SEMPRA ENERGY
10-Qs and 10-Ks
PROXIES
| UNITED STATES | ||
| SECURITIES AND EXCHANGE COMMISSION | ||
| Washington, D.C. 20549 | ||
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FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||||||||||||||||||||||||||||||||
| For the quarterly period ended |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||||||||||||||||||||||||||||||||
| For the transition period from | to | |||||||||||||||||||||||||||||||||||||
| 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 | |||||||||||||
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| SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: | ||||||||
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||||||
| SEMPRA ENERGY: | ||||||||
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| SAN DIEGO GAS & ELECTRIC COMPANY: | ||||||||
| None | ||||||||
| SOUTHERN CALIFORNIA GAS COMPANY: | ||||||||
| None | ||||||||
1
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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.
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Sempra Energy
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☒ |
No
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☐
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San Diego Gas & Electric Company
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☒ |
No
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☐
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Southern California Gas Company
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☒ |
No
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☐
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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).
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Sempra Energy
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☒ |
No
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☐
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San Diego Gas & Electric Company
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☒ |
No
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☐
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Southern California Gas Company
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☒ |
No
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☐
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Sempra Energy: | ||||||||||||||
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☒
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☐
Accelerated Filer
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☐
Non-accelerated Filer
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| San Diego Gas & Electric Company: | ||||||||||||||
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☐
Large Accelerated Filer
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☐
Accelerated Filer
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☒
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| Southern California Gas Company: | ||||||||||||||
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☐
Large Accelerated Filer
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☐
Accelerated Filer
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☒
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| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ||||||||||||||
| Sempra Energy |
Yes
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☐
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No
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☐
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| San Diego Gas & Electric Company |
Yes
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☐
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No
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☐
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| Southern California Gas Company |
Yes
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☐
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No
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☐
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| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | ||||||||||||||
| Sempra Energy |
Yes
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No
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☒ | ||||||||||
| San Diego Gas & Electric Company |
Yes
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No
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☒ | ||||||||||
| Southern California Gas Company |
Yes
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No
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☒ | ||||||||||
| Indicate the number of shares outstanding of each of the issuers’ classes of common stock, as of the latest practicable date. | ||||||||||||||
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Common stock outstanding on August 1, 2022:
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| Sempra Energy |
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| 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 | |||||||
2
| 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 2. | ||||||||
| 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 entity makes statements herein only as to itself and its consolidated entities and makes no statement whatsoever as to any other entity.
You should read this report in its entirety as it pertains to each respective reporting entity. No one section of the report deals with all aspects of the subject matter. A separate Part I – Item 1 is 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.
3
The following terms and abbreviations appearing in this report have the meanings indicated below.
| GLOSSARY | |||||
| AB | California Assembly Bill | ||||
| ADIA | Black Silverback ZC 2022 LP (assignee of Black River B 2017 Inc.), a wholly owned affiliate of Abu Dhabi Investment Authority | ||||
| AFUDC | allowance for funds used during construction | ||||
| Annual Report | Annual Report on Form 10-K for the year ended December 31, 2021 | ||||
| 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 | ||||
| Bcf | billion cubic feet | ||||
| Bechtel | Bechtel Oil, Gas and Chemicals, Inc. | ||||
| Blade | Blade Energy Partners | ||||
| bps | basis points | ||||
| CalGEM | California Geologic Energy Management Division | ||||
| Cameron LNG JV | Cameron LNG Holdings, LLC | ||||
| CCA | Community Choice Aggregation | ||||
| CCM | cost of capital adjustment mechanism | ||||
| CENACE | Centro Nacional de Control de Energía (Mexico’s National Center for Energy Control) | ||||
| 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 | ||||
| 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, collectively | ||||
| ECA LNG Phase 1 | ECA LNG Holdings B.V. | ||||
| ECA LNG Phase 2 | ECA LNG II Holdings B.V. | ||||
| ECA Regas Facility | Energía Costa Azul, S. de R.L. de C.V. LNG regasification facility | ||||
| Ecogas | Ecogas México, S. de R.L. de C.V. | ||||
| Edison | Southern California Edison Company, a subsidiary of Edison International | ||||
| EFH | Energy Future Holdings Corp. (renamed Sempra Texas Holdings Corp.) | ||||
| EPC | engineering, procurement and construction | ||||
| EPS | earnings (losses) per common share | ||||
| ESJ | Energía Sierra Juárez, S. de R.L. de C.V. | ||||
| ETR | effective income tax rate | ||||
| FEED | Front-End Engineering Design | ||||
| FERC | Federal Energy Regulatory Commission | ||||
| Fitch | Fitch Ratings | ||||
| FTA | Free Trade Agreement | ||||
| Gazprom | Gazprom Marketing & Trading México S. de R.L. de C.V. | ||||
| GRC | General Rate Case | ||||
| HOA | Heads of Agreement | ||||
| IEnova | Infraestructura Energética Nova, S.A.P.I. de C.V. | ||||
| IMG | Infraestructura Marina del Golfo | ||||
| IOU | investor-owned utility | ||||
| ISO | Independent System Operator | ||||
| JV | joint venture | ||||
4
| GLOSSARY (CONTINUED) | |||||
| 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 | ||||
| LNG | liquefied natural gas | ||||
| 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 | ||||
| Oncor | Oncor Electric Delivery Company LLC | ||||
| Oncor Holdings | Oncor Electric Delivery Holdings Company LLC | ||||
| OSC | Order to Show Cause | ||||
| PA LNG Phase 1 project | initial phase of the proposed Port Arthur LNG liquefaction export project | ||||
| PA LNG Phase 2 project | second phase of the proposed Port Arthur LNG liquefaction export project | ||||
| PG&E | Pacific Gas and Electric Company | ||||
| PGNiG | Polish Oil & Gas Company | ||||
| PP&E | property, plant and equipment | ||||
| PPA | power purchase agreement | ||||
| PUCT | Public Utility Commission of Texas | ||||
| RBS | The Royal Bank of Scotland plc | ||||
| RBS SEE | RBS Sempra Energy Europe | ||||
| RBS Sempra Commodities | RBS Sempra Commodities LLP | ||||
| ROE | return on equity | ||||
| RSU | restricted stock unit | ||||
| S&P | S&P Global Ratings, a division of S&P Global Inc. | ||||
| Saavi Energía | Saavi Energía S. de R.L. de C.V. | ||||
| SB | California Senate Bill | ||||
| SDG&E | San Diego Gas & Electric Company | ||||
| SDSRA | Senior Debt Service Reserve Account | ||||
| SEC | U.S. Securities and Exchange Commission | ||||
| SED | Safety and Enforcement Division of the CPUC | ||||
| SEDATU | Secretaría de Desarrollo Agrario, Territorial y Urbano (Mexico’s agency in charge of agriculture, land and urban development) | ||||
| Sempra | Sempra Energy doing business as Sempra, together with its consolidated entities unless otherwise stated or indicated by the context | ||||
| Sempra California | San Diego Gas & Electric Company and Southern California Gas Company, collectively | ||||
| SENER | Secretaría de Energía de México (Mexico’s Ministry of Energy) | ||||
| series A preferred stock | 6% mandatory convertible preferred stock, series A | ||||
| series B preferred stock | 6.75% mandatory convertible preferred stock, series B | ||||
| Shell Mexico | Shell México Gas Natural, S. de R.L. de C.V. | ||||
| SI Partners | Sempra Infrastructure Partners, LP, the holding company for most of Sempra’s subsidiaries not subject to California or Texas utility regulation | ||||
5
| GLOSSARY (CONTINUED) | |||||
| SoCalGas | Southern California Gas Company | ||||
| SONGS | San Onofre Nuclear Generating Station | ||||
| SPA | sale and purchase agreement | ||||
| Support Agreement | support agreement, dated July 28, 2020 and amended on June 29, 2021, among Sempra and Sumitomo Mitsui Banking Corporation | ||||
| TAG | 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. | ||||
| 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 | ||||
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 sometimes refer to SDG&E and SoCalGas collectively as Sempra California, which does not include the utilities in our Sempra Texas Utilities or Sempra Infrastructure segments. 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.
6
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 or implied in any forward-looking statements. These forward-looking statements represent our estimates and assumptions only as of the filing date of this report. We assume no obligation to update or revise any forward-looking statement as a result of new information, future events or other factors.
Forward-looking statements can be identified by words such as “believes,” “expects,” “intends,” “anticipates,” “contemplates,” “plans,” “estimates,” “projects,” “forecasts,” “should,” “could,” “would,” “will,” “confident,” “may,” “can,” “potential,” “possible,” “proposed,” “in process,” “construct,” “develop,” “opportunity,” “target,” “outlook,” “maintain,” “continue,” “progress,” “advance,” “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 expressed or implied in any forward-looking statement include risks and uncertainties relating to:
▪
California wildfires, including the risks that we may be found liable for damages regardless of fault and that we may not be able to recover all or a substantial portion of costs from insurance, the Wildfire Fund, in rates from customers or a combination thereof
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decisions, investigations, regulations, issuances or revocations of permits and other authorizations, renewals of franchises, and other actions by (i) the CPUC, CRE, DOE, FERC, PUCT, and other regulatory and governmental bodies and (ii) the U.S., Mexico and states, counties, cities and other jurisdictions therein and in other countries in which we do business
▪
the success of business development efforts, construction projects and acquisitions and divestitures, including risks in (i) being able to make a final investment decision, (ii) completing construction projects or other transactions on schedule and budget, (iii) realizing anticipated benefits from any of these efforts if completed, and (iv) obtaining the consent or approval of partners or other third parties, including governmental and regulatory bodies
▪
civil and criminal litigation, regulatory inquiries, investigations, arbitrations, property disputes and other proceedings, including those related to the Leak
▪
changes to laws and regulations, including certain of Mexico’s laws and rules that impact energy supplier permitting, energy contract rates, the electricity industry generally and the import, export, transport and storage of hydrocarbons
▪
cybersecurity threats, including by state and state-sponsored actors, 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-parties with which we conduct business, all of which have become more pronounced due to recent geopolitical events and other uncertainties, such as the war in Ukraine
▪
failure of foreign governments, state-owned entities and our counterparties to honor their contracts and commitments
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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 debt service obligations
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the impact of energy and climate policies, laws, rules and disclosures, as well as related goals and actions of companies in our industry, including actions to reduce or eliminate reliance on natural gas generally and any deterioration of or increased uncertainty in the political or regulatory environment for California natural gas distribution companies and the risk of nonrecovery for stranded assets
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the pace of the development and adoption of new technologies in the energy sector, including those designed to support governmental and private party energy and climate goals, and our ability to timely and economically incorporate them into our businesses
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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 damages, fines and penalties, some of which may be disputed or not covered by insurers, may not be recoverable through regulatory mechanisms or may impact our ability to obtain satisfactory levels of affordable insurance
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inflationary and interest rate pressures, volatility in foreign currency exchange rates and commodity prices, our ability to effectively hedge these risks, and their impact, as applicable, on SDG&E’s and SoCalGas’ cost of capital and the affordability of customer rates
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the availability of electric power, 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
7
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the impact of the COVID-19 pandemic on capital projects, regulatory approvals and the execution of our operations
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the impact at SDG&E on competitive customer rates and reliability due to growth in distributed and local power generation, including from departing retail load resulting from customers transferring to CCA and Direct Access, and the risk of nonrecovery for stranded assets and contractual obligations
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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
▪
changes in tax and trade policies, laws and regulations, including tariffs, revisions to international trade agreements and sanctions, such as those that have been imposed and that may be imposed in the future in connection with the war in Ukraine, which may increase our costs, reduce our competitiveness, impact our ability to do business with certain counterparties, or impair our ability to resolve trade disputes
▪
other uncertainties, some of which are difficult to predict and 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.
8
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
| SEMPRA ENERGY | |||||||||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||||||||
| (Dollars in millions, except per share amounts; shares in thousands) | |||||||||||||||||||||||
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||
| REVENUES | |||||||||||||||||||||||
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Utilities:
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Natural gas
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$ |
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$ |
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$ |
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$ |
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Electric
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| Energy-related businesses |
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| Total revenues |
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| EXPENSES AND OTHER INCOME | |||||||||||||||||||||||
| Utilities: | |||||||||||||||||||||||
| Cost of natural gas |
(
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(
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(
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| Cost of electric fuel and purchased power |
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| Energy-related businesses cost of sales |
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| Operation and maintenance |
(
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(
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(
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(
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| Aliso Canyon litigation and regulatory matters |
(
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(
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| Depreciation and amortization |
(
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(
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(
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(
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| Franchise fees and other taxes |
(
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(
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(
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(
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Other (expense) income, net
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(
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| Interest income |
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| Interest expense |
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(
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(
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| Income before income taxes and equity earnings |
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Income tax expense
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| Equity earnings |
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Net income
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| Earnings attributable to noncontrolling interests |
(
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(
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| Preferred dividends |
(
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(
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(
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(
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| Preferred dividends of subsidiary |
(
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(
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(
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(
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Earnings attributable to common shares
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$ |
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$ |
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$ |
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$ |
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| Basic EPS: | |||||||||||||||||||||||
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Earnings
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$ |
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$ |
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$ |
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| Weighted-average common shares outstanding |
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| Diluted EPS: | |||||||||||||||||||||||
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Earnings
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$ |
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$ |
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$ |
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| Weighted-average common shares outstanding |
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See Notes to Condensed Consolidated Financial Statements.
9
| SEMPRA ENERGY | |||||||||||||||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | |||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||
| Sempra Energy shareholders’ equity | |||||||||||||||||||||||||||||
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Pretax
amount |
Income tax
(expense) benefit |
Net-of-tax
amount |
Noncontrolling
interests (after tax) |
Total | |||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||||||
| Three months ended June 30, 2022 and 2021 | |||||||||||||||||||||||||||||
| 2022: | |||||||||||||||||||||||||||||
| Net income | $ |
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$ |
(
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$ |
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$ |
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$ |
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| Other comprehensive income (loss): | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments |
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| Financial instruments |
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| Pension and other postretirement benefits |
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(
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| Total other comprehensive income |
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(
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| Comprehensive income |
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(
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| Preferred dividends of subsidiary |
(
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(
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(
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Comprehensive income, after preferred
dividends of subsidiary
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$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| 2021: | |||||||||||||||||||||||||||||
| Net income | $ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments |
|
|
|
|
|
||||||||||||||||||||||||
| Financial instruments |
(
|
|
(
|
(
|
(
|
||||||||||||||||||||||||
| Pension and other postretirement benefits |
|
(
|
|
|
|
||||||||||||||||||||||||
| Total other comprehensive loss |
(
|
|
(
|
(
|
(
|
||||||||||||||||||||||||
| Comprehensive income |
|
(
|
|
|
|
||||||||||||||||||||||||
| Preferred dividends of subsidiary |
(
|
|
(
|
|
(
|
||||||||||||||||||||||||
|
Comprehensive income, after preferred
dividends of subsidiary
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Six months ended June 30, 2022 and 2021 | |||||||||||||||||||||||||||||
| 2022: | |||||||||||||||||||||||||||||
| Net income | $ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments |
|
|
|
|
|
||||||||||||||||||||||||
| Financial instruments |
|
(
|
|
|
|
||||||||||||||||||||||||
| Pension and other postretirement benefits |
|
(
|
|
|
|
||||||||||||||||||||||||
| Total other comprehensive income |
|
(
|
|
|
|
||||||||||||||||||||||||
| Comprehensive income |
|
(
|
|
|
|
||||||||||||||||||||||||
| Preferred dividends of subsidiary |
(
|
|
(
|
|
(
|
||||||||||||||||||||||||
|
Comprehensive income, after preferred
dividends of subsidiary
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| 2021: | |||||||||||||||||||||||||||||
| Net income | $ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||||||||
| Financial instruments |
|
(
|
|
|
|
||||||||||||||||||||||||
| Pension and other postretirement benefits |
|
(
|
|
|
|
||||||||||||||||||||||||
| Total other comprehensive income |
|
(
|
|
|
|
||||||||||||||||||||||||
| Comprehensive income |
|
(
|
|
|
|
||||||||||||||||||||||||
| Preferred dividends of subsidiary |
(
|
|
(
|
|
(
|
||||||||||||||||||||||||
|
Comprehensive income, after preferred
dividends of subsidiary
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
10
| SEMPRA ENERGY | |||||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||||
| (Dollars in millions) | |||||||||||
| June 30, | December 31, | ||||||||||
| 2022 |
2021
(1)
|
||||||||||
| (unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ |
|
$ |
|
|||||||
| Restricted cash |
|
|
|||||||||
| Accounts receivable – trade, net |
|
|
|||||||||
| Accounts receivable – other, net |
|
|
|||||||||
| Due from unconsolidated affiliates |
|
|
|||||||||
| Income taxes receivable |
|
|
|||||||||
| Inventories |
|
|
|||||||||
| Prepaid expenses |
|
|
|||||||||
| Regulatory assets |
|
|
|||||||||
| Greenhouse gas allowances |
|
|
|||||||||
| Other current assets |
|
|
|||||||||
| Total current assets |
|
|
|||||||||
| Other assets: | |||||||||||
| Restricted cash |
|
|
|||||||||
| Due from unconsolidated affiliates |
|
|
|||||||||
| Regulatory assets |
|
|
|||||||||
| Insurance receivable for Aliso Canyon costs |
|
|
|||||||||
| Greenhouse gas allowances |
|
|
|||||||||
| Nuclear decommissioning trusts |
|
|
|||||||||
| Dedicated assets in support of certain benefit plans |
|
|
|||||||||
| Deferred income taxes |
|
|
|||||||||
| Right-of-use assets – operating leases |
|
|
|||||||||
| Investment in Oncor Holdings |
|
|
|||||||||
| Other investments |
|
|
|||||||||
| Goodwill |
|
|
|||||||||
| Other intangible assets |
|
|
|||||||||
| Wildfire fund |
|
|
|||||||||
| Other long-term assets |
|
|
|||||||||
| Total other assets |
|
|
|||||||||
| Property, plant and equipment: | |||||||||||
| Property, plant and equipment |
|
|
|||||||||
| Less accumulated depreciation and amortization |
(
|
(
|
|||||||||
| Property, plant and equipment, net |
|
|
|||||||||
| Total assets | $ |
|
$ |
|
|||||||
(1)
Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.
11
| SEMPRA ENERGY | |||||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) | |||||||||||
| (Dollars in millions) | |||||||||||
| June 30, | December 31, | ||||||||||
| 2022 |
2021
(1)
|
||||||||||
| (unaudited) | |||||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Short-term debt | $ |
|
$ |
|
|||||||
| Accounts payable – trade |
|
|
|||||||||
| Accounts payable – other |
|
|
|||||||||
| Dividends and interest payable |
|
|
|||||||||
| Accrued compensation and benefits |
|
|
|||||||||
| Regulatory liabilities |
|
|
|||||||||
| Current portion of long-term debt and finance leases |
|
|
|||||||||
| Reserve for Aliso Canyon costs |
|
|
|||||||||
| Greenhouse gas obligations |
|
|
|||||||||
| Other current liabilities |
|
|
|||||||||
| Total current liabilities |
|
|
|||||||||
| Long-term debt and finance leases |
|
|
|||||||||
| Deferred credits and other liabilities: | |||||||||||
| Due to unconsolidated affiliates |
|
|
|||||||||
| Regulatory liabilities |
|
|
|||||||||
| Greenhouse gas obligations |
|
|
|||||||||
| Pension and other postretirement benefit plan obligations, net of plan assets |
|
|
|||||||||
| Deferred income taxes |
|
|
|||||||||
| Asset retirement obligations |
|
|
|||||||||
| Deferred credits and other |
|
|
|||||||||
| Total deferred credits and other liabilities |
|
|
|||||||||
| Commitments and contingencies (Note 11) |
|
|
|||||||||
| Equity: | |||||||||||
|
Preferred stock (
|
|||||||||||
|
Preferred stock, series C
(
|
|
|
|||||||||
|
Common stock (
outstanding at June 30, 2022 and December 31, 2021, respectively; no par value)
|
|
|
|||||||||
| Retained earnings |
|
|
|||||||||
| Accumulated other comprehensive income (loss) |
(
|
(
|
|||||||||
| Total Sempra Energy shareholders’ equity |
|
|
|||||||||
| Preferred stock of subsidiary |
|
|
|||||||||
| Other noncontrolling interests |
|
|
|||||||||
| Total equity |
|
|
|||||||||
| Total liabilities and equity | $ |
|
$ |
|
|||||||
(1)
Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.
12
| SEMPRA ENERGY | |||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||
| (Dollars in millions) | |||||||||||
| Six months ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| (unaudited) | |||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
| Net income | $ |
|
$ |
|
|||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization |
|
|
|||||||||
| Deferred income taxes and investment tax credits |
|
|
|||||||||
| Equity earnings |
(
|
(
|
|||||||||
| Foreign currency transaction losses (gains), net |
|
(
|
|||||||||
| Share-based compensation expense |
|
|
|||||||||
| Fixed-price contracts and other derivatives |
|
|
|||||||||
| Other |
|
|
|||||||||
| Net change in working capital components |
(
|
(
|
|||||||||
| Insurance receivable for Aliso Canyon costs |
|
|
|||||||||
| Distributions from investments |
|
|
|||||||||
| Changes in other noncurrent assets and liabilities, net |
(
|
(
|
|||||||||
| Net cash provided by operating activities |
|
|
|||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
| Expenditures for property, plant and equipment |
(
|
(
|
|||||||||
| Expenditures for investments and acquisitions |
(
|
(
|
|||||||||
| Purchases of nuclear decommissioning trust assets |
(
|
(
|
|||||||||
| Proceeds from sales of nuclear decommissioning trust assets |
|
|
|||||||||
| Advances to unconsolidated affiliates |
|
(
|
|||||||||
| Distributions from investments |
|
|
|||||||||
| Other |
|
|
|||||||||
| Net cash used in investing activities |
(
|
(
|
|||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Common dividends paid |
(
|
(
|
|||||||||
| Preferred dividends paid |
(
|
(
|
|||||||||
| Issuances of common stock |
|
|
|||||||||
| Repurchases of common stock |
(
|
(
|
|||||||||
| Issuances of debt (maturities greater than 90 days) |
|
|
|||||||||
| Payments on debt (maturities greater than 90 days) and finance leases |
(
|
(
|
|||||||||
| (Decrease) increase in short-term debt, net |
(
|
|
|||||||||
| Advances from unconsolidated affiliates |
|
|
|||||||||
| Proceeds from sale of noncontrolling interests, net |
|
|
|||||||||
| Purchases of noncontrolling interests |
|
(
|
|||||||||
| Distributions to noncontrolling interests |
(
|
|
|||||||||
| Contributions from noncontrolling interests |
|
|
|||||||||
| Other |
(
|
(
|
|||||||||
| Net cash provided by (used in) financing activities |
|
(
|
|||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash |
(
|
|
|||||||||
| Increase (decrease) in cash, cash equivalents and restricted cash |
|
(
|
|||||||||
| Cash, cash equivalents and restricted cash, January 1 |
|
|
|||||||||
| Cash, cash equivalents and restricted cash, June 30 | $ |
|
$ |
|
|||||||
See Notes to Condensed Consolidated Financial Statements.
13
| SEMPRA ENERGY | |||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) | |||||||||||
| (Dollars in millions) | |||||||||||
| Six months ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| (unaudited) | |||||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | |||||||||||
| Interest payments, net of amounts capitalized | $ |
|
$ |
|
|||||||
| Income tax payments, net of refunds |
|
|
|||||||||
| SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | |||||||||||
| Increase in Cameron LNG JV investment for guarantee |
|
|
|||||||||
| Repayment of advances from unconsolidated affiliate in lieu of distribution |
|
|
|||||||||
| Accrued capital expenditures |
|
|
|||||||||
| Increase in finance lease obligations for investment in PP&E |
|
|
|||||||||
| Increase in ARO for investment in PP&E |
|
|
|||||||||
| Issuance of common stock in exchange for NCI and related AOCI |
|
|
|||||||||
| Common dividends declared but not paid |
|
|
|||||||||
| Conversion of mandatory convertible preferred stock |
|
|
|||||||||
| Preferred dividends declared but not paid |
|
|
|||||||||
See Notes to Condensed Consolidated Financial Statements.
14
| SEMPRA ENERGY | |||||||||||||||||||||||||||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | |||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||||||||||||||
| Preferred stock |
Common
stock |
Retained
earnings |
Accumulated
other comprehensive income (loss) |
Sempra
Energy shareholders' equity |
Non-
controlling interests |
Total
equity |
|||||||||||||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||||||||||||||||||
| Three months ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
| Net income |
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Other comprehensive income |
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Share-based compensation expense |
|
|
|
||||||||||||||||||||||||||||||||||||||
| Dividends declared: | |||||||||||||||||||||||||||||||||||||||||
|
Series C preferred stock ($
|
(
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||
|
Common stock ($
|
(
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||
| Preferred dividends of subsidiary |
(
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock |
(
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest activities: | |||||||||||||||||||||||||||||||||||||||||
| Contributions |
|
|
|||||||||||||||||||||||||||||||||||||||
| Distributions |
(
|
(
|
|||||||||||||||||||||||||||||||||||||||
| Sale |
|
|
|
|
|
||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
| Three months ended June 30, 2021 | |||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
| Net income |
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Other comprehensive loss |
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||
| Share-based compensation expense |
|
|
|
||||||||||||||||||||||||||||||||||||||
| Dividends declared: | |||||||||||||||||||||||||||||||||||||||||
|
Series B preferred stock ($
|
(
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||
|
Series C preferred stock ($
|
(
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||
|
Common stock ($
|
(
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||
| Preferred dividends of subsidiary |
(
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||
| Issuances of common stock |
|
|
|
||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock |
(
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest activities: | |||||||||||||||||||||||||||||||||||||||||
| Purchases |
|
(
|
|
(
|
(
|
||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
15
| SEMPRA ENERGY | |||||||||||||||||||||||||||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | |||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||||||||||||||
| Preferred stock |
Common
stock |
Retained
earnings |
Accumulated
other comprehensive income (loss) |
Sempra
Energy shareholders' equity |
Non-
controlling interests |
Total
equity |
|||||||||||||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||||||||||||||||||
| Six months ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
| Net income |
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Other comprehensive income |
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Share-based compensation expense |
|
|
|
||||||||||||||||||||||||||||||||||||||
| Dividends declared: | |||||||||||||||||||||||||||||||||||||||||
|
Series C preferred stock ($
|
(
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||
|
Common stock ($
|
(
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||
| Preferred dividends of subsidiary |
(
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||
| Issuances of common stock |
|
|
|
||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock |
(
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest activities: | |||||||||||||||||||||||||||||||||||||||||
| Contributions |
|
|
|||||||||||||||||||||||||||||||||||||||
| Distributions |
(
|
(
|
|||||||||||||||||||||||||||||||||||||||
| Sale |
|
|
|
|
|
||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
| Six months ended June 30, 2021 | |||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
| Net income |
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Other comprehensive income |
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Share-based compensation expense |
|
|
|
||||||||||||||||||||||||||||||||||||||
| Dividends declared: | |||||||||||||||||||||||||||||||||||||||||
|
Series B preferred stock ($
|
(
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||
|
Series C preferred stock ($
|
(
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||
|
Common stock ($
|
(
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||
| Preferred dividends of subsidiary |
(
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||
| Conversion of series A preferred stock |
(
|
|
— |
|
|||||||||||||||||||||||||||||||||||||
| Issuances of common stock |
|
|
|
||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock |
(
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest activities: | |||||||||||||||||||||||||||||||||||||||||
| Purchases |
|
(
|
|
(
|
(
|
||||||||||||||||||||||||||||||||||||
| Sale |
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
16
| SAN DIEGO GAS & ELECTRIC COMPANY | ||||||||||||||||||||||||||
| CONDENSED STATEMENTS OF OPERATIONS | ||||||||||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||||||||
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||||
| Operating revenues | ||||||||||||||||||||||||||
| Electric | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Natural gas |
|
|
|
|
||||||||||||||||||||||
| Total operating revenues |
|
|
|
|
||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||
| Cost of electric fuel and purchased power |
|
|
|
|
||||||||||||||||||||||
| Cost of natural gas |
|
|
|
|
||||||||||||||||||||||
| Operation and maintenance |
|
|
|
|
||||||||||||||||||||||
| Depreciation and amortization |
|
|
|
|
||||||||||||||||||||||
| Franchise fees and other taxes |
|
|
|
|
||||||||||||||||||||||
| Total operating expenses |
|
|
|
|
||||||||||||||||||||||
| Operating income |
|
|
|
|
||||||||||||||||||||||
| Other income, net |
|
|
|
|
||||||||||||||||||||||
| Interest income |
|
|
|
|
||||||||||||||||||||||
| Interest expense |
(
|
(
|
(
|
(
|
||||||||||||||||||||||
| Income before income taxes |
|
|
|
|
||||||||||||||||||||||
| Income tax expense |
(
|
(
|
(
|
(
|
||||||||||||||||||||||
| Net income/Earnings attributable to common shares | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
See Notes to Condensed Financial Statements.
17
| SAN DIEGO GAS & ELECTRIC COMPANY | |||||||||||||||||
| CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | |||||||||||||||||
| (Dollars in millions) | |||||||||||||||||
|
Pretax
amount |
Income tax expense |
Net-of-tax
amount |
|||||||||||||||
| (unaudited) | |||||||||||||||||
| Three months ended June 30, 2022 and 2021 | |||||||||||||||||
| 2022: | |||||||||||||||||
| Net income/Comprehensive income | $ |
|
$ |
(
|
$ |
|
|||||||||||
| 2021: | |||||||||||||||||
| Net income/Comprehensive income | $ |
|
$ |
(
|
$ |
|
|||||||||||
| Six months ended June 30, 2022 and 2021 | |||||||||||||||||
| 2022: | |||||||||||||||||
| Net income/Comprehensive income | $ |
|
$ |
(
|
$ |
|
|||||||||||
| 2021: | |||||||||||||||||
| Net income/Comprehensive income | $ |
|
$ |
(
|
$ |
|
|||||||||||
See Notes to Condensed Financial Statements.
18
| SAN DIEGO GAS & ELECTRIC COMPANY | |||||||||||
| CONDENSED BALANCE SHEETS | |||||||||||
| (Dollars in millions) | |||||||||||
| June 30, | December 31, | ||||||||||
| 2022 |
2021
(1)
|
||||||||||
| (unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ |
|
$ |
|
|||||||
| Accounts receivable – trade, net |
|
|
|||||||||
| Accounts receivable – other, net |
|
|
|||||||||
| Income taxes receivable, net |
|
|
|||||||||
| Inventories |
|
|
|||||||||
| Prepaid expenses |
|
|
|||||||||
| Regulatory assets |
|
|
|||||||||
| Greenhouse gas allowances |
|
|
|||||||||
| Other current assets |
|
|
|||||||||
| Total current assets |
|
|
|||||||||
| Other assets: | |||||||||||
| Regulatory assets |
|
|
|||||||||
| Greenhouse gas allowances |
|
|
|||||||||
| Nuclear decommissioning trusts |
|
|
|||||||||
| Right-of-use assets – operating leases |
|
|
|||||||||
| Wildfire fund |
|
|
|||||||||
| Other long-term assets |
|
|
|||||||||
| Total other assets |
|
|
|||||||||
| Property, plant and equipment: | |||||||||||
| Property, plant and equipment |
|
|
|||||||||
| Less accumulated depreciation and amortization |
(
|
(
|
|||||||||
| Property, plant and equipment, net |
|
|
|||||||||
| Total assets | $ |
|
$ |
|
|||||||
(1)
Derived from audited financial statements.
