Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

In 2018, we set out to simplify Sempra Energy’s business model and sharpen our focus on building North America’s premier energy infrastructure company. Our 2019 operational and financial results reflect our focus on executing this strategy:

▪	The California Utilities received a constructive final GRC decision for the 2019 revenue requirement and attrition year adjustments for 2020 and 2021, and a final decision in the 2020 cost of capital proceeding.

▪	SDG&E contributed to the Wildfire Fund that was created through the Wildfire Legislation that addresses certain issues related to catastrophic wildfires in California.

▪	We supported Oncor’s acquisition of InfraREIT and acquired an indirect 50% interest in Sharyland Holdings in Texas.

▪	Cameron LNG JV’s Train 1 commenced commercial operation.

▪	We sold our non-utility natural gas storage assets in the southeast U.S. (comprised of Mississippi Hub and Bay Gas) and our remaining U.S. wind assets and investments. In April 2019, our Sempra Renewables segment ceased to exist.

▪	We entered into agreements to sell our equity interests in our South American businesses, which were previously included in our Sempra South American Utilities segment, and expect those sales to close in the first half of 2020.

Our South American businesses and certain activities associated with those businesses have been reclassified to discontinued operations for all periods presented. Nominal activities that are not classified as discontinued operations have been subsumed into Parent and other. Our discussions below exclude discontinued operations, unless otherwise noted.

RESULTS OF OPERATIONS

We discuss the following in Results of Operations:

▪	Overall results of operations of Sempra Energy

▪	Segment results

▪	Significant changes in revenues, costs and earnings

▪	Impact of foreign currency and inflation rates on results of operations

OVERALL RESULTS OF OPERATIONS OF SEMPRA ENERGY

In 2019, our earnings increased by approximately $1,131 million to $2,055 million and our diluted EPS increased by $3.87 to $7.29. In 2018 compared to 2017, our earnings increased by $668 million to $924 million and our diluted EPS increased by $2.41 to $3.42. The change in diluted EPS for 2019 and 2018 included decreases of $(0.33) and $(0.24), respectively, attributable to an increase in weighted-average common shares outstanding. Our earnings and diluted EPS were impacted by variances discussed in “Segment Results” below.

SEGMENT RESULTS

The following section presents earnings (losses) by Sempra Energy segment, as well as Parent and other, and the 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. As we discuss below in “Significant Changes in Revenues, Costs and Earnings – Income Taxes,” in December 2017, the TCJA was signed into law. The TCJA reduced the U.S. statutory corporate federal income tax rate from 35% to 21%, effective January 1, 2018. After-tax variances between 2018 and 2017 assume that amounts in both years were taxed at the 2017 statutory rate.

SEMPRA ENERGY EARNINGS (LOSSES) BY SEGMENT
(Dollars in millions)
	Years ended December 31,
	2019				2018				2017
SDG&E	$	767			$	669			$	407
SoCalGas	641				400				396
Sempra Texas Utilities	528				371				—
Sempra Mexico	253				237				169
Sempra Renewables	59				328				252
Sempra LNG	(6		)		(617		)		150
Parent and other(1)	(515		)		(620		)		(1,060		)
Discontinued operations	328				156				(58		)
Earnings attributable to common shares	$	2,055			$	924			$	256

(1)	Includes $914 million income tax expense from the effects of the TCJA in 2017, intercompany eliminations recorded in consolidation and certain corporate costs.

SDG&E

The increase in earnings of $98 million (15%) in 2019 was primarily due to:

▪	$71 million higher CPUC base operating margin authorized for 2019, net of operating expenses;

▪	$31 million income tax benefit from the release of a regulatory liability established in connection with 2017 tax reform for excess deferred income tax balances that the CPUC directed to be allocated to shareholders in a January 2019 decision; and

▪	$11 million higher margin from electric transmission operations, net of a FERC formulaic rate adjustment benefit in 2018; offset by

▪	$10 million amortization of Wildfire Fund asset.

The increase in earnings of $262 million in 2018 compared to 2017 was primarily due to:

▪	$208 million charge in 2017 for the write-off of a regulatory asset associated with 2007 wildfire costs;

▪	$65 million higher margin from electric transmission operations in 2018, including the annual FERC formulaic rate adjustment;

▪	$28 million unfavorable impact in 2017 from the remeasurement of certain U.S. federal deferred income tax assets as a result of the TCJA; and

▪	$27 million higher CPUC base operating margin authorized for 2018, primarily related to the lower federal income tax rate in 2018; offset by

▪	$35 million higher net interest expense, of which $25 million relates to the lower federal income tax rate in 2018; and

▪	$11 million unfavorable impact due to lower cost of capital related to GRC base business, which excludes incremental projects and other balanced capital programs, in 2018, of which $2 million relates to the lower federal income tax rate in 2018.

SoCalGas

The increase in earnings of $241 million in 2019 was primarily due to:

▪	$216 million higher CPUC base operating margin authorized for 2019, net of operating expenses;

▪	$38 million income tax benefit from the impact of the January 2019 CPUC decision allocating certain excess deferred income tax balances to shareholders;

▪	$22 million from impacts associated with Aliso Canyon natural gas storage facility litigation in 2018; and

▪	$14 million higher income tax benefits from flow-through items; offset by

▪	$21 million impairment of non-utility native gas assets in 2019;

▪	$18 million higher net interest expense; and

▪	$8 million penalties in 2019 related to the SoCalGas billing practices OII.

The increase in earnings of $4 million (1%) in 2018 compared to 2017 was primarily due to:

▪	$36 million higher CPUC base operating margin authorized for 2018, net of expenses including depreciation (of this increase, $28 million relates to the lower federal income tax rate in 2018); and

▪	$16 million higher PSEP earnings; offset by

▪	$22 million higher net interest expense, of which $15 million relates to the lower federal income tax rate in 2018;

▪	$21 million unfavorable impact due to lower cost of capital related to GRC base business in 2018, of which $4 million relates to the lower federal income tax rate in 2018; and

▪	$22 million in 2018 from impacts associated with Aliso Canyon natural gas storage facility litigation compared to $20 million in 2017.

Sempra Texas Utilities

The increase in earnings of $157 million (42%) in 2019 primarily represents higher equity earnings from Oncor Holdings, which we acquired in March 2018, driven by the impact of Oncor’s acquisition of InfraREIT in May 2019 and higher revenues due to rate updates to reflect increases in invested transmission capital, partially offset by higher operating costs.

Earnings of $371 million in 2018 represent equity earnings from our investment in Oncor Holdings.

Sempra Mexico

The increase in earnings of $16 million (7%) in 2019 was primarily due to:

▪	$18 million primarily due to the start of commercial operations of the Sur de Texas-Tuxpan marine pipeline at IMG JV in the third quarter of 2019;

▪	$16 million lower income tax expense in 2019 primarily from a two-year tax abatement that expires in 2020; and

▪	$122 million earnings attributable to NCI at IEnova in 2019 compared to $132 million earnings in 2018; offset by

▪	$20 million lower earnings primarily from force majeure payments that ended on August 22, 2019 with respect to the Guaymas-El Oro segment of the Sonora pipeline; and

▪	$17 million unfavorable impact from foreign currency and inflation effects, net of foreign currency derivatives effects, comprised of:

◦	in 2019, $88 million unfavorable foreign currency and inflation effects, offset by a $29 million gain from foreign currency derivatives, offset by

◦	in 2018, $43 million unfavorable foreign currency and inflation effects, offset by a $1 million gain from foreign currency derivatives (we discuss these effects below in “Impact of Foreign Currency and Inflation Rates on Results of Operations.”)

The increase in earnings of $68 million (40%) in 2018 compared to 2017 was primarily due to:

▪	$107 million higher earnings at TdM, including $71 million impairment in 2017 of assets that were held for sale until June 1, 2018 and $32 million improved operating results primarily as a result of major maintenance in 2017 and higher revenues in 2018;

▪	$37 million higher earnings, primarily attributable to pipeline assets placed in service in the second quarter of 2017 and IEnova’s increased indirect ownership interest in TAG JV; and

▪	$10 million improved operating results at Ecogas, mainly due to new rates approved by the CRE and regulated revenues associated with recovery for revised tariffs; offset by

▪	$132 million earnings attributable to NCI at IEnova in 2018 compared to $73 million in 2017;

▪	$22 million lower capitalized financing costs, primarily associated with assets placed in service at the end of the first half of 2017, net of higher equity earnings in 2018 from AFUDC at IMG JV; and

▪	$7 million unfavorable impact from foreign currency and inflation effects, net of foreign currency derivatives effects, comprised of:

◦	in 2018, $43 million unfavorable foreign currency and inflation effects, offset by a $1 million gain from foreign currency derivatives, offset by

◦	in 2017, $84 million unfavorable foreign currency and inflation effects, offset by a $49 million gain from foreign currency derivatives.

Sempra Renewables

As we discuss in Note 5 of the Notes to Consolidated Financial Statements, Sempra Renewables sold its remaining wind assets and investments in April 2019, upon which date the segment ceased to exist.

The decrease in earnings of $269 million in 2019 was primarily due to:

▪	$367 million gain on the sale of all Sempra Renewables’ operating solar assets, solar and battery storage development projects and its 50% interest in a wind power generation facility in December 2018; and

▪	$92 million lower earnings from assets sold in December 2018 and April 2019, net of lower general and administrative and other costs due to the wind-down of this business; offset by

▪	$145 million other-than-temporary impairment of certain U.S. wind equity method investments in 2018; and

▪	$45 million gain on sale of Sempra Renewables’ remaining wind assets in 2019.

The increase in earnings of $76 million (30%) in 2018 compared to 2017 was primarily due to:

▪	$367 million gain on the sale of all Sempra Renewables’ operating solar assets, solar and battery storage development projects and its 50% interest in a wind power generation facility in December 2018;

▪	$35 million higher pretax losses attributed to NCI, including the impact of the TCJA on NCI allocations computed using the HLBV method; and

▪	$19 million lower depreciation as a result of solar and wind assets held for sale; offset by

▪	$192 million favorable impact in 2017 from the remeasurement of U.S. federal deferred income tax liabilities as a result of the TCJA; and

▪	$145 million other-than-temporary impairment of certain U.S. wind equity method investments in 2018.

Sempra LNG

The decrease in losses of $611 million in 2019 was primarily due to:

▪	$665 million net impairment of certain non-utility natural gas storage assets in the southeast U.S. in 2018, including $801 million impairment in the second quarter of 2018, offset by a $136 million reduction to the impairment in the fourth quarter of 2018;

▪	$17 million higher equity earnings from Cameron LNG JV, including:

◦	$36 million increase primarily due to Train 1 commencing commercial operation under its tolling agreements in August 2019, offset by

◦	$19 million decrease due to the write-off of unamortized debt issuance costs and associated fees related to Cameron LNG JV’s debt refinancing; and

▪	$9 million unfavorable adjustment in 2018 to TCJA provisional amounts recorded in 2017 related to the remeasurement of deferred income taxes; offset by

▪	$36 million losses attributable to NCI in 2018 related to the net impairment discussed above; and

▪	$28 million higher liquefaction project development costs and operating costs.

Losses of $617 million in 2018 compared to earnings of $150 million in 2017 were primarily due to:

▪	$665 million net impairment of certain non-utility natural gas storage assets in 2018;

▪	$142 million higher income tax expense in 2018, which included $133 million favorable impact in 2017 from the remeasurement of U.S. federal deferred income tax liabilities as a result of the TCJA and $9 million unfavorable impact in 2018 to adjust TCJA provisional amounts recorded in 2017; and

▪	$34 million settlement proceeds in 2017 from a breach of contract claim against a counterparty in bankruptcy court, of which $28 million related to a charge in 2016 from the permanent release of certain pipeline capacity; offset by

▪	$36 million losses attributable to NCI in 2018 related to the net impairment discussed above;

▪	$24 million higher earnings from midstream activities primarily driven by lower depreciation and amortization as a result of natural gas storage assets held for sale; and

▪	$15 million improved results in 2018 from LNG marketing activities.

Parent and Other

The decrease in losses of $105 million (17%) in 2019 was primarily due to:

▪	$65 million impairment of the RBS Sempra Commodities equity method investment in 2018;

▪	$48 million higher investment gains in 2019 on dedicated assets in support of our employee nonqualified benefit plan obligations, net of deferred compensation expenses;

▪	$32 million income tax expense in 2018 to adjust provisional amounts recorded in 2017 related to the TCJA; and

▪	$10 million income tax benefit in 2019 to reduce a valuation allowance against certain NOL carryforwards as a result of our decision to sell our South American businesses; offset by

▪	$17 million increase in mandatory convertible preferred stock dividends primarily from the issuance of series B preferred stock in July 2018;

▪	$11 million increase primarily related to settlement charges from our nonqualified pension plan; and

▪	$11 million loss from foreign currency derivatives used to hedge exposure to fluctuations in the Peruvian Sol related to the sale of our operations in Peru.

The decrease in losses of $440 million (42%) in 2018 compared to 2017 was primarily due to:

▪	$914 million unfavorable impact in 2017 from the TCJA, offset by $32 million income tax expense in 2018 to adjust provisional amounts recorded in 2017 (we discuss the impacts from the TCJA in “Significant Changes in Revenues, Costs and Earnings – Income Taxes” below); offset by

▪	$179 million increase in net interest expense, of which $58 million relates to the lower tax rate in 2018;

▪	$125 million mandatory convertible preferred stock dividends declared;

▪	$65 million impairment of the RBS Sempra Commodities equity method investment; and

▪	$15 million investment losses in 2018 compared to $41 million investment gains in 2017 on dedicated assets in support of our employee nonqualified benefit plan obligations, net of deferred compensation expenses.

Discontinued Operations

Discontinued operations that were previously in our Sempra South American Utilities segment include our 100% interest in Chilquinta Energía in Chile, our 83.6% interest in Luz del Sur in Peru and our interests in two energy-services companies, Tecnored and Tecsur, which provide electric construction and infrastructure services to Chilquinta Energía and Luz del Sur, respectively, as well as third parties. Discontinued operations also include activities, mainly income taxes related to the South American businesses, that were previously included in the holding company of the South American businesses at Parent and other.

The increase in earnings of $172 million in 2019 was primarily due to:

▪	$91 million higher earnings from South American operations mainly from higher rates, lower cost of purchased power at Peru, and including $38 million lower depreciation expense due to assets classified as held for sale;

▪	$89 million income tax benefit in 2019 from outside basis differences in our South American businesses primarily related to the change in our indefinite reinvestment assertion from our decision on January 25, 2019 to hold those businesses for sale and a change in the anticipated structure of the sale; and

▪	$44 million income tax expense in 2018 to adjust TCJA provisional amounts recorded in 2017 primarily related to withholding tax on our expected future repatriation of foreign undistributed earnings; offset by

▪	$51 million income tax expense related to the increase in outside basis differences from 2019 earnings since January 25, 2019.

