SOUTHERN CALIFORNIA GAS CO - Quarter Report: 2020 March (Form 10-Q)

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▪	California wildfires and the risk that we may be found liable for damages regardless of fault and the risk that we may not be able to recover any such costs from insurance, the Wildfire Fund or in rates from customers;

▪	decisions, investigations, regulations, issuances of permits and other authorizations, renewal of franchises, and other actions by the CFE, CPUC, DOE, PUCT, regulatory and governmental bodies and jurisdictions in the U.S. and other countries in which we operate;

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the success of business development efforts, construction projects and major acquisitions and divestitures, including risks in (i) the ability to make a final investment decision and completing construction projects on schedule and budget; (ii) obtaining the consent of partners; (iii) counterparties’ financial or other ability to fulfill contractual commitments; (iv) the ability to complete contemplated acquisitions and/or divestitures; and (v) the ability to realize anticipated benefits from any of these efforts once completed;

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the impact of the COVID-19 pandemic on our (i) ability to commence and complete capital and other projects and obtain regulatory approvals, (ii) supply chain and current and prospective counterparties, contractors, customers, employees and partners, (iii) liquidity, resulting from bill payment challenges experienced by our customers, decreased stability and accessibility of the capital markets and other factors, and (iv) ability to sustain operations and satisfy compliance requirements due to social distancing measures or if employee absenteeism were to increase significantly;

▪	the resolution of civil and criminal litigation, regulatory investigations and proceedings, and arbitrations;

▪	actions by credit rating agencies to downgrade our credit ratings or to place those ratings on negative outlook and our ability to borrow at favorable interest rates;

▪	moves to reduce or eliminate reliance on natural gas and the impact of the extreme volatility and unprecedented decline of oil prices on our businesses and development projects;

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weather, natural disasters, accidents, equipment failures, computer system outages and other events that disrupt our operations, damage our facilities and systems, cause the release of harmful materials, cause fires and subject us to liability for property damage or personal injuries, fines and penalties, some of which may not be covered by insurance (including costs in excess of applicable policy limits), may be disputed by insurers or may otherwise not be recoverable through regulatory mechanisms or may impact our ability to obtain satisfactory levels of affordable insurance;

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

▪	cybersecurity threats to the energy grid, storage and pipeline infrastructure, the information and systems used to operate our businesses, and the confidentiality of our proprietary information and the personal information of our customers and employees;

▪	expropriation of assets, the failure of foreign governments and state-owned entities to honor the terms of contracts, and property disputes;

▪	the impact at SDG&E on competitive customer rates and reliability due to the growth in distributed power generation and from departing retail load resulting from customers transferring to Direct Access, Community Choice Aggregation or other forms of distributed power generation and the risk of nonrecovery for stranded assets and contractual obligations;

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

▪	volatility in foreign currency exchange, interest and inflation rates and commodity prices and our ability to effectively hedge the risk of such volatility;

▪	changes in trade policies, laws and regulations, including tariffs and revisions to or replacement of international trade agreements, such as the North American Free Trade Agreement, that may increase our costs or impair our ability to resolve trade disputes;

▪	the impact of changes to federal and state tax laws and our ability to mitigate adverse impacts; and

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

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(1)	Derived from audited financial statements.

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(1)	Derived from audited financial statements.

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(1)	Derived from audited financial statements.

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(1)	Derived from audited financial statements.

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(1)	Derived from audited financial statements.

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(1)	Derived from audited financial statements.

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▪	the Condensed Consolidated Financial Statements and related Notes of Sempra Energy and its subsidiaries and VIEs;

▪	the Condensed Consolidated Financial Statements and related Notes of SDG&E and its VIE (until deconsolidation of Otay Mesa VIE in August 2019); and

▪	the Condensed Financial Statements and related Notes of SoCalGas.

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(1)	Balance at March 31, 2020 includes $9 million and $24 million in Accounts Receivable – Trade, Net and Accounts Receivable – Other, Net, respectively.

(2)	Balance at March 31, 2020 includes $4 million and $11 million in Accounts Receivable – Trade, Net and Accounts Receivable – Other, Net, respectively.

(3)	Balance at March 31, 2020 includes $4 million and $13 million in Accounts Receivable – Trade, Net and Accounts Receivable – Other, Net, respectively.