See Notes to Condensed Financial Statements.
19
| SAN DIEGO GAS & ELECTRIC COMPANY | |||||||||||
| CONDENSED BALANCE SHEETS (CONTINUED) | |||||||||||
| (Dollars in millions) | |||||||||||
| June 30, | December 31, | ||||||||||
| 2022 |
2021
(1)
|
||||||||||
| (unaudited) | |||||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Short-term debt | $ |
|
$ |
|
|||||||
| Accounts payable |
|
|
|||||||||
| Due to unconsolidated affiliates |
|
|
|||||||||
| Interest payable |
|
|
|||||||||
| Accrued compensation and benefits |
|
|
|||||||||
| Regulatory liabilities |
|
|
|||||||||
| Current portion of long-term debt and finance leases |
|
|
|||||||||
| Customer deposits |
|
|
|||||||||
| Greenhouse gas obligations |
|
|
|||||||||
| Asset retirement obligations |
|
|
|||||||||
| Other current liabilities |
|
|
|||||||||
| Total current liabilities |
|
|
|||||||||
| Long-term debt and finance leases |
|
|
|||||||||
| Deferred credits and other liabilities: | |||||||||||
| Regulatory liabilities |
|
|
|||||||||
| Greenhouse gas obligations |
|
|
|||||||||
| Pension obligation, net of plan assets |
|
|
|||||||||
| Deferred income taxes |
|
|
|||||||||
| Asset retirement obligations |
|
|
|||||||||
| Deferred credits and other |
|
|
|||||||||
| Total deferred credits and other liabilities |
|
|
|||||||||
| Commitments and contingencies (Note 11) |
|
|
|||||||||
| Shareholder's equity: | |||||||||||
|
Preferred stock (
|
|
|
|||||||||
|
Common stock (
no par value)
|
|
|
|||||||||
| Retained earnings |
|
|
|||||||||
| Accumulated other comprehensive income (loss) |
(
|
(
|
|||||||||
| Total shareholder’s equity |
|
|
|||||||||
| Total liabilities and shareholder's equity | $ |
|
$ |
|
|||||||
(1)
Derived from audited financial statements.
See Notes to Condensed Financial Statements.
20
| SAN DIEGO GAS & ELECTRIC COMPANY | |||||||||||
| CONDENSED STATEMENTS OF CASH FLOWS | |||||||||||
| (Dollars in millions) | |||||||||||
| Six months ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| (unaudited) | |||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
| Net income | $ |
|
$ |
|
|||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization |
|
|
|||||||||
| Deferred income taxes and investment tax credits |
|
|
|||||||||
| Other |
|
(
|
|||||||||
| Net change in working capital components |
|
(
|
|||||||||
| Changes in noncurrent assets and liabilities, net |
(
|
(
|
|||||||||
| Net cash provided by operating activities |
|
|
|||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
| Expenditures for property, plant and equipment |
(
|
(
|
|||||||||
| Purchases of nuclear decommissioning trust assets |
(
|
(
|
|||||||||
| Proceeds from sales of nuclear decommissioning trust assets |
|
|
|||||||||
| Other |
|
|
|||||||||
| Net cash used in investing activities |
(
|
(
|
|||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Issuances of debt (maturities greater than 90 days) |
|
|
|||||||||
| Payments on debt (maturities greater than 90 days) and finance leases |
(
|
(
|
|||||||||
| (Decrease) increase in short-term debt, net |
(
|
|
|||||||||
| Debt issuance costs |
(
|
|
|||||||||
| Net cash provided by financing activities |
|
|
|||||||||
| Increase (decrease) in cash and cash equivalents |
|
(
|
|||||||||
| Cash and cash equivalents, January 1 |
|
|
|||||||||
| Cash and cash equivalents, June 30 | $ |
|
$ |
|
|||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | |||||||||||
| Interest payments, net of amounts capitalized | $ |
|
$ |
|
|||||||
| Income tax payments, net of refunds |
|
|
|||||||||
| SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | |||||||||||
| Accrued capital expenditures | $ |
|
$ |
|
|||||||
| Increase in ARO for investment in PP&E |
|
|
|||||||||
| Increase in finance lease obligations for investment in PP&E |
|
|
|||||||||
See Notes to Condensed Financial Statements.
21
| SAN DIEGO GAS & ELECTRIC COMPANY | |||||||||||||||||||||||
| CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY | |||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
|
Common
stock |
Retained
earnings |
Accumulated
other comprehensive income (loss) |
Total
shareholder's equity |
||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||
| Three months ended June 30, 2022 | |||||||||||||||||||||||
| Balance at March 31, 2022 | $ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
| Net income |
|
|
|||||||||||||||||||||
| Balance at June 30, 2022 | $ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
| Three months ended June 30, 2021 | |||||||||||||||||||||||
| Balance at March 31, 2021 | $ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
| Net income |
|
|
|||||||||||||||||||||
| Balance at June 30, 2021 | $ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
| Six months ended June 30, 2022 | |||||||||||||||||||||||
| Balance at December 31, 2021 | $ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
| Net income |
|
|
|||||||||||||||||||||
| Balance at June 30, 2022 | $ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
| Six months ended June 30, 2021 | |||||||||||||||||||||||
| Balance at December 31, 2020 | $ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
| Net income |
|
|
|||||||||||||||||||||
| Balance at June 30, 2021 | $ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
See Notes to Condensed Financial Statements.
22
| SOUTHERN CALIFORNIA GAS COMPANY | |||||||||||||||||||||||
| CONDENSED STATEMENTS OF OPERATIONS | |||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||
| Operating revenues | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Cost of natural gas |
|
|
|
|
|||||||||||||||||||
| Operation and maintenance |
|
|
|
|
|||||||||||||||||||
| Aliso Canyon litigation and regulatory matters |
|
|
|
|
|||||||||||||||||||
| Depreciation and amortization |
|
|
|
|
|||||||||||||||||||
| Franchise fees and other taxes |
|
|
|
|
|||||||||||||||||||
| Total operating expenses |
|
|
|
|
|||||||||||||||||||
| Operating income |
|
|
|
|
|||||||||||||||||||
| Other income (expense), net |
|
(
|
|
|
|||||||||||||||||||
| Interest income |
|
|
|
|
|||||||||||||||||||
| Interest expense |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Income before income taxes |
|
|
|
|
|||||||||||||||||||
| Income tax expense |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Net income |
|
|
|
|
|||||||||||||||||||
| Preferred dividends |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Earnings attributable to common shares | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
See Notes to Condensed Financial Statements.
23
| SOUTHERN CALIFORNIA GAS COMPANY | |||||||||||||||||
| CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | |||||||||||||||||
| (Dollars in millions) | |||||||||||||||||
|
Pretax
amount |
Income tax expense |
Net-of-tax
amount |
|||||||||||||||
| (unaudited) | |||||||||||||||||
| Three months ended June 30, 2022 and 2021 | |||||||||||||||||
| 2022: | |||||||||||||||||
| Net income | $ |
|
$ |
(
|
$ |
|
|||||||||||
| Other comprehensive income (loss): | |||||||||||||||||
| Financial instruments |
|
|
|
||||||||||||||
| Total other comprehensive income |
|
|
|
||||||||||||||
| Comprehensive income | $ |
|
$ |
(
|
$ |
|
|||||||||||
| 2021: | |||||||||||||||||
| Net income | $ |
|
$ |
(
|
$ |
|
|||||||||||
| Other comprehensive income (loss): | |||||||||||||||||
| Pension and other postretirement benefits |
|
|
|
||||||||||||||
| Total other comprehensive income |
|
|
|
||||||||||||||
| Comprehensive income | $ |
|
$ |
(
|
$ |
|
|||||||||||
| Six months ended June 30, 2022 and 2021 | |||||||||||||||||
| 2022: | |||||||||||||||||
| Net income | $ |
|
$ |
(
|
$ |
|
|||||||||||
| Other comprehensive income (loss): | |||||||||||||||||
| Financial instruments |
|
|
|
||||||||||||||
| Pension and other postretirement benefits |
|
|
|
||||||||||||||
| Total other comprehensive income |
|
|
|
||||||||||||||
| Comprehensive income | $ |
|
$ |
(
|
$ |
|
|||||||||||
| 2021: | |||||||||||||||||
| Net income | $ |
|
$ |
(
|
$ |
|
|||||||||||
| Other comprehensive income (loss): | |||||||||||||||||
| Pension and other postretirement benefits |
|
|
|
||||||||||||||
| Total other comprehensive income |
|
|
|
||||||||||||||
| Comprehensive income | $ |
|
$ |
(
|
$ |
|
|||||||||||
See Notes to Condensed Financial Statements.
24
| SOUTHERN CALIFORNIA GAS COMPANY | |||||||||||
| CONDENSED BALANCE SHEETS | |||||||||||
| (Dollars in millions) | |||||||||||
| June 30, | December 31, | ||||||||||
| 2022 |
2021
(1)
|
||||||||||
| (unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ |
|
$ |
|
|||||||
| Accounts receivable – trade, net |
|
|
|||||||||
| Accounts receivable – other, net |
|
|
|||||||||
| Due from unconsolidated affiliates |
|
|
|||||||||
| Income taxes receivable, net |
|
|
|||||||||
| Inventories |
|
|
|||||||||
| Regulatory assets |
|
|
|||||||||
| Greenhouse gas allowances |
|
|
|||||||||
| Other current assets |
|
|
|||||||||
| Total current assets |
|
|
|||||||||
| Other assets: | |||||||||||
| Regulatory assets |
|
|
|||||||||
| Insurance receivable for Aliso Canyon costs |
|
|
|||||||||
| Greenhouse gas allowances |
|
|
|||||||||
| Right-of-use assets – operating leases |
|
|
|||||||||
| Other long-term assets |
|
|
|||||||||
| Total other assets |
|
|
|||||||||
| Property, plant and equipment: | |||||||||||
| Property, plant and equipment |
|
|
|||||||||
| Less accumulated depreciation and amortization |
(
|
(
|
|||||||||
| Property, plant and equipment, net |
|
|
|||||||||
| Total assets | $ |
|
$ |
|
|||||||
(1)
Derived from audited financial statements.
See Notes to Condensed Financial Statements.
25
| SOUTHERN CALIFORNIA GAS COMPANY | |||||||||||
| CONDENSED BALANCE SHEETS (CONTINUED) | |||||||||||
| (Dollars in millions) | |||||||||||
| June 30, | December 31, | ||||||||||
| 2022 |
2021
(1)
|
||||||||||
| (unaudited) | |||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Short-term debt | $ |
|
$ |
|
|||||||
| Accounts payable – trade |
|
|
|||||||||
| Accounts payable – other |
|
|
|||||||||
| Due to unconsolidated affiliates |
|
|
|||||||||
| Accrued compensation and benefits |
|
|
|||||||||
| Regulatory liabilities |
|
|
|||||||||
| Current portion of long-term debt and finance leases |
|
|
|||||||||
| Customer deposits |
|
|
|||||||||
| Reserve for Aliso Canyon costs |
|
|
|||||||||
| Greenhouse gas obligations |
|
|
|||||||||
| Asset retirement obligations |
|
|
|||||||||
| Other current liabilities |
|
|
|||||||||
| Total current liabilities |
|
|
|||||||||
| Long-term debt and finance leases |
|
|
|||||||||
| Deferred credits and other liabilities: | |||||||||||
| Regulatory liabilities |
|
|
|||||||||
| Greenhouse gas obligations |
|
|
|||||||||
| Pension obligation, net of plan assets |
|
|
|||||||||
| Deferred income taxes |
|
|
|||||||||
| Asset retirement obligations |
|
|
|||||||||
| Deferred credits and other |
|
|
|||||||||
| Total deferred credits and other liabilities |
|
|
|||||||||
| Commitments and contingencies (Note 11) |
|
|
|||||||||
| Shareholders’ equity: | |||||||||||
|
Preferred stock (
|
|
|
|||||||||
|
Common stock (
|
|
|
|||||||||
| Retained earnings |
|
|
|||||||||
| Accumulated other comprehensive income (loss) |
(
|
(
|
|||||||||
| Total shareholders’ equity |
|
|
|||||||||
| Total liabilities and shareholders’ equity | $ |
|
$ |
|
|||||||
(1)
Derived from audited financial statements.
See Notes to Condensed Financial Statements.
26
| SOUTHERN CALIFORNIA GAS COMPANY | |||||||||||
| CONDENSED STATEMENTS OF CASH FLOWS | |||||||||||
| (Dollars in millions) | |||||||||||
| Six months ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| (unaudited) | |||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
| Net income | $ |
|
$ |
|
|||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization |
|
|
|||||||||
| Deferred income taxes and investment tax credits |
|
|
|||||||||
| Other |
|
|
|||||||||
| Net change in working capital components |
|
|
|||||||||
| Insurance receivable for Aliso Canyon costs |
|
|
|||||||||
| Changes in other noncurrent assets and liabilities, net |
(
|
(
|
|||||||||
| Net cash provided by operating activities |
|
|
|||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
| Expenditures for property, plant and equipment |
(
|
(
|
|||||||||
| Net cash used in investing activities |
(
|
(
|
|||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Preferred dividends paid |
(
|
(
|
|||||||||
| Common dividends paid |
|
(
|
|||||||||
| Equity contribution from Sempra Energy |
|
|
|||||||||
| Issuances of debt (maturities greater than 90 days) |
|
|
|||||||||
| Payments on finance leases |
(
|
(
|
|||||||||
| (Decrease) increase in short-term debt, net |
(
|
|
|||||||||
| Debt issuance costs |
(
|
|
|||||||||
| Net cash provided by (used in) financing activities |
|
(
|
|||||||||
| Increase in cash and cash equivalents |
|
|
|||||||||
| Cash and cash equivalents, January 1 |
|
|
|||||||||
| Cash and cash equivalents, June 30 | $ |
|
$ |
|
|||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | |||||||||||
| Interest payments, net of amounts capitalized | $ |
|
$ |
|
|||||||
| Income tax payments, net of refunds |
|
|
|||||||||
| SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | |||||||||||
| Accrued capital expenditures | $ |
|
$ |
|
|||||||
| Increase (decrease) in ARO for investment in PP&E |
|
(
|
|||||||||
| Increase in finance lease obligations for investment in PP&E |
|
|
|||||||||
| Common dividends declared but not paid |
|
|
|||||||||
See Notes to Condensed Financial Statements.
27
| SOUTHERN CALIFORNIA GAS COMPANY | |||||||||||||||||||||||||||||
| CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY | |||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||
|
Preferred
stock |
Common
stock |
Retained
earnings |
Accumulated
other comprehensive income (loss) |
Total
shareholders’ equity |
|||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||||||
| Three months ended June 30, 2022 | |||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
|
Net income
|
|
|
|||||||||||||||||||||||||||
|
Other comprehensive income
|
|
|
|||||||||||||||||||||||||||
| Dividends declared: | |||||||||||||||||||||||||||||
|
Preferred stock ($
|
(
|
(
|
|||||||||||||||||||||||||||
| Equity contribution from Sempra Energy |
|
|
|||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Three months ended June 30, 2021 | |||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
|
Net income
|
|
|
|||||||||||||||||||||||||||
| Other comprehensive income |
|
|
|||||||||||||||||||||||||||
| Dividends declared: | |||||||||||||||||||||||||||||
|
Preferred stock ($
|
(
|
(
|
|||||||||||||||||||||||||||
|
Common stock ($
|
(
|
(
|
|||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Six months ended June 30, 2022 | |||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Net income |
|
|
|||||||||||||||||||||||||||
| Other comprehensive income |
|
|
|||||||||||||||||||||||||||
| Dividends declared: | |||||||||||||||||||||||||||||
|
Preferred stock ($
|
(
|
(
|
|||||||||||||||||||||||||||
| Equity contribution from Sempra Energy |
|
|
|||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Six months ended June 30, 2021 | |||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Net income |
|
|
|||||||||||||||||||||||||||
| Other comprehensive income |
|
|
|||||||||||||||||||||||||||
| Dividends declared: | |||||||||||||||||||||||||||||
|
Preferred stock ($
|
(
|
(
|
|||||||||||||||||||||||||||
|
Common stock ($
|
(
|
(
|
|||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
See Notes to Condensed Financial Statements.
28
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. In the fourth quarter of 2021, we formed Sempra Infrastructure, which resulted in a change to our reportable segments. Historical segment disclosures have been restated to conform with the current presentation of our
four
separate 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
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. We have eliminated intercompany accounts and transactions within the consolidated financial statements of each reporting entity.
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 June 30, 2022 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, 2021 balance sheet information in the Condensed Consolidated Financial Statements has been derived from our audited 2021 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.
The information contained in this report should be read in conjunction with the Annual Report.
Regulated Operations
SDG&E, SoCalGas and Sempra Infrastructure’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.
29
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Cash equivalents are highly liquid investments with original maturities of three months or less at the date of purchase.
Restricted cash includes:
▪
for Sempra Infrastructure, funds fully drawn against Gazprom’s letters of credit, including draws associated with its LNG storage and regasification agreement that we discuss in Note 11, and funds denominated in Mexican pesos to pay for rights-of-way, license fees, permits, topographic surveys and other costs pursuant to trust and debt agreements related to pipeline projects
▪
for Parent and other, funds held in a delisting trust for the purpose of purchasing the remaining publicly owned IEnova shares
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on Sempra’s Condensed Consolidated Balance Sheets to the sum of such amounts reported on Sempra’s Condensed Consolidated Statements of Cash Flows.
| RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH | ||||||||
| (Dollars in millions) | ||||||||
|
June 30,
2022 |
December 31,
2021 |
|||||||
| Cash and cash equivalents | $ |
|
$ |
|
||||
| Restricted cash, current |
|
|
||||||
| Restricted cash, noncurrent |
|
|
||||||
|
Total cash, cash equivalents and restricted cash on the Condensed Consolidated Statements of
Cash Flows
|
$ |
|
$ |
|
||||
CREDIT LOSSES
We are exposed to credit losses from financial assets measured at amortized cost, including trade and other accounts receivable, amounts due from unconsolidated affiliates, our net investment in sales-type leases and a note receivable. 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 receivables and customer payment patterns, historical and industry trends, counterparty creditworthiness, economic conditions and specific events, such as bankruptcies, pandemics and other factors. We write off financial assets measured at amortized cost in the period in which we determine they are not recoverable. We record recoveries of amounts previously written off when it is known that they will be recovered.
In 2021, SDG&E and SoCalGas applied, on behalf of their customers, for financial assistance from the California Department of Community Services and Development under the California Arrearage Payment Program, which provided funds of $
63
million and $
79
million for SDG&E and SoCalGas, respectively. In the first quarter of 2022, SDG&E and SoCalGas received and applied the amounts directly to eligible customer accounts to reduce past due balances. In June 2022, AB 205 was approved establishing, among other things, the 2022 California Arrearage Payment Program. SDG&E and SoCalGas expect to apply for funding from this program on behalf of their residential customers with past due balances and, if approved, receive such funding in the first quarter of 2023.
30
| RECEIVABLES – ALLOWANCES FOR CREDIT LOSSES | ||||||||
| (Dollars in millions) | ||||||||
| 2022 | 2021 | |||||||
| Sempra: | ||||||||
| Allowances for credit losses at January 1 | $ |
|
$ |
|
||||
| Provisions for expected credit losses |
|
|
||||||
| Write-offs |
(
|
(
|
||||||
| Allowances for credit losses at June 30 | $ |
|
$ |
|
||||
| SDG&E: | ||||||||
| Allowances for credit losses at January 1 | $ |
|
$ |
|
||||
| Provisions for expected credit losses |
|
|
||||||
| Write-offs |
(
|
(
|
||||||
| Allowances for credit losses at June 30 | $ |
|
$ |
|
||||
| SoCalGas: | ||||||||
| Allowances for credit losses at January 1 | $ |
|
$ |
|
||||
| Provisions for expected credit losses |
|
|
||||||
| Write-offs |
(
|
(
|
||||||
| Allowances for credit losses at June 30 | $ |
|
$ |
|
||||
Allowances for credit losses related to accounts receivable are included in the Condensed Consolidated Balance Sheets as follows:
| ALLOWANCES FOR CREDIT LOSSES | ||||||||
| (Dollars in millions) | ||||||||
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Sempra: | ||||||||
| Accounts receivable – trade, net | $ |
|
$ |
|
||||
| Accounts receivable – other, net |
|
|
||||||
| Other long-term assets |
|
|
||||||
| Total allowances for credit losses | $ |
|
$ |
|
||||
| SDG&E: | ||||||||
| Accounts receivable – trade, net | $ |
|
$ |
|
||||
| Accounts receivable – other, net |
|
|
||||||
| Other long-term assets |
|
|
||||||
| Total allowances for credit losses | $ |
|
$ |
|
||||
| SoCalGas: | ||||||||
| Accounts receivable – trade, net | $ |
|
$ |
|
||||
| Accounts receivable – other, net |
|
|
||||||
| Other long-term assets |
|
|
||||||
| Total allowances for credit losses | $ |
|
$ |
|
||||
As we discuss below in “Transactions with Affiliates,” we have loans due from unconsolidated affiliates with varying tenors, interest rates and currencies. On a quarterly basis, we evaluate credit losses and record allowances for expected credit losses on amounts due from unconsolidated affiliates, if necessary, based on credit quality indicators such as external credit ratings, published default rate studies, the maturity date of the instrument and past delinquencies. However, we do not record allowances for expected credit losses related to accrued interest receivable on loans due from unconsolidated affiliates because we write off such amounts, if any, through a reversal of interest income in the period we determine such amounts are uncollectible. In the absence of external credit ratings, we may utilize an internally developed credit rating based on our analysis of a counterparty’s financial statements to determine our expected credit losses. At December 31, 2021, $
1
million of expected credit losses are included in noncurrent Due From Unconsolidated Affiliates on Sempra’s Condensed Consolidated Balance Sheet.
As we discuss below in “Note Receivable,” we have an interest-bearing promissory note due from KKR. On a quarterly basis, we evaluate credit losses and record allowances for expected credit losses on this note receivable, including compounded interest and unamortized transaction costs, based on published default rate studies, the maturity date of the instrument and an internally developed credit rating. At June 30, 2022 and December 31, 2021, $
7
million and $
8
million, respectively, of expected credit losses are included in Other Long-Term Assets on Sempra’s Condensed Consolidated Balance Sheets.
As we discuss below in Note 6, Sempra provided a guarantee for the benefit of Cameron LNG JV related to amounts withdrawn
31
INVENTORIES
The components of inventories are as follows:
| INVENTORY BALANCES | |||||||||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||||||||
| Sempra | SDG&E | SoCalGas | |||||||||||||||||||||||||||||||||
|
June 30,
2022 |
December 31, 2021 |
June 30,
2022 |
December 31, 2021 |
June 30,
2022 |
December 31, 2021 | ||||||||||||||||||||||||||||||
| Natural gas | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| LNG |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Materials and supplies |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
NOTE RECEIVABLE
In October 2021, Sempra loaned $
300
million to KKR in exchange for an interest-bearing promissory note that is due in full no later than October 2029 and bears compound interest at
5
% per annum, which may be paid quarterly or added to the outstanding principal at the election of KKR. At June 30, 2022 and December 31, 2021, Other Long-Term Assets includes $
308
million and $
297
million, respectively, of outstanding principal, compounded interest and unamortized transaction costs, net of allowance for credit losses, and at December 31, 2021, Other Current Assets includes $
3
million of interest receivable on Sempra’s Condensed Consolidated Balance Sheets.
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 financing costs, comprised of AFUDC and capitalized interest.
| CAPITALIZED FINANCING COSTS | |||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Sempra | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| SDG&E |
|
|
|
|
|||||||||||||||||||
| SoCalGas |
|
|
|
|
|||||||||||||||||||
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.
32
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 June 30, 2022 and December 31, 2021. 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 $
1,206
million and $
1,217
million at June 30, 2022 and December 31, 2021, 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
Oncor Holdings is a VIE. Sempra is not the primary beneficiary of this 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 $
13,301
million at June 30, 2022 and $
12,947
million at December 31, 2021.
Sempra Infrastructure
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 this 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 $
723
million at June 30, 2022 and $
514
million at December 31, 2021. 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.
33
CFIN
As we discuss in Note 6, in July 2020, Sempra entered into a Support Agreement for the benefit of CFIN, which is a VIE. Sempra 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 financing arrangement with external lenders and Cameron LNG JV’s four project owners as well as the 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 this 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 consolidated $
767
million and $
632
million of assets at June 30, 2022 and December 31, 2021, respectively, consisting primarily of PP&E, net, and Accounts Receivable – Other attributable to ECA LNG Phase 1 that could be used only to settle obligations of this VIE and that are not available to settle obligations of Sempra, and $
532
million and $
455
million of liabilities at June 30, 2022 and December 31, 2021, respectively, consisting primarily of long-term debt, short-term debt and accounts payable attributable to ECA LNG Phase 1 for which creditors do not have recourse to the general credit of Sempra. Additionally, as we discuss in Note 7, Sempra and TotalEnergies 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
Net Periodic Benefit Cost
34
| NET PERIODIC BENEFIT COST – SEMPRA | |||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Pension benefits | Other postretirement benefits | ||||||||||||||||||||||
| Three months ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Service cost | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Interest cost |
|
|
|
|
|||||||||||||||||||
| Expected return on assets |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Amortization of: | |||||||||||||||||||||||
| Prior service cost |
|
|
|
|
|||||||||||||||||||
| Actuarial loss (gain) |
|
|
(
|
(
|
|||||||||||||||||||
| Net periodic benefit cost (credit) |
|
|
(
|
(
|
|||||||||||||||||||
| Regulatory adjustments |
|
|
|
|
|||||||||||||||||||
| Total expense recognized | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Six months ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Service cost | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Interest cost |
|
|
|
|
|||||||||||||||||||
| Expected return on assets |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Amortization of: | |||||||||||||||||||||||
| Prior service cost (credit) |
|
|
(
|
(
|
|||||||||||||||||||
| Actuarial loss (gain) |
|
|
(
|
(
|
|||||||||||||||||||
| Settlement charges |
|
|
|
|
|||||||||||||||||||
| Net periodic benefit cost (credit) |
|
|
(
|
(
|
|||||||||||||||||||
| Regulatory adjustments |
(
|
(
|
|
|
|||||||||||||||||||
| Total expense recognized | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| NET PERIODIC BENEFIT COST – SDG&E | |||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Pension benefits | Other postretirement benefits | ||||||||||||||||||||||
| Three months ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Service cost | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Interest cost |
|
|
|
|
|||||||||||||||||||
| Expected return on assets |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Amortization of: | |||||||||||||||||||||||
| Actuarial loss (gain) |
|
|
|
(
|
|||||||||||||||||||
| Net periodic benefit cost (credit) |
|
|
|
(
|
|||||||||||||||||||
| Regulatory adjustments |
|
|
|
|
|||||||||||||||||||
| Total expense recognized | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Six months ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Service cost | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Interest cost |
|
|
|
|
|||||||||||||||||||
| Expected return on assets |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Amortization of: | |||||||||||||||||||||||
| Actuarial loss (gain) |
|
|
(
|
(
|
|||||||||||||||||||
| Net periodic benefit cost (credit) |
|
|
|
(
|
|||||||||||||||||||
| Regulatory adjustments |
|
|
|
|
|||||||||||||||||||
| Total expense recognized | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
35
| NET PERIODIC BENEFIT COST – SOCALGAS | |||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Pension benefits | Other postretirement benefits | ||||||||||||||||||||||
| Three months ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Service cost | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Interest cost |
|
|
|
|
|||||||||||||||||||
| Expected return on assets |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Amortization of: | |||||||||||||||||||||||
| Prior service cost |
|
|
|
|
|||||||||||||||||||
| Actuarial loss (gain) |
|
|
(
|
(
|
|||||||||||||||||||
| Net periodic benefit cost (credit) |
|
|
(
|
(
|
|||||||||||||||||||
| Regulatory adjustments |
|
|
|
|
|||||||||||||||||||
| Total expense recognized | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Six months ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Service cost | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Interest cost |
|
|
|
|
|||||||||||||||||||
| Expected return on assets |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Amortization of: | |||||||||||||||||||||||
| Prior service cost (credit) |
|
|
(
|
(
|
|||||||||||||||||||
| Actuarial loss (gain) |
|
|
(
|
(
|
|||||||||||||||||||
| Net periodic benefit cost (credit) |
|
|
(
|
(
|
|||||||||||||||||||
| Regulatory adjustments |
(
|
(
|
|
|
|||||||||||||||||||
| Total expense recognized | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
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 $
498
million and $
567
million at June 30, 2022 and December 31, 2021, respectively.
SEMPRA EARNINGS PER COMMON SHARE
36
| 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, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Earnings attributable to common shares | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Denominator: | |||||||||||||||||||||||
|
Weighted-average common shares outstanding for basic EPS
(1)
|
|
|
|
|
|||||||||||||||||||
|
Dilutive effect of stock options and RSUs
(2)
|
|
|
|
|
|||||||||||||||||||
| Dilutive effect of mandatory convertible preferred stock |
|
|
|
|
|||||||||||||||||||
| Weighted-average common shares outstanding for diluted EPS |
|
|
|
|
|||||||||||||||||||
| EPS: | |||||||||||||||||||||||
| Basic | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Diluted | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(1)
Includes
399
and
447
fully vested RSUs held in our Deferred Compensation Plan for the three months ended June 30, 2022 and 2021, respectively, and
403
and
454
of such RSUs for the six months ended June 30, 2022 and 2021, 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.
In January 2022, pursuant to Sempra’s share-based compensation plans, the Compensation and Talent Committee of Sempra’s board of directors granted
219,898
nonqualified stock options,
338,080
performance-based RSUs and
150,286
service-based RSUs.
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.
