Sempra 10-Q 2023-03-31

Filed 2023-05-04. 7 sections, 447K characters. Original on sec.gov · Markdown · JSON

Cover and table of contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q


(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended		March 31, 2023
		or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from			to


Commission File No.	Exact Name of Registrant as Specified in its Charter, Address of Principal Executive Office and Telephone Number	State of Incorporation	I.R.S. Employer Identification No.	Former name, former address and former fiscal year, if changed since last report
1-14201	SEMPRA ENERGY	California	33-0732627	No change
	488 8th Avenue
	San Diego, California 92101
	(619) 696-2000

1-03779	SAN DIEGO GAS & ELECTRIC COMPANY	California	95-1184800	No change
	8330 Century Park Court
	San Diego, California 92123
	(619) 696-2000

1-01402	SOUTHERN CALIFORNIA GAS COMPANY	California	95-1240705	No change
	555 West 5th Street
	Los Angeles, California 90013
	(213) 244-1200



SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
SEMPRA ENERGY:
Common Stock, without par value	SRE	New York Stock Exchange

5.75% Junior Subordinated Notes Due 2079, $25 par value	SREA	New York Stock Exchange

SAN DIEGO GAS & ELECTRIC COMPANY:
None

SOUTHERN CALIFORNIA GAS COMPANY:
None



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Sempra Energy	Yes	☒	No	☐
San Diego Gas & Electric Company	Yes	☒	No	☐
Southern California Gas Company	Yes	☒	No	☐



Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Sempra Energy	Yes	☒	No	☐
San Diego Gas & Electric Company	Yes	☒	No	☐
Southern California Gas Company	Yes	☒	No	☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Sempra Energy:
☒ Large Accelerated Filer	☐ Accelerated Filer	☐ Non-accelerated Filer	☐ Smaller Reporting Company	☐ Emerging Growth Company

San Diego Gas & Electric Company:
☐ Large Accelerated Filer	☐ Accelerated Filer	☒ Non-accelerated Filer	☐ Smaller Reporting Company	☐ Emerging Growth Company

Southern California Gas Company:
☐ Large Accelerated Filer	☐ Accelerated Filer	☒ Non-accelerated Filer	☐ Smaller Reporting Company	☐ Emerging Growth Company


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Sempra Energy	Yes	☐	No	☐
San Diego Gas & Electric Company	Yes	☐	No	☐
Southern California Gas Company	Yes	☐	No	☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Sempra Energy	Yes	☐	No	☒
San Diego Gas & Electric Company	Yes	☐	No	☒
Southern California Gas Company	Yes	☐	No	☒

Indicate the number of shares outstanding of each of the issuers’ classes of common stock, as of the latest practicable date.

Common stock outstanding on April 28, 2023:


Sempra Energy			314,650,534 shares
San Diego Gas & Electric Company			Wholly owned by Enova Corporation, which is wholly owned by Sempra Energy
Southern California Gas Company			Wholly owned by Pacific Enterprises, which is wholly owned by Sempra Energy

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TABLE OF CONTENTS

		Page
Glossary		4
Information Regarding Forward-Looking Statements		7

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	9
	Notes to Condensed Consolidated Financial Statements
	Note 1. General Information and Other Financial Data	28
	Note 2. New Accounting Standards	42
	Note 3. Revenues	42
	Note 4. Regulatory Matters	44
	Note 5 . Investments in Unconsolidated Entities	46
	Note 6 . Debt and Credit Facilities	48
	Note 7 . Derivative Financial Instruments	50
	Note 8 . Fair Value Measurements	57
	Note 9 . San Onofre Nuclear Generating Station	64
	Note 1 0 . Commitments and Contingencies	66
	Note 1 1 . Segment Information	71
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	73
	Overview	73
	Results of Operations	73
	Capital Resources and Liquidity	82
	Critical Accounting Estimates	94
	New Accounting Standards	94
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	94
Item 4.	Controls and Procedures	95

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	96
Item 1A.	Risk Factors	96
Item 6.	Exhibits	97

Signatures		101

This combined Form 10-Q is separately filed by Sempra Energy doing business as Sempra, San Diego Gas & Electric Company and Southern California Gas Company. Information contained herein relating to any one of these individual reporting entities is filed by such entity on its own behalf. Each such reporting entity makes statements herein only as to itself and its consolidated entities and makes no statement whatsoever as to any other entity.

You should read this report in its entirety as it pertains to each respective reporting entity. No one section of the report deals with all aspects of the subject matter. A separate Part I – Item 1 is provided for each reporting entity, except for the Notes to Condensed Consolidated Financial Statements, which are combined for all of the reporting entities. All Items other than Part I – Item 1 are combined for the three reporting entities.

None of the website references in this report are active hyperlinks, and the information contained on or that can be accessed through any such website is not and shall not be deemed to be part of or incorporated by reference in this report or any other document that we file with or furnish to the SEC.

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The following terms and abbreviations appearing in this report have the meanings indicated below.


