Item 1. BUSINESS

OVERVIEW

We are a California-based holding company with energy infrastructure investments in North America. Our businesses invest in, develop and operate energy infrastructure, and provide electric and gas services to customers through regulated public utilities.

Sempra Energy was formed in 1998 through a business combination of Enova and PE, the holding companies of our regulated public utilities in California: SDG&E, which began operations in 1881, and SoCalGas, which began operations in 1867. We have since expanded our regulated public utility presence into Texas through our 80.25% interest in Oncor and 50% interest in Sharyland Utilities.

We have had a strong and growing presence in Mexico through IEnova. IEnova has a diverse portfolio of energy infrastructure projects and assets serving Mexico’s growing energy needs. Our energy infrastructure footprint includes our 50.2% interest in Cameron LNG JV, which is a natural gas liquefaction export facility operating in Louisiana, and construction and development of LNG projects and assets on the Gulf Coast and Pacific Coast of North America.

In 2018, we announced a multi-phase portfolio optimization initiative designed to sharpen our strategic focus on North America. We have since executed on that initiative by completing the sales of our renewables businesses and our non-utility natural gas storage assets in the U.S., and by completing the sales of our businesses in South America. We present the South American businesses as discontinued operations throughout this report.

Business Strategy

Our mission is to be North America’s premier energy infrastructure company. We are primarily focused on transmission and distribution investments among other areas that we believe are capable of producing stable cash flows and improved earnings visibility, with the goal of delivering safe and reliable energy to our customers and increasing shareholder value.

DESCRIPTION OF BUSINESS BY SEGMENT

Our business activities are organized under the following reportable segments:

▪SDG&E

▪SoCalGas

▪Sempra Texas Utilities

▪Sempra Mexico

▪Sempra LNG

SDG&E

SDG&E is a regulated public utility that provides electric services to a population of, at December 31, 2020, approximately 3.7 million and natural gas services to approximately 3.4 million of that population, covering a 4,100 square mile service territory in Southern California that encompasses San Diego County and an adjacent portion of Orange County.

SDG&E’s assets at December 31, 2020 covered the following territory:

Electric Utility Operations

Electric Transmission and Distribution System. Service to SDG&E’s customers is supported by its electric transmission and distribution system, which includes substations and overhead and underground lines. These electric facilities are primarily in the San Diego, Imperial and Orange counties of California, and in Arizona and Nevada and consisted of 2,129 miles of transmission lines, 23,926 miles of distribution lines and 183 substations at December 31, 2020. Periodically, various areas of the service territory require expansion to accommodate customer growth and maintain reliability and safety.

SDG&E’s 500-kV Southwest Powerlink transmission line, which is shared with Arizona Public Service Company and Imperial Irrigation District, extends from Palo Verde, Arizona to San Diego, California. SDG&E’s share of the line is 1,162 MW, although it can be less under certain system conditions. SDG&E’s Sunrise Powerlink is a 500-kV transmission line constructed and operated by SDG&E with import capability of 1,000 MW of power.

Mexico’s Baja California transmission system is connected to SDG&E’s system via two 230-kV interconnections with combined capacity of up to 600 MW in the north-to-south direction and 800 MW in the south-to-north direction, although it can be less under certain system conditions.

Edison’s transmission system is connected to SDG&E’s system via five 230-kV transmission lines.

Electric Resources. To meet customer demand, SDG&E supplies power from its own electric generation facilities and procures power on a long-term basis from other suppliers for resale through CPUC-approved purchased-power contracts or through purchases on a spot basis. SDG&E does not earn any return on commodity sales volumes. SDG&E’s supply at December 31, 2020 was as follows:

SDG&E – ELECTRIC RESOURCES**(1)**
			Contract			Net operating
			expiration date			capacity (MW)			% of total
Owned generation facilities, natural gas(2)						1,204			23		%
Purchased-power contracts:
Renewables:
Wind			2023 to 2035			1,131			22
Solar			2030 to 2041			1,326			26
Other			2022 and thereafter			203			4
Tolling and other			2022 to 2042			1,292			25
Total						5,156			100		%

(1) Excludes approximately 107.5 MW of battery storage owned and approximately 174 MW of battery storage contracted.

(2) SDG&E owns and operates four natural gas-fired power plants, three of which are in California and one of which is in Nevada.

Charges under contracts with suppliers are based on the amount of energy received or are tolls based on available capacity. Tolling contracts are purchased-power contracts under which SDG&E provides natural gas for generation to the energy supplier.

SDG&E procures natural gas under short-term contracts for its owned generation facilities and for certain tolling contracts associated with purchased-power arrangements. Purchases are from various southwestern U.S. suppliers and are primarily priced based on published monthly bid-week indices.

SDG&E is a participant in the Western Systems Power Pool, which includes an electric-power and transmission-rate agreement that allows access to power trading with more than 300 member utilities, power agencies, energy brokers and power marketers located throughout the U.S. and Canada. Participants can make power transactions on standardized terms, including market-based rates, preapproved by the FERC. Participation in the Western Systems Power Pool is intended to assist members in managing power delivery and price risk.

Customers and Demand. SDG&E provides electric services through the generation, transmission and distribution of electricity to the following customer classes:

SDG&E – ELECTRIC CUSTOMER METERS AND VOLUMES
			Customer meter count						Volumes(1) (millions of kWh)
			December 31,						Years ended December 31,
			2020						2020			2019			2018
Residential			1,317,080						6,606			5,982			6,336
Commercial			151,210						5,873			6,295			6,539
Industrial			370						1,842			2,044			2,169
Street and highway lighting			2,090						77			76			81
			1,470,750						14,398			14,397			15,125
CCA and DA			12,480						3,482			3,549			3,628
Total			1,483,230						17,880			17,946			18,753

(1) Includes intercompany sales.

San Diego’s mild climate and SDG&E’s robust energy efficiency programs contribute to lower consumption by our customers. Rooftop solar installations continue to reduce residential and commercial volumes sold by SDG&E. At December 31, 2020, 2019 and 2018, the residential and commercial rooftop solar capacity in SDG&E’s territory totaled 1,423 MW, 1,233 MW and 1,023 MW, respectively.

Demand for electricity is dependent on the health and expansion of the Southern California economy, prices of alternative energy products, consumer preference, environmental regulations, legislation, renewable power generation, the effectiveness of energy efficiency programs, demand-side management impact and distributed generation resources. California’s energy policy supports

increased electrification, particularly electrification of vehicles, which could result in significant increases in sales volumes in the coming years. Other external factors, such as the price of purchased power, the use of hydroelectric power, the use of and further development of renewable energy resources and energy storage, development of new natural gas supply sources, demand for natural gas and general economic conditions, can also result in significant shifts in the market price of electricity, which may in turn impact demand. Demand for electricity is also impacted by seasonal weather patterns (or “seasonality”), tending to increase in the summer months to meet cooling load and in the winter months to meet heating load.

Competition. SDG&E faces competition to serve its customer load from the growth in distributed and local power generation, including rooftop solar installations and battery storage, and the corresponding decrease in demand for power from departing retail load from customers transferring to load serving entities other than SDG&E. While SDG&E currently provides procurement service for the majority of its customer load, customers do have the ability to receive procurement service from a load serving entity other than SDG&E through programs such as DA and CCA. DA is currently limited by a cap based on gigawatt hours and CCA is only available if the customer’s local jurisdiction (city) offers such a program. Several local jurisdictions, including the City and County of San Diego and other municipalities, have implemented, are implementing or are considering implementing CCA, which could result in SDG&E providing procurement service for less than half of its current customer load as early as December 31, 2021. When customers are served by another load serving entity, SDG&E no longer procures electricity for this departing load and the associated costs of the utility’s procured resources could then be borne by SDG&E’s remaining bundled procurement customers. To help achieve the goal of ratepayer indifference (whether or not customers are served by DA or CCA), the CPUC revised the Power Charge Indifference Adjustment framework by adopting several refinements designed to equitably share costs among customers served by SDG&E and customers served by DA and CCA, which SDG&E implemented on January 1, 2019.

Natural Gas Utility Operations

We describe SDG&E’s natural gas utility operations below in “California Utilities’ Natural Gas Utility Operations.”

SoCalGas

SoCalGas is a regulated public utility that owns and operates a natural gas distribution, transmission and storage system that supplies natural gas to a population of, at December 31, 2020, approximately 22 million, covering a 24,000 square mile service territory that encompasses Southern California and portions of central California (excluding San Diego County, the City of Long Beach and the desert area of San Bernardino County).