37
COMPREHENSIVE INCOME
The following tables present the changes in AOCI by component and amounts reclassified out of AOCI to net income, after 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 June 30, 2022 and 2021 | |||||||||||||||||||||||
| Sempra: | |||||||||||||||||||||||
| Balance at March 31, 2022 | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
| OCI before reclassifications |
|
|
|
|
|||||||||||||||||||
|
Amounts reclassified from AOCI
(2)
|
|
|
|
|
|||||||||||||||||||
|
Net OCI
(2)
|
|
|
|
|
|||||||||||||||||||
| Balance at June 30, 2022 | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
| Balance at March 31, 2021 | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
|
OCI before reclassifications
(3)
|
(
|
(
|
(
|
(
|
|||||||||||||||||||
|
Amounts reclassified from AOCI
|
|
|
|
|
|||||||||||||||||||
|
Net OCI
(3)
|
(
|
(
|
|
(
|
|||||||||||||||||||
| Balance at June 30, 2021 | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
| SDG&E: | |||||||||||||||||||||||
| Balance at March 31, 2022 and June 30, 2022 | $ |
(
|
$ |
(
|
|||||||||||||||||||
| Balance at March 31, 2021 and June 30, 2021 | $ |
(
|
$ |
(
|
|||||||||||||||||||
| SoCalGas: | |||||||||||||||||||||||
| Balance at March 31, 2022 | $ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||
| Amounts reclassified from AOCI |
|
|
|
||||||||||||||||||||
| Net OCI |
|
|
|
||||||||||||||||||||
| Balance at June 30, 2022 | $ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||
| Balance at March 31, 2021 | $ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||
|
Amounts reclassified from AOCI
|
|
|
|
||||||||||||||||||||
| Net OCI |
|
|
|
||||||||||||||||||||
| Balance at June 30, 2021 | $ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||
(1)
All amounts are net of income tax, if subject to tax, and after NCI.
(2)
Total AOCI includes $
9
of foreign currency translation adjustments associated with sale of NCI to ADIA, which we discuss below in “Other Noncontrolling Interests – Sempra Infrastructure.” This transaction did not impact the Condensed Consolidated Statement of Comprehensive Income (Loss).
(3)
Total AOCI includes $
24
of foreign currency translation adjustments and $
14
of financial instruments associated with the IEnova exchange offer, which we discuss below in “Other Noncontrolling Interests – Sempra Infrastructure.” This transaction did not impact the Condensed Consolidated Statement of Comprehensive Income (Loss).
38
|
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, 2022 and 2021 | |||||||||||||||||||||||
|
Sempra:
|
|||||||||||||||||||||||
| Balance as of December 31, 2021 | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
| OCI before reclassifications |
|
|
|
|
|||||||||||||||||||
|
Amounts reclassified from AOCI
(2)
|
|
|
|
|
|||||||||||||||||||
|
Net OCI
(2)
|
|
|
|
|
|||||||||||||||||||
| Balance as of June 30, 2022 | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
| Balance as of December 31, 2020 | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
|
OCI before reclassifications
(3)
|
(
|
|
|
|
|||||||||||||||||||
|
Amounts reclassified from AOCI
|
|
|
|
|
|||||||||||||||||||
|
Net OCI
(3)
|
(
|
|
|
|
|||||||||||||||||||
| Balance as of June 30, 2021 | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
| SDG&E: | |||||||||||||||||||||||
| Balance at December 31, 2021 and June 30, 2022 | $ |
(
|
$ |
(
|
|||||||||||||||||||
| Balance at December 31, 2020 and June 30, 2021 | $ |
(
|
$ |
(
|
|||||||||||||||||||
| SoCalGas: | |||||||||||||||||||||||
| Balance as of December 31, 2021 | $ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||
| Amounts reclassified from AOCI |
|
|
|
||||||||||||||||||||
| Net OCI |
|
|
|
||||||||||||||||||||
| Balance as of June 30, 2022 | $ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||
| Balance as of December 31, 2020 | $ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||
|
Amounts reclassified from AOCI
|
|
|
|
||||||||||||||||||||
| Net OCI |
|
|
|
||||||||||||||||||||
| Balance as of June 30, 2021 | $ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||
(1)
All amounts are net of income tax, if subject to tax, and after NCI.
(2)
Total AOCI includes $
9
of foreign currency translation adjustments associated with sale of NCI to ADIA, which we discuss below in “Other Noncontrolling Interests – Sempra Infrastructure.” This transaction did not impact the Condensed Consolidated Statement of Comprehensive Income (Loss).
(3)
Total AOCI includes $
24
of foreign currency translation adjustments and $
14
of financial instruments associated with the IEnova exchange offer, which we discuss below in “Other Noncontrolling Interests – Sempra Infrastructure.” This transaction did not impact the Condensed Consolidated Statement of Comprehensive Income (Loss).
39
| RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | |||||||||||||||||
| (Dollars in millions) | |||||||||||||||||
|
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, | |||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Sempra: | |||||||||||||||||
| Foreign currency translation adjustments | $ |
|
$ |
|
Operation and Maintenance | ||||||||||||
| Financial instruments: | |||||||||||||||||
|
Interest rate instruments
|
$ |
|
$ |
(
|
Interest Expense | ||||||||||||
|
Interest rate instruments
|
|
|
Equity Earnings
(1)
|
||||||||||||||
| Foreign exchange instruments |
(
|
|
Revenues: Energy-Related Businesses | ||||||||||||||
|
|
|
Other (Expense) Income, Net | |||||||||||||||
| Interest rate and foreign exchange instruments |
(
|
|
Interest Expense | ||||||||||||||
|
|
(
|
Other (Expense) Income, Net | |||||||||||||||
|
Total, before income tax
|
|
|
|||||||||||||||
|
(
|
(
|
Income Tax Expense | |||||||||||||||
|
Total, net of income tax
|
|
|
|||||||||||||||
|
|
|
Earnings Attributable to Noncontrolling Interests | |||||||||||||||
| Total, net of income tax and after NCI | $ |
|
$ |
|
|||||||||||||
|
Pension and other postretirement benefits
(2)
:
|
|||||||||||||||||
| Amortization of actuarial loss | $ |
|
$ |
|
Other (Expense) Income, Net | ||||||||||||
| Amortization of prior service cost |
|
|
Other (Expense) Income, Net | ||||||||||||||
|
Total, before income tax
|
|
|
|||||||||||||||
|
(
|
|
Income Tax Expense | |||||||||||||||
|
Total, net of income tax
|
$ |
|
$ |
|
|||||||||||||
|
Total reclassifications for the period, net of income
tax and NCI
|
$ |
|
$ |
|
|||||||||||||
| SoCalGas: | |||||||||||||||||
| Financial instruments: | |||||||||||||||||
| Interest rate instruments | $ |
|
$ |
|
Interest Expense | ||||||||||||
|
Pension and other postretirement benefits
(2)
:
|
|||||||||||||||||
| Amortization of prior service cost | $ |
|
$ |
|
Other Income (Expense), Net | ||||||||||||
|
Total reclassifications for the period, net of income
tax
|
$ |
|
$ |
|
|||||||||||||
(1)
Equity earnings at our foreign equity method investees are recognized after tax.
(2)
Amounts are included in the computation of net periodic benefit cost (see “Pension and Other Postretirement Benefits” above).
40
| RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (CONTINUED) | |||||||||||||||||
| (Dollars in millions) | |||||||||||||||||
|
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, | |||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Sempra: | |||||||||||||||||
| Foreign currency translation adjustments | $ |
|
$ |
|
Operation and Maintenance | ||||||||||||
| Financial instruments: | |||||||||||||||||
| Interest rate instruments | $ |
(
|
$ |
|
Interest Expense | ||||||||||||
| Interest rate instruments |
|
|
Equity Earnings
(1)
|
||||||||||||||
| Foreign exchange instruments |
(
|
|
Revenues: Energy-Related Businesses | ||||||||||||||
|
|
|
Other (Expense) Income, Net | |||||||||||||||
| Foreign exchange instruments |
(
|
|
Equity Earnings
(1)
|
||||||||||||||
| Interest rate and foreign exchange instruments |
(
|
|
Interest Expense | ||||||||||||||
|
(
|
(
|
Other (Expense) Income, Net | |||||||||||||||
|
Total, before income tax
|
|
|
|||||||||||||||
|
(
|
(
|
Income Tax Expense | |||||||||||||||
|
Total, net of income tax
|
|
|
|||||||||||||||
|
|
(
|
Earnings Attributable to Noncontrolling Interests | |||||||||||||||
| Total, net of income tax and after NCI | $ |
|
$ |
|
|||||||||||||
|
Pension and other postretirement benefits
(2)
:
|
|||||||||||||||||
| Amortization of actuarial loss | $ |
|
$ |
|
Other (Expense) Income, Net | ||||||||||||
| Amortization of prior service cost |
|
|
Other (Expense) Income, Net | ||||||||||||||
| Settlement charges |
|
|
Other (Expense) Income, Net | ||||||||||||||
|
Total, before income tax
|
|
|
|||||||||||||||
|
(
|
(
|
Income Tax Expense | |||||||||||||||
|
Total, net of income tax
|
$ |
|
$ |
|
|||||||||||||
|
Total reclassifications for the period, net of income
tax and NCI
|
$ |
|
$ |
|
|||||||||||||
| SoCalGas: | |||||||||||||||||
| Financial instruments: | |||||||||||||||||
| Interest rate instruments | $ |
|
$ |
|
Interest Expense | ||||||||||||
|
Pension and other postretirement benefits
(2)
:
|
|||||||||||||||||
| Amortization of actuarial loss | $ |
|
$ |
|
Other Income (Expense), Net | ||||||||||||
| Amortization of prior service cost |
|
|
Other Income (Expense), Net | ||||||||||||||
|
Total, before income tax
|
|
|
|||||||||||||||
|
|
|
Income Tax Expense | |||||||||||||||
| Total, net of income tax | $ |
|
$ |
|
|||||||||||||
|
Total reclassifications for the period, net of income
tax
|
$ |
|
$ |
|
|||||||||||||
(1)
Equity earnings at our foreign equity method investees are recognized after tax.
(2)
Amounts are included in the computation of net periodic benefit cost (see “Pension and Other Postretirement Benefits” above).
For the three months and six months ended June 30, 2022 and 2021, reclassifications out of AOCI to net income were negligible for SDG&E.
41
SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS
Sempra Series A Preferred Stock
On January 15, 2021, we converted all
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 returned to the status of authorized and unissued shares of preferred stock.
Sempra Common Stock Repurchases
On January 11, 2022, we entered into an ASR program under which we prepaid $
200
million to repurchase shares of our common stock in a share forward transaction. A total of
1,472,756
shares were purchased under this program at an average price of $
135.80
per share. The total number of shares purchased was determined by dividing the $
200
million purchase price by the arithmetic average of the volume-weighted average trading prices of shares of our common stock during the valuation period of January 12, 2022 through February 11, 2022, minus a fixed discount. The ASR program was completed on February 11, 2022.
On April 6, 2022, we entered into an ASR program under which we prepaid $
250
million to repurchase shares of our common stock in a share forward transaction. A total of
1,471,957
shares were purchased under this program at an average price of $
169.84
per share. The total number of shares purchased was determined by dividing the $
250
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 April 7, 2022 through April 25, 2022, minus a fixed discount. The ASR program was completed on April 25, 2022.
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 | |||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||
| Percent ownership held by noncontrolling interests |
Equity held by
noncontrolling interests |
||||||||||||||||||||||||||||
|
June 30,
2022 |
December 31,
2021 |
June 30,
2022 |
December 31,
2021 |
||||||||||||||||||||||||||
| Sempra Infrastructure: | |||||||||||||||||||||||||||||
| SI Partners |
|
% |
|
% | $ |
|
$ |
|
|||||||||||||||||||||
|
SI Partners subsidiaries
(1)
|
|
|
|
|
|||||||||||||||||||||||||
| Total Sempra | $ |
|
$ |
|
|||||||||||||||||||||||||
(1)
SI Partners has subsidiaries with NCI held by others. Percentage range reflects the highest and lowest ownership percentages among these subsidiaries.
Sempra Infrastructure
Sale of NCI in SI Partners to ADIA.
On June 1, 2022, Sempra and ADIA consummated the transaction contemplated under a purchase and sale agreement dated December 21, 2021 (the ADIA Purchase Agreement). Pursuant to the ADIA Purchase Agreement, ADIA acquired Class A Units representing a
10
% NCI in SI Partners for a purchase price of $
1.7
billion. Following the closing of the transaction, Sempra, KKR and ADIA directly or indirectly own
70
%,
20
%, and
10
%, respectively, of the outstanding Class A Units of SI Partners, which excludes the non-voting Sole Risk Interests held only by Sempra. As a result of this sale to ADIA, we recorded a $
709
million increase in equity held by NCI and an increase in Sempra’s shareholders’ equity of $
709
million, net of $
12
million in transaction costs and $
301
million in tax impacts. Transaction costs include $
10
million paid to ADIA for reimbursement of certain expenses that ADIA incurred in connection with closing the transaction.
At the closing of the sale of NCI in SI Partners to ADIA, SI Partners indirectly owned
99.9
% of the outstanding shares of IEnova. To the extent we acquire additional shares of IEnova after the closing, such additional shares will be acquired by SI Partners, and KKR and ADIA will provide
20
% and
10
%, respectively, of the funding.
At the closing, KKR and ADIA (the Minority Partners) and Sempra entered into a second amended and restated agreement of limited partnership of SI Partners (the Amended LP Agreement), which governs their respective rights and obligations in respect of their ownership of SI Partners. Under the Amended LP Agreement, matters are decided generally by majority vote and the managers designated by Sempra, KKR and ADIA each, as a group, have voting power equivalent to the ownership percentage of their respective designating limited partner. Sempra maintains control of SI Partners. However, SI Partners and its controlled subsidiaries are prohibited from taking certain limited actions without the prior written approval of the Minority Partners (subject
42
to each Minority Partner maintaining certain ownership thresholds in SI Partners). The minority protections held by ADIA constitute a subset of the minority protections granted to KKR.
The terms of the Amended LP Agreement applicable to ADIA in relation to capital contributions and distributions are generally consistent with those granted to KKR, with adjustments and limitations to take into account ADIA’s relative ownership percentage, including limiting ADIA’s priority distribution rights to the failure of certain proposed projects to receive a positive final investment decision by a certain date or to achieve specified thresholds of projected internal rates of return or leverage. The transfer rights and restrictions and registration rights in the Amended LP Agreement applicable to ADIA are also generally consistent with those granted to KKR, with adjustments and limitations to take into account ADIA’s relative ownership percentage, including a general restriction on ADIA transferring its interests in SI Partners to third parties (other than pursuant to certain specified permitted transfers) for a specified period following its entry into the Amended LP Agreement.
SI Partners Subsidiaries.
In May 2021, we acquired
381,015,194
publicly owned shares of IEnova in exchange for
12,306,777
newly issued shares of our common stock upon completion of our exchange offer launched in the U.S. and Mexico, which increased our ownership interest in IEnova from
70.2
% to
96.4
%. We acquired the IEnova shares at an exchange ratio of
0.0323
shares of our common stock for each one IEnova share. In connection with the exchange offer, we recorded a $
1.4
billion decrease in equity held by NCI and an increase in Sempra’s shareholders’ equity of $
1.4
billion, net of $
12
million in transactions costs.
Following the exchange offer we completed in May 2021 and a subsequent cash tender offer we completed in September 2021, IEnova’s shares were delisted from the Mexican Stock Exchange effective October 15, 2021. In connection with the delisting, we are maintaining a trust for the purpose of purchasing the
1,212,981
IEnova shares that remained publicly owned as of the completion of the cash tender offer for
78.97
Mexican pesos per share, the same price per share that was offered in our cash tender offer. The trust was to be in place through the earlier of April 14, 2022 or the date on which we acquired all the remaining publicly owned IEnova shares. On April 13, 2022, the term of the trust was amended so that it will remain in place until we terminate it, subject to any maximum term under applicable Mexican law. As of August 1, 2022, an aggregate of
851,211
of the remaining publicly owned IEnova shares had been acquired by such trust.
43
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,
2022 |
December 31,
2021 |
||||||||||
| Sempra: | |||||||||||
|
Sempra Infrastructure – IMG – Note due March 15, 2023
(1)
|
$ |
|
$ |
|
|||||||
| Various affiliates |
|
|
|||||||||
| Total due from unconsolidated affiliates – current | $ |
|
$ |
|
|||||||
|
Sempra Infrastructure – IMG – Note due March 15, 2022, net of allowance for credit losses
of $
|
$ |
|
$ |
|
|||||||
| Total due from unconsolidated affiliates – noncurrent | $ |
|
$ |
|
|||||||
|
Sempra Infrastructure
(2)
:
|
|||||||||||
| TAG Pipelines Norte, S. de R.L. de C.V.: | |||||||||||
|
|
$ |
(
|
$ |
(
|
|||||||
|
|
(
|
(
|
|||||||||
|
|
(
|
(
|
|||||||||
|
|
(
|
|
|||||||||
|
TAG –
|
(
|
(
|
|||||||||
| Total due to unconsolidated affiliates – noncurrent | $ |
(
|
$ |
(
|
|||||||
| SDG&E: | |||||||||||
| Sempra | $ |
(
|
$ |
(
|
|||||||
| SoCalGas |
(
|
(
|
|||||||||
| Various affiliates |
(
|
(
|
|||||||||
| Total due to unconsolidated affiliates – current | $ |
(
|
$ |
(
|
|||||||
|
Income taxes due from Sempra
(3)
|
$ |
|
$ |
|
|||||||
| SoCalGas: | |||||||||||
| SDG&E | $ |
|
$ |
|
|||||||
| Various affiliates |
|
|
|||||||||
| Total due from unconsolidated affiliates – current | $ |
|
$ |
|
|||||||
| Sempra | $ |
(
|
$ |
(
|
|||||||
| Total due to unconsolidated affiliates – current | $ |
(
|
$ |
(
|
|||||||
|
Income taxes due from Sempra
(3)
|
$ |
|
$ |
|
|||||||
(1)
At December 31, 2021, represents a Mexican peso-denominated revolving line of credit for up to
14.2
billion Mexican pesos or approximately $
691
U.S. dollar-equivalent at a variable interest rate based on the 91-day Interbank Equilibrium Interest Rate plus
220
bps. In March 2022, Sempra Infrastructure amended and restated the revolving line of credit to a U.S. dollar-denominated note in the amount of $
625
at a variable interest rate based on the adjusted 1-month Secured Overnight Financing Rate plus
180
bps (
3.41
% at June 30, 2022) and extended the maturity date to March 15, 2023. At June 30, 2022 and December 31, 2021, $
1
and $
2
of accrued interest receivable, respectively, is included in Due from Unconsolidated Affiliates – Current. In July 2022, this note receivable was paid in full.
(2)
U.S. dollar-denominated loans at fixed interest rates. Amounts include principal balances plus accumulated interest outstanding.
(3)
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. Amounts include current and noncurrent income taxes due to/from Sempra.
44
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, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Sempra: | |||||||||||||||||||||||
| Revenues | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Cost of sales |
|
|
|
|
|||||||||||||||||||
| Interest income |
|
|
|
|
|||||||||||||||||||
| Interest expense |
|
|
|
|
|||||||||||||||||||
| SDG&E: | |||||||||||||||||||||||
| Revenues | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Cost of sales |
|
|
|
|
|||||||||||||||||||
| SoCalGas: | |||||||||||||||||||||||
| Revenues | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Cost of sales
(1)
|
(
|
|
(
|
|
|||||||||||||||||||
(1)
Includes net commodity costs from natural gas transactions with unconsolidated affiliates.
Guarantees
Sempra provided 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.
45
OTHER (EXPENSE) INCOME, NET
Other (expense) income, net, consists of the following:
| OTHER (EXPENSE) INCOME, NET | |||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Sempra: | |||||||||||||||||||||||
| Allowance for equity funds used during construction | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Investment (losses) gains, net
(1)
|
(
|
|
(
|
|
|||||||||||||||||||
|
(Losses) gains on interest rate and foreign exchange instruments, net
|
(
|
|
|
(
|
|||||||||||||||||||
|
Foreign currency transaction (losses) gains, net
(2)
|
(
|
|
(
|
|
|||||||||||||||||||
|
Non-service components of net periodic benefit (cost) credit
|
(
|
(
|
|
|
|||||||||||||||||||
| Interest on regulatory balancing accounts, net |
|
|
|
|
|||||||||||||||||||
| Sundry, net |
|
(
|
(
|
|
|||||||||||||||||||
| Total | $ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| SDG&E: | |||||||||||||||||||||||
| Allowance for equity funds used during construction | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Non-service components of net periodic benefit (cost) credit
|
(
|
(
|
|
|
|||||||||||||||||||
| Interest on regulatory balancing accounts, net |
|
|
|
|
|||||||||||||||||||
| Sundry, net |
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| SoCalGas: | |||||||||||||||||||||||
| Allowance for equity funds used during construction | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Non-service components of net periodic benefit (cost) credit
|
(
|
(
|
|
|
|||||||||||||||||||
| Interest on regulatory balancing accounts, net |
|
|
|
|
|||||||||||||||||||
| Sundry, net |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Total | $ |
|
$ |
(
|
$ |
|
$ |
|
|||||||||||||||
(1)
Represents net investment (losses) gains 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 losses of $
11
in the six months ended June 30, 2022 and gains of $
28
and $
5
in the three months and six months ended June 30, 2021, respectively, from translation to U.S. dollars of a Mexican peso-denominated loan to IMG, which are offset by corresponding amounts included in Equity Earnings on the Condensed Consolidated Statements of Operations.
46
INCOME TAXES
We provide our calculations of ETRs in the following table.
| INCOME TAX EXPENSE AND EFFECTIVE INCOME TAX RATES | |||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
|
Sempra:
|
|||||||||||||||||||||||
|
Income tax expense
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Income before income taxes and equity earnings
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Equity earnings, before income tax
(1)
|
|
|
|
|
|||||||||||||||||||
|
Pretax income
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Effective income tax rate |
|
% |
|
% |
|
% |
|
% | |||||||||||||||
| SDG&E: | |||||||||||||||||||||||
| Income tax expense | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Income before income taxes | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Effective income tax rate |
|
% |
|
% |
|
% |
|
% | |||||||||||||||
| SoCalGas: | |||||||||||||||||||||||
|
Income tax expense
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Income before income taxes
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Effective income tax rate |
|
% |
|
% |
|
% |
|
% | |||||||||||||||
(1)
We discuss how we recognize equity earnings in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report.
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 or benefit, 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 Infrastructure has similar flow-through treatment.
NOTE 2.
NEW ACCOUNTING STANDARDS
We describe below recent accounting pronouncements that have had or may have a significant effect on our results of operations, financial condition, cash flows or disclosures.
47
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 Infrastructure |
Consolidating adjustments and Parent
and other |
Sempra | |||||||||||||||||||||||||
| Three months ended June 30, 2022 | |||||||||||||||||||||||||||||
| By major service line: | |||||||||||||||||||||||||||||
| Utilities | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Energy-related businesses |
|
|
|
(
|
|
||||||||||||||||||||||||
| Revenues from contracts with customers | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| By market: | |||||||||||||||||||||||||||||
| Gas | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Electric |
|
|
|
(
|
|
||||||||||||||||||||||||
| Revenues from contracts with customers | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Revenues from contracts with customers | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Utilities regulatory revenues |
|
|
|
|
|
||||||||||||||||||||||||
| Other revenues |
|
|
|
(
|
|
||||||||||||||||||||||||
| Total revenues | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Six months ended June 30, 2022 | |||||||||||||||||||||||||||||
| By major service line: | |||||||||||||||||||||||||||||
| Utilities | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Energy-related businesses |
|
|
|
(
|
|
||||||||||||||||||||||||
| Revenues from contracts with customers | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| By market: | |||||||||||||||||||||||||||||
| Gas | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Electric |
|
|
|
(
|
|
||||||||||||||||||||||||
| Revenues from contracts with customers | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Revenues from contracts with customers | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Utilities regulatory revenues |
|
|
|
|
|
||||||||||||||||||||||||
| Other revenues |
|
|
|
|
|
||||||||||||||||||||||||
| Total revenues | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
48
| DISAGGREGATED REVENUES (CONTINUED) | |||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||
| SDG&E | SoCalGas | Sempra Infrastructure |
Consolidating adjustments and Parent
and other |
Sempra | |||||||||||||||||||||||||
| Three months ended June 30, 2021 | |||||||||||||||||||||||||||||
| By major service line: | |||||||||||||||||||||||||||||
| Utilities | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Energy-related businesses |
|
|
|
(
|
|
||||||||||||||||||||||||
| Revenues from contracts with customers | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| By market: | |||||||||||||||||||||||||||||
| Gas | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Electric |
|
|
|
(
|
|
||||||||||||||||||||||||
| Revenues from contracts with customers | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Revenues from contracts with customers | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Utilities regulatory revenues |
|
|
|
|
|
||||||||||||||||||||||||
| Other revenues |
|
|
|
(
|
|
||||||||||||||||||||||||
| Total revenues | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Six months ended June 30, 2021 | |||||||||||||||||||||||||||||
| By major service line: | |||||||||||||||||||||||||||||
| Utilities | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Energy-related businesses |
|
|
|
(
|
|
||||||||||||||||||||||||
| Revenues from contracts with customers | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| By market: | |||||||||||||||||||||||||||||
| Gas | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Electric |
|
|
|
(
|
|
||||||||||||||||||||||||
| Revenues from contracts with customers | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Revenues from contracts with customers | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Utilities regulatory revenues |
|
(
|
|
|
|
||||||||||||||||||||||||
| Other revenues |
|
|
|
(
|
|
||||||||||||||||||||||||
| Total revenues | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
REVENUES FROM CONTRACTS WITH CUSTOMERS
Remaining Performance Obligations
For contracts greater than one year, at June 30, 2022, we expect to recognize revenue related to the fixed fee component of the consideration as shown below. Sempra’s remaining performance obligations primarily relate to capacity agreements for natural gas storage and transportation at Sempra Infrastructure and transmission line projects at SDG&E. SoCalGas did not have any remaining performance obligations at June 30, 2022.
|
REMAINING PERFORMANCE OBLIGATIONS
(1)
|
|||||||||||
| (Dollars in millions) | |||||||||||
| Sempra | SDG&E | ||||||||||
|
2022 (excluding first six months of 2022)
|
$ |
|
$ |
|
|||||||
| 2023 |
|
|
|||||||||
| 2024 |
|
|
|||||||||
| 2025 |
|
|
|||||||||
| 2026 |
|
|
|||||||||
| Thereafter |
|
|
|||||||||
|
Total revenues to be recognized
|
$ |
|
$ |
|
|||||||
49
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 six months ended June 30, 2022 or 2021. As we discuss in Note 11, Sempra Infrastructure drew against and fully exhausted Gazprom’s letters of credit in April 2022 due to Gazprom’s non-renewal of such letters of credit as required under its LNG storage and regasification agreement. Sempra Infrastructure recorded a contract liability for the funds drawn from the letters of credit as payments received in advance. Gazprom has not paid its invoices since March 2022, so funds drawn from the letters of credit have been used to fully offset such nonpayment, which have been reflected as revenue from performance obligations satisfied during the reporting period. We expect that these funds will provide payment security from Gazprom through the end of 2024.
| CONTRACT LIABILITIES | |||||||||||
| (Dollars in millions) | |||||||||||
| 2022 | 2021 | ||||||||||
| Sempra: | |||||||||||
| Contract liabilities at January 1 | $ |
(
|
$ |
(
|
|||||||
| Revenue from performance obligations satisfied during reporting period |
|
|
|||||||||
| Payments received in advance |
(
|
(
|
|||||||||
|
Contract liabilities at June 30
(1)
|
$ |
(
|
$ |
(
|
|||||||
| SDG&E: | |||||||||||
| Contract liabilities at January 1 | $ |
(
|
$ |
(
|
|||||||
| Revenue from performance obligations satisfied during reporting period |
|
|
|||||||||
|
Contract liabilities at June 30
(1)
|
$ |
(
|
$ |
(
|
|||||||
(1)
Balances at June 30, 2022 include $
81
and $
4
in Other Current Liabilities and $
216
and $
77
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 | |||||||||||
| (Dollars in millions) | |||||||||||
| June 30, 2022 | December 31, 2021 | ||||||||||
| Sempra: | |||||||||||
| Accounts receivable – trade, net | $ |
|
$ |
|
|||||||
| Accounts receivable – other, net |
|
|
|||||||||
|
Due from unconsolidated affiliates – current
(1)
|
|
|
|||||||||
|
Other long-term assets
(2)
|
|
|
|||||||||
| Total | $ |
|
$ |
|
|||||||
| SDG&E: | |||||||||||
| Accounts receivable – trade, net | $ |
|
$ |
|
|||||||
| Accounts receivable – other, net |
|
|
|||||||||
|
Due from unconsolidated affiliates – current
(1)
|
|
|
|||||||||
|
Other long-term assets
(2)
|
|
|
|||||||||
| Total | $ |
|
$ |
|
|||||||
| SoCalGas: | |||||||||||
| Accounts receivable – trade, net | $ |
|
$ |
|
|||||||
| Accounts receivable – other, net |
|
|
|||||||||
|
Other long-term assets
(2)
|
|
|
|||||||||
| Total | $ |
|
$ |
|
|||||||
(1)
Amount is presented net of amounts due to unconsolidated affiliates on the Condensed Consolidated Balance Sheets, when right of offset exists.
(2)
In connection with the COVID-19 pandemic and at the direction of the CPUC, SDG&E and SoCalGas enrolled residential and small business customers with past-due balances in long-term repayment plans.
50
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 generally approximates the three-month commercial paper rate. The periods during which we recognize a regulatory asset while we do not earn a return vary by regulatory asset.
| REGULATORY ASSETS (LIABILITIES) | |||||||||||
| (Dollars in millions) | |||||||||||
|
June 30,
2022 |
December 31,
2021 |
||||||||||
| SDG&E: | |||||||||||
| Fixed-price contracts and other derivatives | $ |
(
|
$ |
(
|
|||||||
| Deferred income taxes recoverable in rates |
|
|
|||||||||
| Pension and other postretirement benefit plan obligations |
(
|
(
|
|||||||||
| Removal obligations |
(
|
(
|
|||||||||
| Environmental costs |
|
|
|||||||||
| Sunrise Powerlink fire mitigation |
|
|
|||||||||
|
Regulatory balancing accounts
(1)(2)
|
|||||||||||
| Commodity – electric |
|
|
|||||||||
| Gas transportation |
|
|
|||||||||
| Safety and reliability |
|
|
|||||||||
| Public purpose programs |
(
|
(
|
|||||||||
|
Wildfire mitigation plan
|
|
|
|||||||||
|
Liability insurance premium
|
|
|
|||||||||
| Other balancing accounts |
(
|
|
|||||||||
|
Other regulatory assets, net
(2)
|
|
|
|||||||||
| Total SDG&E |
(
|
(
|
|||||||||
| SoCalGas: | |||||||||||
|
Deferred income taxes recoverable in rates
|
|
|
|||||||||
| Pension and other postretirement benefit plan obligations |
|
|
|||||||||
| Employee benefit costs |
|
|
|||||||||
| Removal obligations |
(
|
(
|
|||||||||
| Environmental costs |
|
|
|||||||||
|
Regulatory balancing accounts
(1)(2)
|
|||||||||||
| Commodity – gas, including transportation |
(
|
(
|
|||||||||
| Safety and reliability |
|
|
|||||||||
| Public purpose programs |
(
|
(
|
|||||||||
| Liability insurance premium |
|
|
|||||||||
| Other balancing accounts |
|
|
|||||||||
|
Other regulatory assets, net
(2)
|
|
|
|||||||||
| Total SoCalGas |
|
(
|
|||||||||
|
Sempra Infrastructure:
|
|||||||||||
| Deferred income taxes recoverable in rates |
|
|
|||||||||
|
Total Sempra
|
$ |
(
|
$ |
(
|
|||||||
(1)
At June 30, 2022 and December 31, 2021, the noncurrent portion of regulatory balancing accounts – net undercollected for SDG&E was $
453
and $
358
, respectively, and for SoCalGas was $
601
and $
410
, respectively.
