican government that itcould have a material impact on the energy sector in Mexico. IEnova and other parties affected by these resolutions, orders, decrees, regulations and proposed amendments to Mexican law have challenged them by filing amparo and other claims, would safeguardsome of which have been granted injunctive relief. The court-ordered injunctions or suspensions provide temporary relief until Mexico’s national power grid from interruptions that may be caused by renewable energy projects. A primary provision ofFederal District Court or Supreme Court ultimately resolves the order suspends all legally mandated pre-operative testing that would be needed for new renewable energy projects to commence operationsamparo and prevents such projects from connectingother claims. If passed in its current form, the proposed constitutional reform described below introduces significant changes to the national power grid until further notice. IEnova’s renewablelegal and economic principles underlying the country’s energy reform of 2013, generating imminent risks for private investments in this sector. An unfavorable decision on one or more of these amparo or other challenges, the potential for extended disputes, or if passed in its current form, the proposed constitutional reform may impact our ability to operate our facilities at existing levels or at all, may result in increased costs for IEnova and its customers, may adversely affect our ability to develop new projects, affected byand may negatively impact our ability to recover the order filedcarrying values of our investments in Mexico, any of which may have a material adverse effect on our business, financial condition, results of operations, cash flows and/or prospects.
Transmission Rates for legal protection through amparo claims (constitutional protection lawsuits) and, in June 2020, received injunctive relief until the claims are resolved by the courts. IEnova has since achieved commercial operations on its solar power generation projects that were impacted by the order. The second phase of ESJ is not impacted by the order because it is not interconnected to Mexico’s electric grid.
Legacy Generation Facilities. In May 2020, the CRE approved an update to the transmission rates included in legacy renewable 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 renewable energy facilities (Don Diego Solar, Border Solar and Ventika) are currently holders of contracts with such legacy rates, and under the terms of these contracts any increases in the transmission rates would be passed through directly to their customers. These renewable energy facilities have obtained injunctive relief but are required to guarantee the difference in tariffs, which could be material, until the claims are definitively resolved by the courts, which could be material.courts. The three facilities obtained favorable resolutions from a lower court and the CRE has appealed one of these decisions. We anticipate that the CRE will challenge the other two decisions in a higher court.
Offtakers of Legacy Generation Permits.In October 2020, the CRE approved a resolution to amend the rules for the inclusion of new offtakers of legacy generation and self-supply permits (the Offtaker Resolution), which became effective immediately. The Offtaker Resolution prohibits self-supply permit holders from adding new offtakers that were not included in the original development or expansion plans, making modifications to the amount of energy allocated to the named offtakers, and including load centers that have entered into a supply arrangement under Mexico’s Electricity Industry Law. Don Diego Solar, Border Solar and Ventika are holders of 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 JuneSeptember 30, 2021, Sempra Mexico had $15$14 million in other intangible assets, net, related to these self-supply permits previously granted by the CRE and impacted by the
Offtaker Resolution that could be subject to impairment if IEnova is unable 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 untilAmendments to 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.
Electricity Industry Law. In March 2021, the Mexican government published a decree with amendments to Mexico’s Electricity Industry Law that include some public policy changes, including establishing priority of dispatch for CFE plants over privately owned plants. According to the decree, these amendments were to become effective on March 10, 2021, and SENER, the CRE and CENACE were to have 180 calendar days to modify, as necessary, all resolutions, policies, criteria, manuals and other regulations applicable to the power industry to conform with this decree. However, a Mexican court issued a suspension of the amendments on March 19, 2021, and it is expected that Mexico’s Supreme Court will ultimately settle the matter. If the proposed changesamendments are affirmed by the Supreme
Court, the CRE may be required to revoke self-supply permits granted under the former electricity law, which were grandfathered when the new Electricity Industry Law was enacted, under a legal standard that is ambiguous and not well defined under the law.
Amendments to Mexico’s Hydrocarbons Law.In May 2021, amendments to Mexico’s Hydrocarbons Law were published and became effective. The amendments grant SENER and the CRE additional powers to suspend and revoke permits related to the midstream and downstream sectors. Suspension of permits will be determined by SENER or the CRE when a danger to national security, energy security, or to the national economy is foreseen. Likewise, new grounds for the revocation of permits are in place if the permit holder (i) carries out its activity with illegally imported products; (ii) fails, on more than one occasion, to comply with the provisions applicable to quantity, quality and measurement of the products; or (iii) modifies the technical conditions of its infrastructure without authorization. Additionally, in the case of existing permits, authorities will revoke those permits that fail to comply with the minimum storage requirements established by SENER or fail to comply with requirements or violate provisions established by the amended Hydrocarbons Law. All of 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 wereIn 2021, district courts issued judgments that the amendments do not affect the interests of the companies at this time and, as a result, dismissed the amparo lawsuits filed by several companies in the market, including three of the five lawsuits filed by IEnova. These judgments have been appealed and the granted suspensions will remain valid until the lawsuits are definitively resolved.
Amendments 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.
Mexico’s General Foreign Trade Rules.In June 2021, amendments to Mexico’s General Foreign Trade Rules went into effect, which establish that only state-owned companies may import and export hydrocarbons, refined products, petrochemicals, and biofuels through channels other than those authorized (LDA authorization). These amendments prevent non-state-owned companies from (1)(i) obtaining LDA authorizations, which affect new projects that have not obtained such approval, and (2)(ii) renewing existing LDA authorizations, which affect operational projects and those under construction. The ECA Regas Facility and the Veracruz terminal have LDA authorizations that are valid through 2023 and, as a preventive measure, have filed amparo claims to challenge the newly introduced barrier to 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, including the proposed ECA LNG liquefaction projects, 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
Proposed Constitutional Reform in Mexico. In September 2021, the claimantsPresident of Mexico presented a constitutional reform initiative with the stated goal of preserving energy security and self-sufficiency, and a continuous supply of electricity to secure new or renew existing LDA authorizationsthe country’s population, as a condition for guaranteeing national security and the human right to a decent life. The CRE and the National Commission of Hydrocarbons would be dissolved, and their functions would be carried out by SENER. CENACE would be reinstated to the CFE, and the CFE would be responsible for generating, conducting, transforming, distributing and supplying electricity, and would be the only entity allowed to commercialize electric energy in Mexico. Electricity generation permits and contracts for the sale of electricity to the CFE, including permits at all of IEnova’s operational power generation facilities, would be canceled. The public electricity supply service would be provided exclusively by the CFE, which may acquire up to 46% of required energy from the private sector. Only certain private power plants would be permitted to continue generating electricity and compete to offer the CFE the lowest production costs.
The initiative must first be submitted to a vote and approved in the respective plenary sessions of the Chamber of Deputies and the Chamber of Senators in Mexico. Additionally, the initiative must be approved by a two-thirds vote of Mexico’s Federal Congress and by the majority of the legislatures of the Mexican States and published in the Federal Official Gazette to be in force. Sempra Mexico is following this legislative procedure while assessing alternatives for its project companies. If passed in its current form, the initiative could have a material adverse effect on Sempra’sour business, financial condition, results of operations, financial condition, cash flows and/or prospects.prospects, our ability to recover the carrying values of our investments in Mexico, and our ability to operate existing facilities and develop new energy projects in the country.
Other Litigation
RBS Sempra Commodities
Sempra holds an equity method investment in RBS Sempra Commodities, a limited liability partnership in the process of being liquidated. RBS, now NatWest Markets plc, our partner in the JV, paid an assessment of £86 million (approximately $138 million in U.S. dollars) in October 2014 to HMRC for denied VAT refund claims filed in connection with the purchase of carbon credit allowances by RBS SEE, a subsidiary of RBS Sempra Commodities. RBS SEE has since beenwas subsequently sold to J.P. Morgan Chase & Co. and later to Mercuria Energy Group, Ltd. HMRC asserted that RBS was not entitled to reduce its VAT liability by VAT paid on certain carbon credit purchases during 2009 because RBS knew or should have known that certain vendors in the trading chain did not remit their own VAT to HMRC. After paying the assessment, RBS filed a Notice of Appeal of the assessment with the First-Tier Tribunal. In July 2021, RBS reachedentered into a settlement with HMRC. As a result, hearing by the First-Tier Tribunal has been canceled and the appeal has concluded.HMRC that resolved this matter.
In 2015, liquidators filed a claim in the High Court of Justice against RBS and Mercuria Energy Europe Trading Limited (the Defendants) on behalf of 10 companies (the Liquidating Companies) that engaged in carbon credit trading via chains that included a company that traded directly with RBS SEE. The claim alleges that the Defendants’ participation in the purchase and sale of carbon credits resulted in the Liquidating Companies’ carbon credit trading transactions creating a VAT liability they were unable to pay, and that the Defendants are liable to provide for equitable compensation due to dishonest assistance and for compensation under the U.K. Insolvency Act of 1986. Trial on the matter was held in June and July of 2018. In March 2020, the High Court of Justice rendered its judgment mostly in favor of the Liquidating Companies and awarded damages of approximately £45 million (approximately $62$61 million in U.S. dollars at JuneSeptember 30, 2021), plus costs and interest. In October 2020, the High Court of Justice assessed costs and interest to be approximately £21 million (approximately $29$28 million in U.S. dollars at JuneSeptember 30, 2021) as of that date, with interest continuing to accrue. The Defendants appealed the High Court of Justice’s March 2020 judgment. Inand, in May 2021, the Court of Appeal set aside the High Court of Justice’s decision and ordered 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 J.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 Sempra’s Condensed Consolidated Statement of Operations in the first quarter of 2020, which represented an estimate of our obligations to settle pending VAT 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 are defendants in personal injury lawsuits brought in state courts throughout the U.S. As of August 2,November 1, 2021, 3 such lawsuits are pending, all 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. 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’s cash flows, financial condition and results of operations.
Ordinary Course Litigation
We are also defendants in ordinary routine litigation incidental to our businesses, including personal injury, employment litigation, product liability, property damage and other claims. Juries have demonstrated an increasing willingness to grant large awards, including punitive damages, in these types of cases.
LEASES
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, 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 PPAs with renewable energy and peaker plant facilities.
Leases that Have Not Yet Commenced
SDG&E has entered into a battery storage tolling agreement that it expects will commence in the second halffourth quarter of 2021. SDG&E expects to account for the tolling agreement as an operating lease upon commencement and expects the future minimum lease payments to be $3$1 million in 2021, $10 million in each of 2022 through 2025 and $101$103 million thereafter until expiration in 2036.
Lessor Accounting
Sempra Mexico is a lessor for certain of its natural gas and ethane pipelines, compressor stations, LPG storage facilities, a rail facility and atwo liquid fuels terminal.terminals.
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.
In July 2021, a rail facility agreement commenced, which Sempra Mexico is accounting for as a sales-type lease. The rail facility is being used by the lessee to transport liquid fuels out of the Veracruz terminal. The lessee has the right to direct the use of the rail facility and will obtain substantially all of the economic benefits of the rail facility. At lease commencement, Sempra Mexico derecognized the $44 million carrying value of the rail facility from PP&E and recognized a net investment in sales-type lease asset of $60 million and a selling profit of $16 million. The agreement expires in 2041 and will automatically renew for successive five-year terms unless written notice is provided by Sempra Mexico or the lessee. Fixed lease payments are payable in the first five years of the agreement, which the lessee is required to pay even in the event of lease termination.
We provide information below for leases for which we are the lessor.
| | LESSOR INFORMATION ON THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – SEMPRA | LESSOR INFORMATION ON THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – SEMPRA | LESSOR INFORMATION ON THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – SEMPRA |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | Three months ended June 30, | | Six months ended June 30, | | Three months ended
September 30, | | Nine months ended
September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
| Sales-type leases: | | Sales-type leases: | |
| Income recognized at lease commencement | | Income recognized at lease commencement | $ | 16 | | | $ | — | | | $ | 16 | | | $ | 1 | |
| Interest income | | Interest income | 2 | | | — | | | 2 | | | 1 | |
Total revenues from sales-type leases(1) | | Total revenues from sales-type leases(1) | $ | 18 | | | $ | — | | | $ | 18 | | | $ | 2 | |
| | Operating leases: | | Operating leases: | |
| Fixed lease payments | Fixed lease payments | $ | 59 | | | $ | 47 | | | $ | 112 | | | $ | 97 | | Fixed lease payments | $ | 80 | | | $ | 48 | | | $ | 192 | | | $ | 145 | |
| Variable lease payments | Variable lease payments | 1 | | | 0 | | | 1 | | | 0 | | Variable lease payments | 2 | | | 1 | | | 3 | | | 1 | |
Total revenues from operating leases(1) | Total revenues from operating leases(1) | $ | 60 | | | $ | 47 | | | $ | 113 | | | $ | 97 | | Total revenues from operating leases(1) | $ | 82 | | | $ | 49 | | | $ | 195 | | | $ | 146 | |
| | Depreciation expense | Depreciation expense | $ | 12 | | | $ | 9 | | | $ | 22 | | | $ | 19 | | Depreciation expense | $ | 13 | | | $ | 10 | | | $ | 35 | | | $ | 29 | |
(1)Included in Revenues: Energy-Related Businesses on the Condensed Consolidated Statements of Operations.
CONTRACTUAL COMMITMENTS
We discuss below significant changes in the first sixnine months of 2021 to contractual commitments discussed in Notes 1 and 16 of the Notes to Consolidated Financial Statements in the Annual Report.
LNG Purchase Agreement
Sempra LNG has a sale and purchase agreement for the supply of LNG to the ECA Regas Facility. The commitment amount is calculated using a predetermined formula based on estimated forward prices of the index applicable from 2021 to 2029. 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 JuneSeptember 30, 2021, we expect the commitment amount to decrease by $106$277 million in 2021 and then increase by $150$496 million in 2022, $89$279 million in 2023, $70$197 million in 2024, $70$153 million in 2025 and $219by $499 million thereafter (through contract termination in 2029) compared to December 31, 2020, reflecting changes in estimated forward prices since December 31, 2020 and actual transactions for the first sixnine months of 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.
OTHER COMMITMENTS
Franchise Agreements
In December 2020, the City of San Diego and SDG&E agreed to extend SDG&E’s natural gas and electric franchises for the city to June 1, 2021. After completing a competitive bid process, on June 8, 2021, the City of San Diego approved ordinances granting to SDG&E the natural gas and electric franchises for the city. These franchise agreements provide SDG&E the opportunity to serve the City of San Diego for the next 20 years, consisting of 10-year agreements that will automatically renew for an additional 10 years unless the City Council voids the automatic renewal with a supermajority vote. The agreements went into effect in July 2021. Over the 20-year term of the agreements, SDG&E will make principal payments of $110 million and interest payments of $13 million as consideration for the natural gas and electric franchise agreements. The consideration paid will not be recovered from customers and will be amortized over 20 years. SDG&E paid $11 million to the City of San Diego in the first nine months of 2021. At September 30, 2021, SDG&E has commitments to make future payments of $14 million per year in 2022 through 2024, $15 million in 2025 and $55 million thereafter.
Two lawsuits have been filed in the California Superior Court challenging the City’s process for its award of the natural gas and electric franchises and seeking to declare the franchise agreements null and void.
ENVIRONMENTAL ISSUES
We disclose any proceeding under environmental laws to which a government authority is a party when the potential monetary sanctions, exclusive of interest and costs, exceed the lesser of $1 million or 1% of current assets, which was $46 million for Sempra, $17 million for SDG&E and $15 million for SoCalGas at September 30, 2021.
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, western and panhandle regions of Texas; and our indirect, 50% interest in Sharyland Holdings, L.P., which owns Sharyland Utilities, L.L.C., a regulated electric transmission utility serving customers near the Texas-Mexico border.
▪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, builds, operates and invests in natural gas liquefaction export facilities, including natural gas pipelines and infrastructure, and buys, sells and transports natural gas through its marketing operations, all within North America.