SoCalGas’ assets at December 31, 2020 covered the following territory:

Natural Gas Utility Operations

We describe SoCalGas’ natural gas utility operations below in “California Utilities’ Natural Gas Utility Operations.”

California Utilities’ Natural Gas Utility Operations

Natural Gas Procurement and Transportation

At December 31, 2020, SoCalGas’ natural gas facilities included 3,059 miles of transmission and storage pipelines, 51,367 miles of distribution pipelines, 48,492 miles of service pipelines and nine transmission compressor stations, and SDG&E’s natural gas facilities consisted of 178 miles of transmission pipelines, 8,971 miles of distribution pipelines, 6,615 miles of service pipelines and one compressor station.

SoCalGas purchases natural gas under short-term and long-term contracts for the California Utilities’ core customers. SoCalGas purchases natural gas from various sources, including from Canada, the U.S. Rockies and the southwestern regions of the U.S. Purchases of natural gas are primarily priced based on published monthly bid-week indices.

To support the delivery of natural gas supplies to its distribution system and to meet the seasonal and annual needs of customers, SoCalGas has firm interstate pipeline capacity contracts that require the payment of fixed reservation charges to reserve firm transportation rights. Energy companies, primarily El Paso Natural Gas Company, Transwestern Pipeline Company and Kern River Gas Transmission Company, provide transportation services into SoCalGas’ intrastate transmission system for supplies purchased by SoCalGas from outside of California and its transportation customers.

Natural Gas Storage

SoCalGas owns four natural gas storage facilities with a combined working gas capacity of 137 Bcf and over 150 injection, withdrawal and observation wells that provide natural gas storage services for core, noncore and non-end-use customers. SoCalGas’ and SDG&E’s core customers are allocated a portion of SoCalGas’ storage capacity. SoCalGas offers the remaining storage capacity for sale to others, including SDG&E for its non-core customer requirements. Natural gas withdrawn from storage is important to help maintain service reliability during peak demand periods, including consumer heating needs in the winter, as well as peak electric generation needs in the summer. The Aliso Canyon natural gas storage facility has a storage capacity of 86 Bcf and, subject to the CPUC limitations described below, represents 63% of SoCalGas’ natural gas storage capacity. SoCalGas

discovered a natural gas leak at one of its wells at the Aliso Canyon natural gas storage facility in October 2015 and permanently sealed the well in February 2016. SoCalGas was subsequently authorized to make limited withdrawals and injections of natural gas at the Aliso Canyon natural gas storage facility and has been directed by the CPUC to maintain up to 34 Bcf of working gas at the facility to help achieve reliability for the region at reasonable rates as determined by the CPUC. To help maintain system reliability, the CPUC issued a protocol authorizing withdrawals of natural gas from the facility if available gas supply and gas prices reach defined thresholds for SoCalGas’ system, as determined by the protocol. We discuss the Leak in Note 16 of the Notes to Consolidated Financial Statements, in “Part I – Item 1A. Risk Factors” and in “Part II – Item 7. MD&A – Capital Resources and Liquidity – SoCalGas.”

Customers and Demand

SoCalGas and SDG&E sell, distribute and transport natural gas. SoCalGas purchases and stores natural gas for its core customers in its territory and SDG&E’s territory on a combined portfolio basis. SoCalGas also offers natural gas transportation and storage services for others.

CALIFORNIA UTILITIES – NATURAL GAS CUSTOMER METERS AND VOLUMES
			Customer meter count						Volumes (Bcf)(1)
			December 31,						Years ended December 31,
			2020						2020			2019			2018
SDG&E:
Residential			869,520
Commercial			28,690
Electric generation and transportation			2,870
Natural gas sales									43			45			40
Transportation									40			26			28
Total			901,080						83			71			68
SoCalGas:
Residential			5,792,600
Commercial			248,720
Industrial			24,880
Electric generation and wholesale			40
Natural gas sales									312			329			297
Transportation									572			547			553
Total			6,066,240						884			876			850

(1) Includes intercompany sales.

For regulatory purposes, end-use customers are classified as either core or noncore customers. Core customers are primarily residential and small commercial and industrial customers.

Most core customers purchase natural gas directly from SoCalGas or SDG&E. While core customers are permitted to purchase directly from producers, marketers or brokers, the California Utilities are obligated to provide reliable supplies of natural gas to serve the requirements of their core customers.

Noncore customers at SoCalGas consist primarily of electric generation, wholesale, and large commercial and industrial customers. A portion of SoCalGas’ noncore customers are non-end-users. SoCalGas’ non-end-users include wholesale customers consisting primarily of other utilities, including SDG&E, or municipally owned natural gas distribution systems. Noncore customers at SDG&E consist primarily of electric generation and large commercial customers.

Noncore customers are responsible for the procurement of their natural gas requirements, as the regulatory framework does not allow us to recover the cost of natural gas procured and delivered to noncore customers.

Demand for natural gas largely depends on the health and expansion of the Southern California economy, prices of alternative energy products, consumer preference, environmental regulations, legislation, California’s energy policy supporting increased electrification and renewable power generation, and the effectiveness of energy efficiency programs. Other external factors such as weather, the price of and demand for electricity, the use of hydroelectric power, the use of and further development of renewable energy resources and energy storage, development of new natural gas supply sources, demand for natural gas outside

California, and general economic conditions can also result in significant shifts in market price, which may in turn impact demand.

One of the larger sources for natural gas demand is electric generation. Natural gas-fired electric generation within Southern California (and demand for natural gas supplied to such plants) competes with electric power generated throughout the western U.S. Natural gas transported for electric generating plant customers may be affected by the overall demand for electricity, growth in self-generation from rooftop solar, the addition of more efficient gas technologies, new energy efficiency initiatives, and the degree to which regulatory changes in electric transmission infrastructure investment divert electric generation from the California Utilities’ respective service areas. The demand for natural gas may also fluctuate due to volatility in the demand for electricity due to seasonality, weather conditions and other impacts, and the availability of competing supplies of electricity such as hydroelectric generation and other renewable energy sources. Given the significant quantity of natural gas-fired generation, we believe natural gas is a dispatchable fuel that can help provide electric reliability in our California service territories.

The natural gas distribution business is subject to seasonality, and cash provided by operating activities generally is greater during and immediately following the winter heating months. As is prevalent in the industry, but subject to current regulatory limitations, SoCalGas usually injects natural gas into storage during the summer months (April through October), which reduces cash provided by operating activities during this period, and usually withdraws natural gas from storage during the winter months (November through March). Cash provided by operating activities during the winter months generally increases, when customer demand is higher.

Sempra Texas Utilities

Sempra Texas Utilities is comprised of our equity method investments in Oncor Holdings, which we acquired in March 2018, and Sharyland Holdings, which we acquired in May 2019. We discuss these acquisitions in Note 5 of the Notes to Consolidated Financial Statements. Oncor Holdings, which is an indirect, wholly owned entity of Sempra Energy, owns an 80.25% interest in Oncor. TTI owns the remaining 19.75% interest in Oncor. Sempra Energy owns an indirect, 50% interest in Sharyland Holdings, which owns a 100% interest in Sharyland Utilities.

Sempra Texas Utilities’ assets at December 31, 2020 covered the following territory:

Oncor

Oncor is a regulated electric transmission and distribution utility that operates in the north-central, eastern, western and panhandle regions of Texas. Oncor delivers electricity to end-use consumers through its transmission and distribution systems, and also provides transmission grid connections to merchant generation facilities and interconnections to other transmission grids in Texas.

At December 31, 2020, Oncor had 4,396 employees, including 767 employees under collective bargaining agreements.

Certain ring-fencing measures, governance mechanisms and commitments, which we describe in “Part I – Item 1A. Risk Factors,” are in effect and are intended to enhance Oncor Holdings’ and Oncor’s separateness from their owners and to mitigate the risk that these entities would be negatively impacted by the bankruptcy of, or other adverse financial developments affecting, their owners. Sempra Energy does not control Oncor Holdings or Oncor, and the ring-fencing measures, governance mechanisms and commitments limit our ability to direct the management, policies and operations of Oncor Holdings and Oncor, including the deployment or disposition of their assets, declarations of dividends, strategic planning and other important corporate issues and actions, including limited representation on the Oncor Holdings and Oncor boards of directors. Because Oncor Holdings and Oncor are managed independently (i.e., ring-fenced), we account for our 100% ownership interest in Oncor Holdings as an equity method investment. See Note 6 of the Notes to Consolidated Financial Statements for information about our equity method investment in Oncor Holdings.

