GENERAL INFORMATION AND OTHER FINANCIAL DATA

9 Months Ended

Sep. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

GENERAL INFORMATION AND OTHER FINANCIAL DATA

GENERAL INFORMATION AND OTHER FINANCIAL DATA

PRINCIPLES OF CONSOLIDATION

Sempra Energy

Sempra Energy’s Condensed Consolidated Financial Statements include the accounts of Sempra Energy, a California-based Fortune 500 energy-services holding company, and its consolidated subsidiaries and VIEs. Sempra Global is the holding company for most of our subsidiaries that are not subject to California or Texas utility regulation. Sempra Energy’s subsidiaries are managed within seven separate reportable segments, which we discuss in Note 12. All references in these Notes to our reportable segments are not intended to refer to any legal entity with the same or similar name.

SDG&E

SDG&E’s Condensed Consolidated Financial Statements include its accounts and the accounts of a VIE of which SDG&E is the primary beneficiary, as we discuss below in “Variable Interest Entities.” SDG&E’s common stock is wholly owned by Enova Corporation, which is a wholly owned subsidiary of Sempra Energy.

SoCalGas

SoCalGas’ common stock is wholly owned by Pacific Enterprises, which is a wholly owned subsidiary of Sempra Energy.

In this report, we refer to SDG&E and SoCalGas collectively as the California Utilities.

BASIS OF PRESENTATION

This is a combined report of Sempra Energy, SDG&E and SoCalGas. We provide separate information for SDG&E and SoCalGas as required. References in this report to “we,” “our” and “Sempra Energy Consolidated” are to Sempra Energy and its consolidated entities, unless otherwise indicated by the context. We have eliminated intercompany accounts and transactions within the consolidated financial statements of each reporting entity.

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 Energy and its subsidiaries and VIEs;

▪ the Condensed Consolidated Financial Statements and related Notes of SDG&E and its VIE; and

▪ the Condensed Financial Statements and related Notes of SoCalGas.

We have prepared the Condensed Consolidated Financial Statements in conformity with U.S. GAAP and in accordance with the interim-period-reporting requirements of Form 10-Q. Results of operations for interim periods are not necessarily indicative of results for the entire year. We evaluated events and transactions that occurred after September 30, 2018 through the date the financial statements were issued and, in the opinion of management, the accompanying statements reflect all adjustments necessary for a fair presentation. These adjustments are only of a normal, recurring nature.

All December 31, 2017 balance sheet information in the Condensed Consolidated Financial Statements has been derived from our audited 2017 Consolidated Financial Statements in the Annual Report. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the interim-period-reporting provisions of U.S. GAAP and the SEC.

We describe our significant accounting policies in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report and the impact of the adoption of new accounting standards on those policies in Note 2 below. We follow the same accounting policies for interim reporting purposes.

You should read the information in this Quarterly Report in conjunction with the Annual Report.

Reclassification on the Condensed Consolidated Statement of Operations

We have made a reclassification on the Condensed Consolidated Statement of Operations for the three months and nine months ended September 30, 2017 to conform to current year presentation. Line item captions for equity earnings (losses) before income tax and net of income tax have been combined into one line and presented after income tax expense (benefit). This reclassification is intended to treat the presentation of earnings from all equity method investees consistently and simplify the presentation on the statement of operations, while continuing to provide additional detail in the notes to the financial statements. We discuss our equity method investments further in Note 6. The following table summarizes the financial statement line items that were affected by this reclassification:

SEMPRA ENERGY – RECLASSIFICATION
(Dollars in millions)
	Three months ended September 30, 2017				Nine months ended September 30, 2017
	As previously presented		As currently presented		As previously presented			As currently presented
Condensed Consolidated Statement of Operations:
Equity earnings, before income tax	$	10	$	—	$	31		$	—
Income before income taxes and equity earnings (losses)
of certain unconsolidated subsidiaries	15		—		1,185			—
Income before income taxes and equity earnings of
unconsolidated subsidiaries	—		5		—			1,154
Equity earnings (losses), net of income tax	3		—		(5		)	—
Equity earnings	—		13		—			26

Regulated Operations

The California Utilities and Sempra Mexico’s natural gas distribution utility, Ecogas, prepare their financial statements in accordance with the provisions of U.S. GAAP governing rate-regulated operations. We discuss the effects of regulation in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report and revenue recognition at our utilities in Note 3 below.

Our Sempra Texas Utility segment is comprised of our equity method investment in Oncor Holdings, which owns 80.25 percent of Oncor, as we discuss in Notes 5 and 6. Oncor is a regulated electric transmission and distribution utility in the state of Texas. Oncor’s rates are regulated by the PUCT and certain cities and are subject to regulatory rate-setting processes and annual earnings oversight. Oncor prepares its financial statements in accordance with the provisions of U.S. GAAP governing rate-regulated operations.

Sempra South American Utilities has controlling interests in two electric distribution utilities in South America, Chilquinta Energía in Chile and Luz del Sur in Peru. Revenues are based on tariffs that are set by government agencies in their respective countries based on an efficient model distribution company defined by those agencies. Because the tariffs are based on a model and are intended to cover the costs of the model company, but are not based on the costs of the specific utility and may not result in full cost recovery, these utilities do not meet the requirements necessary for, and therefore do not apply, regulatory accounting treatment under U.S. GAAP.

Our Sempra Mexico segment includes the operating companies of our subsidiary, IEnova. Certain business activities at IEnova are regulated by the CRE and meet the regulatory accounting requirements of U.S. GAAP. Pipeline projects under construction at Sempra Mexico that meet the regulatory accounting requirements of U.S. GAAP record the impact of AFUDC related to equity. We discuss AFUDC below and in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.RESTRICTED CASH

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the Condensed Consolidated Balance Sheets to the sum of such amounts reported on the Condensed Consolidated Statements of Cash Flows. We provide information about the nature of restricted cash in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH
(Dollars in millions)
	September 30,		December 31,
	2018		2017
Sempra Energy Consolidated:
Cash and cash equivalents	$	212	$	288
Restricted cash, current	73		62
Restricted cash, noncurrent	3		14
Total cash, cash equivalents and restricted cash on the Condensed Consolidated Statements of Cash Flows	$	288	$	364
SDG&E:
Cash and cash equivalents	$	27	$	12
Restricted cash, current	17		6
Restricted cash, noncurrent	—		11
Total cash, cash equivalents and restricted cash on the Condensed Consolidated Statements of Cash Flows	$	44	$	29

INVENTORIES

The following table presents the components of inventories by segment.