(2)
Includes regulatory assets earning a return authorized by applicable regulators, which generally approximates the three-month commercial paper rate.
51
SEMPRA CALIFORNIA
CPUC GRC
The CPUC uses GRCs to set rates designed to allow SDG&E and SoCalGas to recover their reasonable operating costs and to provide the opportunity to realize their authorized rates of return on their investments.
In May 2022, SDG&E and SoCalGas filed their 2024 GRC applications requesting CPUC approval of test year revenue requirements for 2024 and attrition year adjustments for 2025 through 2027. SDG&E and SoCalGas requested revenue requirements for 2024 of $
3.0
billion and $
4.4
billion, respectively. SDG&E and SoCalGas are proposing post-test year revenue requirement changes using various mechanisms that are estimated to result in annual increases of approximately
8
% to
12
% at SDG&E and approximately
6
% to
8
% at SoCalGas. SDG&E and SoCalGas have requested that the CPUC issue a final decision by the end of 2023 with new rates to be implemented in January 2024. SDG&E proposes to submit separate requests in its GRC for review and recovery of its wildfire mitigation plan costs in mid-2023 for costs incurred from 2019 through 2022 and in mid-2024 for costs incurred in 2023.
CPUC Cost of Capital
A CPUC cost of capital proceeding determines a utility’s authorized capital structure and authorized return on rate base. The CCM applies in the interim years between required cost of capital applications and considers changes in the cost of capital based on changes in interest rates based on the applicable utility bond index published by Moody’s (the CCM benchmark rate) for each 12-month period ending September 30 (the measurement period). The CCM benchmark rate is the basis of comparison to determine if the CCM is triggered, which occurs if the change in the applicable Moody’s utility bond index relative to the CCM benchmark rate is larger than plus or minus
1.000
% at the end of the measurement period. The index applicable to SDG&E and SoCalGas is based on each utility’s credit rating. Alternatively, each of SDG&E and SoCalGas 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 and affects utilities differently than the market as a whole to have its cost of capital determined in lieu of the CCM.
Authorized Cost of Capital, Subject to the CCM
In December 2019, the CPUC approved the cost of capital (shown in the table below) for SDG&E and SoCalGas that became effective on January 1, 2020 and will remain in effect through December 31, 2022, subject to the CCM. 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.
| AUTHORIZED CPUC COST OF CAPITAL, SUBJECT TO THE CCM | ||||||||||||||||||||
| SDG&E | SoCalGas | |||||||||||||||||||
| Authorized weighting |
Return on
rate base |
Weighted
return on rate base |
Authorized weighting |
Return on
rate base |
Weighted
return on rate base |
|||||||||||||||
|
|
% |
|
% |
|
% | Long-Term Debt |
|
% |
|
% |
|
% | ||||||||
|
|
|
|
Preferred Equity |
|
|
|
||||||||||||||
|
|
|
|
Common Equity |
|
|
|
||||||||||||||
|
|
% |
|
% |
|
% |
|
% | |||||||||||||
For the measurement period that ended September 30, 2021, the CCM would trigger for SDG&E if the CPUC determines that the CCM should be implemented because the average Moody’s Baa- utility bond index between October 1, 2020 and September 30, 2021 was
1.17
% below SDG&E’s CCM benchmark rate of
4.498
%. In August 2021, SDG&E filed an application with the CPUC to update its cost of capital due to the ongoing effects of the COVID-19 pandemic rather than have the CCM apply. In December 2021, the CPUC established a proceeding to determine if SDG&E’s cost of capital was impacted by an extraordinary event such that the CCM should not apply. If the CPUC finds that there was not an extraordinary event, the CCM would be effective retroactive to 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. If the CPUC finds that there was an extraordinary event, it will then determine whether to suspend the CCM for 2022 and preserve SDG&E’s current authorized cost of capital or hold a second phase of the proceeding to set a new cost of capital for 2022. SDG&E expects to receive a final decision in the second half of 2022. In December 2021, the CPUC granted SDG&E the establishment of memorandum accounts effective January 1, 2022 to track any differences in revenue requirement resulting from the interim cost of capital decision expected in 2022.
52
Proposed Cost of Capital
In April 2022, SDG&E and SoCalGas each filed applications with the CPUC to update their cost of capital (shown in the table below), which would become effective on January 1, 2023 and would remain in effect through December 31, 2025, subject to the CCM if it remains in place as proposed. SDG&E and SoCalGas expect to receive a final decision by the end of 2022.
| PROPOSED CPUC COST OF CAPITAL | ||||||||||||||||||||
| SDG&E | SoCalGas | |||||||||||||||||||
| Authorized weighting |
Return on
rate base |
Weighted
return on rate base |
Authorized weighting |
Return on
rate base |
Weighted
return on rate base |
|||||||||||||||
|
|
% |
|
% |
|
% | Long-Term Debt |
|
% |
|
% |
|
% | ||||||||
|
|
|
|
Preferred Equity |
|
|
|
||||||||||||||
|
|
|
|
Common Equity |
|
|
|
||||||||||||||
|
|
% |
|
% |
|
% |
|
% | |||||||||||||
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 relating to energy efficiency (EE) codes and standards advocacy activities, undertaken by SoCalGas following a CPUC decision disallowing SoCalGas’ future engagement in advocacy around such EE codes and standards. In February 2022, the assigned Administrative Law Judge issued a Presiding Officer’s Decision (POD 1) that found that SoCalGas did undertake prohibited EE codes and standards advocacy activities using ratepayer funds. POD 1 imposes on SoCalGas a financial penalty of $
10
million; customer refunds for certain ratepayer expenditures and shareholder incentives that SoCalGas estimates will be negligible; and a prohibition from recovering from ratepayers costs of proposed codes and standards activities until SoCalGas demonstrates policies, practices and procedures that adhere to the CPUC’s intent for codes and standards advocacy. POD 1 became the final decision of the CPUC in March 2022.
NOTE 5.
ACQUISITIONS AND DIVESTITURES
ACQUISITION
Sempra Infrastructure
ESJ
In March 2021, Sempra Infrastructure completed the acquisition of Saavi Energía’s
50
% equity interest in ESJ for a purchase price of $
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 Sempra Infrastructure that eliminates upon consolidation). Sempra Infrastructure previously accounted for its
50
% interest in ESJ as an equity method investment. This acquisition increased Sempra Infrastructure’s ownership interest in ESJ from
50
% to
100
%. We accounted for this asset acquisition using a cost accumulation
53
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 six months ended June 30, 2022 and 2021, Sempra contributed $
171
million and $
100
million, respectively, to Oncor Holdings, and Oncor Holdings distributed $
170
million and $
162
million, respectively, 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, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Operating revenues | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Operating expenses |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Income from operations |
|
|
|
|
|||||||||||||||||||
| Interest expense |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Income tax expense |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Net income |
|
|
|
|
|||||||||||||||||||
| Noncontrolling interest held by Texas Transmission Investment LLC |
(
|
(
|
(
|
(
|
|||||||||||||||||||
|
Earnings attributable to Sempra
(1)
|
|
|
|
|
|||||||||||||||||||
SEMPRA INFRASTRUCTURE
Cameron LNG JV
In the six months ended June 30, 2022, Sempra Infrastructure contributed $
10
million to Cameron LNG JV. In the six months ended June 30, 2022 and 2021, Cameron LNG JV distributed to Sempra Infrastructure
$
233
million and $
378
million, respectively, of which $
165
million relates to the distribution from Cameron LNG JV’s SDSRA that we discuss below.
54
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 Infrastructure received a distribution of $
165
million based on its proportionate share of the SDSRA, for which Sempra provided a promissory note and letters of credit to secure a proportionate share of Cameron LNG JV’s obligation to fund the SDSRA. Sempra’s maximum exposure to loss is replenishment of the amount withdrawn by Sempra Infrastructure from the SDSRA, or $
165
million. We recorded a guarantee liability of $
22
million in June 2021, with an associated carrying value of
$
21
million
at June 30, 2022, for the fair value of the promissory note, which is being reduced over the duration of the guarantee through Sempra Infrastructure’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 Infrastructure 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 Infrastructure’s $
753
million proportionate share of the affiliate loans, based on its
50.2
% ownership interest in Cameron LNG JV, was funded by external lenders comprised of a syndicate of
eight
banks (the bank debt) to whom Sempra 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 Infrastructure 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 Infrastructure 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 Infrastructure 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 Infrastructure.
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 Infrastructure 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 June 30, 2022, the fair value of the Support Agreement was $
16
million, of which $
7
million is included in Other Current Assets and $
9
million is included in Other Long-Term Assets on Sempra’s Condensed Consolidated Balance Sheet.
ESJ
As we discuss in Note 5, in March 2021, Sempra Infrastructure completed the acquisition of the remaining
50
% equity interest in ESJ and ESJ became a wholly owned, consolidated subsidiary. Prior to the acquisition date, Sempra Infrastructure owned
50
% of ESJ and accounted for its interest as an equity method investment. In the six months ended June 30, 2021, ESJ distributed a $
4
million return of investment to IEnova.
TAG
55
NOTE 7.
DEBT AND CREDIT FACILITIES
The principal terms of our debt arrangements are described below and in Note 7 of the Notes to Consolidated Financial Statements in the Annual Report.
SHORT-TERM DEBT
Committed Lines of Credit
At June 30, 2022, Sempra had an aggregate capacity of $
9.5
billion under
seven
primary committed lines of credit, which provide liquidity and support commercial paper programs. Because our commercial paper programs are supported by some of these lines of credit, we reflect the amount of commercial paper outstanding, before reductions of any unamortized discounts, and any letters of credit outstanding as a reduction to the available unused credit capacity.
| COMMITTED LINES OF CREDIT | |||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||
| June 30, 2022 | |||||||||||||||||||||||||||||
| Borrower | Expiration date of facility | Total facility | Commercial paper outstanding | Amounts outstanding | Available unused credit | ||||||||||||||||||||||||
| Sempra | May 2024 | $ |
|
$ |
(
|
$ |
|
$ |
|
||||||||||||||||||||
| Sempra | May 2024 |
|
|
|
|
||||||||||||||||||||||||
| SDG&E | May 2024 |
|
|
|
|
||||||||||||||||||||||||
| SoCalGas | May 2024 |
|
|
|
|
||||||||||||||||||||||||
| SI Partners | November 2024 |
|
|
(
|
|
||||||||||||||||||||||||
| IEnova | September 2023 |
|
|
(
|
|
||||||||||||||||||||||||
| IEnova | February 2024 |
|
|
|
|
||||||||||||||||||||||||
| Total | $ |
|
$ |
(
|
$ |
(
|
$ |
|
|||||||||||||||||||||
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 June 30, 2022, each entity was in compliance with this ratio under its respective credit facility.
SI Partners must maintain a ratio of consolidated adjusted net indebtedness to consolidated earnings before interest, taxes, depreciation and amortization (as defined in its credit facility) of no more than
5.25
to 1.00 as of the end of each quarter. At June 30, 2022, SI Partners was in compliance with this ratio.
Uncommitted Lines of Credit
In addition to our committed lines of credit, Sempra Infrastructure’s foreign operations in Mexico have uncommitted lines of credit with an aggregate capacity of $
570
million at June 30, 2022, which are generally used for working capital requirements. We reflect amounts outstanding under these uncommitted lines of credit before reductions of any unamortized discounts.
| FOREIGN UNCOMMITTED LINES OF CREDIT | ||||||||||||||||||||||||||
| (Dollars and U.S. dollar equivalent in millions) | ||||||||||||||||||||||||||
| June 30, 2022 | ||||||||||||||||||||||||||
| Borrower | Expiration date of facility | Borrowing denomination | Total facility | Amounts outstanding | Available unused credit | |||||||||||||||||||||
| IEnova | September 2022 | U.S. dollars | $ |
|
$ |
(
|
$ |
|
||||||||||||||||||
|
ECA LNG Phase 1
(1)
|
August 2023 | U.S. dollars or Mexican pesos |
|
(
|
|
|||||||||||||||||||||
|
IEnova
(2)
|
October 2023 | U.S. dollars |
|
(
|
|
|||||||||||||||||||||
| IEnova | October 2023 | U.S. dollars or Mexican pesos |
|
|
|
|||||||||||||||||||||
| Total | $ |
|
$ |
(
|
$ |
|
||||||||||||||||||||
(1)
In March 2022, the facility was amended to increase the borrowing capacity from $
100
to $
200
.
(2)
Advances are due in full within 180 days of the disbursement date, which may be extended in increments of 180 days provided that no advance may have a maturity date that falls more than three years after the date of disbursement.
56
Uncommitted Letters of Credit
Outside of our domestic and foreign credit facilities, we have bilateral unsecured standby letter of credit capacity with select lenders that is uncommitted and supported by reimbursement agreements. At June 30, 2022, we had approximately $
730
million in standby letters of credit outstanding under these agreements.
| UNCOMMITTED LETTERS OF CREDIT | |||||||||||
| (Dollars in millions) | |||||||||||
| June 30, 2022 | |||||||||||
| Expiration date range | Uncommitted letters of credit outstanding | ||||||||||
| SDG&E | January 2023 to May 2023 | $ |
|
||||||||
| SoCalGas | November 2022 to October 2023 |
|
|||||||||
| Sempra Infrastructure | July 2022 to October 2043 |
|
|||||||||
| Parent and other | September 2022 to June 2023 |
|
|||||||||
|
Total
|
$ |
|
|||||||||
Term Loan
In July 2022, SoCalGas entered into an $
800
million,
364
-day term loan agreement with a maturity date of July 6, 2023. SoCalGas may request one borrowing of up to $
800
million through October 7, 2022. The borrowings will bear interest at benchmark rates plus
70
bps and are due in full upon maturity. The term loan provides SoCalGas with additional liquidity outside of its line of credit, which may include payment of a portion of the costs associated with civil litigation related to the Leak.
Weighted-Average Interest Rates
The weighted-average interest rates on all short-term debt were as follows:
| WEIGHTED-AVERAGE INTEREST RATES | ||||||||||||||
| June 30, 2022 | December 31, 2021 | |||||||||||||
| Sempra |
|
% |
|
% | ||||||||||
| SDG&E |
|
|
||||||||||||
| SoCalGas |
|
|
||||||||||||
LONG-TERM DEBT
Sempra
In March 2022, we issued $
750
million aggregate principal amount of
3.30
% senior unsecured notes due in full upon maturity on April 1, 2025 and received proceeds of $
745
million (net of debt discount, underwriting discounts and debt issuance costs of $
5
million), and $
500
million of
3.70
% senior unsecured notes due in full upon maturity on April 1, 2029 and received proceeds of $
494
million (net of debt discount, underwriting discounts and debt issuance costs of $
6
million). Each series of the notes is redeemable prior to maturity, subject to their terms, and in certain circumstances subject to make-whole provisions. We used a portion of the net proceeds for general corporate purposes and repayment of commercial paper.
SDG&E
In February 2022, SDG&E entered into a $
400
million,
two-year
term loan with a maturity date of February 18, 2024. SDG&E borrowed $
200
million in the three months ended March 31, 2022 and an additional $
200
million in the three months ended June 30, 2022. The borrowings bear interest at benchmark rates plus
62.5
bps and are due in full upon maturity. The margin is based on SDG&E’s long-term senior unsecured credit rating. SDG&E used the net proceeds for repayment of commercial paper and for general corporate purposes.
In March 2022, SDG&E issued $
500
million aggregate principal amount of
3.00
% first mortgage bonds due in full upon maturity on March 15, 2032 and received proceeds of $
494
million (net of debt discount, underwriting discounts and debt issuance costs of $
6
million), and $
500
million aggregate principal amount of
3.70
% first mortgage bonds due in full upon maturity on March 15, 2052 and received proceeds of $
492
million (net of debt discount, underwriting discounts and debt issuance costs of $
8
million). Each of the first mortgage bonds are redeemable prior to maturity, subject to their terms, and in certain circumstances subject to make-whole provisions. SDG&E used a portion of the net proceeds for repayment of commercial paper and its
364-day
term loan
57
and intends to use the remaining proceeds for capital expenditures and other general corporate purposes.
SoCalGas
In March 2022, SoCalGas issued $
700
million aggregate principal amount of
2.95
% senior unsecured notes due in full upon maturity on April 15, 2027 and received proceeds of $
691
million (net of debt discount, underwriting discounts and debt issuance costs of $
9
million). The notes are redeemable prior to maturity, subject to their terms, and in certain circumstances subject to make-whole provisions. SoCalGas used a portion of the net proceeds for repayment of commercial paper and intends to use the remaining proceeds for general corporate purposes, which may include payment of a portion of the costs relating to civil litigation pertaining to the Leak.
Sempra Infrastructure
SI Partners
In January 2022, SI Partners completed a private offering of $
400
million in aggregate principal of
3.25
% senior notes due in full upon maturity on January 15, 2032 to “qualified institutional buyers” as defined in Rule 144A under the Securities Act of 1933, as amended (the Securities Act), and non-U.S. persons outside the U.S. under Regulation S under the Securities Act. The notes are senior unsecured obligations that rank equally with all of SI Partners’ existing and future outstanding unsecured senior indebtedness and are redeemable prior to maturity, subject to their terms, and in certain circumstances subject to make-whole provisions. Sempra Infrastructure received proceeds of $
390
million (net of debt discount, underwriting discounts and debt issuance costs of $
10
million). Sempra Infrastructure used the net proceeds for general corporate purposes, including the repayment of certain indebtedness of its subsidiaries.
ECA LNG Phase 1
In December 2020, ECA LNG Phase 1 entered into a
five-year
loan agreement with a syndicate of
nine
banks for an aggregate principal amount of up to $
1.6
billion. Sempra and TotalEnergies SE have provided guarantees for repayment of the loans plus accrued and unpaid interest based on their proportionate ownership interest in ECA LNG Phase 1 of
83.4
% and
16.6
%, respectively. At June 30, 2022 and December 31, 2021, $
455
million and $
341
million, respectively, was outstanding under the loan agreement, with a weighted-average interest rate of
4.37
% and
2.93
%, respectively.
In July 2022, ECA LNG Phase 1 replaced Sempra with IEnova as the guarantor and replaced
two
of the
nine
banks and their combined principal commitment of $
203
million ($
61
million of which was outstanding at June 30, 2022) with a shareholder loan from IEnova, thereby reducing the syndicate to
seven
banks.
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 may have derivatives that are (1) cash flow hedges, (2) fair value hedges, or (3) undesignated. Depending on the applicability of hedge accounting and, for SDG&E and SoCalGas and other operations subject to regulatory accounting, the requirement to pass impacts through to customers, the impact of derivative instruments may be offset in OCI (cash flow hedges), on the balance sheet (regulatory offsets), or recognized in earnings (fair value hedges and undesignated derivatives not subject to rate recovery). We classify cash flows from the principal settlements of cross-currency swaps that hedge exposure related to Mexican peso-denominated debt and hedge termination costs on interest rate swaps as financing activities and settlements of other derivative instruments as operating activities on the Condensed Consolidated Statements of Cash Flows.
58
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:
▪
SDG&E and SoCalGas use natural gas derivatives and SDG&E uses 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 Infrastructure 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.
▪
From time to time, our various businesses, including SDG&E and SoCalGas, may use other energy derivatives to hedge exposures such as greenhouse gas allowances.
The following table summarizes net energy derivative volumes.
| NET ENERGY DERIVATIVE VOLUMES | |||||||||||||||||
| (Quantities in millions) | |||||||||||||||||
| Commodity | Unit of measure | June 30, 2022 | December 31, 2021 | ||||||||||||||
| Sempra: | |||||||||||||||||
| Natural gas | MMBtu |
|
|
||||||||||||||
| Electricity | MWh |
|
|
||||||||||||||
| Congestion revenue rights | MWh |
|
|
||||||||||||||
| SDG&E: | |||||||||||||||||
| Natural gas | MMBtu |
|
|
||||||||||||||
| Electricity | MWh |
|
|
||||||||||||||
| Congestion revenue rights | MWh |
|
|
||||||||||||||
| SoCalGas: | |||||||||||||||||
| Natural gas | MMBtu |
|
|
||||||||||||||
INTEREST RATE DERIVATIVES
We are exposed to interest rates primarily as a result of our current and expected use of financing. SDG&E and SoCalGas, 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.
59
| INTEREST RATE DERIVATIVES | |||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| June 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Notional debt | Maturities | Notional debt | Maturities | ||||||||||||||||||||
| Sempra: | |||||||||||||||||||||||
| Cash flow hedges | $ |
|
2022-2034 | $ |
|
2022-2034 | |||||||||||||||||
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 fixed interest rates for U.S. fixed interest rates. From time to time, Sempra Infrastructure 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.
The following table presents the net notional amounts of our foreign currency derivatives, excluding those in our equity method investments.
| FOREIGN CURRENCY DERIVATIVES | |||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| June 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Notional amount | Maturities | Notional amount | Maturities | ||||||||||||||||||||
| Sempra: | |||||||||||||||||||||||
| Cross-currency swaps | $ |
|
2022-2023 | $ |
|
2022-2023 | |||||||||||||||||
| Other foreign currency derivatives |
|
2022-2023 |
|
2022-2023 | |||||||||||||||||||
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.
60
| DERIVATIVE INSTRUMENTS ON THE CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| June 30, 2022 | |||||||||||||||||||||||
| Other current assets | Other long-term assets | Other current liabilities | Deferred credits and other | ||||||||||||||||||||
| Sempra: | |||||||||||||||||||||||
| Derivatives designated as hedging instruments: | |||||||||||||||||||||||
| Interest rate instruments | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Foreign exchange instruments |
|
|
(
|
|
|||||||||||||||||||
| Interest rate and foreign exchange instruments |
|
|
(
|
|
|||||||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||||||||
| Commodity contracts not subject to rate recovery |
|
|
(
|
(
|
|||||||||||||||||||
| Associated offsetting commodity contracts |
(
|
(
|
|
|
|||||||||||||||||||
| Commodity contracts subject to rate recovery |
|
|
(
|
(
|
|||||||||||||||||||
| Associated offsetting commodity contracts |
(
|
|
|
|
|||||||||||||||||||
| Net amounts presented on the balance sheet |
|
|
(
|
(
|
|||||||||||||||||||
|
Additional cash collateral for commodity contracts
not subject to rate recovery
|
|
|
|
|
|||||||||||||||||||
|
Additional cash collateral for commodity contracts
subject to rate recovery
|
|
|
|
|
|||||||||||||||||||
|
Total
(1)
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
|||||||||||||||
| SDG&E: | |||||||||||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||||||||
| Commodity contracts subject to rate recovery | $ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
| Associated offsetting commodity contracts |
(
|
|
|
|
|||||||||||||||||||
| Net amounts presented on the balance sheet |
|
|
(
|
|
|||||||||||||||||||
|
Additional cash collateral for commodity contracts
subject to rate recovery
|
|
|
|
|
|||||||||||||||||||
|
Total
(1)
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
| SoCalGas: | |||||||||||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||||||||
| Commodity contracts subject to rate recovery | $ |
|
$ |
|
$ |
(
|
$ |
(
|
|||||||||||||||
| Net amounts presented on the balance sheet |
|
|
(
|
(
|
|||||||||||||||||||
|
Additional cash collateral for commodity contracts
subject to rate recovery
|
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
(
|
$ |
(
|
|||||||||||||||
(1)
Normal purchase contracts previously measured at fair value are excluded.
61
| DERIVATIVE INSTRUMENTS ON THE CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) | |||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||
| Other current assets | Other long-term assets | Other current liabilities | Deferred credits and other | ||||||||||||||||||||
| Sempra: | |||||||||||||||||||||||
| Derivatives designated as hedging instruments: | |||||||||||||||||||||||
| Interest rate instruments | $ |
|
$ |
|
$ |
(
|
$ |
(
|
|||||||||||||||
| Foreign exchange instruments |
|
|
(
|
|
|||||||||||||||||||
| Interest rate and foreign exchange instruments |
|
|
(
|
(
|
|||||||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||||||||
| Commodity contracts not subject to rate recovery |
|
|
(
|
(
|
|||||||||||||||||||
| Associated offsetting commodity contracts |
(
|
(
|
|
|
|||||||||||||||||||
| Commodity contracts subject to rate recovery |
|
|
(
|
|
|||||||||||||||||||
| Associated offsetting commodity contracts |
(
|
|
|
|
|||||||||||||||||||
| Net amounts presented on the balance sheet |
|
|
(
|
(
|
|||||||||||||||||||
|
Additional cash collateral for commodity contracts
not subject to rate recovery
|
|
|
|
|
|||||||||||||||||||
|
Additional cash collateral for commodity contracts
subject to rate recovery
|
|
|
|
|
|||||||||||||||||||
|
Total
(1)
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
|||||||||||||||
| SDG&E: | |||||||||||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||||||||
| Commodity contracts subject to rate recovery | $ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
| Associated offsetting commodity contracts |
(
|
|
|
|
|||||||||||||||||||
| Net amounts presented on the balance sheet |
|
|
(
|
|
|||||||||||||||||||
|
Additional cash collateral for commodity contracts
subject to rate recovery
|
|
|
|
|
|||||||||||||||||||
|
Total
(1)
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
| SoCalGas: | |||||||||||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||||||||
| Commodity contracts subject to rate recovery | $ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
| Associated offsetting commodity contracts |
(
|
|
|
|
|||||||||||||||||||
| Net amounts presented on the balance sheet |
|
|
(
|
|
|||||||||||||||||||
|
Additional cash collateral for commodity contracts
subject to rate recovery
|
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
(1)
Normal purchase contracts previously measured at fair value are excluded.
62
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 | |||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||
|
Pretax gain (loss)
recognized in OCI |
Pretax gain (loss) reclassified
from AOCI into earnings |
||||||||||||||||||||||||||||
| Three months ended June 30, | Three months ended June 30, | ||||||||||||||||||||||||||||
| 2022 | 2021 | Location | 2022 | 2021 | |||||||||||||||||||||||||
| Sempra: | |||||||||||||||||||||||||||||
| Interest rate instruments | $ |
|
$ |
(
|
Interest Expense | $ |
|
$ |
|
||||||||||||||||||||
| Interest rate instruments |
|
(
|
Equity Earnings
(1)
|
(
|
(
|
||||||||||||||||||||||||
| Foreign exchange instruments |
|
(
|
Revenues: Energy-
Related Businesses
|
|
|
||||||||||||||||||||||||
| Other (Expense) Income, Net |
(
|
|
|||||||||||||||||||||||||||
| Foreign exchange instruments |
|
(
|
Equity Earnings
(1)
|
|
|
||||||||||||||||||||||||
|
Interest rate and foreign
exchange instruments
|
|
|
Interest Expense |
|
|
||||||||||||||||||||||||
| Other (Expense) Income, Net |
|
|
|||||||||||||||||||||||||||
| Total | $ |
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||||||
| SoCalGas: | |||||||||||||||||||||||||||||
|
Interest rate instruments
|
$ |
|
$ |
|
Interest Expense | $ |
(
|
$ |
|
||||||||||||||||||||
| Six months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||
| 2022 | 2021 | Location | 2022 | 2021 | |||||||||||||||||||||||||
| Sempra: | |||||||||||||||||||||||||||||
| Interest rate instruments | $ |
|
$ |
|
Interest Expense | $ |
|
$ |
(
|
||||||||||||||||||||
| Interest rate instruments |
|
|
Equity Earnings
(1)
|
(
|
(
|
||||||||||||||||||||||||
| Foreign exchange instruments |
(
|
|
Revenues: Energy-
Related Businesses
|
|
(
|
||||||||||||||||||||||||
| Other (Expense) Income, Net |
(
|
|
|||||||||||||||||||||||||||
| Foreign exchange instruments |
(
|
|
Equity Earnings
(1)
|
|
(
|
||||||||||||||||||||||||
|
Interest rate and foreign
exchange instruments
|
|
|
Interest Expense |
|
|
||||||||||||||||||||||||
| Other (Expense) Income, Net |
|
|
|||||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
(
|
$ |
(
|
|||||||||||||||||||||
| SoCalGas: | |||||||||||||||||||||||||||||
| Interest rate instruments | $ |
|
$ |
|
Interest Expense | $ |
(
|
$ |
|
||||||||||||||||||||
(1)
Equity earnings at our foreign equity method investees are recognized after tax.
For Sempra, we expect that net gains before NCI of $
6
million, which are net of income tax expense, that are currently recorded in AOCI (with net gains of $
11
million attributable to NCI) related to cash flow hedges will be reclassified into earnings during the next 12 months as the hedged items affect earnings. SoCalGas expects that $
1
million of losses, net of income tax benefit, that are currently recorded in AOCI related to cash flow hedges will be reclassified into earnings during the next 12 months as the hedged items affect earnings. Actual amounts ultimately reclassified into earnings depend on the interest rates in effect when derivative contracts mature.
For all forecasted transactions, the maximum remaining term over which we are hedging exposure to the variability of cash flows at June 30, 2022 is approximately
12
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
17
years.
63
The following table summarizes the effects of derivative instruments not designated as hedging instruments on the Condensed Consolidated Statements of Operations.
| UNDESIGNATED DERIVATIVE IMPACTS | ||||||||||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||||||||
| Pretax (loss) gain on derivatives recognized in earnings | ||||||||||||||||||||||||||
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
| Location | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Sempra: | ||||||||||||||||||||||||||
|
Commodity contracts not subject
to rate recovery
|
Revenues: Energy-Related
Businesses
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||
|
Commodity contracts subject
to rate recovery
|
Cost of Natural Gas |
(
|
|
(
|
|
|||||||||||||||||||||
|
Commodity contracts subject
to rate recovery
|
Cost of Electric Fuel
and Purchased Power
|
(
|
|
(
|
|
|||||||||||||||||||||
| Foreign exchange instruments | Other (Expense) Income, Net |
|
|
|
(
|
|||||||||||||||||||||
| Total | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
||||||||||||||||||
| SDG&E: | ||||||||||||||||||||||||||
|
Commodity contracts subject
to rate recovery
|
Cost of Electric Fuel
and Purchased Power
|
$ |
(
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||
| SoCalGas: | ||||||||||||||||||||||||||
|
Commodity contracts subject
to rate recovery
|
Cost of Natural Gas | $ |
(
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||
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 June 30, 2022 and December 31, 2021 was $
17
million and $
88
million, respectively. For SoCalGas, the total fair value of this group of derivative instruments in a liability position at June 30, 2022 and December 31, 2021 was $
9
million and $
36
million, respectively. SDG&E did not have this group of derivative instruments in a liability position at June 30, 2022 or December 31, 2021. At June 30, 2022, if the credit ratings of Sempra or SoCalGas were reduced below investment grade, $
17
million and $
9
million, respectively, of additional assets could be required to be posted as collateral for these derivative contracts.