Electricity Transmission. Oncor’s electricity transmission business is responsible for the safe and reliable operations of its transmission network and substations. These responsibilities consist of the construction and maintenance of transmission facilities and substations and the monitoring, controlling and dispatching of high-voltage electricity over its transmission facilities in coordination with ERCOT, which we discuss below in “Regulation – Utility Regulation – ERCOT Market.”

At December 31, 2020, Oncor’s transmission system included approximately 18,127 circuit miles of transmission lines, 336 transmission stations and 806 distribution substations, which are interconnected to 115 generation facilities totaling 41,986 MW.

Transmission revenues are provided under tariffs approved by either the PUCT or, to a small degree related to limited interconnection to other markets, the FERC. Network transmission revenues compensate Oncor for delivery of electricity over transmission facilities operating at 60 kV and above. Other services offered by Oncor through its transmission business include system impact studies, facilities studies, transformation service and maintenance of transformer equipment, substations and transmission lines owned by other parties.

Electricity Distribution. Oncor’s electricity distribution business is responsible for the overall safe and reliable operation of distribution facilities, including electricity delivery, power quality and system reliability. These responsibilities consist of the ownership, management, construction, maintenance and operation of the electricity distribution system within its certificated service area. Oncor’s distribution system receives electricity from the transmission system through substations and distributes electricity to end-users and wholesale customers through 3,660 distribution feeders.

Oncor’s distribution system included more than 3.7 million points of delivery at December 31, 2020 and consisted of 121,129 miles of overhead and underground lines.

Distribution revenues from residential and small business users are based on actual monthly consumption (kWh) and distribution revenues from large commercial and industrial users are based on, depending on size and annual load factor, either actual monthly demand (kW) or the greater of actual monthly demand (kW) or 80% of peak monthly demand during the prior eleven months.

Customers and Demand. Oncor operates the largest transmission and distribution system in Texas. Oncor delivers electricity to more than 3.7 million homes and businesses in a territory with an estimated population in excess of 10 million and operates more than 139,000 miles of transmission and distribution lines at December 31, 2020. The consumers of the electricity Oncor delivers are free to choose their electricity supplier from retail electric providers who compete for their business. Accordingly, Oncor is not a seller of electricity, nor does it purchase electricity for resale. Rather, Oncor provides transmission services to its electricity distribution business as well as non-affiliated electricity distribution companies, cooperatives and municipalities and distribution services to retail electric providers that sell electricity to retail customers. At December 31, 2020, Oncor’s distribution customers consisted of approximately 95 retail electric providers and certain electric cooperatives in its certificated service area.

Oncor’s transmission and distribution assets are located in over 120 counties and more than 400 incorporated municipalities, including Dallas/Fort Worth and surrounding suburbs, Waco, Wichita Falls, Odessa, Midland, Tyler, Temple, Killeen and Round Rock, among others. Most of Oncor’s power lines have been constructed over lands of others pursuant to easements or along public highways, streets and rights-of-way as permitted by law.

Oncor’s revenues and results of operations are subject to seasonality, weather conditions and other electricity usage drivers, with revenues being highest in the summer.

Competition. Oncor operates in certificated areas designated by the PUCT. The majority of Oncor’s service territory is single certificated, with Oncor as the only certificated electric transmission and distribution provider. However, in multi-certificated areas of Texas, Oncor competes with certain other utilities and rural electric cooperatives for the right to serve end-use customers.

Sharyland Utilities

Sharyland Utilities is a regulated electric transmission utility that owns and operates, at December 31, 2020, approximately 63 miles of electric transmission lines in south Texas, including a direct current line connecting Mexico and assets in McAllen, Texas. Sharyland Utilities is responsible for providing safe, reliable and efficient transmission and substation services and investing to support infrastructure needs throughout the ERCOT grid, which we discuss below in “Regulation – Utility Regulation – ERCOT Market.” Transmission revenues are provided under tariffs approved by the PUCT.

Sempra Mexico

Our Sempra Mexico segment includes the operating companies of our subsidiary, IEnova, as well as certain holding companies and risk management activities. IEnova develops, owns and operates, or holds interests in, energy infrastructure in Mexico in three key energy markets: gas, power and storage. IEnova’s gas business includes pipeline services for natural gas and ethane and associated or stand-alone compression assets, as well as its natural gas marketing business and natural gas distribution business. In its power business, IEnova operates a natural-gas-fired combined-cycle power plant and wind and solar power generation facilities, and is constructing and developing additional wind and solar power generation facilities. IEnova’s storage business includes refined products storage, its LPG storage and pipeline systems, and its ECA Regas Facility. Currently, IEnova is constructing and developing marine and land terminals for the receipt, storage and delivery of liquid fuels.

Sempra Energy beneficially owned 70.2% of IEnova at December 31, 2020, with the remaining shares held by NCI and traded on the Mexican Stock Exchange under the symbol IENOVA. The CNBV regulates the shares, which are registered with the Mexican National Securities Registry (Registro Nacional de Valores) maintained by the CNBV. On December 2, 2020, we announced a non-binding offer to acquire all outstanding publicly held shares of IEnova in exchange for shares of our common stock at a rate of 0.0313 shares of our common stock for each one IEnova ordinary share, which exchange ratio remains subject to approval by the Sempra Energy board of directors and, if successful, would increase Sempra Energy’s ownership interest in IEnova to 100% assuming that all IEnova public shareholders tender their shares. On December 1, 2020, we filed an application with the CNBV and on January 12, 2021, we filed a registration statement with the SEC, in each case in connection with the exchange offer. As part of the exchange offer, Sempra Energy intends to list its common stock on the Mexican Stock Exchange. We expect to complete this transaction in the second quarter of 2021, subject to authorization by the SEC, CNBV and Mexican Stock Exchange and other closing conditions. The proposed exchange offer is subject to a number of risks that are discussed in “Part I – Item 1A. Risk Factors.”

At December 31, 2020, Sempra Mexico’s assets covered the following territory:

Gas Business

Pipelines and Related Assets. At December 31, 2020, IEnova’s pipeline and related assets consisted of 1,850 miles of natural gas transmission pipelines, 15 natural gas compression stations (two of which are under construction) and 139 miles of ethane pipelines in Mexico. These pipeline assets had design capacity of over 16,400 MMcf per day of natural gas, 204 MMcf per day of ethane gas and 106,000 barrels per day of ethane liquid. IEnova’s pipeline and related assets are contracted under long-term, U.S. dollar-based agreements with major industry participants such as the CFE, CENAGAS, PEMEX, Shell Mexico, Gazprom, Saavi Energía and other similar counterparties.

Natural Gas Distribution. IEnova’s natural gas distribution regulated utility, Ecogas, operates in three separate distribution zones in Mexico with approximately 2,729 miles of pipeline, and had approximately 136,000 customer meters (serving more than 441,000 residential, commercial and industrial consumers) with sales volume of approximately eight MMcf per day in 2020.

Ecogas relies on supply and transportation services from Sempra LNG and SoCalGas for the natural gas it distributes to its customers. If these affiliates fail to perform and Ecogas is unable to obtain supplies of natural gas from alternate sources, Ecogas could lose customers and sales volume and could also be exposed to commodity price risk and volatility.

Natural Gas Marketing. IEnova’s natural gas marketing business, IEnova Marketing, S. de R.L. de C.V. (IEnova Marketing), purchases LNG for storage and regasification at the ECA Regas Facility and sells natural gas to affiliates and third-party customers. This business also purchases natural gas from Sempra Energy affiliates in order to sell it to IEnova customers in Baja California, including the CFE, which purchases such natural gas to power its plants in Rosarito, Baja California, and IEnova’s TdM combined-cycle power plant. IEnova Marketing also supplies natural gas purchased from Sempra Energy affiliates to third-party industrial customers in Mexicali, Chihuahua, Torreón and Durango. At December 31, 2020, IEnova Marketing served over 150 customers.

Power Business

Renewable Power Generation. IEnova develops, invests in and operates renewable energy generation facilities that have long-term PPAs to sell the electricity they generate to their customers, which are generally load serving entities, as well as industrial and other customers. Load serving entities sell electric service to their end-users and wholesale customers upon receipt of power delivery from these energy generation facilities, while industrial and other customers consume the electricity to run their facilities. At December 31, 2020, IEnova had a fully contracted, total nameplate capacity of 1,041 MW related to its wind and solar power generation facilities that were either fully operating or under construction. Some of these facilities are impacted by regulatory actions by the Mexican government and related litigation, which we discuss in Note 16 of the Notes to Consolidated Financial Statements.