(1)	Balance at March 31, 2020 includes negligible amounts and $7 million in Due from Unconsolidated Affiliates – Current and Due from Unconsolidated Affiliates – Noncurrent, respectively.

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▪	prospective counterparties’ financial condition (including credit ratings)

▪	collateral requirements

▪	the use of standardized agreements that allow for the netting of positive and negative exposures associated with a single counterparty

▪	downgrade triggers

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▪	the purpose and design of the VIE;

▪	the nature of the VIE’s risks and the risks we absorb;

▪	the power to direct activities that most significantly impact the economic performance of the VIE; and

▪	the obligation to absorb losses or the right to receive benefits that could be significant to the VIE.

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(1)	In the three months ended March 31, 2020, due to the dilutive effect of mandatory convertible preferred stock, the numerator used to calculate diluted EPS includes an add-back of mandatory convertible preferred stock dividends declared in that quarter.

(2)	Includes 542 and 613 average fully vested RSUs held in our Deferred Compensation Plan for the three months ended March 31, 2020 and 2019, respectively. These fully vested RSUs are included in weighted-average common shares outstanding for basic EPS because there are no conditions under which the corresponding shares will not be issued.

(3)	Due to market fluctuations of both Sempra Energy common stock and the comparative indices used to determine the vesting percentage of our total shareholder return performance-based RSUs, which we discuss in Note 10 of the Notes to Consolidated Financial Statements in the Annual Report, dilutive RSUs may vary widely from period-to-period.

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(1)	All amounts are net of income tax, if subject to tax, and exclude NCI.

(2)	Includes discontinued operations.

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(1)	Amounts in 2019 include Otay Mesa VIE. All of SDG&E’s interest rate derivative activity relates to Otay Mesa VIE.

(2)	Amounts are included in the computation of net periodic benefit cost (see “Pension and Other Postretirement Benefits” above).

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(1)	IEnova and Chilquinta Energía have subsidiaries with NCI held by others. Percentage range reflects the highest and lowest ownership percentages among these subsidiaries.

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(1)

Amount at March 31, 2020 includes $23 million of outstanding principal and a negligible amount of accrued interest receivable from a U.S. dollar-denominated loan from IEnova to ESJ at a variable interest rate based on 1-month LIBOR plus 196 bps (3.54% at March 31, 2020) with a maturity date of June 30, 2020. Pursuant to the agreement, if ESJ is unable to meet certain conditions for an expansion project by May 13, 2020, IEnova and ESJ have the option to convert the loan to a 10-year note.

(2)	Amounts include principal balances plus accumulated interest outstanding.

(3)	U.S. dollar-denominated loans at fixed interest rates of 6.25% and 6.45% with maturity dates of November 5, 2028 and November 5, 2030, respectively.

(4)

Mexican peso-denominated revolving line of credit for up to 14.2 billion Mexican pesos or approximately $604 million U.S. dollar-equivalent, at a variable interest rate based on the 91-day Interbank Equilibrium Interest Rate plus 220 bps (8.79% at March 31, 2020), to finance construction of the natural gas marine pipeline. At March 31, 2020, $2 million of accrued interest receivable is included in Due From Unconsolidated Affiliates – Current.

(5)	U.S. dollar-denominated loan at a variable interest rate based on 6-month LIBOR plus 290 bps (4.08% at March 31, 2020).

(6)	U.S. dollar-denominated loan at a fixed interest rate.

(7)	SDG&E and SoCalGas are included in the consolidated income tax return of Sempra Energy and their respective income tax expense is computed as an amount equal to that which would result from each company having always filed a separate return.

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(1)	Represents investment (losses) gains on dedicated assets in support of our executive retirement and deferred compensation plans. These amounts are partially offset by corresponding changes in compensation expense related to the plans, recorded in O&M on the Condensed Consolidated Statements of Operations.

(2)	Includes losses of $149 million and gains of $10 million in the three months ended March 31, 2020 and 2019, respectively, from translation to U.S. dollars of a Mexican peso-denominated loan to IMG JV, which are offset by corresponding amounts included in Equity Earnings on the Condensed Consolidated Statements of Operations.