INVENTORY BALANCES
(Dollars in millions)
	Natural gas				LNG				Materials and supplies				Total
	September 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017
SDG&E	$	1	$	4	$	—	$	—	$	102	$	101	$	103	$	105
SoCalGas	116		75		—		—		40		49		156		124
Sempra South American Utilities	—		—		—		—		41		30		41		30
Sempra Mexico	—		—		6		7		15		2		21		9
Sempra Renewables	—		—		—		—		—		5		—		5
Sempra LNG & Midstream	24		30		—		4		—		—		24		34
Sempra Energy Consolidated	$	141	$	109	$	6	$	11	$	198	$	187	$	345	$	307

At September 30, 2018, $5 million of inventories at Sempra Renewables was classified as Assets Held for Sale on the Sempra Energy Condensed Consolidated Balance Sheet, as we discuss in Note 5.GOODWILLWe discuss goodwill in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report. The decrease in goodwill from $2,397 million at December 31, 2017 to $2,363 million at September 30, 2018 was due to foreign currency translation at Sempra South American Utilities. We recorded the offset of this fluctuation in OCI.OTHER INTANGIBLE ASSETS

The following table provides the detail of Other Intangible Assets included on the Sempra Energy Condensed Consolidated Balance Sheets.

OTHER INTANGIBLE ASSETS
(Dollars in millions)
	Amortization period (years)	September 30, 2018			December 31, 2017
Development rights	50	$	—		$	322
Renewable energy transmission and consumption permit	19	154			154
Storage rights	46	—			138
O&M agreement	23	66			66
Other	10 years to indefinite	32			18
		252			698
Less accumulated amortization:
Development rights		—			(60		)
Renewable energy transmission and consumption permit		(14		)	(8		)
Storage rights		—			(28		)
O&M agreement		(2		)	—
Other		(7		)	(6		)
		(23		)	(102		)
		$	229		$	596

In June 2018, we recognized an impairment of $369 million for the net carrying value of Other Intangible Assets at Sempra LNG & Midstream, representing development and storage rights related to the natural gas storage facilities of Mississippi Hub and Bay Gas. This impairment is included in Sempra LNG & Midstream’s total impairment of $1.3 billion, which is included in Impairment Losses on Sempra Energy’s Condensed Consolidated Statements of Operations in the nine months ended September 30, 2018, as we discuss in Notes 5 and 9.

In the nine months ended September 30, 2018, Other Intangible Assets increased due to Sempra Mexico’s acquisition of self-supply permits for development projects. These self-supply permits allow generators to compete directly with CFE’s retail tariffs and, thus, have access to PPAs with a competitive pricing position. The useful life of a self-supply permit is based on the life of the interconnection agreement with the CFE. Amortization of self-supply permits begins when the project has commenced planned operations.

Intangible assets subject to amortization are amortized over their estimated useful lives. Amortization expense for such intangible assets was $3 million and $5 million for the three months ended September 30, 2018 and 2017, respectively, and $13 million for both the nine months ended September 30, 2018 and 2017. We estimate the amortization for the next five years to be $12 million a year. We provide additional information about Other Intangible Assets in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.CAPITALIZED FINANCING COSTS

Capitalized financing costs include capitalized interest costs and AFUDC related to both debt and equity financing of construction projects. We capitalize interest costs incurred to finance capital projects and interest on equity method investments that have not commenced planned principal operations.

The table below summarizes capitalized interest and AFUDC.

CAPITALIZED FINANCING COSTS
(Dollars in millions)
	Three months ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
Sempra Energy Consolidated	$	49	$	54	$	157	$	198
SDG&E	20		21		67		62
SoCalGas	10		15		39		45

VARIABLE INTEREST ENTITIES

We consolidate a VIE if we are the primary beneficiary of the VIE. Our determination of whether we are the primary beneficiary is based upon qualitative and quantitative analyses, which assess:

▪ 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.

We will continue to evaluate our VIEs for any changes that may impact our determination of the primary beneficiary.

SDG&E

SDG&E’s power procurement is subject to reliability requirements that may require SDG&E to enter into various PPAs that include variable interests. SDG&E evaluates the respective entities to determine if variable interests exist and, based on the qualitative and quantitative analyses described above, if SDG&E, and thereby Sempra Energy, is the primary beneficiary.

Tolling Agreements

SDG&E has agreements under which it purchases power generated by facilities for which it supplies all of the natural gas to fuel the power plant (i.e., tolling agreements). SDG&E’s obligation to absorb natural gas costs may be a significant variable interest. In addition, SDG&E has the power to direct the dispatch of electricity generated by these facilities. Based on our analysis, the ability to direct the dispatch of electricity may have the most significant impact on the economic performance of the entity owning the generating facility because of the associated exposure to the cost of natural gas, which fuels the plants, and the value of electricity produced. To the extent that SDG&E (1) is obligated to purchase and provide fuel to operate the facility, (2) has the power to direct the dispatch, and (3) purchases all of the output from the facility for a substantial portion of the facility’s useful life, SDG&E may be the primary beneficiary of the entity owning the generating facility. SDG&E determines if it is the primary beneficiary in these cases based on a qualitative approach in which we consider the operational characteristics of the facility, including its expected power generation output relative to its capacity to generate and the financial structure of the entity, among other factors. If we determine that SDG&E is the primary beneficiary, SDG&E and Sempra Energy consolidate the entity that owns the facility as a VIE.

Otay Mesa VIE

SDG&E has a tolling agreement to purchase power generated at OMEC, a 605-MW generating facility. A related agreement provided SDG&E with the option to purchase OMEC at a predetermined price (referred to as the call option). SDG&E’s call option has since expired unexercised. Under the terms of the agreement, the counterparty can require SDG&E to purchase the power plant for $280 million, subject to adjustments, on or before October 3, 2019 (referred to as the put option), or upon earlier termination of the PPA.

The facility owner, OMEC LLC, is a VIE, which we refer to as Otay Mesa VIE, of which SDG&E is the primary beneficiary. SDG&E has no OMEC LLC voting rights, holds no equity in OMEC LLC and does not operate OMEC. In addition to the risks absorbed under the tolling agreement, SDG&E absorbs separately through the put option a significant portion of the risk that the value of Otay Mesa VIE could decline. Accordingly, SDG&E and Sempra Energy consolidate Otay Mesa VIE. Otay Mesa VIE’s equity of $37 million at September 30, 2018 and $28 million at December 31, 2017 is included on the Condensed Consolidated Balance Sheets in Other Noncontrolling Interests for Sempra Energy and in Noncontrolling Interest for SDG&E.

On October 24, 2018, SDG&E and OMEC LLC signed a resource adequacy capacity agreement for a term that would commence at the expiration of the current tolling agreement in October 2019 and end on August 31, 2024. The capacity agreement is contingent upon receiving approval from OMEC LLC’s lenders by December 31, 2018, and receiving approval from the CPUC by March 15, 2019. If the resource adequacy capacity agreement is approved, OMEC LLC will waive its right to exercise the put option and, as a result, SDG&E would no longer consolidate Otay Mesa VIE. SDG&E filed for CPUC approval of the resource adequacy capacity agreement in October 2018.

OMEC LLC has a loan outstanding of $287 million at September 30, 2018, the proceeds of which were used for the construction of OMEC. The loan is with third party lenders and is collateralized by OMEC’s assets. SDG&E is not a party to the loan agreement and does not have any additional implicit or explicit financial responsibility to OMEC LLC, nor would SDG&E be required to assume OMEC’s loan under the call or put option purchase scenarios. The loan fully matures in April 2019, prior to the expiration of the put option, and bears interest at rates varying with market rates. In addition, OMEC LLC has entered into

interest rate swap agreements to moderate its exposure to interest rate changes. We provide additional information concerning the interest rate swaps in Note 8.