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’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 June 30, | | Six months ended June 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
| REVENUES | REVENUES | | | | | | | | REVENUES | | | | | | | |
| SDG&E | SDG&E | $ | 1,318 | | | $ | 1,235 | | | $ | 2,655 | | | $ | 2,504 | | SDG&E | $ | 1,464 | | | $ | 1,472 | | | $ | 4,119 | | | $ | 3,976 | |
| SoCalGas | SoCalGas | 1,124 | | | 1,010 | | | 2,632 | | | 2,405 | | SoCalGas | 1,106 | | | 842 | | | 3,738 | | | 3,247 | |
| Sempra Mexico | Sempra Mexico | 404 | | | 275 | | | 771 | | | 584 | | Sempra Mexico | 597 | | | 351 | | | 1,368 | | | 935 | |
| Sempra LNG | Sempra LNG | 52 | | | 69 | | | 248 | | | 192 | | Sempra LNG | 119 | | | 63 | | | 367 | | | 255 | |
| All other | All other | 1 | | | 0 | | | 2 | | | 1 | | All other | 2 | | | — | | | 4 | | | 1 | |
| Adjustments and eliminations | Adjustments and eliminations | (1) | | | (1) | | | (1) | | | (2) | | Adjustments and eliminations | — | | | 2 | | | (1) | | | — | |
Intersegment revenues(1) | Intersegment revenues(1) | (157) | | | (62) | | | (307) | | | (129) | | Intersegment revenues(1) | (275) | | | (86) | | | (582) | | | (215) | |
| Total | Total | $ | 2,741 | | | $ | 2,526 | | | $ | 6,000 | | | $ | 5,555 | | Total | $ | 3,013 | | | $ | 2,644 | | | $ | 9,013 | | | $ | 8,199 | |
| INTEREST EXPENSE | INTEREST EXPENSE | | | | | | | | INTEREST EXPENSE | | | | | | | |
| SDG&E | SDG&E | $ | 101 | | | $ | 103 | | | $ | 203 | | | $ | 204 | | SDG&E | $ | 104 | | | $ | 103 | | | $ | 307 | | | $ | 307 | |
| SoCalGas | SoCalGas | 40 | | | 40 | | | 79 | | | 80 | | SoCalGas | 39 | | | 39 | | | 118 | | | 119 | |
| Sempra Mexico | Sempra Mexico | 41 | | | 32 | | | 79 | | | 64 | | Sempra Mexico | 43 | | | 31 | | | 122 | | | 95 | |
| Sempra LNG | Sempra LNG | 3 | | | 15 | | | 6 | | | 31 | | Sempra LNG | 4 | | | 8 | | | 10 | | | 39 | |
| All other | All other | 80 | | | 102 | | | 163 | | | 211 | | All other | 77 | | | 93 | | | 240 | | | 304 | |
| Intercompany eliminations | Intercompany eliminations | (7) | | | (18) | | | (13) | | | (36) | | Intercompany eliminations | (8) | | | (10) | | | (21) | | | (46) | |
| Total | Total | $ | 258 | | | $ | 274 | | | $ | 517 | | | $ | 554 | | Total | $ | 259 | | | $ | 264 | | | $ | 776 | | | $ | 818 | |
| INTEREST INCOME | INTEREST INCOME | | | | | | | | INTEREST INCOME | | | | | | | |
| SDG&E | SDG&E | $ | 0 | | | $ | 0 | | | $ | 1 | | | $ | 1 | | SDG&E | $ | — | | | $ | 1 | | | $ | 1 | | | $ | 2 | |
| SoCalGas | SoCalGas | 0 | | | 1 | | | 0 | | | 2 | | SoCalGas | — | | | — | | | — | | | 2 | |
| Sempra Mexico | Sempra Mexico | 12 | | | 15 | | | 24 | | | 33 | | Sempra Mexico | 12 | | | 14 | | | 36 | | | 47 | |
| Sempra LNG | Sempra LNG | 8 | | | 18 | | | 17 | | | 40 | | Sempra LNG | 6 | | | 25 | | | 23 | | | 65 | |
| All other | All other | 1 | | | 3 | | | 1 | | | 3 | | All other | 1 | | | — | | | 2 | | | 3 | |
| Intercompany eliminations | Intercompany eliminations | (6) | | | (15) | | | (9) | | | (30) | | Intercompany eliminations | (3) | | | (13) | | | (12) | | | (43) | |
| Total | Total | $ | 15 | | | $ | 22 | | | $ | 34 | | | $ | 49 | | Total | $ | 16 | | | $ | 27 | | | $ | 50 | | | $ | 76 | |
| DEPRECIATION AND AMORTIZATION | DEPRECIATION AND AMORTIZATION | | | | | DEPRECIATION AND AMORTIZATION | | | | |
| SDG&E | SDG&E | $ | 220 | | | $ | 197 | | | $ | 433 | | | $ | 398 | | SDG&E | $ | 226 | | | $ | 200 | | | $ | 659 | | | $ | 598 | |
| SoCalGas | SoCalGas | 180 | | | 162 | | | 353 | | | 321 | | SoCalGas | 180 | | | 165 | | | 533 | | | 486 | |
| Sempra Mexico | Sempra Mexico | 57 | | | 47 | | | 108 | | | 94 | | Sempra Mexico | 60 | | | 47 | | | 168 | | | 141 | |
| Sempra LNG | Sempra LNG | 2 | | | 3 | | | 5 | | | 5 | | Sempra LNG | 3 | | | 2 | | | 8 | | | 7 | |
| All other | All other | 4 | | | 3 | | | 6 | | | 6 | | All other | 2 | | | 4 | | | 8 | | | 10 | |
| Total | Total | $ | 463 | | | $ | 412 | | | $ | 905 | | | $ | 824 | | Total | $ | 471 | | | $ | 418 | | | $ | 1,376 | | | $ | 1,242 | |
| INCOME TAX EXPENSE (BENEFIT) | INCOME TAX EXPENSE (BENEFIT) | | | | | INCOME TAX EXPENSE (BENEFIT) | | | | |
| SDG&E | SDG&E | $ | 33 | | | $ | 70 | | | $ | 78 | | | $ | 128 | | SDG&E | $ | 90 | | | $ | 33 | | | $ | 168 | | | $ | 161 | |
| SoCalGas | SoCalGas | 8 | | | 49 | | | 102 | | | 101 | | SoCalGas | (437) | | | (6) | | | (335) | | | 95 | |
| Sempra Mexico | Sempra Mexico | 113 | | | 54 | | | 121 | | | (253) | | Sempra Mexico | 24 | | | 92 | | | 145 | | | (161) | |
| Sempra LNG | Sempra LNG | (19) | | | 18 | | | 30 | | | 41 | | Sempra LNG | (11) | | | 18 | | | 19 | | | 59 | |
| All other | All other | 4 | | | (23) | | | (34) | | | (56) | | All other | (8) | | | (38) | | | (42) | | | (94) | |
| Total | Total | $ | 139 | | | $ | 168 | | | $ | 297 | | | $ | (39) | | Total | $ | (342) | | | $ | 99 | | | $ | (45) | | | $ | 60 | |
| 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 | $ | 2 | | | $ | 0 | | | $ | 3 | | | $ | 0 | | Sempra Texas Utilities | $ | — | | | $ | 1 | | | $ | 3 | | | $ | 1 | |
| Sempra LNG | Sempra LNG | 133 | | | 84 | | | 267 | | | 141 | | Sempra LNG | 137 | | | 116 | | | 404 | | | 257 | |
| All other | All other | 50 | | | 0 | | | 50 | | | (100) | | All other | — | | | — | | | 50 | | | (100) | |
| | 185 | | | 84 | | | 320 | | | 41 | | | 137 | | | 117 | | | 457 | | | 158 | |
| Equity earnings (losses), net of income tax: | | | | | | | |
| Equity earnings, net of income tax: | | Equity earnings, net of income tax: | | | | | | |
| Sempra Texas Utilities | Sempra Texas Utilities | 137 | | | 143 | | | 273 | | | 249 | | Sempra Texas Utilities | 207 | | | 208 | | | 480 | | | 457 | |
| Sempra Mexico | Sempra Mexico | (9) | | | 6 | | | 38 | | | 206 | | Sempra Mexico | 47 | | | 1 | | | 85 | | | 207 | |
| | 128 | | | 149 | | | 311 | | | 455 | | | 254 | | | 209 | | | 565 | | | 664 | |
| Total | Total | $ | 313 | | | $ | 233 | | | $ | 631 | | | $ | 496 | | Total | $ | 391 | | | $ | 326 | | | $ | 1,022 | | | $ | 822 | |
| | SEGMENT INFORMATION (CONTINUED) | SEGMENT INFORMATION (CONTINUED) | | SEGMENT INFORMATION (CONTINUED) | |
| (Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| | Three months ended June 30, | | Six months ended June 30, | | Three months ended
September 30, | | Nine months ended
September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 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 | $ | 186 | | | $ | 193 | | | $ | 398 | | | $ | 455 | | SDG&E | $ | 205 | | | $ | 178 | | | $ | 603 | | | $ | 633 | |
| SoCalGas | SoCalGas | 94 | | | 146 | | | 501 | | | 449 | | SoCalGas | (1,126) | | | (24) | | | (625) | | | 425 | |
| Sempra Texas Utilities | Sempra Texas Utilities | 138 | | | 144 | | | 273 | | | 249 | | Sempra Texas Utilities | 206 | | | 209 | | | 479 | | | 458 | |
| Sempra Mexico | Sempra Mexico | 4 | | | 61 | | | 61 | | | 252 | | Sempra Mexico | 164 | | | 50 | | | 225 | | | 302 | |
| Sempra LNG | Sempra LNG | 47 | | | 61 | | | 193 | | | 136 | | Sempra LNG | 1 | | | 71 | | | 194 | | | 207 | |
| Discontinued operations | Discontinued operations | 0 | | | 1,775 | | | 0 | | | 1,847 | | Discontinued operations | — | | | (7) | | | — | | | 1,840 | |
| All other | All other | (45) | | | (141) | | | (128) | | | (389) | | All other | (98) | | | (126) | | | (226) | | | (515) | |
| Total | Total | $ | 424 | | | $ | 2,239 | | | $ | 1,298 | | | $ | 2,999 | | Total | $ | (648) | | | $ | 351 | | | $ | 650 | | | $ | 3,350 | |
| EXPENDITURES FOR PROPERTY, PLANT & EQUIPMENT | EXPENDITURES FOR PROPERTY, PLANT & EQUIPMENT | | EXPENDITURES FOR PROPERTY, PLANT & EQUIPMENT | |
| SDG&E | SDG&E | | $ | 1,072 | | | $ | 850 | | SDG&E | | $ | 1,560 | | | $ | 1,323 | |
| SoCalGas | SoCalGas | | 936 | | | 885 | | SoCalGas | | 1,417 | | | 1,345 | |
| Sempra Mexico | Sempra Mexico | | 166 | | | 321 | | Sempra Mexico | | 260 | | | 443 | |
| Sempra LNG | Sempra LNG | | 249 | | | 136 | | Sempra LNG | | 362 | | | 196 | |
| All other | All other | | 1 | | | 6 | | All other | | 7 | | | 6 | |
| Total | Total | | $ | 2,424 | | | $ | 2,198 | | Total | | $ | 3,606 | | | $ | 3,313 | |
| | | June 30,
2021 | | December 31,
2020 | | September 30,
2021 | | December 31,
2020 |
| ASSETS | ASSETS | | ASSETS | |
| SDG&E | SDG&E | | $ | 22,980 | | | $ | 22,311 | | SDG&E | | $ | 23,783 | | | $ | 22,311 | |
| SoCalGas | SoCalGas | | 19,091 | | | 18,460 | | SoCalGas | | 19,919 | | | 18,460 | |
| Sempra Texas Utilities | Sempra Texas Utilities | | 12,760 | | | 12,542 | | Sempra Texas Utilities | | 12,580 | | | 12,542 | |
| Sempra Mexico | Sempra Mexico | | 11,114 | | | 10,752 | | Sempra Mexico | | 11,339 | | | 10,752 | |
| Sempra LNG | Sempra LNG | | 3,078 | | | 2,205 | | Sempra LNG | | 3,335 | | | 2,205 | |
| All other | All other | | 1,029 | | | 1,209 | | All other | | 1,094 | | | 1,209 | |
| Intersegment receivables | Intersegment receivables | | (1,444) | | | (856) | | Intersegment receivables | | (1,578) | | | (856) | |
| Total | Total | | $ | 68,608 | | | $ | 66,623 | | Total | | $ | 70,472 | | | $ | 66,623 | |
| EQUITY METHOD AND OTHER INVESTMENTS | EQUITY METHOD AND OTHER INVESTMENTS | | EQUITY METHOD AND OTHER INVESTMENTS | |
| Sempra Texas Utilities | Sempra Texas Utilities | | $ | 12,760 | | | $ | 12,542 | | Sempra Texas Utilities | | $ | 12,580 | | | $ | 12,542 | |
| Sempra Mexico | Sempra Mexico | | 871 | | | 852 | | Sempra Mexico | | 924 | | | 852 | |
| Sempra LNG | Sempra LNG | | 416 | | | 433 | | Sempra LNG | | 454 | | | 433 | |
| All other | All other | | 1 | | | 1 | | All other | | — | | | 1 | |
| Total | Total | | $ | 14,048 | | | $ | 13,828 | | Total | | $ | 13,958 | | | $ | 13,828 | |
(1) Revenues for reportable segments include intersegment revenues of $2$3 million, $23$24 million, $52 million and $80$196 million for the three months ended JuneSeptember 30, 2021; $4$7 million, $48$72 million, $62$114 million and $193$389 million for the sixnine months ended JuneSeptember 30, 2021; $2$1 million, $20$23 million, $29$18 million and $11$44 million for the three months ended JuneSeptember 30, 2020 and $3$4 million, $38$61 million, $51$69 million and $37$81 million for the sixnine months ended JuneSeptember 30, 2020 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 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” in the Annual Report.
OVERVIEW
Sempra Energy is a California-based holding company with 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 through regulated public utilities. As we discuss 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, 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;
▪SDG&E; and
▪SoCalGas.
References in this report to “we,” “our,” “us,” “our company” and “Sempra” are to Sempra 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 the utilities in our Sempra Texas Utilities or Sempra Mexico segments or the utilities in our former South American businesses included in discontinued operations. All references in this report to our reportable segments are not intended to refer to any legal entity with the same or similar name.
Throughout this report, we refer to the following as 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;
•the Condensed Financial Statements and related Notes of SDG&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;
▪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
In the three months ended JuneSeptember 30, 2021, we reported earningslosses of $424$(648) million and diluted EPS of $1.37$(2.03) compared to earnings of $2,239$351 million and diluted EPS of $7.61$1.21 for the same period in 2020. In the sixnine months ended JuneSeptember 30, 2021, we reported earnings of $1,298$650 million and diluted EPS of $4.24$2.09 compared to earnings of $2,999$3,350 million and diluted EPS of $9.91$11.43 for the same period in 2020. The change in diluted EPS in the three months ended JuneSeptember 30, 2021 compared to the same period in 2020 included a decrease of $0.07reduction in losses per share by $0.20 due to an increase in weighted-average common shares outstanding. The change in diluted EPS in the sixnine months ended JuneSeptember 30, 2021 compared to the same period in 2020 included an increase of $0.02a reduction in earnings per share by $0.13 due to a decreasean increase in weighted-average common shares outstanding. Our (losses) earnings and diluted EPS were impacted by variances discussed in “Segment Results” below.
SEGMENT RESULTS
This section presents (losses) earnings (losses) by Sempra segment, as well as Parent and other and discontinued operations, and a related discussion of the changes in segment earnings (losses). earnings. Throughout the MD&A, our reference to (losses) earnings represents (losses) earnings attributable to common shares. Variance amounts presented are the after-tax (losses) earnings impact (based on applicable statutory tax rates), unless otherwise noted, and before NCI, where applicable.
| | SEMPRA EARNINGS (LOSSES) BY SEGMENT | | | |
| SEMPRA (LOSSES) EARNINGS BY SEGMENT | | SEMPRA (LOSSES) EARNINGS BY SEGMENT | | |
| (Dollars in millions) | (Dollars in millions) | | | (Dollars in millions) | | |
| | | Three months ended June 30, | | Six months ended June 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
| SDG&E | SDG&E | $ | 186 | | | $ | 193 | | | $ | 398 | | | $ | 455 | | SDG&E | $ | 205 | | | $ | 178 | | | $ | 603 | | | $ | 633 | |
| SoCalGas | SoCalGas | 94 | | | 146 | | | 501 | | | 449 | | SoCalGas | (1,126) | | | (24) | | | (625) | | | 425 | |
| Sempra Texas Utilities | Sempra Texas Utilities | 138 | | | 144 | | | 273 | | | 249 | | Sempra Texas Utilities | 206 | | | 209 | | | 479 | | | 458 | |
| Sempra Mexico | Sempra Mexico | 4 | | | 61 | | | 61 | | | 252 | | Sempra Mexico | 164 | | | 50 | | | 225 | | | 302 | |
| Sempra LNG | Sempra LNG | 47 | | | 61 | | | 193 | | | 136 | | Sempra LNG | 1 | | | 71 | | | 194 | | | 207 | |
Parent and other(1) | Parent and other(1) | (45) | | | (141) | | | (128) | | | (389) | | Parent and other(1) | (98) | | | (126) | | | (226) | | | (515) | |
| Discontinued operations | Discontinued operations | — | | | 1,775 | | | — | | | 1,847 | | Discontinued operations | — | | | (7) | | | — | | | 1,840 | |
| Earnings attributable to common shares | $ | 424 | | | $ | 2,239 | | | $ | 1,298 | | | $ | 2,999 | | |
| (Losses) earnings attributable to common shares | | (Losses) earnings attributable to common shares | $ | (648) | | | $ | 351 | | | $ | 650 | | | $ | 3,350 | |
(1) Includes intercompany eliminations recorded in consolidation and certain corporate costs.