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

▪	repairs expenditures related to a certain portion of utility plant fixed assets

▪	the equity portion of AFUDC, which is non-taxable

▪	a portion of the cost of removal of utility plant assets

▪	utility self-developed software expenditures

▪	depreciation on a certain portion of utility plant assets

▪	state income taxes

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▪	$103 million income tax expense in 2019 related to outside basis differences existing as of the January 25, 2019 approval of our plan to sell our South American businesses; and

▪	$7 million income tax benefit in 2020 compared to $13 million income tax expense in 2019 related to changes in outside basis differences from earnings and foreign currency effects since January 25, 2019.

▪	removes the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, including discontinued operations or other comprehensive income;

▪	simplifies the recognition of deferred taxes related to basis differences as a result of ownership changes in investments;

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▪	specifies an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements; and

▪	requires an entity to reflect the effect of an enacted change in tax laws or rates in the annual ETR computation in the interim period that includes the enactment date.

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(1)	Excludes intercompany transactions.

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(1)	Includes $4 million and $4 million in Other Current Liabilities and $158 million and $86 million in Deferred Credits and Other on the Sempra Energy and SDG&E Condensed Consolidated Balance Sheets, respectively.

(1)	Amount is presented net of amounts due to unconsolidated affiliates on the Condensed Consolidated Balance Sheets, when right of offset exists.

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(1)	At March 31, 2020 and December 31, 2019, the noncurrent portion of regulatory balancing accounts – net undercollected for SDG&E was $123 million and $108 million, respectively, and for SoCalGas was $375 million and $500 million, respectively.

(2)	Includes regulatory assets earning a return.

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(1)	Primarily represents funds held in accordance with Peruvian tax law.

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

(2)

The facility also provides for issuance of $200 million of letters of credit on behalf of Sempra Energy with the amount of borrowings otherwise available under the facility reduced by the amount of outstanding letters of credit. Subject to obtaining commitments from existing or new lenders and satisfaction of other specified conditions, Sempra Energy has the right to increase the letter of credit commitment up to $500 million. No letters of credit were outstanding at March 31, 2020.

(3)	Commercial paper outstanding is before reductions of unamortized discount of $1 million at Sempra Global.

(4)

The facility also provides for issuance of $100 million of letters of credit on behalf of the borrowing utility with the amount of borrowings otherwise available under the facility reduced by the amount of outstanding letters of credit. Subject to obtaining commitments from existing or new lenders and satisfaction of other specified conditions, the borrowing utility has the right to increase the letter of credit commitment up to $250 million. No letters of credit were outstanding at March 31, 2020.

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(1)	Five-year revolving credit facility with a syndicate of 10 lenders.

(2)	Three-year revolving credit facility with Scotiabank Inverlat, S.A. Withdrawals may be made for up to one year from April 11, 2019 in either U.S. dollars or Mexican pesos.

(3)	Two-year revolving credit facility with The Bank of Nova Scotia. Withdrawals may be made for up to two years from September 23, 2019 in U.S. dollars.

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The California Utilities use natural gas and electricity derivatives, for the benefit of customers, with the objective of managing price risk and basis risks, and stabilizing and lowering natural gas and electricity costs. These derivatives include fixed price natural gas and electricity positions, options, and basis risk instruments, which are either exchange-traded or over-the-counter financial instruments, or bilateral physical transactions. This activity is governed by risk management and transacting activity plans that have been filed with and approved by the CPUC. Natural gas and electricity derivative activities are recorded as commodity costs that are offset by regulatory account balances and are recovered in rates. Net commodity cost impacts on the Condensed Consolidated Statements of Operations are reflected in Cost of Electric Fuel and Purchased Power or in Cost of Natural Gas.

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SDG&E is allocated and may purchase CRRs, which serve to reduce the regional electricity price volatility risk that may result from local transmission capacity constraints. Unrealized gains and losses do not impact earnings, as they are offset by regulatory account balances. Realized gains and losses associated with CRRs, which are recoverable in rates, are recorded in Cost of Electric Fuel and Purchased Power on the Condensed Consolidated Statements of Operations.

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Sempra Mexico and Sempra LNG may use natural gas and electricity derivatives, as appropriate, to optimize the earnings of their assets which support the following businesses: LNG, natural gas transportation and storage, and power generation. Gains and losses associated with undesignated derivatives are recognized in Energy-Related Businesses Revenues or in Energy-Related Businesses Cost of Sales on the Condensed Consolidated Statements of Operations. Certain of these derivatives may also be designated as cash flow hedges. Sempra Mexico may also use natural gas energy derivatives with the objective of managing price risk and lowering natural gas prices at its distribution operations. These derivatives, which are recorded as commodity costs that are offset by regulatory account balances and recovered in rates, are recognized in Cost of Natural Gas on the Condensed Consolidated Statements of Operations.