GLOSSARY

AB			California Assembly Bill
ADIA			Black Silverback ZC 2022 LP (assignee of Black River B 2017 Inc.), a wholly owned affiliate of Abu Dhabi Investment Authority
AFUDC			allowance for funds used during construction
Annual Report			Annual Report on Form 10-K for the year ended December 31, 2022
AOCI			accumulated other comprehensive income (loss)
ARO			asset retirement obligation
ASEA			Agencia de Seguridad, Energía y Ambiente (Mexico’s National Agency for Industrial Safety and Environmental Protection)
ASR			accelerated share repurchase
Bcf			billion cubic feet
Bechtel			Bechtel Energy Inc. (formerly known as Bechtel Oil, Gas and Chemicals, Inc.)
bps			basis points
Cameron LNG JV			Cameron LNG Holdings, LLC
Cameron LNG Phase 1 facility			Cameron LNG JV liquefaction facility
Cameron LNG Phase 2 project			Cameron LNG JV liquefaction expansion project
CCA			Community Choice Aggregation
CCM			cost of capital adjustment mechanism
CFE			Comisión Federal de Electricidad (Mexico’s Federal Electricity Commission)
CFIN			Cameron LNG FINCO, LLC, a wholly owned and unconsolidated affiliate of Cameron LNG JV
ConocoPhillips			ConocoPhillips Company
COVID-19			coronavirus disease 2019
CPUC			California Public Utilities Commission
CRE			Comisión Reguladora de Energía (Mexico’s Energy Regulatory Commission)
CRR			congestion revenue right
DOE			U.S. Department of Energy
ECA LNG			ECA LNG Phase 1 and ECA LNG Phase 2, collectively
ECA LNG Phase 1			ECA LNG Holdings B.V.
ECA LNG Phase 2			ECA LNG II Holdings B.V.
ECA Regas Facility			Energía Costa Azul, S. de R.L. de C.V. LNG regasification facility
Ecogas			Ecogas México, S. de R.L. de C.V.
Edison			Southern California Edison Company, a subsidiary of Edison International
EFH			Energy Future Holdings Corp. (renamed Sempra Texas Holdings Corp.)
EPC			engineering, procurement and construction
EPS			earnings per common share
ETR			effective income tax rate
FEED			front-end engineering design
FERC			Federal Energy Regulatory Commission
Fitch			Fitch Ratings, Inc.
FTA			Free Trade Agreement
GCIM			Gas Cost Incentive Mechanism
GHG			greenhouse gas
GRC			General Rate Case
HOA			Heads of Agreement
IEnova			Infraestructura Energética Nova, S.A.P.I. de C.V.
IMG			Infraestructura Marina del Golfo
INEOS			INEOS Energy Trading LTD., a subsidiary of INEOS Ltd.
IOU			investor-owned utility
IRA			Inflation Reduction Act of 2022
IRS			U.S. Internal Revenue Service
ISO			Independent System Operator
JV			joint venture

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GLOSSARY (CONTINUED)

KKR Denali			KKR Denali Holdco LLC, an affiliate of Kohlberg Kravis Roberts & Co. L.P.
KKR Pinnacle			KKR Pinnacle Investor L.P. (as successor-in-interest to KKR Pinnacle Aggregator L.P.), an affiliate of Kohlberg Kravis Roberts & Co. L.P.
LA Superior Court			Los Angeles County Superior Court
Leak			the leak at the SoCalGas Aliso Canyon natural gas storage facility injection-and-withdrawal well, SS25, discovered by SoCalGas on October 23, 2015
LIBOR			London Interbank Offered Rate
LNG			liquefied natural gas
MD&A			Management’s Discussion and Analysis of Financial Condition and Results of Operations
MMBtu			million British thermal units (of natural gas)
Moody’s			Moody’s Investors Service, Inc.
MOU			Memorandum of Understanding
Mtpa			million tonnes per annum
MWh			megawatt hour
NCI			noncontrolling interest(s)
NDT			nuclear decommissioning trusts
O&M			operation and maintenance expense
OCI			other comprehensive income (loss)
OII			Order Instituting Investigation
Oncor			Oncor Electric Delivery Company LLC
Oncor Holdings			Oncor Electric Delivery Holdings Company LLC
ORLEN			Polski Koncern Naftowy Orlen S.A. (formerly Polish Oil & Gas Company)
OSC			Order to Show Cause
PA LNG Phase 1 project			initial phase of the Port Arthur LNG liquefaction project
PA LNG Phase 2 project			second phase of the Port Arthur LNG liquefaction project
PBOP			postretirement benefits other than pension
Port Arthur LNG			Port Arthur LNG, LLC, an indirect subsidiary of SI Partners that indirectly owns the PA LNG Phase 1 project
PP&E			property, plant and equipment
PPA			power purchase agreement
PUCT			Public Utility Commission of Texas
RBS			The Royal Bank of Scotland plc
RBS SEE			RBS Sempra Energy Europe
RBS Sempra Commodities			RBS Sempra Commodities LLP
ROE			return on equity
RSU			restricted stock unit
S&P			S&P Global Ratings, a division of S&P Global Inc.
SB			California Senate Bill
SDG&E			San Diego Gas & Electric Company
SDSRA			Senior Debt Service Reserve Account
SEC			U.S. Securities and Exchange Commission
SED			Safety and Enforcement Division of the CPUC
SEDATU			Secretaría de Desarrollo Agrario, Territorial y Urbano (Mexico’s agency in charge of agriculture, land and urban development)
SEFE			SEFE Marketing & Trading México S. de R.L. de C.V. (formerly known as Gazprom Marketing & Trading México S. de R.L. de C.V.)
Sempra			Sempra Energy doing business as Sempra, together with its consolidated entities unless otherwise stated or indicated by the context
Sempra California			San Diego Gas & Electric Company and Southern California Gas Company, collectively
SENER			Secretaría de Energía de México (Mexico’s Ministry of Energy)
series C preferred stock			Sempra’s 4.875% fixed-rate reset cumulative redeemable perpetual preferred stock, series C
SI Partners			Sempra Infrastructure Partners, LP, the holding company for most of Sempra’s subsidiaries not subject to California or Texas utility regulation
SoCalGas			Southern California Gas Company
SOFR			Secured Overnight Financing Rate
SONGS			San Onofre Nuclear Generating Station