SDG&E
The decreaseincrease in earnings of $7$27 million (4%(15%) in the three months ended JuneSeptember 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; offset by
▪$20 million higher income tax benefits primarily from forecasted flow-through items;
▪$1529 million charge in 2020 for amounts expected to be refunded to customers and a fine related to the Energy Efficiency Program inquiry;
▪$7 million higher electric transmission margin; and
▪$627 million higher CPUC base operating margin, net of operating expenses.expenses; offset by
▪$18 million higher income tax expense primarily from flow-through items, net of associated regulatory revenues; and
▪$3 million lower AFUDC equity.
The decrease in earnings of $57$30 million (13%(5%) in the sixnine months ended JuneSeptember 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;
▪$1920 million lower electric transmission margin, including the following favorable impacts in 2020 from the March 2020 FERC-approved TO5 settlement proceeding:
◦$18 million to conclude a rate base matter, and
◦$9 million favorable impact from the retroactive application of the final TO5 settlement for 2019; and
▪$158 million lower CPUC base operating margin,higher income tax expense primarily from flow-through items, net of operating expenses, primarily due to favorable resolution ofassociated regulatory matters in 2020;revenues; offset by
▪$1544 million charge in 2020 for amounts expected to be refunded to customers and a fine related to the Energy Efficiency Program inquiry;
▪$13 million higher income tax benefits primarily from forecasted flow-through items; and
▪$514 million higher AFUDC equity.CPUC base operating margin, net of operating expenses and favorable resolution of regulatory matters in 2020.
SoCalGas
The decreaseincrease in earningslosses of $52$1,102 million (36%) in the three months ended JuneSeptember 30, 2021 compared to the same period in 2020 was primarily due to:
▪$1,110 million increase in charges from impacts associated with the Aliso Canyon natural gas storage facility litigation and regulatory matters comprised of $1,132 million in 2021 compared to $22 million in 2020; offset by
▪$8 million higher CPUC base operating margin, net of operating expenses, AFUDC equity and other items.
Losses of $625 million in the nine months ended September 30, 2021 compared to earnings of $425 million for the same period in 2020 was primarily due to:
▪$1,038 million increase in charges from impacts associated with the Aliso Canyon natural gas storage facility litigation and regulatory matters comprised of $1,132 million in 2021 compared to $94 million in 2020; and
▪$64 million decrease due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account; 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, net of operating expenses; and
▪$1312 million higher income tax benefits from forecasted flow-through items; offset by
▪$64 million decrease due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account.items.
Sempra Texas Utilities
The decrease in earnings of $6$3 million (4%(1%) in the three months ended JuneSeptember 30, 2021 compared to the same period in 2020 was primarily due to lower equity earnings from Oncor Holdings driven by:
▪increased operating costs and expenses attributable to invested capital; and
▪lower revenues due to an annual energy efficiency program performance bonus recognized in 2020, but pending PUCT approval in 2021; offset by
▪increased revenues from rate updates to reflect increases in invested capital and customer growth (net of lower consumption primarily due to weather).growth.
The increase in earnings of $24$21 million (10%(5%) in the sixnine months ended JuneSeptember 30, 2021 compared to the same period in 2020 was primarily due to higher equity earnings from Oncor Holdings driven by:
▪increased revenues from rate updates to reflect increases in invested capital and customer growth; offset by
▪increased operating costs and expenses attributable to invested capital.capital; and
▪lower revenues due to an annual energy efficiency program performance bonus recognized in 2020, but pending PUCT approval in 2021.
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’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 decreaseincrease in earnings of $57$114 million in the three months ended JuneSeptember 30, 2021 compared to the same period in 2020 was primarily due to:
▪$6362 million unfavorablefavorable impact from foreign currency and inflation effects net of foreign currency derivative effects comprised of an $83a $29 million unfavorablefavorable impact in 2021 compared to a $20$33 million unfavorable impact in 2020; and
▪$6 million income tax expense in 2021 from the remeasurement of certain deferred income taxes; offset by
▪$10 million earnings attributable to NCI at IEnova in 2021 compared to $27$22 million earnings in 2020, including the effects of the increase in our ownership of IEnova.IEnova;
▪$14 million primarily due to the start of commercial operations of the Veracruz terminal in first quarter of 2021; and
▪$11 million selling profit on a sales-type lease relating to the commencement of a rail facility lease at the Veracruz terminal in the third quarter of 2021, which we discuss in Note 11 of the Notes to Condensed Consolidated Financial Statements; offset by
▪$6 million higher net interest expense.
The decrease in earnings of $191$77 million (25%) in the sixnine months ended JuneSeptember 30, 2021 compared to the same period in 2020 was primarily due to:
▪$289227 million unfavorable impact from foreign currency and inflation effects net of foreign currency derivative effects comprised of a $71$42 million unfavorable impact in 2021 compared to a $218$185 million favorable impact in 2020; and
▪$3229 million income tax expense in 2021 primarily from outside basis differences in JV investments and the remeasurement of certain deferred income taxes; and
▪$15 million higher net interest expense;offset by
▪$4450 million earnings attributable to NCI at IEnova in 2021 compared to $171$193 million earnings in 2020, including the effects of the increase in our ownership of IEnova.IEnova;
▪$16 million primarily due to the start of commercial operations of the Veracruz terminal in the first quarter of 2021; and
▪$11 million selling profit on a sales-type lease relating to the commencement of a rail facility lease at the Veracruz terminal in the third quarter of 2021.
Sempra LNG
The decrease in earnings of $14$70 million (23%) in the three months ended JuneSeptember 30, 2021 compared to the same period in 2020 was primarily due to:
▪$6365 million lower earnings from marketing operations, primarily driven by changes in natural gas prices; and
▪$11 million lower net interest income from lower intercompany balances with Parent and other; offset by
▪$15 million higher equity earnings from Cameron LNG JV primarily due to the three-train liquefaction project achieving full commercial operations in August 2020.
The decrease in earnings of $13 million (6%) in the nine months ended September 30, 2021 compared to the same period in 2020 was primarily due to:
▪$122 million lower earnings from marketing operations due to losses in 2021 compared to gains in 2020, primarily driven by changes in natural gas prices;
▪$8 million lower net interest income from lower intercompany balances with Parent and other; and
▪$8 million of certain non‐capitalizable expenses at ECA LNG Phase 1 in 2021, which reached a final investment decision in November 2020; offset by
▪$38115 million higher equity earnings from Cameron LNG JV primarily due to the three-train liquefaction project achieving full commercial operations in August 2020; and
▪$22 million income tax benefit in 2021 from the remeasurement of certain deferred income taxes.
The increase in earnings of $57 million (42%) in the six months ended June 30, 2021 compared to the same period in 2020 was primarily due to:
▪$100 million higher equity earnings from Cameron LNG JV primarily due to the three-train liquefaction project achieving full commercial operations in August 2020; and
▪$22 million income tax benefit in 2021 from the remeasurement of certain deferred income taxes; offset by
▪$57 million lower earnings from marketing operations, primarily driven by changes in natural gas prices.
Parent and Other
The decrease in losses of $96$28 million (22%) in the three months ended JuneSeptember 30, 2021 compared to the same period in 2020 was primarily due to:
▪$50 million equity earnings in 2021 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;
▪$1737 million lower preferred dividends primarily as a result of $26$36 million lower dividends due to the mandatory conversion of all series A preferred stock and series B preferred stock in January 2021 offset by $9 million higher dividends due to the issuance of series C preferred stock in June 2020;and July 2021, respectively; and
▪$1415 million lower net interest expense; offset by
▪$18 million income tax expense in 2021 compared to a $2 million income tax benefit in 2020 primarily due to a valuation allowance against certain tax credit carryforwards; and
▪$1110 million loss from foreign currency derivativeslower net investment gains on dedicated assets in 2020 used to hedge exposure to fluctuations in the Peruvian sol and Chilean peso related to the salessupport of our South American businesses.employee nonqualified benefit plan and deferred compensation obligations.
The decrease in losses of $261$289 million in the sixnine months ended JuneSeptember 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;
▪$3269 million lower preferred dividends as a result of $52$88 million lower dividends due to the mandatory conversion of all series A preferred stock and series B preferred stock in January 2021 and July 2021, respectively, offset by $20$19 million higher dividends due to the issuance of series C preferred stock in June 2020;
▪$1748 million lower net interest expense;
▪$22 million lower operating costs retained at Parent and other; and
▪$9 million higher 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; andoffset by
▪$1825 million higher income tax expense primarily due to:
◦$8 million higher income tax expense due to a valuation allowance against certain tax credit carryforwards,
◦$6 million higher consolidated California state income tax expense associated with income from our investments in Sempra LNG entities, and
◦$5 million lower operating costs retained at Parent and other.income tax benefit related to share-based compensation.
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 $2,232$2,216 million, net of transaction costs and subject toas adjusted for post-closing adjustments.
EarningsLosses from our discontinued operations of $1,775$7 million in the three months ended JuneSeptember 30, 2020 was due to a reduction to the gain on sale of our Chilean businesses as a result of post-closing adjustments.
Earnings from discontinued operations of $1,840 million in the nine months ended September 30, 2020 included:
▪$1,499 million gain on the sale of our Peruvian businesses;
▪$255248 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 related to changes in outside basis differences from earnings and foreign currency effects.
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, 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 Sempra’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. 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 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, resulting in a significant portion of SoCalGas’ earnings being 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.
| | 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 June 30, | | Six months ended June 30, | | | Three months ended September 30, | | Nine months ended September 30, |
| | | | 2021 | | 2020 | | 2021 | | 2020 | | | 2021 | | 2020 | | 2021 | | 2020 |
| Natural gas revenues: | Natural gas revenues: | | Natural gas revenues: | |
| SoCalGas | SoCalGas | | $ | 1,124 | | | $ | 1,010 | | | $ | 2,632 | | | $ | 2,405 | | SoCalGas | | $ | 1,106 | | | $ | 842 | | | $ | 3,738 | | | $ | 3,247 | |
| SDG&E | SDG&E | | 160 | | | 145 | | | 428 | | | 364 | | SDG&E | | 157 | | | 134 | | | 585 | | | 498 | |
| Sempra Mexico | Sempra Mexico | | 17 | | | 10 | | | 44 | | | 30 | | Sempra Mexico | | 17 | | | 12 | | | 61 | | | 42 | |
| Eliminations and adjustments | Eliminations and adjustments | | (23) | | | (22) | | | (49) | | | (39) | | Eliminations and adjustments | | (25) | | | (23) | | | (74) | | | (62) | |
| Total | Total | | 1,278 | | | 1,143 | | | 3,055 | | | 2,760 | | Total | | 1,255 | | | 965 | | | 4,310 | | | 3,725 | |
| Electric revenues: | Electric revenues: | | | Electric revenues: | | |
| SDG&E | SDG&E | | 1,158 | | | 1,090 | | | 2,227 | | | 2,140 | | SDG&E | | 1,307 | | | 1,338 | | | 3,534 | | | 3,478 | |
| Eliminations and adjustments | Eliminations and adjustments | | (2) | | | — | | | (3) | | | (2) | | Eliminations and adjustments | | (2) | | | (2) | | | (5) | | | (4) | |
| Total | Total | | 1,156 | | | 1,090 | | | 2,224 | | | 2,138 | | Total | | 1,305 | | | 1,336 | | | 3,529 | | | 3,474 | |
| Total utilities revenues | Total utilities revenues | | $ | 2,434 | | | $ | 2,233 | | | $ | 5,279 | | | $ | 4,898 | | Total utilities revenues | | $ | 2,560 | | | $ | 2,301 | | | $ | 7,839 | | | $ | 7,199 | |
Cost of natural gas(1): | Cost of natural gas(1): | | Cost of natural gas(1): | |
| SoCalGas | SoCalGas | | $ | 223 | | | $ | 106 | | | $ | 496 | | | $ | 384 | | SoCalGas | | $ | 240 | | | $ | 92 | | | $ | 736 | | | $ | 476 | |
| SDG&E | SDG&E | | 40 | | | 31 | | | 122 | | | 91 | | SDG&E | | 37 | | | 27 | | | 159 | | | 118 | |
| Sempra Mexico | Sempra Mexico | | 6 | | | 3 | | | 12 | | | 6 | | Sempra Mexico | | 13 | | | 2 | | | 25 | | | 8 | |
| Eliminations and adjustments | Eliminations and adjustments | | (8) | | | (9) | | | (20) | | | (13) | | Eliminations and adjustments | | (8) | | | (7) | | | (28) | | | (20) | |
| Total | Total | | $ | 261 | | | $ | 131 | | | $ | 610 | | | $ | 468 | | Total | | $ | 282 | | | $ | 114 | | | $ | 892 | | | $ | 582 | |
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 | | $ | 304 | | | $ | 260 | | | $ | 545 | | | $ | 491 | | SDG&E | | $ | 324 | | | $ | 430 | | | $ | 869 | | | $ | 921 | |
| Eliminations and adjustments | Eliminations and adjustments | | (20) | | | — | | | (29) | | | (2) | | Eliminations and adjustments | | (12) | | | (1) | | | (41) | | | (3) | |
| Total | Total | | $ | 284 | | | $ | 260 | | | $ | 516 | | | $ | 489 | | Total | | $ | 312 | | | $ | 429 | | | $ | 828 | | | $ | 918 | |
(1) Excludes depreciation and amortization, which are presented separately on the Sempra, 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 cost of 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 June 30, | | Six months ended June 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
| SoCalGas | SoCalGas | $ | 3.73 | | | $ | 1.81 | | | $ | 3.01 | | | $ | 2.29 | | SoCalGas | $ | 5.01 | | | $ | 1.95 | | | $ | 3.46 | | | $ | 2.21 | |
| SDG&E | SDG&E | 4.42 | | | 3.10 | | | 4.44 | | | 3.51 | | SDG&E | 5.40 | | | 3.79 | | | 4.62 | | | 3.56 | |
In the three months ended JuneSeptember 30, 2021, our natural gas revenues increased by $135$290 million (12%(30%) to $1.3 billion compared to the same period in 2020 primarily due to:
▪$114264 million increase at SoCalGas, which included:
◦$117148 million increase in cost of natural gas sold, which we discuss below,
◦$4433 million higher non-service component of net periodic benefit cost in 2021, which fully offsets in Other (Expense) Income, net,
◦$31 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M,
◦$26 million higher CPUC-authorized revenues, and
◦$20 million higher revenues from incremental and balanced capital projects; and
▪$23 million increase at SDG&E, which included:
◦$10 million increase in cost of natural gas sold, which we discuss below,
◦$6 million higher revenues primarily associated with PSEP, and
◦$3 million higher CPUC-authorized revenues.
In the three months ended September 30, 2021, our cost of natural gas increased by $168 million to $282 million compared to the same period in 2020 primarily due to:
▪$148 million increase at SoCalGas primarily due to higher average natural gas prices; and
▪$10 million increase at SDG&E primarily due to higher average natural gas prices.
In the nine months ended September 30, 2021, our natural gas revenues increased by $585 million (16%) to $4.3 billion compared to the same period in 2020 primarily due to:
▪$491 million increase at SoCalGas, which included:
◦$260 million increase in cost of natural gas sold, which we discuss below,
◦$116 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M,
◦$94 million higher CPUC-authorized revenues,
◦$62 million higher revenues from incremental and balanced capital projects, and
◦$926 million higher CPUC-authorized revenues,non-service component of net periodic benefit cost in 2021, which fully offsets in Other (Expense), Income, net, 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
▪$1587 million increase at SDG&E, which included:
◦$941 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
◦$6 million decrease due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account.
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:
◦$112 million increase in cost of natural gas sold, which we discuss below,
◦$8517 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M,
◦$6817 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 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.
In the sixnine months ended JuneSeptember 30, 2021, our cost of natural gas increased by $142$310 million (30%(53%) to $610$892 million compared to the same period in 2020 primarily due to:
▪$112260 million increase at SoCalGas primarily due to higher average natural gas prices; and
▪$3141 million increase at SDG&E including $25 millionprimarily due to higher average natural gas prices and $6 million due to higher volumes primarily driven by weather.prices.
Electric Revenues and Cost of Electric Fuel and Purchased Power
In the three months ended JuneSeptember 30, 2021, our electric revenues, substantially all of which are at SDG&E, increaseddecreased by $66$31 million (6%(2%) to $1.2, remaining at $1.3 billion compared to the same period in 2020 primarily due to:
▪$44106 million higherlower cost of electric fuel and purchased power, which we discuss below; and
▪$3612 million higherlower recovery of costs associated with refundable programs, which revenues are offset in O&M;offset by
▪$17 million higher revenue from transmission operations;
▪$1536 million charge in 2020 for amounts expected to be refunded to customers related to the Energy Efficiency Program inquiry;
▪$1115 million higher revenues associated with SDG&E’s wildfire mitigation plan;
▪$13 million higher CPUC-authorized revenues;
▪$9 million higher revenues associated with lower income tax benefits from flow-through items;
▪$5 million higher revenue from transmission operations; and
▪$105 million higher CPUC-authorized revenues; offset by
▪$77 million decrease due to the release ofrevenues associated with a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account.new customer information system.