IENOVA – RENEWABLE POWER GENERATION
			Location			Contract expiration date			Nameplate capacity (MW)
Wind power generation facilities:
ESJ – first phase(1)			Tecate, Baja California			2035			155
ESJ – second phase(1)(2)			Tecate, Baja California			2041			108
Ventika(3)			Nuevo León			2036			252
Solar power generation facilities:
Border(4)			Chihuahua			2032 and 2037			150
Don Diego			Sonora			2036 and 2037			125
Pima			Sonora			2039			110
Rumorosa			Baja California			2034			41
Tepezalá			Aguascalientes			2034			100
Total									1,041

(1) Includes 100% of the nameplate capacity, in which IEnova owns a 50% interest.

(2) We expect to start commercial operations in late 2021 or in the first quarter of 2022.

(3) Two adjacent wind power generation facilities.

(4) We expect to start commercial operations in the first half of 2021.

Natural Gas-Fired Generation. TdM is a 625-MW natural gas-fired power plant located in Mexicali, Baja California, Mexico that generates revenue from selling electricity and/or resource adequacy to the California ISO and to governmental, public utility and wholesale power marketing entities. It also has an EMA with Sempra LNG for energy marketing, scheduling and other related services to support its sales of generated power into the California electricity market. Under the EMA, TdM pays fees to Sempra LNG for these revenue-generating services. TdM also purchases fuel from Sempra LNG. IEnova records revenue for the sale of power generated by TdM and records cost of sales for the purchases of natural gas and energy management services provided by Sempra LNG.

Storage Business

LNG Regasification. IEnova operates its ECA Regas Facility in Baja California, Mexico. The ECA Regas Facility is capable of processing one Bcf of natural gas per day and has a storage capacity of 320,000 cubic meters in two tanks of 160,000 cubic meters each. The facility generates revenues from reservation and usage fees under terminal capacity agreements and nitrogen injection service agreements with Shell Mexico and Gazprom, expiring in 2028, that permit them, together, to use one-half of the terminal’s capacity. The land on which the ECA Regas Facility is situated is the subject of litigation, and Shell Mexico and Gazprom have commenced binding arbitration to terminate these agreements and seek other relief, both of which we discuss in Note 16 of the

Notes to Consolidated Financial Statements, in “Part I – Item 1A. Risk Factors” and in “Part II – Item 7. MD&A – Capital Resources and Liquidity.”

Sempra LNG has an agreement with IEnova to supply LNG to the ECA Regas Facility. In connection with Sempra LNG’s purchase agreement with Tangguh PSC, IEnova purchases from Sempra LNG the LNG delivered by Tangguh PSC to the ECA Regas Facility. IEnova uses the natural gas produced from this LNG and natural gas purchased in the market or through Sempra LNG’s marketing operations to supply a contract for the sale of natural gas to the CFE at prices that are based on the SoCal Border index. If LNG volumes received from Tangguh PSC are not sufficient to satisfy the commitment to the CFE, IEnova may purchase natural gas from Sempra LNG’s marketing operations.

Although the LNG purchase agreement with Tangguh PSC specifies a number of cargoes to be delivered annually, actual cargoes delivered have been significantly lower than the maximum specified under the agreement. As a result, Sempra LNG is contractually required to make monthly indemnity payments to IEnova for failure to deliver the contracted LNG.

IEnova entered into an agreement to assign its contracted capacity at the ECA Regas Facility to ECA LNG Phase 1. Both parties will make use of the capacity through the expiration of the LNG purchase agreement with Tangguh PSC in 2029, and ECA LNG Phase 1 will be the sole user of this capacity thereafter.

LPG Storage and Associated Systems. IEnova owns and operates the TDF, S. de R. L. de C. V. (TDF) pipeline system and the Guadalajara LPG terminal. At December 31, 2020, the TDF pipeline system consisted of approximately 118 miles of a 12-inch diameter LPG pipeline with a design capacity of 34,000 barrels per day and associated storage and dispatch facilities. The TDF pipeline system runs from PEMEX’s Burgos facility in the state of Tamaulipas to IEnova’s delivery facility near the city of Monterrey, Nuevo León. IEnova’s Guadalajara LPG terminal is an 80,000-barrel LPG storage facility near Guadalajara, Jalisco, with associated loading and dispatch facilities, and serves the LPG needs of Guadalajara, Mexico.

Refined Products Storage. IEnova’s refined products storage business develops systems for the receipt, storage and delivery of refined products, principally gasoline, diesel and jet fuel, throughout the states of Baja California, Colima, Puebla, Sinaloa, Veracruz, Valle de México and Jalisco for private companies. At December 31, 2020, IEnova had marine and inland terminals under development and construction, with a projected storage capacity of approximately 8,000,000 barrels, which may be expanded. We expect the inland terminals in the vicinity of Mexico City and Puebla and the Veracruz and Topolobampo marine terminals to reach commercial operations in various dates in 2021.

Demand and Competition

IEnova competes with Mexican and foreign companies for certain new energy infrastructure projects in Mexico. Some of its competitors (including public or state-operated companies and their affiliates) may have better access to capital and greater financial and other resources, which could give them a competitive advantage in bidding for such projects.

Ecogas faces competition from other distributors of natural gas in each of its three distribution zones in Mexicali, Chihuahua and La Laguna-Durango as other distributors of natural gas build or consider building natural gas distribution systems. IEnova’s pipeline and storage facilities businesses compete with other regulated and unregulated pipeline and storage facilities. They compete primarily on the basis of price (in terms of storage and transportation fees), available capacity and interconnections to downstream markets.

The overall demand for natural gas distribution services increases during the winter months, while the overall demand for power increases during the summer months.

Generation from IEnova’s renewable energy assets is susceptible to fluctuations in naturally occurring conditions such as wind, inclement weather and hours of sunlight. Because IEnova sells power that it generates at its ESJ wind power generation facility into California, IEnova’s future performance and the demand for renewable energy may be impacted by U.S. state mandated requirements to deliver a portion of total energy load from renewable energy sources. The rules governing these requirements in California are generally known as the RPS Program. In California, certification of a generation project by the CEC as an ERR allows the purchase of output from such generation facility to be counted towards fulfillment of the RPS Program requirements, if such purchase meets the provisions of SB X1-2, the California Renewable Energy Resources Act. The RPS Program may affect the demand for output from renewables projects developed by IEnova, particularly the demand from California’s utilities. We expect to pursue ERR certification for all our IEnova renewable facilities providing power to California as they become operational.

TdM competes daily with other generating plants that supply power into the California electricity market. Several of the wholesale markets supplied by merchant power plants have experienced significant pricing declines due to the imbalance between

supply and demand. IEnova manages commodity price risk at TdM by using a mix of day ahead sales of energy, energy spreads hedging, ancillary services, and short-term to medium-term capacity sales.

The LNG regasification business is impacted by worldwide LNG market prices. High LNG prices in markets outside the market in which IEnova’s ECA Regas Facility operates have resulted and could continue to result in lower than expected deliveries of LNG cargoes to the ECA Regas Facility, which could increase costs if IEnova is instead required to obtain LNG in the open market at prevailing prices. Any inability to obtain expected LNG cargoes could also impact IEnova’s ability to maintain the minimum level of LNG required to keep the ECA Regas Facility in operation at the proper temperature. Prices in international LNG markets through which IEnova must purchase natural gas to meet its contractual obligations to deliver natural gas to customers may also affect IEnova Marketing’s operations, which could have an adverse impact on its earnings, but may be mitigated in part by the indemnity payments from Sempra LNG.

Sempra LNG

Sempra LNG develops, builds, operates and invests in natural gas liquefaction export facilities, including natural gas pipelines and infrastructure, and buys, sells and transports natural gas through its marketing operations, all within North America.

At December 31, 2020, Sempra LNG owned or held interests in the following assets:

Natural Gas Liquefaction

Cameron LNG JV. Sempra LNG and three project co-owners (TOTAL SE, Mitsui & Co., Ltd., and Japan LNG Investment, LLC, a company jointly owned by Mitsubishi Corporation and Nippon Yusen Kabushiki Kaisha) hold interests in Cameron LNG JV, which owns and operates a three-train natural gas liquefaction export facility (Phase 1) in Hackberry, Louisiana. Sempra LNG accounts for its 50.2% equity interest in Cameron LNG JV under the equity method.