Earnings of $156 million in 2018 compared to losses of $58 million in 2017 were primarily due to a $251 million unfavorable impact in 2017 from the TCJA, offset by $44 million income tax expense in 2018 to adjust provisional amounts recorded in 2017.

SIGNIFICANT CHANGES IN REVENUES, COSTS AND EARNINGS

This section contains a discussion of the differences between periods in the specific line items of the Consolidated Statements of Operations for Sempra Energy, SDG&E and SoCalGas.

Utilities Revenues

Our utilities revenues include natural gas revenues at our California Utilities and Sempra Mexico’s Ecogas and electric revenues at SDG&E. Intercompany revenues included in the separate revenues of each utility are eliminated in the Sempra Energy Consolidated Statements of Operations.

SoCalGas and SDG&E currently operate under a regulatory framework that permits:

▪

The cost of natural gas purchased for core customers (primarily residential and small commercial and industrial customers) to be passed through to customers in rates substantially as incurred. However, SoCalGas’ GCIM provides SoCalGas the opportunity to share in the savings and/or costs from buying natural gas for its core customers at prices below or above monthly market-based benchmarks. This mechanism permits full recovery of costs incurred when average purchase costs are within a price range around the benchmark price. Any higher costs incurred or savings realized outside this range are shared between the core customers and SoCalGas. We provide further discussion in Note 3 of the Notes to Consolidated Financial Statements and in “Item 1. Business – Ratemaking Mechanisms.”

▪	SDG&E to recover the actual cost incurred to generate or procure electricity based on annual estimates of the cost of electricity supplied to customers. The differences in cost between estimates and actual are recovered or refunded in subsequent periods through rates.

▪	The California Utilities to recover certain expenses for programs authorized by the CPUC, or “refundable programs.”

Because changes in SoCalGas’ and SDG&E’s cost of natural gas and/or electricity are recovered in rates, changes in these costs are offset in the changes in revenues, and therefore do not impact earnings. In addition to the changes in cost or market prices,

natural gas or electric revenues recorded during a period are impacted by customer billing cycles causing a difference between customer billings and recorded or authorized costs. These differences are required to be balanced over time, resulting in over- and undercollected regulatory balancing accounts. We discuss balancing accounts and their effects further in Note 4 of the Notes to Consolidated Financial Statements.

The table below summarizes utilities revenues and cost of sales.

UTILITIES REVENUES AND COST OF SALES
(Dollars in millions)
	Years ended December 31,
	2019				2018				2017
Natural gas revenues:
SoCalGas	$	4,525			$	3,962			$	3,785
SDG&E	658				565				541
Sempra Mexico	73				78				110
Eliminations and adjustments	(71		)		(65		)		(75		)
Total	5,185				4,540				4,361
Electric revenues:
SDG&E	4,267				4,003				3,935
Eliminations and adjustments	(4		)		(4		)		(6		)
Total	4,263				3,999				3,929
Total utilities revenues	$	9,448			$	8,539			$	8,290
Cost of natural gas:
SoCalGas	$	977			$	1,048			$	1,025
SDG&E	176				152				164
Sempra Mexico	14				21				70
Eliminations and adjustments	(28		)		(13		)		(69		)
Total	$	1,139			$	1,208			$	1,190
Cost of electric fuel and purchased power:
SDG&E	$	1,194			$	1,370			$	1,293
Eliminations and adjustments	(6		)		(12		)		—
Total	$	1,188			$	1,358			$	1,293

Natural Gas Revenues and Cost of Natural Gas

The table below summarizes the average cost of natural gas sold by the California Utilities and included in Cost of Natural Gas. The average cost of natural gas sold at each utility is impacted by market prices, as well as transportation, tariff and other charges.

CALIFORNIA UTILITIES AVERAGE COST OF NATURAL GAS
(Dollars per thousand cubic feet)
	Years ended December 31,
	2019				2018				2017
SoCalGas	$	3.07			$	3.58			$	3.44
SDG&E	3.91				3.81				4.08

In 2019, our natural gas revenues increased by $645 million (14%) to $5.2 billion primarily due to:

▪	$563 million increase at SoCalGas, which included:

◦	$383 million higher authorized revenue in 2019,

◦	$105 million higher recovery of costs associated with CPUC-authorized refundable programs, which revenues are offset in O&M,

◦	$62 million higher non-service component of net periodic benefit cost in 2019, which fully offsets in Other Income, Net,

◦	$29 million charges in 2018 associated with tracking the income tax benefit from flow-through items in relation to forecasted amounts in the 2016 GRC FD, and

◦	$16 million higher net revenues from PSEP, offset by

◦	$71 million decrease in the cost of natural gas sold, which we discuss below; and

▪	$93 million increase at SDG&E, which included:

◦	$68 million higher authorized revenue in 2019, and

◦	$24 million increase in the cost of natural gas sold, which we discuss below.

In 2018 compared to 2017, our natural gas revenues increased by $179 million (4%) to $4.5 billion primarily due to:

▪	$177 million increase at SoCalGas, which included:

◦	$160 million higher recovery of costs associated with CPUC-authorized refundable programs, which revenues are offset in O&M,

◦	$71 million increase in 2018 due to an increase in rates permitted under the attrition mechanism in the 2016 GRC FD,

◦	$23 million increase in cost of natural gas sold, and

◦	$19 million decrease in charges in 2018 associated with tracking the income tax benefit from flow-through items in relation to forecasted amounts in the 2016 GRC FD, offset by

◦	$67 million revenue deferral due to the effect of the TCJA,

◦	$29 million lower cost of capital related to GRC base business in 2018, and

◦	$10 million lower net revenues from capital projects, including $60 million decrease for advanced metering infrastructure due to completion of the project, offset by increases of $14 million for PSEP and $36 million for other capital projects; and

▪	$24 million increase at SDG&E primarily due to higher recovery of costs associated with CPUC-authorized refundable programs, which revenues are offset in O&M, and 2018 attrition; offset by

▪	$32 million decrease at Sempra Mexico, which included:

◦

$46 million lower volumes at Ecogas primarily as a result of the new regulations that went into effect on March 1, 2018 that no longer allow Ecogas to sell natural gas to high consumption end users (defined by the CRE as customers with annual consumption that exceeds 4,735 MMBtu) and require those end users to procure their natural gas needs from natural gas marketers, including Sempra Mexico’s marketing business, offset by

◦	$13 million higher rates approved by the CRE, including $7 million from a regulatory adjustment to rates charged to end users in 2014 through 2016.

Our cost of natural gas decreased by $69 million (6%) to $1.1 billion in 2019 primarily due to:

▪	$71 million decrease at SoCalGas, including $164 million due to lower average natural gas prices, offset by $93 million from higher volumes driven by weather; and

▪	$15 million increase in intercompany eliminations primarily associated with sales between Sempra LNG and SoCalGas; offset by

▪	$24 million increase at SDG&E, including $19 million from higher volumes driven by weather and $5 million from higher average natural gas prices.

Our cost of natural gas increased by $18 million (2%), remaining at $1.2 billion in 2018 compared to 2017, primarily due to:

▪	$56 million increase primarily from lower elimination of intercompany costs at Sempra Mexico; and

▪	$23 million increase at SoCalGas due to $43 million from higher average gas prices, offset by $20 million from lower volumes driven by weather; offset by

▪	$49 million decrease at Sempra Mexico primarily associated with the lower revenues at Ecogas; and

▪	$12 million decrease at SDG&E primarily due to lower average gas prices.

Electric Revenues and Cost of Electric Fuel and Purchased Power

Our electric revenues increased by $264 million (7%) to $4.3 billion in 2019 primarily attributable to SDG&E, including:

▪	$121 million higher authorized revenue in 2019, including $108 million of revenues to cover liability insurance premium costs that are now balanced and offset in O&M;

▪	$40 million higher revenues from transmission operations, net of a FERC formulaic rate adjustment benefit in 2018;

▪	$34 million higher recovery of costs associated with CPUC-authorized refundable programs, excluding 2019 liability insurance premium costs, which revenues are offset in O&M;

▪	$27 million higher finance lease costs, offset by lower cost of electric fuel and purchased power, which we discuss below; and

▪	$21 million charges in 2018 associated with tracking the income tax benefit from certain flow-through items in relation to forecasted amounts in the 2016 GRC FD.

In 2018 compared to 2017, our electric revenues increased by $70 million (2%) to $4.0 billion primarily attributable to SDG&E, including:

▪	$77 million higher cost of electric fuel and purchased power;

▪	$50 million higher revenues from transmission operations, including the annual FERC formulaic rate adjustment;

▪	$32 million decrease in charges in 2018 associated with tracking the income tax benefit from certain flow-through items in relation to forecasted amounts in the 2016 GRC FD; and

▪	$32 million increase due to 2018 attrition; offset by

▪	$65 million revenue deferral due to the effect of the TCJA;

▪	$39 million revenue deferral related to the SONGS settlement, which is offset by the discontinuation of amortization; and

▪	$13 million lower cost of capital related to the CPUC base business in 2018.

Our utility cost of electric fuel and purchased power decreased by $170 million (13%) to $1.2 billion in 2019, primarily attributable to SDG&E, including:

▪	$103 million of finance lease costs for PPAs in 2018. Similar amounts are now included in Interest Expense and Depreciation and Amortization Expense as a result of the 2019 adoption of the lease standard; and

▪	$73 million decrease primarily from lower electricity market cost, offset by an increase primarily due to an additional capacity contract.

Our utility cost of electric fuel and purchased power increased by $65 million (5%) to $1.4 billion in 2018 compared to 2017 primarily attributable to SDG&E, driven primarily by higher gas prices and electricity market costs, partially offset by lower cost of purchased power from renewable sources due to decreased solar and wind production and from lower capacity contract costs.

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)
	Years ended December 31,
	2019				2018				2017
REVENUES
Sempra Mexico	$	1,302			$	1,298			$	1,086
Sempra Renewables	10				124				94
Sempra LNG	410				472				540
Parent and other(2)	(341		)		(331		)		(370		)
Total revenues	$	1,381			$	1,563			$	1,350
COST OF SALES(1)
Sempra Mexico	$	373			$	363			$	261
Sempra LNG	299				313				352
Parent and other(2)	(328		)		(319		)		(322		)
Total cost of sales	$	344			$	357			$	291

(1)	Excludes depreciation and amortization, which are presented separately on the Sempra Energy Consolidated Statements of Operations.

(2)	Includes eliminations of intercompany activity.

Revenues from our energy-related businesses decreased by $182 million (12%) to $1.4 billion in 2019 while the related cost of sales for 2019 was comparable to 2018. The decrease in revenues included:

▪	$114 million decrease at Sempra Renewables primarily due to the sale of assets in December 2018 and April 2019; and

▪	$62 million decrease at Sempra LNG primarily due to:

◦	$45 million lower natural gas storage revenues primarily due to the sale of storage assets in February 2019,

◦	$15 million from the marketing business due to lower turnback cargo revenues, and

◦	$12 million from LNG sales to Cameron LNG JV in January 2018, offset by

◦	$14 million from natural gas marketing activities primarily due to changes in natural gas prices; offset by

▪	$4 million increase at Sempra Mexico primarily due to:

◦	$23 million from the marketing business, including an increase in volumes due to new regulations that went into effect on March 1, 2018 that require high consumption end users (previously serviced by Ecogas and other natural gas utilities) to procure their natural gas needs from natural gas marketers, such as Sempra Mexico’s marketing business, offset by lower natural gas prices, and

◦	$6 million increase primarily due to renewable assets placed in service in 2019, offset by

◦	$27 million lower revenues primarily from force majeure payments that ended on August 22, 2019 with respect to the Guaymas-El Oro segment of the Sonora pipeline.

In 2018 compared to 2017, revenues from our energy-related businesses increased by $213 million (16%) to $1.6 billion. The increase included:

▪	$212 million increase at Sempra Mexico primarily due to:

◦	$84 million from the marketing business, primarily due to new regulations that went into effect on March 1, 2018 and from higher volumes and gas prices,

◦	$69 million at TdM primarily due to the plant outage in 2017 as a result of scheduled major maintenance and higher power prices,

◦	$34 million primarily due to pipeline assets placed in service in the second quarter of 2017, and

◦	$18 million from O&M services provided to the TAG JV;

▪	$39 million increase from lower intercompany eliminations associated with sales between Sempra LNG and Sempra Mexico; and

▪	$30 million increase at Sempra Renewables primarily due to solar and wind assets placed in service in the fourth quarter of 2017 and the second quarter of 2018; offset by

▪	$68 million decrease at Sempra LNG primarily due to:

◦	$98 million costs associated with indemnity payments to Sempra Mexico in 2018. Indemnity payments of $103 million in 2017 were recorded in Energy-Related Businesses Cost of Sales prior to adoption of ASC 606, offset by

◦	$50 million from the marketing business primarily from higher natural gas sales and turnback cargo revenues.

The cost of sales for our energy-related businesses increased by $66 million (23%) to $357 million in 2018 compared to 2017 primarily due to:

▪	$102 million at Sempra Mexico primarily associated with higher revenues from the marketing business as a result of the new regulations that went into effect on March 1, 2018. The increase at Sempra Mexico was also due to higher volumes in 2018 due to the TdM plant outage in 2017;

▪	$57 million in settlement proceeds received by Sempra LNG in May 2017 from a breach of contract claim against a counterparty, of which $47 million is related to a charge in 2016 from permanent release of pipeline capacity; and

▪	$4 million lower intercompany eliminations of costs between Sempra LNG and Sempra Mexico, including $103 million elimination of indemnity payments made by Sempra LNG in 2017 now recorded as a reduction to Energy-Related Business Revenues since adoption of ASC 606; offset by

▪	$88 million decrease at Sempra LNG primarily due to indemnity payments to Sempra Mexico in 2017 recorded in revenue in 2018 pursuant to adoption of ASC 606.

Operation and Maintenance

In the table below, we provide O&M by segment.

OPERATION AND MAINTENANCE
(Dollars in millions)
	Years ended December 31,
	2019				2018				2017
SDG&E(1)	$	1,175			$	1,058			$	1,024
SoCalGas	1,780				1,613				1,474
Sempra Mexico	256				239				234
Sempra Renewables	18				89				73
Sempra LNG	156				123				123
Parent and other(2)	81				28				19
Total operation and maintenance	$	3,466			$	3,150			$	2,947

(1)	Excludes $6 million of impairment losses, which we discuss below.