Our utility cost of electric fuel and purchased power substantially all of which is at SDG&E, increaseddecreased by $24$117 million (9%(27%) to $284$312 million in the three months ended JuneSeptember 30, 2021 compared to the same period in 2020 due to:
▪$106 million at SDG&E primarily due to higher purchased power costs caused by increased demand in 2020 and a decrease in residential demand in 2021 from an increase in market costs, offset by a decreaserooftop solar adoption; and
▪$11 million higher intercompany eliminations associated with sales between SDG&E and Sempra Mexico due to the acquisition of ESJ in demand from the adoption of rooftop solar.March 2021.
In the sixnine months ended JuneSeptember 30, 2021, our electric revenues, substantially all of which are at SDG&E, increased by $86$55 million (4%(2%) to $2.2, remaining at $3.5 billion compared to the same period in 2020 primarily due to:
▪$9078 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M;
▪$54 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
▪$1551 million charge in 2020 for amounts expected to be refunded to customers related to the Energy Efficiency Program inquiry;
▪$33 million higher CPUC-authorized revenues;
▪$33 million higher revenues associated with SDG&E’s wildfire mitigation plan;
▪$15 million higher revenues associated with lower income tax benefits from flow-through items; and
▪$8 million higher revenues associated with a new customer information system; 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;
▪$52 million lower cost of electric fuel and purchased power, which we discuss below;
▪$22 million lower revenues due to favorable resolution of regulatory matters in 2020; and
▪$1813 million lower revenues from transmission operations, including the following favorable impacts in 2020 related to the March 2020 FERC-approved TO5 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.
Our utility cost of electric fuel and purchased power substantially all of which is at SDG&E, increaseddecreased by $27$90 million (6%(10%) to $516$828 million in the sixnine months ended JuneSeptember 30, 2021 compared to the same period in 2020 due to:
▪$52 million at SDG&E primarily due to higher purchased power costs caused by increased demand in 2020 and a decrease in residential demand in 2021 from an increase in market costs, offset by a decreaserooftop solar adoption; and
▪$38 million higher intercompany eliminations associated with sales between SDG&E and Sempra Mexico due to the acquisition of ESJ in demand from the adoption of rooftop solar.March 2021.
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 June 30, | | Six months ended June 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
| REVENUES | REVENUES | | | | | REVENUES | | | | |
| Sempra Mexico | Sempra Mexico | $ | 387 | | | $ | 265 | | | $ | 727 | | | $ | 554 | | Sempra Mexico | $ | 580 | | | $ | 339 | | | $ | 1,307 | | | $ | 893 | |
| Sempra LNG | Sempra LNG | 52 | | | 69 | | | 248 | | | 192 | | Sempra LNG | 119 | | | 63 | | | 367 | | | 255 | |
Parent and other(1) | Parent and other(1) | (132) | | | (41) | | | (254) | | | (89) | | Parent and other(1) | (246) | | | (59) | | | (500) | | | (148) | |
| Total revenues | Total revenues | $ | 307 | | | $ | 293 | | | $ | 721 | | | $ | 657 | | Total revenues | $ | 453 | | | $ | 343 | | | $ | 1,174 | | | $ | 1,000 | |
COST OF SALES(2) | COST OF SALES(2) | | | | | COST OF SALES(2) | | | | |
| Sempra Mexico | Sempra Mexico | $ | 122 | | | $ | 44 | | | $ | 241 | | | $ | 113 | | Sempra Mexico | $ | 247 | | | $ | 89 | | | $ | 488 | | | $ | 202 | |
| Sempra LNG | Sempra LNG | 111 | | | 44 | | | 212 | | | 83 | | Sempra LNG | 207 | | | 62 | | | 419 | | | 145 | |
Parent and other(1) | Parent and other(1) | (114) | | | (37) | | | (225) | | | (86) | | Parent and other(1) | (234) | | | (61) | | | (459) | | | (147) | |
| Total cost of sales | Total cost of sales | $ | 119 | | | $ | 51 | | | $ | 228 | | | $ | 110 | | Total cost of sales | $ | 220 | | | $ | 90 | | | $ | 448 | | | $ | 200 | |
(1) Includes eliminations of intercompany activity.
(2) Excludes depreciation and amortization, which are presented separately on Sempra’s Condensed Consolidated Statements of Operations.
In the three months ended JuneSeptember 30, 2021, revenues from our energy-related businesses increased by $14$110 million (5%(32%) to $307$453 million compared to the same period in 2020 primarily due to:
▪$122241 million increase at Sempra Mexico primarily due to:
◦$64154 million increase from the marketing business primarily due to higher natural gas prices and volumes,
◦$2245 million higher revenues from the Veracruz and Mexico City terminals placed in service in March and July of 2021, respectively, including a $16 million selling profit on a sales-type lease relating to the commencement of a rail facility lease at the Veracruz terminal in the third quarter of 2021,
◦$20 million higher revenues from TdM primarily due to unrealized gains on commodity derivatives in 2021 compared to unrealized losses in 2020 and higher volumes and power prices, and
◦$188 million increase from the renewables business primarily due to the acquisition of ESJ in March 2021 and renewable assets placed in service in December 2020 and March 2021; offset byand
▪$1756 million decreaseincrease at Sempra LNG primarily due to:
◦$66122 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 higher natural gas and LNG cargo sales to Sempra Mexico mainly as a result of higher natural gas prices and volumes, andoffset by
◦$68 million decrease from higher diversion revenuesnatural gas marketing operations primarily due to higher losses in 2021 compared to 2020, mainly driven by changes in natural gas prices; andprices, offset by
▪$91187 million decrease primarily from higher intercompany eliminations associated with sales between Sempra LNG and Sempra Mexico.
In the three months ended JuneSeptember 30, 2021, the cost of sales for our energy-related businesses increased by $68$130 million to $119$220 million compared to the same period in 2020 primarily due to:
▪$78158 million increase at Sempra Mexico primarily due to higher natural gas prices and volumes at the marketing business and primarily higher volumes at TdM; and
▪$67145 million increase at Sempra LNG mainly from natural gas marketing activities due to higher natural gas purchases; offset by
▪$77173 million decrease primarily from higher intercompany eliminations associated with sales between Sempra LNG and Sempra Mexico.
In the sixnine months ended JuneSeptember 30, 2021, revenues from our energy-related businesses increased by $64$174 million (10%(17%) to $721 million$1.2 billion compared to the same period in 2020 primarily due to:
▪$173414 million increase at Sempra Mexico primarily due to:
◦$123277 million increase from the marketing business primarily due to higher natural gas prices and volumes,
◦$2354 million higher revenues from the Veracruz and Mexico City terminals placed in service in March and July of 2021, respectively, including a $16 million selling profit on a sales-type lease relating to the commencement of a rail facility lease at the Veracruz terminal in the third quarter of 2021,
◦$31 million increase from the renewables business primarily due to the acquisition of ESJ in March 2021 and renewable assets placed in service in December 2020 and March 2021, and
◦$929 million higher revenues from TdM mainly due to higher volumes and power prices, and volumes, offset by unrealized losses on commodity derivatives in 2021 compared to unrealized gains in 2020; and
▪$56112 million increase at Sempra LNG primarily due to:
◦$110232 million increase in revenues from LNG marketing operations primarily from higher natural gas and LNG cargo sales to Sempra Mexico mainly as a result of higher natural gas prices and volumes, and from higher diversion revenues due to higher natural gas prices, offset by
◦$53121 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
▪$165352 million decrease primarily from higher intercompany eliminations associated with sales between Sempra LNG and Sempra Mexico.
In the sixnine months ended JuneSeptember 30, 2021, the cost of sales for our energy-related businesses increased by $118$248 million to $228$448 million compared to the same period in 2020 primarily due to:
▪$129 million increase at Sempra LNG mainly from natural gas marketing activities primarily due to higher natural gas purchases; and
▪$128286 million increase at Sempra Mexico primarily due to higher natural gas prices and volumes at the marketing business and at TdM; and
▪$274 million increase at Sempra LNG mainly from natural gas marketing activities primarily due to higher natural gas purchases; offset by
▪$139312 million decrease primarily from higher intercompany eliminations associated with sales between Sempra LNG and Sempra Mexico.
Operation and Maintenance
In the three months ended JuneSeptember 30, 2021, O&M increased by $126$55 million (14%(5%) to $1.0$1.1 billion compared to the same period in 2020 primarily due to:
▪$6352 million increase at SoCalGas primarily due to:
◦$44 million higher expenses associated with refundable programs, which costs incurred are recovered in revenue, and
◦$19 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
▪$26 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:
◦$10631 million higher expenses associated with refundable programs, which costs incurred are recovered in revenue, and
◦$21 million higher non-refundable operating costs;
▪$12316 million increase at Sempra Mexico primarily from the renewables business, including the acquisition of ESJ in March 2021; and
▪$15 million increase at Sempra LNG primarily due to the timing of employee benefit expenses and certain non-capitalizable expenses at ECA LNG Phase 1 in 2021, which reached a final investment decision in November 2020; offset by
▪$25 million decrease at SDG&E primarily due to:
◦$14 million lower non-refundable operating costs, and
◦$11 million lower expenses associated with refundable programs, which costs incurred are recovered in revenue.
In the nine months ended September 30, 2021, O&M increased by $331 million (12%) to $3.1 billion compared to the same period in 2020 primarily due to:
▪$175 million increase at SoCalGas primarily due to:
◦$85116 million higher expenses associated with refundable programs, which costs incurred are recovered in revenue, and
◦$3859 million higher non-refundable operating costs; and
▪$28102 million increase at SDG&E primarily due to:
◦$95 million higher expenses associated with refundable programs, which costs incurred are recovered in revenue, and
◦$7 million higher non-refundable operating costs;
▪$44 million increase at Sempra Mexico primarily due tofrom the renewables business, including the acquisition of ESJ in March 2021, and expenses associated with the growth in the business; and
▪$24 million increase at Sempra LNG primarily due to certain non-capitalizable expenses at ECA LNG Phase 1 in 2021, which reached a final investment decision in November 2020, and expected credit losses associated with the guarantee related to Cameron LNG JV’s SDSRA; offset by
▪$1418 million decrease at Parent and other primarily from lower retained operating costs offset by higher deferred compensation expense.
Aliso Canyon Litigation and Regulatory Matters
In March 2020,the three months and nine months ended September 30, 2021, SoCalGas recorded a charge of $100$1,571 million in Aliso Canyon Litigation and Regulatory Matters related to settlement discussions in connectionagreements associated with civil litigation associated withagainst SoCalGas and Sempra pertaining to the Leak, which we describe in Note 11 of the Notes to Condensed Consolidated Financial Statements. In the three months and nine months ended September 30, 2020, SoCalGas recorded charges of $27 million and $127 million, respectively, related to civil litigation and regulatory matters pertaining to the Leak.
Other (Expense) 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 (Expense) 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.
InOther expense, net, in the three months ended JuneSeptember 30, 2021 was $55 million compared to other income, net, increased by $10of $29 million (16%) to $72 million compared toin the same period in 2020. The change was primarily due to:
▪$1520 million higher net gainslosses in 2021 from impacts associated with interest rate and foreign exchange instruments and foreign currency transactions compared to net gains of $34 million for the same period in 2020 primarily due to:
◦$1418 million netforeign currency losses in 2020 of2021 compared to $15 million foreign currency derivatives used to hedge exposure to fluctuationsgains in the Peruvian sol and Chilean peso related to the sales of our businesses in Peru and Chile, and
◦$14 million higher foreign currency gains2020 on a Mexican peso-denominated loan to IMG JV, which is offset in Equity Earnings, offset byand
◦$163 million gainslosses in 20202021 on foreign currency derivatives and cross-currency swaps compared to $19 million gains for the same period in 2020 as a result of fluctuation of the Mexican peso;and
▪$818 million lowerhigher non-service component of net periodic benefit cost in 2021; offset byand
▪$1116 million lower investment gains in 2021 on dedicated assets in support of our executive retirement and deferred compensation plans; andoffset by
▪$86 million decrease in regulatory interestfine at the California Utilities due to the release of a regulatory liabilitySDG&E in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account.Energy Efficiency Program inquiry.
Other income, net, in the sixnine months ended JuneSeptember 30, 2021 was $107$52 million compared to other expense, net, of $192$163 million in the same period in 2020. The change was primarily due to:
▪$242188 million lower net losses from impacts associated with interest rate and foreign exchange instruments and foreign currency transactions primarily due to:
◦$5107 million lower 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
◦$85101 million lower losses on foreign currency derivatives and cross-currency swaps as a result of fluctuation of the Mexican peso;offset by
◦$22 million lower net gains in 2021 on other foreign currency transactional effects;
▪$2819 million higher 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;
▪$117 million higher non-service component of net periodic benefit credit in 2021;AFUDC equity at SoCalGas; and
▪$106 million higher AFUDC equity, including $5 millionfine at both SDG&E and SoCalGas; in 2020 related to the Energy Efficiency Program inquiry;offset by
▪$8 million decrease 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 memorandum account.account; and
▪$7 million higher non-service component of net periodic benefit cost in 2021.
Income Taxes
The table below shows the income tax (benefit) expense (benefit) and ETRs for Sempra, SDG&E and SoCalGas.
| | INCOME TAX EXPENSE (BENEFIT) AND EFFECTIVE INCOME TAX RATES | | |
| INCOME TAX (BENEFIT) EXPENSE AND EFFECTIVE INCOME TAX RATES | | INCOME TAX (BENEFIT) EXPENSE AND EFFECTIVE INCOME TAX RATES | |
| (Dollars in millions) | (Dollars in millions) | | (Dollars in millions) | |
| | Three months ended June 30, | | Six months ended June 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
| Sempra: | Sempra: | | | | Sempra: | | | |
| Income tax expense (benefit) from continuing operations | $ | 139 | | | $ | 168 | | | $ | 297 | | | $ | (39) | | |
| Income tax (benefit) expense from continuing operations | | Income tax (benefit) expense from continuing operations | $ | (342) | | | $ | 99 | | | $ | (45) | | | $ | 60 | |
| Income from continuing operations before income taxes and equity earnings | $ | 281 | | | $ | 463 | | | $ | 1,049 | | | $ | 860 | | |
(Loss) income from continuing operations before income taxes and equity earnings | | (Loss) income from continuing operations before income taxes and equity earnings | $ | (1,365) | | | $ | 201 | | | $ | (316) | | | $ | 1,061 | |
Equity earnings, before income tax(1) | Equity earnings, before income tax(1) | 185 | | | 84 | | | 320 | | | 41 | | Equity earnings, before income tax(1) | 137 | | | 117 | | | 457 | | | 158 | |
| Pretax income | $ | 466 | | | $ | 547 | | | $ | 1,369 | | | $ | 901 | | |
| Pretax (loss) income | | Pretax (loss) income | $ | (1,228) | | | $ | 318 | | | $ | 141 | | | $ | 1,219 | |
| | Effective income tax rate | Effective income tax rate | 30 | % | | 31 | % | | 22 | % | | (4) | % | Effective income tax rate | 28 | % | | 31 | % | | (32) | % | | 5 | % |
| SDG&E: | SDG&E: | | SDG&E: | |
| Income tax expense | Income tax expense | $ | 33 | | | $ | 70 | | | $ | 78 | | | $ | 128 | | Income tax expense | $ | 90 | | | $ | 33 | | | $ | 168 | | | $ | 161 | |
| Income before income taxes | Income before income taxes | $ | 219 | | | $ | 263 | | | $ | 476 | | | $ | 583 | | Income before income taxes | $ | 295 | | | $ | 211 | | | $ | 771 | | | $ | 794 | |
| Effective income tax rate | Effective income tax rate | 15 | % | | 27 | % | | 16 | % | | 22 | % | Effective income tax rate | 31 | % | | 16 | % | | 22 | % | | 20 | % |
| SoCalGas: | SoCalGas: | | SoCalGas: | |
| Income tax expense | $ | 8 | | | $ | 49 | | | $ | 102 | | | $ | 101 | | |
| Income before income taxes | $ | 103 | | | $ | 196 | | | $ | 604 | | | $ | 551 | | |
| Income tax (benefit) expense | | Income tax (benefit) expense | $ | (437) | | | $ | (6) | | | $ | (335) | | | $ | 95 | |
| (Loss) income before income taxes | | (Loss) income before income taxes | $ | (1,563) | | | $ | (30) | | | $ | (959) | | | $ | 521 | |
| Effective income tax rate | Effective income tax rate | 8 | % | | 25 | % | | 17 | % | | 18 | % | Effective income tax rate | 28 | % | | 20 | % | | 35 | % | | 18 | % |
(1) We discuss how we recognize equity earnings in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report.