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 June 30, 2022 and December 31, 2021. 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, 2021.
64
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 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 short-term investments that consist of money market and mutual funds that we value using a market approach based on closing prices reported in the active market in which the identical security is traded (Level 1).
▪
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 Infrastructure.”
65
| RECURRING FAIR VALUE MEASURES – SEMPRA | |||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Fair value at June 30, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Nuclear decommissioning trusts: | |||||||||||||||||||||||
|
Short-term investments, primarily cash equivalents
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Equity securities |
|
|
|
|
|||||||||||||||||||
| Debt securities: | |||||||||||||||||||||||
|
Debt securities issued by the U.S. Treasury and other U.S.
government corporations and agencies
|
|
|
|
|
|||||||||||||||||||
| Municipal bonds |
|
|
|
|
|||||||||||||||||||
| Other securities |
|
|
|
|
|||||||||||||||||||
| Total debt securities |
|
|
|
|
|||||||||||||||||||
|
Total nuclear decommissioning trusts
(1)
|
|
|
|
|
|||||||||||||||||||
| Short-term investments held in Rabbi Trust |
|
|
|
|
|||||||||||||||||||
| Interest rate instruments |
|
|
|
|
|||||||||||||||||||
| Commodity contracts not subject to rate recovery |
|
|
|
|
|||||||||||||||||||
|
Effect of netting and allocation of collateral
(2)
|
|
|
|
|
|||||||||||||||||||
| Commodity contracts subject to rate recovery |
|
|
|
|
|||||||||||||||||||
|
Effect of netting and allocation of collateral
(2)
|
|
|
|
|
|||||||||||||||||||
| Support Agreement, net of related guarantee fees |
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Foreign exchange instruments | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Interest rate and foreign exchange instruments |
|
|
|
|
|||||||||||||||||||
| Commodity contracts not subject to rate recovery |
|
|
|
|
|||||||||||||||||||
| Commodity contracts subject to rate recovery |
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(1)
Excludes receivables (payables), net.
(2)
Includes the effect of the contractual ability to settle contracts under master netting agreements and with cash collateral, as well as cash collateral not offset.
66
| RECURRING FAIR VALUE MEASURES – SEMPRA (CONTINUED) | |||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Fair value at December 31, 2021 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Nuclear decommissioning trusts: | |||||||||||||||||||||||
| Short-term investments, primarily cash equivalents | $ |
|
$ |
(
|
$ |
|
$ |
|
|||||||||||||||
| Equity securities |
|
|
|
|
|||||||||||||||||||
| Debt securities: | |||||||||||||||||||||||
|
Debt securities issued by the U.S. Treasury and other U.S.
government corporations and agencies
|
|
|
|
|
|||||||||||||||||||
| Municipal bonds |
|
|
|
|
|||||||||||||||||||
| Other securities |
|
|
|
|
|||||||||||||||||||
| Total debt securities |
|
|
|
|
|||||||||||||||||||
|
Total nuclear decommissioning trusts
(1)
|
|
|
|
|
|||||||||||||||||||
| Short-term investments held in Rabbi Trust |
|
|
|
|
|||||||||||||||||||
| Interest rate instruments |
|
|
|
|
|||||||||||||||||||
| Foreign exchange instruments |
|
|
|
|
|||||||||||||||||||
| Commodity contracts not subject to rate recovery |
|
|
|
|
|||||||||||||||||||
|
Effect of netting and allocation of collateral
(2)
|
|
|
|
|
|||||||||||||||||||
| Commodity contracts subject to rate recovery |
|
|
|
|
|||||||||||||||||||
|
Effect of netting and allocation of collateral
(2)
|
|
|
|
|
|||||||||||||||||||
| Support Agreement, net of related guarantee fees |
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Interest rate instruments | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Foreign exchange instruments |
|
|
|
|
|||||||||||||||||||
| Interest rate and foreign exchange instruments |
|
|
|
|
|||||||||||||||||||
| Commodity contracts not subject to rate recovery |
|
|
|
|
|||||||||||||||||||
| Commodity contracts subject to rate recovery |
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(1)
Excludes receivables (payables), net.
(2)
Includes the effect of the contractual ability to settle contracts under master netting agreements and with cash collateral, as well as cash collateral not offset.
67
| RECURRING FAIR VALUE MEASURES – SDG&E | |||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Fair value at June 30, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Nuclear decommissioning trusts: | |||||||||||||||||||||||
|
Short-term investments, primarily cash equivalents
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Equity securities |
|
|
|
|
|||||||||||||||||||
| Debt securities: | |||||||||||||||||||||||
|
Debt securities issued by the U.S. Treasury and other U.S.
government corporations and agencies
|
|
|
|
|
|||||||||||||||||||
| Municipal bonds |
|
|
|
|
|||||||||||||||||||
| Other securities |
|
|
|
|
|||||||||||||||||||
| Total debt securities |
|
|
|
|
|||||||||||||||||||
|
Total nuclear decommissioning trusts
(1)
|
|
|
|
|
|||||||||||||||||||
| Commodity contracts subject to rate recovery |
|
|
|
|
|||||||||||||||||||
|
Effect of netting and allocation of collateral
(2)
|
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Commodity contracts subject to rate recovery | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Fair value at December 31, 2021 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Nuclear decommissioning trusts: | |||||||||||||||||||||||
|
Short-term investments, primarily cash equivalents
|
$ |
|
$ |
(
|
$ |
|
$ |
|
|||||||||||||||
| Equity securities |
|
|
|
|
|||||||||||||||||||
| Debt securities: | |||||||||||||||||||||||
|
Debt securities issued by the U.S. Treasury and other U.S.
government corporations and agencies
|
|
|
|
|
|||||||||||||||||||
| Municipal bonds |
|
|
|
|
|||||||||||||||||||
| Other securities |
|
|
|
|
|||||||||||||||||||
| Total debt securities |
|
|
|
|
|||||||||||||||||||
|
Total nuclear decommissioning trusts
(1)
|
|
|
|
|
|||||||||||||||||||
| Commodity contracts subject to rate recovery |
|
|
|
|
|||||||||||||||||||
|
Effect of netting and allocation of collateral
(2)
|
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Commodity contracts subject to rate recovery | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(1)
Excludes receivables (payables), net.
(2)
Includes the effect of the contractual ability to settle contracts under master netting agreements and with cash collateral, as well as cash collateral not offset.
68
| RECURRING FAIR VALUE MEASURES – SOCALGAS | |||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Fair value at June 30, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Commodity contracts subject to rate recovery | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Effect of netting and allocation of collateral
(1)
|
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Commodity contracts subject to rate recovery | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Fair value at December 31, 2021 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Commodity contracts subject to rate recovery | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Effect of netting and allocation of collateral
(1)
|
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Commodity contracts subject to rate recovery | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
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)
|
|||||||||||
| (Dollars in millions) | |||||||||||
| Three months ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Balance at April 1 | $ |
|
$ |
|
|||||||
| Realized and unrealized (losses) gains |
(
|
|
|||||||||
| Allocated transmission instruments |
(
|
(
|
|||||||||
| Settlements |
|
|
|||||||||
| Balance at June 30 | $ |
|
$ |
|
|||||||
| Change in unrealized (losses) gains relating to instruments still held at June 30 | $ |
(
|
$ |
|
|||||||
| Six months ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Balance at January 1 | $ |
|
$ |
|
|||||||
| Realized and unrealized (losses) gains |
(
|
|
|||||||||
| Allocated transmission instruments |
(
|
(
|
|||||||||
| Settlements |
|
|
|||||||||
| Balance at June 30 | $ |
|
$ |
|
|||||||
| Change in unrealized (losses) gains relating to instruments still held at June 30 | $ |
(
|
$ |
|
|||||||
(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.
69
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 | |||||||||||||||
| 2022 | $ |
(
|
to | $ |
|
$ |
(
|
||||||||||
| 2021 |
(
|
to |
|
(
|
|||||||||||||
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 June 30 were as follows:
| LONG-TERM, FIXED-PRICE ELECTRICITY POSITIONS PRICE INPUTS | |||||||||||||||||||||||
| Settlement year | Price per MWh |
Weighted-average
price per MWh |
|||||||||||||||||||||
| 2022 | $ |
|
to | $ |
|
$ |
|
||||||||||||||||
| 2021 |
|
to |
|
|
|||||||||||||||||||
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 Infrastructure
70
| LEVEL 3 RECONCILIATIONS | |||||||||||
| (Dollars in millions) | |||||||||||
| Three months ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Balance at April 1 | $ |
|
$ |
|
|||||||
|
Realized and unrealized gains
(1)
|
|
|
|||||||||
| Settlements |
(
|
(
|
|||||||||
|
Balance at June 30
(2)
|
$ |
|
$ |
|
|||||||
| Change in unrealized gains relating to instruments still held at June 30 | $ |
|
$ |
|
|||||||
| Six months ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Balance at January 1 | $ |
|
$ |
|
|||||||
|
Realized and unrealized gains
(1)
|
|
|
|||||||||
| Settlements |
(
|
(
|
|||||||||
|
Balance at June 30
(2)
|
$ |
|
$ |
|
|||||||
| Change in unrealized gains relating to instruments still held at June 30 | $ |
|
$ |
|
|||||||
(1)
Net gains are included in Interest Income and net losses are included in Interest Expense on Sempra’s Condensed Consolidated Statements of Operations.
(2)
Includes $
7
in Other Current Assets and $
9
in Other Long-term Assets at June 30, 2022 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.
71
| FAIR VALUE OF FINANCIAL INSTRUMENTS | |||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||
|
Carrying
amount |
Fair value | ||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||
| June 30, 2022 | |||||||||||||||||||||||||||||
| Sempra: | |||||||||||||||||||||||||||||
|
Short-term amounts due from unconsolidated affiliates
(1)
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
|
Long-term note receivable
(2)
|
|
|
|
|
|
||||||||||||||||||||||||
| Long-term amounts due to unconsolidated affiliates |
|
|
|
|
|
||||||||||||||||||||||||
|
Total long-term debt
(3)
|
|
|
|
|
|
||||||||||||||||||||||||
| SDG&E: | |||||||||||||||||||||||||||||
|
Total long-term debt
(4)
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| SoCalGas: | |||||||||||||||||||||||||||||
|
Total long-term debt
(5)
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||||||||
| Sempra: | |||||||||||||||||||||||||||||
|
Long-term note receivable
(2)
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
|
Long-term amounts due from unconsolidated affiliates
(1)
|
|
|
|
|
|
||||||||||||||||||||||||
| Long-term amounts due to unconsolidated affiliates |
|
|
|
|
|
||||||||||||||||||||||||
|
Total long-term debt
(3)
|
|
|
|
|
|
||||||||||||||||||||||||
| SDG&E: | |||||||||||||||||||||||||||||
|
Total long-term debt
(4)
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| SoCalGas: | |||||||||||||||||||||||||||||
|
Total long-term debt
(5)
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
(1)
Before allowances for credit losses of $
1
at December 31, 2021. Includes $
1
and $
2
of accrued interest receivable at June 30, 2022 and December 31, 2021, respectively, in Due From Unconsolidated Affiliates – Current.
(2)
Before allowances for credit losses of $
7
and $
8
at June 30, 2022 and December 31, 2021, respectively. Excludes unamortized transaction costs of $
5
at both June 30, 2022 and December 31, 2021, respectively.
(3)
Before reductions of unamortized discount and debt issuance costs of $
294
and $
260
at June 30, 2022 and December 31, 2021, respectively, and excluding finance lease obligations of $
1,334
and $
1,335
at June 30, 2022 and December 31, 2021, respectively.
(4)
Before reductions of unamortized discount and debt issuance costs of $
73
and $
61
at June 30, 2022 and December 31, 2021, respectively, and excluding finance lease obligations of $
1,266
and $
1,274
at June 30, 2022 and December 31, 2021, respectively.
(5)
Before reductions of unamortized discount and debt issuance costs of $
43
and $
36
at June 30, 2022 and December 31, 2021, respectively, and excluding finance lease obligations of $
68
and $
61
at June 30, 2022 and December 31, 2021, 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.
72
The Samuel Lawrence Foundation filed a writ petition under the California Coastal Act in LA Superior Court in December 2019 seeking to invalidate the coastal development permit and to obtain injunctive relief to stop decommissioning work. The petition was denied in September 2021. In December 2021, the Samuel Lawrence Foundation filed a notice of appeal. To date, decommissioning work has not been interrupted as a result of this writ petition.
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. Amounts that were collected in rates for SONGS’ decommissioning are invested in the NDT, which is comprised of externally managed trust funds. Amounts held by the NDT are invested in accordance with CPUC regulations. SDG&E classifies debt and equity securities held in the NDT as available-for-sale. The NDT assets are presented on the Sempra 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 2021, SDG&E received authorization from the CPUC to access NDT funds of up to $
78
million for forecasted 2022 costs.
The following table shows the fair values and gross unrealized gains and losses for the securities held in the NDT on the Sempra and SDG&E Condensed Consolidated Balance Sheets. We provide additional fair value disclosures for the NDT in Note 9.
| NUCLEAR DECOMMISSIONING TRUSTS | |||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Cost |
Gross
unrealized gains |
Gross
unrealized losses |
Estimated
fair value |
||||||||||||||||||||
| June 30, 2022 | |||||||||||||||||||||||
| Debt securities: | |||||||||||||||||||||||
|
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies
(1)
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
|
Municipal bonds
(2)
|
|
|
(
|
|
|||||||||||||||||||
|
Other securities
(3)
|
|
|
(
|
|
|||||||||||||||||||
| Total debt securities |
|
|
(
|
|
|||||||||||||||||||
| Equity securities |
|
|
(
|
|
|||||||||||||||||||
| Short-term investments, primarily cash equivalents |
|
|
|
|
|||||||||||||||||||
| Receivables (payables), net |
(
|
|
|
(
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||
| Debt securities: | |||||||||||||||||||||||
| Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Municipal bonds |
|
|
(
|
|
|||||||||||||||||||
| Other securities |
|
|
(
|
|
|||||||||||||||||||
| Total debt securities |
|
|
(
|
|
|||||||||||||||||||
| Equity securities |
|
|
(
|
|
|||||||||||||||||||
| Short-term investments, primarily cash equivalents |
|
|
|
|
|||||||||||||||||||
| Receivables (payables), net |
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
(1)
Maturity dates are 2023-2052.
(2)
Maturity dates are 2022-2056.
(3)
Maturity dates are 2022-2072.
73
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 NUCLEAR DECOMMISSIONING TRUSTS | |||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Proceeds from sales | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Gross realized gains |
|
|
|
|
|||||||||||||||||||
| Gross realized losses |
(
|
(
|
(
|
(
|
|||||||||||||||||||
ASSET RETIREMENT OBLIGATION
SDG&E’s ARO related to decommissioning costs for SONGS Units 1, 2 and 3 was $
557
million at June 30, 2022 and is based on a cost study prepared in 2020 that is pending CPUC approval, which SDG&E expects to receive in 2023.
NUCLEAR INSURANCE
The SONGS owners have nuclear property damage insurance of $
130
million, which exceeds the minimum federal requirement 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 $
4.1
million of retrospective premiums based on overall member claims.
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, results of operations, financial condition, cash flows and/or prospects. Unless otherwise indicated, we are unable to reasonably estimate possible losses or a range of losses in excess of any amounts accrued.
At June 30, 2022, loss contingency accruals for legal matters, including associated legal fees and regulatory matters related to the Leak, that are probable and estimable were $
2,118
million for Sempra, including $
13
million for SDG&E and $
2,029
million for SoCalGas. Amounts for Sempra and SoCalGas include $
2,004
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, 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 Estimate, Accounting Impact and Insurance.”
74
Civil Litigation – Litigation Subject to Agreements to Resolve.
As of August 1, 2022, approximately
390
lawsuits including approximately
36,000
plaintiffs (the Individual Plaintiffs) were pending against SoCalGas and Sempra related to the Leak. All these cases are coordinated before a single court in the LA Superior Court for pretrial management.
In November 2017, in the coordinated proceeding, a Third Amended Consolidated Master Case Complaint for Individual Actions was filed on behalf of the Individual Plaintiffs, through which their separate lawsuits are 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 and wrongful death against SoCalGas and Sempra (the Individual Plaintiff Litigation). The complaint also asserted violations of Proposition 65, which were resolved in January 2022. 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, and attorneys’ fees.
In October 2018 and January 2019, complaints were filed on behalf of
51
firefighters stationed near the Aliso Canyon natural gas storage facility who allege they were injured by exposure to chemicals released during the Leak. The complaints against SoCalGas and Sempra assert causes of actions for negligence, negligence per se, private and public nuisance (continuing and permanent), trespass, inverse condemnation, strict liability, negligent and intentional infliction of emotional distress, fraudulent concealment and loss of consortium. The complaints seek compensatory and punitive damages for personal injuries, lost wages and/or lost profits, property damage and diminution in property value, and attorneys’ fees. These complaints are included in the coordinated proceeding and the Individual Plaintiff Litigation.
In September 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 payment 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. 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 plaintiffs who do not accept. The LA Superior Court previously approved the process to allocate payments among the plaintiffs. The Individual Plaintiffs’ counsel report that they have exceeded the
97
% threshold described above and, in July 2022, the parties extended the date by which all conditions under the agreement must be met by the Individual Plaintiffs’ counsel or waived by SoCalGas and Sempra. SoCalGas expects to make a payment of approximately $
1.8
billion under the agreement on or around August 30, 2022. The plaintiffs who do not agree to participate in the settlement will be able to continue to pursue their claims. Pursuant to the agreement, the Individual Plaintiff Litigation has been stayed.
In January 2017, a putative class of persons and businesses who own or lease real property within a five-mile radius of the well filed a consolidated class action complaint against SoCalGas and Sempra (the Property 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.
In September 2021, SoCalGas and Sempra entered into an agreement to settle the Property Class Action for a total amount of $
40
million. In April 2022, the LA Superior Court gave final approval of the settlement, which releases SoCalGas, Sempra and their respective affiliates from all claims of the property class members.
Complaints on behalf of five property developers (the Developer Plaintiffs) were filed in October 2018 and October 2020 against SoCalGas and Sempra alleging causes of action for strict liability, negligence per se, negligence, negligent interference, continuing nuisance, permanent nuisance, inverse condemnation and violation of the California Unfair Competition Law and California Public Utilities Code section 2106. The complaints seek compensatory, statutory and punitive damages, injunctive relief and attorneys’ fees. In January 2022 and March 2022, SoCalGas and Sempra entered into agreements to settle the claims of four of the Developer Plaintiffs.
Civil Litigation
–
Unresolved Litigation.
The complaint of one of the Developer Plaintiffs remains pending, and the LA Superior Court has scheduled a trial for October 2022. SoCalGas has engaged in settlement discussions with the remaining Developer Plaintiff.
An adverse ruling in any of the lawsuits by plaintiffs in the Individual Plaintiff Litigation who do not agree to settle or by the remaining Developer Plaintiff could have a material adverse effect on SoCalGas’ and Sempra’s results of operations, financial
75
condition, cash flows and/or prospects. In addition, there can be no assurance that the conditions to resolve the Individual Plaintiff Litigation will be satisfied or waived to the extent not satisfied.
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.
In June 2019, the CPUC opened an OII to consider penalties against SoCalGas for the Leak, which it later bifurcated into two phases. The first phase will consider whether SoCalGas violated California Public Utilities Code Section 451 or other laws, CPUC orders or decisions, rules or requirements, whether SoCalGas engaged in unreasonable and/or imprudent practices with respect to its operation and maintenance of the Aliso Canyon natural gas storage facility or its related record-keeping practices, whether SoCalGas cooperated sufficiently with the SED of the CPUC and Blade during the pre-formal investigation, and whether any of the mitigation measures proposed by Blade should be implemented to the extent not already done. 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. A schedule for hearings on the remaining issues has not been set. The second phase will consider whether SoCalGas should be sanctioned for the Leak and what damages, fines or other penalties, if any, should be imposed for any violations, unreasonable or imprudent practices, or failure to cooperate sufficiently 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 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 2021, the CPUC issued a decision on the interim range of gas inventory levels at the Aliso Canyon natural gas storage facility, setting an 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 June 30, 2022, the Aliso Canyon natural gas storage facility had a net book value of $
908
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, we may record an impairment of the facility, incur 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. Any such outcome could have a material adverse effect on SoCalGas’ and Sempra’s results of operations, financial condition, cash flows and/or prospects.
Cost Estimate, Accounting Impact and Insurance.
SoCalGas has incurred significant costs related to the Leak, primarily for temporary relocation of community residents; to control the well and stop the Leak; to mitigate the natural gas released; to purchase natural gas to replace what was lost through the Leak; to defend against and, in certain cases, settle, civil and criminal litigation arising from the Leak; to pay the costs of the government-ordered response to the Leak, including the costs for Blade to conduct the root cause analysis described above; to respond to various government and agency investigations regarding the Leak; and to comply with increased regulation imposed as a result of the Leak. At June 30, 2022, SoCalGas estimates these costs related
76
to the Leak are $
3,361
million (the cost estimate), which includes $
1,279
million of costs recovered or probable of recovery from insurance. This cost estimate may increase significantly as more information becomes available. At June 30, 2022, $
2,003
million of the cost estimate is accrued in Reserve for Aliso Canyon Costs and $
4
million of the cost estimate is accrued in Deferred Credits and Other on SoCalGas’ and Sempra’s Condensed Consolidated Balance Sheets.
In the three months and six months ended June 30, 2022, SoCalGas recorded total charges of $
45
million ($
32
million after tax) and $
137
million ($
98
million after tax), respectively, inclusive of estimated legal costs, in Aliso Canyon Litigation and Regulatory Matters on the SoCalGas and Sempra Condensed Consolidated Statements of Operations related to the claims of the Developer Plaintiffs that we describe above. These charges are included in the cost estimate that we describe above.
Except for the amounts paid or estimated to settle certain legal and regulatory matters as described above, the cost estimate does not include (i) any amounts necessary to resolve claims of Individual Plaintiffs who do not agree to participate in the settlement of the Individual Plaintiff Litigation or (ii) the matters that we describe above in “Civil Litigation – Unresolved Litigation” and “Regulatory Proceedings” to the extent it is not possible to predict at this time the outcome of these actions or reasonably estimate the possible costs or a range of possible costs for damages, restitution, civil or administrative fines 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. The costs or losses not included in the cost estimate could be significant and could have a material adverse effect on SoCalGas’ and Sempra’s results of operations, financial condition, cash flows and/or prospects.
We have received insurance payments for many of the categories of costs included in the cost estimate, including temporary relocation and associated processing costs, control-of-well expenses, costs of the government-ordered response to the Leak, certain legal costs and lost gas. At June 30, 2022, we recorded the expected recovery of the cost estimate related to the Leak of $
344
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 $
935
million of insurance proceeds we received through June 30, 2022. 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 and/or delays could have a material adverse effect on SoCalGas’ and Sempra’s results of operations, financial condition, cash flows and/or prospects.
Sempra Infrastructure
Energía Costa Azul
We describe below certain land and customer disputes and permit challenges affecting our ECA Regas Facility. Certain of these land disputes involve land on which portions of the ECA LNG liquefaction facilities 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. One or more unfavorable final decisions on these disputes or challenges could materially adversely affect our existing natural gas regasification operations and proposed natural gas liquefaction projects at the site of the ECA Regas Facility and have a material adverse effect on Sempra’s business, results of operations, financial condition, cash flows and/or prospects.
Land Disputes.
Sempra Infrastructure has been engaged in a long-running land dispute relating to property adjacent to its ECA Regas Facility that allegedly overlaps with land owned by the ECA Regas Facility (the facility, however, is not situated on the land that is the subject of this dispute), as follows:
▪
A claimant to the adjacent property filed complaints in the federal Agrarian Court challenging the refusal of SEDATU in 2006 to issue title to him for the disputed property. In November 2013, the federal Agrarian Court ordered that SEDATU issue the requested title to the claimant and cause it to be registered. Both SEDATU and Sempra Infrastructure challenged the ruling due to lack of notification of the underlying process. In May 2019, a federal court in Mexico reversed the ruling and ordered a retrial, 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. The proceeding in the Agrarian Court has concluded; however, the administrative procedure at SEDATU may continue if SEDATU decides to reopen the matter.
77
In addition, four cases involving two adjacent areas of real property on which part of the ECA Regas Facility is situated, each brought by a single plaintiff or her descendants, remain pending against the facility, 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 proceeding, which seeks an order that SEDATU annul the ECA Regas Facility’s competing property title, was initiated in 2006 and, in July 2021, a decision was issued in favor of the ECA Regas Facility. The plaintiff appealed, and in February 2022, the appellate court confirmed the ruling in favor of the ECA Regas Facility and dismissed the appeal. The plaintiff filed a final federal appeal against the appellate court ruling. A final ruling from the Federal Collegiate Circuit Court is pending.
▪
The second disputed area is a parcel adjacent to the ECA Regas Facility that allegedly overlaps with land on which the ECA Regas Facility is situated, which is subject to a claim in the federal Agrarian Court and two claims in Mexican civil courts. The ECA Regas Facility first bought the property from the federal government in 2003; however, to resolve an ownership controversy, in 2008, the ECA Regas Facility reached a financial settlement with the plaintiff to eliminate an adverse claim to its title. Nevertheless, the plaintiff sued in 2013 for the nullity of both titles. The Agrarian Court ruled in favor of the plaintiff in May 2021, nullifying the first property title. Sempra Infrastructure appealed the ruling in July 2021. In May 2022, Sempra Infrastructure won the appeal and the plaintiff’s claims were dismissed, which the plaintiff has appealed. The ECA Regas Facility continues to hold the second property title to 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, the court ruled in favor of the ECA Regas Facility, and the final decision was affirmed on a federal appeal. The descendants of the same plaintiff filed the second civil case in 2019, which was dismissed by the court. However, the dismissal has been appealed, which is pending the appellate court’s ruling. In April 2022, the ECA Regas Facility entered into a settlement agreement with the plaintiff, whereby the plaintiff has agreed to recognize the ECA Regas Facility as the sole owner of the property and waive any current or future rights over the property, or any other properties related to the ECA Regas Facility. The settlement agreement is pending court approval and would definitively resolve all three pending cases.
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 and 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 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 permits that were issued by ASEA and SENER. This injunction has uncertain application absent clarification by the court. The claimants petitioned the court to rule that construction of natural gas liquefaction facilities violated the injunction, and in February 2022, the court ruled in favor of the ECA Regas Facility, meaning that the natural gas liquefaction activities have not been affected. The claimants have appealed this ruling.
▪
In the third case, a group of residents filed a complaint in June 2021 against various federal and state authorities alleging deficiencies in the public consultation process for the issuance of the permits. The request for an initial injunction was denied and the claimants have appealed, which is pending the appellate court’s ruling.
78
Citing the alleged breach, Shell Mexico stopped making payments under its LNG storage and regasification agreement. Due to nonpayment, Sempra Infrastructure drew against Shell Mexico’s letters of credit provided as payment security until they were fully exhausted in March 2022 and this customer has not resumed making payments. Although Gazprom had previously been making regular monthly payments under its LNG storage and regasification agreement, Sempra Infrastructure drew against and fully exhausted Gazprom’s letters of credit in April 2022 due to Gazprom’s non-renewal of such letters of credit as required under the agreement. Gazprom has not paid its invoices since March 2022, so funds drawn from the letters of credit have been used to fully offset such nonpayment. We expect that these funds will provide payment security from Gazprom through the end of 2024.
In addition to the arbitration proceeding, Shell Mexico also filed constitutional claims against the CRE’s approval of the general terms and conditions for service at the facility and against the issuance of the liquefaction permit. Shell Mexico’s request for an injunction against the general terms and conditions was denied, and the ruling was upheld on appeal. The request for an injunction against the liquefaction permit was denied, and the decision was vacated and remanded on appeal to the First District Court in Administrative Matters, which again denied the injunction. The case on the injunction request was then heard again by the appellate court. A hearing was held on the merits and a decision is pending.
Sonora Pipeline
Guaymas-El Oro Segment.
Sempra Infrastructure’s Sonora natural gas pipeline consists of two segments, the Sasabe-Puerto Libertad-Guaymas segment and the Guaymas-El Oro segment. Each segment has its own service agreement with the CFE. In 2015, the Yaqui tribe, with the exception of some members living in the Bácum community, granted its consent and a right-of-way easement agreement for the construction of the Guaymas-El Oro segment of the Sonora natural gas pipeline that crosses its territory. Representatives of the Bácum community filed a legal challenge in Mexican federal court demanding the right to withhold consent for the project, the stoppage of work in the Yaqui territory and damages. In 2016, the judge granted a suspension order that prohibited the construction of such segment through the Bácum community territory. Because the pipeline does not pass through the Bácum community, Sempra Infrastructure did not believe the 2016 suspension order prohibited construction in the remainder of the Yaqui territory. Construction of the Guaymas-El Oro segment was completed, and commercial operations began in May 2017.
Following the start of commercial operations of the Guaymas-El Oro segment, Sempra Infrastructure reported damage to the Guaymas-El Oro segment of the Sonora pipeline in the Yaqui territory that has made that section inoperable since August 2017 and, as a result, Sempra Infrastructure declared a force majeure event. In 2017, an appellate court ruled that the scope of the 2016 suspension order encompassed the wider Yaqui territory, which has prevented Sempra Infrastructure from making repairs to put the pipeline back in service. In July 2019, a federal district court ruled in favor of Sempra Infrastructure and held that the Yaqui tribe was properly consulted and that consent from the Yaqui tribe was properly received. Representatives of the Bácum community appealed this decision, causing the suspension order preventing Sempra Infrastructure from repairing the damage to the Guaymas-El Oro segment of the Sonora pipeline in the Yaqui territory to remain in place until the appeals process is exhausted. In December 2021, the court of appeals referred the matter to Mexico’s Supreme Court. In June 2022, the Supreme Court remanded the case back to the court of appeals for final resolution.
Sempra Infrastructure exercised its rights under the contract, which included seeking force majeure payments for the two-year period such force majeure payments were required to be made, which ended in August 2019.