(2)	Includes eliminations of intercompany activity.

Our O&M increased by $316 million (10%) to $3.5 billion in 2019 primarily due to:

▪	$167 million increase at SoCalGas, which included:

◦	$105 million higher expenses associated with CPUC-authorized refundable programs for which costs incurred are recovered in revenue (refundable program expenses), and

◦	$57 million higher non-refundable operating costs, including labor, contract services and administrative and support costs;

▪	$117 million increase at SDG&E which included:

◦	$147 million higher expenses associated with CPUC-authorized refundable programs, including $112 million of 2019 liability insurance premium costs that are now balanced in revenue, and

◦	$12 million amortization of Wildfire Fund asset, offset by

◦	$46 million lower non-refundable operating costs, including $87 million decrease from liability insurance premium costs for 2018 that were not balanced, offset by $41 million of higher operating costs;

▪	$53 million increase at Parent and other primarily from higher deferred compensation expense;

▪	$33 million increase at Sempra LNG primarily from higher liquefaction development project costs and higher operating costs; and

▪	$17 million increase at Sempra Mexico primarily due to expenses associated with growth in the business and operating lease costs in 2019; offset by

▪	$71 million decrease at Sempra Renewables primarily due to lower general and administrative and other costs due to the wind-down of the business.

Our O&M increased by $203 million (7%) to $3.2 billion in 2018 compared to 2017 primarily due to:

▪	$139 million increase at SoCalGas, which included:

◦	$160 million higher expenses associated with CPUC-authorized refundable programs, offset by

◦	$20 million Aliso Canyon litigation reserves in 2017;

▪	$34 million increase at SDG&E, which included:

◦	$22 million higher non-refundable operating costs, including labor, contract services and administrative and support costs, and

◦	$11 million reimbursement of litigation costs in 2017 associated with the arbitration ruling over the SONGS replacement steam generators; and

▪	$16 million increase at Sempra Renewables primarily due to solar and wind assets placed in service in the fourth quarter of 2017 and the second quarter of 2018 and selling costs associated with the sale of assets.

Write-Off of Wildfire Regulatory Asset

In 2017, SDG&E recorded a $351 million charge for the write-off of a regulatory asset associated with 2007 wildfire costs. We discuss this further in Note 16 of the Notes to Consolidated Financial Statements.

Impairment Losses

In 2019, SoCalGas recognized a $29 million impairment loss related to non-utility native gas assets, and SDG&E and SoCalGas recognized impairment losses of $6 million and $8 million, respectively, for certain disallowed capital costs in the 2019 GRC FD. In 2018, Sempra LNG recognized a $1.1 billion net impairment loss for certain non-utility natural gas storage assets in the southeast U.S. In 2017, Sempra Mexico reduced the carrying value of TdM by recognizing noncash impairment charges of $71 million.

Gain on Sale of Assets

In April 2019, Sempra Renewables recognized a $61 million gain on the sale of its remaining wind assets and investments to AEP. In December 2018, Sempra Renewables recognized a $513 million gain on the sale of all its operating solar assets, solar and battery storage development projects and its 50% interest in a wind power generation facility to a subsidiary of Con Ed.

Other Income, Net

As part of our central risk management function, we enter into foreign currency derivatives to hedge Sempra Mexico parent’s exposure to movements in the Mexican peso from its controlling interest in IEnova. The gains/losses associated with these derivatives are included in Other Income, Net, as described below, and partially mitigate the transactional effects of foreign currency and inflation included in Income Tax (Expense) Benefit for Sempra Mexico’s consolidated entities and in Equity Earnings for Sempra Mexico’s equity method investments. We also utilize foreign currency derivatives to hedge exposure to fluctuations in the Peruvian Sol related to the sale of our operations in Peru. We discuss policies governing our risk management below in “Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”

Other income, net, increased by $19 million (33%) to $77 million in 2019 primarily due to:

▪	$61 million investment gains in 2019 compared to $6 million investment losses in 2018 on dedicated assets in support of our executive retirement and deferred compensation plans; and

▪	$54 million higher net gains from interest rate and foreign exchange instruments and foreign currency transactions primarily due to:

◦	$37 million higher gains in 2019 on foreign currency derivatives as a result of fluctuation of the Mexican peso, and

◦	$30 million foreign currency gains in 2019 compared to $3 million foreign currency losses in 2018 on a Mexican peso-denominated loan to IMG JV, which is offset in Equity Earnings, offset by

◦	$15 million losses in 2019 on foreign currency derivatives used to hedge exposure to fluctuations in the Peruvian Sol related to the sale of our operations in Peru; offset by

▪	$97 million higher non-service component of net periodic benefit cost in 2019, including $14 million at SDG&E and $62 million at SoCalGas.

In 2018 compared to 2017, other income, net, decreased by $162 million to $58 million primarily due to:

▪	$70 million decrease in equity-related AFUDC mainly from completion of pipeline projects at Sempra Mexico in 2017;

▪	$6 million investment losses in 2018 compared to $56 million investment gains in 2017 on dedicated assets in support of our executive retirement and deferred compensation plans;

▪	$15 million higher non-service component of net periodic benefit cost in 2018, including $10 million at SDG&E and $5 million at SoCalGas; and

▪	$13 million lower net gains from interest rate and foreign exchange instruments and foreign currency transactions primarily due to:

◦	$46 million lower gains in 2018 on foreign currency derivatives as a result of fluctuation of the Mexican peso, offset by

◦	$32 million lower losses in 2018 on a Mexican peso-denominated loan to IMG JV, which is offset in Equity Earnings.

We provide further details of the components of other income, net, in Note 1 of the Notes to Consolidated Financial Statements.

Income Taxes

The table below shows the income tax expense (benefit) and ETRs for Sempra Energy Consolidated, SDG&E and SoCalGas.

INCOME TAX EXPENSE (BENEFIT) AND EFFECTIVE INCOME TAX RATES
(Dollars in millions)
	Years ended December 31,
	2019				2018				2017
Sempra Energy Consolidated:
Income tax expense (benefit) from continuing operations	$	315			$	(49	)		$	938
Income from continuing operations before income taxes and equity earnings	$	1,734			$	714			$	1,248
Equity earnings (losses), before income tax(1)	30				(236		)		34
Pretax income	$	1,764			$	478			$	1,282
Effective income tax rate	18		%		(10		)%		73		%
SDG&E:
Income tax expense	$	171			$	173			$	155
Income before income taxes	$	945			$	849			$	576
Effective income tax rate	18		%		20		%		27		%
SoCalGas:
Income tax expense	$	120			$	92			$	160
Income before income taxes	$	762			$	493			$	557
Effective income tax rate	16		%		19		%		29		%

(1)	We discuss how we recognize equity earnings in Note 6 of the Notes to Consolidated Financial Statements.

In December 2017, the TCJA was signed into law. We recorded the effects of the TCJA in 2017 using our best estimates and the information available to us through the date those financial statements were issued. In 2018, we adjusted our 2017 provisional estimates and completed our accounting for the income tax effects of the TCJA. To the extent we intend to repatriate cash to the U.S., we have accrued incremental deferred income tax. We discuss the TCJA and our indefinite reinvestment assertion further in Note 8 of the Notes to Consolidated Financial Statements.

Sempra Energy Consolidated

Sempra Energy’s income tax expense in 2019 compared to an income tax benefit in 2018 was due to higher pretax income and a higher ETR. Pretax income in 2018 was impacted by the impairments at our Sempra LNG and Sempra Renewables segments offset by the gain from sale of assets at Sempra Renewables. The change in ETR was primarily due to:

▪	$131 million income tax benefit in 2018 resulting from the reduced outside basis difference in Sempra LNG as a result of the impairment of certain non-utility natural gas storage assets; and

▪	$45 million higher income tax expense in 2019 from foreign currency and inflation effects primarily as a result of fluctuation of the Mexican peso; offset by

▪	$69 million total income tax benefits from the release of regulatory liabilities at SDG&E and SoCalGas established in connection with 2017 tax reform for excess deferred income tax balances that the CPUC directed be allocated to shareholders in a January 2019 decision;

▪	$41 million income tax expense in 2018 to adjust provisional estimates recorded in 2017 for the effects of tax reform;

▪	$21 million income tax expense in 2018 associated with Aliso Canyon natural gas storage facility litigation; and

▪	$10 million income tax benefit in 2019 from a reduction in a valuation allowance against certain NOL carryforwards as a result of our decision to sell our South American businesses.

Sempra Energy’s income tax benefit in 2018 compared to an income tax expense in 2017 was due to a lower ETR and lower pretax income. Pretax income in 2017 was impacted by the write-off of SDG&E’s wildfire regulatory asset. The lower ETR was primarily due to:

▪	$619 million income tax expense in 2017 from the effects of the TCJA, as follows:

◦	$437 million related to future repatriation of foreign earnings, including $328 million of U.S. federal income tax expense pertaining to the deemed repatriation tax and $109 million U.S. state and non-U.S. withholding tax expense on our expected future repatriation of foreign undistributed earnings estimated for deemed repatriation, and

◦	$182 million from remeasurement of our U.S. federal deferred income tax balances from 35% to 21%;

▪	$131 million income tax benefit in 2018 resulting from the reduced outside basis difference in Sempra LNG as a result of the impairment of certain non-utility natural gas storage assets;

▪	$98 million lower income tax expense from the lower U.S. statutory corporate federal income tax rate in 2018; and

▪	$38 million lower income tax expense from foreign currency and inflation effects, as a result of fluctuation of the Mexican peso; offset by

▪	$41 million income tax expense in 2018 to adjust provisional estimates recorded in 2017 for the effects of tax reform;

▪	$21 million income tax expense in 2018 associated with Aliso Canyon natural gas storage facility litigation; and

▪	lower income tax benefits from flow-through deductions in 2018.

We report as part of our pretax results the income or loss attributable to NCI. However, we do not record income taxes for a portion of this income or loss, as some of our entities with NCI are currently treated as partnerships for income tax purposes, and thus we are only liable for income taxes on the portion of the earnings that are allocated to us. Our pretax income, however, includes 100% of these entities. As our entities with NCI grow, and as we may continue to invest in such entities, the impact on our ETR may become more significant.

SDG&E

SDG&E’s income tax expense decreased in 2019 due to a lower ETR partially offset by higher pretax income. The change in ETR was primarily due to a $31 million income tax benefit from the release of a regulatory liability established in connection with 2017 tax reform for excess deferred income tax balances that the CPUC directed be allocated to shareholders in a January 2019 decision.

SDG&E’s income tax expense increased in 2018 compared to 2017 due to higher pretax income partially offset by a lower ETR. The pretax income in 2017 included the $351 million ($208 million after tax) write-off of the wildfire regulatory asset. The lower ETR was primarily due to:

▪	$119 million lower income tax expense from the lower U.S. statutory corporate federal income tax rate in 2018; and

▪	$28 million deferred income tax expense in 2017 from remeasurement of U.S. federal deferred income tax balances from 35% to 21%, primarily from the deferred income tax asset relating to the impairment of the SONGS Steam Generator Replacement Project in prior years; offset by

▪	$19 million lower income tax benefit in 2018 from the resolution of prior years’ income tax items; and

▪	lower income tax benefits from flow-through deductions in 2018.

SoCalGas

SoCalGas’ income tax expense increased in 2019 due to higher pretax income partially offset by a lower ETR. The change in ETR was primarily due to:

▪	$38 million income tax benefit from the release of a regulatory liability established in connection with 2017 tax reform for excess deferred income tax balances that the CPUC directed be allocated to shareholders in a January 2019 decision; and

▪	$21 million income tax expense in 2018 associated with Aliso Canyon natural gas storage facility litigation.

SoCalGas’ income tax expense decreased in 2018 compared to 2017 due to lower pretax income and a lower ETR. The lower ETR was primarily due to:

▪	$69 million lower income tax expense from the lower U.S. statutory corporate federal income tax rate in 2018; offset by

▪	$21 million income tax expense in 2018 associated with Aliso Canyon natural gas storage facility litigation; and

▪	lower income tax benefits from flow-through deductions in 2018.

Equity Earnings

Equity earnings increased by $405 million to $580 million in 2019 primarily due to:

▪	$174 million increase at Sempra Renewables, including $200 million other-than-temporary impairment of certain wind equity method investments in 2018;

▪	$155 million higher equity earnings, net of income tax, from our investment in Oncor Holdings, which we acquired in March 2018;

▪	$65 million impairment of our RBS Sempra Commodities equity method investment in 2018; and

▪	$24 million higher equity earnings from Cameron LNG JV including:

◦	$50 million increase primarily due to Train 1 commencing commercial operation under its tolling agreements in August 2019, offset by

◦	$26 million decrease due to the write-off of unamortized debt issuance costs and associated fees related to the JV’s debt refinancing; offset by

▪	$20 million lower equity earnings, net of income tax, from IMG JV, including $30 million foreign currency losses in 2019 compared to $3 million foreign currency gains in 2018 on its Mexican peso-denominated loans from its JV owners, which is fully offset in Other Income, Net.

Equity earnings increased by $103 million to $175 million in 2018 compared to 2017 primarily due to:

▪	$371 million equity earnings, net of income tax, from our investment in Oncor Holdings, which we acquired in March 2018; offset by

▪	$200 million other-than-temporary impairment of certain wind equity method investments at Sempra Renewables in 2018;

▪	$65 million impairment of our RBS Sempra Commodities equity method investment in 2018; and

▪	$16 million lower equity earnings, net of income tax, from IMG JV, including $32 million lower foreign currency gains in 2018 on its Mexican peso-denominated loans from its JV owners, which is fully offset in Other Income, Net.

Earnings Attributable to Noncontrolling Interests

Earnings attributable to NCI were $164 million for 2019 compared to $76 million for 2018. The net change of $88 million included:

▪	$1 million earnings attributable to NCI at Sempra Renewables in 2019 compared to $58 million losses in 2018 primarily due to the sales of our tax equity investments in December 2018 and April 2019; and

▪	$36 million losses attributable to NCI at Sempra LNG in 2018 due to the net impairment of certain non-utility natural gas storage assets.

Earnings attributable to NCI were $76 million for 2018 compared to $94 million for 2017. The net change of $18 million included:

▪	$36 million losses attributable to NCI at Sempra LNG in 2018 due to the net impairment of certain non-utility natural gas storage assets; and

▪	$35 million higher pretax losses attributed to tax equity investors at Sempra Renewables; offset by

▪	$59 million higher earnings attributable to NCI at Sempra Mexico in 2018.