The Condensed Consolidated Statements of Operations of Sempra Energy and SDG&E include the following amounts associated with Otay Mesa VIE. The amounts are net of eliminations of transactions between SDG&E and Otay Mesa VIE. The captions in the table below correspond to SDG&E’s Condensed Consolidated Statements of Operations.

AMOUNTS ASSOCIATED WITH OTAY MESA VIE
(Dollars in millions)
	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
Operating expenses
Cost of electric fuel and purchased power	$	(28	)	$	(26	)	$	(60	)	$	(65	)
Operation and maintenance	3			4			11			13
Depreciation and amortization	8			7			23			21
Total operating expenses	(17		)	(15		)	(26		)	(31		)
Operating income	17			15			26			31
Interest expense	(6		)	(6		)	(16		)	(16		)
Income before income taxes/Net income	11			9			10			15
Earnings attributable to noncontrolling interest	(11		)	(9		)	(10		)	(15		)
Earnings attributable to common shares	$	—		$	—		$	—		$	—

SDG&E has determined that no contracts, other than the one relating to Otay Mesa VIE mentioned above, resulted in SDG&E being the primary beneficiary of a VIE at September 30, 2018. In addition to the tolling agreements described above, other variable interests involve various elements of fuel and power costs, and other components of cash flows expected to be paid to or received by our counterparties. In most of these cases, the expectation of variability is not substantial, and SDG&E generally does not have the power to direct activities that most significantly impact the economic performance of the other VIEs. In addition, SDG&E is not exposed to losses or gains as a result of these other VIEs, because all such variability would be recovered in rates. If our ongoing evaluation of these VIEs were to conclude that SDG&E becomes the primary beneficiary and consolidation by SDG&E becomes necessary, the effects could be significant to the financial position and liquidity of SDG&E and Sempra Energy. We provide additional information about PPAs with power plant facilities that are VIEs of which SDG&E is not the primary beneficiary in Note 15 of the Notes to Consolidated Financial Statements in the Annual Report.

We provide additional information regarding Otay Mesa VIE in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.

Sempra Texas Utility

On March 9, 2018, we completed the acquisition of an indirect, 100-percent interest in Oncor Holdings, a VIE that owns an 80.25-percent interest in Oncor. Sempra Energy is not the primary beneficiary of the VIE because of the structural and operational ring-fencing measures in place that prevent us from having the power to direct the significant activities of Oncor Holdings. As a result, we do not consolidate Oncor Holdings and instead account for our ownership interest as an equity method investment. See Notes 5 and 6 for additional information about our equity method investment in Oncor Holdings and restrictions in our ability to influence its activities. Our current maximum exposure to loss from our interest in Oncor Holdings did not exceed the carrying value of our investment, which was $9,553 million at September 30, 2018. Our maximum exposure will fluctuate over time, including as a result of our commitment to contribute $1,025 million in capital (excluding Sempra Energy’s share of approximately $40 million for a management agreement termination fee, as well as other customary transaction costs incurred by InfraREIT that will be borne by Oncor as part of the acquisition) to partially fund Oncor’s acquisition of interests in InfraREIT, which we discuss in Note 5.

Sempra Renewables

Certain of Sempra Renewables’ wind and solar power generation projects are held by limited liability companies whose members are Sempra Renewables and financial institutions. The financial institutions are noncontrolling tax equity investors to which earnings, tax attributes and cash flows are allocated in accordance with the respective limited liability company agreements. These entities are VIEs and Sempra Energy is the primary beneficiary, generally due to Sempra Energy’s power as the operator of the renewable energy projects to direct the activities that most significantly impact the economic performance of these VIEs. As the primary beneficiary of these tax equity limited liability companies, we consolidate them.

Sempra Energy’s Condensed Consolidated Balance Sheets include $1,412 million of property, plant and equipment, net, at December 31, 2017 and equity of $656 million and $631 million of Other Noncontrolling Interests at September 30, 2018 and December 31, 2017, respectively, associated with these entities. At September 30, 2018, $1,414 million of property, plant and equipment, net, plus other assets and liabilities associated with these entities, are classified as held for sale, as we discuss in Note 5.

Sempra Energy’s Condensed Consolidated Statements of Operations include the following amounts associated with the tax equity limited liability companies, net of eliminations of transactions between Sempra Energy and these entities.

AMOUNTS ASSOCIATED WITH TAX EQUITY ARRANGEMENTS
(Dollars in millions)
	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
REVENUES
Energy-related businesses	$	28		$	17		$	77		$	48
EXPENSES
Operation and maintenance	(5		)	(5		)	(13		)	(14		)
Depreciation and amortization	(13		)	(8		)	(36		)	(24		)
Income before income taxes	10			4			28			10
Income tax expense	(4		)	(3		)	(16		)	(9		)
Net income	6			1			12			1
Losses attributable to noncontrolling interests(1)	9			6			50			16
Earnings attributable to common shares	$	15		$	7		$	62		$	17

⁽¹⁾ Net income or loss attributable to NCI is computed using the HLBV method and is not based on ownership percentages.

We provide additional information regarding the tax equity limited liability companies in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.

Sempra LNG & Midstream

Sempra Energy’s equity method investment in Cameron LNG JV is considered to be a VIE principally due to contractual provisions that transfer certain risks to customers. Sempra Energy is not the primary beneficiary of the VIE because we do not have the power to direct the most significant activities of Cameron LNG JV. The carrying value of our investment in Cameron LNG JV, including amounts recognized in AOCI related to interest-rate cash flow hedges at Cameron LNG JV, was $1,252 million at September 30, 2018 and $997 million at December 31, 2017. Our current maximum exposure to loss, which fluctuates over time, includes the carrying value of our investment and the guarantees that we discuss in Note 6 below and in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.

Other Variable Interest Entities

Sempra Energy’s other businesses also enter into arrangements which could include variable interests. We evaluate these arrangements and applicable entities based on the qualitative and quantitative analyses described above. Certain of these entities are service or project companies that are VIEs. As the primary beneficiary of these companies, we consolidate them; however, their financial statements are not material to the financial statements of Sempra Energy. In all other cases, we have determined that these arrangements are not variable interests in a VIE and therefore are not subject to the U.S. GAAP requirements concerning the consolidation of VIEs.ASSET RETIREMENT OBLIGATIONS

We discuss asset retirement obligations in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report. We summarize changes in asset retirement obligations in the following table.

