INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2017

Schedule of Effective Income Tax Rate Reconciliation

Reconciliation of net U.S. statutory federal income tax rates to the ETRs is as follows:



RECONCILIATION OF FEDERAL INCOME TAX RATES TO EFFECTIVE INCOME TAX RATES

	Years ended December 31,
	2017		2016		2015
Sempra Energy Consolidated:
U.S. federal statutory income tax rate	35	%	35	%	35	%
Effects of the TCJA	55		—		—
Utility depreciation	6		4		5
Foreign exchange and inflation effects⁽¹⁾	3		(2	)	(2	)
State income taxes, net of federal income tax benefit	1		1		1
Utility repairs expenditures	(6	)	(4	)	(5	)
Tax credits	(4	)	(3	)	(4	)
Self-developed software expenditures	(4	)	(3	)	(3	)
Non-U.S. earnings taxed at lower statutory income tax rates⁽²⁾	(3	)	(3	)	(2	)
Allowance for equity funds used during construction	(3	)	(2	)	(2	)
Resolution of prior years’ income tax items	(2	)	—		(3	)
Share-based compensation	—		(2	)	—
Other, net	3		—		—
Effective income tax rate	81	%	21	%	20	%
SDG&E:
U.S. federal statutory income tax rate	35	%	35	%	35	%
Depreciation	7		5		4
Effects of the TCJA	5		—		—
State income taxes, net of federal income tax benefit	3		5		5



Repairs expenditures	(8	)	(4	)	(4	)
Self-developed software expenditures	(6	)	(3	)	(3	)
Allowance for equity funds used during construction	(4	)	(2	)	(2	)
Resolution of prior years’ income tax items	(4	)	(1	)	(2	)
Share-based compensation	—		(1	)	—
Other, net	(1	)	(1	)	(1	)
Effective income tax rate	27	%	33	%	32	%
SoCalGas:
U.S. federal statutory income tax rate	35	%	35	%	35	%
Depreciation	9		9		8
State income taxes, net of federal income tax benefit	3		2		4
Repairs expenditures	(8	)	(9	)	(10	)
Self-developed software expenditures	(5	)	(6	)	(6	)
Allowance for equity funds used during construction	(3	)	(2	)	(2	)
Resolution of prior years’ income tax items	(2	)	2		(3	)
Share-based compensation	—		(1	)	—
Other, net	—		(1	)	(1	)
Effective income tax rate	29	%	29	%	25	%

⁽¹⁾

Primarily due to fluctuation of the Mexican peso against the U.S. dollar. We record income tax expense (benefit) from the transactional effects of foreign currency and inflation because of significant appreciation (depreciation) of the Mexican peso. We also recognize gains (losses) in Other Income, Net, on the Consolidated Statements of Operations from foreign currency derivatives that are partially hedging Sempra Mexico parent’s exposure to movements in the Mexican peso from its controlling interest in IEnova.


⁽²⁾	Related to operations in Mexico, Chile and Peru.

Schedule of Impact of Changes in Legislation



EFFECTS OF THE TAX CUTS AND JOBS ACT OF 2017
(Dollars in millions)
	Sempra Energy Consolidated			SDG&E			SoCalGas
Consolidated Balance Sheets:
Decrease in net deferred income tax liabilities due
to remeasurement	$	(2,220	)	$	(1,400	)	$	(972	)
Increase in net regulatory liabilities from remeasurement of
deferred income tax assets and liabilities	$	2,402		$	1,428		$	974

Consolidated Statements of Operations:
Income tax expense related to remeasurement of deferred
income tax assets and liabilities	$	182		$	28		$	2
Income tax expense related to deemed repatriation	328			—			—
U.S. state and non-U.S. withholding tax expense related to
expected future repatriation of foreign earnings	360			—			—
Total increase in income tax expense	$	870		$	28		$	2

Schedule Of Geographic Components Of Income Before Income Taxes And Equity Earnings Of Certain Unconsolidated Subsidiaries

The geographic components of Income Before Income Taxes and Equity Earnings of Certain Unconsolidated Subsidiaries at Sempra Energy Consolidated are as follows:



GEOGRAPHIC COMPONENTS
(Dollars in millions)
	Pretax book income
	Years ended December 31,
	2017		2016		2015
U.S.	$	878	$	773	$	1,189
Non-U.S.	707		1,057		515
Total	$	1,585	$	1,830	$	1,704

U.S. pretax book income decreased in 2016 compared to 2015 at the California Utilities primarily due to the reallocation of 2012-2015 income tax benefits generated from income tax repairs deductions to ratepayers pursuant to the 2016 GRC FD, as we discuss in Note 14; at Sempra LNG & Midstream for the loss on permanent release of pipeline capacity, as we discuss in Note 15; and the impairment charge related to the investment in Rockies Express, as we discuss in Note 3. U.S. pretax income remained lower in 2017 due to the write-off of SDG&E’s wildfire regulatory asset, as we discuss in Note 15. Non-U.S. pretax book income was lower in 2017 and 2015 compared to 2016 primarily due to the noncash gain in 2016 associated with the remeasurement of our equity interest in IEnova Pipelines, as we discuss in Note 3.