Mandatory Convertible Preferred Stock Dividends

Mandatory convertible preferred stock dividends increased by $17 million (14%) to $142 million in 2019 primarily due to dividends associated with our series B preferred stock, which were issued in July 2018.

In 2018, our board of directors declared dividends of $105 million and $20 million, respectively, on our series A preferred stock and series B preferred stock.

IMPACT OF FOREIGN CURRENCY AND INFLATION RATES ON RESULTS OF OPERATIONS

Because operations in South America and our natural gas distribution utility in Mexico use their local currency as their functional currency, revenues and expenses are translated into U.S. dollars at average exchange rates for the period for consolidation in Sempra Energy Consolidated’s results of operations.

Foreign Currency Translation

Any difference in average exchange rates used for the translation of income statement activity from year to year can cause a variance in Sempra Energy’s comparative results of operations. Changes in foreign currency translation rates between years resulted in $8 million lower earnings within discontinued operations in 2019 compared to 2018 and a negligible impact in 2018 compared to 2017.

Transactional Impacts

Income statement activities at our foreign operations and their JVs are also impacted by transactional gains and losses. A summary of these foreign currency transactional gains and losses included in our reported results is shown in the table below:

TRANSACTIONAL GAINS (LOSSES) FROM FOREIGN CURRENCY AND INFLATION
(Dollars in millions)
	Total reported amounts												Transactional gains (losses) included in reported amounts
	Years ended December 31,
	2019				2018				2017				2019				2018				2017
Other income, net	$	77			$	58			$	220			$	55			$	(1	)		$	16
Income tax (expense) benefit	(315		)		49				(938		)		(71		)		(26		)		(64		)
Equity earnings	580				175				72				(47		)		(14		)		12
Income from continuing operations, net of income tax	1,999				938				382				(70		)		(41		)		(55		)
Income (loss) from discontinued operations, net of income tax	363				188				(31		)		2				6				2
Earnings attributable to common shares	2,055				924				256				(39		)		(21		)		(25		)

Foreign Currency Exchange Rate and Inflation Impacts on Income Taxes and Related Hedging Activity

Our Mexican subsidiaries have U.S. dollar-denominated cash balances, receivables, payables and debt (monetary assets and liabilities) that are affected by Mexican currency exchange rate movements for Mexican income tax purposes. They also have deferred income tax assets and liabilities, which are significant, denominated in the Mexican peso that must be translated to U.S. dollars for financial reporting purposes. In addition, monetary assets and liabilities and certain nonmonetary assets and liabilities are adjusted for Mexican inflation for Mexican income tax purposes. As a result, fluctuations in both the currency exchange rate for the Mexican peso against the U.S. dollar and Mexican inflation may expose us to fluctuations in Income Tax Expense, Other Income, Net and Equity Earnings. We use foreign currency derivatives as a means to manage exposure to the currency exchange rate on our monetary assets and liabilities. However, we generally do not hedge our deferred income tax assets and liabilities, which makes us susceptible to volatility in income tax expense caused by exchange rate fluctuations and inflation. The derivative activity impacts Other Income, Net.

We also utilize foreign currency derivatives to hedge exposure to fluctuation in the Peruvian Sol related to the sale of our operations in Peru in discontinued operations.

Other Transactions

Although the financial statements of most of our Mexican subsidiaries and JVs have the U.S. dollar as the functional currency, some transactions may be denominated in the local currency; such transactions are remeasured into U.S. dollars. This remeasurement creates transactional gains and losses that are included in Other Income, Net, for our consolidated subsidiaries and in Equity Earnings for our JVs.

We utilize cross-currency swaps that exchange our Mexican peso-denominated principal and interest payments into the U.S. dollar and swap Mexican variable interest rates for U.S. fixed interest rates. The impacts of these cross-currency swaps are offset in OCI and are reclassified from AOCI into earnings through Other Income, Net and Interest Expense as settlements occur.

Certain of our Mexican pipeline projects (namely Los Ramones I at IEnova Pipelines and Los Ramones Norte within our TAG JV) generate revenue based on tariffs that are set by government agencies in Mexico, with contracts denominated in Mexican pesos that are indexed to the U.S. dollar, adjusted annually for inflation and fluctuation in the exchange rate. The resultant gains and losses from remeasuring the local currency amounts into U.S. dollars and the settlement of foreign currency forwards and swaps related to these contracts are included in Revenues: Energy-Related Businesses or Equity Earnings.

CAPITAL RESOURCES AND LIQUIDITY

OVERVIEW

We expect to meet our cash requirements through cash flows from operations, unrestricted cash and cash equivalents, proceeds from recent and planned asset sales, borrowings under our credit facilities, distributions from our equity method investments, issuances of debt and equity securities, project financing and other equity sales, including partnering in JVs. We believe that these cash flow sources, combined with available funds, will be adequate to fund our current operations, including to:

▪	finance capital expenditures

▪	meet liquidity requirements

▪	fund dividends

▪	fund new business or asset acquisitions or start-ups

▪	fund capital contribution requirements

▪	repay maturing long-term debt

▪	fund expenditures related to the natural gas leak at SoCalGas’ Aliso Canyon natural gas storage facility

Sempra Energy and the California Utilities currently have ready access to the long-term debt markets and are not currently constrained in their ability to borrow at reasonable rates. However, changing economic conditions, our financing activities and actions by credit rating agencies, as well as many other factors, could negatively affect the availability and cost of both short-term and long-term financing. Also, cash flows from operations may be impacted by the timing of commencement and completion and, potentially, cost overruns of large projects. If cash flows from operations were to be significantly reduced or we were unable to borrow under acceptable terms, we would likely first reduce or postpone discretionary capital expenditures (not related to safety) and investments in new businesses. We monitor our ability to finance the needs of our operating, investing and financing activities in a manner consistent with our intention to maintain our investment-grade credit ratings and capital structure.

We have significant investments in several trusts to provide for future payments of pensions and other postretirement benefits, and nuclear decommissioning. Changes in asset values, which are dependent on the activity in the equity and fixed income markets, have not affected the trust funds’ abilities to make required payments. However, changes in asset values, along with a number of other factors such as changes to discount rates, assumed rates of return, mortality tables, and regulations, may impact funding requirements for pension and other postretirement benefit plans and SDG&E’s NDT. At the California Utilities, funding requirements are generally recoverable in rates.

Available Funds

Our lines of credit provide liquidity and support commercial paper. As we discuss in Note 7 of the Notes to Consolidated Financial Statements, Sempra Energy, Sempra Global, SDG&E and SoCalGas each have five-year revolving credit agreements expiring in 2024. These credit agreements replaced the credit agreements that were set to expire in 2020. The table below shows the amount of available funds at December 31, 2019, including available unused credit on these primary U.S. credit facilities. In addition, IEnova has $1.9 billion in lines of credit, with approximately $706 million available unused credit at December 31, 2019.

AVAILABLE FUNDS AT DECEMBER 31, 2019
(Dollars in millions)
	Sempra Energy Consolidated				SDG&E				SoCalGas
Unrestricted cash and cash equivalents(1)	$	108			$	10			$	10
Available unused credit(2)(3)	4,351				1,420				120

(1)	Amounts at Sempra Energy Consolidated include $60 million held in non-U.S. jurisdictions. We discuss repatriation in Note 8 of the Notes to Consolidated Financial Statements.

(2)	Available unused credit is the total available on Sempra Energy’s, Sempra Global’s, SDG&E’s and SoCalGas’ credit facilities that we discuss in Note 7 of the Notes to Consolidated Financial Statements.

(3)	Because the commercial paper programs are supported by these lines, we reflect the amount of commercial paper outstanding as a reduction to the available unused credit.

Short-Term Borrowings

We use short-term debt primarily to meet liquidity requirements, fund shareholder dividends, and temporarily finance capital expenditures, acquisitions or start-ups. Our corporate short-term, unsecured promissory notes, or commercial paper, were our primary sources of short-term debt funding in 2019. Our California Utilities use short-term debt primarily to meet working capital needs.

The following table shows selected statistics for our commercial paper borrowings for 2019:

COMMERCIAL PAPER STATISTICS
(Dollars in millions)
	Sempra Energy Consolidated				SDG&E				SoCalGas
Amount outstanding at December 31, 2019	$	2,334			$	80			$	630
Weighted-average interest rate at December 31, 2019	2.062		%		1.965		%		1.864		%
Maximum month-end amount outstanding during 2019(1)	$	3,061			$	405			$	630
Monthly weighted-average amount outstanding during 2019	$	2,243			$	127			$	196
Monthly weighted-average interest rate during 2019	2.618		%		2.736		%		2.165		%

(1)	The largest amount outstanding at the end of the last day of any month during the year.

Credit Ratings

The credit ratings of Sempra Energy, SDG&E and SoCalGas remained at investment grade levels in 2019.

CREDIT RATINGS AT DECEMBER 31, 2019
	Sempra Energy		SDG&E		SoCalGas
Moody’s	Baa1 with a negative outlook		Baa1 with a positive outlook		A1 with a negative 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 Energy’s or any of its subsidiaries’ credit ratings or rating outlooks may result in a requirement for collateral to be posted in the case of certain financing arrangements and may materially and adversely affect the market prices of their equity and debt securities, the rates at which borrowings are made and commercial paper is issued, and the various fees on their outstanding credit facilities. This could make it more costly for Sempra Energy, SDG&E, SoCalGas and Sempra Energy’s other subsidiaries to issue debt securities, to borrow under credit facilities and to raise certain other types of financing. We provide additional information about our credit ratings at Sempra Energy, SDG&E and SoCalGas in “Item 1A. Risk Factors.”

Sempra Energy has agreed that, if the credit rating of Oncor’s senior secured debt by any of the three major rating agencies falls below BBB (or the equivalent), Oncor will suspend dividends and other distributions (except for contractual tax payments), unless otherwise allowed by the PUCT. Oncor’s senior secured debt was rated A2, A+ and A at Moody’s, S&P and Fitch, respectively, at December 31, 2019.

Sempra Energy, SDG&E and SoCalGas have committed lines of credit to provide liquidity and to support commercial paper. Borrowings under these facilities bear interest at benchmark rates plus a margin that varies with market index rates and each borrower’s credit rating. Each facility also requires a commitment fee on available unused credit that may be impacted by each borrower’s credit rating. Depending on the severity of the downgrade:

▪	If Sempra Energy were to experience a ratings downgrade from its current level, the rate at which borrowings bear interest would increase by 25 to 50 bps. The commitment fee on available unused credit would also increase 5 to 10 bps.

▪	If SDG&E were to experience a ratings downgrade from its current level, the rate at which borrowings bear interest would increase by 25 to 50 bps. The commitment fee on available unused credit would also increase 5 to 10 bps.

▪	If SoCalGas were to experience a ratings downgrade from its current level, the rate at which borrowings bear interest would increase by 12.5 to 25 bps. The commitment fee on available unused credit would also increase 2.5 to 5 bps.

Sempra Energy’s and SDG&E’s credit ratings also may affect their respective credit limits related to derivative instruments, as we discuss in Note 11 of the Notes to Consolidated Financial Statements.

Loans to/from Affiliates

At December 31, 2019, Sempra Energy had a $742 million loan to an unconsolidated affiliate and $195 million of loans from unconsolidated affiliates.

California Utilities

SDG&E’s and SoCalGas’ operations have historically provided relatively stable earnings and liquidity. Their future performance will depend primarily on the ratemaking and regulatory process, environmental regulations, economic conditions, actions by the California legislature and the changing energy marketplace. From 2020 through 2024, SDG&E expects to make capital expenditures of approximately $8.9 billion and SoCalGas expects to make capital expenditures of approximately $9.0 billion for transmission and distribution improvements, including pipeline and wildfire safety. These amounts are estimates and the actual amounts of capital expenditures may differ, perhaps substantially.

SDG&E and SoCalGas expect that the available unused credit from their credit facilities described above, cash flows from operations, and debt issuances will continue to be adequate to fund their respective operations and capital expenditures. The California Utilities manage their capital structure and pay dividends when appropriate and as approved by their respective boards of directors.

As we discuss in Note 4 of the Notes to Consolidated Financial Statements, changes in balancing accounts for significant costs at SDG&E and SoCalGas, particularly a change between over- and undercollected status, including commodity and transportation balancing accounts, may have a significant impact on cash flows. These changes generally represent the difference between when costs are incurred and when they are ultimately recovered in rates through billings to customers.

SDG&E

Wildfire Fund

On July 12, 2019, the Governor of California signed into law the Wildfire Legislation, which addresses certain important issues related to catastrophic wildfires in the State of California and their impact on electric IOUs. We describe the Wildfire Legislation and related accounting treatment in Note 1 of the Notes to Consolidated Financial Statements.

The Wildfire Legislation established the Wildfire Fund to provide liquidity to SDG&E, PG&E and Edison to pay IOU wildfire-related claims in the event that the governmental agency responsible for determining causation determines the applicable IOU’s equipment caused the ignition of a wildfire, the primary insurance coverage is exceeded and certain other conditions are satisfied. The primary purpose of the Wildfire Fund is to pool resources provided by shareholders and ratepayers of the IOUs and make those resources available to reimburse the IOUs for third-party wildfire claims incurred after July 12, 2019, the effective date of the Wildfire Legislation, subject to certain limitations.

SDG&E recorded a Wildfire Fund asset for committed shareholder contributions to the Wildfire Fund. SDG&E is exposed to the risk that any California electric IOU may incur third-party wildfire claims for which they will seek recovery from the Wildfire Fund. In such a situation, SDG&E may recognize a reduction of its Wildfire Fund asset and record a charge against earnings in the period when there is a reduction of the available coverage due to recoverable claims from the IOUs. As a result, if any California electric IOU’s equipment is determined to be a cause of a fire, it could have a material adverse effect on SDG&E’s and Sempra Energy’s financial condition and results of operation up to the carrying value of our Wildfire Fund asset. 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 cause a material adverse effect on SDG&E’s and Sempra Energy’s cash flows, results of operations and financial condition.

SoCalGas

SoCalGas’ performance will also depend on the resolution of legal, regulatory and other matters concerning the Leak at the Aliso Canyon natural gas storage facility, which we discuss below, in Note 16 of the Notes to Consolidated Financial Statements, and in “Item 1A. Risk Factors.”

Aliso Canyon Natural Gas Storage Facility Gas Leak

In October 2015, SoCalGas discovered a leak at one of its injection-and-withdrawal wells, SS25, at its Aliso Canyon natural gas storage facility located in Los Angeles County. In February 2016, CalGEM confirmed that the well was permanently sealed. See Note 16 of the Notes to Consolidated Financial Statements for discussions of “Civil and Criminal Litigation” and “Regulatory Proceedings.”