Sempra
Sempra’s income tax expense decreasedbenefit in the three months ended JuneSeptember 30, 2021 compared to an income tax expense in the same period in 2020 was primarily due to:
▪$439 million income tax benefit in 2021 compared to lower pretax$5 million income highertax benefit in 2020 associated with the Aliso Canyon natural gas storage facility litigation and regulatory matters; and
▪$33 million income tax benefit in 2021 compared to $44 million income tax expense in 2020 from foreign currency and inflation effects and associated derivatives; offset by
▪lower income tax benefits from forecasted flow-through items,items.
Sempra’s income tax benefit in the nine months ended September 30, 2021 compared to an income tax expense in the same period in 2020 was primarily due to:
▪$439 million income tax benefit in 2021 compared to $33 million income tax benefit in 2020 associated with the Aliso Canyon natural gas storage facility litigation and the following items:regulatory matters;
▪$22 million income tax benefit in 2021 from the remeasurement of certain deferred income taxes; and
▪higher income tax benefits from flow-through items; offset by
▪$838 million income tax expense in 2021 compared to $30 million income tax expense in 2020 from foreign currency and inflation effects and associated derivatives.
Sempra’s income tax expense in the six months ended June 30, 2021 compared to an income tax benefit in the same period in 2020 was due to higher pretax income offset by higher income tax benefits from forecasted flow-through items and the following items:
▪$41 million income tax expense in 2021 compared to $307$263 million income tax benefit in 2020 from foreign currency and inflation effects and associated derivatives; and
▪$1011 million lower income tax benefit in 2021 related to share-based compensation; offset by
▪$22 million income tax benefit in 2021 from the remeasurement of certain deferred income taxes.compensation.
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
SDG&E’s income tax expense decreased in both the three months and six months ended June 30, 2021 compared to the same periods in 2020 primarily due to lower pretax income and higher income tax benefits from forecasted flow-through items.
SoCalGas
SoCalGas’ income tax expense decreasedincreased in the 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.
SoCalGas’ income tax expense increased in the six months ended JuneSeptember 30, 2021 compared to the same period in 2020 primarily due to higher pretax income offset by higherand lower income tax benefits from forecasted flow-through items.
SDG&E’s income tax expense increased in the nine months ended September 30, 2021 compared to the same period in 2020 primarily due to lower income tax benefits from flow-through items. SoCalGas
SoCalGas’ income tax benefit increased in the three months ended September 30, 2021 compared to the same period in 2020 primarily due to $439 million income tax benefit in 2021 compared to $5 million income tax benefit in 2020 associated with the Aliso Canyon natural gas storage facility litigation and regulatory matters.
Equity Earnings
In the three months ended JuneSeptember 30, 2021, equity earnings increased by $80$65 million (34%(20%) to $313$391 million compared to the same period in 2020 primarily due to:
▪$5040 million higher equity earnings at IMG JV, primarily due to foreign currency effects, including $18 million foreign currency gains in 2021 relatedcompared to our investment$15 million foreign currency losses in RBS Sempra Commodities to settle pending VAT matters and related legal costs;2020 on IMG JV’s Mexican peso-denominated loans from its JV owners, which is fully offset in Other (Expense) Income, Net; and
▪$4921 million higher equity earnings at Cameron LNG JV primarily due to the three-train liquefaction project achieving full commercial operations in August 2020; offset by
•$12 million lower equity earnings at IMG JV, primarily due to foreign currency effects, including $14 million higher foreign currency losses on IMG JV’s Mexican peso-denominated loans from its JV owners, which is fully offset in Other Income (Expense), Net; and
▪$6 million lower equity earnings at Oncor Holdings primarily due to increased operating costs and expenses attributable to invested capital, offset by higher revenues from rate updates to reflect increases in invested capital and customer growth (net of lower consumption primarily due to weather).2020.
In the sixnine months ended JuneSeptember 30, 2021, equity earnings increased by $135$200 million (27%(24%) to $631 million$1.0 billion compared to the same period in 2020 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;
▪$126147 million higher equity earnings at Cameron LNG JV primarily due to the three-train liquefaction project achieving full commercial operations in August 2020; and
▪$2423 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;capital, and lower revenues due to an annual energy efficiency program performance bonus recognized in 2020, but pending PUCT approval in 2021; offset by
▪$168122 million lower equity earnings at Sempra Mexico, which included:
◦$143103 million lower equity earnings at IMG JV, primarily due to foreign currency effects, including $5$107 million lower foreign 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 (Expense) Income, (Expense), Net, and
◦$2015 million lower equity earnings at TAG JV primarily due to income tax expense in 2021 compared to a benefit in 2020.
Earnings Attributable to Noncontrolling Interests
In the three months and six months ended JuneSeptember 30, 2021, earnings attributable to NCI decreased by $18$17 million to $10$5 million and $136 million to $43 million, respectively, compared to the same periodsperiod in 2020 primarily due to the increase in our ownership interest in IEnova as a decreaseresult of the exchange offer and subsequent cash tender offer, which we discuss in Note 1 of the Notes to Condensed Consolidated Financial Statements, offset by an increase mainly from foreign currency effects as a result of fluctuation of the Mexican peso.
In the nine months ended September 30, 2021, earnings attributable to NCI decreased by $153 million to $48 million compared to the same period in 2020 primarily due to lower earnings at Sempra Mexico and from the increase in our ownership interest in IEnova as a result of the exchange offer which we discuss in Note 1 of the Notes to Condensed Consolidated Financial Statements.and subsequent cash tender offer.
Preferred Dividends
In the three months and six months ended JuneSeptember 30, 2021, preferred dividends decreased by $17$37 million to $20$11 million and $32 million to $41 million, respectively, compared to the same periodsperiod in 2020 primarily due to the mandatory conversion of all series A preferred stock and series B preferred stock in January 2021 and July 2021, respectively.
In the nine months ended September 30, 2021, preferred dividends decreased by $69 million to $52 million compared to the same period in 2020 primarily due to the mandatory conversion of all series A preferred stock and series B preferred stock in January 2021 and July 2021, respectively, offset by the issuance of series C preferred stock in June 2020.
IMPACT OF FOREIGN CURRENCY AND INFLATION RATES ON RESULTS OF OPERATIONS
Because our natural gas distribution utility in Mexico, Ecogas, uses its local currency as its functional currency, revenues and expenses are translated into U.S. dollars at average exchange rates for the period for consolidation in Sempra’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’s comparative results of operations. In the three months and sixnine months ended JuneSeptember 30, 2021, the change in our earnings as a result of foreign currency translation rates was not 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 (LOSSES) GAINS FROM FOREIGN CURRENCY AND INFLATION EFFECTS AND ASSOCIATED DERIVATIVES |
| (Dollars in millions) |
| | Total reported amounts | | | Transactional gains (losses) included in reported amounts |
| | Three months ended June 30, |
| | 2021 | | 2020 | | | 2021 | | 2020 |
| Other income (expense), net | $ | 72 | | | $ | 62 | | | | $ | 33 | | | $ | 18 | |
| Income tax (expense) benefit | (139) | | | (168) | | | | (83) | | | (30) | |
| Equity earnings | 313 | | | 233 | | | | (35) | | | (17) | |
| Income from continuing operations, net of income tax | 455 | | | 528 | | | | (85) | | | (29) | |
| Income from discontinued operations, net of income tax | — | | | 1,777 | | | | — | | | (1) | |
| Earnings attributable to noncontrolling interests | (10) | | | (28) | | | | 13 | | | 9 | |
| Earnings attributable to common shares | 424 | | | 2,239 | | | | (72) | | | (21) | |
| | Six months ended June 30, |
| | 2021 | | 2020 | | | 2021 | | 2020 |
| Other income (expense), net | $ | 107 | | | $ | (192) | | | | $ | (16) | | | $ | (258) | |
| Income tax (expense) benefit | (297) | | | 39 | | | | (41) | | | 307 | |
| Equity earnings | 631 | | | 496 | | | | (16) | | | 164 | |
| Income from continuing operations, net of income tax | 1,383 | | | 1,395 | | | | (73) | | | 213 | |
| Income from discontinued operations, net of income tax | — | | | 1,857 | | | | — | | | 15 | |
| Earnings attributable to noncontrolling interests | (43) | | | (179) | | | | 4 | | | (99) | |
| Earnings attributable to common shares | 1,298 | | | 2,999 | | | | (69) | | | 129 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| TRANSACTIONAL (LOSSES) GAINS FROM FOREIGN CURRENCY AND INFLATION EFFECTS AND ASSOCIATED DERIVATIVES |
| (Dollars in millions) |
| | Total reported amounts | | | Transactional (losses) gains included in reported amounts |
| | Three months ended September 30, |
| | 2021 | | 2020 | | | 2021 | | 2020 |
| Other (expense) income, net | $ | (55) | | | $ | 29 | | | | $ | (20) | | | $ | 34 | |
| Income tax benefit (expense) | 342 | | | (99) | | | | 33 | | | (44) | |
| Equity earnings | 391 | | | 326 | | | | 16 | | | (23) | |
| (Loss) income from continuing operations, net of income tax | (632) | | | 428 | | | | 29 | | | (33) | |
| (Loss) income from discontinued operations, net of income tax | — | | | (7) | | | | — | | | — | |
| Earnings attributable to noncontrolling interests | (5) | | | (22) | | | | (1) | | | 15 | |
| (Losses) earnings attributable to common shares | (648) | | | 351 | | | | 28 | | | (18) | |
| | | | | | | | |
| | Nine months ended September 30, |
| | 2021 | | 2020 | | | 2021 | | 2020 |
| Other (expense) income, net | $ | 52 | | | $ | (163) | | | | $ | (36) | | | $ | (224) | |
| Income tax benefit (expense) | 45 | | | (60) | | | | (8) | | | 263 | |
| Equity earnings | 1,022 | | | 822 | | | | — | | | 141 | |
| (Loss) income from continuing operations, net of income tax | 751 | | | 1,823 | | | | (44) | | | 180 | |
| (Loss) income from discontinued operations, net of income tax | — | | | 1,850 | | | | — | | | 15 | |
| Earnings attributable to noncontrolling interests | (48) | | | (201) | | | | 3 | | | (84) | |
| (Losses) earnings attributable to common shares | 650 | | | 3,350 | | | | (41) | | | 111 | |
CAPITAL RESOURCES AND LIQUIDITY
OVERVIEW
Sempra
Impact of the COVID-19 Pandemic
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. We 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 social distancing and other orders.orders, including potential vaccination mandates.
For a further discussion of risks and uncertainties related to the COVID-19 pandemic, see “Part I – Item 1A. Risk Factors” and “Part II – Item 7. MD&A – Capital Resources and Liquidity” in the Annual Report.
Sempra Infrastructure Partners
In AprilAs we discuss in Note 1 of the Notes to Condensed Consolidated Financial Statements, on October 1, 2021, we entered into an agreement to sellcompleted the sale of a 20% equity interest in Sempra Infrastructure Partners, which generally represents the combined businesses of Sempra LNG and IEnova, under Sempra Global,to KKR for cash proceeds of $3.37 billion, subject
to post-closing adjustments. We anticipate completing this transaction aroundOn October 1, 2021, Sempra Infrastructure Partners paid $149 million to KKR for reimbursement of certain expenses that KKR incurred in connection with closing the end of the third quarter of 2021.transaction. 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.debt, which we discuss below in “Long-Term Debt Activities.”
We have also entered into an accommodation and support agreement under which KKR has the ability to borrow from Sempra up to $300 million plus reimbursement of certain fees related to such borrowing, which we fully funded on November 1, 2021. This loan is due to be repaid in full no later than October 1, 2029 and bears compound interest at 5% per annum.
The completion of the sale of NCI in Sempra Infrastructure Partners will reducereduced our ownership interest in Sempra Infrastructure Partners and requirerequires 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, anythe decrease in our ownership of Sempra Infrastructure Partners wouldwill 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 We discuss 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, borrowings under our credit facilities, distributions from our equity method investments, issuances of debt, project financing and partnering with NCI investors.funding from minority interest owners. 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 long-term debt
▪fund expenditures related to the natural gas leak at SoCalGas’ Aliso Canyon natural gas storage facility
Sempra and the California Utilities currently have reasonable access to the money markets and capital markets and are not currently constrained in their ability to borrow money at reasonable rates from commercial banks, under existing revolving credit facilities or through public offerings registered with the SEC. However, our ability to access the money markets and capital markets or obtain credit from commercial banks outside of our committed revolving credit facilities could become materially constrained if changing economic conditions and disruptions to the money markets and capital markets, due to the COVID-19 pandemic or otherwise, worsen. In addition, our financing activities and actions by credit rating agencies, as well as many other factors, could negatively affect the availability and cost of both short-term and long-term financing. Also, cash flows from operations may be impacted by the timing of commencement and completion, and potentially cost overruns, of large projects.projects and
other material events, such as significant outflows resulting from the agreements expected to resolve certain material litigation related to the Leak. If cash flows from operations were to be significantly reduced or we were unable to borrow under acceptable terms, we would likely first reduce or postpone discretionary capital expenditures (not related to safety) and investments in new businesses. We monitor our ability to finance the needs of our operating, investing and financing activities in a manner consistent with our 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, SDG&E and SoCalGas each have five-year credit agreements expiring in 2024. In addition, Sempra Mexico has committed lines of credit that expire in 20212023 and 2024 and uncommitted revolving credit facilities
that expire in 2022 and 2023. Sempra Infrastructure Partners mayintends to 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 JuneSeptember 30, 2021, including available unused credit on these primary U.S. and foreign lines of credit.
| | AVAILABLE FUNDS AT JUNE 30, 2021 | |
| AVAILABLE FUNDS AT SEPTEMBER 30, 2021 | | AVAILABLE FUNDS AT SEPTEMBER 30, 2021 |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| | | Sempra | | SDG&E | | SoCalGas | | Sempra | | SDG&E | | SoCalGas |
Unrestricted cash and cash equivalents(1) | Unrestricted cash and cash equivalents(1) | $ | 335 | | | $ | 13 | | | $ | 4 | | Unrestricted cash and cash equivalents(1) | $ | 873 | | | $ | 239 | | | $ | 226 | |
Available unused credit(2)(3) | Available unused credit(2)(3) | 6,319 | | | 1,063 | | | 607 | | Available unused credit(2)(3) | 6,312 | | | 1,500 | | | 750 | |
(1) Amounts at Sempra include $140$138 million held in non-U.S. jurisdictions. We discuss repatriation in Note 8 of the Notes to Consolidated Financial Statements in the Annual Report.
(2) Available unused credit is the total available on Sempra’s, SDG&E’s, SoCalGas’, Sempra Mexico’s and Sempra Mexico’sLNG’s credit facilities that we discuss in Note 7 of the Notes to Condensed Consolidated Financial Statements.
(3) Because our commercial paper programs are supported by these lines, we reflect the amount of commercial paper outstanding as a reduction to the available unused credit.
Short-Term Borrowings
We use short-term debt primarily to meet liquidity requirements, fund shareholder dividends, and temporarily finance capital expenditures, acquisitions or start-ups. Our California Utilities use short-term debt primarily to meet working capital needs. Revolving lines of credit, and commercial paper and a term loan were our primary sources of short-term debt funding in the first sixnine months of 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.Statements and below in “Sources and Uses of Cash.”
Long-Term Debt Activities
Issuances of and payments on long-term debt in the first sixnine months of 2021 included the following:
| | | | | | | | | | | | | | |
| 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 |
| | | | | | | | | | | | | | |
| LONG-TERM DEBT ISSUANCES AND PAYMENTS |
| (Dollars in millions) | | | | |
| Issuances: | | Amount at issuance | | Maturity |
| SDG&E 2.95% green first mortgage bonds | | $ | 750 | | | 2051 |
| Sempra LNG variable rate notes | | 274 | | | 2025 |
| | | | |
| Payments: | | Payments | | Maturity |
| Sempra variable rate notes | | $ | 850 | | | 2021 |
| SDG&E 3% first mortgage bonds | | 350 | | | 2021 |
| SDG&E 1.914% amortizing first mortgage bonds | | 36 | | | 2021 |
| SDG&E variable rate 364-day term loan | | 200 | | | 2021 |
| Sempra Mexico amortizing variable rate notes | | 33 | | | 2021 |
| Sempra Mexico amortizing variable and fixed rate loans | | 29 | | | 2021 |
In October 2021, Sempra Mexico used proceeds from borrowings against its committed and uncommitted lines of credit to fully repay $175 million of outstanding principal plus accrued and unpaid interest on the ESJ fixed- and variable-rate loan prior to its scheduled maturity in 2033, and $375 million of outstanding principal plus accrued and unpaid interest on the Ventika fixed- and variable-rate loans prior to scheduled maturity dates through 2032, and recognized approximately $50 million ($30 million after tax and NCI) in charges associated with hedge termination costs and a write-off of unamortized debt issuance costs.