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GLOSSARY (CONTINUED)

SPA			sale and purchase agreement
Support Agreement			support agreement, dated July 28, 2020 and amended on June 29, 2021, among Sempra and Sumitomo Mitsui Banking Corporation
TAG			TAG Norte Holding, S. de R.L. de C.V.
TdM			Termoeléctrica de Mexicali
Technip Energies			TP Oil & Gas Mexico, S. De R.L. De C.V., an affiliate of Technip Energies N.V.
TO5			Electric Transmission Owner Formula Rate, effective June 1, 2019
U.S. GAAP			generally accepted accounting principles in the United States of America
VAT			value-added tax
VIE			variable interest entity
Wildfire Fund			the fund established pursuant to AB 1054
Wildfire Legislation			AB 1054 and AB 111

References in this report to “we,” “our,” “us,” “our company” and “Sempra” are to Sempra and its consolidated entities, collectively, unless otherwise stated or indicated by the context. All references in this report to our reportable segments are not intended to refer to any legal entity with the same or similar name.

Throughout this report, we refer to the following as Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements when discussed together or collectively:

the Condensed Consolidated Financial Statements and related Notes of Sempra;
the Condensed Financial Statements and related Notes of SDG&E; and
the Condensed Financial Statements and related Notes of SoCalGas.

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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

We make statements in this report that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on assumptions with respect to the future, involve risks and uncertainties, and are not guarantees. Future results may differ materially from those expressed or implied in any forward-looking statement. These forward-looking statements represent our estimates and assumptions only as of the filing date of this report. We assume no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise.

Forward-looking statements can be identified by words such as “believes,” “expects,” “intends,” “anticipates,” “contemplates,” “plans,” “estimates,” “projects,” “forecasts,” “should,” “could,” “would,” “will,” “confident,” “may,” “can,” “potential,” “possible,” “proposed,” “in process,” “construct,” “develop,” “opportunity,” “initiative,” “target,” “outlook,” “optimistic,” “poised,” “maintain,” “continue,” “progress,” “advance,” “goal,” “aim,” “commit,” or similar expressions, or when we discuss our guidance, priorities, strategy, goals, vision, mission, opportunities, projections, intentions or expectations.

Factors, among others, that could cause actual results and events to differ materially from those expressed or implied in any forward-looking statement include risks and uncertainties relating to:

▪California wildfires, including potential liability for damages regardless of fault and any inability to recover all or a substantial portion of costs from insurance, the Wildfire Fund, rates from customers or a combination thereof

▪decisions, investigations, inquiries, regulations, issuances or revocations of permits, consents, approvals or other authorizations, renewals of franchises, and other actions by (i) the CPUC, CRE, DOE, FERC, PUCT, and other governmental and regulatory bodies and (ii) the U.S., Mexico and states, counties, cities and other jurisdictions therein and in other countries in which we do business

▪the success of business development efforts, construction projects and acquisitions and divestitures, including risks in (i) being able to make a final investment decision, (ii) completing construction projects or other transactions on schedule and budget, (iii) realizing anticipated benefits from any of these efforts if completed, and (iv) obtaining the consent or approval of third parties

▪litigation, arbitrations, property disputes and other proceedings, and changes to laws and regulations, including those related to the energy industry in Mexico

▪cybersecurity threats, including by state and state-sponsored actors, of ransomware or other attacks on our systems or the systems of third-parties with which we conduct business, including the energy grid or other energy infrastructure, all of which have become more pronounced due to recent geopolitical events

▪our ability to borrow money on favorable terms and meet our obligations, including due to (i) actions by credit rating agencies to downgrade our credit ratings or place those ratings on negative outlook or (ii) rising interest rates and inflation

▪failure of foreign governments, state-owned entities and our counterparties to honor their contracts and commitments