Cost Estimates, Accounting Impacts and Insurance. At December 31, 2019, SoCalGas estimates its costs related to the Leak are $1,116 million (the cost estimate). This estimate may rise significantly as more information becomes available. Approximately

51% of the cost estimate is for the temporary relocation program (including cleaning costs and certain labor costs). A substantial portion of the cost estimate has been paid, and $9 million is accrued as Reserve for Aliso Canyon Costs and $7 million is accrued in Deferred Credits and Other as of December 31, 2019 on SoCalGas’ and Sempra Energy’s Consolidated Balance Sheets.

Except for the amounts paid or estimated to settle certain actions, the cost estimate does not include litigation or regulatory costs as it is not possible at this time to predict the outcome of these actions or reasonably estimate the costs to defend or resolve the actions or the amount of damages, restitution, or civil, administrative or criminal fines, sanctions, penalties or other costs or remedies that may be imposed or incurred, which could be significant. The cost estimate also does not include certain other costs incurred by Sempra Energy associated with defending against shareholder derivative lawsuits and other potential costs that we currently do not anticipate incurring or that we cannot reasonably estimate.

Excluding directors’ and officers’ liability insurance, we have at least four kinds of insurance policies that together we estimate provide between $1.2 billion to $1.4 billion in insurance coverage, depending on the nature of the claims. We have received insurance payments for many of the costs, including temporary relocation and associated processing costs, control-of-well expenses, costs of the government-ordered response to the Leak, legal costs and lost gas. We intend to pursue the full extent of our insurance coverage for the costs we have incurred or may incur. There can be no assurance that we will be successful in obtaining additional insurance recovery for these costs. If any costs are not covered by insurance (including any costs in excess of applicable policy limits), if there are significant 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 could have a material adverse effect on SoCalGas’ and Sempra Energy’s cash flows, financial condition and results of operations.

As of December 31, 2019, we recorded the expected recovery of the cost estimate related to the Leak of $339 million as Insurance Receivable for Aliso Canyon Costs on SoCalGas’ and Sempra Energy’s Consolidated Balance Sheets. This amount is net of insurance retentions and $747 million of insurance proceeds we received through December 31, 2019. If we were to conclude that this receivable or a portion of it is no longer probable of recovery from insurers, some or all of this receivable would be charged against earnings, which could have a material adverse effect on SoCalGas’ and Sempra Energy’s cash flows, financial condition and results of operations.

Natural Gas Storage Operations and Reliability. Natural gas withdrawn from storage is important for service reliability during peak demand periods, including peak electric generation needs in the summer and heating needs in the winter. The Aliso Canyon natural gas storage facility is the largest SoCalGas storage facility and an important element of SoCalGas’ delivery system. As a result of the Leak, SoCalGas suspended injection of natural gas into the Aliso Canyon natural gas storage facility beginning in October 2015 and, following a comprehensive safety review and authorization by CalGEM and the CPUC’s Executive Director, resumed limited injection operations in July 2017.

During the suspension period, SoCalGas advised the California ISO, CEC, CPUC and PHMSA of its concerns that the inability to inject natural gas into the Aliso Canyon natural gas storage facility posed a risk to energy reliability in Southern California. The CPUC has issued a series of directives to SoCalGas specifying the range of working gas to be maintained in the Aliso Canyon natural gas storage facility as well as protocols for the withdrawal of gas, to help ensure safe and reliable natural gas service, while helping to maintain stable energy prices in Southern California. Limited withdrawals of natural gas from the facility were made in 2018 and 2019 to augment natural gas supplies during critical demand periods.

If the Aliso Canyon natural gas storage facility were to be permanently closed, or if future cash flows were otherwise insufficient to recover its carrying value, it could result in an impairment of the facility and significantly higher than expected operating costs and/or additional capital expenditures, and natural gas reliability and electric generation could be jeopardized. At December 31, 2019, the Aliso Canyon natural gas storage facility had a net book value of $769 million. Any significant impairment of this asset could have a material adverse effect on SoCalGas’ and Sempra Energy’s results of operations for the period in which it is recorded. Higher operating costs and additional capital expenditures incurred by SoCalGas may not be recoverable in customer rates, and SoCalGas’ and Sempra Energy’s results of operations, cash flows and financial condition may be materially adversely affected.

Sempra Texas Utilities

Oncor’s business is capital intensive, and it relies on external financing as a significant source of liquidity for its capital requirements. From 2020 through 2024, Oncor expects to make capital expenditures of approximately $11.9 billion to meet the projected growth within its service territory, of which approximately $9.5 billion represents our proportionate ownership share. We expect Oncor will fund approximately $8.8 billion of these capital expenditures and Sempra Energy will fund approximately $0.7 billion through capital contributions to Oncor. These amounts are estimates and the actual amounts of capital expenditures and investments may differ, perhaps substantially. In the past, Oncor has financed a substantial portion of its cash needs from operations and with proceeds from indebtedness. In the event that Oncor fails to meet its capital requirements, we may be required to make additional capital contributions to Oncor, or if Oncor is unable to access sufficient capital to finance its ongoing needs, we may elect to make additional capital contributions to Oncor which could be substantial and which would reduce the cash available to us for other purposes, could increase our indebtedness and could ultimately materially adversely affect our results of operations, financial condition and prospects. In that regard, our commitments to the PUCT prohibit us from making loans to Oncor. As a result, if Oncor requires additional financing and cannot obtain it from other sources, we may elect to make a capital contribution to Oncor.

Oncor’s ability to pay dividends may be limited by factors such as its credit ratings, regulatory capital requirements, debt-to-equity ratio approved by the PUCT and other restrictions. In addition, Oncor will not pay dividends if a majority of Oncor’s independent directors or any minority member director determines it is in the best interests of Oncor to retain such amounts to meet expected future requirements.

Sempra Mexico

Sempra Mexico is currently building terminals for the receipt, storage, and delivery of liquid fuels in the new port of Veracruz and vicinity of Mexico City, Puebla, Topolobampo, Manzanillo, and Ensenada. Sempra Mexico is also developing new solar facilities in Juárez, Chihuahua, and Benjamin Hill, Sonora, through which it will supply renewable energy to several private companies. We expect the projects to commence commercial operation on various dates in 2020 and 2021. From 2020 through 2024, Sempra Mexico and its unconsolidated JV’s expect to make capital expenditures and investments of approximately $2.0 billion, which represents our proportionate ownership share before NCI. We expect Sempra Mexico’s unconsolidated JV’s will fund approximately $0.1 billion of these capital expenditures, which represents our proportionate ownership share, and Sempra Mexico will fund approximately $1.9 billion. These amounts are estimates and the actual amounts of capital expenditures and investments may differ, perhaps substantially. We expect to fund these capital expenditures and investments, operations and dividends at IEnova with available funds, including credit facilities, and funds internally generated by the Sempra Mexico businesses, as well as funds from project financing, sales of securities, interim funding from the parent or affiliates, and partnering in JVs.

In 2019, 2018 and 2017, IEnova paid dividends of $73 million, $71 million and $67 million, respectively, to its minority shareholders.

IEnova’s shareholders approved IEnova’s repurchases of its own shares up to a maximum amount of $250 million. Repurchases shall not exceed IEnova’s total net profits, including retained earnings, as stated in its financial statements. In 2019, IEnova repurchased 2,620,000 shares of its outstanding common stock held by NCI for approximately $10 million, resulting in an increase in Sempra Energy’s ownership interest in IEnova from 66.5% to 66.6% as of December 31, 2019.

As we discuss in Note 16 of the Notes to Consolidated Financial Statements, IEnova has received force majeure payments for the Guaymas-El Oro segment of the Sonora pipeline from August 2017 to August 2019, after damage to that segment of the pipeline made it inoperable and a court order prevented repairs to put the pipeline back in service. In July 2019, the CFE filed a request for arbitration generally to nullify certain contract terms that provide for fixed capacity payments in instances of force majeure and made a demand for substantial damages in connection with the force majeure event. In September 2019, the arbitration process ended when IEnova and the CFE reached an agreement to modify the tariff structure and extend the term of the contract for 10 years. 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 May 15, 2020 and the parties do not agree on a new service start date, IEnova retains the right to terminate the contract and seek to recover its reasonable and documented costs and lost profits. If IEnova is unable to make such repairs (which have not commenced) and resume operations in the Guaymas-El Oro segment of the Sonora pipeline or if IEnova terminates the contract and is unable to obtain recovery, there may be a material adverse impact on Sempra Energy’s results of operations and cash flows and our ability to recover the carrying value of our investment.

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 “Item 1A. Risk Factors.”

Sempra LNG

Sempra LNG develops and builds natural gas liquefaction facilities and is pursuing the development of five strategically located LNG projects in North America with a long-term goal of delivering natural gas to the largest world markets. We expect Sempra LNG to require funding for the development and expansion of its portfolio of projects, which may be financed through a combination of operating cash flow, funding from the parent, project financing and partnering in JVs, including its JV partnership with IEnova in ECA LNG JV. From 2020 through 2024, Sempra LNG and its unconsolidated JV expect to make capital expenditures and investments of approximately $2.4 billion, which represents our proportionate ownership share before NCI. We expect Sempra LNG’s unconsolidated JV will fund approximately $0.1 billion of these capital expenditures, which represents our proportionate ownership share, and Sempra LNG will fund approximately $2.3 billion. These amounts are estimates and the actual amounts of capital expenditures and investments may differ, perhaps substantially. These capital expenditures are primarily for construction of the proposed mid-scale liquefaction project at ECA LNG JV, which we discuss below.

North American natural gas prices, when in decline, negatively affect profitability at Sempra LNG. Also, a reduction in projected global demand for LNG could result in increased competition among those developing projects in an environment of declining LNG demand, such as the Sempra Energy-sponsored LNG export initiatives. For a discussion of these risks and other risks involving changing commodity prices, see “Item 1A. Risk Factors.”

Cameron LNG JV Three-Train Liquefaction Project

Sempra LNG, through its interest in Cameron LNG JV, is constructing a three-train natural gas liquefaction export facility with an expected export capability of 12 Mtpa of LNG. Construction on the three-train liquefaction project began in the second half of 2014 under an EPC contract with a JV between CB&I, LLC (as assignee of CB&I Shaw Constructors, Inc.), a wholly owned subsidiary of McDermott International, Inc., and Chiyoda International Corporation, a wholly owned subsidiary of Chiyoda Corporation. The majority of the construction is project-financed at the JV, with most or all of the remainder of the capital requirements provided by the project partners, including Sempra Energy, through equity contributions under the project equity agreements. We expect that our remaining equity requirements to complete the project will be met by a combination of our share of cash generated from each liquefaction train as it comes on line and, if required, additional cash contributions. Sempra Energy signed guarantees for 50.2% of Cameron LNG JV’s financing obligations for a maximum amount of up to $4.0 billion. The guarantees will terminate upon satisfaction of certain conditions, including all three trains achieving financial completion by September 30, 2021 (with up to an additional 365 days extension beyond such date permitted in cases of force majeure). However, if Cameron LNG JV fails to satisfy the financial completion criteria, a demand could be made under the guarantee for Sempra Energy’s 50.2% of Cameron LNG JV’s obligations under the financing arrangements then due and payable.

In August 2019, commercial operation of Train 1 commenced under Cameron LNG JV’s tolling agreements. In February 2020, Train 2 reached substantial completion and we expect to commence commercial operation in the coming days. Based on a number of factors, we believe it is reasonable to expect Train 3 will commence commercial operation in the third quarter of 2020. These factors include, among others, the EPC contractor’s progress to date, the current commissioning activities, the remaining work to be performed, the project schedules received from the EPC contractor, Cameron LNG JV’s own review of the project schedules, the assumptions underlying such schedules, and the inherent risks in constructing and testing facilities such as the Cameron LNG JV liquefaction facility.

Large-scale construction projects like the design, development and construction of the Cameron LNG JV liquefaction facility involve numerous risks and uncertainties, including among others, the potential for unforeseen engineering challenges, severe weather events, substantial construction delays and increased costs. In addition, once completed, the facility may be subject to design flaws, equipment failures and other operational issues, which could cause the facility to suspend operations or operate at a reduced capacity.

Cameron LNG JV has a lump-sum, turnkey EPC contract, and if the contractor becomes unwilling or unable to perform according to the terms and timetable of the EPC contract, the project could face substantial construction delays and potentially significantly increased costs. In January 2020, McDermott International, Inc. filed for bankruptcy protection under Chapter 11 of the U.S. bankruptcy code. McDermott International, Inc. has stated that it expects all of its projects, including the three-train liquefaction project at Cameron LNG JV, to continue on an uninterrupted basis. However, we cannot be certain the Cameron LNG JV project will not be interrupted. If the contractor defaults under the EPC contract due to the bankruptcy of McDermott International, Inc. or for any other reason, such default could result in Cameron LNG JV’s engagement of a substitute contractor. The inability to complete the project in a timely manner or within our current expectations, cost overruns, and the other risks described above could have a material adverse effect on our business, results of operations, cash flows, financial condition, credit ratings and/or prospects.

For a discussion of our investment in Cameron LNG JV, JV financing, Sempra Energy guarantees, the risks discussed above and other risks relating to the development of the Cameron LNG JV liquefaction project that could adversely affect our future performance, see Note 6 of the Notes to Consolidated Financial Statements and “Item 1A. Risk Factors.”

Proposed Cameron Liquefaction Expansion

Cameron LNG JV has received the major permits and FTA and non-FTA approvals necessary to expand the current configuration of the Cameron LNG JV liquefaction project from the current three liquefaction trains under construction. The proposed expansion project includes up to two additional liquefaction trains and up to two additional full containment LNG storage tanks (one of which was permitted with the original three-train project).

Expansion of the Cameron LNG liquefaction facility beyond the first three trains is subject to certain restrictions and conditions under the JV project financing agreements, including among others, timing restrictions on expansion of the project unless appropriate prior consent is obtained from the project lenders. Under the Cameron LNG JV equity agreements, the expansion of the project requires the unanimous consent of all the partners, including with respect to the equity investment obligation of each partner. Discussions among all the Cameron LNG JV partners have been taking place regarding how an expansion may be structured and we expect that discussions will continue. There can be no assurance that a mutually agreeable expansion structure will be agreed upon unanimously by the Cameron LNG JV members, which if not accomplished in a timely manner, could materially and adversely impact the development of the expansion project. In light of this, we are unable to predict whether or when Cameron LNG JV might be able to move forward on expansion of the Cameron LNG liquefaction facility beyond the first three trains.