On November 1, 2021, Sempra issued notices to redeem, at respective make-whole redemption prices, an aggregate principal amount of $2.35 billion of senior unsecured notes prior to scheduled maturities in 2022 through 2025. Upon redemption, which is scheduled to occur in December 2021, we expect to recognize approximately $128 million ($93 million after tax) in charges associated with the make-whole premiums from the early redemptions and write-off of unamortized discount and debt issuance costs.
We discuss our long-term debt activities in Note 7 of the Notes to Condensed Consolidated Financial Statements.
Credit Ratings
We provide additional information about the credit ratings of Sempra, 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, SDG&E and SoCalGas remained at investment grade levels in the first sixnine months of 2021.
| | | | | | | | | | | | | | | | | |
CREDIT RATINGS AT JUNESEPTEMBER 30, 2021 | | | | |
| | | | | |
| | Sempra | | SDG&E | | SoCalGas |
| Moody’s | Baa2 with a stable outlook | | A3 with a stable outlook | | A2 with a stable outlook |
| S&P | BBB+ with a negative outlook | | BBB+ with a stable outlook | | A with a negative outlook |
| Fitch | BBB+ with a stable outlook | | BBB+ with a stable outlook | | A with a stable outlook |
A downgrade of Sempra’s or any of its subsidiaries’ credit ratings or rating outlooks may, depending on the severity, result in a requirement for collateral to be posted in the case of certain financing arrangements and may materially and adversely affect the market prices of their equity and debt securities, the rates at which borrowings are made and commercial paper is issued, and the various fees on their outstanding credit facilities. This could make it more costly for Sempra, SDG&E, SoCalGas and Sempra’s other subsidiaries to issue debt securities, to borrow under credit facilities and to raise certain other types of financing.
Sempra 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 JuneSeptember 30, 2021.
Loans with Affiliates
At JuneSeptember 30, 2021, Sempra had $704$686 million in loans due from unconsolidated affiliates and $304$328 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 other matters described in this report. SDG&E and SoCalGas expect that the available unused credit from their credit facilities described above, cash flows from operations, and debt issuances will continue to be adequate to fund their respective current operations and planned capital expenditures. Additionally, Sempra has elected to make equity contributions to SoCalGas, which began in September 2021, that are sufficient to maintain SoCalGas’ approved capital structure in connection with the accruals related to the Leak. 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.
COVID-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 byIn connection with the COVID-19 pandemic. Thepandemic, the California Utilities implemented certain measures to assist customers, including suspending service disconnections due to nonpayment for 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 protectionplans. Such measures were in place throughended on June 2021. In June30, 2021, the CPUC further extendedexcept for the suspension of service disconnections for nonpayment throughthat ended on September 2021, which provides time for30, 2021. At the CPUC’s direction, the California Utilities have started to notifyautomatically enroll residential and small business customers in arrears and enroll such customerswith past-due balances 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 theseThe California Utilities expect to pursue recovery of small and medium-large commercial and industrial customers’ tracked costs in various regulatory mechanisms,rates 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.
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 and became effective in February 2021. The California Utilities have recorded increases in their allowances for uncollectible accounts 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, SDG&E and SoCalGas.
CCM
A CPUC cost of capital proceeding determines a utility’s authorized capital structure and authorized return on rate base. AIn December 2019, the CPUC approved the cost of capital proceeding also addressesand rate structures for SDG&E and SoCalGas that became effective on
January 1, 2020 and will remain in effect through December 31, 2022, subject to the CCM. The CCM which considers changes in interest rates based on the applicable utility bond index published by Moody’s (the CCM benchmark rate) for theeach 12-month period from October 2020 throughending September 2021.30 (the measurement period). The CCM benchmark rate is the basis of comparison to determine if further measurement periods “trigger” the CCM. The triggerCCM is triggered, which occurs if the change in the applicable Moody’s utility bond index relative to the CCM benchmark rate is larger than plus or minus 1.000%. at the end of the measurement period. The index applicable to SDG&E and SoCalGas is based on each utility’s credit rating.
SDG&E’s CCM benchmark rate is 4.498% based on Moody’s Baa- utility bond index, and SoCalGas’ CCM benchmark rate is 4.029%, based on Moody’s A- utility bond index.
TheAlternatively, under the CCM, each of the California Utilities is permitted to file a cost of capital application in an interim year in which an extraordinary or catastrophic event materially impacts its cost of capital. In August 2021, SDG&E filed an application with the CPUC to update its cost of capital effective January 1, 2022 due to the ongoing effects of the COVID-19 pandemic. In this application, SDG&E proposed to adjust its authorized capital structure by increasing its common equity ratio from 52% to 54%. SDG&E also proposed to increase its authorized ROE from 10.20% to 10.55% and decrease its authorized cost of debt from 4.59% to 3.84%. As a result, SDG&E’s proposed return on rate base would decrease from 7.55% to 7.46% if such application is approved by the CPUC as filed. SDG&E filed a joint motion with PG&E and Edison to consolidate all three utilities’ cost of capital applications given the overlapping issues of law and fact, which joint motion was granted in October 2021.
For the measurement period ended September 30, 2021, the CCM would trigger for SDG&E because the average Moody’s Baa- utility bond index between October 1, 2020 and JulySeptember 30, 2021 was more than 1.000%1.17% below SDG&E’s CCM benchmark rate of 4.498%. TheHowever, SDG&E’s application to update its cost of capital effective January 1, 2022, if accepted by the CPUC, would supersede the CCM if triggered in 2021 by SDG&E or SoCalGas,from applying. If such application is not accepted, the CCM would be effective January 1, 2022 and would automatically update their respectiveadjust SDG&E’s authorized ROE from 10.20% to 9.62% and adjust its authorized cost of debt basedto reflect the then current embedded cost and projected interest rate. SDG&E has requested that a final CPUC decision on actual costs and update their respective authorized ROE. A triggerits interim cost of capital application be issued in the first half of 2022.
For the measurement period ended September 30, 2021, the CCM that requireswas not triggered for SoCalGas. SoCalGas expects to file its next cost of capital application in April 2022 for 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.2023 effective date.
SDG&E
Wildfire Fund
The carrying value of SDG&E’s Wildfire Fund asset totals $378$371 million at JuneSeptember 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 costs for which they will seek recovery from the Wildfire Fund.Fund, including with respect to wildfires that have occurred since enactment of the Wildfire Legislation in July 2019. In such a situation, SDG&E may recognize a reduction of its Wildfire Fund asset and record 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. AsAt September 30, 2021, PG&E recorded a result, ifreceivable from the Wildfire Fund indicating that it may seek reimbursement in the future from the Wildfire Fund for losses associated with the Dixie Fire. 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’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 the event that the Wildfire Fund is materially diminished, exhausted or terminated, SDG&E will lose the protection afforded by the Wildfire Fund, and as a consequence, a fire in SDG&E’s service territory could causehave a material adverse effect on SDG&E’s and Sempra’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, We expect the CityCPUC to issue a final decision in the first half 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.2022.
SoCalGas
SoCalGas’ future performance and liquidity will be impacted by the resolution of legal, regulatory and other matters concerning the Leak, which we discuss below and in Note 11 of the Notes to Condensed Consolidated Financial Statements in this report and in “Part I – 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,Estimate, Accounting Impact and Insurance. At JuneSeptember 30, 2021, SoCalGas estimates certain costs related to the Leak are $1,627$3,199 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 $422$1,976 million is accrued as Reserve for Aliso Canyon Costs at September 30, 2021 on SoCalGas’ and Sempra’s Condensed Consolidated Balance Sheets. Sempra has elected to make equity contributions to SoCalGas that are sufficient to maintain SoCalGas’ approved capital structure in connection with the accruals related to these agreements, and Sempra does not expect to issue common equity in relation to these agreements. In connection with this election, in September 2021, Sempra made an initial equity contribution of $800 million to SoCalGas.
Except for the amounts paid or estimated to settle certain legal and regulatory matters, the cost estimate does not include litigation, regulatory proceedings or regulatory coststhe matters that we describe in “Civil Litigation – Unresolved Litigation” and “Regulatory Proceedings” in Note 11 of the Notes to Condensed Consolidated Financial Statements to the extent it is not possible to predict at this time the outcome of these actions or reasonably estimate the possible costs to defend or resolve the actions or the amounta range of possible costs for damages, restitution, civil or administrative fines sanctions,or penalties, defense, settlement or other costs or remedies that may be imposed or incurred. The cost estimate also does not include certain other costs incurred by Sempra associated with defending against shareholder derivative lawsuits and other potential costs that we currently do not anticipate incurring or that we cannot reasonably estimate. Further, we are not able to reasonably estimate the possible loss or a range of possible losses in excess of the amounts accrued. These costs or losses not included in the cost estimate could be significant and could have a material adverse effect on SoCalGas’ and Sempra’s cash flows, financial condition and results of operations.
We have received insurance payments for many of the categories of costs included in the cost estimate, including temporary relocation and associated processing costs, control-of-well expenses, costs of the government-ordered response to the Leak, certain legal costs and lost gas. As of JuneSeptember 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 JuneSeptember 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, we have exhausted all of our insurance in this matter. We continue to pursue other sources of insurance coverage for costs related to this matter, but we may not be successful in obtaining additional insurance recovery for any of these costs. If we are not able to secure additional insurance recovery, if any costs we have recorded as an insurance receivable are not collected, if there are delays in receiving insurance recoveries, or if the insurance recoveries are subject to income taxes while the associated costs are not tax deductible, such amounts, which could be significant, could have a material adverse effect on SoCalGas’ and Sempra’s cash flows, financial condition, and results of operations.operations and/or prospects.
Natural Gas Storage Operations and Reliability. Natural gas withdrawn from storage is important for service reliability during peak demand periods, including peak electric generation needs in the summer and consumer heating needs in the winter. The Aliso Canyon natural gas storage facility is the largest SoCalGas storage facility and an important element of SoCalGas’ delivery system. As a result of the Leak, 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 support safe and reliable natural gas service. In February 2017, the CPUC opened a proceeding pursuant to the SB 380 OII to determine the feasibility of minimizing or eliminating the use of the Aliso Canyon natural gas storage facility while still maintaining energy and electric reliability for the region, including considering alternative means for meeting or avoiding the demand for the facility’s services if it were eliminated.
At September 30, 2021, the Aliso Canyon natural gas storage facility had a net book value of $863 million. If the Aliso Canyon natural gas storage facility were to be permanently closed or if future cash flows from its operation were otherwise insufficient to recover its carrying value, it could result inwe may record an impairment of the facility, and significantlyincur higher than expected operating costs and/or be required to make additional capital expenditures (any or all of which may not be recoverable in rates), and natural gas reliability and electric generation could be jeopardized. At June 30, 2021, the Aliso Canyon natural gas storage facility had a net book value of $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,such outcome could have a material adverse effect on SoCalGas’ and Sempra’s results of operations, financial condition, cash flows and/or prospects.
Labor Relations
Field, technical and most clerical employees at SoCalGas are represented by the Utility Workers Union of America or the International Chemical Workers Union Council. The collective bargaining agreement for these employees covering wages, hours, working conditions, and medical and other benefit plans expired on September 30, 2021. On October 1, 2021, SoCalGas and
conditionrepresentatives of the unions reached a tentative agreement for a new collective bargaining agreement to be in effect through 2024. To allow time for ratification of the new collective bargaining agreement by the employees, it was also agreed that the terms and cash flows.conditions of the existing agreement would be extended through the date the new collective bargaining agreement is ratified. We expect the new collective bargaining agreement to be ratified in November 2021.
Franchise Agreement
SoCalGas’ natural gas franchise agreement with the City of Los Angeles is due to expire December 31, 2021. SoCalGas expects that it will participate in the competitive bid process for a new franchise agreement, consistent with the terms of the City Charter.
Sempra Texas Utilities
Oncor relies on external financing as a significant source of liquidity for its capital requirements. In the event that Oncor fails to meet its capital requirements or is unable to access sufficient capital to finance its ongoing needs, we may elect to make additional capital contributions to Oncor (as our commitments to the PUCT prohibit us from making loans to Oncor) which could be substantial and which would reduce the cash available to us for other purposes, could increase our indebtedness and could ultimately materially adversely affect our results of operations, liquidity, financial condition 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 transmissionelectric distribution companies, including Oncor, to significantly reduce demand on the grid because electricity generation was insufficient to meet demand due to insufficient electricity generation caused by extreme winter weather, resulting in power outages throughout ERCOT.weather. As a result of the winter weather event,load shedding events and state-wide power outages, 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, enabling ERCOT to finance certain amounts owed by ERCOT market participants relating to the winter weather event, creation of the Texas Energy Reliability Council, identification of gas facilities that are critical to electric-generator fuel supplies, coordination between the gas and electric industries, and changes in the composition of the PUCT and the ERCOT board of directors. In addition, various regulatory and governmental entities have also commenced investigations or indicated an intent to investigate the operation of the ERCOT grid during this extreme winter weather event and potential future actions to improve grid reliability. Any significant changes relating to the ERCOT market that impact transmission and distribution utilities as a result of such proceedings or otherwise could materially adversely impact Oncor. If Oncor does not successfully respond to these changes and any other legislative, regulatory, or market or industry developments applicable to it, Oncor could suffer a deterioration in its results of operations, financial condition, cash flows and/or prospects, which could materially adversely affect Sempra’s results of operations, financial condition, cash flows and/or prospects.
Sempra Mexico
Construction Projects
Sempra Mexico began commercial operations of its new terminals for the receipt, storage and delivery of refined fuel products in the new port of Veracruz on March 19, 2021 and in Mexico City on July 2, 2021. The two terminals have a combined storage capacity of more than 2.6 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 constructing additional terminals for the receipt, storage, and delivery of liquid fuels in the vicinity of Puebla and Topolobampo. We expect these projectsthe Puebla project to commence commercial operations in 2021.2021 and the Topolobampo project to commence commercial operations in the first half of 2022. 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 continuing to monitor the impacts of the COVID-19 pandemic on cash flows and results of operations. We expect to fund these capital expenditures, investments and operations 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. Sempra Mexico is also developing terminals for the receipt, storage, and delivery of liquid fuels in the vicinity of Manzanillo, Guadalajara and Ensenada.
As part of an industrywide audit and investigative process initiated by the CRE to enforce fuel procurement laws, federal prosecutors conducted inspections at several refined products terminals, including IEnova’s refined products terminal in Puebla to confirm that the gasoline and/or diesel in storage were legally imported. During the inspection of the Puebla terminal in September 2021, a federal prosecutor took samples from all the train and storage tanks in the terminal and ordered that the facility be temporarily shut down during the pendency of the analysis of the samples and investigation, while leaving the terminal in IEnova’s custody. Although IEnova filed an amparo lawsuit against the closure and has submitted proof of the legal origin of the products to the prosecutor’s office, we are unable to predict when the investigation will be completed and whether the facility will be able to resume normal operations. If the terminal were to be shut down or commissioning operations significantly curtailed for an extended period of time, Sempra’s results of operations, financial condition, cash flows and/or prospects could be materially adversely affected.
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.
Legal and Regulatory Matters
As we discuss IEnova has been engaged in Note 11a long-running land dispute relating to property adjacent to its ECA Regas Facility that allegedly overlaps with land owned by the ECA Regas Facility (the facility, however, is not situated on the land that is the subject of this dispute). In addition, four cases involving two adjacent areas of real property on which part of the Notes to Condensed Consolidated Financial Statements,ECA Regas Facility is situated, each brought by a single plaintiff or her descendants, remain pending against the Guaymas-El Oro segmentfacility. Certain of these land disputes involve land on which portions of the Sonora pipeline has been inoperable since August 2017. Under an agreement between IEnova and the CFE, the CFE will resume making payments only when the damaged sectionECA LNG liquefaction facilities, including ECA LNG Phase 1 currently under construction, are proposed to be situated or on which portions of the Guaymas-El Oro segmentECA Regas Facility that would be necessary for the operation of the Sonora pipeline is repaired. Ifproposed ECA LNG liquefaction facilities 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 pipeline is not repaired by September 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. At June 30, 2021, Sempra Mexico had $439 million in PP&E, net, relatedenvironmental impact authorization issued to the Guaymas-El Oro segmentECA Regas Facility in 2003. These cases generally allege that the conditions and mitigation measures in the environmental impact authorization are inadequate and challenge findings that the activities of the 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)terminal are consistent with regional development guidelines. In 2018 and resume operations2021, three related claimants filed separate challenges in the Guaymas-El Oro segmentfederal district court in Ensenada, Baja California in relation to the environmental and social impact permits issued by each of ASEA and SENER to ECA LNG authorizing natural gas liquefaction activities at the Sonora pipeline or if IEnova terminates the contract and is unable to obtain recovery, which in each case could have a material adverse impact on Sempra’s results of operations, financial condition, cash flows, and/or prospects.ECA Regas Facility.