▪the impact on affordability of SDG&E’s and SoCalGas’ customer rates and their cost of capital and on SDG&E’s, SoCalGas’ and Sempra Infrastructure’s ability to pass through higher costs to customers due to (i) volatility in inflation, interest rates and commodity prices, (ii) with respect to SDG&E’s and SoCalGas’ businesses, the cost of the clean energy transition in California, (iii) with respect to SDG&E’s business, departing retail load resulting from additional customers transferring to CCA and Direct Access, and (iv) with respect to Sempra Infrastructure’s business, volatility in foreign currency exchange rates

▪the impact of climate and sustainability policies, laws, rules, regulations, disclosures and trends, including actions to reduce or eliminate reliance on natural gas, increased uncertainty in the political or regulatory environment for California natural gas distribution companies, the risk of nonrecovery for stranded assets, and our ability to incorporate new technologies

▪weather, natural disasters, pandemics, accidents, equipment failures, explosions, terrorism, information system outages or other events that disrupt our operations, damage our facilities or systems, cause the release of harmful materials or fires or subject us to liability for damages, fines and penalties, some of which may not be recoverable through regulatory mechanisms or insurance or may impact our ability to obtain satisfactory levels of affordable insurance

▪the availability of electric power, natural gas and natural gas storage capacity, including disruptions caused by failures in the transmission grid, pipeline system or limitations on the withdrawal of natural gas from storage facilities

▪Oncor’s ability to reduce or eliminate its quarterly dividends due to regulatory and governance requirements and commitments, including by actions of Oncor’s independent directors or a minority member director

▪changes in tax and trade policies, laws and regulations, including tariffs, revisions to international trade agreements and sanctions, such as those imposed in connection with the war in Ukraine, any of which may increase our costs, reduce our competitiveness, impact our ability to do business with certain counterparties, or impair our ability to resolve trade disputes

▪other uncertainties, some of which are difficult to predict and beyond our control

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We caution you not to rely unduly on any forward-looking statements. You should review and carefully consider the risks, uncertainties and other factors that affect our businesses as described herein, in our Annual Report and in other reports we file with the SEC.

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PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS


SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share amounts; shares in thousands)
	Three months ended March 31,
		2023		2022
		(unaudited)
REVENUES
Utilities:
Natural gas		$	4,412	$	2,320
Electric		1,027		1,117
Energy-related businesses		1,121		383
Total revenues		6,560		3,820

EXPENSES AND OTHER INCOME
Utilities:
Cost of natural gas		(2,683)		(802)
Cost of electric fuel and purchased power		(114)		(205)
Energy-related businesses cost of sales		(193)		(135)
Operation and maintenance		(1,209)		(1,086)
Aliso Canyon litigation and regulatory matters		—		(92)
Depreciation and amortization		(539)		(493)
Franchise fees and other taxes		(192)		(162)
Other income, net		41		38
Interest income		24		25
Interest expense		(366)		(243)
Income before income taxes and equity earnings		1,329		665
Income tax expense		(376)		(334)
Equity earnings		219		326
Net income		1,172		657
Earnings attributable to noncontrolling interests		(192)		(34)
Preferred dividends		(11)		(11)
Earnings attributable to common shares		$	969	$	612

Basic EPS:
Earnings		$	3.08	$	1.93
Weighted-average common shares outstanding		314,919		316,353

Diluted EPS:
Earnings		$	3.07	$	1.93
Weighted-average common shares outstanding		316,124		317,434

See Notes to Condensed Consolidated Financial Statements.

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SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
	Sempra Energy shareholders’ equity
	Pretax amount		Income tax (expense) benefit		Net-of-tax amount		Noncontrolling interests (after tax)		Total
	(unaudited)


















	Three months ended March 31, 2023 and 2022
2023:
Net income	$	1,356	$	(376)	$	980	$	192	$	1,172
Other comprehensive income (loss):
Foreign currency translation adjustments	10		—		10		4		14
Financial instruments	(61)		16		(45)		(50)		(95)
Pension and other postretirement benefi

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This combined MD&A for Sempra, SDG&E and SoCalGas should be read in conjunction with the Condensed Consolidated Financial Statements and the Notes thereto in this report, and the Consolidated Financial Statements and the Notes thereto, “Part I – Item 1A. Risk Factors” and “Part II – Item 7. MD&A” in the Annual Report.

OVERVIEW

Sempra is a California-based holding company with energy infrastructure investments in North America. Our businesses invest in, develop and operate energy infrastructure, and provide electric and gas services to customers.

RESULTS OF OPERATIONS

We discuss the following in Results of Operations:

▪Overall results of operations of Sempra;

▪Segment results;

▪Significant changes in revenues, costs and earnings; and

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

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OVERALL RESULTS OF OPERATIONS OF SEMPRA

Sempra’s overall results of operations for the three months ended March 31, 2023 and 2022 were as follows:


OVERALL RESULTS OF OPERATIONS OF SEMPRA
(Dollars and shares in millions, except per share amounts)

190 191 192

Our earnings and diluted EPS were impacted by variances discussed below in “Segment Results.”