CHANGES IN ASSET RETIREMENT OBLIGATIONS
(Dollars in millions)
	Sempra Energy
	Consolidated						SDG&E						SoCalGas
	2018			2017			2018			2017			2018			2017
Balance at January 1(1)	$	2,877		$	2,553		$	839		$	830		$	1,953		$	1,659
Accretion expense	90			81			29			30			58			49
Liabilities incurred	7			22			—			17			—			—
Reclassifications(2)	(60		)	—			—			—			—			—
Payments	(34		)	(44		)	(31		)	(43		)	(2		)	(1		)
Revisions	28			(8		)	29			—			(2		)	(8		)
Balance at September 30(1)	$	2,908		$	2,604		$	866		$	834		$	2,007		$	1,699

⁽¹⁾  Current portions of the obligations for Sempra Energy Consolidated and SoCalGas are included in Other Current Liabilities on the Condensed Consolidated Balance Sheets.

⁽²⁾ 

In 2018, we reclassified $57 million at Sempra Renewables and $8 million at Sempra LNG & Midstream to Liabilities Held for Sale, and $5 million related to TdM from Liabilities Held for Sale, as we discuss in Note 5.PENSION AND OTHER POSTRETIREMENT BENEFITS

Sale of Qualified Pension Plan Annuity Contracts

In March 2018, an insurance company purchased annuities for certain current annuitants in the SDG&E and SoCalGas qualified pension plans and assumed the obligation for payment of these annuities. At SDG&E in the first quarter of 2018 and at SoCalGas in the second quarter of 2018, the liability transferred for these annuities, plus the total year-to-date lump-sum payments, exceeded the settlement threshold, which triggered settlement accounting. This resulted in a reduction of the recorded pension liability and pension plan assets of $300 million at Sempra Energy Consolidated, including $108 million at SDG&E and $192 million at SoCalGas. This also resulted in settlement charges in net periodic benefit cost of $3 million and $42 million at Sempra Energy Consolidated, including $1 million and $17 million at SDG&E and $2 million and $25 million at SoCalGas in the three months and nine months ended September 30, 2018, respectively. The settlement charges were recorded as regulatory assets on the Condensed Consolidated Balance Sheets.

Acquisition

On March 9, 2018, Sempra Energy completed the Merger, as we discuss in Note 5, and assumed other postretirement employee benefits obligations for health care and life insurance benefits, resulting in an increase of $21 million in the other postretirement benefit plan liability at Sempra Energy Consolidated.

Net Periodic Benefit Cost

The following three tables provide the components of net periodic benefit cost.

NET PERIODIC BENEFIT COST – SEMPRA ENERGY CONSOLIDATED
(Dollars in millions)
	Pension benefits						Other postretirement benefits
	Three months ended September 30,
	2018			2017			2018			2017
Service cost	$	29		$	31		$	4		$	4
Interest cost	36			39			9			9
Expected return on assets	(36		)	(41		)	(18		)	(16		)
Amortization of:
Prior service cost	3			3			—			—
Actuarial loss (gain)	7			11			(2		)	(2		)
Settlements	9			8			—			—
Special termination benefits	—			—			5			16
Net periodic benefit cost	48			51			(2		)	11
Regulatory adjustment	(11		)	(18		)	2			(11		)
Total expense recognized	$	37		$	33		$	—		$	—
	Nine months ended September 30,
	2018			2017			2018			2017
Service cost	$	95		$	88		$	15		$	15
Interest cost	105			113			27			29
Expected return on assets	(117		)	(121		)	(53		)	(49		)
Amortization of:
Prior service cost	8			8			—			—
Actuarial loss (gain)	26			27			(4		)	(3		)
Settlements	48			8			—			—
Special termination benefits	—			—			5			16
Net periodic benefit cost	165			123			(10		)	8
Regulatory adjustment	(91		)	(59		)	11			(7		)
Total expense recognized	$	74		$	64		$	1		$	1

NET PERIODIC BENEFIT COST – SDG&E
(Dollars in millions)
	Pension benefits						Other postretirement benefits
	Three months ended September 30,
	2018			2017			2018			2017
Service cost	$	7		$	7		$	1		$	1
Interest cost	9			9			2			2
Expected return on assets	(10		)	(11		)	(3		)	(2		)
Amortization of:
Actuarial loss (gain)	—			3			(1		)	—
Settlements	1			—			—			—
Special termination benefits	—			—			3			—
Net periodic benefit cost	7			8			2			1
Regulatory adjustment	(7		)	(7		)	(2		)	(1		)
Total expense recognized	$	—		$	1		$	—		$	—
	Nine months ended September 30,
	2018			2017			2018			2017
Service cost	$	23		$	22		$	3		$	4
Interest cost	26			28			5			6
Expected return on assets	(35		)	(35		)	(10		)	(9		)
Amortization of:
Prior service cost	1			1			2			2
Actuarial loss (gain)	3			7			(2		)	—
Settlements	17			—			—			—
Special termination benefits	—			—			3			—
Net periodic benefit cost	35			23			1			3
Regulatory adjustment	(34		)	(21		)	(1		)	(3		)
Total expense recognized	$	1		$	2		$	—		$	—

NET PERIODIC BENEFIT COST – SOCALGAS
(Dollars in millions)
	Pension benefits						Other postretirement benefits
	Three months ended September 30,
	2018			2017			2018			2017
Service cost	$	19		$	21		$	3		$	4
Interest cost	23			25			6			6
Expected return on assets	(22		)	(26		)	(13		)	(14		)
Amortization of:
Prior service cost (credit)	2			3			(1		)	(1		)
Actuarial loss (gain)	3			6			(1		)	(1		)
Settlements	2			—			—			—
Special termination benefits	—			—			2			16
Net periodic benefit cost	27			29			(4		)	10
Regulatory adjustment	(4		)	(11		)	4			(10		)
Total expense recognized	$	23		$	18		$	—		$	—
	Nine months ended September 30,
	2018			2017			2018			2017
Service cost	$	62		$	57		$	11		$	11
Interest cost	68			73			20			21
Expected return on assets	(73		)	(77		)	(41		)	(40		)
Amortization of:
Prior service cost (credit)	6			7			(2		)	(2		)
Actuarial loss (gain)	15			14			(2		)	(2		)
Settlements	25			—			—			—
Special termination benefits	—			—			2			16
Net periodic benefit cost	103			74			(12		)	4
Regulatory adjustment	(57		)	(38		)	12			(4		)
Total expense recognized	$	46		$	36		$	—		$	—

Benefit Plan Contributions

The following table shows our year-to-date contributions to pension and other postretirement benefit plans and the amounts we expect to contribute in 2018.