Cameron LNG JV achieved commercial operations of Train 1, Train 2 and Train 3 in Phase 1 under its tolling agreements in August 2019, February 2020 and August 2020, respectively. The three liquefaction trains have a combined nameplate capacity of 13.9 Mtpa of LNG with an export capacity of 12 Mtpa of LNG, or approximately 1.7 Bcf per day. Cameron LNG JV has 20-year liquefaction and regasification tolling capacity agreements in place with affiliates of TOTAL SE, Mitsubishi Corporation and Mitsui & Co., Ltd., which subscribe for the full nameplate capacity of the three trains at the facility. We discuss Cameron LNG JV in Note 6 of the Notes to Consolidated Financial Statements.

ECA LNG Phase 1. Sempra LNG, IEnova and an affiliate of TOTAL SE hold interests in ECA LNG Phase 1, which is constructing a one-train natural gas liquefaction facility at the site of IEnova’s existing ECA Regas Facility in Baja California, Mexico with a nameplate capacity of 3.25 Mtpa. We reached a final investment decision in November 2020. ECA LNG Phase 1 has a definitive 20-year LNG sale and purchase agreement with Mitsui & Co., Ltd. and an affiliate of TOTAL SE for approximately 0.8 Mtpa of LNG and 1.7 Mtpa of LNG, respectively.

Additional Potential LNG Export Projects. Sempra LNG is evaluating the following additional potential LNG export development opportunities:

▪an expansion of Cameron LNG JV’s liquefaction export facility (Phase 2)

▪a natural gas liquefaction export project by ECA LNG Phase 2, also located at the site of IEnova’s existing ECA Regas Facility in Baja California, Mexico

▪a natural gas liquefaction export project (Port Arthur LNG) and associated infrastructure on a greenfield site in the vicinity of Port Arthur, Texas located along the Sabine-Neches waterway

We have not reached a final investment decision for any of these potential projects. The development of these projects is subject to numerous other risks and uncertainties. For a discussion of these proposed projects and their risks, see “Part I – Item 1A. Risk Factors” and “Part II – Item 7. MD&A – Capital Resources and Liquidity – Sempra LNG.”

Midstream

Sempra LNG has a 40-mile natural gas pipeline in south Louisiana. The Cameron Interstate Pipeline links the Cameron LNG JV facility in Cameron Parish in Louisiana, to five interstate pipelines that offer access to major feed gas supply basins in Texas and the northeast, midcontinent and southeast regions of the U.S.

Marketing Operations

Sempra LNG provides natural gas marketing, trading and risk management services through the utilization and optimization of natural gas supply and transportation, including natural gas transport capacity in support of liquefaction projects in development. Additionally, it sells electricity under short-term and long-term contracts and into the spot market and other competitive markets.

Sempra LNG’s marketing operations have an LNG sale and purchase agreement with Tangguh PSC for the supply of the equivalent of 500 MMcf of natural gas per day from Tangguh PSC’s Indonesian liquefaction facility with delivery to IEnova’s ECA Regas Facility at a price based on the SoCal Border index for natural gas. The LNG purchase agreement allows Tangguh PSC to divert certain LNG volumes to other global markets in exchange for cash differential payments to Sempra LNG. Sempra LNG may also enter into short-term supply agreements to purchase LNG to be received, stored and regasified at the ECA Regas Facility for sale to other parties.

Sempra LNG is contracted to sell LNG or, if deliveries of LNG cargoes are not sufficient, natural gas, to Sempra Mexico that allows Sempra Mexico to satisfy its obligation under supply agreements with the CFE, TdM and other customers. These revenues are adjusted for indemnity payments and profit sharing, as discussed in “Sempra Mexico – Storage Business – LNG Regasification” above.

Sempra LNG also has an EMA with Sempra Mexico’s TdM to provide energy marketing, scheduling and other related services to TdM power plant to support TdM’s sales of generated power into the California electricity market. We discuss the EMA in “Sempra Mexico – Power Business – Natural Gas-Fired Generation” above.

Demand and Competition

North America is one of the most competitive locations for potential LNG supply in the world, resulting from many factors, including:

▪high levels of developed and undeveloped North American unconventional natural gas and tight oil resources relative to domestic consumption levels

▪increasing gas and oil drilling productivity and decreasing unit costs of gas production

▪low breakeven prices of marginal North American unconventional gas production

▪proximity to ample existing gas transmission pipeline and underground gas storage capacity

Brownfield liquefaction is particularly competitive due to existing LNG tankage and berths.

Global LNG competition may limit North American LNG exports, as international liquefaction projects attempt to match North American LNG production costs and customer contractual rights such as volume and destination flexibility. It is expected that North American LNG exports will increase competition for current and future global natural gas demand, and thereby facilitate development of a global commodity market for natural gas and LNG.

Additionally, our Cameron LNG JV co-owners and customers compete globally to market and sell LNG to end users, including gas and electric utilities located in LNG-importing countries around the world. By providing liquefaction services, Cameron LNG JV competes indirectly with liquefaction projects currently operating and those under development in the global LNG market. In addition to the U.S., these competitors are located in the Middle East, Southeast Asia, Africa, South America, Australia and Europe.

Sempra LNG’s pipeline business competes with other regulated and unregulated pipelines, primarily on the basis of price (in terms of transportation fees), available capacity and interconnections to downstream markets.

Discontinued Operations

In January 2019, our board of directors approved a plan to sell our South American businesses. These businesses included our former 100% interest in Chilquinta Energía (an electric distribution utility in Chile), our former 83.6% interest in Luz del Sur (an electric distribution utility in Peru) and our former interests in two energy-services companies, Tecnored and Tecsur, which provide electric construction and infrastructure services to Chilquinta Energía and Luz del Sur, respectively, as well as third parties. These businesses and certain activities associated with these businesses are presented as discontinued operations in this report. We completed the sales of our equity interests in our Peruvian businesses in April 2020 and our Chilean businesses in June 2020.

We provide further information about discontinued operations in Note 5 of the Notes to Consolidated Financial Statements.

REGULATION

We discuss the material effects of compliance with all government regulations, including environmental regulations, on our capital expenditures, earnings and competitive position in “Part II – Item 7. MD&A” and Note 16 of the Notes to Consolidated Financial Statements.

Utility Regulation

California

The California Utilities are principally regulated at the state level by the CPUC, CEC and CARB.

The CPUC:

▪consists of five commissioners appointed by the Governor of California for staggered, six-year terms;

▪regulates, among other things, SDG&E’s and SoCalGas’ customer rates and conditions of service, sales of securities, rates of return, capital structure, rates of depreciation, and long-term resource procurement, except as described below in “U.S. Federal;”

▪has jurisdiction over the proposed construction of major new electric generation, transmission and distribution, and natural gas storage, transmission and distribution facilities in California;

▪conducts reviews and audits of utility performance and compliance with regulatory guidelines and conducts investigations related to various matters, such as safety, reliability and planning, deregulation, competition and the environment; and

▪regulates the interactions and transactions of the California Utilities with Sempra Energy and its other affiliates.

The CPUC also oversees and regulates other energy-related products and services, including solar and wind energy, bioenergy, alternative energy storage and other forms of renewable energy. In addition, the CPUC’s safety and enforcement role includes inspections, investigations and penalty and citation processes for safety and other violations.

The CEC publishes electric demand forecasts for the state and for specific service territories. Based on these forecasts, the CEC:

▪determines the need for additional energy sources and conservation programs;

▪sponsors alternative-energy research and development projects;

▪promotes energy conservation programs to reduce demand for natural gas and electricity within California;

▪maintains a statewide plan of action in case of energy shortages; and

▪certifies power-plant sites and related facilities within California.

The CEC conducts a 20-year forecast of available supplies and prices for every market sector that consumes natural gas in California. This forecast includes resource evaluation, pipeline capacity needs, natural gas demand and wellhead prices, and costs of transportation and distribution. This analysis is one of many resource materials used to support the California Utilities’ long-term investment decisions.

California requires certain of its electric retail sellers, including SDG&E, to deliver a significant percentage of their retail energy sales from renewable energy sources. The rules governing this requirement, administered by both the CPUC and the CEC, are generally known as the RPS Program.

AB 32, the California Global Warming Solutions Act of 2006, assigns responsibility to CARB for monitoring and establishing policies for reducing GHG emissions. The law requires CARB to develop and adopt a comprehensive plan for achieving real, quantifiable and cost-effective GHG emissions reductions, including a statewide GHG emissions cap, mandatory reporting rules, and regulatory and market mechanisms to achieve reductions of GHG emissions. CARB is a department within the California Environmental Protection Agency, an organization that reports directly to the Governor’s Office. Sempra LNG and Sempra Mexico are also subject to the rules and regulations of CARB.