SEGMENT RESULTS

This section presents earnings (losses) by Sempra segment, as well as Parent and other, and a related discussion of the changes in segment earnings (losses). Throughout the MD&A, our reference to earnings represents earnings attributable to common shares. Variance amounts presented are the after-tax earnings impact (based on applicable statutory tax rates), unless otherwise noted, and before foreign currency and inflation effects and NCI, where applicable.


SEMPRA EARNINGS (LOSSES) BY SEGMENT
(Dollars in millions)
	Three months ended March 31,
		2023		2022
SDG&E		$	258	$	234
SoCalGas		360		334
Sempra Texas Utilities		83		162
Sempra Infrastructure		315		95
Parent and other(1)		(47)		(213)
Earnings attributable to common shares		$	969	$	612

(1) Includes intercompany eliminations recorded in consolidation and certain corporate costs.

SDG&E

The increase in earnings of $24 million (10%) in the three months ended March 31, 2023 compared to the same period in 2022 was primarily due to:

▪$16 million higher CPUC base operating margin, net of operating expenses and $6 million from lower authorized cost of capital;

▪$6 million higher net regulatory interest income;

▪$5 million higher electric transmission margin; and

▪$5 million lower income tax expense primarily from flow-through items; offset by

▪$8 million higher net interest expense.

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SoCalGas

The increase in earnings of $26 million (8%) in the three months ended March 31, 2023 compared to the same period in 2022 was primarily due to:

▪$66 million charge in 2022 relating to litigation pertaining to the Leak; and

▪$10 million in penalties in 2022 related to energy efficiency and advocacy OSCs; offset by

▪$18 million higher net interest expense;

▪$13 million lower CPUC base operating margin, including $8 million from lower authorized cost of capital and net of operating expenses;

▪$11 million lower income tax benefits primarily from flow-through items; and

▪$8 million GCIM award approved by the CPUC in March 2022.

Sempra Texas Utilities

The decrease in earnings of $79 million (49%) in the three months ended March 31, 2023 compared to the same period in 2022 was primarily due to lower equity earnings from Oncor Holdings driven by:

▪write-off of rate base disallowances in 2023 resulting from the PUCT's final order in Oncor's comprehensive base rate review;

▪higher depreciation expense and interest expense attributable to invested capital;

▪higher O&M; and

▪lower revenues from decreased customer consumption primarily attributable to weather, offset by higher revenues from updates to base transmission billing factors, transmission rate updates to reflect increases in invested capital, and customer growth.

Sempra Infrastructure

The increase in earnings of $220 million in the three months ended March 31, 2023 compared to the same period in 2022 was primarily due to:

▪$468 million earnings in 2023 compared to $14 million losses in 2022 from asset and supply optimization driven by unrealized gains in 2023 compared to unrealized losses in 2022 on commodity derivatives due to changes in natural gas prices, and higher LNG diversion fees; and

▪$21 million higher earnings from the transportation business in Mexico driven by a customer’s early termination of firm transportation agreements; offset by

▪$192 million earnings attributable to NCI in 2023 compared to $34 million earnings attributable to NCI in 2022 primarily due to an increase in SI Partners’ net income and from the sale of a 10% NCI in SI Partners to ADIA in June 2022;

▪$64 million unfavorable impact from foreign currency and inflation effects on our monetary positions in Mexico, net of foreign currency derivative effects, comprised of a $160 million unfavorable impact in 2023 compared to a $96 million unfavorable impact in 2022; and

▪$54 million higher net interest expense, including $27 million net unrealized losses in 2023 on a contingent interest rate swap related to the PA LNG Phase 1 project and higher interest expense on committed lines of credit.

Parent and Other

The decrease in losses of $166 million in the three months ended March 31, 2023 compared to the same period in 2022 was primarily due to:

▪$120 million deferred income tax expense in 2022 associated with the change in our indefinite reinvestment assertion related to our foreign subsidiaries;

▪$7 million net investment gains in 2023 compared to $17 million net investment losses in 2022 on dedicated assets in support of our employee nonqualified benefit plan and deferred compensation obligations; and

▪$24 million higher income tax benefit from the interim period application of an annual forecasted consolidated ETR; offset by

▪$10 million higher net interest expense.

SIGNIFICANT CHANGES IN REVENUES, COSTS AND EARNINGS

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

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Utilities Revenues and Cost of Sales

Our utilities revenues include natural gas revenues at SoCalGas and SDG&E and Sempra

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We provide disclosure regarding derivative activity in Note 7 of the Notes to Condensed Consolidated Financial Statements. We discuss our market risk and risk policies in detail in “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in the Annual Report.

COMMODITY PRICE RISK

Sempra Infrastructure is exposed to commodity price risk indirectly through its LNG, natural gas pipelines and storage, and power-generating assets. In the first three months of 2023, a hypothetical 10% change in commodity prices would have resulted in a change in the fair value of our commodity-based natural gas and electricity derivatives of $23 million at March 31, 2023 compared to $24 million at December 31, 2022.