In November 2018, Sempra Energy and TOTAL S.A. entered into an MOU that provides a framework for cooperation for the development of the potential Cameron LNG expansion project and the potential ECA LNG JV liquefaction-export project that we describe below in “ECA LNG JV Liquefaction Project.” The MOU contemplates TOTAL S.A. potentially contracting for up to approximately 9 Mtpa of LNG offtake across these two development projects and provides TOTAL S.A. the option to acquire an equity interest in the proposed ECA LNG JV project. In addition, in October 2019, Sempra Energy and Mitsui & Co., Ltd. entered into an MOU that provides a framework for potential offtake by Mitsui & Co., Ltd. from the potential Cameron LNG expansion project and the second phase of the potential ECA LNG JV project, as well as Mitsui & Co., Ltd.’s potential acquisition of an equity interest in the second phase of the potential ECA LNG JV project. The ultimate participation of TOTAL S.A. and Mitsui & Co., Ltd. remains subject to negotiation and finalization of definitive agreements, among other factors, and TOTAL S.A. and Mitsui & Co., Ltd. have no commitment to participate in the projects.

ECA LNG JV Liquefaction Project

Through a JV agreement, Sempra LNG and IEnova are developing a proposed natural gas liquefaction project at IEnova’s existing ECA LNG Regasification terminal. The proposed liquefaction facility project, which is planned for development in two phases (a mid-scale project referred to as ECA LNG JV Phase 1 and a large-scale project referred to as ECA LNG JV Phase 2), is being developed to provide buyers with direct access to west coast LNG supplies. The ECA LNG Regasification facility currently has profitable long-term regasification contracts for 100% of the regasification facility’s capacity through 2028, making the decisions on whether and how to pursue the ECA LNG JV Phase 2 liquefaction 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 JV received two authorizations from the DOE to export U.S.-produced natural gas to Mexico and to re-export LNG to non-FTA countries from its ECA LNG JV Phase 1 and ECA LNG JV Phase 2 projects in development.

In June 2018, we selected a TechnipFMC plc and Kiewit Corporation partnership as the EPC contractor for ECA LNG JV Phase 1, subject to reaching a definitive agreement. In the coming days, we expect to sign a lump-sum, turn-key EPC contract with TechnipFMC for the engineering, procurement and construction of a one-train natural gas liquefaction export facility with a nameplate capacity of 3.25 Mtpa and offtake capacity of 2.5 Mtpa. If entered into, we will have no obligation to move forward on the EPC contract, and we may release TechnipFMC to perform portions of the work pursuant to limited notices to proceed. We plan to fully release TechnipFMC to perform all the work to construct ECA LNG JV Phase 1 only after we reach a final investment decision with respect to the project, which we expect to make in the first quarter of 2020, and after certain other conditions are met. Kiewit Corporation, which we previously expected to be part of the EPC contractor JV, may be a sub-contractor to TechnipFMC, subject to the terms of the EPC contract. The total price of the EPC contract for ECA LNG JV Phase 1 is estimated at approximately $1.5 billion. We estimate that capital expenditures for ECA LNG JV Phase 1 will approximate $1.9 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.

In November 2018, Sempra LNG and IEnova signed Heads of Agreements with affiliates of TOTAL S.A., Mitsui & Co., Ltd. and Tokyo Gas Co., Ltd. for ECA LNG JV Phase 1. Each Heads of Agreement for ECA LNG JV Phase 1 contemplates the parties negotiating definitive 20-year LNG sales and purchase agreements for the purchase of approximately 0.8 Mtpa of LNG from the ECA LNG JV facility, but does not obligate the parties to ultimately execute any agreements or participate in the project. The ultimate participation of TOTAL S.A., Mitsui & Co., Ltd. and Tokyo Gas Co., Ltd. in the potential ECA LNG JV Phase 1 project as contemplated by the Heads of Agreements signed in November 2018 remains subject to finalization of definitive agreements, among other factors, and none of these parties has committed to participate in this project.

The development of the ECA LNG JV Phase 1 and ECA LNG JV Phase 2 projects is subject to numerous risks and uncertainties, including obtaining binding customer commitments; the receipt of a number of permits and regulatory approvals; obtaining financing; 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 final investment decision; and other factors associated with this potential investment. In addition, as we discuss in Note 16 of the Notes to Consolidated Financial Statements, an unfavorable decision on certain property disputes and permit challenges could materially and adversely affect the development of these projects. For a discussion of these risks, see “Item 1A. Risk Factors.”

Port Arthur LNG Liquefaction Project

Sempra LNG is developing a proposed natural gas liquefaction project on a greenfield site that it owns in the vicinity of Port Arthur, Texas, located along the Sabine-Neches waterway. Sempra LNG received authorizations from the DOE in August 2015 and May 2019 that collectively permit the LNG to be produced from the proposed Port Arthur LNG project to be exported to all current and future FTA and non-FTA countries.

In April 2019, the FERC approved the siting, construction and operation of the first phase of the proposed Port Arthur LNG liquefaction facility, along with certain natural gas pipelines, including the Louisiana Connector Pipeline, that could be used to supply feed gas to the liquefaction facility, assuming the project is completed. We expect to make a final investment decision in the third quarter of 2020.

In June 2018, we selected Bechtel as the EPC contractor for the proposed Port Arthur LNG liquefaction project, subject to reaching a definitive agreement. We are in the final stages of negotiating and finalizing a definitive EPC contract for the project. If we execute the EPC contract, we will have no obligation to move forward on the EPC contract, and we may release Bechtel to perform portions of the work pursuant to limited notices to proceed. We plan to fully release Bechtel to perform all the work to construct the Port Arthur LNG liquefaction project only after we reach a final investment decision with respect to the project and after certain other conditions are met, including project financing. The potential EPC contract contemplates the construction of two liquefaction trains with a total nameplate capacity of 13.5 Mtpa and a total offtake capacity of approximately 10 Mtpa.

In December 2018, Polish Oil & Gas Company (PGNiG) and Port Arthur LNG entered into a definitive 20-year agreement for the sale and purchase of 2 Mtpa of LNG per year from the Port Arthur LNG liquefaction project. Under the agreement, LNG purchases by PGNiG from Port Arthur LNG will be made on a free-on-board basis, with PGNiG responsible for shipping the LNG from the Port Arthur facility to the final destination. Port Arthur LNG will manage the gas pipeline transportation, liquefaction processing and cargo loading. The agreement is subject to certain conditions precedent, including Port Arthur LNG making a positive final investment decision within certain agreed timelines. The failure of these conditions precedent to be satisfied or waived within the agreed timelines can result in the termination of the agreement.

In May 2019, Aramco Services Company and Sempra LNG signed a Heads of Agreement for the negotiation and finalization of a definitive 20-year LNG sale and purchase agreement for 5 Mtpa of LNG offtake. The Heads of Agreement also includes the negotiation and finalization of a 25% equity investment in the project. In January 2020, Aramco Services Company and Sempra LNG signed an Interim Project Participation Agreement, which sets forth certain mechanisms for the parties to work towards receipt of corporate approvals to enter into and proceed with the transaction, execution of the transaction agreements and the fulfillment or waiver of the conditions precedent contemplated by these agreements, making a final investment decision and other pre-final investment decision activities. The Heads of Agreement and Interim Project Participation Agreement do not obligate the parties to ultimately execute any agreements or participate in the project.

In February 2020, Sempra LNG filed a FERC application for the siting, construction and operation of a second phase at the proposed Port Arthur LNG facility, including the potential addition of two liquefaction trains.

In November 2019, Port Arthur LNG commenced the relocation and upgrade of approximately three miles of highway where the Port Arthur LNG liquefaction project would be located.

Development of the Port Arthur LNG liquefaction project is subject to a number of risks and uncertainties, including obtaining additional customer commitments; completing the required commercial agreements, such as equity acquisitions and governance

agreements, LNG sales agreements and gas supply and transportation agreements; completing construction contracts; securing all necessary permits and approvals; obtaining financing and incentives; reaching a final investment decision; and other factors associated with the potential investment. For a discussion of these risks, see “Item 1A. Risk Factors.”

Discontinued Operations

As we discuss in Note 5 of the Notes to Consolidated Financial Statements, in January 2019, our board of directors approved a plan to sell our South American businesses. In September 2019, we entered into an agreement to sell our equity interests in our Peruvian businesses for an aggregate base purchase price of $3.59 billion, subject to customary closing adjustments for working capital and changes in net indebtedness. In October 2019, we entered into an agreement to sell our equity interests in our Chilean businesses for an aggregate base purchase price of $2.23 billion, subject to customary adjustments for working capital and changes in net indebtedness and other adjustments. We expect the sales to close in the first half of 2020.

Our utilities in South America have historically provided relatively stable earnings and liquidity. We intend to use the proceeds from the sales to focus on capital investment in North America to support additional growth opportunities and strengthen our balance sheet by reducing debt. We expect the cash provided by earnings from our capital investment will exceed the absence of cash flows from these discontinued operations. However, there can be no assurance that we will derive these anticipated benefits. Further, there can be no assurance that we will be able to redeploy the capital that we obtain from such sales, if completed, in a way that would result in cash flows or earnings exceeding those historically generated by these businesses.

SOURCES AND USES OF CASH

The following tables include only significant changes in cash flow activities for each of our registrants.

CASH FLOWS FROM OPERATING ACTIVITIES
(Dollars in millions)
Years ended December 31,		Sempra Energy Consolidated				SDG&E				SoCalGas
2019		$	3,088			$	1,090			$	868
2018		3,516				1,584				1,013
Change		$	(428	)		$	(494	)		$	(145	)
Change in net undercollected regulatory balancing accounts (including long-term amounts in regulatory assets)		$	(513	)		$	(254	)		$	(259	)
SDG&E’s initial shareholder contribution to the Wildfire Fund in September 2019		(323		)		(323		)
Change in income taxes receivable/payable, net, primarily due to higher payments		(254		)		(149		)		(170		)
Net decrease in Reserve for Aliso Canyon Costs due to $119 higher payments and $81 lower accruals		(200		)						(200		)
Deferred revenue due to the TCJA at the California Utilities in 2018		(123		)		(62		)		(61		)
Cash payments for operating leases in 2019		(101		)		(33		)		(27		)
Decrease in interest payable primarily due to higher payments		(86		)
Higher contributions to Rabbi Trust		(81		)
Higher net income, adjusted for noncash items included in earnings		442				266				336
Change in intercompany activities with discontinued operations (including $334 dividends received from our South American businesses)		308
Change in long-term GHG obligations		185								174
Net decrease in Insurance Receivable for Aliso Canyon Costs due to $84 higher insurance proceeds received and $81 lower accruals		165								165
Higher distributions of earnings from Oncor Holdings		97
Change in accounts payable										(78		)
Lower (higher) purchases of GHG allowances						50				(43		)
Other		(38		)		11				18
Change in net cash flows from discontinued operations		94
		$	(428	)		$	(494	)		$	(145	)
Years ended December 31,		Sempra Energy Consolidated				SDG&E				SoCalGas
2018		$	3,516			$	1,584			$	1,013
2017		3,625				1,547				1,306
Change		$	(109	)		$	37			$	(293	)
Lower net income, adjusted for noncash items included in earnings		$	(344	)		$	(22	)
Net increase in Insurance Receivable for Aliso Canyon Costs primarily due to $203 lower insurance proceeds received and $30 higher accruals		(231		)						$	(231	)
Change in accounts receivable		(174		)		106				(159		)
Higher purchases of GHG allowances		(161		)		(81		)		(64		)
Change in income taxes receivable/payable, net		166				(113		)
Change in net undercollected regulatory balancing accounts (including long-term amounts in regulatory assets)		152				152
Distributions of earnings from Oncor Holdings		149
Deferred revenue due to the TCJA at the California Utilities in 2018		143				75				68
Change in interest payable		80
Change in intercompany activities with discontinued operations (including $69 dividends received from our Peruvian businesses)		62
Change in accounts payable						(76		)
Change in inventory		74								64
Other		(35		)		(4		)		29
Change in net cash flows from discontinued operations		10
		$	(109	)		$	37			$	(293	)

CASH FLOWS FROM INVESTING ACTIVITIES
(Dollars in millions)
Years ended December 31,		Sempra Energy Consolidated				SDG&E				SoCalGas
2019		$	(4,593	)		$	(1,522	)		$	(1,438	)
2018		(12,470		)		(1,542		)		(1,531		)
Change		$	7,877			$	20			$	93
Acquisition of investment in Oncor Holdings in March 2018		$	9,556
Dividends received from Peruvian businesses in discontinued operations		583
Dividends received from Chilean businesses in discontinued operations		394
Net proceeds from sale of Sempra LNG’s non-utility natural gas storage assets		322
Lower expenditures for investments in Cameron LNG JV and IMG JV		245
Lower advances to unconsolidated affiliates		79
Higher contributions to Oncor Holdings primarily to fund Oncor’s purchase of InfraREIT in May 2019		(1,357		)
Lower net proceeds from sale of certain Sempra Renewables’ assets and investments ($569 in 2019 and $1,571 in 2018)		(1,002		)
Contributions to Peruvian businesses in discontinued operations		(583		)
Contributions to Chilean businesses in discontinued operations		(394		)
(Increase) decrease in capital expenditures		(164		)		$	20			$	99
Acquisition of investment in Sharyland Holdings in May 2019		(95		)
Other		40								(6		)
Change in net cash flows from discontinued operations		253
		$	7,877			$	20			$	93
Years ended December 31,		Sempra Energy Consolidated				SDG&E				SoCalGas
2018		$	(12,470	)		$	(1,542	)		$	(1,531	)
2017		(4,885		)		(1,515		)		(1,363		)
Change		$	(7,585	)		$	(27	)		$	(168	)
Increase in expenditures for investments and acquisitions primarily for the March 2018 acquisition of investment in Oncor Holdings		$	(9,899	)
Net proceeds from the December 2018 sale of certain Sempra Renewables’ assets and investments		1,571
Lower advances to unconsolidated affiliates		410
Decrease (increase) in capital expenditures		161								$	(171	)
Other		1				$	(27	)		3
Change in net cash flows from discontinued operations		171
		$	(7,585	)		$	(27	)		$	(168	)