▪	From time to time, our various businesses, including the California Utilities, may use other energy derivatives to hedge exposures such as the price of vehicle fuel and GHG allowances.

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(1)	Amounts include Otay Mesa VIE. All of SDG&E’s interest rate derivative activity relates to Otay Mesa VIE. On August 14, 2019, Otay Mesa Energy Center LLC paid in full its variable-rate loan and terminated its interest rate swaps.

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Nuclear decommissioning trusts reflect the assets of SDG&E’s NDT, excluding cash balances. A third-party trustee values the trust assets using prices from a pricing service based on a market approach. We validate these prices by comparison to prices from other independent data sources. Securities are valued using quoted prices listed on nationally recognized securities exchanges or based on closing prices reported in the active market in which the identical security is traded (Level 1). Other securities are valued based on yields that are currently available for comparable securities of issuers with similar credit ratings (Level 2).

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For commodity contracts, interest rate derivatives and foreign exchange instruments, we primarily use a market or income approach with market participant assumptions to value these derivatives. Market participant assumptions include those about risk, and the risk inherent in the inputs to the valuation techniques. These inputs can be readily observable, market corroborated, or generally unobservable. We have exchange-traded derivatives that are valued based on quoted prices in active markets for the identical instruments (Level 1). We also may have other commodity derivatives that are valued using industry standard models that consider quoted forward prices for commodities, time value, current market and contractual prices for the underlying instruments, volatility factors, and other relevant economic measures (Level 2). Level 3 recurring items relate to CRRs and long-term, fixed-price electricity positions at SDG&E, as we discuss below in “Level 3 Information.”

▪	Rabbi Trust investments include marketable securities that we value using a market approach based on closing prices reported in the active market in which the identical security is traded (Level 1). These investments in marketable securities were negligible at both March 31, 2020 and December 31, 2019.

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(1)	Excludes cash and cash equivalents.

(2)	Includes the effect of the contractual ability to settle contracts under master netting agreements and with cash collateral, as well as cash collateral not offset.

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(1)	Excludes cash and cash equivalents.

(2)	Includes the effect of the contractual ability to settle contracts under master netting agreements and with cash collateral, as well as cash collateral not offset.

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(1)	Includes the effect of the contractual ability to settle contracts under master netting agreements and with cash collateral, as well as cash collateral not offset.

(1)	Excludes the effect of the contractual ability to settle contracts under master netting agreements.

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(1)	Before allowances for credit losses of $7 million at March 31, 2020.

(2)	Before reductions of unamortized discount and debt issuance costs of $228 million and $225 million at March 31, 2020 and December 31, 2019, respectively, and excluding finance lease obligations of $1,301 million and $1,289 million at March 31, 2020 and December 31, 2019, respectively.

(3)	Before reductions of unamortized discount and debt issuance costs of $47 million and $48 million at March 31, 2020 and December 31, 2019, respectively, and excluding finance lease obligations of $1,268 million and $1,270 million at March 31, 2020 and December 31, 2019, respectively.

(4)	Before reductions of unamortized discount and debt issuance costs of $41 million and $34 million at March 31, 2020 and December 31, 2019, respectively, and excluding finance lease obligations of $33 million and $19 million at March 31, 2020 and December 31, 2019, respectively.

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(1)	Maturity dates are 2021-2050.

(2)	Maturity dates are 2020-2056.

(3)	Maturity dates are 2020-2072.

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(1)	Included in Revenues: Energy-Related Businesses on the Condensed Consolidated Statements of Operations.

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▪	SDG&E provides electric service to San Diego and southern Orange counties and natural gas service to San Diego County.

▪	SoCalGas is a natural gas distribution utility, serving customers throughout most of Southern California and part of central California.