The one-day value at risk for SDG&E and SoCalGas’ commodity positions were $10 million and negligible, respectively, at March 31, 2023 compared to $25 million and $2 million, respectively, at December 31, 2022.

INTEREST RATE RISK

The table below shows the nominal amount of our debt:


NOMINAL AMOUNT OF DEBT(1)
(Dollars in millions)
	March 31, 2023						December 31, 2022
	Sempra		SDG&E		SoCalGas		Sempra		SDG&E		SoCalGas
Short-term:
Sempra California	$	1,023	$	—	$	1,023	$	1,105	$	205	$	900
Other	2,016		—		—		2,247		—		—
Long-term:
Sempra California fixed-rate	$	13,959	$	8,200	$	5,759	$	13,159	$	7,400	$	5,759
Sempra California variable-rate	700		400		300		700		400		300
Other fixed-rate	10,078		—		—		10,079		—		—
Other variable-rate	649		—		—		575		—		—

(1) After the effects of interest rate swaps. Before reductions for unamortized discount and debt issuance costs and excluding finance lease obligations.

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An interest rate risk sensitivity analysis measures interest rate risk by calculating the estimated changes in earnings that would result from a hypothetical change in market interest rates. Earnings are affected by changes in interest rates on short-term debt and variable-rate long-term debt. If weighted-average interest rates on short-term debt outstanding at March 31, 2023 increased or decreased by 10%, the change in earnings over the 12-month period ending March 31, 2024 would be approximately $12 million. If interest rates increased or decreased by 10% on all variable-rate long-term debt at March 31, 2023, after considering the effects of interest rate swaps, the change in earnings over the 12-month period ending March 31, 2024 would be approximately $6 million.

FOREIGN CURRENCY EXCHANGE RATE RISK AND INFLATION EXPOSURE

We discuss our foreign currency exchange rate risk and inflation exposure in “Part I – Item 2. MD&A – Impact of Foreign Currency and Inflation Rates on Results of Operations” in this report and in “Part II – Item 7. MD&A – Impact of Foreign Currency and Inflation Rates on Results of Operations” in the Annual Report. At March 31, 2023, there were no significant changes to our exposure to foreign currency rate risk since December 31, 2022.

In 2022 and 2023 to date, SDG&E and SoCalGas have experienced inflationary pressures from increases in various costs, including the cost of natural gas, electric fuel and purchased power, labor, materials and supplies, as well as availability of labor and materials. Sempra Texas Utilities has experienced increased costs of labor and materials and does not have specific regulatory mechanisms that allow for recovery of higher costs due to inflation; rather, recovery is limited to rate updates through capital trackers and base rate reviews, which may result in partial non recovery due to the regulatory lag. If such costs continue to be subject to significant inflationary pressures and we are not able to fully recover such higher costs in rates or there is a delay in recovery, these increased costs may have a significant effect on Sempra’s, SDG&E’s and SoCalGas’ results of operations, financial condition, cash flows and/or prospects.

Sempra Infrastructure has experienced inflationary pressures from increases in various costs, including the cost of labor, materials and supplies. Sempra Infrastructure generally secures long-term contracts that are U.S. dollar-denominated or referenced and are periodically adjusted for market factors, including inflation, and Sempra Infrastructure generally enters into lump-sum contracts for its large construction projects in which much of the risk during construction is absorbed or hedged by the EPC contractor. If additional costs become subject to significant inflationary pressures, we may not be able to fully recover such higher costs through contractual adjustments for inflation, which may have a significant effect on Sempra’s results of operations, financial condition, cash flows and/or prospects.

Item 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Sempra, SDG&E and SoCalGas maintain disclosure controls and procedures designed to ensure that information required to be disclosed in their respective reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and is accumulated and communicated to the management of each company, including each respective principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. In designing and evaluating these controls and procedures, the management of each company recognizes that any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives; therefore, the management of each company applies judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision and with the participation of the principal executive officers and principal financial officers of Sempra, SDG&E and SoCalGas, each such company’s management evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of March 31, 2023, the end of the period covered by this report. Based on these evaluations, the principal executive officers and principal financial officers of Sempra, SDG&E and SoCalGas concluded that their respective company’s disclosure controls and procedures were effective at the reasonable assurance level as of such date.

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INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in Sempra’s, SDG&E’s or SoCalGas’ internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, any such company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not party to, and our property is not the subject of, any material pending legal proceedings (other than ordinary routine litigation incidental to our businesses) except for the matters (1) described in Notes 9 and 10 of the Notes to Condensed Consolidated Financial Statements in this report and in Notes 15 and 16 of the Notes to Consolidated Financial Statements in the Annual Report, or (2) referred to in “Part I – Item 2. MD&A” in this report or in “Part I – Item 1A. Risk Factors” or “Part II – Item 7. MD&A” in the Annual Report.