CASH FLOWS FROM FINANCING ACTIVITIES
(Dollars in millions)
Years ended December 31,		Sempra Energy Consolidated				SDG&E				SoCalGas
2019		$	1,475			$	405			$	562
2018		8,850				(34		)		528
Change		$	(7,375	)		$	439			$	34
Higher issuances of long-term debt in 2018, including increases at Sempra Energy Consolidated primarily to fund the March 2018 acquisition of investment in Oncor Holdings and at SDG&E from issuance of a new loan by OMEC LLC to partially repay OMEC’s project financing loan		$	(4,826	)		$	(218	)		$	(600	)
Net proceeds from 2018 issuances of mandatory convertible preferred stock		(2,258		)
Lower net proceeds from issuances of common stock primarily related to settlements of forward sale agreements		(442		)
(Higher) lower payments on long-term debt and finance leases		(217		)		218				494
(Higher) lower dividends paid		(169		)		250				(100		)
Change in intercompany activities with discontinued operations primarily related to intercompany loans		(157		)
Higher payments for commercial paper and other short-term debt with maturities greater than 90 days		(108		)
Increase (decrease) in short-term debt, net		740				(249		)		234
Higher issuances of commercial paper and other short-term debt with maturities greater than 90 days		195
Advances from unconsolidated affiliates		155
Higher capital contributions from OMEC LLC to repay OMEC’s loan		110				110
Equity contribution from Sempra Energy to fund initial shareholder contribution to the Wildfire Fund						322
Other		(31		)		6				6
Change in net cash flows from discontinued operations (including $1,311 common dividends paid offset by $977 equity contributions received)		(367		)
		$	(7,375	)		$	439			$	34
Years ended December 31,		Sempra Energy Consolidated				SDG&E				SoCalGas
2018		$	8,850			$	(34	)		$	528
2017		1,192				(23		)		53
Change		$	7,658			$	(11	)		$	475
Higher issuances of long-term debt in 2018, including increases at Sempra Energy Consolidated primarily to fund the March 2018 acquisition of investment in Oncor Holdings and at SDG&E from issuance of a new loan by OMEC LLC to partially repay OMEC’s project financing loan		$	3,707			$	220			$	949
Higher net proceeds from issuances of common stock in 2018 primarily related to settlements of forward sale agreements		2,225
Net proceeds from 2018 issuances of mandatory convertible preferred stock		2,258
Higher issuances of commercial paper and other short-term debt with maturities greater than 90 days		960
Capital contribution from OMEC LLC in 2018 to partially repay OMEC’s project financing loan						65
Decrease in short-term debt, net						(215		)
Higher payments on long-term debt, including $295 early repayment of OMEC’s project financing loan by OMEC LLC at SDG&E		(775		)		(306		)		(500		)
Change in intercompany activities with discontinued operations related to intercompany loans		(276		)
(Higher) lower dividends paid		(211		)		200
Lower proceeds from sale of NCI		(106		)
Other		(59		)		25				26
Change in net cash flows from discontinued operations		(65		)
		$	7,658			$	(11	)		$	475

Expenditures for PP&E

We invest the majority of our capital in the California Utilities, primarily for transmission and distribution improvements, including pipeline and wildfire safety. The following table summarizes by segment capital expenditures for the last three years.

EXPENDITURES FOR PP&E
(Dollars in millions)
	Years ended December 31,
	2019				2018				2017
SDG&E	$	1,522			$	1,542			$	1,555
SoCalGas	1,439				1,538				1,367
Sempra Mexico	624				368				248
Sempra Renewables	2				51				497
Sempra LNG	112				31				20
Parent and other	9				14				18
Total	$	3,708			$	3,544			$	3,705

Expenditures for Investments and Acquisitions

In 2019 and 2018, we invested heavily in our Sempra Texas Utilities, which included our March 2018 acquisition of Oncor Holdings and subsequent contributions to Oncor Holdings, primarily to fund Oncor’s purchase of InfraREIT in May 2019. The following table summarizes by segment our investments in various JVs, as well as business and asset acquisitions.

EXPENDITURES FOR INVESTMENTS AND ACQUISITIONS**(1)**
(Dollars in millions)
	Years ended December 31,
	2019				2018				2017
Sempra Texas Utilities	$	1,685			$	9,457			$	—
Sempra Mexico	—				100				219
Sempra Renewables	—				5				—
Sempra LNG	110				275				48
Parent and other	2				331				2
Total	$	1,797			$	10,168			$	269

(1)	Net of cash and cash equivalents acquired.

Future Capital Expenditures and Investments

The amounts and timing of capital expenditures and certain investments are generally subject to approvals by various regulatory and other governmental and environmental bodies, including the CPUC, the FERC and the PUCT. In 2020, we expect to make capital expenditures and investments of approximately $5.9 billion (which excludes capital expenditures that will be funded by unconsolidated entities), as summarized by segment in the following table.

FUTURE CAPITAL EXPENDITURES AND INVESTMENTS
(Dollars in millions)
	Year ended December 31, 2020
SDG&E	$	2,000
SoCalGas	2,000
Sempra Texas Utilities	300
Sempra Mexico	900
Sempra LNG	700
Total	$	5,900

We expect the majority of our capital expenditures and investments in 2020 will relate to transmission and distribution improvements at our regulated public utilities and construction of liquid fuels terminals at Sempra Mexico.

As we discuss above, from 2020 through 2024, and subject to the factors described below, which could cause these estimates to vary substantially, Sempra Energy expects to make aggregate capital expenditures and investments of approximately $22.8 billion (which excludes capital expenditures that will be funded by unconsolidated entities), as follows: $8.9 billion at SDG&E, $9.0 billion at SoCalGas, $0.7 billion at Sempra Texas Utilities and $1.9 billion at Sempra Mexico and $2.3 billion at Sempra LNG. Capital expenditure amounts include capitalized interest and AFUDC related to debt.

Periodically, we review our construction, investment and financing programs and revise them in response to changes in regulation, economic conditions, competition, customer growth, inflation, customer rates, the cost and availability of capital, and safety and environmental requirements.

Our level of capital expenditures and investments in the next few years may vary substantially and will depend on, among other things, the cost and availability of financing, regulatory approvals, changes in U.S. federal tax law and business opportunities providing desirable rates of return. We intend to finance our capital expenditures in a manner that will maintain our investment-grade credit ratings and capital structure.

Capital Stock Transactions

Sempra Energy

Cash provided by issuances of common and preferred stock was:

▪	$1.8 billion in 2019

▪	$4.5 billion in 2018

▪	$47 million in 2017

Dividends

Sempra Energy

Sempra Energy paid cash dividends of:

▪	$993 million for common stock and $142 million for preferred stock in 2019

▪	$877 million for common stock and $89 million for preferred stock in 2018

▪	$755 million for common stock in 2017

On December 9, 2019, Sempra Energy declared a quarterly dividend of $0.9675 per share of common stock, $1.50 per share of series A preferred stock and $1.6875 per share of series B preferred stock, all of which were paid on January 15, 2020.

Dividends declared on common stock have increased in each of the last three years due to an increase in the per-share quarterly dividends approved by our board of directors to $0.9675 in 2019 ($3.87 annually) from $0.895 in 2018 ($3.58 annually) and from $0.8225 in 2017 ($3.29 annually).

On February 25, 2020, our board of directors approved an increase in Sempra Energy’s quarterly common stock dividend to $1.045 per share ($4.18 annually), the first of which is payable April 15, 2020. In addition, on February 25, 2020, our board of directors declared quarterly dividends of $1.50 per share on our series A preferred stock and $1.6875 per share on our series B preferred stock, both payable on April 15, 2020. Declarations of dividends on our common stock and preferred stock are made at the discretion of the board of directors. While we view dividends as an integral component of shareholder return, the amount of future dividends will depend on earnings, cash flows, financial and legal requirements, and other relevant factors at that time.

SDG&E

SDG&E did not declare or pay common stock dividends in 2019. In 2018 and 2017, SDG&E paid common stock dividends to Enova and Enova paid corresponding dividends to Sempra Energy of $250 million and $450 million, respectively. SDG&E’s dividends on common stock declared on an annual historical basis may not be indicative of future declarations and could be impacted over the next few years in order for SDG&E to maintain its authorized capital structure while managing its capital investment program.

In January 2020, SDG&E declared and paid common stock dividends to Enova and Enova declared and paid corresponding dividends to Sempra Energy of $200 million.

Enova, a wholly owned subsidiary of Sempra Energy, owns all of SDG&E’s outstanding common stock. Accordingly, dividends paid by SDG&E to Enova and dividends paid by Enova to Sempra Energy are both eliminated in Sempra Energy’s Consolidated Financial Statements.

SoCalGas

In 2019 and 2018, SoCalGas paid common stock dividends to PE and PE paid corresponding dividends to Sempra Energy of $150 million and $50 million, respectively. SoCalGas did not declare or pay common stock dividends in 2017. SoCalGas’ dividends on common stock declared on an annual historical basis may not be indicative of future declarations and could be impacted over the next few years in order for SoCalGas to maintain its authorized capital structure while managing its capital investment program.

PE, a wholly owned subsidiary of Sempra Energy, owns all of SoCalGas’ outstanding common stock. Accordingly, dividends paid by SoCalGas to PE and dividends paid by PE to Sempra Energy are both eliminated in Sempra Energy’s Consolidated Financial Statements.

Dividend Restrictions

The board of directors for each of Sempra Energy, SDG&E and SoCalGas has the discretion to determine the payment and amount of future dividends by each such entity. The CPUC’s regulation of SDG&E’s and SoCalGas’ capital structures limits the amounts that are available for loans and dividends to Sempra Energy. At December 31, 2019, based on these regulations, Sempra Energy could have received combined loans and dividends of approximately $885 million from SDG&E and $742 million from SoCalGas.

We provide additional information about dividend restrictions in “Restricted Net Assets” in Note 1 of the Notes to Consolidated Financial Statements.

Book Value Per Common Share

Sempra Energy’s book value per common share on the last day of each year was as follows:

▪	$60.58 in 2019

▪	$54.35 in 2018

▪	$50.40 in 2017

The increase in 2019 was primarily due to comprehensive income exceeding dividends and issuances of common stock. In 2018, the increase was primarily due to issuances of common stock, partially offset by dividends exceeding comprehensive income.

Capitalization

Our debt to capitalization ratio, calculated as total debt as a percentage of total debt and equity, was as follows:

TOTAL CAPITALIZATION AND DEBT-TO-CAPITALIZATION RATIOS
(Dollars in millions)
	Sempra Energy
	Consolidated				SDG&E				SoCalGas
	December 31, 2019
Total capitalization	$	47,621			$	13,542			$	9,172
Debt-to-capitalization ratio	54		%		48		%		48		%
	December 31, 2018
Total capitalization	$	43,819			$	12,625			$	7,944
Debt-to-capitalization ratio	56		%		52		%		46		%

Significant changes in 2019 that affected capitalization included the following:

▪	Sempra Energy Consolidated: increase in short-term debt and increase in equity from issuances of common stock and comprehensive income exceeding dividends.

▪	SDG&E: increase in equity from comprehensive income and common stock, partially offset by a decrease in NCI due to deconsolidation of Otay Mesa VIE.

▪	SoCalGas: increase in both long-term and short-term debt and from comprehensive income exceeding dividends.

COMMITMENTS

The following tables summarize undiscounted principal contractual commitments at December 31, 2019, exclusive of commitments within discontinued operations, for Sempra Energy Consolidated, SDG&E and SoCalGas. We provide additional information about commitments above and in Notes 1, 7, 9, 15 and 16 of the Notes to Consolidated Financial Statements.

UNDISCOUNTED PRINCIPAL CONTRACTUAL COMMITMENTS – SEMPRA ENERGY CONSOLIDATED
(Dollars in millions)
	2020				2021 and 2022				2023 and 2024				Thereafter				Total
Long-term debt	$	1,501			$	2,599			$	2,780			$	14,367			$	21,247
Interest on long-term debt(1)	822				1,518				1,365				10,346				14,051
Operating leases	75				138				104				452				769
Finance leases	198				385				379				2,629				3,591
Purchased-power contracts – fixed payments	233				462				360				904				1,959
Purchased-power contracts – estimated variable payments	326				656				655				3,707				5,344
Natural gas contracts(2)	193				265				121				311				890
LNG contract(3)	265				738				761				1,842				3,606
Construction commitments	990				89				32				101				1,212
SONGS decommissioning	89				165				109				739				1,102
Other asset retirement obligations	71				143				152				10,879				11,245
Sunrise Powerlink wildfire mitigation fund	4				8				8				282				302
Pension and other postretirement benefit obligations(4)	275				463				453				896				2,087
Wildfire Fund obligation	13				26				26				51				116
Environmental commitments(5)	9				34				3				50				96
Other(6)	80				64				37				115				296
Total	$	5,144			$	7,753			$	7,345			$	47,671			$	67,913

(1)	We calculate expected interest payments using the stated interest rate for fixed-rate obligations, including floating-to-fixed interest rate swaps and cross-currency swaps. We calculate expected interest payments for variable-rate obligations based on forward rates in effect at December 31, 2019*.*

(2)	Includes $11 million of estimated variable payments.

(3)	Sempra LNG has a sale and purchase agreement for the supply of LNG to the ECA LNG Regasification terminal. The commitment amount is calculated using a predetermined formula based on estimated forward prices of the index applicable from 2020 to 2029.

(4)	Amounts represent expected company contributions to the plans for the next 10 years.

(5)	Excludes environmental matters for the Leak at SoCalGas’ Aliso Canyon natural gas storage facility.

(6)	Includes leases that have not yet commenced.

UNDISCOUNTED PRINCIPAL CONTRACTUAL COMMITMENTS – SDG&E
(Dollars in millions)
	2020				2021 and 2022				2023 and 2024				Thereafter				Total
Long-term debt	$	36			$	404			$	450			$	4,250			$	5,140
Interest on long-term debt(1)	221				425				395				2,803				3,844
Operating leases	30				54				32				28				144
Finance leases	192				380				375				2,624				3,571
Purchased-power contracts – fixed payments	233				462				360				904				1,959
Purchased-power contracts – estimated variable payments	326				656				655				3,707				5,344
Construction commitments	20				33				2				2				57
SONGS decommissioning	89				165				109				739				1,102
Other asset retirement obligations	6				10				10				1,136				1,162
Sunrise Powerlink wildfire mitigation fund	4				8				8				282				302
Pension and other postretirement benefit obligations(2)	54				105				97				96				352
Wildfire Fund obligation	13				26				26				51				116
Environmental commitments	3				7				2				35				47
Other(3)	3				7				6				45				61
Total	$	1,230			$	2,742			$	2,527			$	16,702			$	23,201

(1)	SDG&E calculates expected interest payments using the stated interest rate for fixed-rate obligations.

(2)	Amounts represent expected SDG&E contributions to the plans for the next 10 years.

(3)	Includes leases that have not yet commenced.