The operation and maintenance of SoCalGas’ natural gas storage facilities are regulated by CalGEM, as well as various other state and local agencies.

Texas

Oncor’s and Sharyland Utilities’ rates are regulated at the state level by the PUCT and, in the case of Oncor, at the city level by certain cities. The PUCT has original jurisdiction over electric transmission and distribution rates and services in unincorporated areas and in those municipalities that have ceded original jurisdiction to the PUCT, and has exclusive appellate jurisdiction to review the rate and service orders and ordinances of municipalities. Generally, the Texas PURA prohibits the collection of any rates or charges by a public utility (as defined by PURA) that do not have the prior approval of the appropriate regulatory authority (i.e., the PUCT or the municipality with original jurisdiction).

At the state level, PURA requires owners or operators of electric transmission facilities to provide open-access wholesale transmission services to third parties at rates and terms that are nondiscriminatory and comparable to the rates and terms of the utility’s own use of its system. The PUCT has adopted rules implementing the state open-access requirements for all utilities that are subject to the PUCT’s jurisdiction over electric transmission services, including Oncor.

U.S. Federal

The California Utilities are also regulated at the federal level by the FERC, the NRC, the EPA, the DOE and the DOT.

The FERC regulates the California Utilities’ interstate sale and transportation of natural gas. In the case of SDG&E, the FERC also regulates the transmission and wholesale sales of electricity in interstate commerce, transmission access, rates of return on transmission investment, rates of depreciation, electric rates involving sales for resale and the application of the uniform system of accounts. The U.S. Energy Policy Act governs procedures for requests for electric transmission service. The California IOUs’ electric transmission facilities are under the operational control of the California ISO. Oncor and Sharyland Utilities operate within the ERCOT market, which we discuss below. To a small degree related to limited interconnections to other markets, Oncor’s electric transmission revenues are provided under tariffs approved by the FERC.

The NRC oversees the licensing, construction, operation and decommissioning of nuclear facilities in the U.S., including SONGS, in which SDG&E owns a 20% interest and which was permanently retired in 2013. NRC and various state regulations require extensive review of the safety, radiological and environmental aspects of these facilities. We provide further discussion of SONGS matters, including the closure and decommissioning of the facility, in Note 15 of the Notes to Consolidated Financial Statements.

The EPA implements federal laws to protect human health and the environment, including federal laws on air quality, water quality, wastewater discharge, solid waste management, and hazardous waste disposal and remediation. The EPA also sets national environmental standards that state and tribal governments implement through their own regulations. The California Utilities, Oncor and Sharyland Utilities are therefore subject to an interrelated framework of environmental laws and regulations.

The DOT, through PHMSA, has established regulations regarding engineering standards and operating procedures applicable to the California Utilities’ natural gas transmission and distribution pipelines, as well as natural gas storage facilities. The DOT has certified the CPUC to administer oversight and compliance with these regulations for the entities they regulate in California.

ERCOT Market

Oncor and Sharyland Utilities operate within the ERCOT market, which represents approximately 90% of the electricity consumption in Texas. ERCOT is the regional reliability coordinating organization for member electricity systems in Texas and the ISO of the interconnected transmission grid for those systems. ERCOT is subject to oversight by the PUCT and the Texas Legislature. ERCOT is responsible for ensuring reliability, adequacy and security of the electric systems, as well as nondiscriminatory access to transmission service by all wholesale market participants, in the ERCOT region. ERCOT’s membership consists of corporate and associate members, including electric cooperatives, municipal power agencies, independent generators, independent power marketers, transmission service providers, distribution services providers, independent retail electric providers and consumers.

The PUCT has primary jurisdiction over the ERCOT market to ensure the adequacy and reliability of power supply across Texas’ main interconnected electric transmission grid. Oncor and Sharyland Utilities, along with other owners of electric transmission and distribution facilities in Texas, assist the ERCOT ISO in its operations. Each of these Texas utilities has planning, design, construction, operation and maintenance responsibility for the portion of the transmission grid and for the load-serving substations it owns, primarily within its certificated distribution service area. Each participates with the ERCOT ISO and other ERCOT utilities in obtaining regulatory approvals and planning, designing, constructing and upgrading transmission lines in order to remove any existing constraints and interconnect energy generation on the ERCOT transmission grid. These transmission line projects are necessary to meet reliability needs, support energy production and increase bulk power transfer capability.

Oncor and Sharyland Utilities are subject to reliability standards adopted and enforced by the Texas Reliability Entity, Inc., an independent organization that develops reliability standards for the ERCOT region and monitors and enforces compliance with the standards of the North American Electric Reliability Corporation, including critical infrastructure protection, and ERCOT protocols.

Other U.S. State and Local Territories Regulation

The SCAQMD is the air pollution control agency responsible for regulating stationary sources of air pollution in the South Coast Air Basin in Southern California. The district’s territory covers all of Orange County and the urban portions of Los Angeles, San Bernardino and Riverside counties.

SDG&E has electric franchises with the two counties and the 27 cities in or adjoining its electric service territory, and natural gas franchises with the one county and the 18 cities in its natural gas service territory. These franchises allow SDG&E to locate, operate and maintain facilities for the transmission and distribution of natural gas and/or electricity. Most of the franchises have indefinite lives with no expiration dates. Some of SDG&E’s natural gas and electric franchises have fixed expiration dates that range from 2021 to 2035, including its franchise agreements with the City of San Diego, which was scheduled to expire in January 2021. SDG&E participated in the City’s competitive bid process for the franchises, which the City subsequently canceled. In December 2020, the City of San Diego and SDG&E agreed to extend the natural gas and electric franchises until June 1, 2021. The extension is intended to provide newly elected City officials time to seek public input and additional information. The City has announced its plans to start a new competitive bid process in the first quarter of 2021.

SoCalGas has natural gas franchises with the 12 counties and the 223 cities in its service territory. These franchises allow SoCalGas to locate, operate and maintain facilities for the transmission and distribution of natural gas. Most of the franchises have indefinite lives with no expiration date. Some franchises have fixed expiration dates, ranging from 2021 to 2069, including its franchise agreements with the City of Los Angeles and Los Angeles County, which are scheduled to expire in December 2021 and June 2023, respectively.

Other U.S. Regulation

The FERC regulates certain Sempra LNG assets pursuant to the U.S. Federal Power Act and Natural Gas Act, which provide for FERC jurisdiction over, among other things, sales of wholesale power in interstate commerce, transportation of natural gas in interstate commerce, and siting and permitting of LNG facilities.

The FERC may regulate rates and terms of service based on a cost-of-service approach or, in geographic and product markets determined by the FERC to be sufficiently competitive, rates may be market-based. FERC-regulated rates at Sempra LNG are:

▪market-based for wholesale electricity sales;

▪cost-based for the transportation of natural gas; and

▪market-based for the purchase and sale of LNG and natural gas.

Sempra LNG’s investment in Cameron LNG JV is subject to regulations of the DOE regarding the export of LNG. Sempra LNG’s other potential natural gas liquefaction export projects would, if completed, be subject to similar regulation.

The California Utilities, Sempra LNG and businesses that Sempra LNG invests in are subject to the DOT rules and regulations regarding pipeline safety. PHMSA, acting through the Office of Pipeline Safety, is responsible for administering the DOT’s national regulatory program to help ensure the safe transportation of natural gas, petroleum and other hazardous materials by pipelines, including pipelines associated with natural gas storage, and develops regulations and other approaches to risk management to help ensure safety in design, construction, testing, operation, maintenance and emergency response of pipeline facilities. The California Utilities, Sempra LNG and Sempra Mexico are also subject to regulation by the U.S. Commodity Futures Trading Commission.

Foreign Regulation

Operations and projects in our Sempra Mexico segment are subject to regulation by the CRE, the Mexican Safety, Energy and Environment Agency (Agencia de Seguridad, Energía y Ambiente), SENER, the Mexican Ministry of Environment and Natural Resources of Mexico (Secretaría del Medio Ambiente y Recursos Naturales), and other labor and environmental agencies of city, state and federal governments in Mexico. New energy infrastructure projects may also require a favorable opinion from COFECE in order to be constructed and operated.

Licenses and Permits

Our utilities in California and Texas obtain numerous permits, authorizations and licenses for, as applicable, the transmission and distribution of natural gas and electricity and the operation and construction of related assets, including electric generation and natural gas storage facilities, some of which may require periodic renewal.