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Sempra Texas Utilities holds our investment in Oncor Holdings, which owns an 80.25% interest in Oncor, a regulated electric transmission and distribution utility serving customers in the north-central, eastern, and western and panhandle regions of Texas; our indirect, 50% interest in Sharyland Holdings, which owns Sharyland Utilities, a regulated electric transmission and distribution utility serving customers near the Texas-Mexico border; and our indirect, 1% interest in TTHC, which owns an indirect 19.75% interest in Oncor. As we discuss in Note 5 of the Notes to Consolidated Financial Statements in the Annual Report, we acquired our investment in Oncor Holdings in March 2018, Sharyland Holdings in May 2019, and TTHC in February 2020.

▪	Sempra Mexico develops, owns and operates, or holds interests in, natural gas, electric, LNG, LPG, ethane and liquid fuels infrastructure, and has marketing operations for the purchase of LNG and the purchase and sale of natural gas in Mexico.

▪	Sempra LNG develops projects for the export of LNG, holds an interest in a facility for the export of LNG, owns and operates natural gas pipelines, and buys, sells and transports natural gas through its marketing operations, all within the U.S. and Mexico. In February 2019, we completed the sale of our natural gas storage assets at Mississippi Hub and Bay Gas.

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(1)	Revenues for reportable segments include intersegment revenues of $1 million, $18 million, $29 million and $19 million for the three months ended March 31, 2020 and $1 million, $17 million, $28 million and $93 million for the three months ended March 31, 2019 for SDG&E, SoCalGas, Sempra Mexico and Sempra LNG, respectively.

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▪	Sempra Energy and its consolidated entities

▪	SDG&E and its consolidated VIE (until deconsolidation of Otay Mesa VIE in August 2019)

▪	SoCalGas

▪	the Condensed Consolidated Financial Statements and related Notes of Sempra Energy and its subsidiaries and VIEs;

▪	the Condensed Consolidated Financial Statements and related Notes of SDG&E and its VIE (until deconsolidation of Otay Mesa VIE in August 2019); and

▪	the Condensed Financial Statements and related Notes of SoCalGas.

▪	Overall results of operations of Sempra Energy

▪	Segment results

▪	Significant changes in revenues, costs and earnings

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

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

▪	$65 million higher CPUC base operating margin, net of operating expenses, including $36 million lower CPUC base operating margin in 2019 due to the delay in the issuance of the 2019 GRC FD;

▪	$38 million higher electric transmission margin, including the following impacts from the March 2020 FERC-approved TO5 settlement proceeding:

◦	$18 million to conclude a rate base matter, and

◦	$9 million favorable impact from the retroactive application of the final TO5 settlement for 2019. The settlement proceeding increased SDG&E’s authorized ROE from 10.05% to 10.60%, effective June 1, 2019; and

▪	$9 million higher AFUDC equity; offset by

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

▪	$6 million amortization of Wildfire Fund asset.

▪	$109 million higher CPUC base operating margin, net of operating expenses, including $84 million lower CPUC base operating margin in 2019 due to the delay in the issuance of the 2019 GRC FD;

▪	$21 million higher income tax benefits from flow-through items; and

▪	$8 million penalties in 2019 related to the SoCalGas billing practices OII; offset by

▪	$72 million from impacts associated with Aliso Canyon natural gas storage facility litigation; and

▪	$35 million income tax benefit in 2019 from the impact of the January 2019 CPUC decision allocating certain excess deferred income tax balances to shareholders.

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▪	$253 million favorable impact from foreign currency and inflation effects net of foreign currency derivatives effects, comprised of:

◦	in 2020, $326 million favorable foreign currency and inflation effects, offset by a $91 million loss from foreign currency derivatives, and

◦	in 2019, $25 million unfavorable foreign currency and inflation effects, offset by a $7 million gain from foreign currency derivatives; and

▪	$8 million primarily due to the start of commercial operations of the Sur de Texas-Tuxpan marine pipeline at IMG JV in the third quarter of 2019; offset by

▪	$144 million earnings attributable to NCI at IEnova in 2020 compared to $28 million earnings in 2019; and

▪	$9 million lower earnings at the Guaymas-El Oro segment of the Sonora pipeline primarily from force majeure payments that ended in August 2019.

▪	$43 million higher equity earnings from Cameron LNG JV primarily due to Train 1 and Train 2 commencing commercial operations under their tolling agreements in August 2019 and February 2020, respectively; and

▪	$42 million higher earnings from Sempra LNG’s marketing operations primarily driven by changes in natural gas prices; offset by

▪	$5 million higher liquefaction project development costs.