UNDISCOUNTED PRINCIPAL CONTRACTUAL COMMITMENTS – SOCALGAS
(Dollars in millions)
	2020				2021 and 2022				2023 and 2024				Thereafter				Total
Long-term debt	$	—			$	—			$	500			$	3,309			$	3,809
Interest on long-term debt(1)	148				297				292				2,174				2,911
Natural gas contracts	124				154				36				35				349
Operating leases	22				38				25				19				104
Finance leases	6				5				4				5				20
Environmental commitments(2)	6				27				1				14				48
Pension and other postretirement benefit obligations(3)	155				307				310				698				1,470
Asset retirement obligations	65				133				142				9,471				9,811
Other	2				3				3				36				44
Total	$	528			$	964			$	1,313			$	15,761			$	18,566

(1)	SoCalGas calculates interest payments using the stated interest rate for fixed-rate obligations.

(2)	Excludes amounts related to the natural gas leak at the Aliso Canyon natural gas storage facility.

(3)	Amounts represent expected SoCalGas contributions to the plans for the next 10 years.

The tables exclude contracts between consolidated affiliates, intercompany debt and employment contracts.

The tables also exclude income tax liabilities at December 31, 2019 of:

▪	$93 million for Sempra Energy Consolidated

▪	$12 million for SDG&E

▪	$64 million for SoCalGas

These liabilities relate to uncertain tax positions and were excluded from the tables because we are unable to reasonably estimate the timing of future payments due to uncertainties in the timing of the effective settlement of tax positions. We provide additional information about unrecognized income tax benefits in Note 8 of the Notes to Consolidated Financial Statements.

We have bilateral unsecured standby letter of credit capacity with select lenders that is uncommitted and supported by reimbursement agreements. At December 31, 2019, we had approximately $647 million in standby letters of credit outstanding under these agreements.

OFF-BALANCE SHEET ARRANGEMENTS

At December 31, 2019, Sempra LNG has provided guarantees aggregating a maximum of $4.0 billion associated with Cameron LNG JV’s debt obligations. We discuss these guarantees in Note 6 of the Notes to Consolidated Financial Statements.

SDG&E has entered into PPAs that are variable interests. Our investments in Oncor Holdings and Cameron LNG JV are variable interests. Sempra Energy’s other businesses may also enter into arrangements that could include variable interests. We discuss variable interests in Note 1 of the Notes to Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management views certain accounting policies as critical because their application is the most relevant, judgmental, and/or material to our financial position and results of operations, and/or because they require the use of material judgments and estimates.

We describe our significant accounting policies in Note 1 of the Notes to Consolidated Financial Statements. We discuss choices among alternative accounting policies that are material to our financial statements and information concerning significant estimates with the audit committee of the Sempra Energy board of directors.

CONTINGENCIES

Sempra Energy, SDG&E, SoCalGas

We accrue losses for the estimated impacts of various conditions, situations or circumstances involving uncertain outcomes. For loss contingencies, we accrue the loss if an event has occurred on or before the balance sheet date and:

▪	information available through the date we file our financial statements indicates it is probable that a loss has been incurred, given the likelihood of uncertain future events

▪	the amount of the loss can be reasonably estimated

We do not accrue contingencies that might result in gains. We continuously assess contingencies for litigation claims, environmental remediation and other events.

Details of our issues in this area are discussed in Note 16 of the Notes to Consolidated Financial Statements.

REGULATORY ACCOUNTING

Sempra Energy, SDG&E, SoCalGas

As regulated entities, the California Utilities’ rates, as set and monitored by regulators, are designed to recover the cost of providing service and provide the opportunity to earn a reasonable return on their investments. The California Utilities record regulatory assets, which are generally costs that would otherwise be charged to expense, if it is probable that, through the ratemaking process, the utility will recover that asset from customers in future rates. Similarly, regulatory liabilities are recorded for amounts recovered in rates in advance or in excess of costs incurred. The California Utilities assess probabilities of future rate recovery associated with regulatory account balances at the end of each reporting period and whenever new and/or unusual events occur, such as:

▪	changes in the regulatory and political environment or the utility’s competitive position

▪	issuance of a regulatory commission order

▪	passage of new legislation

To the extent that circumstances associated with regulatory balances change, the regulatory balances are evaluated and adjusted if appropriate.

Adverse legislative or regulatory actions could materially impact the amounts of our regulatory assets and liabilities and could materially adversely impact our financial statements. Details of the California Utilities’ regulatory assets and liabilities and additional factors that management considers when assessing probabilities associated with regulatory balances are discussed in Notes 1, 4, 15 and 16 of the Notes to Consolidated Financial Statements.

INCOME TAXES

Sempra Energy, SDG&E, SoCalGas

Our income tax expense and related balance sheet amounts involve significant management judgments and estimates. Amounts of deferred income tax assets and liabilities, as well as current and noncurrent accruals, involve judgments and estimates of the timing and probability of recognition of income and deductions by taxing authorities. When we evaluate the anticipated resolution of income tax issues, we consider:

▪	past resolutions of the same or similar issue

▪	the status of any income tax examination in progress

▪	positions taken by taxing authorities with other taxpayers with similar issues

The likelihood of deferred income tax recovery is based on analyses of the deferred income tax assets and our expectation of future taxable income, based on our strategic planning.

Actual income taxes could vary from estimated amounts because of:

▪	future impacts of various items, including changes in tax laws, regulations, interpretations and rulings

▪	our financial condition in future periods

▪	the resolution of various income tax issues between us and taxing and regulatory authorities

For an uncertain position to qualify for benefit recognition, the position must have at least a more-likely-than-not chance of being sustained (based on the position’s technical merits) upon challenge by the respective authorities. The term more-likely-than-not means a likelihood of more than 50%. If we do not have a more-likely-than-not position with respect to a tax position, then we do not recognize any of the potential tax benefit associated with the position. A tax position that meets the more-likely-than-not recognition is measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon the effective resolution of the tax position.

Unrecognized tax benefits involve management’s judgment regarding the likelihood of the benefit being sustained. The final resolution of uncertain tax positions could result in adjustments to recorded amounts and may affect our results of operations, financial position and cash flows.

We discuss details of our issues in this area and additional information related to accounting for income taxes, including uncertainty in income taxes, in Note 8 of the Notes to Consolidated Financial Statements.

DERIVATIVES AND HEDGE ACCOUNTING

Sempra Energy, SDG&E, SoCalGas

We record derivative instruments for which we do not apply a scope exception at fair value on the balance sheet. Depending on the purpose for the contract and the applicability of hedge or regulatory accounting, the changes in fair value of derivatives may be recorded in earnings, on the balance sheet, or in OCI. We also use the normal purchase or sale exception for certain derivative contracts. Whenever possible, we use exchange quoted prices or other third-party pricing to estimate fair values; if no such data is available, we use internally developed models and other techniques. The assumed collectability of derivative assets considers events specific to a given counterparty, the counterparty’s credit worthiness, and the tenor of the transaction.

The application of hedge accounting and normal purchase or sale accounting for certain derivatives is determined on a contract-by-contract basis. Significant changes in assumptions in our cash flow hedges, such as the amount and/or timing of forecasted transactions, could cause unrealized gains or losses (mark-to-market) to be reclassified out of AOCI to earnings, which may materially impact our results of operations. Additionally, changes in assumed physical delivery on contracts for which we elected normal purchase or sale accounting may result in “tainting” of the election, which may (1) preclude us from making this election in future transactions and (2) impact Sempra Energy’s results of operations. Any resulting impact on the California Utilities’ results of operations would not be significant because regulatory accounting principles generally apply to their contracts. We provide details of our derivative instruments and our fair value approaches in Notes 11 and 12, respectively, of the Notes to Consolidated Financial Statements.

PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

Sempra Energy, SDG&E, SoCalGas

To measure our pension and other postretirement obligations, costs and liabilities, we rely on several assumptions. We consider current market conditions, including interest rates, in making these assumptions. We review these assumptions annually and update when appropriate.

The critical assumptions used to develop the required estimates include the following key factors:

▪	discount rates

▪	expected return on plan assets

▪	health care cost trend rates

▪	mortality rates

▪	rate of compensation increases

▪	termination and retirement rates

▪	utilization of postretirement welfare benefits

▪	payout elections (lump sum or annuity)

▪	lump sum interest rates

The actuarial assumptions we use may differ materially from actual results due to:

▪	return on plan assets

▪	changing market and economic conditions

▪	higher or lower withdrawal rates

▪	longer or shorter participant life spans

▪	more or fewer lump sum versus annuity payout elections made by plan participants

▪	higher or lower retirement rates

These differences, other than those related to the California Utilities’ plans, where rate recovery offsets the effects of the assumptions on earnings, may result in a significant impact to the amount of pension and other postretirement benefit expense we record. For plans other than those at the California Utilities, the approximate annual effect on earnings of a 100 bps increase or decrease in the assumed discount rate would be less than $2 million and the effect of a 100 bps increase or decrease in the assumed rate of return on plan assets would be less than $2 million. We provide details of our pension and other postretirement benefit plans in Note 9 of the Notes to Consolidated Financial Statements.

ASSET RETIREMENT OBLIGATIONS

Sempra Energy, SDG&E

SDG&E’s legal AROs related to the decommissioning of SONGS are estimated based on a site-specific study performed no less than every three years. The estimate of the obligations includes:

▪	estimated decommissioning costs, including labor, equipment, material and other disposal costs

▪	inflation adjustment applied to estimated cash flows

▪	discount rate based on a credit-adjusted risk-free rate

▪	actual decommissioning costs, progress to date and expected duration of decommissioning activities

Changes in the estimated decommissioning costs, or in the assumptions and judgments made by management underlying these estimates, could cause revisions to the estimated total cost associated with retiring the assets. SDG&E’s nuclear decommissioning expenses are subject to rate recovery and, therefore, rate-making accounting treatment is applied to SDG&E’s nuclear decommissioning activities. SDG&E recognizes a regulatory asset, or liability, to the extent that its SONGS ARO exceeds, or is less than, the amount collected from customers and the amount earned in SDG&E’s NDT.

We provide additional detail in Note 15 of the Notes to Consolidated Financial Statements.

IMPAIRMENT TESTING OF LONG-LIVED ASSETS

Sempra Energy

Whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable, we consider if the estimated future undiscounted cash flows are less than the carrying amount of the asset. If so, we estimate the fair value of the asset to determine the extent to which carrying value exceeds fair value. For such an estimate, we may consider data from multiple valuation methods, including data from market participants. We exercise judgment to estimate the future cash flows and the useful life of a long-lived asset and to determine our intent to use the asset. Our intent to use or dispose of a long-lived asset is subject to re-evaluation and can change over time.

If an impairment test is required, the fair value of a long-lived asset can vary if differing estimates and assumptions are used in the valuation techniques applied as indicated by changing market or other conditions. We discuss impairment of long-lived assets in Note 1 of the Notes to Consolidated Financial Statements.

IMPAIRMENT TESTING OF GOODWILL

Sempra Energy

On an annual basis or whenever events or changes in circumstances necessitate an evaluation, we consider whether goodwill may be impaired. For our annual goodwill impairment testing, we have the option to first make a qualitative assessment of whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount before applying the two-step, quantitative goodwill impairment test. If we elect to perform the qualitative assessment, we evaluate relevant events and circumstances, including but not limited to, macroeconomic conditions, industry and market considerations, cost factors, changes in key personnel and the overall financial performance of the reporting unit. If, after assessing these qualitative factors, we determine that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then we perform the two-step goodwill impairment test. Under the two-step goodwill impairment test, we first determine if the carrying value of a reporting unit exceeds its fair value and if so, then measure the amount of goodwill impairment, if any. When determining if goodwill is impaired, the fair value of the reporting unit and goodwill can vary if differing estimates and assumptions are used in the valuation techniques applied as indicated by changing market or other conditions. As a result, recognizing a goodwill impairment may or may not be required. When we perform the two-step, quantitative goodwill impairment test, we exercise judgment to develop estimates of the fair value of the reporting unit and compare that to its carrying value. Our fair value estimates are developed from the perspective of a knowledgeable market participant. We consider observable transactions in the marketplace for similar investments, if available, as well as an income-based approach such as a discounted cash flow analysis. A discounted cash flow analysis may be based directly on anticipated future revenues and expenses and may be performed based on free cash flows generated within the reporting unit. Critical assumptions that affect our estimates of fair value may include:

▪	consideration of market transactions

▪	future cash flows

▪	the appropriate risk-adjusted discount rate

▪	country risk

▪	entity risk

In 2019, we performed a quantitative goodwill impairment test and determined that the estimated fair values of our reporting units in Mexico to which goodwill was allocated was substantially above their carrying values as of October 1, 2019, our goodwill impairment testing date. We discuss goodwill in Note 1 of the Notes to Consolidated Financial Statements.

CARRYING VALUE OF EQUITY METHOD INVESTMENTS

Sempra Energy

We generally account for investments under the equity method when we have significant influence over, but do not have control of, the investee.

We consider whether the fair value of each equity investment as a whole, not the underlying net assets, has declined and whether that decline is other than temporary. To help evaluate whether a decline in fair value below carrying value has occurred and if the decline is other than temporary, we may develop fair value estimates for the investment. Our fair value estimates are developed

from the perspective of a knowledgeable market participant. In the absence of observable transactions in the marketplace for similar investments, we consider an income-based approach such as a discounted cash flow analysis or, with less weighting, the replacement cost of the underlying net assets. A discounted cash flow analysis may be based directly on anticipated future distributions from the investment, or may be performed based on free cash flows generated within the entity and adjusted for our ownership share total. When calculating estimates of fair value, we also consider whether we intend to hold or sell the investment. For certain investments, critical assumptions may include:

▪	equity sale offer price for the investment

▪	transportation rates for natural gas

▪	the appropriate risk-adjusted discount rate

▪	the availability and costs of natural gas and LNG

▪	competing fuels and electricity

▪	estimated future power generation and associated tax credits

▪	renewable power price expectations

In addition, for our indirect investment in Oncor, critical assumptions may also include the effects of ratemaking, such as the results of regulator decisions on rates and recovery of regulated investments and costs. The risk assumptions applied by other market participants to value the investments could vary significantly or the appropriate approaches could be weighted differently. These differences could impact whether or not the fair value of the investment is less than its carrying value, and if so, whether that condition is other than temporary. This could result in an impairment charge and, in cases where an impairment charge has been recorded, additional loss or gain upon sale in the case of a sale transaction.

We provide additional details in Notes 6 and 12 of the Notes to Consolidated Financial Statements.

NEW ACCOUNTING STANDARDS

We discuss the relevant pronouncements that have recently become effective and have had or may have a significant effect on our financial statements in Note 2 of the Notes to Consolidated Financial Statements.