In May 2020, the two third-party capacity customers at the ECA Regas Facility, Shell Mexico and Gazprom, asserted that a 2019 update of the general terms and conditions for service at the facility, as approved by the CRE, resulted in a breach of contract by IEnova and a force majeure event. Citing these circumstances, the customers subsequently stopped making payments of amounts due under their respective LNG storage and regasification agreements. IEnova has rejected the customers’ assertions and has drawn on the customers’ letters of credit provided as payment security. The parties engaged in discussions under the applicable contractual dispute resolution procedures without coming to a mutually acceptable resolution. In July 2020, Shell Mexico submitted a request for arbitration of the dispute and although Gazprom has joined the proceeding, Gazprom has since replenished the amounts drawn on its letter of credit and has resumed making regular monthly payments under its LNG storage and regasification agreement. As a consequence, IEnova is 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 available claims, defenses, rights and remedies in the arbitration proceeding, including seeking dismissal of the customers’ claims. In addition to the arbitration proceeding, Shell Mexico also filed a constitutional challenge to the CRE’s approval of the update to the general terms and conditions 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 upheld on appeal. A decision on the merits is pending. The claim regarding the liquefaction permit issuance was denied in March 2021 and upheld on appeal. A hearing on the merits of the arbitration case was held in October 2021. Shell
We discuss these matters in further detail in Note 11 of the Notes to Condensed Consolidated Financial Statements. One or more unfavorable final decisions on these disputes or challenges could materially adversely affect our existing natural gas regasification operations and proposed natural gas liquefaction projects at the site of the ECA Regas Facility and have a material adverse effect on Sempra’s business, cash flows, financial condition, results of operations and/or prospects.
Sonora Pipeline. As we discuss in Note 11 of the Notes to Condensed Consolidated Financial Statements, the Guaymas-El Oro segment of the Sonora pipeline has been inoperable since August 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 March 14, 2022, 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. At September 30, 2021, Sempra Mexico had $436 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 appealed both decisions.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, which in each case could have a material adverse effect on Sempra’s business, results of operations, financial condition, cash flows and/or prospects.
In June 2014, IEnova and a landowner agreed to enter into a voluntary right-of-way easement agreement for the construction and operation of a seven-mile section of the 314-mile Sasabe-Puerto Libertad-Guaymas segment of the Sonora natural gas pipeline on the landowner’s property. However, in 2015, the landowner filed a complaint demanding the easement agreement be nullified. In September 2021, a definitive and non-appealable judgment was issued declaring the easement agreement nullified and ordering the removal of the pipeline from the landowner’s property. IEnova intends to file a special judicial action whereby it will ask a civil court to acknowledge the existence of the easement and to determine the consideration the landowner should receive in exchange for the easement. The failure to stay this judgment pending the resolution of IEnova’s planned special judicial action or prevail in preserving the easement in the special judicial action could require us to modify the route of the pipeline and could require a temporary shutdown of this portion of the pipeline, which could have a material adverse effect on Sempra’s business, results of operations, financial condition, cash flows and/or prospects.
Regulatory and Other Actions by the Mexican Government.
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 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.
As we discuss in Note 11 of the Notes to Condensed Consolidated Financial Statements, in September 2021, the President of Mexico presented a constitutional reform initiative that introduces significant changes to the legal and economic principles underlying the country’s energy reform of 2013, generating imminent risks for private investments in this sector. Electricity generation permits and contracts for the sale of electricity to the CFE, including permits at all of IEnova’s operational power generation facilities, would be canceled. The public electricity supply service would be provided exclusively by the CFE, which may acquire up to 46% of required energy from the private sector. Only certain private power plants would be permitted to continue generating electricity and compete to offer the CFE the lowest production costs.
If the ongoing litigation to enjoin enforcement or suspend or overturn these newly enacted laws and regulations fails, if the proposed constitutional reform is unsuccessfulpassed in its current form, or if new orders, rules, decrees or regulations or furtherother amendments to existing laws or regulations are adopted or enacted that adversely impact IEnova’s participationcurb private-party involvement in the Mexican energy market,sector in Mexico, this could impact our ability to operate our facilities at existing levels or at all, result in increased costs for IEnova and its customers, adversely affect our ability to develop new projects, and negatively impact our ability to recover the carrying values of our investments in Mexico, any of which may have a material adverse effect on our business, 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.prospects.
Acquisition of ESJ
As we discuss in Note 5 of the Notes to Condensed Consolidated Financial Statements, onin 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. 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 Exchange Offer and Cash Tender Offer
In May 2021, we acquired 381,015,194 publicly heldowned shares of IEnova in exchange for 12,306,777 newly issued shares of our common stock upon completion of our exchange offer launched in the U.S. and Mexico. Mexico, which increased our ownership interest
in IEnova from 70.2% to 96.4%. In September 2021, we completed a cash tender offer and acquired 51,014,545 publicly owned shares of IEnova for 4.0 billion Mexican pesos (approximately $202 million in U.S. dollars) in cash, which increased our ownership interest in IEnova from 96.4% to 99.9%. We describe these transactions in Note 1 of the Notes to Condensed Consolidated Financial Statements.
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 acquiredIEnova’s shares were delisted from the IEnova shares at an exchange ratio of 0.0323 shares of our common stock for each one IEnova ordinary share.Mexican Stock Exchange effective October 15, 2021. In connection with the exchange offer,delisting, we recorded an increaseare maintaining a trust for the purpose of purchasing the 1,212,981 remaining publicly owned IEnova shares for 78.97 Mexican pesos per share, the same price per share that was offered in Sempra’s shareholders’ equityour cash tender offer. The trust will be in place through the earlier of $1,361 million, net of $12 million in transactions costs, and increased our ownership interest inApril 14, 2022 or the date on which we acquire all remaining publicly owned IEnova from 70.2% to 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.shares.
Sempra LNG
Sempra LNG is pursuing development of additional LNG export facilities on the Gulf Coast and Pacific Coast of North America through its proposed Cameron LNG JV Phase 2 liquefaction expansion project in Louisiana, ECA LNG liquefaction export projects in Mexico, and Port Arthur LNG liquefaction export project in Texas. Sempra LNG will 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 and minority interest owners, bank financing, project financing, accessing the capital markets and participating in 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 for the Phase 2 project currently include up to two additional liquefaction trains and up to two additional full containment LNG storage tanks. However, Cameron LNG JV plans to file an amendment, subject to approval by the FERC, to modify the permits to allow the use of electric drives, instead of gas turbine drives, which would reduce overall emissions. We expect the proposed expansion project will initially have one train with offtake capacity of over 6 Mtpa, with the ability to increase capacity with debottlenecking, and the site can accommodate additional trains beyond Phase 2.
Sempra has entered into 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, including a facility design utilizing electric drives, and we expect that discussions will continue. Although we are working towards making a final investment decision around the end of 2022, the timing of when or if Cameron LNG JV will receive approval to amend the permits is uncertain, and there is no assurance that the Cameron LNG JV members will unanimously agree in a timely manner or at all on an expansion structure, which, if not accomplished, would materially and adversely impact the development of the Phase 2 project.
The development of the potential Cameron LNG JV Phase 2 project is subject to numerous other risks and uncertainties, including securing binding customer commitments; reaching unanimous agreement with our partners to proceed; obtaining and maintaining a number of permits and regulatory approvals; securing financing; negotiating and completing suitable commercial agreements, including a definitive EPC contract, equity acquisition and governance agreements; reaching a positive final investment decision; and other factors associated with this potential investment. For a discussion of these risks, see “Part I – Item 1A. Risk Factors” in the Annual Report.
ECA LNG Liquefaction Export Projects
Sempra LNG and IEnova are developing two natural gas liquefaction export projects at IEnova’s existing ECA Regas Facility. The liquefaction export projects, which are planned for development in two phases (a mid-scale project by ECA LNG Phase 1 that is under construction and a proposed large-scale project by ECA LNG Phase 2), are being developed to provide buyers with direct access to North American west coast LNG supplies. We do not expect the construction or operation of the ECA LNG Phase 1 project to disrupt operations at the ECA Regas Facility. However, construction of the proposed ECA LNG Phase 2 project would conflict with the current operations at the ECA Regas Facility, which currently has long-term regasification contracts for 100% of the regasification facility’s capacity through 2028, making the decisions on whether and how to pursue the ECA LNG Phase 2 project dependent in part on whether the investment in a large-scale liquefaction facility would, over the long term, be more beneficial financially than continuing to supply regasification services under our existing contracts. We have planned measures to limit disruption of operations at the ECA Regas Facility with the construction of the ECA LNG Phase 1 project.
In March 2019, ECA LNG received two authorizations from the DOE to export U.S.-produced natural gas to Mexico and to re-export LNG to non-FTA countries from its ECA LNG Phase 1 project, which is a one-train natural gas liquefaction facility with a nameplate capacity of 3.25 Mtpa and initial offtake capacity of approximately 2.5 Mtpa that is under construction, and its proposed ECA LNG Phase 2 project that is in development.
In April 2020, ECA LNG Phase 1 executed definitive 20-year LNG sale and purchase agreements with Mitsui & Co., Ltd. for approximately 0.8 Mtpa of LNG and with an affiliate of 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 2020, we entered into an EPC contract with Technip Energies for the engineering, procurement and construction of the ECA LNG Phase 1 project. Since reaching a positive final investment decision with respect to the project in November 2020, we released Technip Energies to commence work to construct the ECA LNG Phase 1 project. The total price of the EPC contract is estimated at approximately $1.5 billion. We estimate that capital expenditures will approximate $2.0 billion, including capitalized interest and project contingency. The actual cost of the EPC contract and the actual amount of these capital expenditures may differ, perhaps substantially, from our estimates. We expect ECA LNG Phase 1 to begin producing LNG by the end of 2024.
In December 2020, ECA LNG Phase 1 entered into a five-year loan agreement for an aggregate principal amount of up to $1.6 billion, of which $202$291 million was outstanding at JuneSeptember 30, 2021. Proceeds from the loan are being used to finance the cost of construction of the ECA LNG Phase 1 project. We discuss the details of this loan in Note 7 of the Notes to 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 Phase 1 project and the development of the potential ECA LNG Phase 2 project are subject to numerous risks and uncertainties. For Phase 1, these include maintaining permits and regulatory approvals; construction delays; securing and maintaining commercial arrangements, such as gas supply and transportation agreements; the impact of recent and proposed changes to the law in Mexico; and other factors associated with the project and its construction. For Phase 2, these include obtaining binding customer commitments; the receipt of a number of permits and regulatory approvals; obtaining financing; negotiating and completing suitable commercial agreements, including a definitive EPC contract, equity acquisition and governance agreements, LNG sales agreements and gas supply and transportation agreements; reaching a positive final investment decision; the impact of recent and proposed changes to the law in Mexico; and other factors associated with this potential investment. In addition, as we discuss in Note 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 Regas Facility, could materially adversely affect the development and construction of these projects and Sempra’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.
In February 2020, we entered into an EPC contract with Bechtel for the proposed Port Arthur LNG liquefaction project. The EPC contract contemplates the construction of two liquefaction trains with a nameplate capacity of approximately 13.5 Mtpa, two LNG storage tanks, a marine berth and associated loading facilities and related infrastructure necessary to provide liquefaction services. We have no obligation to move forward on the EPC contract, and we may release Bechtel to perform portions of the work pursuant to limited notices to proceed. We have 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. In December 2020, we amended and restated the EPC contract to reflect an estimated price of approximately $8.7 billion. Since we did not issue a full notice to proceed by July 15, 2021, agreement by both parties on an amendment to the EPC contract is 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 on such an amendment by both parties or 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. In July 2021, the agreement was terminated and PGNiG and Sempra LNG entered into an MOU to collaborate to transition the 2 Mtpa to Sempra LNG’s portfolio of 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 included 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 related to the proposed project. In June 2021, Aramco Services Company and Sempra LNG agreed to allow the Heads of Agreement and Interim Project Participation Agreement to 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.
We continue work to progress development of the proposed Port Arthur LNG liquefaction export project and 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 remaining uncertainties in the energy markets, including real-time developments of new technologies that could impact the design, scale and structure of the project, we are working with our partners and customerscontinue to evaluate the timing of a final investment decision. At this time,decision; however, we dowill not expect to make a final investment decision in 2021.
Development of the Port Arthur LNG liquefaction export project is subject to a number of risks and uncertainties, including obtaining 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 and maintaining all necessary permits and approvals; obtaining financing and incentives; reaching a positive final investment decision; and other factors associated with the potential investment. An unfavorable outcome with respect to any of these factors could have a material adverse effect on Sempra’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.