BENEFIT PLAN CONTRIBUTIONS
(Dollars in millions)
	Sempra Energy Consolidated		SDG&E		SoCalGas
Contributions through September 30, 2018:
Pension plans	$	76	$	3	$	46
Other postretirement benefit plans	2		—		1
Total expected contributions in 2018:
Pension plans	$	192	$	48	$	105
Other postretirement benefit plans	6		1		2

RABBI TRUSTIn support of its Supplemental Executive Retirement, Cash Balance Restoration and Deferred Compensation Plans, Sempra Energy maintains dedicated assets, including a Rabbi Trust and investments in life insurance contracts, which totaled $443 million and $455 million at September 30, 2018 and December 31, 2017, respectively.EARNINGS PER COMMON SHARE

The following table provides EPS computations for the three months and nine months ended September 30, 2018 and 2017. Basic EPS is calculated by dividing earnings attributable to common shares by the weighted-average number of common shares outstanding for the period. Diluted EPS includes the potential dilution of common stock equivalent shares that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

EARNINGS PER COMMON SHARE COMPUTATIONS
(Dollars in millions, except per share amounts; shares in thousands)
	Three months ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
Numerator:
Earnings attributable to common shares	$	274	$	57	$	60	$	757
Denominator:
Weighted-average common shares outstanding for basic EPS(1)	273,944		251,692		265,963		251,425
Dilutive effect of stock options, RSAs and RSUs(2)	854		1,672		736		1,562
Dilutive effect of common shares sold forward	1,109		—		945		—
Weighted-average common shares outstanding for diluted EPS	275,907		253,364		267,644		252,987
EPS:
Basic	$	1.00	$	0.23	$	0.23	$	3.01
Diluted	$	0.99	$	0.22	$	0.22	$	2.99

⁽¹⁾ Includes 645 and 612 average fully vested RSUs held in our Deferred Compensation Plan for the three months ended September 30, 2018 and 2017, respectively, and 638 and 607 of such RSUs for the nine months ended September 30, 2018 and 2017, 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.

⁽²⁾  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 8 of the Notes to Consolidated Financial Statements in the Annual Report, dilutive RSUs may vary widely from period-to-period.

The potentially dilutive impact from stock options, RSAs and RSUs is calculated under the treasury stock method. Under this method, proceeds based on the exercise price and unearned compensation are assumed to be used to repurchase shares on the open market at the average market price for the period, reducing the number of potential new shares to be issued and sometimes causing an antidilutive effect. The computation of diluted EPS for the three months ended September 30, 2018 and 2017 excludes 508 and 2,608 potentially dilutive shares, respectively, because to include them would be antidilutive for the period. The computation of diluted EPS for the nine months ended September 30, 2018 and 2017 excludes 1,552 and 2,608 such potentially dilutive shares, respectively. However, these shares could potentially dilute basic EPS in the future.

The potentially dilutive impact from the forward sale of our common stock pursuant to the forward sale agreements that we discuss below in “Shareholders’ Equity and Noncontrolling Interests – Sempra Energy Common Stock Offerings,” is reflected in our diluted EPS calculation using the treasury stock method. We anticipate there will be a dilutive effect on our EPS when the average market price of shares of our common stock is above the applicable adjusted forward sale price, subject to increase or decrease based on the overnight bank funding rate, less a spread, and subject to decrease by amounts related to expected dividends on shares of our common stock during the term of the forward sale agreements. The computation of diluted EPS for the three months and nine months ended September 30, 2018 excludes zero and 2,857,143 potentially dilutive shares, respectively, because to include them would be antidilutive for the period. Additionally, if we decide to physically settle or net share settle the forward sale agreements, delivery of our shares to the forward purchasers on any such physical settlement or net share settlement of the forward sale agreements would result in dilution to our EPS.

The potentially dilutive impact from mandatory convertible preferred stock that we issued in 2018 is calculated under the if-converted method. The computation of diluted EPS for the three months and nine months ended September 30, 2018 excludes 19,152,109 and 15,863,530 potentially dilutive shares, respectively, because to include them would be antidilutive for the period. However, these shares could potentially dilute basic EPS in the future. We discuss the 2018 issuances of our mandatory convertible preferred stock in “Shareholders’ Equity and Noncontrolling Interests – Sempra Energy Mandatory Convertible Preferred Stock Offerings” below.

Pursuant to our Sempra Energy share-based compensation plans, Sempra Energy’s Board of Directors granted 358,363 performance-based RSUs and 266,990 service-based RSUs in the nine months ended September 30, 2018, primarily in January. In the nine months ended September 30, 2018, IEnova granted 969,482 RSUs from the IEnova 2013 Long-Term Incentive Plan, under which awards are cash settled at vesting based on the price of IEnova common stock.

We discuss share-based compensation plans and related awards further in Note 8 of the Notes to Consolidated Financial Statements in the Annual Report.COMPREHENSIVE INCOME

The following tables present the changes in AOCI by component and amounts reclassified out of AOCI to net income, excluding amounts attributable to NCI.

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT(1)
(Dollars in millions)
	Foreign currency translation adjustments			Financial instruments			Pension and other postretirement benefits			Total accumulated other comprehensive income (loss)
	Three months ended September 30, 2018 and 2017
Sempra Energy Consolidated:
Balance as of June 30, 2018	$	(482	)	$	(40	)	$	(79	)	$	(601	)
OCI before reclassifications	(16		)	19			(18		)	(15		)
Amounts reclassified from AOCI	—			(4		)	8			4
Net OCI	(16		)	15			(10		)	(11		)
Balance as of September 30, 2018	$	(498	)	$	(25	)	$	(89	)	$	(612	)
							.
Balance as of June 30, 2017	$	(478	)	$	(147	)	$	(93	)	$	(718	)
OCI before reclassifications	27			8			—			35
Amounts reclassified from AOCI	—			(2		)	7			5
Net OCI	27			6			7			40
Balance as of September 30, 2017	$	(451	)	$	(141	)	$	(86	)	$	(678	)
SDG&E:
Balance as of June 30, 2018							$	(8	)	$	(8	)
OCI before reclassifications							(6		)	(6		)
Net OCI							(6		)	(6		)
Balance as of September 30, 2018							$	(14	)	$	(14	)
Balance as of June 30, 2017							$	(8	)	$	(8	)
Amounts reclassified from AOCI							1			1
Net OCI							1			1
Balance as of September 30, 2017							$	(7	)	$	(7	)
SoCalGas:
Balance as of June 30, 2018 and September 30, 2018				$	(13	)	$	(7	)	$	(20	)
Balance as of June 30, 2017 and September 30, 2017				$	(13	)	$	(8	)	$	(21	)

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

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT(1)
(Dollars in millions)
	Foreign currency translation adjustments			Financial instruments			Pension and other postretirement benefits			Total accumulated other comprehensive income (loss)
	Nine months ended September 30, 2018 and 2017
Sempra Energy Consolidated:
Balance as of December 31, 2017	$	(420	)	$	(122	)	$	(84	)	$	(626	)
Cumulative-effect adjustment from change in accounting principle(2)	—			(3		)	—			(3		)
OCI before reclassifications	(78		)	104			(17		)	9
Amounts reclassified from AOCI	—			(4		)	12			8
Net OCI	(78		)	100			(5		)	17
Balance as of September 30, 2018	$	(498	)	$	(25	)	$	(89	)	$	(612	)
Balance as of December 31, 2016	$	(527	)	$	(125	)	$	(96	)	$	(748	)
OCI before reclassifications	76			(20		)	—			56
Amounts reclassified from AOCI	—			4			10			14
Net OCI	76			(16		)	10			70
Balance as of September 30, 2017	$	(451	)	$	(141	)	$	(86	)	$	(678	)
SDG&E:
Balance as of December 31, 2017							$	(8	)	$	(8	)
OCI before reclassifications							(6		)	(6		)
Net OCI							(6		)	(6		)
Balance as of September 30, 2018							$	(14	)	$	(14	)
Balance as of December 31, 2016							$	(8	)	$	(8	)
Amounts reclassified from AOCI							1			1
Net OCI							1			1
Balance as of September 30, 2017							$	(7	)	$	(7	)
SoCalGas:
Balance as of December 31, 2017				$	(13	)	$	(8	)	$	(21	)
Amounts reclassified from AOCI				—			1			1
Net OCI				—			1			1
Balance as of September 30, 2018				$	(13	)	$	(7	)	$	(20	)
Balance as of December 31, 2016				$	(13	)	$	(9	)	$	(22	)
Amounts reclassified from AOCI				—			1			1
Net OCI				—			1			1
Balance as of September 30, 2017				$	(13	)	$	(8	)	$	(21	)

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

⁽²⁾  Represents impact from adoption of ASU 2017-12, which we discuss in Note 2.

RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
Details about accumulated other comprehensive income (loss) components	Amounts reclassified from accumulated other comprehensive income (loss)						Affected line item on Condensed Consolidated Statements of Operations
	Three months ended September 30,
	2018			2017
Sempra Energy Consolidated:
Financial instruments:
Interest rate and foreign exchange instruments	$	(11	)	$	—		Other Income, Net
Interest rate and foreign exchange instruments	3			—			Equity Earnings
Foreign exchange instruments	—			(2		)	Revenues: Energy-Related Businesses
Total before income tax	(8		)	(2		)
	4			1			Income Tax (Expense) Benefit
Net of income tax	(4		)	(1		)
	—			(1		)	Earnings Attributable to Noncontrolling Interests
	$	(4	)	$	(2	)
Pension and other postretirement benefits:
Amortization of actuarial loss(1)	$	9		$	11		Other Income, Net
Amortization of prior service cost(1)	1			—			Other Income, Net
Total before income tax	10			11
	(2		)	(4		)	Income Tax (Expense) Benefit
Net of income tax	$	8		$	7
Total reclassifications for the period, net of tax	$	4		$	5
SDG&E:
Financial instruments:
Interest rate instruments(2)	$	2		$	3		Interest Expense
	(2		)	(3		)	Earnings Attributable to Noncontrolling Interest
	$	—		$	—
Pension and other postretirement benefits:
Amortization of actuarial loss(1)	$	—		$	1		Other Income, Net
Total reclassifications for the period, net of tax	$	—		$	1

⁽¹⁾  Amounts are included in the computation of net periodic benefit cost (see “Pension and Other Postretirement Benefits” above).

⁽²⁾  All of SDG&E’s interest rate derivative activity relates to Otay Mesa VIE.

For the three months ended September 30, 2018 and 2017, reclassifications out of AOCI to net income were negligible for SoCalGas.

RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
Details about accumulated other comprehensive income (loss) components	Amounts reclassified from accumulated other comprehensive income (loss)						Affected line item on Condensed Consolidated Statements of Operations
	Nine months ended September 30,
	2018			2017
Sempra Energy Consolidated:
Financial instruments:
Interest rate and foreign exchange instruments(1)	$	(1	)	$	(4	)	Interest Expense
	(11		)	—			Other Income, Net
Interest rate and foreign exchange instruments	8			9			Equity Earnings
Foreign exchange instruments	(1		)	(1		)	Revenues: Energy-Related Businesses
Commodity contracts not subject to rate recovery	—			9			Revenues: Energy-Related Businesses
Total before income tax	(5		)	13
	3			(4		)	Income Tax (Expense) Benefit
Net of income tax	(2		)	9
	(2		)	(5		)	Earnings Attributable to Noncontrolling Interests
	$	(4	)	$	4
Pension and other postretirement benefits:
Amortization of actuarial loss(2)	$	15		$	16		Other Income, Net
Amortization of prior service cost(2)	1			—			Other Income, Net
Total before income tax	16			16
	(4		)	(6		)	Income Tax (Expense) Benefit
Net of income tax	$	12		$	10
Total reclassifications for the period, net of tax	$	8		$	14
SDG&E:
Financial instruments:
Interest rate instruments(1)	$	6		$	9		Interest Expense
	(6		)	(9		)	Earnings Attributable to Noncontrolling Interest
	$	—		$	—
Pension and other postretirement benefits:
Amortization of actuarial loss(2)	$	—		$	1		Other Income, Net
Total reclassifications for the period, net of tax	$	—		$	1
SoCalGas:
Pension and other postretirement benefits:
Amortization of actuarial loss(2)	$	1		$	1		Other Income, Net
Total reclassifications for the period, net of tax	$	1		$	1

⁽¹⁾  Amounts 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).SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS

Sempra Energy Mandatory Convertible Preferred Stock Offerings

6% Mandatory Convertible Preferred Stock, Series A

On January 9, 2018, we issued 17,250,000 shares of our series A preferred stock in a registered public offering at $100.00 per share (or $98.20 per share after deducting underwriting discounts), including 2,250,000 shares purchased by the underwriters directly from us as a result of fully exercising their option to purchase such shares from us solely to cover overallotments. Each share of series A preferred stock has a liquidation value of $100.00. We used the net proceeds of approximately $1.69 billion (net of underwriting discounts and equity issuance costs of $32 million) to fund a portion of the Merger Consideration, as we discuss in Note 5.

Generally, and subject to the terms of the series A preferred stock, at any time prior to January 15, 2021, holders may elect to convert each share of the series A preferred stock into shares of our common stock at the minimum conversion rate of 0.7629 shares of our common stock per share of the series A preferred stock (or an aggregate of approximately 13.2 million common shares, if all outstanding series A preferred stock were converted early), subject to anti-dilution adjustments.

We discuss the terms of the series A preferred stock in Note 18 of the Notes to Consolidated Financial Statements in the Annual Report.

6.75% Mandatory Convertible Preferred Stock, Series B

On July 13, 2018, we issued 5,750,000 shares of our series B preferred stock in a registered public offering at $100.00 per share (or $98.35 per share after deducting underwriting discounts), including 750,000 shares purchased by the underwriters directly from us as a result of fully exercising their option to purchase such shares from us solely to cover overallotments. Each share of series B preferred stock has a liquidation value of $100.00. We used the net proceeds of approximately $566 million (net of underwriting discounts and equity issuance costs of $9 million) to repay commercial paper, to fund working capital and for other general corporate purposes.

Mandatory Conversion. Unless earlier converted, each share of the series B preferred stock will automatically convert on the mandatory conversion date of July 15, 2021 into not less than 0.7326 shares and not more than 0.8791 shares of our common stock, subject to anti-dilution adjustments. The number of shares of our common stock issuable on conversion of the series B preferred stock will be determined based on the volume-weighted average market value per share of our common stock over the 20-consecutive trading day period beginning on and including the 21st scheduled trading day immediately preceding July 15, 2021. The following table illustrates the conversion rate per share of the series B preferred stock, subject to certain anti-dilution adjustments.