Item 1A. RISK FACTORS

When evaluating our company and its subsidiaries and any investment in our or their securities, you should consider carefully the risk factors and all other information contained in this report and in the other documents we file with the SEC (including those filed subsequent to this report), including the factors discussed in “Part I – Item 2. MD&A” in this report and “Part I – Item 1A. Risk Factors” and “Part II – Item 7. MD&A” in the Annual Report. Any of the risks and other information discussed in this report or any of the risk factors discussed in “Part I – Item 1A. Risk Factors” or “Part II – Item 7. MD&A” in the Annual Report, as well as additional risks and uncertainties not currently known to us or that we currently deem to be immaterial, could materially adversely affect our results of operations, financial condition, cash flows, prospects and/or the trading prices of our securities or those of our subsidiaries.

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Item 6. EXHIBITS

The exhibits listed below relate to each registrant as indicated. Unless otherwise indicated, the exhibits that are incorporated by reference herein were filed under File Number 1-14201 (Sempra Energy), File Number 1-40 (Pacific Lighting Corporation), File Number 1-03779 (San Diego Gas & Electric Company) and/or File Number 1-01402 (Southern California Gas Company).


EXHIBIT INDEX
			Incorporated by Reference
Exhibit Number	Exhibit Description	Filed or Furnished Herewith	Form	Exhibit or Appendix	Filing Date

EXHIBIT 3 -- ARTICLES OF INCORPORATION AND BYLAWS

Sempra Energy
3.1	Amended and Restated Articles of Incorporation of Sempra Energy effective May 23, 2008.		10-K	3.1	02/27/20

3.2	Bylaws of Sempra Energy (as amended through April 14, 2020).		8-K	3.1	04/14/20

3.3	Certificate of Determination of Preferences of the 6% Mandatory Convertible Preferred Stock, Series A, of Sempra Energy (including the form of certificate representing the 6% Mandatory Convertible Preferred Stock, Series A), filed with the Secretary of State of the State of California and effective January 5, 2018.		8-K	3.1	01/09/18

3.4	Certificate of Determination of Preferences of the 6.75% Mandatory Convertible Preferred Stock, Series B, of Sempra Energy (including the form of certificate representing the 6.75% Mandatory Convertible Preferred Stock, Series B), filed with the Secretary of State of the State of California and effective July 11, 2018.		8-K	3.1	07/13/18

3.5	Certificate of Determination of Preferences of 4.875% Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Stock, Series C, of Sempra Energy (including the form of certificate representing the 4.875% Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Stock, Series C), filed with the Secretary of State of the State of California and effective June 11, 2020.		8-K	3.1	06/15/20

San Diego Gas & Electric Company
3.6	Amended and Restated Articles of Incorporation of San Diego Gas & Electric Company effective August 15, 2014.		10-K	3.4	02/26/15

3.7	Bylaws of San Diego Gas & Electric Company (as amended through October 26, 2016).		10-Q	3.1	11/02/16

Southern California Gas Company
3.8	Restated Articles of Incorporation of Southern California Gas Company effective October 7, 1996.		10-K	3.01	03/28/97

3.9	Bylaws of Southern California Gas Company (as amended through January 30, 2017).		8-K	3.1	01/31/17

EXHIBIT 4 -- INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
Certain instruments defining the rights of holders of long-term debt instruments are not required to be filed or incorporated by reference herein pursuant to Item 601(b)(4)(iii)(A) of SEC Regulation S-K. Each registrant agrees to furnish a copy of such instruments to the SEC upon request.

Sempra Energy / San Diego Gas & Electric Company
4.1	Seventy-Fourth Supplemental Indenture, dated as of March 10, 2023.		8-K	4.1	03/10/23

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EXHIBIT INDEX
			Incorporated by Reference
Exhibit Number	Exhibit Description	Filed or Furnished Herewith	Form	Exhibit or Appendix	Filing Date

EXHIBIT 10 -- MATERIAL CONTRACTS

Sempra Energy
10.1*	Amendment No. 1, dated as of March 1, 2023, to the Second Amended and Restated Engineering, Procurement and Construction Contract, between Port Arthur LNG, LLC, PALNG Common Facilities Company, LLC (but only for the limited purposes set forth therein), and Bechtel Energy Inc. (F/K/A Bechtel Oil, Gas and Chemicals, Inc.).		8-K	10.1	03/20/23

Management Contract or Compensatory Plan, Contract or Arrangement
Sempra Energy
10.2	Amended and Restated Severance Pay Agreement between Sempra Energy and Jeffrey W. Martin, signed January 4, 2023 and effective January 1, 2023.		10-K	10.38	02/28/23

10.3	Amended and Restated Severance Pay Agreement between Sempra Energy and Kevin C. Sagara, signed January 2, 2023 and effective January 1, 2023.		10-K	10.39	02/28/23

10.4	Amended and Restated Severance Pay Agreement between Sempra Energy and Trevor I. Mihalik, signed January 3, 2023 and effective January 1, 2023.		10-K	10.40	02/28/23

10.5	Amended and Restated Severance Pay Agreement between Sempra Energy and Peter R. Wall, signed December 30, 2022 and effective January 1, 2023.		10-K	10.41	02/28/23