Schedule Of Components Of Income Tax Expense

The components of income tax expense are as follows:



INCOME TAX EXPENSE (BENEFIT)
(Dollars in millions)
	Years ended December 31,
	2017			2016			2015
Sempra Energy Consolidated:
Current:
U.S. federal	$	—		$	—		$	3
U.S. state	—			1			(24		)
Non-U.S.	116			171			123
Total	116			172			102
Deferred:
U.S. federal	536			78			242
U.S. state	297			9			34
Non-U.S.	327			135			(32		)
Total	1,160			222			244
Deferred investment tax credits	—			(5		)	(5		)
Total income tax expense	$	1,276		$	389		$	341
SDG&E:
Current:
U.S. federal	$	100		$	—		$	12
U.S. state	65			22			77
Total	165			22			89
Deferred:
U.S. federal	29			223			233
U.S. state	(41		)	38			(35		)
Total	(12		)	261			198
Deferred investment tax credits	2			(3		)	(3		)
Total income tax expense	$	155		$	280		$	284
SoCalGas:
Current:
U.S. federal	$	—		$	—		$	(1	)
U.S. state	23			40			12
Total	23			40			11
Deferred:
U.S. federal	144			123			122
U.S. state	(5		)	(18		)	7
Total	139			105			129
Deferred investment tax credits	(2		)	(2		)	(2		)
Total income tax expense	$	160		$	143		$	138

Schedule Of Components Of Deferred Tax Assets And Liabilities

We show the components of deferred income taxes, which reflect the effects of the TCJA, at December 31 for Sempra Energy Consolidated, SDG&E and SoCalGas in the tables below:



DEFERRED INCOME TAXES – SEMPRA ENERGY CONSOLIDATED
(Dollars in millions)
	December 31,
	2017		2016
Deferred income tax liabilities:
Differences in financial and tax bases of fixed assets, investments and other assets⁽¹⁾	$	4,233	$	6,111
U.S. state and non-U.S. withholding tax on repatriation of foreign earnings	360		—
Regulatory balancing accounts	376		783
Property taxes	37		63
Other deferred income tax liabilities	117		143
Total deferred income tax liabilities	5,123		7,100
Deferred income tax assets:
Tax credits	1,066		431
Net operating losses	968		2,304
Compensation-related items	199		252
Postretirement benefits	251		434
Other deferred income tax assets	115		87
Accrued expenses not yet deductible	60		112
Deferred income tax assets before valuation allowances	2,659		3,620
Less: valuation allowances	133		31
Total deferred income tax assets	2,526		3,589
Net deferred income tax liability⁽²⁾	$	2,597	$	3,511


⁽¹⁾	In addition to the financial over tax basis differences in fixed assets, the amount also includes financial over tax basis differences in various interests in partnerships and certain subsidiaries.


⁽²⁾	At December 31, 2017 and 2016, includes $170 million and $234 million, respectively, recorded as a noncurrent asset and $2,767 million and $3,745 million, respectively, recorded as a noncurrent liability on the Consolidated Balance Sheets.



DEFERRED INCOME TAXES – SDG&E AND SOCALGAS
(Dollars in millions)
	SDG&E				SoCalGas
	December 31,				December 31,
	2017		2016		2017		2016
Deferred income tax liabilities:
Differences in financial and tax bases of
utility plant and other assets	$	1,472	$	2,549	$	987	$	1,699
Regulatory balancing accounts	113		379		271		411
Property taxes	26		42		12		21
Other	10		10		1		4
Total deferred income tax liabilities	1,621		2,980		1,271		2,135
Deferred income tax assets:
Net operating losses	—		—		58		83
Tax credits	7		27		15		17
Postretirement benefits	43		98		152		244
Compensation-related items	5		8		25		32
State income taxes	14		—		7		19
Accrued expenses not yet deductible	3		7		12		20
Other	19		11		7		11
Total deferred income tax assets	91		151		276		426
Net deferred income tax liability	$	1,530	$	2,829	$	995	$	1,709

Summary of Tax Credit Carryforwards

The following table summarizes our unused NOLs and tax credit carryforwards at December 31, 2017.



NET OPERATING LOSSES AND TAX CREDIT CARRYFORWARDS
(Dollars in millions)
	Unused amount at December 31, 2017		Year expiration begins
Sempra Energy Consolidated:
U.S. federal:
NOLs⁽¹⁾	$	3,145	2031
General business tax credits⁽¹⁾	389		2032
Foreign tax credits⁽²⁾	631		2024
U.S. state⁽²⁾:
NOLs	2,295		2019
General business tax credits	51		2018
Non-U.S.⁽²⁾
NOLs	607		2018
SoCalGas:
U.S. federal⁽¹⁾:
NOLs	$	334	2032
General business tax credits	12		2031


⁽¹⁾	We have recorded deferred income tax benefits on these NOLs and tax credits, in total, because we currently believe they will be realized on a more-likely-than-not-basis.