CONVERSION RATES
Applicable market value per share of our common stock	Conversion rate (number of shares of our common stock to be received upon conversion of each share of series B preferred stock)
Greater than $136.50 (which is the threshold appreciation price)	0.7326 shares (approximately equal to $100.00 divided by the threshold appreciation price)
Equal to or less than $136.50 but greater than or equal to $113.75	Between 0.7326 and 0.8791 shares, determined by dividing $100.00 by the applicable market value of our common stock
Less than $113.75 (which is the initial price)	0.8791 shares (approximately equal to $100.00 divided by the initial price)

Conversion at the Option of the Holder. Generally, and subject to the terms of the series B preferred stock, at any time prior to July 15, 2021, holders may elect to convert each share of the series B preferred stock into shares of our common stock at the minimum conversion rate of 0.7326 shares of our common stock per share of the series B preferred stock (or an aggregate of approximately 4.2 million common shares, if all outstanding series B preferred stock were converted early), subject to anti-dilution adjustments. Further, if holders elect to convert any shares of the series B preferred stock during a specified period beginning on the effective date of a fundamental change, as defined in the certificate of determination of preferences of the series B preferred stock, such shares of the series B preferred stock will be converted into shares of our common stock at a fundamental change conversion rate, and the holders will also be entitled to receive a fundamental change dividend make-whole amount and accumulated dividend amount.

Dividends. Dividends on the series B preferred stock are payable quarterly on a cumulative basis when, as and if declared by our board of directors. The first quarterly dividend was paid on October 15, 2018. We may pay quarterly declared dividends in cash or, subject to certain limitations, in shares of our common stock, no par value, or in any combination of cash and shares of our common stock. Shares of common stock used to pay dividends will be valued at 97 percent of the volume-weighted average price per share over the five-consecutive trading day period beginning on, and including the sixth trading day prior to, the applicable dividend payment date. The holders of series B preferred stock do not have voting rights. However, under certain circumstances regarding nonpayment for six or more dividend periods, whether or not consecutive, the authorized number of directors on our board of directors will automatically be increased by two and the holders of the series B preferred stock, voting together as a single class with holders of any and all other outstanding preferred stock of equal rank having similar voting rights (which currently consists of the series A preferred stock), will be entitled to elect two directors to fill such newly created directorships. This right shall terminate when all accumulated dividends have been paid in full and the authorized number of directors shall automatically decrease by two, subject to the revesting of that right in the event of each subsequent nonpayment.

Ranking. The series B preferred stock ranks with respect to dividend rights and distribution rights upon our liquidation, winding-up or dissolution:

▪ senior to our common stock, including our capital stock established in the future, unless the terms of such capital stock expressly provide otherwise;

▪ on parity with our series A preferred stock, including our capital stock established in the future, unless the terms of such capital stock expressly provide otherwise;

▪ junior to our capital stock established in the future, if the terms provide that such class of series will rank senior to the series B preferred stock;

▪ junior to our existing and future indebtedness and other liabilities; and

▪ structurally subordinated to any existing and future indebtedness and other liabilities of our subsidiaries and capital stock of our subsidiaries held by third parties.

Sempra Energy Common Stock Offerings

On January 9, 2018, we completed the offering of 23,364,486 shares of our common stock, no par value, in a registered public offering at $107.00 per share (approximately $105.07 per share after deducting underwriting discounts), pursuant to forward sale agreements with each of Morgan Stanley & Co. LLC, an affiliate of RBC Capital Markets, LLC and an affiliate of Barclays Capital Inc. (the forward purchasers). The shares offered pursuant to the forward sale agreements were borrowed by the underwriters and therefore are not newly issued shares. The underwriters of the offering fully exercised the option we granted them to purchase an additional 3,504,672 shares of common stock directly from us solely to cover overallotments. After the offering, including the issuance of shares pursuant to the exercise of the overallotment option, the aggregate shares of common stock sold in the offering totaled 26,869,158. We received net proceeds of $367 million (net of underwriting discounts and equity issuance costs of $8 million) from the sale of shares to cover overallotments. We did not initially receive any proceeds from the sale of our common stock sold pursuant to the forward sale agreements.

In the first quarter of 2018, we settled approximately $900 million (net of underwriting discounts of $16 million) and in the second quarter of 2018, we settled approximately $800 million (net of underwriting discounts of $14 million) of forward sales under the forward sale agreements by delivering 8,556,630 shares and 7,651,671 shares, respectively, of newly issued Sempra Energy common stock at forward sale prices ranging from approximately $104.53 to approximately $105.18 per share.

We used the net proceeds from the sale of shares in the January 2018 offering and from the settlement of forward sales in the first quarter of 2018 under the forward sale agreements to fund a portion of the Merger Consideration, as we discuss in Note 5. We used the net proceeds from the settlement of forward sales in the second quarter of 2018 to repay long-term debt maturing in June 2018 and to repay commercial paper used to fund a portion of the Merger Consideration.

On July 13, 2018, we completed the offering of 9,750,000 shares of our common stock, no par value, in a registered public offering at $113.75 per share (approximately $111.87 per share after deducting underwriting discounts), pursuant to forward sale agreements with an affiliate of Citigroup Global Markets Inc. and an affiliate of J.P. Morgan Securities LLC (the forward purchasers). The shares offered pursuant to the forward sale agreements were borrowed by the underwriters and therefore are not newly issued shares. The underwriters of the offering fully exercised the option we granted them to purchase an additional 1,462,500 shares of common stock directly from us solely to cover overallotments. After the offering, including the issuance of shares pursuant to the exercise of the overallotment option, the aggregate shares of common stock sold in the offering totaled 11,212,500. We received net proceeds of $164 million (net of underwriting discounts and equity issuance costs of $3 million) from the sale of shares to cover overallotments. We did not initially receive any proceeds from the sale of our common stock sold pursuant to the forward sale agreements. We used the net proceeds from the sale of the overallotment shares to the underwriters, and we expect to use the net proceeds from the sale of shares of our common stock pursuant to the forward sale agreements, to repay commercial paper, to fund working capital and for other general corporate purposes.

As of November 7, 2018, a total of 16,906,185 shares of Sempra Energy common stock from our January 2018 and July 2018 offerings remain subject to future settlement under these forward sale agreements, which may be settled on one or more dates specified by us occurring no later than December 15, 2019, which is the final settlement date under the agreements. Although we expect to settle the forward sale agreements entirely by the physical delivery of shares of our common stock in exchange for cash proceeds, we may, subject to certain conditions, elect cash settlement or net share settlement for all or a portion of our obligations under the forward sale agreements. The forward sale agreements are also subject to acceleration by the forward purchasers upon the occurrence of certain events.

SoCalGas Preferred Stock

The preferred stock at SoCalGas is presented at Sempra Energy as a noncontrolling interest. Sempra Energy records charges against income related to NCI for preferred stock dividends declared by SoCalGas. We provide additional information regarding preferred stock in Note 11 of the Notes to Consolidated Financial Statements in the Annual Report.