Sempra Mexico obtains numerous permits, authorizations and licenses for its electric and natural gas distribution, generation and transmission systems from the local governments where these services are provided. The permits for generation, transportation, storage and distribution operations at Sempra Mexico are generally for 30-year terms, with options for renewal under certain regulatory conditions.

Sempra Mexico and Sempra LNG obtain licenses and permits for the construction, operation and expansion of LNG facilities and for the import and export of LNG and natural gas. Sempra Mexico also obtains licenses and permits for the construction and operation of facilities for the receipt, storage and delivery of liquid fuels.

Sempra LNG obtains permits, authorizations and licenses for the construction and operation of natural gas storage facilities and pipelines, and in connection with participation in the wholesale electricity market.

Most of the permits and licenses associated with Sempra LNG’s construction and operations are for periods generally in alignment with the construction cycle or expected useful life of the asset and in many cases are greater than 20 years.

RATEMAKING MECHANISMS

California Utilities

General Rate Case Proceedings

A CPUC GRC proceeding is designed to set sufficient base rates to allow the California Utilities to recover their reasonable forecasted operating costs and to provide the opportunity to realize their authorized rates of return on their investment. The proceeding generally establishes the test year revenue requirements, which authorizes how much the California Utilities can collect from their customers, and provides for attrition, or annual increases in revenue requirements, for each year following the test year.

We discuss the GRC in Note 4 of the Notes to Consolidated Financial Statements.

Cost of Capital Proceedings

A CPUC cost of capital proceeding determines a utility’s authorized capital structure and authorized return on rate base, which is a weighted-average of the authorized returns on debt, preferred stock and common equity (referred to as return on equity or ROE), weighted on a basis consistent with the authorized capital structure. The authorized return on rate base approved by the CPUC is the rate that the California Utilities use to establish customer rates to finance investments in CPUC-regulated electric distribution and generation, natural gas distribution, transmission and storage assets, as well as general plant and information technology systems investments to support operations.

A cost of capital proceeding also addresses the CCM, which considers changes in interest rates based on the applicable 12-month average Moody’s utility bond index. The index applicable to each utility is based on each utility’s credit rating. The CCM was reauthorized in the 2020 cost of capital proceeding and will continue through 2022, after which the CCM is subject to reauthorization in the next cost of capital proceeding. The CCM benchmark rates for SDG&E and SoCalGas are the basis of comparison to determine if future measurement periods “trigger” the CCM. The trigger occurs if the change in the applicable average Moody’s utility bond index relative to the CCM benchmark is larger than plus or minus 100 bps. The CCM, if triggered, would automatically update the authorized cost of debt based on actual costs and update the authorized ROE upward or downward by one-half of the difference between the CCM benchmark and the applicable 12-month average Moody’s utility bond index. In the event of a CCM trigger in 2021, the CCM benchmark is also reestablished, and these adjustments would become effective in authorized rates on January 1, 2022.

We discuss the cost of capital and CCM in Note 4 of the Notes to Consolidated Financial Statements and in “Part I – Item 1A. Risk Factors.”

Transmission Rate Cases

SDG&E files separately with the FERC for its authorized ROE on FERC-regulated electric transmission operations and assets. The proceeding establishes a ROE and a formulaic rate whereby rates are determined using (1) a base period of historical costs and a forecast of capital investments, and (2) a true-up period, similar to balancing account treatment, that is designed to provide earnings equal to SDG&E’s actual cost of service including its authorized return on investment. SDG&E makes annual information filings with the FERC in December to update rates for the following calendar year. SDG&E may also file for ROE incentives that might apply under FERC rules. SDG&E’s debt-to-equity ratio is set annually based on the actual ratio at the end of each year.

We discuss SDG&E’s TO5 filing with the FERC in Note 4 of the Notes to Consolidated Financial Statements.

Incentive Mechanisms

The CPUC applies certain performance-based measures and incentive mechanisms to all California IOUs, under which the California Utilities have earnings potential above authorized CPUC base operating margin if they achieve or exceed specific performance and operating goals. Generally, for performance-based awards, if performance is above or below specific benchmarks, the utility is eligible for financial awards or subject to financial penalties.

Other Cost-Based Recovery

The CPUC, and the FERC as it relates to SDG&E, authorize the California Utilities to collect revenue requirements from customers for operating costs and capital related costs (such as depreciation, taxes and return on rate base), including:

▪costs to purchase natural gas and electricity;

▪costs associated with administering public purpose, demand response, and customer energy efficiency programs;

▪other programmatic activities, such as gas distribution, gas transmission, gas storage integrity management and wildfire mitigation; and

▪costs associated with third-party liability insurance premiums.

Authorized costs are recovered as the commodity or service is delivered. To the extent authorized amounts collected vary from actual costs, the differences are generally recovered or refunded within a subsequent period based on the nature of the balancing account mechanism. In general, the revenue recognition criteria for balanced costs billed to customers are met at the time the costs are incurred. Because these costs are substantially recovered in rates through a balancing account mechanism, changes in these costs are reflected as changes in revenues. The CPUC and the FERC may impose various review procedures before authorizing recovery or refund for programs authorized, including limitations on the total cost of the program, revenue requirement limits or reviews of costs for reasonableness. These procedures could result in disallowances of recovery from ratepayers.

Sempra Texas Utilities

Rates and Cost Recovery

Oncor’s and Sharyland Utilities’ rates are each regulated at the state level by the PUCT and, in the case of Oncor, at the city level by certain cities, and are subject to regulatory rate-setting processes and annual earnings oversight. This regulatory treatment does not provide any assurance as to achievement of earnings levels. Instead, their rates are regulated based on an analysis of each utility’s costs and capital structure, as reviewed and approved in regulatory proceedings. Rate regulation is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. However, there is no assurance that the PUCT will judge all of the Texas utilities’ costs to have been prudently incurred, that the PUCT will not reduce the amount of invested capital included in the capital structure upon which the Texas utilities’ rates are based, that the regulatory process in which rates are determined will necessarily result in rates that produce full recovery of the Texas utilities’ costs or that their authorized ROE will not be reduced.

The PURA allows Texas electric utilities providing wholesale or retail distribution service to file, under certain circumstances, once per year and up to four rate adjustments between comprehensive base rate proceedings to recover distribution-related investments on an interim basis. The PUCT’s substantive rules also allow the Texas utilities to update their transmission rates periodically on an interim basis to reflect changes in invested capital. These “capital tracker” provisions are intended to encourage investment in the electric system to help ensure reliability and efficiency by allowing for timely recovery of and return on new investments.

Capital Structure and Return on Equity

Oncor has a PUCT-authorized ROE of 9.8% and an authorized regulatory capital structure of 57.5% debt to 42.5% equity. Sharyland Utilities’ PUCT-authorized ROE is 9.7% and its authorized regulatory capital structure is 55% debt to 45% equity. Sharyland Utilities filed its 2020 rate case with the PUCT in December 2020. Oncor is required to file a base rate review on or before October 1, 2021.

Sempra Mexico

Ecogas’ revenues are derived from service and distribution fees charged to its customers in Mexican pesos. The price Ecogas pays to purchase natural gas, which is based on international price indices, is passed through directly to its customers. The service and distribution fees charged by Ecogas are regulated by the CRE, which performs a review of rates every five years and monitors prices charged to end-users. In the fourth quarter of 2020, Ecogas filed its rate case for the period 2021 through 2025. Ecogas expects to receive a decision in 2021. The tariffs operate under a return-on-asset-base model. In the annual tariff adjustment, rates are adjusted to account for inflation or fluctuations in exchange rates, and inflation indexing includes separate U.S. and Mexican cost components so that U.S. costs can be included in the final distribution rates.

ENVIRONMENTAL MATTERS

We discuss environmental issues affecting us in Note 16 of the Notes to Consolidated Financial Statements and “Part I – Item 1A. Risk Factors.” You should read the following additional information in conjunction with those discussions.

Hazardous Substances

The CPUC’s Hazardous Waste Collaborative mechanism allows California’s IOUs to recover hazardous waste cleanup costs for certain sites, including those related to certain Superfund sites. This mechanism permits the California Utilities to recover in rates 90% of hazardous waste cleanup costs and related third-party litigation costs, and 70% of related insurance-litigation expenses. In addition, the California Utilities have the opportunity to retain a percentage of any recoveries from insurance carriers and other third parties to offset the cleanup and associated litigation costs not recovered in rates.