In July 2019, the CFE filed a request for arbitration generally to nullify certain contract terms that provide for fixed capacity payments in instances of force majeure and made a demand for substantial damages in connection with the force majeure event. In September 2019, the arbitration process ended when Sempra Infrastructure and the CFE reached an agreement to restart natural gas transportation service on the earlier of completion of repair of the damaged pipeline or January 15, 2020, and to modify the tariff structure and extend the term of the contract by 10 years. Subsequently, Sempra Infrastructure and the CFE agreed to extend the service start date multiple times, most recently to November 30, 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 November 30, 2022, and the parties do not agree on a new service start date, Sempra Infrastructure retains the right to terminate the contract and seek to recover its reasonable and documented costs and lost profits. Discussions with the CFE regarding the future of the pipeline are underway in accordance with a non-binding MOU announced in January 2022 that, among other matters, addresses efforts to restart service on the pipeline. In July 2022, Sempra Infrastructure and the CFE entered into a Shareholders’ Agreement that establishes a framework for a JV between the parties to work on restarting service on the pipeline, including the potential re-routing of a portion of the pipeline. This agreement is subject to a number of conditions to be satisfied before it becomes effective, including regulatory and corporate authorizations.
At June 30, 2022, Sempra Infrastructure had $
426
million in PP&E, net, related to the Guaymas-El Oro segment of the Sonora pipeline, which could be subject to impairment if Sempra Infrastructure is unable to make such repairs (which have not
79
Regulatory and Other Actions by the Mexican Government
We describe below certain actions by the Mexican government that could have a material impact on the energy sector in Mexico. Sempra Infrastructure and other parties affected by these resolutions, orders, decrees, regulations and proposed amendments to Mexican law have challenged them by filing amparo and other claims, some of which have been granted injunctive relief. The court-ordered injunctions or suspensions provide temporary relief until Mexico’s federal district court or Supreme Court ultimately resolves the amparo and other claims. An unfavorable decision on one or more of these amparo or other challenges or the potential for extended disputes may impact our ability to operate our facilities at existing levels or at all, may result in increased costs for Sempra Infrastructure and its customers, may adversely affect our ability to develop new projects, may result in decreased revenues and cash flows, and may negatively impact our ability to recover the carrying values of our investments in Mexico, any of which may have a material adverse effect on our business, results of operations, financial condition, cash flows and/or prospects.
Transmission Rates for 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 Sempra Infrastructure’s renewable energy facilities (Don Diego Solar, Border Solar and Ventika) are currently holders of contracts with such legacy rates, and under the terms of these contracts any increases in the transmission rates would be passed through directly to their customers. These renewable energy facilities sought and obtained injunctive relief but were required to guarantee the difference in tariffs. The three facilities obtained favorable resolutions from a lower court and the CRE appealed those decisions, which were definitively affirmed in favor of the Don Diego Solar, Border Solar and Ventika facilities, whereby the injunctions were made permanent, the regulations were declared unconstitutional, and the guarantee was determined to not be required. The resolution is definitive and final.
80
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. In 2015, liquidators filed a claim in the High Court of Justice against RBS (now NatWest Markets plc, our partner in the JV) 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, a subsidiary of RBS Sempra Commodities. 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 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 $
55
million in U.S. dollars at June 30, 2022), plus costs and interest. In October 2020, the High Court of Justice assessed costs and interest to be approximately £
21
million (approximately $
26
million in U.S. dollars at June 30, 2022) as of that date, with interest continuing to accrue. The Defendants appealed and, in May 2021, the Court of Appeal set aside the High Court of Justice’s decision and ordered a retrial. In July 2022, the Supreme Court of the U.K. denied the Liquidating Companies application for permission to appeal the Court of Appeal’s decision. No date has been scheduled for the retrial. J.P. Morgan Chase & Co., which acquired RBS SEE and later sold it to Mercuria Energy Group, Ltd., previously notified us that Mercuria Energy
81
Group, Ltd. has sought indemnity for the claim, and J.P. Morgan Chase & Co. has in turn sought indemnity from Sempra and RBS.
In the second quarter of 2021, we reduced our estimate of our obligations to settle pending VAT matters and related legal costs by $
50
million in Equity Earnings on Sempra’s Condensed Consolidated Statement of Operations based on the settlement with Her Majesty’s Revenue and Customs (U.K.’s Revenue and Customs Department) on the First-Tier Tribunal case and revised assumptions on the High Court of Justice case.
Asbestos Claims Against EFH Subsidiaries
Certain EFH subsidiaries that we acquired as part of the merger of EFH with an indirect subsidiary of Sempra were defendants in personal injury lawsuits brought in state courts throughout the U.S. These cases alleged 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 sought compensatory and punitive damages. As of August 1, 2022,
one
lawsuit is pending. Additionally, in connection with the EFH bankruptcy proceeding, approximately
28,000
proofs of claim were filed on behalf of persons who allege exposure to asbestos under similar circumstances and assert the right to file such lawsuits in the future. None of these claims or lawsuits were discharged in the EFH bankruptcy proceeding. The costs to defend or resolve these lawsuits and the amount of damages that may be imposed or incurred could have a material adverse effect on Sempra’s results of operations, financial condition, cash flows and/or prospects.
Ordinary Course Litigation
We are also defendants in ordinary routine litigation incidental to our businesses, including personal injury, employment litigation, product liability, property damage and other claims. Juries have demonstrated an increasing willingness to grant large awards, including punitive damages, in these types of cases.
LEASES
We discuss leases further in Note 16 of the Notes to Consolidated Financial Statements in the Annual Report.
Lessee Accounting
We have operating and finance leases for real and personal property (including office space, land, fleet vehicles, machinery and equipment, warehouses and other operational facilities) and PPAs with renewable energy, energy storage and peaker plant facilities.
Leases That Have Not Yet Commenced
SDG&E has entered into three energy storage tolling agreements, of which SDG&E expects two will commence in the third quarter of 2022 and one will commence in the second quarter of 2023. SDG&E expects the future minimum lease payments to be $
7
million in 2022, $
18
million in each of 2023 through 2026 and $
101
million thereafter until expiration at various dates from 2032 through 2033.
SoCalGas has entered into a fleet vehicle agreement, under which SoCalGas expects leases will commence in the second half of 2022 through the first half of 2023. SoCalGas expects the future minimum lease payments to be $
2
million in each of 2023 through 2026 and $
10
million thereafter until expiration at various dates from 2030 through 2031.
Lessor Accounting
Sempra Infrastructure is a lessor for certain of its natural gas and ethane pipelines, compressor stations, liquid petroleum gas storage facilities, a rail facility and liquid fuels terminals, which we account for as operating or sales-type leases.
82
|
LESSOR INFORMATION ON THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – SEMPRA
|
|||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Sales-type leases: | |||||||||||||||||||||||
| Interest income | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Total revenues from sales-type leases
(1)
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Operating leases: | |||||||||||||||||||||||
| Fixed lease payments | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Variable lease payments |
|
|
|
|
|||||||||||||||||||
|
Total revenues from operating leases
(1)
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Depreciation expense | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(1)
Included in Revenues: Energy-Related Businesses on the Condensed Consolidated Statements of Operations.
CONTRACTUAL COMMITMENTS
We discuss below significant changes in the first six months of 2022 to contractual commitments discussed in Notes 1 and 16 of the Notes to Consolidated Financial Statements in the Annual Report.
LNG Purchase Agreement
Sempra Infrastructure has a SPA 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 2022 to 2029. Although this agreement specifies a number of cargoes to be delivered, under its terms, the supplier may divert certain cargoes, which would reduce amounts paid under the agreement by Sempra Infrastructure. At June 30, 2022, we expect the commitment amount to decrease by $
208
million in 2022 and then increase by $
227
million in 2023, $
203
million in 2024, $
191
million in 2025, $
175
million in 2026 and by $
421
million thereafter (through contract termination in 2029) compared to December 31, 2021, reflecting changes in estimated forward prices since December 31, 2021 and actual transactions for the first six months of 2022. 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.
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 $
59
million for Sempra, $
18
million for SDG&E and $
15
million for SoCalGas at June 30, 2022.
NOTE 12.
SEGMENT INFORMATION
We have
four
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 Utilitie
s 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 Infrastructure
includes the operating companies of our subsidiary, SI Partners, as well as a holding company and certain services companies. Sempra Infrastructure develops, builds, operates and invests in energy infrastructure to help enable the energy transition in North American markets and globally. Sempra Infrastructure owns a
70
% interest in SI Partners, which held a
100
% ownership interest in Sempra LNG Holding, LP and a
99.9
% ownership interest in IEnova at June 30, 2022.
83
We evaluate each segment’s performance based on its contribution to Sempra’s reported earnings and cash flows. SDG&E and SoCalGas operate in essentially separate service territories, under separate regulatory frameworks and rate structures set by the CPUC and, in the case of SDG&E, the FERC.
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.
84
| SEGMENT INFORMATION | |||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| REVENUES | |||||||||||||||||||||||
| SDG&E | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| SoCalGas |
|
|
|
|
|||||||||||||||||||
| Sempra Infrastructure |
|
|
|
|
|||||||||||||||||||
| All other |
|
|
|
|
|||||||||||||||||||
| Adjustments and eliminations |
(
|
(
|
|
(
|
|||||||||||||||||||
|
Intersegment revenues
(1)
|
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| DEPRECIATION AND AMORTIZATION | |||||||||||||||||||||||
| SDG&E | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| SoCalGas |
|
|
|
|
|||||||||||||||||||
| Sempra Infrastructure |
|
|
|
|
|||||||||||||||||||
| All other |
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| INTEREST INCOME | |||||||||||||||||||||||
| SDG&E | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| SoCalGas |
|
|
|
|
|||||||||||||||||||
| Sempra Infrastructure |
|
|
|
|
|||||||||||||||||||
| All other |
|
|
|
|
|||||||||||||||||||
| Intercompany eliminations |
|
(
|
|
(
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| INTEREST EXPENSE | |||||||||||||||||||||||
| SDG&E | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| SoCalGas |
|
|
|
|
|||||||||||||||||||
| Sempra Infrastructure |
|
|
|
|
|||||||||||||||||||
| All other |
|
|
|
|
|||||||||||||||||||
| Intercompany eliminations |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| INCOME TAX EXPENSE (BENEFIT) | |||||||||||||||||||||||
| SDG&E | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| SoCalGas |
|
|
|
|
|||||||||||||||||||
| Sempra Infrastructure |
|
|
|
|
|||||||||||||||||||
| All other |
(
|
|
|
(
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| EQUITY EARNINGS (LOSSES) | |||||||||||||||||||||||
| Equity earnings, before income tax: | |||||||||||||||||||||||
| Sempra Texas Utilities | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Sempra Infrastructure |
|
|
|
|
|||||||||||||||||||
| All other |
|
|
|
|
|||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||
| Equity earnings (losses), net of income tax: | |||||||||||||||||||||||
| Sempra Texas Utilities |
|
|
|
|
|||||||||||||||||||
| Sempra Infrastructure |
|
(
|
|
|
|||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(1)
Revenues for reportable segments include intersegment revenues of $
3
, $
23
, and $
14
for the three months ended June 30, 2022; $
7
, $
49
, and $
28
for the six months ended June 30, 2022; $
2
, $
23
, and $
17
for the three months ended June 30, 2021 and $
4
, $
48
, and $
26
for the six months ended June 30, 2021 for SDG&E, SoCalGas, and Sempra Infrastructure, respectively.
85
| SEGMENT INFORMATION (CONTINUED) | |||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| EARNINGS (LOSSES) ATTRIBUTABLE TO COMMON SHARES | |||||||||||||||||||||||
| SDG&E | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| SoCalGas |
|
|
|
|
|||||||||||||||||||
| Sempra Texas Utilities |
|
|
|
|
|||||||||||||||||||
|
Sempra Infrastructure
|
|
|
|
|
|||||||||||||||||||
| All other |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| EXPENDITURES FOR PROPERTY, PLANT & EQUIPMENT | |||||||||||||||||||||||
| SDG&E | $ |
|
$ |
|
|||||||||||||||||||
| SoCalGas |
|
|
|||||||||||||||||||||
| Sempra Infrastructure |
|
|
|||||||||||||||||||||
| All other |
|
|
|||||||||||||||||||||
| Total | $ |
|
$ |
|
|||||||||||||||||||
|
June 30,
2022 |
December 31,
2021 |
||||||||||||||||||||||
| ASSETS | |||||||||||||||||||||||
| SDG&E | $ |
|
$ |
|
|||||||||||||||||||
| SoCalGas |
|
|
|||||||||||||||||||||
| Sempra Texas Utilities |
|
|
|||||||||||||||||||||
| Sempra Infrastructure |
|
|
|||||||||||||||||||||
| All other |
|
|
|||||||||||||||||||||
| Intersegment receivables |
(
|
(
|
|||||||||||||||||||||
| Total | $ |
|
$ |
|
|||||||||||||||||||
| EQUITY METHOD AND OTHER INVESTMENTS | |||||||||||||||||||||||
| Sempra Texas Utilities | $ |
|
$ |
|
|||||||||||||||||||
| Sempra Infrastructure |
|
|
|||||||||||||||||||||
| Total | $ |
|
$ |
|
|||||||||||||||||||
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This combined MD&A for Sempra, SDG&E and SoCalGas should be read 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 is a California-based holding company with energy infrastructure investments in North America. Our businesses invest in, develop and operate energy infrastructure, and provide electric and gas services to customers through regulated public utilities. In the fourth quarter of 2021, we formed Sempra Infrastructure, which resulted in a change to our reportable segments. Historical segment disclosures have been restated to conform with the current presentation of our four reportable segments, which 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.
86
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 results of operations.
OVERALL RESULTS OF OPERATIONS OF SEMPRA
Sempra’s overall results of operations for the three months ended (Q2) and six months ended (YTD) June 30, 2022 and 2021 were as follows:
| OVERALL RESULTS OF OPERATIONS OF SEMPRA | ||||||||
| (Dollars and shares in millions, except per share amounts) | ||||||||
Our earnings and diluted EPS were impacted by variances discussed below in “Segment Results.”
SEGMENT RESULTS
This section presents earnings (losses) by Sempra segment, as well as Parent and other, and a related discussion of the changes in segment earnings (losses). Throughout the MD&A, our reference to earnings represents earnings attributable to common shares. Variance amounts presented are the after-tax earnings impact (based on applicable statutory tax rates), unless otherwise noted, and before NCI, where applicable.
| SEMPRA EARNINGS (LOSSES) BY SEGMENT | |||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| SDG&E | $ | 176 | $ | 186 | $ | 410 | $ | 398 | |||||||||||||||
| SoCalGas | 87 | 94 | 421 | 501 | |||||||||||||||||||
| Sempra Texas Utilities | 186 | 138 | 348 | 273 | |||||||||||||||||||
|
Sempra Infrastructure
|
183 | 53 | 278 | 255 | |||||||||||||||||||
|
Parent and other
(1)
|
(73) | (47) | (286) | (129) | |||||||||||||||||||
|
Earnings attributable to common shares
|
$ | 559 | $ | 424 | $ | 1,171 | $ | 1,298 | |||||||||||||||
(1)
Includes intercompany eliminations recorded in consolidation and certain corporate costs.
SDG&E
The decrease in earnings of $10 million (5%) in the three months ended June 30, 2022 compared to the same period in 2021 was primarily due to:
▪
$12 million higher income tax expense primarily from flow-through items and lower associated regulatory revenues; and
87
▪
$9 million higher interest expense;
offset by
▪
$6 million higher CPUC base operating margin, net of operating expenses; and
▪
$5 million higher electric transmission margin.
The increase in earnings of $12 million (3%) in the six months ended June 30, 2022 compared to the same period in 2021 was primarily due to:
▪
$30 million higher CPUC base operating margin, net of operating expenses; and
▪
$8 million higher electric transmission margin;
offset by
▪
$13 million higher interest expense; and
▪
$9 million higher income tax expense primarily from flow-through items and lower associated regulatory revenues.
SoCalGas
The decrease in earnings of $7 million (7%) in the three months ended June 30, 2022 compared to the same period in 2021 was primarily due to:
▪
$32 million charge relating to civil litigation pertaining to the Leak; and
▪
$4 million lower income tax benefits primarily from flow-through items;
offset by
▪
$30 million higher CPUC base operating margin, net of operating expenses.
The decrease in earnings of $80 million (16%) in the six months ended June 30, 2022 compared to the same period in 2021 was primarily due to:
▪
$98 million charge relating to civil litigation pertaining to the Leak; and
▪
$10 million in penalties related to the energy efficiency and advocacy OSCs, which we discuss in Note 4 of the Notes to Condensed Consolidated Financial Statements;
offset by
▪
$32 million higher CPUC base operating margin, net of operating expenses.
Sempra Texas Utilities
The increase in earnings of $48 million (35%) in the three months ended June 30, 2022 compared to the same period in 2021 was primarily due to higher equity earnings from Oncor Holdings driven by increased revenues from higher customer consumption primarily attributable to weather, rate updates to reflect increases in invested capital and customer growth, offset by increased expenses and operating costs attributable to invested capital.
The increase in earnings of $75 million (27%) in the six months ended June 30, 2022 compared to the same period in 2021 was primarily due to higher equity earnings from Oncor Holdings driven by increased revenues from rate updates to reflect increases in invested capital, higher customer consumption primarily attributable to weather and customer growth, offset by increased expenses and operating costs attributable to invested capital.
Sempra Infrastructure
The increase in earnings of $130 million in the three months ended June 30, 2022 compared to the same period in 2021 was primarily due to:
▪
$78 million higher earnings from asset and supply optimization primarily driven by changes in natural gas prices offset by lower volumes;
▪
$69 million favorable impact from foreign currency and inflation effects on our monetary positions in Mexico, net of foreign currency derivative effects, comprised of a $16 million unfavorable impact in 2022 compared to an $85 million unfavorable impact in 2021;
▪
$16 million higher equity earnings from Cameron LNG JV primarily from higher maintenance revenues;
▪
$13 million favorable U.S. tax impact in 2022 from converting SI Partners from a corporation to a partnership in October 2021;
▪
$11 million higher transportation revenues primarily driven by higher rates;
▪
$8 million higher earnings from the renewables business primarily due to the second phase of ESJ being placed in service in January 2022 and higher transmission rates; and
▪
$7 million primarily due to the start of commercial operations of the Mexico City terminal in July 2021;
offset by
▪
$88 million earnings attributable to NCI in 2022 compared to $11 million earnings in 2021, primarily due to the sale of a 20% NCI in SI Partners to KKR in October 2021 and the sale of a 10% NCI in SI Partners to ADIA in June 2022, offset by the increase in our ownership interest in IEnova; and
88
▪
$8 million lower net income tax benefit primarily from the remeasurement of certain deferred income taxes and outside basis differences in JV investments.
The increase in earnings of $23 million (9%) in the six months ended June 30, 2022 compared to the same period in 2021 was primarily due to:
▪
$43 million higher net income tax benefit primarily from the remeasurement of certain deferred income taxes and outside basis differences in JV investments;
▪
$24 million higher transportation revenues primarily driven by higher rates;
▪
$20 million primarily due to the start of commercial operations of the Veracruz and Mexico City terminals in March and July of 2021, respectively;
▪
$18 million favorable U.S. tax impact in 2022 from converting SI Partners from a corporation to a partnership in October 2021;
▪
$18 million higher equity earnings from Cameron LNG JV primarily from higher maintenance revenues; and
▪
$12 million higher earnings from the renewables business primarily due to Border Solar and the second phase of ESJ being placed in service in March 2021 and January 2022, respectively;
offset by
▪
$122 million earnings attributable to NCI in 2022 compared to $44 million earnings in 2021, primarily due to the sale of a 20% NCI in SI Partners to KKR in October 2021 and the sale of a 10% NCI in SI Partners to ADIA in June 2022, offset by the increase in our ownership interest in IEnova;
▪
$38 million unfavorable impact from foreign currency and inflation effects on our monetary positions in Mexico, net of foreign currency derivative effects, comprised of a $111 million unfavorable impact in 2022 compared to a $73 million unfavorable impact in 2021; and
▪
$6 million lower earnings from asset and supply optimization primarily driven by changes in natural gas prices and lower volumes.
Parent and Other
The increase in losses of $26 million in the three months ended June 30, 2022 compared to the same period in 2021 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; and
▪
$20 million net investment losses in 2022 compared to $15 million net investment gains in 2021 on dedicated assets in support of our employee nonqualified benefit plan and deferred compensation obligations;
offset by
▪
$30 million income tax benefit in 2022 from changes to a valuation allowance against certain tax credit carryforwards;
▪
$19 million lower income tax expense from the interim period application of an annual forecasted consolidated ETR; and
▪
$9 million lower preferred dividends due to the mandatory conversion of all series B preferred stock in July 2021.
The increase in losses of $157 million in the six months ended June 30, 2022 compared to the same period in 2021 was primarily due to:
▪
$120 million deferred income tax expense associated with the change in our indefinite reinvestment assertion related to our foreign subsidiaries, which we discuss in Note 1 of the Notes to Condensed Consolidated Financial Statements;
▪
$37 million net investment losses in 2022 compared to $17 million net investment gains in 2021 on dedicated assets in support of our employee nonqualified benefit plan and deferred compensation obligations; and
▪
$50 million equity earnings in 2021 related to our investment in RBS Sempra Commodities to settle pending VAT matters and related legal costs;
offset by
▪
$30 million income tax benefit in 2022 from changes to a valuation allowance against certain tax credit carryforwards;
▪
$19 million lower preferred dividends due to the mandatory conversion of all series B preferred stock in July 2021;
▪
$5 million income tax benefit in 2022 compared to an $8 million income tax expense in 2021 from the interim period application of an annual forecasted consolidated ETR; and
▪
$11 million lower net interest expense.
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.
89
Utilities Revenues and Cost of Sales
Our utilities revenues include natural gas revenues at SoCalGas and SDG&E and Sempra Infrastructure’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 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.
▪
SoCalGas and SDG&E to recover certain program expenditures and other costs authorized by the CPUC, or “refundable programs.”
Because changes in SoCalGas’ and SDG&E’s cost of natural gas and/or electricity are recovered in rates, changes in these costs are offset in the changes in revenues and therefore do not impact earnings. In addition to the changes in cost or market prices, natural gas or electric revenues recorded during a period are impacted by the difference between customer billings and recorded or CPUC-authorized amounts. These differences are required to be balanced over time, resulting in over- and undercollected regulatory balancing accounts. We discuss balancing accounts and their effects further in Note 4 of the Notes to Condensed Consolidated Financial Statements in this report and in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.
SoCalGas’ and SDG&E’s 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.
90
The table below summarizes utilities revenues and cost of sales.
| UTILITIES REVENUES AND COST OF SALES | |||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Natural gas revenues: | |||||||||||||||||||||||
| SoCalGas | $ | 1,501 | $ | 1,124 | $ | 3,494 | $ | 2,632 | |||||||||||||||
| SDG&E | 207 | 160 | 532 | 428 | |||||||||||||||||||
|
Sempra Infrastructure
|
20 | 17 | 48 | 44 | |||||||||||||||||||
| Eliminations and adjustments | (24) | (23) | (50) | (49) | |||||||||||||||||||
| Total | 1,704 | 1,278 | 4,024 | 3,055 | |||||||||||||||||||
| Electric revenues: | |||||||||||||||||||||||
| SDG&E | 1,192 | 1,158 | 2,312 | 2,227 | |||||||||||||||||||
| Eliminations and adjustments | (3) | (2) | (6) | (3) | |||||||||||||||||||
| Total | 1,189 | 1,156 | 2,306 | 2,224 | |||||||||||||||||||
| Total utilities revenues | $ | 2,893 | $ | 2,434 | $ | 6,330 | $ | 5,279 | |||||||||||||||
|
Cost of natural gas
(1)
:
|
|||||||||||||||||||||||
| SoCalGas | $ | 459 | $ | 223 | $ | 1,136 | $ | 496 | |||||||||||||||
| SDG&E | 69 | 40 | 195 | 122 | |||||||||||||||||||
|
Sempra Infrastructure
|
5 | 6 | 14 | 12 | |||||||||||||||||||
| Eliminations and adjustments | (5) | (8) | (15) | (20) | |||||||||||||||||||
| Total | 528 | 261 | 1,330 | 610 | |||||||||||||||||||
|
Cost of electric fuel and purchased power
(1)
:
|
|||||||||||||||||||||||
| SDG&E | 269 | 304 | 490 | 545 | |||||||||||||||||||
| Eliminations and adjustments | (18) | (20) | (34) | (29) | |||||||||||||||||||
| Total | 251 | 284 | 456 | 516 | |||||||||||||||||||
|
Total utilities cost of sales
|
$ | 779 | $ | 545 | $ | 1,786 | $ | 1,126 | |||||||||||||||
(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 Sempra California 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.
| SEMPRA CALIFORNIA AVERAGE COST OF NATURAL GAS | |||||||||||||||||||||||
| (Dollars per thousand cubic feet) | |||||||||||||||||||||||
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| SoCalGas | $ | 7.63 | $ | 3.73 | $ | 7.11 | $ | 3.01 | |||||||||||||||
| SDG&E | 7.84 | 4.42 | 7.16 | 4.44 | |||||||||||||||||||
In the three months ended June 30, 2022, our natural gas revenues increased by $426 million (33%) to $1.7 billion compared to the same period in 2021 primarily due to:
▪
$377 million increase at SoCalGas, which included:
◦
$236 million increase in cost of natural gas sold, which we discuss below,
◦
$65 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M,
◦
$52 million higher CPUC-authorized revenues, and
◦
$12 million higher revenues from incremental and balanced capital projects; and
▪
$47 million increase at SDG&E, which included:
◦
$29 million increase in cost of natural gas sold, which we discuss below, and
◦
$13 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M.
In the three months ended June 30, 2022, our cost of natural gas increased by $267 million to $528 million compared to the same period in 2021 primarily due to:
▪
$236 million increase at SoCalGas primarily due to higher average natural gas prices; and
91
▪
$29 million increase at SDG&E primarily due to higher average natural gas prices.
In the six months ended June 30, 2022, our natural gas revenues increased by $969 million (32%) to $4.0 billion compared to the same period in 2021 primarily due to:
▪
$862 million increase at SoCalGas, which included:
◦
$640 million increase in cost of natural gas sold, which we discuss below,
◦
$82 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M,
◦
$81 million higher CPUC-authorized revenues,
◦
$33 million higher revenues from incremental and balanced capital projects, and
◦
$24 million higher revenues associated with impacts resulting from changes in tax laws tracked in the income tax expense memorandum account; and
▪
$104 million increase at SDG&E, which included:
◦
$73 million increase in cost of natural gas sold, which we discuss below,
◦
$13 million higher revenues from balanced capital projects,
◦
$12 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M, and
◦
$6 million higher CPUC-authorized revenues.
In the six months ended June 30, 2022, our cost of natural gas increased by $720 million to $1.3 billion compared to the same period in 2021 primarily due to:
▪
$640 million increase at SoCalGas primarily due to higher average natural gas prices; and
▪
$73 million increase at SDG&E primarily due to higher average natural gas prices.
Electric Revenues and Cost of Electric Fuel and Purchased Power
In the three months ended June 30, 2022, our electric revenues, substantially all of which are at SDG&E, increased by $33 million (3%) remaining at $1.2 billion compared to the same period in 2021 primarily due to:
▪
$35 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M;
▪
$17 million higher CPUC-authorized revenues;
▪
$16 million higher revenues associated with SDG&E’s wildfire mitigation plan;
▪
$12 million higher revenues from transmission operations; and
▪
$8 million higher revenues associated with lower income tax benefits from flow-through items;
offset by
▪
$35 million lower cost of electric fuel and purchased power, which we discuss below; and
▪
$10 million lower revenues associated with impacts resulting from changes in tax laws tracked in the income tax expense memorandum account.
Our utility cost of electric fuel and purchased power includes utility-owned generation, power purchased from third parties, and net power purchases and sales to the California ISO. In the three months ended June 30, 2022, the cost of electric fuel and purchased power decreased by $33 million (12%) to $251 million compared to the same period in 2021 primarily due to $35 million at SDG&E from higher sales to the California ISO due to higher market prices and lower customer demand primarily due to departing load now served by CCAs, offset by higher utility-owned generation costs.
In the six months ended June 30, 2022, our electric revenues, substantially all of which are at SDG&E, increased by $82 million (4%) to $2.3 billion compared to the same period in 2021 primarily due to:
▪
$37 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M;
▪
$34 million higher CPUC-authorized revenues;
▪
$32 million higher revenues associated with SDG&E’s wildfire mitigation plan;
▪
$22 million higher revenues from transmission operations; and
▪
$14 million higher revenues associated with lower income tax benefits from flow-through items;
offset by
▪
$55 million lower cost of electric fuel and purchased power, which we discuss below.
In the six months ended June 30, 2022, the cost of electric fuel and purchased power decreased by $60 million (12%) to $456 million compared to the same period in 2021 primarily due to:
▪
$55 million at SDG&E from higher sales to the California ISO due to higher market prices and lower customer demand primarily due to departing load now served by CCAs, offset by higher utility-owned generation costs; and
92
▪
$5 million higher intercompany eliminations associated with sales between SDG&E and Sempra Infrastructure due to the acquisition of ESJ in 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 | |||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
|
Sempra Infrastructure
|
$ | 669 | $ | 324 | $ | 1,065 | $ | 746 | |||||||||||||||
|
Parent and other
(1)
|
(15) | (17) | (28) | (25) | |||||||||||||||||||
| Total revenues | $ | 654 | $ | 307 | $ | 1,037 | $ | 721 | |||||||||||||||
|
Cost of sales
(2)
:
|
|||||||||||||||||||||||
|
Sempra Infrastructure
|
$ | 289 | $ | 119 | $ | 424 | $ | 227 | |||||||||||||||
|
Parent and other
(1)
|
— | — | — | 1 | |||||||||||||||||||
| Total cost of sales | $ | 289 | $ | 119 | $ | 424 | $ | 228 | |||||||||||||||
(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 June 30, 2022, revenues from our energy-related businesses increased by $347 million to $654 million compared to the same period in 2021 primarily due to:
▪
$266 million increase in revenues from asset and supply optimization from contracts to sell natural gas and LNG to third parties, including:
◦
$230 million from higher natural gas prices and lower unrealized losses on commodity derivatives offset by lower volumes, and
◦
$36 million primarily from higher diversion fees due to higher natural gas prices;
▪
$24 million higher revenues from TdM mainly due to higher power prices offset by lower volumes;
▪
$20 million higher revenues from the renewables business primarily due to higher transmission rates and the second phase of ESJ being placed in service in January 2022;
▪
$14 million higher transportation revenues primarily driven by higher
rates; and
▪
$11 million higher revenues primarily from the Mexico City terminal placed in service in July 2021.
In the three months ended June 30, 2022, the cost of sales for our energy-related businesses increased by $170 million to $289 million compared to the same period in 2021 primarily due to higher natural gas prices and higher LNG purchases related to asset and supply optimization and higher natural gas prices offset by lower volumes at TdM.