▪	$100 million equity losses from our investment in RBS Sempra Commodities to settle pending tax matters and related legal costs, which we discuss in Note 11 of the Notes to Condensed Consolidated Financial Statements; and

▪	$19 million net investment losses in 2020 compared to $15 million net investment gains in 2019 on dedicated assets in support of our employee nonqualified benefit plan and deferred compensation obligations.

▪	$103 million income tax expense in 2019 related to outside basis differences existing as of the January 25, 2019 approval of our plan to sell our South American businesses; and

▪	$7 million income tax benefit in 2020 compared to $13 million income tax expense in 2019 related to changes in outside basis differences from earnings and foreign currency effects since January 25, 2019.

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

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

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

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▪	$34 million increase at SoCalGas, which included:

◦	$181 million higher CPUC-authorized revenues, including $116 million lower revenues in 2019 due to the delay in the issuance of the 2019 GRC FD, and

◦	$36 million higher recovery of costs associated with CPUC-authorized refundable programs, which revenues are offset in O&M, offset by

◦	$177 million decrease in cost of natural gas sold, which we discuss below; and

▪	$14 million increase at SDG&E, which included:

◦	$29 million higher CPUC-authorized revenues, including $23 million lower revenues in 2019 due to the delay in the issuance of the 2019 GRC FD, offset by

◦	$19 million decrease in the cost of natural gas sold, which we discuss below.

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▪	$177 million decrease at SoCalGas due to $143 million from lower average natural gas prices and $34 million from lower volumes driven by weather; and

▪	$19 million decrease at SDG&E due to lower average natural gas prices and lower volumes driven by weather.

▪	$67 million increase in transmission operations, including the following impacts related to the March 2020 FERC-approved TO5 settlement proceeding:

◦	$26 million to settle a rate base matter, and

◦	$12 million favorable impact from the retroactive application of the final TO5 settlement for 2019; and

▪	$55 million higher recovery of costs associated with CPUC-authorized refundable programs, which revenues are offset in O&M; offset by

▪	$27 million lower cost of electric fuel and purchased power, which we discuss below.

(1)	Includes eliminations of intercompany activity.

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

▪	$67 million decrease at Sempra Mexico primarily due to:

◦	$49 million from the marketing business primarily from lower natural gas prices and volumes,

◦	$26 million lower revenues at TdM primarily due to lower natural gas prices and volumes, and

◦	$10 million lower revenues primarily from force majeure payments that ended in August 2019 with respect to the Guaymas-El Oro segment of the Sonora pipeline, offset by

◦	$14 million increase primarily due to higher volumes at the Ventika wind power generation facilities and from renewable assets placed in service in 2019; and

▪	$18 million decrease at Sempra LNG primarily due to:

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◦	$55 million lower natural gas sales to Sempra Mexico due to lower natural gas prices and volumes and from fewer LNG cargoes sold, offset by

◦	$44 million increase from natural gas marketing operations primarily due to changes in natural gas prices; offset by

▪	$73 million increase primarily from lower intercompany eliminations associated with sales between Sempra LNG and Sempra Mexico.

▪	$64 million decrease at Sempra LNG mainly from natural gas marketing activities primarily from lower natural gas purchases; and

▪	$52 million decrease at Sempra Mexico mainly associated with lower revenues from the marketing business and TdM as a result of lower natural gas prices and volumes; offset by

▪	$67 million increase primarily from lower intercompany eliminations associated with sales between Sempra LNG and Sempra Mexico.

▪	$133 million increase at SoCalGas primarily due to:

◦	$100 million from impacts associated with Aliso Canyon natural gas storage facility litigation, and

◦	$36 million higher expenses associated with CPUC-authorized refundable programs for which costs incurred are recovered in revenue; and

▪	$24 million increase at SDG&E primarily due to:

◦	$57 million higher expenses associated with CPUC-authorized refundable programs, offset by

◦	$31 million lower non-refundable operating costs, including liability insurance premium costs for 2019 that were not balanced due to the delay in the 2019 GRC FD; offset by

▪	$36 million decrease at Parent and other primarily from lower deferred compensation expense.