We record estimated liabilities for environmental remediation when amounts are probable and estimable. In addition, we record amounts authorized to be recovered in rates under the Hazardous Waste Collaborative mechanism as regulatory assets.

Air and Water Quality

The natural gas and electric industries are subject to increasingly stringent air quality and GHG emissions standards, such as those established by CARB and SCAQMD. The California Utilities generally recover in rates the costs to comply with these standards. We discuss GHG emissions standards and credits further in Note 1 of the Notes to Consolidated Financial Statements.

We discuss environmental matters concerning the Leak in Note 16 of the Notes to Consolidated Financial Statements and in “Part I – Item 1A. Risk Factors.”

OTHER MATTERS

Information About Our Executive Officers

INFORMATION ABOUT EXECUTIVE OFFICERS AT SEMPRA ENERGY
Name			Age(1)			Positions held over last five years			Time in position
Jeffrey W. Martin			59			Chairman			December 2018 to present
						Chief Executive Officer			May 2018 to present
						President			March 2020 to present
						Executive Vice President and Chief Financial Officer			January 2017 to April 2018
						Chairman, SDG&E			November 2015 to December 2016
						President, SDG&E			October 2015 to December 2016
						Chief Executive Officer, SDG&E			January 2014 to December 2016
Kevin C. Sagara			59			Executive Vice President and Group President			June 2020 to present
						Chief Executive Officer, SDG&E			September 2018 to June 2020
						President, Sempra Renewables			October 2013 to September 2018
Trevor I. Mihalik			54			Executive Vice President and Chief Financial Officer			May 2018 to present
						Senior Vice President			December 2013 to April 2018
						Controller and Chief Accounting Officer			July 2012 to April 2018
Peter R. Wall			49			Senior Vice President			April 2020 to present
						Controller and Chief Accounting Officer			May 2018 to present
						Vice President			May 2018 to April 2020
						Vice President and Chief Financial Officer, Sempra Infrastructure			January 2017 to April 2018
						Vice President and Chief Financial Officer, Sempra U.S. Gas & Power			March 2015 to December 2016

(1) Ages are as of February 25, 2021.

INFORMATION ABOUT EXECUTIVE OFFICERS AT SDG&E
Name			Age(1)			Positions held over last five years			Time in position
Caroline A. Winn			57			Chief Executive Officer			August 2020 to present
						Chief Operating Officer			January 2017 to July 2020
						Chief Energy Delivery Officer			June 2015 to December 2016
Bruce A. Folkmann			53			President			August 2020 to present
						Chief Financial Officer			March 2015 to present
						Senior Vice President			August 2019 to July 2020
						Controller, Chief Accounting Officer and Treasurer			March 2015 to August 2020
						Vice President			March 2015 to August 2019
						Vice President, Controller, Chief Financial Officer, Chief Accounting Officer and Treasurer, SoCalGas			March 2015 to June 2019
Valerie A. Bille			42			Vice President, Controller, Chief Accounting Officer and Treasurer			August 2020 to present
						Assistant Controller, Sempra Energy			June 2019 to August 2020
						Assistant Controller			June 2018 to June 2019
						Director, Utility Financial Reporting			June 2017 to June 2018
						Director, Financial Systems and Business Controls			August 2015 to June 2017
Diana L. Day			56			Senior Vice President and General Counsel			August 2020 to present
						Chief Risk Officer			August 2019 to present
						Vice President and General Counsel			January 2019 to August 2020
						Acting General Counsel			September 2017 to January 2019
						Vice President of Enterprise Risk Management and Compliance, SDG&E and SoCalGas			June 2014 to January 2019

(1) Ages are as of February 25, 2021.

INFORMATION ABOUT EXECUTIVE OFFICERS AT SOCALGAS
Name			Age(1)			Positions held over last five years			Time in position
Scott D. Drury			55			Chief Executive Officer			August 2020 to present
						President, SDG&E			January 2017 to July 2020
						Chief Energy Supply Officer, SDG&E			June 2015 to December 2016
Maryam S. Brown			45			President			March 2019 to present
						Vice President of Federal Government Affairs, Sempra Energy			September 2016 to March 2019
						Senior Energy and Environment Counsel, Office of the Speaker of the U.S. House of Representatives			December 2012 to September 2016
Jimmie I. Cho			56			Chief Operating Officer			January 2019 to present
						Senior Vice President of Customer Services and Gas Distribution Operations			April 2018 to January 2019
						Senior Vice President of Gas Distribution Operations, SDG&E			April 2018 to January 2019
						Senior Vice President of Gas Engineering and Distribution Operations, SoCalGas and SDG&E			October 2017 to April 2018
						Senior Vice President of Gas Operations and System Integrity, SoCalGas and SDG&E			June 2014 to October 2017
Mia L. DeMontigny			48			Vice President and Chief Financial Officer, Controller, Chief Accounting Officer and Treasurer			June 2019 to present
						Assistant Controller, Sempra Energy			August 2015 to June 2019
David J. Barrett			56			Vice President and General Counsel			January 2019 to present
						Associate General Counsel of Gas Infrastructure, Sempra Energy			June 2018 to January 2019
						Assistant General Counsel of Gas Infrastructure, Sempra Energy			February 2017 to June 2018
						Assistant General Counsel of Real Estate and Environmental, SDG&E			October 2010 to February 2017
Jeffery L. Walker			60			Senior Vice President, Chief Administrative and Diversity Officer			November 2020 to present
						Vice President, Customer Solutions			March 2019 to November 2020
						Director of Special Projects			January 2019 to March 2019
						Director, SoCalGas Advanced Meter			January 2014 to January 2019

(1) Ages are as of February 25, 2021.

Human Capital

Our ability to advance our mission to be North America’s premier energy infrastructure company largely depends on the safety, engagement, and responsible actions of our employees.

Safety is foundational at Sempra Energy and its subsidiaries. We strive to foster a strong safety culture and reinforce this culture through training programs, benchmarking, review and analysis of safety trends, and sharing lessons learned from safety incidents across our businesses. Our businesses also engage in safety-related scenario planning and simulation, develop and implement operational contingency plans, and review safety plans and procedures with work crews regularly. We also participate in emergency planning and preparedness in the communities we serve and train critical employees in emergency management and response each year. The Safety, Sustainability and Technology committee of the Sempra Energy board of directors assists the board in overseeing the corporation’s oversight programs and performance related to safety.

Our culture is another important aspect of our ability to advance our mission. We embrace diversity in our workforce and strive to create a high-performing, inclusive and supportive workplace where employees of all backgrounds and experiences can feel valued and respected. We invest in recruiting, developing and retaining high-potential employees who represent the communities we serve, and we provide a range of programs to advance those objectives, including internal and external mentoring and leadership training, workshops and a tuition reimbursement program. We also invest in internal communications programs, including in-person and virtual learning and networking opportunities as well as regular executive communications. In addition, we offer a variety of in-person and virtual employee community service opportunities and, at our U.S. operations, we support employees’ personal volunteering and charitable giving through Sempra Energy’s charitable matching program. Employees participate in annual ethics and compliance training each year, which includes a review of Sempra Energy’s Code of Conduct as well as resources such as the Sempra Energy’s ethics and compliance hotline. We measure culture and employee engagement

through a variety of channels including pulse surveys, suggestion boxes and a biannual engagement survey administered by a third party. Sempra Energy’s board of directors is chartered with overseeing our culture.

The table below shows the number of employees for each of our registrants at December 31, 2020, as well as the percentage of those employees represented by labor unions under various collective bargaining agreements that generally cover wages, benefits, working conditions and other terms and conditions of employment. We did not experience any major work stoppages in 2020 and we maintain constructive relations with our labor unions.

NUMBER OF EMPLOYEES
			Number of employees						% of employees covered under collective bargaining agreements						% of employees covered under collective bargaining agreements expiring within one year
Sempra Energy Consolidated(1)			14,706						41		%				32		%
SDG&E			4,595						29		%				—		%
SoCalGas			7,851						59		%				59		%

(1) Excludes employees of equity method investees.

COMPANY WEBSITES

Company website addresses are:

▪Sempra Energy – www.sempra.com

▪SDG&E – www.sdge.com

▪SoCalGas – www.socalgas.com

We make available free of charge on the Sempra Energy website, and for SDG&E and SoCalGas, via a hyperlink on their websites, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.

The references to our websites are not active hyperlinks and the information contained on, or that can be accessed through, the websites of Sempra Energy, SDG&E and SoCalGas is not part of this report or any other report that we file with or furnish to the SEC and is not incorporated herein by reference.