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 | CASH FLOWS FROM OPERATING ACTIVITIES | CASH FLOWS FROM OPERATING ACTIVITIES |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| Six months ended June 30, | | Sempra | | SDG&E | | SoCalGas | |
| Nine months ended September 30, | | Nine months ended September 30, | | Sempra | | SDG&E | | SoCalGas |
| 2021 | 2021 | | $ | 2,255 | | | $ | 610 | | | $ | 963 | | 2021 | | $ | 2,981 | | | $ | 1,024 | | | $ | 1,037 | |
| 2020 | 2020 | | 1,027 | | | 738 | | | 1,198 | | 2020 | | 1,629 | | | 983 | | | 1,388 | |
| Change | Change | | $ | 1,228 | | | $ | (128) | | | $ | (235) | | Change | | $ | 1,352 | | | $ | 41 | | | $ | (351) | |
| | Higher (lower) net income, adjusted for noncash items included in earnings | | $ | 306 | | | $ | (10) | | | $ | 147 | | |
Net increase in Reserve for Aliso Canyon Costs primarily due to $1,248 higher accruals and $18 lower payments | | Net increase in Reserve for Aliso Canyon Costs primarily due to $1,248 higher accruals and $18 lower payments | | $ | 1,266 | | | $ | 1,266 | |
| Higher dividends received from Cameron LNG JV | Higher dividends received from Cameron LNG JV | | 304 | | | Higher dividends received from Cameron LNG JV | | 287 | | |
| Net decrease in Insurance Receivable for Aliso Canyon primarily due to $193 lower accruals and $3 higher insurance proceeds received | | Net decrease in Insurance Receivable for Aliso Canyon primarily due to $193 lower accruals and $3 higher insurance proceeds received | | 196 | | | 196 | |
| Release of a regulatory liability related to 2016-2018 income tax expense forecasting differences in 2020 | | Release of a regulatory liability related to 2016-2018 income tax expense forecasting differences in 2020 | | 175 | | | $ | 86 | | | 89 | |
| Change in income taxes receivable/payable, net | | Change in income taxes receivable/payable, net | | 166 | | | (134) | | | (170) | |
| Decrease in prepaid insurance | Decrease in prepaid insurance | | 197 | | | 152 | | | 45 | | Decrease in prepaid insurance | | 42 | | | 39 | | | 3 | |
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) | | |
| Change in accounts payable | | Change in accounts payable | | 86 | | | (32) | | | 24 | |
| Increase in greenhouse gas allowance purchases | Increase in greenhouse gas allowance purchases | | (68) | | | (79) | | Increase in greenhouse gas allowance purchases | | (123) | | | (133) | |
| (Increase) decrease in accounts receivable | | (109) | | | 12 | | | (88) | | |
| Change in accounts payable | | (180) | | | (38) | | | 2 | | |
| Change in accounts receivable | | Change in accounts receivable | | (183) | | | 29 | | | (96) | |
Change in net undercollected regulatory balancing accounts (including long-term amounts in regulatory assets) | Change in net undercollected regulatory balancing accounts (including long-term amounts in regulatory assets) | | (192) | | | (99) | | | (93) | | Change in net undercollected regulatory balancing accounts (including long-term amounts in regulatory assets) | | (189) | | | (80) | | | (109) | |
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 | Change in net margin posted at Sempra LNG’s marketing operations | | (291) | | | Change in net margin posted at Sempra LNG’s marketing operations | | (364) | | |
| (Lower) higher net income (loss), adjusted for noncash items included in earnings | | (Lower) higher net income (loss), adjusted for noncash items included in earnings | | (1,103) | | | 114 | | | (1,427) | |
| Other | Other | | 1 | | | 36 | | | 7 | | Other | | 45 | | | 19 | | | 6 | |
| 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 | | | |
| Cash used in discontinued operations in 2020 primarily due to $1,161 income taxes paid related to the sale of our South American businesses | | Cash used in discontinued operations in 2020 primarily due to $1,161 income taxes paid related to the sale of our South American businesses | | 1,051 | | |
| | $ | 1,228 | | | $ | (128) | | | $ | (235) | | | $ | 1,352 | | | $ | 41 | | | $ | (351) | |
| | CASH FLOWS FROM INVESTING ACTIVITIES | CASH FLOWS FROM INVESTING ACTIVITIES | CASH FLOWS FROM INVESTING ACTIVITIES |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| Six months ended June 30, | | Sempra | | SDG&E | | SoCalGas | |
| Nine months ended September 30, | | Nine months ended September 30, | | Sempra | | SDG&E | | SoCalGas |
| 2021 | 2021 | | $ | (2,588) | | | $ | (1,065) | | | $ | (936) | | 2021 | | $ | (3,456) | | | $ | (1,553) | | | $ | (1,417) | |
| 2020 | 2020 | | 2,854 | | | (842) | | | (885) | | 2020 | | 2,415 | | | (1,315) | | | (1,345) | |
| Change | Change | | $ | (5,442) | | | $ | (223) | | | $ | (51) | | Change | | $ | (5,871) | | | $ | (238) | | | $ | (72) | |
| | Distribution from Cameron LNG JV in 2020 | | Distribution from Cameron LNG JV in 2020 | | $ | (753) | | |
| Increase in capital expenditures | Increase in capital expenditures | | $ | (226) | | | $ | (222) | | | $ | (51) | | Increase in capital expenditures | | (293) | | | $ | (237) | | | $ | (72) | |
| Acquisition of 50% interest in ESJ in March 2021 for $79, net of $14 cash and cash equivalents acquired | Acquisition of 50% interest in ESJ in March 2021 for $79, net of $14 cash and cash equivalents acquired | | (65) | | | 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 | Lower contributions to Oncor Holdings | | 39 | | | Lower contributions to Oncor Holdings | | 58 | | |
| Distribution from Oncor Holdings in 2021 | | Distribution from Oncor Holdings in 2021 | | 361 | | |
| Other | Other | | 5 | | | (1) | | | Other | | 7 | | | (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) | | | |
| Cash provided by discontinued operations in 2020 primarily due to $5,781 proceeds, net of transaction costs paid, offset by $502 cash sold from the sale of our South American businesses | | Cash provided by discontinued operations in 2020 primarily due to $5,781 proceeds, net of transaction costs paid, offset by $502 cash sold from the sale of our South American businesses | | (5,186) | | |
| | $ | (5,442) | | | $ | (223) | | | $ | (51) | | | $ | (5,871) | | | $ | (238) | | | $ | (72) | |
| | CASH FLOWS FROM FINANCING ACTIVITIES | CASH FLOWS FROM FINANCING ACTIVITIES | CASH FLOWS FROM FINANCING ACTIVITIES |
| (Dollars in millions) | (Dollars in millions) | (Dollars in millions) |
| Six months ended June 30, | | Sempra | | SDG&E | | SoCalGas | |
| Nine months ended September 30, | | Nine months ended September 30, | | Sempra | | SDG&E | | SoCalGas |
| 2021 | 2021 | | $ | (282) | | | $ | 206 | | | $ | (27) | | 2021 | | $ | 397 | | | $ | 506 | | | $ | 602 | |
| 2020 | 2020 | | 842 | | | 286 | | | 7 | | 2020 | | (710) | | | 1,055 | | | 251 | |
| Change | Change | | $ | (1,124) | | | $ | (80) | | | $ | (34) | | Change | | $ | 1,107 | | | $ | (549) | | | $ | 351 | |
| | Lower issuances of short-term debt with maturities greater than 90 days | | $ | (2,170) | | | |
| Change in borrowings and repayments of short-term debt, net | | Change in borrowings and repayments of short-term debt, net | | $ | 3,870 | | | $ | 80 | | | $ | 517 | |
| Lower payments for commercial paper and other short-term debt with maturities greater than 90 days | | Lower payments for commercial paper and other short-term debt with maturities greater than 90 days | | 2,277 | | |
| Repurchase of common stock under ASR program in 2020 | | Repurchase of common stock under ASR program in 2020 | | 500 | | |
| Lower repurchases of common stock | | Lower repurchases of common stock | | 26 | | |
| Lower advances from unconsolidated affiliates | | Lower advances from unconsolidated affiliates | | (24) | | |
| Higher purchases of NCI | | Higher purchases of NCI | | (43) | | |
| (Higher) lower common dividends paid | | (Higher) lower common dividends paid | | (109) | | | 200 | | | (25) | |
| Higher payments on long-term debt and finance leases | | Higher payments on long-term debt and finance leases | | (205) | | | (354) | | |
| Net proceeds from issuance of series C preferred stock in 2020 | | Net proceeds from issuance of series C preferred stock in 2020 | | (890) | | |
| (Lower) higher issuances of short-term debt with maturities greater than 90 days | | (Lower) higher issuances of short-term debt with maturities greater than 90 days | | (1,296) | | | 375 | | |
| Lower issuances of long-term debt | Lower issuances of long-term debt | | (1,604) | | | $ | (799) | | | $ | (649) | | Lower issuances of long-term debt | | (2,646) | | | (853) | | | (949) | |
| 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 | | |
| Equity contribution from Sempra | | Equity contribution from Sempra | | 800 | |
| Other | Other | | 17 | | | 4 | | | 5 | | Other | | 48 | | | 3 | | | 8 | |
| Cash provided by discontinued operations in 2020 primarily from a $250 intercompany loan and $165 net increase in short term debt | Cash provided by discontinued operations in 2020 primarily from a $250 intercompany loan and $165 net increase in short term debt | | (401) | | | 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) | | | $ | 1,107 | | | $ | (549) | | | $ | 351 | |
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) |
| | Six months ended June 30, | | Nine months ended September 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 |
| SDG&E | SDG&E | $ | 1,072 | | | $ | 850 | | SDG&E | $ | 1,560 | | | $ | 1,323 | |
| SoCalGas | SoCalGas | 936 | | | 885 | | SoCalGas | 1,417 | | | 1,345 | |
| Sempra Texas Utilities | Sempra Texas Utilities | 100 | | | 139 | | Sempra Texas Utilities | 151 | | | 225 | |
| Sempra Mexico | Sempra Mexico | 231 | | | 321 | | Sempra Mexico | 325 | | | 443 | |
| Sempra LNG | Sempra LNG | 249 | | | 137 | | Sempra LNG | 362 | | | 200 | |
| Parent and other | Parent and other | 1 | | | 6 | | Parent and other | 7 | | | 6 | |
| Total | Total | $ | 2,589 | | | $ | 2,338 | | Total | $ | 3,822 | | | $ | 3,542 | |
The amounts and timing of capital expenditures and certain investments are generally subject to approvals by various regulatory and other governmental and environmental bodies, including the CPUC, the FERC and the PUCT, and various other factors described in this MD&A and in “Part I – Item 1A. Risk Factors” in the Annual Report. In 2021, we expect to make capital expenditures and investments of approximately $5.9$6.1 billion, an increase from the $5.8 billion projected in “Part II – Item 7. MD&A – Capital Resources and Liquidity” in the Annual Report. The increase is primarily attributable to an increase in expected contributions to our investment in Oncor Holdings and pipeline expansion projects at Sempra Mexico, offset by a shift in timingdelay of capital expenditures related to ECA LNG Phase 1 at Sempra LNG.
COMMITMENTS
We discuss significant changes to contractual commitments in the first sixnine months of 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 June 2021, Sempra provided a promissory note, which constitutes a guarantee, for the benefit of Cameron LNG JV with a maximum exposure to loss of $165 million. The guarantee will terminate upon full repayment of Cameron LNG JV’s debt,
scheduled to occur in 2039, or replenishment of the amount withdrawn by Sempra LNG from the SDSRA. We discuss this guarantee in Note 6 of the Notes to Condensed Consolidated Financial Statements.
In March 2021, Cameron LNG JV reached financial completion of the three-train liquefaction project and Sempra’s guarantees for a maximum aggregate amount of $4.0 billion were terminated.
In July 2020, Sempra entered into a Support Agreement, which contains a guarantee and represents a variable interest, for the benefit of CFIN with a maximum exposure to loss of $979 million. The guarantee will terminate upon full repayment of the guaranteed debt by 2039, including repayment following an event in which the guaranteed debt is put to Sempra. We discuss this guarantee in Notes 1, 6 and 9 of the Notes to Condensed Consolidated Financial Statements.
Our investments in Oncor Holdings and Cameron LNG JV and our Support Agreement for the benefit of CFIN are variable interests. Sempra’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 sixnine months of 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) |
| | | June 30, 2021 | | December 31, 2020 | | September 30, 2021 | | December 31, 2020 |
| | | Sempra | | SDG&E | | SoCalGas | | Sempra | | SDG&E | | SoCalGas | | Sempra | | SDG&E | | SoCalGas | | Sempra | | SDG&E | | SoCalGas |
| Short-term: | Short-term: | | | | Short-term: | | | |
| California Utilities | California Utilities | $ | 580 | | | $ | 437 | | | $ | 143 | | | $ | 113 | | | $ | — | | | $ | 113 | | California Utilities | $ | 375 | | | $ | 375 | | | $ | — | | | $ | 113 | | | $ | — | | | $ | 113 | |
| Other | Other | 1,686 | | | — | | | — | | | 772 | | | — | | | — | | Other | 2,693 | | | — | | | — | | | 772 | | | — | | | — | |
| Long-term: | Long-term: | | | | Long-term: | | | |
| California Utilities fixed-rate | California Utilities fixed-rate | $ | 10,495 | | | $ | 6,036 | | | $ | 4,459 | | | $ | 10,512 | | | $ | 6,053 | | | $ | 4,459 | | California Utilities fixed-rate | $ | 10,877 | | | $ | 6,418 | | | $ | 4,459 | | | $ | 10,512 | | | $ | 6,053 | | | $ | 4,459 | |
| California Utilities variable-rate | California Utilities variable-rate | 300 | | | — | | | 300 | | | 500 | | | 200 | | | 300 | | California Utilities variable-rate | 300 | | | — | | | 300 | | | 500 | | | 200 | | | 300 | |
| Other fixed-rate | Other fixed-rate | 10,481 | | | — | | | — | | | 11,204 | | | — | | | — | | Other fixed-rate | 10,456 | | | — | | | — | | | 11,204 | | | — | | | — | |
| Other variable-rate | Other variable-rate | 251 | | | — | | | — | | | 51 | | | — | | | — | | Other variable-rate | 339 | | | — | | | — | | | 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 JuneSeptember 30, 2021 increased or decreased by 10%, the change in earnings over the 12-month period ending JuneSeptember 30, 2022 would be approximately $1 million. If interest rates increased or decreased by 10% on all variable-rate long-term debt at JuneSeptember 30, 2021, after considering the effects of interest rate swaps, the change in earnings over the 12-month period ending JuneSeptember 30, 2022 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. At JuneSeptember 30, 2021, there were no significant changes to our exposure to foreign currency rate risk since December 31, 2020.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Sempra, 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, 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 JuneSeptember 30, 2021, the end of the period covered by this report. Based on these evaluations, the principal executive officers and principal financial officers of Sempra, 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
In 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 secondthird quarter of 2021, IEnova continued tocompleted its review and enhanceenhancement of 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.system.
Other than SDG&E’s continued monitoring and modification of its internal controls in connection with its implementation of a new customer information system and IEnova’s continuedcompletion of its review and enhancement of its internal controls in connection with its implementation of a new ERP system, there have been no changes in 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, 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 the other documents we file with the SEC (including those filed subsequent to this report), including the factors discloseddiscussed above in “Part I – Item 2. MD&A” and those discussed in “Part I – Item 1A. Risk Factors” in the Annual Report. There have been no material changes fromThis section supplements the risk factors as previously discloseddescribed in our Annual Report by replacing with modified and updated information the disclosure that appears under the below heading in the Annual Report.Report in “Part I – Item 1A. Risk Factors – Risks Related to Our Businesses Other Than the California Utilities and Our Interest in Oncor – Foreign Operations Risks – Our international businesses and operations expose us to legal, tax, economic, geopolitical, management oversight, foreign currency and inflation risks and challenges.” Any of the risks 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 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.
Mexican Government Influence on Economic and Energy Matters
The Mexican government has exercised, and continues to exercise, significant and increasing influence over the Mexican economy and energy sector and is proposing additional changes that, in each case, could fundamentally impact private investment in this sector.
With respect to the electricity market, the Mexican legislature is currently considering proposed constitutional reform that would, among other things, make the CFE the only entity allowed to commercialize electric energy in Mexico, thereby eliminating the wholesale electricity market entirely. This reform would also limit the overall capacity and types of plants eligible to generate electricity for the CFE to commercialize, resulting in the cancelation of electricity generation permits and contracts for the sale of electricity to the CFE, including permits at all of IEnova’s operational power generation facilities. Recent Mexican governmental actions in the electricity market also include resolutions, orders, decrees, regulations and proposed amendments to Mexican law that could, among other things, threaten the prospects for private-party renewable energy generation in the country; limit the ability to dispatch renewable energy and receive or maintain operation permits; and increase costs of electricity for legacy renewables and cogeneration energy contract holders.
With respect to midstream and downstream activities, recent governmental actions include amendments in June 2021 to Mexico’s General Foreign Trade Rules designed to limit private parties from obtaining authorizations for the import and export of hydrocarbons, refined products, petrochemicals, and biofuels. IEnova has filed amparo claims to challenge these amendments, which would negatively impact the ability to renew the existing authorizations held by the ECA Regas Facility and the Veracruz terminal and the ability to obtain authorizations for terminals or other projects under construction or in development in the vicinity of Topolobampo, Manzanillo and Ensenada, including the proposed ECA LNG liquefaction projects. In addition, amendments to Mexico’s Hydrocarbons Law that give SENER and the CRE additional powers to suspend and revoke permits were published in May 2021. While the courts have enjoined enforcement of these amendments pending a final disposition, the amendments provide that suspension of permits will be determined by SENER or the CRE when a danger to national security, energy security, or the national economy is foreseen, and also provide new grounds for the revocation of permits under certain circumstances. Additionally, in the case of existing permits, the amendments direct authorities to revoke permits that fail to comply with the minimum storage requirements established by SENER or fail to comply with requirements or violate provisions established by the amended Hydrocarbons Law.
Finally, as part of an industrywide audit and investigative process initiated by the CRE to enforce fuel procurement laws, federal prosecutors conducted inspections at several refined products terminals, including IEnova’s refined products terminal in Puebla, to confirm that the gasoline and/or diesel in storage were legally imported. During the inspection of the Puebla terminal in September 2021, a federal prosecutor took samples from all the train and storage tanks in the terminal and ordered that the facility be temporarily shut down during the pendency of the analysis of the samples and investigation, while leaving the terminal in IEnova’s custody. We are unable to predict when the investigation will be completed and whether the facility will be able to resume normal operations.
We discuss these Mexican governmental actions further in “Part I – Item 2. MD&A – Capital Resources and Liquidity – Sempra Mexico” and Note 11 of the Notes to Condensed Consolidated Financial Statements. We cannot predict whether proposed changes like the constitutional reform to the electricity market or other similar governmental actions will ultimately be passed or otherwise become effective in their current forms, nor can we predict the nature or level of impact of this constitutional reform on non-electric segments of the energy sector. We also cannot predict whether actions to enjoin enforcement or suspend or overturn existing laws and other governmental actions will be successful. More generally, we cannot predict the impact that the political, social, and judicial landscape in Mexico will have on that country’s economy and energy sector and our business in Mexico. If any of the recent Mexican governmental actions are passed or otherwise become effective, if efforts to enjoin their enforcement or suspend or overturn them fail, or if other similar moves by the Mexican government are taken to curb private-party participation in the energy sector, including the passage of additional laws or regulations or increased investigative and enforcement activities, this could materially impact our ability to operate our facilities at existing levels or at all, may result in increased costs for IEnova and its customers, may adversely affect our ability to develop new projects, and may negatively impact our ability to recover the carrying values of our investments in Mexico, any of which may have a material adverse effect on our business, financial condition, results of operations, cash flows and/or prospects.
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).
| | | | | | | | | | | | | | | | | | | | |
| 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 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| 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 |
| | | | | | |
| EXHIBIT 4 -- INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES |
| Certain instruments defining the rights of holders of long-term debt instruments are not required to be filed or incorporated by reference herein pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. Each registrant agrees to furnish a copy of such instruments to the SEC upon request. |
| | | | | | |
| Sempra Energy / San Diego Gas & Electric Company | | | |
| 4.1 | | | | 8-K | 4.1 | 08/13/21 |
| | | | | | |
| EXHIBIT 10 -- MATERIAL CONTRACTS |
| | | | | | |
| 10.1 | | | | 8-K | 10.1 | 09/27/21 |
| | | | | | |
| | | | | | | | | | | | | | |
| EXHIBIT INDEX (CONTINUED) |
| Exhibit Number | | Exhibit Description | | Filed or Furnished Herewith |
| | | | |
| EXHIBIT 31 -- SECTION 302 CERTIFICATIONS |
| | | | |
| Sempra | | |
| 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 | | |
| 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: AugustNovember 5, 2021 | | 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: AugustNovember 5, 2021 | | By: /s/ Valerie A. Bille |
| | | Valerie A. Bille |
| | Vice President, Controller and Chief Accounting Officer (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: AugustNovember 5, 2021 | | By: /s/ Mia L. DeMontigny |
| | | Mia L. DeMontigny |
| | Vice President, Controller, Chief Financial Officer, Controller and Chief Accounting Officer (Duly Authorized Officer) |