⁽²⁾	We have not recorded deferred income tax benefits on a portion of these NOLs and tax credits because we currently believe they will not be realized on a more-likely-than-not-basis, as discussed below.

Summary of Operating Loss Carryforwards

The following table summarizes our unused NOLs and tax credit carryforwards at December 31, 2017.



NET OPERATING LOSSES AND TAX CREDIT CARRYFORWARDS
(Dollars in millions)
	Unused amount at December 31, 2017		Year expiration begins
Sempra Energy Consolidated:
U.S. federal:
NOLs⁽¹⁾	$	3,145	2031
General business tax credits⁽¹⁾	389		2032
Foreign tax credits⁽²⁾	631		2024
U.S. state⁽²⁾:
NOLs	2,295		2019
General business tax credits	51		2018
Non-U.S.⁽²⁾
NOLs	607		2018
SoCalGas:
U.S. federal⁽¹⁾:
NOLs	$	334	2032
General business tax credits	12		2031


⁽¹⁾	We have recorded deferred income tax benefits on these NOLs and tax credits, in total, because we currently believe they will be realized on a more-likely-than-not-basis.


⁽²⁾	We have not recorded deferred income tax benefits on a portion of these NOLs and tax credits because we currently believe they will not be realized on a more-likely-than-not-basis, as discussed below.

Summary of Income Tax Contingencies

Following is a reconciliation of the changes in unrecognized income tax benefits and the potential effect on our ETR for the years ended December 31:



RECONCILIATION OF UNRECOGNIZED INCOME TAX BENEFITS
(Dollars in millions)
	2017			2016			2015
Sempra Energy Consolidated:
Balance at January 1	$	90		$	87		$	117
Increase in prior period tax positions	22			2			10
Decrease in prior period tax positions	(15		)	(2		)	—
Increase in current period tax positions	4			6			8
Settlements with taxing authorities	(12		)	(3		)	(48		)
Balance at December 31	$	89		$	90		$	87
Of December 31 balance, amounts related to tax positions that
if recognized in future years would
decrease the effective tax rate⁽¹⁾	$	(77	)	$	(87	)	$	(83	)
increase the effective tax rate⁽¹⁾	20			36			32
SDG&E:
Balance at January 1	$	22		$	20		$	14
Increase in prior period tax positions	9			—			5
Decrease in prior period tax positions	(11		)	—			—
Increase in current period tax positions	—			2			2
Settlements with taxing authorities	(10		)	—			(1		)
Balance at December 31	$	10		$	22		$	20
Of December 31 balance, amounts related to tax positions that
if recognized in future years would
decrease the effective tax rate⁽¹⁾	$	(7	)	$	(19	)	$	(16	)
increase the effective tax rate⁽¹⁾	1			13			11
SoCalGas:
Balance at January 1	$	29		$	27		$	19
Increase in prior period tax positions	3			—			2
Decrease in prior period tax positions	—			(2		)	—
Increase in current period tax positions	4			4			6
Settlements with taxing authorities	(1		)	—			—
Balance at December 31	$	35		$	29		$	27
Of December 31 balance, amounts related to tax positions that
if recognized in future years would
decrease the effective tax rate⁽¹⁾	$	(26	)	$	(29	)	$	(27	)
increase the effective tax rate⁽¹⁾	20			24			21


⁽¹⁾	Includes temporary book and tax differences that are treated as flow-through for ratemaking purposes, as discussed above.

Summary of Positions for which Significant Change in Unrecognized Tax Benefits is Reasonably Possible

It is reasonably possible that within the next 12 months, unrecognized income tax benefits could decrease due to the following:



POSSIBLE DECREASES IN UNRECOGNIZED INCOME TAX BENEFITS WITHIN 12 MONTHS
(Dollars in millions)
	At December 31,
	2017			2016			2015
Sempra Energy Consolidated:
Expiration of statutes of limitations on tax assessments	$	—		$	(2	)	$	(2	)
Potential resolution of audit issues with various
U.S. federal, state and local and non-U.S. taxing authorities	(8		)	(36		)	(32		)
	$	(8	)	$	(38	)	$	(34	)
SDG&E:
Expiration of statutes of limitations on tax assessments	$	—		$	(1	)	$	(1	)
Potential resolution of audit issues with various
U.S. federal, state and local taxing authorities	(6		)	(10		)	(8		)
	$	(6	)	$	(11	)	$	(9	)
SoCalGas:
Potential resolution of audit issues with various
U.S. federal, state and local taxing authorities	$	(2	)	$	(25	)	$	(22	)