▪	$276 million net losses in 2020 from interest rate and foreign exchange instruments and foreign currency transactions compared to net gains of $20 million for the same period in 2019 primarily due to:

◦	$149 million foreign currency losses in 2020 compared to $10 million foreign currency gains in 2019 on a Mexican peso-denominated loan to IMG JV, which is offset in Equity Earnings, and

◦	$125 million losses in 2020 compared to $10 million gains in 2019 on foreign currency derivatives as a result of fluctuation of the Mexican peso, offset by

◦	$11 million net gains in 2020 of foreign currency derivatives used to hedge exposure to fluctuations in the Peruvian sol and Chilean peso related to the sale of our operations in Peru and Chile; and

▪	$37 million investment losses in 2020 compared to $26 million investment gains in 2019 on dedicated assets in support of our executive retirement and deferred compensation plans; offset by

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

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

▪	$308 million income tax benefit in 2020 compared to $23 million income tax expense in 2019 from foreign currency and inflation effects primarily as a result of fluctuation of the Mexican peso; and

▪	$19 million income tax benefit in 2020 compared to $8 million income tax expense in 2019 related to share-based compensation; offset by

▪	$66 million total income tax benefits in 2019 from the release of regulatory liabilities at SDG&E and SoCalGas established in connection with 2017 tax reform for excess deferred income tax balances that the CPUC directed be allocated to shareholders in a January 2019 decision; and

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

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▪	$171 million higher equity earnings at IMG JV, primarily due to foreign currency effects, including $149 million foreign currency gains in 2020 compared to $10 million foreign currency losses in 2019 on IMG JV’s Mexican peso-denominated loans from its JV owners, which is fully offset in Other (Expense) Income, Net, and the start of commercial operations of the Sur de Texas-Tuxpan marine pipeline;

▪	$55 million higher equity earnings at Cameron LNG JV primarily due to Train 1 and Train 2 commencing commercial operations under their tolling agreements in August 2019 and February 2020, respectively; and

▪	$21 million higher equity earnings at TAG JV primarily due to higher income tax benefits in 2020; offset by

▪	$100 million equity losses at RBS Sempra Commodities in 2020, which represents an estimate of our obligations to settle pending tax matters and related legal costs at our equity method investment.

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On March 4, 2020, Governor Gavin Newsom proclaimed a State of Emergency in California as a result of the threat of COVID-19, and on March 19, 2020, the Governor imposed a California-wide shelter-in-place directive via an Executive Order that will remain in place indefinitely. The Governor’s Executive Order requires all individuals living in California to stay home or at their place of residence except as needed to maintain the continuity of 16 critical infrastructure sectors. Our businesses that invest in, develop and operate energy infrastructure and provide electric and gas services to customers in California have been identified as critical infrastructure under the Executive Order.

▪	On March 13, 2020, the California Utilities announced that they were voluntarily instituting a suspension of all customer disconnections for nonpayment of customer bills until further notice.

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On March 17, 2020, the CPUC announced that, retroactive to March 4, 2020, all energy companies under its jurisdiction, including the California Utilities, should take action to implement several emergency customer protection measures to support California customers. The measures apply to all residential and small business customers affected by the COVID-19 pandemic and include suspending service disconnections due to nonpayment, waiving late payment fees, and offering flexible payment plans for all customers experiencing difficulty paying their electric or gas bills. Similarly, on March 26, 2020, the PUCT issued orders that require retail electric providers to offer a deferred payment plan to customers, upon request, and authorized customer assistance programs for certain residential customers of electric service. The continuation of these circumstances could result in a material reduction in payments received from our customers and a material increase in uncollectible accounts that we may not be able to recover in rates, which could have a material adverse effect on the cash flows, financial condition and results of operations for Sempra Energy, SDG&E and SoCalGas.

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On March 30, 2020, the Mexican government announced a national state of sanitary emergency, suspending all non-essential activities and urging people in Mexico to stay at home until April 30, 2020, which was subsequently extended to May 30, 2020 and may be extended further. Essential business activities that may continue to operate during the health emergency include the conservation, maintenance and repair of critical infrastructure that ensures the production and distribution of electric and gas services.