In the six months ended June 30, 2022, revenues from our energy-related businesses increased by $316 million (44%) to $1.0 billion compared to the same period in 2021 primarily due to:
▪
$197 million increase in revenues from asset and supply optimization from contracts to sell natural gas and LNG to third parties, including:
◦
$157 million from higher natural gas prices and lower unrealized losses on commodity derivatives offset by lower volumes, and
◦
$40 million primarily from higher diversion fees due to higher natural gas prices;
▪
$36 million higher revenues from the renewables business primarily due to Border Solar and the second phase of ESJ being placed in service in March 2021 and January 2022, respectively, and the acquisition of ESJ in March 2021;
▪
$35 million higher transportation revenues primarily driven by higher
rates;
▪
$28
million higher
revenues primarily from the Veracruz and Mexico City terminals placed in service in March and July of 2021, respectively; and
▪
$14 million higher revenues from TdM mainly due to higher power prices, offset by lower volumes from scheduled major maintenance completed in March 2022, which resulted in increased plant reliability.
93
In the six months ended June 30, 2022, the cost of sales for our energy-related businesses increased by $196 million to $424 million compared to the same period in 2021 primarily due to higher natural gas prices and higher LNG purchases related to asset and supply optimization and higher natural gas prices offset by lower volumes from scheduled major maintenance completed in March 2022 at TdM.
Operation and Maintenance
In the three months ended June 30, 2022, O&M increased by $138 million (13%) to $1.2 billion compared to the same period in 2021 primarily due to:
▪
$80 million increase at SoCalGas primarily due to:
◦
$65 million higher expenses associated with refundable programs, which costs incurred are recovered in revenue, and
◦
$15 million higher non-refundable operating costs;
▪
$47 million increase at SDG&E primarily due to higher expenses associated with refundable programs, which costs incurred are recovered in revenue; and
▪
$24 million increase at Sempra Infrastructure primarily due to:
◦
$13 million from the renewables business primarily due to construction repairs and maintenance at Ventika, and
◦
$6 million primarily due to the start of commercial operations of the Mexico City terminal in July 2021;
offset by
▪
$13 million decrease at Parent and other primarily from lower deferred compensation expense.
In the six months ended June 30, 2022, O&M increased by $223 million (11%) to $2.2 billion compared to the same period in 2021 primarily due to:
▪
$128 million increase at SoCalGas primarily due to:
◦
$82 million higher expenses associated with refundable programs, which costs incurred are recovered in revenue, and
◦
$46 million higher non-refundable operating costs;
▪
$54 million increase at SDG&E primarily due to:
◦
$49 million higher expenses associated with refundable programs, which costs incurred are recovered in revenue, and
◦
$5 million higher non-refundable operating costs; and
▪
$52 million increase at Sempra Infrastructure primarily due to:
◦
$20 million from the renewables business primarily due to construction repairs and maintenance at Ventika,
◦
$17 million primarily due to the start of commercial operations of the Veracruz and Mexico City terminals in March and July of 2021, respectively, and
◦
$14 million higher operating costs at TdM primarily from higher purchased materials and services due to scheduled major maintenance completed in March 2022;
offset by
▪
$11 million decrease at Parent and other primarily from lower deferred compensation expense.
Aliso Canyon Litigation and Regulatory Matters
In the three months and six months ended June 30, 2022, SoCalGas recorded charges of $45 million and $137 million, respectively, relating to civil litigation pertaining to the Leak. We describe these charges in Note 11 of the Notes to Condensed Consolidated Financial Statements.
Other (Expense) Income, Net
As part of our central risk management function, we may enter into foreign currency derivatives to hedge SI Partners’ exposure to movements in the Mexican peso from its controlling interest in IEnova. The gains/losses associated with these derivatives are included in Other Income, Net, as described below, and partially mitigate the transactional effects of foreign currency and inflation included in Income Tax Expense for SI Partners’ consolidated entities and in Equity Earnings for SI Partners’ equity method investments. We discuss policies governing our risk management in “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in the Annual Report.
Other expense, net, in the three months ended June 30, 2022 was $1 million compared to other income, net, of $72 million in the same period in 2021 primarily due to:
▪
$34 million investment losses in 2022 compared to $19 million investment gains in 2021 on dedicated assets in support of our executive retirement and deferred compensation plans; and
▪
$4 million losses in 2022 from impacts associated with interest rate and foreign exchange instruments and foreign currency transactions compared to $33 million gains in 2021 primarily due to:
94
◦
$28 million in foreign currency gains in 2021 on a Mexican peso-denominated loan to IMG, which is offset in Equity Earnings, and
◦
$7 million gains in 2021 on cross-currency swaps as a result of fluctuation of the Mexican peso;
offset by
▪
$6 million lower non-service component of net periodic benefit cost.
In the six months ended June 30, 2022, other income, net, decreased by $70 million to $37 million compared to the same period in 2021 primarily due to:
▪
$47 million investment losses in 2022 compared to $28 million investment gains in 2021 on dedicated assets in support of our executive retirement and deferred compensation plans;
▪
$10 million in penalties at SoCalGas related to the energy efficiency and advocacy OSCs; and
▪
$1 million higher net losses from impacts associated with interest rate and foreign exchange instruments and foreign currency transactions primarily due to:
◦
$11 million foreign currency losses in 2022 compared to $5 million foreign currency gains in 2021 on a Mexican peso-denominated loan to IMG, which is offset in Equity Earnings, and
◦
$11 million losses in 2022 compared to $2 million gains in 2021 on other foreign currency transactional effects,
offset by
◦
$6 million gains in 2022 on cross-currency swaps compared to $23 million losses in 2021 on foreign currency derivatives and cross-currency swaps as a result of fluctuation of the Mexican peso;
offset by
▪
$18 million higher non-service component of net periodic benefit credit.
Income Taxes
The table below shows the income tax expense and ETRs for Sempra, SDG&E and SoCalGas.
| INCOME TAX EXPENSE AND EFFECTIVE INCOME TAX RATES | |||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
|
Sempra:
|
|||||||||||||||||||||||
|
Income tax expense
|
$ | 80 | $ | 139 | $ | 414 | $ | 297 | |||||||||||||||
| Income before income taxes and equity earnings | $ | 364 | $ | 281 | $ | 1,029 | $ | 1,049 | |||||||||||||||
|
Equity earnings, before income tax
(1)
|
159 | 185 | 302 | 320 | |||||||||||||||||||
|
Pretax income
|
$ | 523 | $ | 466 | $ | 1,331 | $ | 1,369 | |||||||||||||||
| Effective income tax rate | 15 | % | 30 | % | 31 | % | 22 | % | |||||||||||||||
| SDG&E: | |||||||||||||||||||||||
| Income tax expense | $ | 42 | $ | 33 | $ | 106 | $ | 78 | |||||||||||||||
| Income before income taxes | $ | 218 | $ | 219 | $ | 516 | $ | 476 | |||||||||||||||
| Effective income tax rate | 19 | % | 15 | % | 21 | % | 16 | % | |||||||||||||||
| SoCalGas: | |||||||||||||||||||||||
|
Income tax expense
|
$ | 19 | $ | 8 | $ | 103 | $ | 102 | |||||||||||||||
|
Income before income taxes
|
$ | 107 | $ | 103 | $ | 525 | $ | 604 | |||||||||||||||
| Effective income tax rate | 18 | % | 8 | % | 20 | % | 17 | % | |||||||||||||||
(1)
We discuss how we recognize equity earnings in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report.
Sempra
In the three months ended June 30, 2022, Sempra’s income tax expense decreased by $59 million (42%) compared to the same period in 2021 primarily due to:
▪
$14 million income tax expense in 2022 compared to $83 million income tax expense in 2021 from foreign currency and inflation effects on our monetary positions in Mexico and associated derivatives;
▪
$30 million income tax benefit in 2022 from changes to a valuation allowance against certain tax credit carryforwards; and
▪
$13 million favorable U.S. tax impact in 2022 from converting SI Partners from a corporation to a partnership in October 2021;
offset by
▪
$16 million income tax benefit in 2021 from the remeasurement of certain deferred income taxes;
▪
lower income tax benefit from flow-through items; and
▪
higher pretax income.
95
In the six months ended June 30, 2022, Sempra’s income tax expense increased by $117 million (39%) compared to the same period in 2021 primarily due to:
▪
$120 million deferred income tax expense associated with the change in our indefinite reinvestment assertion related to our foreign subsidiaries, which we discuss in Note 1 to Condensed Consolidated Financial Statements;
▪
$84 million income tax expense in 2022 compared to $41 million income tax expense in 2021 from foreign currency and inflation effects on our monetary positions in Mexico and associated derivatives; and
▪
lower income tax benefit from flow-through items;
offset by
▪
$30 million income tax benefit in 2022 from changes to a valuation allowance against certain tax credit carryforwards;
▪
$18 million higher net income tax benefit in 2022 from the remeasurement of certain deferred income taxes; and
▪
$18 million favorable U.S. income tax impact in 2022 from converting SI Partners from a corporation to a partnership in October 2021.
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
In the three months ended June 30, 2022, SDG&E’s income tax expense increased by $9 million (27%) compared to the same period in 2021 primarily due to lower income tax benefits from flow-through items.
In the six months ended June 30, 2022, SDG&E’s income tax expense increased by $28 million (36%) compared to the same period in 2021 primarily due to higher pretax income and lower income tax benefits from flow-through items.
SoCalGas
In the three months ended June 30, 2022, SoCalGas’ income tax expense increased by $11 million compared to the same period in 2021 primarily due to lower income tax benefits from flow-through items.
In the six months ended June 30, 2022, SoCalGas’ income tax expense increased by $1 million (1%) compared to the same period in 2021 primarily due to lower income tax benefits from flow-through items partially offset by lower pretax income.
Equity Earnings
In the three months ended June 30, 2022, equity earnings increased by $62 million (20%) to $375 million compared to the same period in 2021 primarily due to:
▪
$47 million higher equity earnings at Oncor Holdings primarily due to increased revenues from higher customer consumption primarily attributable to weather, rate updates to reflect increases in invested capital and customer growth, offset by increased expenses and operating costs attributable to invested capital;
▪
$23 million higher equity earnings at Cameron LNG JV primarily due to higher maintenance revenues; and
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$35 million higher equity earnings at IMG, primarily due to foreign currency effects, including $28 million foreign currency losses in 2021 on IMG’s Mexican peso-denominated loans from its JV owners, which is fully offset in Other (Expense) Income, Net, and lower interest expense;
offset by
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$50 million equity earnings in 2021 related our investment in RBS Sempra Commodities to settle pending VAT matters and related legal costs.
In the six months ended June 30, 2022, equity earnings increased by $70 million (11%) to $701 million compared to the same period in 2021 primarily due to:
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$73 million higher equity earnings at Oncor Holdings primarily due to increased revenues from rate updates to reflect increases in invested capital, higher customer consumption primarily attributable to weather and customer growth, offset by increased expenses and operating costs attributable to invested capital;
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$30 million higher equity earnings at Cameron LNG JV primarily due to higher maintenance revenues; and
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$14 million higher equity earnings at IMG, primarily due to foreign currency effects, including $11 million foreign currency gains in 2022 compared to $5 million foreign currency losses in 2021 on IMG’s Mexican peso-denominated loans from its JV owners, which is fully offset in Other (Expense) Income, Net, and lower interest expense offset by higher income tax expense;
offset by
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$50 million equity earnings in 2021 related to our investment in RBS Sempra Commodities to settle pending VAT matters and related legal costs.
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Earnings Attributable to Noncontrolling Interests
In the three months ended June 30, 2022, earnings attributable to NCI increased by $78 million to $88 million compared to the same period in 2021 primarily due to:
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$40 million increase as a result of a decrease in our ownership interest in SI Partners net of an increase in our ownership interest in IEnova; and
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$37 million primarily due to an increase in SI Partners subsidiaries net income.
In the six months ended June 30, 2022, earnings attributable to NCI increased by $79 million to $122 million compared to the same period in 2021 primarily due to:
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$57 million increase as a result of a decrease in our ownership interest in SI Partners net of an increase in our ownership interest in IEnova; and
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$21 million primarily due to an increase in SI Partners subsidiaries net income.
Preferred Dividends
In the three months and six months ended June 30, 2022, preferred dividends decreased by $9 million to $11 million and $19 million to $22 million, respectively, compared to the same period in 2021 primarily due to the conversion of all series B preferred stock in July 2021.
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. 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.
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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 six months ended June 30, 2022, the change in our earnings as a result of foreign currency translation rates was negligible compared to the same period in 2021.
Transactional Impacts
Income statement activities at our Mexico 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 (losses) gains included in reported amounts | ||||||||||||||||||||||
| Three months ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Other (expense) income, net | $ | (1) | $ | 72 | $ | (4) | $ | 33 | |||||||||||||||
|
Income tax expense
|
(80) | (139) | (14) | (83) | |||||||||||||||||||
| Equity earnings | 375 | 313 | — | (35) | |||||||||||||||||||
| Net income | 659 | 455 | (18) | (85) | |||||||||||||||||||
| Earnings attributable to noncontrolling interests | (88) | (10) | 2 | 13 | |||||||||||||||||||
| Earnings attributable to common shares | 559 | 424 | (16) | (72) | |||||||||||||||||||
| Six months ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Other (expense) income, net | $ | 37 | $ | 107 | $ | (17) | $ | (16) | |||||||||||||||
|
Income tax expense
|
(414) | (297) | (84) | (41) | |||||||||||||||||||
| Equity earnings | 701 | 631 | (12) | (16) | |||||||||||||||||||
| Net income | 1,316 | 1,383 | (113) | (73) | |||||||||||||||||||
| Earnings attributable to noncontrolling interests | (122) | (43) | 22 | 4 | |||||||||||||||||||
| Earnings attributable to common shares | 1,171 | 1,298 | (91) | (69) | |||||||||||||||||||
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 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” in the Annual Report.
Liquidity
We expect to meet our cash requirements through cash flows from operations, unrestricted cash and cash equivalents, borrowings under or supported by our credit facilities, other incurrences of debt including issuing debt securities and obtaining term loans, distributions from our equity method investments, project financing and funding from minority interest owners. We believe that
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these cash flow sources, combined with available funds, will be adequate to fund our operations in both the short-term and long-term, including to:
▪
finance capital expenditures
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repay debt
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fund dividends
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meet liquidity requirements
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fund capital contribution requirements
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fund expenditures related to the natural gas leak at SoCalGas’ Aliso Canyon natural gas storage facility
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repurchase shares of our common stock
▪
fund new business or asset acquisitions or start-ups
Sempra, SDG&E and SoCalGas currently have reasonable access to the money markets and capital markets and are not currently constrained in their ability to borrow money at market rates from commercial banks, under existing revolving credit facilities, through public offerings registered with the SEC, or through private placements of debt supported by our revolving credit facilities in the case of commercial paper. 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 or disruptions to or volatility in the money markets and capital markets worsen. These sources of funding also may become less attractive to the extent interest rates rise. 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 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 goal to maintain our investment-grade credit ratings.
Available Funds
Our committed lines of credit provide liquidity and support commercial paper. Sempra, SDG&E and SoCalGas each have five-year credit agreements expiring in 2024, SI Partners has a three-year credit agreement expiring in 2024 and IEnova has committed lines of credit that expire in 2023 and 2024. In addition, IEnova and ECA LNG Phase 1 have uncommitted revolving credit facilities that expire in 2022 and 2023.
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AVAILABLE FUNDS AT JUNE 30, 2022
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| (Dollars in millions) | |||||||||||||||||
| Sempra | SDG&E | SoCalGas | |||||||||||||||
|
Unrestricted cash and cash equivalents
(1)
|
$ | 1,931 | $ | 533 | $ | 416 | |||||||||||
|
Available unused credit
(2)
|
9,150 | 1,500 | 750 | ||||||||||||||
(1)
Amounts at Sempra include $92 held in non-U.S. jurisdictions. We discuss repatriation in Note 1 of the Notes to Condensed Consolidated Financial Statements in this report and Note 8 of the Notes to Consolidated Financial Statements in the Annual Report.
(2)
Available unused credit is the total available on committed and uncommitted lines of credit that we discuss in Note 7 of the Notes to Condensed Consolidated Financial Statements. 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. SDG&E and SoCalGas use short-term debt primarily to meet working capital needs or to help fund event-specific costs, such as upcoming payments at SoCalGas related to resolving certain civil litigation pertaining to the Leak. Commercial paper and lines of credit were our primary sources of short-term debt funding in the first six months of 2022.
We discuss our short-term debt activities in Note 7 of the Notes to Condensed Consolidated Financial Statements and below in “Sources and Uses of Cash.”
Long-Term Debt Activities
Significant issuances of and payments on long-term debt in the first six months of 2022 included the following:
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| LONG-TERM DEBT ISSUANCES AND PAYMENTS | ||||||||||||||
| (Dollars in millions) | ||||||||||||||
| Issuances: | Amount at issuance | Maturity | ||||||||||||
| Sempra 3.30% fixed rate notes | $ | 750 | 2025 | |||||||||||
| Sempra 3.70% fixed rate notes | 500 | 2029 | ||||||||||||
| SDG&E variable rate term loan | 400 | 2024 | ||||||||||||
| SDG&E 3.00% first mortgage bonds | 500 | 2032 | ||||||||||||
| SDG&E 3.70% first mortgage bonds | 500 | 2052 | ||||||||||||
| SoCalGas 2.95% fixed rate notes | 700 | 2027 | ||||||||||||
| Sempra Infrastructure variable rate notes | 114 | 2025 | ||||||||||||
| Sempra Infrastructure 3.25% fixed rate notes | 400 | 2032 | ||||||||||||
| Payments: | Payments | Maturity | ||||||||||||
| SDG&E 1.914% amortizing first mortgage bonds | 17 | 2022 | ||||||||||||
| Sempra Infrastructure amortizing variable rate notes (5.13% after floating-to-fixed rate swaps) | 23 | 2022 | ||||||||||||
We discuss our long-term debt activities, including the use of proceeds on long-term debt issuances, 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 six months of 2022.
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CREDIT RATINGS AT JUNE 30, 2022
|
|||||||||||||||||
| 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 the imposition of financial and/or other burdensome covenants and 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 June 30, 2022.
Loans with Affiliates
At June 30, 2022, Sempra had a $626 million loan due from an unconsolidated affiliate and $282 million in loans due to unconsolidated affiliates. In July 2022, the loan due from an unconsolidated affiliate was paid in full, prior to its March 2023 maturity date.
Sempra
California
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, which also supports their commercial paper programs, cash flows from operations, and other incurrences of debt including issuing debt securities and obtaining term loans will continue to be adequate to fund their respective current operations and planned capital expenditures. Additionally, as we discuss below, Sempra elected to make equity contributions to SoCalGas of $800 million in
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September 2021 and $150 million in June 2022 and expects to make an additional equity contribution of approximately $500 million in August 2022. These voluntary equity contributions are intended to assist SoCalGas in maintaining its approved capital structure. SDG&E and SoCalGas manage their capital structures 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 or refunded in rates through billings to customers.
COVID-19 Pandemic Protections
SDG&E and SoCalGas are continuing to monitor the impacts of the COVID-19 pandemic on cash flows and results of operations. Some customers have experienced and continue to experience a diminished ability to pay their electric or gas bills, leading to slower payments and higher levels of nonpayment than has been the case historically. These impacts could become significant and could require modifications to our financing plans.
In connection with the COVID-19 pandemic and at the direction of the CPUC, SDG&E and SoCalGas implemented a number of measures to assist customers, including automatically enrolling residential and small business customers with past-due balances in long-term repayment plans.
In 2021, SDG&E and SoCalGas applied, on behalf of their customers, for financial assistance from the California Department of Community Services and Development under the California Arrearage Payment Program, which provided funds of $63 million and $79 million for SDG&E and SoCalGas, respectively. In the first quarter of 2022, SDG&E and SoCalGas received and applied the amounts directly to eligible customer accounts to reduce past due balances. In June 2022, AB 205 was approved establishing, among other things, the 2022 California Arrearage Payment Program. SDG&E and SoCalGas expect to apply for funding from this program on behalf of their residential customers with past due balances and, if approved, receive such funding in the first quarter of 2023.
SDG&E
Authorized Cost of Capital, Subject to the CCM
As we discuss in Note 4 of the Notes to Condensed Consolidated Financial Statements, in December 2019, the CPUC approved the cost of capital 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.
For the measurement period that ended September 30, 2021, the CCM would trigger for SDG&E if the CPUC determines that the CCM should be implemented because the average Moody’s Baa- utility bond index between October 1, 2020 and September 30, 2021 was 1.17% below SDG&E’s CCM benchmark rate of 4.498%. In August 2021, SDG&E filed an application with the CPUC to update its cost of capital due to the ongoing effects of the COVID-19 pandemic rather than have the CCM apply. In December 2021, the CPUC established a proceeding to determine if SDG&E’s cost of capital was impacted by an extraordinary event such that the CCM should not apply. If the CPUC finds that there was not an extraordinary event, the CCM would be effective retroactive to 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. If the CPUC finds that there was an extraordinary event, it will then determine whether to suspend the CCM for 2022 and preserve SDG&E’s current authorized cost of capital or hold a second phase of the proceeding to set a new cost of capital for 2022. SDG&E expects to receive a final decision in the second half of 2022. In December 2021, the CPUC granted SDG&E the establishment of memorandum accounts effective January 1, 2022 to track any differences in revenue requirement resulting from the interim cost of capital decision expected in 2022.
We further discuss the CCM in “Part I – Item 1A. Risk Factors” in the Annual Report.
Wildfire Fund
The carrying value of SDG&E’s Wildfire Fund asset totals $346 million at June 30, 2022. We describe the Wildfire Legislation and related accounting treatment and SDG&E’s commitment to make annual shareholder contributions to the Wildfire Fund through 2028 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 with respect to wildfires that have occurred since enactment of the Wildfire Legislation
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in July 2019. In such a situation, SDG&E may recognize a reduction of its Wildfire Fund asset and record an impairment charge against earnings when there is a reduction of the available coverage due to recoverable claims from any of the participating IOUs. PG&E has indicated that it will seek reimbursement from the Wildfire Fund for losses associated with the Dixie Fire, which burned from July 2021 through October 2021 and was reported to be the largest single wildfire (measured by acres burned) in California history. If any California electric IOU’s equipment is determined to be a cause of a fire, it could have a material adverse effect on SDG&E’s and Sempra’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 have a material adverse effect on SDG&E’s and Sempra’s results of operations, financial condition, cash flows and/or prospects.
Wildfire Cost Recovery Mechanism
In July 2021, SDG&E filed a request with the CPUC to establish an interim cost recovery mechanism that would recover in rates 50% of its wildfire mitigation plan costs. The proposed recovery would be incremental to wildfire costs currently authorized in its GRC and would be subject to reasonableness review. In May 2022, the CPUC issued a final decision denying SDG&E’s request and directing SDG&E to file for the review and recovery of its wildfire mitigation plan costs through its next GRC or a separate application. SDG&E proposes to submit separate requests in its GRC for review and recovery of its wildfire mitigation plan costs in mid-2023 for costs incurred from 2019 through 2022 and in mid-2024 for costs incurred in 2023.
Off-Balance Sheet Arrangements
SDG&E has entered into PPAs and tolling agreements that are variable interests in unconsolidated entities. We discuss variable interests in Note 1 of the Notes to Condensed Consolidated Financial Statements.
SoCalGas
SoCalGas’ future performance and liquidity will be impacted by the resolution of legal, regulatory and other matters concerning the Leak, which we discuss below 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.
Cost Estimate, Accounting Impact and Insurance.
At June 30, 2022, SoCalGas estimates certain costs related to the Leak are $3,361 million (the cost estimate). This cost estimate may increase significantly as more information becomes available. At June 30, 2022, $2,003 million of the cost estimate is accrued in Reserve for Aliso Canyon Costs and $4 million of the cost estimate is accrued in Deferred Credits and Other on SoCalGas’ and Sempra’s Condensed Consolidated Balance Sheets.
Sempra elected to make equity contributions to SoCalGas of $800 million in September 2021 and $150 million in June 2022 and expects to make an additional equity contribution of approximately $500 million in August 2022. These voluntary equity contributions are intended to assist SoCalGas in maintaining its approved capital structure. SoCalGas expects to make a payment of approximately $1.8 billion on or around August 30, 2022 related to the settlement of the Individual Plaintiff Litigation. SoCalGas plans to fund the settlement payment using a combination of equity contributions from Sempra, short-term debt and cash on hand.
Except for the amounts paid or estimated to settle certain legal and regulatory matters, the cost estimate does not include (i) any amounts necessary to resolve claims of Individual Plaintiffs who do not agree to participate in the settlement of the Individual Plaintiff Litigation or (ii) the 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 or a range of possible costs for damages, restitution, civil or administrative fines 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. The costs or losses not included in the cost estimate could be significant and could have a material adverse effect on SoCalGas’ and Sempra’s results of operations, financial condition, cash flows and/or prospects.
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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 June 30, 2022, we recorded the expected recovery of the cost estimate related to the Leak of $344 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 $935 million of insurance proceeds we received through June 30, 2022. 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 and/or delays could have a material adverse effect on SoCalGas’ and Sempra’s results of operations, financial condition, cash flows 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 component 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 June 30, 2022, the Aliso Canyon natural gas storage facility had a net book value of $908 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, we may record an impairment of the facility, incur 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. Any such outcome could have a material adverse effect on SoCalGas’ and Sempra’s results of operations, financial condition, cash flows and/or prospects.
Franchise Agreement
In December 2021, the Los Angeles City Council awarded SoCalGas a new, 21-year natural gas franchise following an invitation for bids, which was approved and signed by the City of Los Angeles mayor in January 2022. The 21-year term consists of an initial 13-year term from the effective date, followed by an 8-year term that the City of Los Angeles has the option to terminate. Among other conditions, the new franchise agreement was subject to CPUC approval of the rates and surcharges therein for it to become effective, which SoCalGas received in March 2022. Consistent with its terms, the new agreement went into effect on May 1, 2022, until which time SoCalGas continued to serve customers located in the City of Los Angeles in accordance with the agreement that expired on December 31, 2021, by operation of law.
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 reduce the cash available to us for other purposes, increase our indebtedness and ultimately materially adversely affect our results of operations, financial condition, cash flows and/or prospects. Oncor’s ability to make distributions may be limited by factors such as its credit ratings, regulatory capital requirements, increases in its capital plan, debt-to-equity ratio approved by the PUCT and other restrictions and considerations. In addition, Oncor will not make distributions 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.
Off-Balance Sheet Arrangement
Our investment in Oncor Holdings is a variable interest in an unconsolidated entity. We discuss variable interests in Note 1 of the Notes to Condensed Consolidated Financial Statements.
Sempra Infrastructure
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Sempra Infrastructure expects to fund capital expenditures, investments and operations in part with available funds, including credit facilities, and cash flows from operations of the Sempra Infrastructure businesses. We expect Sempra Infrastructure will require additional funding for the development and expansion of its portfolio of projects, which may be financed through a combination of funding from the parent and minority interest owners, bank financing, issuances of debt, project financing and partnering in JVs.
On June 1, 2022, we completed the sale of a 10% NCI in SI Partners to ADIA for cash proceeds of $1.7 billion. We have used a portion of the proceeds from the sale to ADIA to repay commercial paper borrowings used to repurchase $750 million in shares of our common stock ($300 million of which was completed in the fourth quarter of 2021, $200 million of which was completed in the first quarter of 2022 and $250 million of which was completed in the second quarter of 2022), and we intend to use the remaining proceeds to help fund capital expenditures at Sempra California and Sempra Texas Utilities and to further strengthen our balance sheet.
Following the closing of the ADIA transaction, Sempra, KKR and ADIA directly or indirectly own a 70%, 20%, and 10% interest, respectively, in SI Partners. The sale of NCI in SI Partners to ADIA has reduced our ownership interest in SI Partners and requires us to involve a new minority partner in making certain business decisions. Moreover, the decrease in our ownership of SI Partners also decreases our share of the cash flows, profits and other benefits these businesses currently or may in the future produce.
In the six months ended June 30, 2022, SI Partners distributed $106 million to its minority shareholder, KKR.
LNG and Net-Zero Solutions
In 2022 to date, Sempra Infrastructure has entered into the following non-binding HOAs for the negotiation and finalization of definitive SPAs with:
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PGNiG for a 20-year term for 2 Mtpa of LNG from the proposed Cameron LNG JV liquefaction expansion project (Cameron LNG JV Phase 2 project) and 1 Mtpa from the proposed PA LNG Phase 1 project. The HOA also provides PGNiG the opportunity in 2022 to reallocate volumes from the Cameron LNG JV Phase 2 project to the PA LNG Phase 1 project.
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INEOS Energy Trading Ltd., a subsidiary of INEOS Ltd., for a 20-year term for approximately 1.4 Mtpa of LNG from the proposed PA LNG Phase 1 project or the proposed Cameron LNG JV Phase 2 project, with amounts to be allocated between the two projects at Sempra Infrastructure’s election.
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RWE Supply & Trading GmbH, a subsidiary of RWE AG, for a 15-year term for 2.25 Mtpa of LNG from the proposed PA LNG Phase 1 project.
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ConocoPhillips for a 20-year term for 5 Mtpa of LNG from the proposed PA LNG Phase 1 project. The HOA is further discussed below.
The ultimate participation in and offtake from the proposed projects remain subject to negotiation and finalization of definitive agreements, among other factors, and the HOAs do not commit any party to enter into definitive agreements with respect to any of the applicable proposed projects.
Cameron LNG JV Liquefaction Expansion Project.
Cameron LNG JV is developing a proposed expansion project that would add one liquefaction train with an expected maximum production capacity of approximately 6.75 Mtpa and would increase the production capacity of the existing three trains through debottlenecking activities. The Cameron LNG JV site can accommodate additional trains beyond the proposed Cameron LNG JV Phase 2 project.
Cameron LNG JV previously received major permits and FTA and non-FTA approvals associated with the potential expansion that included up to two additional liquefaction trains and up to two additional full containment LNG storage tanks. In January 2022, Cameron LNG JV filed an amendment, subject to approval by the FERC, to modify the permits to allow the use of electric drives, instead of gas turbine drives, which would reduce overall emissions. The amendment, if approved, would also change the design from a two-train gas turbine expansion to a one-train electric drive expansion along with other design enhancements that, together, are expected to result in a more cost-effective and efficient facility, while also reducing overall greenhouse gas emissions.
Sempra Infrastructure and the other Cameron LNG JV partners, namely affiliates of TotalEnergies SE, Mitsui & Co., Ltd. and Japan LNG Investment, LLC, a company jointly owned by Mitsubishi Corporation and Nippon Yusen Kabushiki Kaisha, have entered into an HOA for the potential development of the Cameron LNG JV Phase 2 project. The HOA provides a commercial framework for the proposed project, including the contemplated allocation to Sempra Infrastructure of 50.2% of the projected fourth train production capacity and 25% of the projected debottlenecking capacity from the project under tolling agreements. The HOA contemplates the remaining capacity to be allocated equally to the existing Cameron LNG JV Phase 1 customers. Sempra Infrastructure plans to sell the LNG corresponding to its allocated capacity from the proposed Cameron LNG JV Phase 2 project
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under long-term SPAs prior to making a final investment decision. The HOA is a non-binding arrangement. The ultimate participation in and offtake by Sempra Infrastructure, TotalEnergies SE, Mitsui & Co., Ltd. and Japan LNG Investment, LLC remain subject to negotiation and finalization of definitive agreements, among other factors, and the HOA does not commit any party to enter into definitive agreements with respect to the proposed Cameron LNG JV Phase 2 project.