10.6	Amended and Restated Severance Pay Agreement between Sempra Energy and Karen L. Sedgwick, signed December 29, 2022 and effective January 1, 2023.		10-K	10.42	02/28/23

Sempra Energy / San Diego Gas & Electric Company
10.7	Amended and Restated Severance Pay Agreement between Sempra Energy and Valerie A. Bille, signed February 28, 2023 and effective March 1, 2023.	X

10.8	Amended and Restated Severance Pay Agreement between Sempra Energy and Bruce A. Folkmann, signed February 27, 2023 and effective March 1, 2023.	X

10.9	Severance Pay Agreement between Sempra Energy and Kevin C. Geraghty, signed March 6, 2023 and effective March 1, 2023.	X

10.10	Amended and Restated Severance Pay Agreement between Sempra Energy and Erbin Keith, signed March 10, 2023 and effective March 1, 2023.	X

10.11	Amended and Restated Severance Pay Agreement between Sempra Energy and Caroline A. Winn, signed March 3, 2023 and effective March 1, 2023.	X

Sempra Energy / Southern California Gas Company
10.12	Amended and Restated Severance Pay Agreement between Sempra Energy and David J. Barrett, signed March 7, 2023 and effective March 1, 2023.	X

10.13	Amended and Restated Severance Pay Agreement between Sempra Energy and Maryam S. Brown, signed February 27, 2023 and effective March 1, 2023.	X

10.14	Amended and Restated Severance Pay Agreement between Sempra Energy and Jimmie I. Cho, signed February 28, 2023 and effective March 1, 2023.	X

10.15	Amended and Restated Severance Pay Agreement between Sempra Energy and Mia L. DeMontigny signed March 2, 2023 and effective March 1, 2023.	X

10.16	Amended and Restated Severance Pay Agreement between Sempra Energy and Scott D. Drury signed March 5, 2023 and effective March 1, 2023.	X

Portions of the exhibit have been omitted in accordance with applicable rules of the U.S. Securities and Exchange Commission.

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EXHIBIT INDEX (CONTINUED)
Exhibit Number	Exhibit Description	Filed or Furnished Herewith

EXHIBIT 31 -- SECTION 302 CERTIFICATIONS

Sempra Energy
31.1	Certification of Sempra Energy’s Principal Executive Officer pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.	X

31.2	Certification of Sempra Energy’s Principal Financial Officer pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.	X

San Diego Gas & Electric Company
31.3	Certification of San Diego Gas & Electric Company’s Principal Executive Officer pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.	X

31.4	Certification of San Diego Gas & Electric Company’s Principal Financial Officer pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.	X

Southern California Gas Company
31.5	Certification of Southern California Gas Company’s Principal Executive Officer pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.	X

31.6	Certification of Southern California Gas Company’s Principal Financial Officer pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.	X

EXHIBIT 32 -- SECTION 906 CERTIFICATIONS

Sempra Energy
32.1	Certification of Sempra Energy’s Principal Executive Officer pursuant to 18 U.S.C. Sec. 1350.	X

32.2	Certification of Sempra Energy’s Principal Financial Officer pursuant to 18 U.S.C. Sec. 1350.	X

San Diego Gas & Electric Company
32.3	Certification of San Diego Gas & Electric Company’s Principal Executive Officer pursuant to 18 U.S.C. Sec. 1350.	X

32.4	Certification of San Diego Gas & Electric Company’s Principal Financial Officer pursuant to 18 U.S.C. Sec. 1350.	X

Southern California Gas Company
32.5	Certification of Southern California Gas Company’s Principal Executive Officer pursuant to 18 U.S.C. Sec. 1350.	X

32.6	Certification of Southern California Gas Company’s Principal Financial Officer pursuant to 18 U.S.C. Sec. 1350.	X

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EXHIBIT INDEX (CONTINUED)
Exhibit Number	Exhibit Description	Filed or Furnished Herewith

EXHIBIT 101 -- INTERACTIVE DATA FILE

101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document.	X

101.SCH	Inline XBRL Taxonomy Extension Schema Document.	X

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.	X

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.	X

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.	X

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.	X

EXHIBIT 104 -- COVER PAGE INTERACTIVE DATA FILE

104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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SIGNATURES


Sempra Energy:
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
						SEMPRA ENERGY, (Registrant)

Date: May 4, 2023						By: /s/ Peter R. Wall
						Peter R. Wall
						Senior Vice President, Controller and Chief Accounting Officer (Duly Authorized Officer)


San Diego Gas & Electric Company:
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
						SAN DIEGO GAS & ELECTRIC COMPANY, (Registrant)

Date: May 4, 2023						By: /s/ Valerie A. Bille
						Valerie A. Bille
						Vice President, Controller and Chief Accounting Officer (Duly Authorized Officer)


Southern California Gas Company:
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
						SOUTHERN CALIFORNIA GAS COMPANY, (Registrant)

Date: May 4, 2023						By: /s/ Mia L. DeMontigny
						Mia L. DeMontigny
						Senior Vice President, Chief Financial Officer and Chief Accounting Officer (Duly Authorized Officer)