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On April 16, 2020, the CPUC approved a resolution authorizing each of the California Utilities to establish a CPPMA to track and request recovery of incremental costs associated with complying with measures implemented by the CPUC related to the COVID-19 pandemic. Although we are tracking these costs, which will include incremental amounts associated with customer nonpayments, CPUC approval is required to collect all or any portion of the balance of the CPPMA, which is not assured. Similarly, the PUCT has provided for the use of a regulatory asset accounting mechanism and a subsequent process through which regulated utility companies may seek future recovery of expenses resulting from the effects of the COVID-19 pandemic, as well as the creation of a COVID-19 Electricity Relief Program fund through which transmission and distribution utilities and retail electric providers may seek to recover a reasonable portion of the cost of providing uninterrupted services to customers facing financial hardship due to the effects of the COVID-19 pandemic. There can be no assurance, however, that our Texas utilities will be able to recover any of the costs they incur from their response to the COVID-19 pandemic through these programs or otherwise.

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On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted and signed into law in response to the COVID-19 pandemic. The CARES Act contains significant business tax provisions, including a delay of payment of employer payroll taxes and an acceleration of refunds of corporate alternative minimum tax (AMT) credits. Sempra Energy, SDG&E and SoCalGas expect to benefit from deferring payment of the employer’s share of payroll taxes through the end of 2020, with half of such taxes to be paid by the end of 2021 and the other half to be paid by the end of 2022. Sempra Energy has filed a refund claim for its corporate AMT credits and expects to receive approximately $56 million in 2020 rather than in installments through 2021.

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Our capital projects and planned expenditures could experience delays due to the COVID-19 pandemic, either because we decide to postpone certain activities in an effort to preserve cash or other resources or for other reasons related to the pandemic that are beyond our control, including supply chain and contractor performance delays or delays in the issuance of required permits. Any such delay could have a material effect on our capital plans and results of operations. We discuss the potential for these delays in further detail with respect to each of our segments below.

▪	The decline and volatility in the financial markets has had a significant impact on certain of the markets that we typically access for working capital and other liquidity requirements. See the discussion in “Liquidity” below for more information.

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We have significant investments in several trusts to provide for future payments of pensions and other postretirement benefits and nuclear decommissioning. Although all of our trust funds’ investments are diversified and managed in compliance with applicable laws and regulations, the value of the investments in these trusts declined significantly in the second half of the first quarter of 2020 due to a decline in the equity markets and volatility in the fixed income market triggered by the COVID-19 pandemic. These markets continue to be volatile. The decrease in asset values has not affected the funds’ ability to make their required payments; however, this could change if conditions worsen or continue for an extended period. Moreover, if asset values do not recover, our funding requirements for pension and other postretirement benefit plans in 2021 may increase. Other factors may also impact funding requirements for pension and other postretirement benefit plans, including changes to discount rates, assumed rates of return, mortality tables and regulations. Funding requirements for SDG&E’s NDT could be impacted by the value of the assets as well as the timing and amount of SONGS decommissioning costs. At the California Utilities, funding requirements are generally recoverable in rates. We discuss our employee benefit plans and SDG&E’s NDT, including our investment allocation strategies for assets in these trusts, in Notes 9 and 15, respectively, of the Notes to Consolidated Financial Statements in the Annual Report.

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We perform recovery testing of our recorded asset values when market conditions indicate that such values may not be recoverable. Given the current economic environment, including the significant decline in the price of our common stock, market volatility and potential reduction in customer collections, we considered whether these events or changes in circumstances triggered the need for an interim impairment analysis for our long-lived assets, intangible assets and goodwill. We determined that, given the existing headroom in our prior quantitative tests and assessment of the impact of these conditions on our businesses, there was no triggering event as of March 31, 2020. However, as the effects of the COVID-19 pandemic continue to evolve, we will continue to assess the need to perform an interim impairment test. To the extent the recorded (carrying) value is in excess of the fair value, we would record a noncash impairment charge. A significant impairment charge related to our long-lived assets, intangible assets or goodwill would have a material adverse effect on our results of operations in the period in which it is recorded.

▪	finance capital expenditures

▪	meet liquidity requirements

▪	fund dividends

▪	fund new business or asset acquisitions or start-ups

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▪	fund capital contribution requirements

▪	repay maturing long-term debt

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

(1)	Amounts at Sempra Energy Consolidated include $542 million held in non-U.S. jurisdictions. We discuss repatriation in Note 1 of the Notes to Condensed Consolidated Financial Statements.

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

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

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(1)	After the effects of interest rate swaps. Before the effects of acquisition-related fair value adjustments and reductions for unamortized discount and debt issuance costs, and excluding finance lease obligations.

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