Sempra Infrastructure, the other Cameron LNG JV partners, and Cameron LNG JV have entered into a Phase 2 Project Development Agreement under which Sempra Infrastructure, subject to certain conditions and ongoing approvals by the Cameron LNG JV board, will manage and lead the Cameron LNG JV Phase 2 project development work up to a final investment decision by Cameron LNG JV.
Cameron LNG JV, upon the unanimous approval of the Cameron LNG JV board, awarded two FEED contracts, one to Bechtel Energy Inc. and the other to a joint venture between JGC America Inc. and Zachry Industrial Inc. At the conclusion of the resulting competitive FEED process, we expect to select one contractor to be the EPC contractor for the proposed Cameron LNG JV Phase 2 project.
In connection with the execution of the Phase 2 Project Development Agreement and the award of the FEED contracts, the Cameron LNG JV board unanimously approved an expansion development budget to fund, subject to the terms of the Phase 2 Project Development Agreement, development work necessary to prepare for a potential final investment decision.
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, scope restrictions on expansion of the project unless appropriate prior consent is obtained from the existing 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. Working under the framework established in the Phase 2 Project Development Agreement, Sempra Infrastructure is targeting completing the FEED work in the summer of 2023 and expects to be in a position to make a final investment decision shortly thereafter. The timing of when or if Cameron LNG JV will receive approval from the FERC to amend its permits and from the existing project lenders to conduct the expansion under its financing agreements is uncertain, and there is no assurance that Sempra Infrastructure will complete the necessary development work or that the Cameron LNG JV members will unanimously agree in a timely manner or at all on making a final investment decision, which, if not accomplished, would materially and adversely impact the development of the Cameron LNG JV Phase 2 project.
The development of the proposed 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, including approval from the FERC for amendments to existing permits; securing certain consents under the existing financing agreements and securing sufficient new financing; negotiating and completing suitable commercial agreements, including a definitive EPC contract and definitive Cameron LNG JV tolling 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 Infrastructure is developing two separate natural gas liquefaction export projects at its 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, but have planned measures to limit disruption of operations should any arise. However, construction of the proposed ECA LNG Phase 2 project would conflict with the current operations at the ECA Regas Facility, which currently has long-term regasification contracts for 100% of the regasification facility’s capacity through 2028, making the decisions on whether, when 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.
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 under development.
In April 2020, ECA LNG Phase 1 executed definitive 20-year SPAs with Mitsui & Co., Ltd. for approximately 0.8 Mtpa of LNG and with an affiliate of TotalEnergies SE for approximately 1.7 Mtpa of LNG. In December 2020, an affiliate of TotalEnergies SE acquired a 16.6% ownership interest in ECA LNG Phase 1, with Sempra Infrastructure retaining an 83.4% ownership interest. Our MOUs and/or HOAs with Mitsui & Co., Ltd., TotalEnergies SE, and ConocoPhillips, which we describe below, provide a framework for their potential offtake of LNG from, and potential acquisition of an equity interest in, ECA LNG Phase 2.
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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, Technip Energies has been working 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 $455 million was outstanding at June 30, 2022. 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 the ECA LNG Phase 2 project, 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, 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 results of operations, financial condition, cash flows and/or prospects, including the impairment of all or a substantial portion of the capital costs invested in the projects to date. For a discussion of these risks, see “Part I – Item 1A. Risk Factors” in the Annual Report.
Port Arthur LNG Liquefaction Export Project
. Sempra Infrastructure 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 Infrastructure received authorizations from the DOE in August 2015 and May 2019 that collectively permit the LNG to be produced from the proposed PA LNG Phase 1 project to be exported to all current and future FTA and non-FTA countries. In February 2020, Sempra Infrastructure filed an application with the DOE to permit LNG produced from the proposed PA LNG Phase 2 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 PA LNG Phase 1 project facilities, 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 if and when the project is completed. In February 2020, Sempra Infrastructure filed a FERC application for the siting, construction and operation of the proposed PA LNG Phase 2 project, including the potential addition of up to two liquefaction trains.
In February 2020, we entered into an EPC contract with Bechtel for the proposed PA LNG Phase 1 project. The EPC contract contemplates the construction of two liquefaction trains with a nameplate capacity of approximately 13 Mtpa, two LNG storage tanks, a marine berth and associated loading facilities and related infrastructure necessary to provide liquefaction services. 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 to proceed. On April 8, 2022, we entered into an agreement with Bechtel to provide a revised proposal for the EPC contract price and the EPC schedule for the proposed PA LNG Phase 1 project. Bechtel is scheduled to issue this revised proposal later this year for Sempra Infrastructure’s consideration. Any agreement on such an amendment to the EPC contract by both parties or on favorable terms to Sempra Infrastructure cannot be assured.
In July 2022, Sempra Infrastructure and ConocoPhillips entered into a non-binding HOA to develop Sempra Infrastructure’s proposed PA LNG Phase 1 project and jointly participate in other related energy infrastructure in Southeast Texas and the Pacific Coast of Mexico, including ECA LNG Phase 2. In addition to potential offtake of 5 Mtpa of LNG from the proposed PA LNG Phase 1 project, the HOA also contemplates a 30% equity investment in the proposed PA LNG Phase 1 project by ConocoPhillips and the potential for ConocoPhillips to supply additional natural gas to the proposed facility.
We are progressing the development of the proposed PA LNG Phase 1 project, taking into account market demands given the current geopolitical environment, completing certain milestones with Bechtel, executing definitive agreements for LNG offtake and equity investments, and obtaining financing. We also continue to evaluate overall opportunities to develop the entirety of the
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Port Arthur site as well as potential design changes that could reduce overall emissions, including a facility design utilizing electric drives, renewable power sourcing and other technological solutions, which may apply to any future expansions, such as the proposed PA LNG Phase 2 project.
Development of the Port Arthur LNG liquefaction export project is subject to a number of risks and uncertainties, including obtaining binding customer commitments; identifying suitable project partners; completing the required commercial agreements, such as equity acquisition and governance agreements, LNG sales agreements and gas supply and transportation agreements; completing construction contracts, including an amendment to the EPC contract with Bechtel; securing and maintaining all necessary permits and approvals; obtaining financing and incentives, such as obtaining property tax abatement; 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 results of operations, financial condition, cash flows and/or prospects, including the impairment of all or a substantial portion of the capital costs invested in the project to date. For a discussion of these risks, see “Part I – Item 1A. Risk Factors” in the Annual Report.
Vista Pacifico LNG Liquefaction Export Project.
Sempra Infrastructure is developing Vista Pacifico LNG, a potential natural gas liquefaction, storage, and mid-scale export facility proposed to be located in the vicinity of Topolobampo in Sinaloa, Mexico, under an MOU with the CFE, which was subsequently updated in July 2022, that contemplates the negotiation of definitive agreements that would cover development of Vista Pacifico LNG, as well as a separate natural gas regasification project in La Paz Baja California Sur, and the potential re-routing of a portion of the Guaymas-El Oro segment of the Sonora pipeline and resumption of its operations through mutual agreements between the CFE and the Yaqui tribe. The proposed LNG export terminal would be supplied with U.S. natural gas and would use excess natural gas and pipeline capacity on existing pipelines in Mexico with the intent of helping to meet growing demand for natural gas and LNG in the Mexican and Pacific markets. In November 2020, Sempra Infrastructure filed an application with the DOE to permit the export of natural gas to Mexico and for LNG produced from the proposed Vista Pacifico LNG facility to be re-exported to all current and future FTA and non-FTA countries. In April 2021, the DOE granted Vista Pacifico’s LNG export authorization application for FTA countries.
In March 2022, TotalEnergies SE and Sempra Infrastructure entered into an MOU that contemplates TotalEnergies SE potentially contracting approximately one-third of the long-term export production of the proposed Vista Pacifico LNG project and potentially participating as a minority partner in the project.
The MOUs related to the proposed Vista Pacifico LNG project are non-binding arrangements. The ultimate participation in and offtake from the proposed project remain subject to negotiation and finalization of definitive agreements, among other factors, and the MOUs do not commit any party to enter into definitive agreements with respect to the project.
The development of the potential Vista Pacifico LNG project (as well as the other projects subject to the MOU with the CFE discussed above) is subject to numerous risks and uncertainties, including securing binding customer commitments; obtaining and maintaining a number of permits and regulatory approvals; securing financing; identifying suitable project partners; negotiating and completing suitable commercial agreements, including definitive EPC contracts, 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. For a discussion of these risks, see “Part I – Item 1A. Risk Factors” in the Annual Report.
Hackberry Carbon Sequestration Project.
Sempra Infrastructure is developing the potential Hackberry Carbon Sequestration project near Hackberry, Louisiana. This proposed project under development is designed to permanently sequester carbon dioxide from the Cameron LNG JV facilities. In the third quarter of 2021, Sempra Infrastructure filed an application with the U.S. Environmental Protection Agency for a Class VI carbon injection well to advance this project.
In May 2022, Sempra Infrastructure, TotalEnergies SE, Mitsui & Co., Ltd. and Mitsubishi Corporation signed a Participation Agreement for the development of the proposed Hackberry Carbon Sequestration project. The Participation Agreement contemplates that the combined Cameron LNG JV Phase 1 and proposed Cameron LNG JV Phase 2 projects would potentially serve as the anchor source for the capture and sequestration of carbon dioxide by the proposed project. It also provides the basis for the parties to enter into a JV with Sempra Infrastructure for the Hackberry Carbon Sequestration project.
The development of the potential Hackberry Carbon Sequestration project is subject to numerous risks and uncertainties, including obtaining required consents from the Cameron LNG JV partners, securing binding customer commitments; identifying suitable project partners; obtaining and maintaining a number of permits and regulatory approvals; securing financing; negotiating and completing suitable commercial agreements, including a definitive EPC contract, and equity acquisition and governance agreements; reaching a positive final investment decision; and other factors associated with this potential investment. For a discussion of these risks, see “Part I – Item 1A. Risk Factors” in the Annual Report.
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Off-Balance Sheet Arrangements.
Our investment in Cameron LNG JV is a variable interest in an unconsolidated entity. We discuss variable interests in Note 1 of the Notes to Condensed Consolidated Financial Statements.
In June 2021, Sempra provided a promissory note, which constitutes a guarantee, for the benefit of Cameron LNG JV with a maximum exposure to loss of $165 million. The guarantee will terminate upon full repayment of Cameron LNG JV’s debt, scheduled to occur in 2039, or replenishment of the amount withdrawn by Sempra Infrastructure from the SDSRA. We discuss this guarantee in Note 6 of the Notes to Condensed Consolidated Financial Statements.
In July 2020, Sempra entered into a Support Agreement, which contains a guarantee and represents a variable interest, for the benefit of CFIN with a maximum exposure to loss of $979 million. The guarantee will terminate upon full repayment of the guaranteed debt by 2039, including repayment following an event in which the guaranteed debt is put to Sempra. We discuss this guarantee in Notes 1, 6 and 9 of the Notes to Condensed Consolidated Financial Statements.
Energy Networks
Construction Projects.
Sempra Infrastructure is currently constructing additional terminals for the receipt, storage, and delivery of liquid fuels in the vicinity of Puebla and Topolobampo. Sempra Infrastructure is also developing terminals for the receipt, storage, and delivery of liquid fuels in the vicinity of Manzanillo 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 Sempra Infrastructure's refined products terminal in Puebla, to confirm that the gasoline and/or diesel in storage were legally imported. During the inspection of the Puebla terminal in September 2021, a federal prosecutor took samples from all the train and storage tanks in the terminal and ordered that the facility be temporarily shut down during the pendency of the analysis of the samples and investigation, while leaving the terminal in Sempra Infrastructure’s custody. In November 2021, the CRE notified Sempra Infrastructure that it had started a process to revoke Sempra Infrastructure’s storage permit at the Puebla terminal. In December 2021, Sempra Infrastructure filed its response to the CRE. In May 2022, the CRE provided a final resolution that stopped the permit revocation process. We expect that, with this resolution, the federal prosecutors will close the investigation and the Puebla terminal will commence commercial operations in the second half of 2022.
Construction of the Topolobampo terminal was completed in May 2022, at which time commissioning activities commenced. We expect the Topolobampo terminal will commence commercial operations in the second half of 2022, subject to the receipt of pending permits.
Expected commencement dates could be delayed by worsening or extended disruptions of project construction caused by factors outside our control, including the COVID-19 pandemic. Sempra Infrastructure is continuing to monitor the impacts of the COVID-19 pandemic on cash flows and results of operations.
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.
Clean Power
Construction Projects.
ESJ completed construction and began commercial operations of a second, 108-MW wind power generation facility on January 15, 2022. This second wind power generation facility is fully contracted by SDG&E under a long-term PPA expiring in 2042.
In March 2022, TotalEnergies SE and Sempra Infrastructure entered into a non-binding MOU that provides a framework for cooperation in the development of North American renewable energy projects. The MOU includes the potential acquisition by Sempra Infrastructure of a target of 30% of TotalEnergies SE’s 80% equity interest in a proposed offshore wind project in California that is under development, which would result in an acquisition of 24% of the total equity interest in the project, and the potential acquisition by TotalEnergies SE of a targeted 30% equity interest in certain renewable and energy storage development projects that are under development by Sempra Infrastructure in Northern Mexico. In June 2022, Sempra Infrastructure notified TotalEnergies SE that it does not intend to participate in the proposed offshore wind project in California. The ultimate participation of TotalEnergies SE and/or Sempra Infrastructure remain subject to negotiation and finalization of definitive agreements, among other factors, and TotalEnergies SE and Sempra Infrastructure have no commitment to participate in any or all these projects unless such definitive agreements are established.
Acquisition of ESJ.
As we discuss in Note 5 of the Notes to Condensed Consolidated Financial Statements, in March 2021, Sempra Infrastructure increased its ownership interest in ESJ from 50% to 100% by acquiring Saavi Energía’s 50% equity interest in ESJ.
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Legal and Regulatory Matters
See Note 11 of the Notes to Condensed Consolidated Financial Statements for discussions of the following legal and regulatory matters affecting our operations in Mexico:
Energía Costa Azul
One or more unfavorable final decisions on these land and customer disputes or environmental and social impact permit challenges could materially adversely affect our existing natural gas regasification operations and proposed natural gas liquefaction projects at the site of the ECA Regas Facility and have a material adverse effect on Sempra’s business, results of operations, financial condition, cash flows and/or prospects.
Sonora Pipeline
Our investment in the Guaymas-El Oro segment of the Sonora pipeline could be subject to impairment if Sempra Infrastructure is unable to make certain repairs (which have not commenced) or re-route a portion of the pipeline (which has not been agreed to by the parties, but is subject to negotiation pursuant to a non-binding MOU and a Shareholders’ Agreement that remains subject to regulatory and corporate authorizations) and resume operations or if Sempra Infrastructure terminates the contract and is unable to obtain recovery. Any such occurrence could have a material adverse effect on Sempra’s business, results of operations, financial condition, cash flows and/or prospects.
Regulatory and Other Actions by the Mexican Government
Sempra Infrastructure and other parties affected by these resolutions, orders, decrees, regulations and proposed amendments to Mexican law have challenged them by filing amparo and other claims, some of which have been granted injunctive relief. The court-ordered injunctions or suspensions provide temporary relief until Mexico’s federal district court or Supreme Court ultimately resolves the amparo and other claims. An unfavorable decision on one or more of these amparo or other challenges, the potential for extended disputes, or the possibility of future reforms to the energy industry through further amendments to Mexican laws, rules or the constitution may impact our ability to operate our facilities at existing levels or at all, may result in increased costs for Sempra Infrastructure and its customers, may adversely affect our ability to develop new projects, may result in decreased revenues and cash flows, and may negatively impact our ability to recover the carrying values of our investments in Mexico, any of which may have a material adverse effect on our business, results of operations, financial condition, cash flows and/or prospects.
SOURCES AND USES OF CASH
The following tables include only significant changes in cash flow activities for each of our registrants.
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| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||
| Six months ended June 30, | Sempra | SDG&E | SoCalGas | |||||||||||||||||
| 2022 | $ | 2,364 | $ | 1,013 | $ | 861 | ||||||||||||||
| 2021 | 2,255 | 610 | 963 | |||||||||||||||||
| Change | $ | 109 | $ | 403 | $ | (102) | ||||||||||||||
|
Change in accounts receivable
|
$ | 165 | $ | 7 | $ | 195 | ||||||||||||||
|
Change in accounts payable
|
148 | 95 | 31 | |||||||||||||||||
| Higher net income, adjusted for noncash items included in earnings | 135 | 94 | 21 | |||||||||||||||||
| Funds fully drawn against customer’s letters of credit, net of amounts applied | 96 | |||||||||||||||||||
|
Change in customer deposits
|
60 | 18 | 33 | |||||||||||||||||
|
Net increase in Reserve for Aliso Canyon Costs, current and noncurrent, due to $140 higher accruals offset by $88 higher payments
|
52 | 52 | ||||||||||||||||||
| Change in inventory | 49 | 4 | (26) | |||||||||||||||||
| Lower proceeds received from Insurance Receivable for Aliso Canyon | (15) | (15) | ||||||||||||||||||
| Lower distributions received from Cameron LNG JV | (145) | |||||||||||||||||||
|
Change in net undercollected regulatory balancing accounts (including long-term amounts in regulatory assets)
|
(186) | 188 | (374) | |||||||||||||||||
|
Change in income taxes receivable/payable, net
|
(254) | 12 | (2) | |||||||||||||||||
| Other | 4 | (15) | (17) | |||||||||||||||||
| $ | 109 | $ | 403 | $ | (102) | |||||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||
| Six months ended June 30, | Sempra | SDG&E | SoCalGas | |||||||||||||||||
| 2022 | $ | (2,535) | $ | (1,082) | $ | (931) | ||||||||||||||
| 2021 | (2,588) | (1,065) | (936) | |||||||||||||||||
| Change | $ | 53 | $ | (17) | $ | 5 | ||||||||||||||
| Acquisition of 50% interest in ESJ in March 2021 for $79, net of $14 of cash and cash equivalents acquired | $ | 65 | ||||||||||||||||||
| Decrease (increase) in capital expenditures | 63 | $ | (18) | $ | 5 | |||||||||||||||
| Contributions to Cameron LNG JV in 2022 | (10) | |||||||||||||||||||
| Higher contributions to Oncor Holdings | (71) | |||||||||||||||||||
| Other | 6 | 1 | ||||||||||||||||||
| $ | 53 | $ | (17) | $ | 5 | |||||||||||||||
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| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||
| Six months ended June 30, | Sempra | SDG&E | SoCalGas | |||||||||||||||||
| 2022 | $ | 1,685 | $ | 577 | $ | 449 | ||||||||||||||
| 2021 | (282) | 206 | (27) | |||||||||||||||||
| Change | $ | 1,967 | $ | 371 | $ | 476 | ||||||||||||||
| Higher issuances of long-term debt | $ | 3,663 | $ | 1,395 | $ | 697 | ||||||||||||||
| Proceeds from sale of NCI to ADIA in 2022, net of $12 of transaction costs | 1,719 | |||||||||||||||||||
| Lower payments on long-term debt and finance leases | 1,061 | 198 | ||||||||||||||||||
| Higher issuances of short-term debt with maturities greater than 90 days | 870 | |||||||||||||||||||
| Equity contribution from Sempra Energy | 150 | |||||||||||||||||||
| (Higher) lower common dividends paid | (77) | 50 | ||||||||||||||||||
| Distributions to SI Partners’ minority shareholder in 2022 | (106) | |||||||||||||||||||
| Higher repurchases of common stock | (438) | |||||||||||||||||||
| Higher payments for commercial paper and other short-term debt with maturities greater than 90 days | (1,172) | (375) | ||||||||||||||||||
| Change in borrowings and repayments of short-term debt, net | (3,595) | (838) | (415) | |||||||||||||||||
| Other | 42 | (9) | (6) | |||||||||||||||||
| $ | 1,967 | $ | 371 | $ | 476 | |||||||||||||||
Capital Expenditures, Investments and Acquisitions
| EXPENDITURES FOR PP&E, INVESTMENTS AND ACQUISITIONS | |||||||||||
| (Dollars in millions) | |||||||||||
| Six months ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| SDG&E | $ | 1,090 | $ | 1,072 | |||||||
| SoCalGas | 931 | 936 | |||||||||
| Sempra Texas Utilities | 171 | 100 | |||||||||
| Sempra Infrastructure | 346 | 480 | |||||||||
| Parent and other | 4 | 1 | |||||||||
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Total
|
$ | 2,542 | $ | 2,589 | |||||||
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 2022, we expect to make capital expenditures and investments of approximately $5.8 billion (which excludes capital expenditures that will be funded by unconsolidated entities) a decrease from the $6.2 billion projected in “Part II – Item 7. MD&A – Capital Resources and Liquidity” in the Annual Report. The decrease is primarily attributable to a delay in certain capital expenditures of approximately $300 million at SDG&E and $100 million at SoCalGas.
CRITICAL ACCOUNTING ESTIMATES
Management views certain accounting estimates 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 critical accounting estimates in “Part II – Item 7. MD&A” in the Annual Report.
NEW ACCOUNTING STANDARDS
We discuss the recent accounting pronouncements that have had or may have a significant effect on our financial statements and/or disclosures in Note 2 of the Notes to Condensed Consolidated Financial Statements.
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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
Sempra Infrastructure is generally exposed to commodity price risk indirectly through its LNG, natural gas pipelines and storage, and power-generating assets. In the first six months of 2022, a hypothetical 10% unfavorable change in commodity prices would have resulted in a change in the fair value of our commodity-based natural gas and electricity derivatives of $8 million at June 30, 2022 compared to $3 million at December 31, 2021.
The one-day value at risk for SDG&E and SoCalGas’ commodity positions were $11 million and negligible, respectively, at June 30, 2022 compared to $5 million and $1 million, respectively, at December 31, 2021.
INTEREST RATE RISK
The table below shows the nominal amount of our debt:
|
NOMINAL AMOUNT OF DEBT
(1)
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| (Dollars in millions) | |||||||||||||||||||||||||||||||||||
| June 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
| Sempra | SDG&E | SoCalGas | Sempra | SDG&E | SoCalGas | ||||||||||||||||||||||||||||||
| Short-term: | |||||||||||||||||||||||||||||||||||
| Sempra California | $ | — | $ | — | $ | — | $ | 1,161 | $ | 776 | $ | 385 | |||||||||||||||||||||||
|
Other
|
955 | — | — | 2,310 | — | — | |||||||||||||||||||||||||||||
| Long-term: | |||||||||||||||||||||||||||||||||||
| Sempra California fixed-rate | $ | 12,559 | $ | 7,400 | $ | 5,159 | $ | 10,876 | $ | 6,417 | $ | 4,459 | |||||||||||||||||||||||
| Sempra California variable-rate | 700 | 400 | 300 | 300 | — | 300 | |||||||||||||||||||||||||||||
|
Other fixed-rate
|
10,218 | — | — | 8,591 | — | — | |||||||||||||||||||||||||||||
|
Other variable-rate
|
455 | — | — | 341 | — | — | |||||||||||||||||||||||||||||
(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 June 30, 2022 increased or decreased by 10%, the change in earnings over the 12-month period ending June 30, 2023 would be approximately $2 million. If interest rates increased or decreased by 10% on all variable-rate long-term debt at June 30, 2022, after considering the effects of interest rate swaps, the change in earnings over the 12-month period ending June 30, 2023 would be approximately $2 million.
FOREIGN CURRENCY AND INFLATION RATE RISK
We discuss our foreign currency and inflation exposures 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 June 30, 2022, there were no significant changes to our exposure to foreign currency rate risk since December 31, 2021.
In 2022, SDG&E and SoCalGas have experienced inflationary pressures from increases in various costs, including the cost of natural gas, electric fuel and purchased power, labor, materials and supplies, as well as availability of labor and materials. Sempra Texas Utilities has experienced increased costs of labor and materials and does not have specific regulatory mechanisms that allow for recovery of higher costs due to inflation. If such costs were to continue to be subject to significant inflationary pressures and we are not able to fully recover such higher costs in rates or there is a delay in recovery, these increased costs may have a significant effect on our results of operations, financial condition, cash flows and/or prospects.
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Sempra Infrastructure has experienced inflationary pressures from increases in various costs, including the cost of labor, materials and supplies. Sempra Infrastructure generally secures long-term contracts that are U.S. dollar-denominated or referenced and are periodically adjusted for market factors, including inflation, and Sempra Infrastructure generally enters into lump-sum contracts for its large construction projects in which much of the risk during construction is absorbed or hedged by the EPC contractor. If additional costs were to become subject to significant inflationary pressures, we may not be able to fully recover such higher costs through contractual adjustments for inflation, which may have a significant effect on our results of operations, financial condition, cash flows and/or prospects.
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 June 30, 2022, 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
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 and in the other documents we file with the SEC (including those
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filed subsequent to this report), including the factors discussed in “Part I – Item 2. MD&A” in this report and “Part I – Item 1A. Risk Factors” and “Part II – Item 7. MD&A” in the Annual Report. Any of the risks and other information discussed in this report or any of the risk factors discussed in “Part I – Item 1A. Risk Factors” or “Part II – Item 7. MD&A” 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 results of operations, financial condition, cash flows, prospects and/or the trading prices of our securities or those of our subsidiaries.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
On July 6, 2020, our board of directors authorized the repurchase of shares of our common stock at any time and from time to time in an aggregate amount not to exceed the lesser of $2 billion or amounts spent to purchase no more than 25 million shares. This repurchase authorization was publicly announced on August 5, 2020 and has no expiration date. As of August 4, 2022, a maximum of $1.25 billion and no more than 19,632,529 shares may yet be purchased under this repurchase authorization.
The following table sets forth information about our common stock repurchase activity for the three months ended June 30, 2022:
| PURCHASES OF EQUITY SECURITIES | ||||||||||||||
| (Dollars in millions, except per share amounts) | ||||||||||||||
|
Total number of shares purchased
(1)
|
Average price paid per share
(1)
|
Total number of shares purchased as part of publicly announced plans or programs
(1)
|
Maximum dollar value of shares that may yet be purchased under the plans or programs | |||||||||||
| April 1, 2022 - April 30, 2022 | 1,471,957 | $ | 169.84 | 1,471,957 | $ | 1,250 | ||||||||
(1)
On April 6, 2022, we entered into an ASR program under which we prepaid $250 to repurchase shares of our common stock in a share forward transaction. The total number of shares purchased was determined by dividing the $250 purchase price by the arithmetic average of the volume-weighted average trading prices of shares of our common stock during the valuation period of April 7, 2022 through April 25, 2022, minus a fixed discount. The ASR program was completed on April 25, 2022.
We may also, from time to time, purchase shares of our common stock to which participants would otherwise be entitled from long-term incentive plan participants who elect to sell a sufficient number of shares in connection with the vesting of RSUs and stock options in order to satisfy minimum statutory tax withholding requirements.
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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 Energy | ||||||||||||||||||||
| 3.1 | 10-K | 3.1 | 02/27/20 | |||||||||||||||||
| 3.2 | 8-K | 3.1 | 04/14/20 | |||||||||||||||||
| 3.3 | 8-K | 3.1 | 01/09/18 | |||||||||||||||||
| 3.4 | 8-K | 3.1 | 07/13/18 | |||||||||||||||||
| 3.5 | 8-K | 3.1 | 06/15/20 | |||||||||||||||||
| San Diego Gas & Electric Company | ||||||||||||||||||||
| 3.6 | 10-K | 3.4 | 02/26/15 | |||||||||||||||||
| 3.7 | 10-Q | 3.1 | 11/02/16 | |||||||||||||||||
| Southern California Gas Company | ||||||||||||||||||||
| 3.8 | 10-K | 3.01 | 03/28/97 | |||||||||||||||||
| 3.9 | 8-K | 3.1 | 01/31/17 | |||||||||||||||||
| EXHIBIT 10 -- MATERIAL CONTRACTS | ||||||||||||||||||||
| Sempra Energy / Southern California Gas Company | ||||||||||||||||||||
| 10.1 | X | |||||||||||||||||||
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| EXHIBIT INDEX (CONTINUED) | ||||||||||||||
| Exhibit Number | Exhibit Description | Filed or Furnished Herewith | ||||||||||||
| EXHIBIT 31 -- SECTION 302 CERTIFICATIONS | ||||||||||||||
| Sempra Energy | ||||||||||||||
| 31.1 | X | |||||||||||||
| 31.2 | X | |||||||||||||
| San Diego Gas & Electric Company | ||||||||||||||
| 31.3 | X | |||||||||||||
| 31.4 | X | |||||||||||||
| Southern California Gas Company | ||||||||||||||
| 31.5 | X | |||||||||||||
| 31.6 | X | |||||||||||||
| EXHIBIT 32 -- SECTION 906 CERTIFICATIONS | ||||||||||||||
| Sempra Energy | ||||||||||||||
| 32.1 | X | |||||||||||||
| 32.2 | X | |||||||||||||
| San Diego Gas & Electric Company | ||||||||||||||
| 32.3 | X | |||||||||||||
| 32.4 | X | |||||||||||||
| Southern California Gas Company | ||||||||||||||
| 32.5 | X | |||||||||||||
| 32.6 | X | |||||||||||||
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| 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). | |||||||||||||
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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: August 4, 2022 | 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: August 4, 2022 | 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: August 4, 2022 | By: /s/ Mia L. DeMontigny | |||||||
| Mia L. DeMontigny | ||||||||
|
Senior Vice President, Chief Financial Officer and Chief Accounting Officer (Duly Authorized Officer)
|
||||||||
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TABLE OF CONTENTS
Part I Financial InformationprintItem 1. Financial StatementsprintNote 1. General Information and Other Financial DataprintNote 2. New Accounting StandardsprintNote 3. RevenuesprintNote 4. Regulatory MattersprintNote 5. Acquisitions and DivestituresprintNote 6. Investments in Unconsolidated EntitiesprintNote 7. Debt and Credit FacilitiesprintNote 8. Derivative Financial InstrumentsprintNote 9. Fair Value MeasurementsprintNote 10. San Onofre Nuclear Generating StationprintNote 11. Commitments and ContingenciesprintNote 12. Segment InformationprintItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 3. Quantitative and Qualitative Disclosures About Market RiskprintItem 4. Controls and ProceduresprintPart II Other InformationprintItem 1. Legal ProceedingsprintItem 1A. Risk FactorsprintItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 6. Exhibitsprint