Other Noncontrolling Interests

Ownership interests that are held by owners other than Sempra Energy and SDG&E in subsidiaries or entities consolidated by them are accounted for and reported as NCI. As a result, NCI is reported as a separate component of equity on the Condensed Consolidated Balance Sheets. Earnings or losses attributable to NCI are separately identified on the Condensed Consolidated Statements of Operations, and net income or loss and comprehensive income or loss attributable to NCI are separately identified on the Condensed Consolidated Statements of Comprehensive Income (Loss) and Condensed Consolidated Statements of Changes in Equity.

The following table provides information on noncontrolling ownership interests held by others (not including preferred shareholders) in Other Noncontrolling Interests in Total Equity on Sempra Energy’s Condensed Consolidated Balance Sheets.

OTHER NONCONTROLLING INTERESTS
(Dollars in millions)
	Percent ownership held by noncontrolling interests				Equity (deficit) held by noncontrolling interests
	September 30, 2018		December 31, 2017		September 30, 2018			December 31, 2017
SDG&E:
Otay Mesa VIE	100	%	100	%	$	37		$	28
Sempra South American Utilities:
Chilquinta Energía subsidiaries(1)	19.8 – 43.4		22.9 – 43.4		23			24
Luz del Sur	16.4		16.4		193			189
Tecsur	9.8		9.8		4			4
Sempra Mexico:
IEnova(2)(3)	33.6		33.6		1,564			1,532
Sempra Renewables:
Tax equity arrangements – wind(4)	NA		NA		161			181
Tax equity arrangements – solar(4)	NA		NA		495			450
PXiSE Energy Solutions, LLC	11.1		—		1			—
Sempra LNG & Midstream:
Bay Gas	9.1		9.1		8			28
Liberty Gas Storage, LLC	24.6		24.6		(12		)	14
Total Sempra Energy					$	2,474		$	2,450

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

⁽²⁾  IEnova has a subsidiary with a 10-percent NCI held by others. The equity held by NCI is negligible at both September 30, 2018 and December 31, 2017.

⁽³⁾  IEnova has a subsidiary with a 49-percent NCI held by others. The equity held by NCI is $13 million at September 30, 2018.

⁽⁴⁾  Net income or loss attributable to NCI is computed using the HLBV method and is not based on ownership percentages.

Sempra Renewables

In the fourth quarter of 2017, Sempra Renewables entered into a membership interest purchase agreement with a financial institution to form a tax equity limited liability company that includes a Sempra Renewables portfolio of four solar power generation projects located in Fresno County, California. Sempra Renewables received tax equity funding for three of the four phases in the fourth quarter of 2017. Additional funding of $85 million, net of offering costs, for the fourth phase of the tax equity arrangement occurred in April 2018. Sempra Renewables continues to consolidate the entity and report NCI representing the financial institution’s membership interest in the tax equity arrangement.TRANSACTIONS WITH AFFILIATES

We summarize amounts due from and to unconsolidated affiliates at Sempra Energy Consolidated, SDG&E and SoCalGas in the following table.

AMOUNTS DUE FROM (TO) UNCONSOLIDATED AFFILIATES
(Dollars in millions)
	September 30, 2018			December 31, 2017
Sempra Energy Consolidated:
Total due from various unconsolidated affiliates – current	$	43		$	37
Sempra South American Utilities(1):
Eletrans – 4% Note(2)	$	40		$	103
Other related party receivables	1			1
Sempra Mexico(1):
IMG – Note due March 15, 2022(3)	638			487
Energía Sierra Juárez – Note(4)	3			7
Total due from unconsolidated affiliates – noncurrent	$	682		$	598
Total due to various unconsolidated affiliates – current	$	(7	)	$	(7	)
Sempra Mexico(1):
Total due to unconsolidated affiliates – noncurrent – TAG – Note due December 20, 2021(5)	$	(36	)	$	(35	)
SDG&E:
Total due from unconsolidated affiliates – current – SoCalGas	$	1		$	—
Sempra Energy	$	(45	)	$	(30	)
SoCalGas	—			(4		)
Enova Corporation	(250		)	—
Various affiliates	(8		)	(6		)
Total due to unconsolidated affiliates – current	$	(303	)	$	(40	)
Income taxes due from Sempra Energy(6)	$	44		$	27
SoCalGas:
SDG&E	$	—		$	4
Sempra Energy(7)	49			—
Total due from unconsolidated affiliates – current	$	49		$	4
SDG&E	$	(1	)	$	—
Sempra Energy	—			(35		)
Pacific Enterprises	(50		)	—
Total due to unconsolidated affiliates – current	$	(51	)	$	(35	)
Income taxes due from Sempra Energy(6)	$	3		$	10

⁽¹⁾  Amounts include principal balances plus accumulated interest outstanding.

⁽²⁾  U.S. dollar-denominated loan, at a fixed interest rate with no stated maturity date, to provide project financing for the construction of transmission lines at Eletrans, comprising joint ventures of Chilquinta Energía.

⁽³⁾  Mexican peso-denominated revolving line of credit for up to $14.2 billion Mexican pesos or approximately $757 million U.S. dollar-equivalent, at a variable interest rate based on the 91-day Interbank Equilibrium Interest Rate plus 220 bps (10.37 percent at September 30, 2018), to finance construction of the natural gas marine pipeline.

⁽⁴⁾  U.S. dollar-denominated loan, at a variable interest rate based on the 30-day LIBOR plus 637.5 bps (8.63 percent at September 30, 2018) with no stated maturity date, to finance the first phase of the Energía Sierra Juárez wind project, which is a joint venture of IEnova.

⁽⁵⁾  U.S. dollar-denominated loan, at a variable interest rate based on the 6-month LIBOR plus 290 bps (5.50 percent at September 30, 2018).

⁽⁶⁾  SDG&E and SoCalGas are included in the consolidated income tax return of Sempra Energy and are allocated income tax expense from Sempra Energy in an amount equal to that which would result from each company having always filed a separate return.

⁽⁷⁾  At September 30, 2018, net receivable included outstanding advances to Sempra Energy of $88 million at an interest rate of 2.35 percent.

The following table summarizes revenues and cost of sales from unconsolidated affiliates.

REVENUES AND COST OF SALES FROM UNCONSOLIDATED AFFILIATES
(Dollars in millions)
	Three months ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
Revenues:
Sempra Energy Consolidated	$	17	$	13	$	49	$	28
SDG&E	1		2		4		6
SoCalGas	15		21		47		56
Cost of Sales:
Sempra Energy Consolidated	$	9	$	8	$	36	$	36
SDG&E	21		16		56		55

Guarantees

Sempra Energy has provided guarantees to certain of its joint ventures, entered into guarantees related to the financing of the Cameron LNG JV project and provided guarantees to certain third parties for the benefit of IMG, as we discuss in Note 6 below and in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.OTHER INCOME, NET

Other Income, Net on the Condensed Consolidated Statements of Operations consisted of the following:

OTHER INCOME, NET
(Dollars in millions)
	Three months ended September 30,						Nine months ended September 30,
	2018			2017(1)			2018			2017(1)
Sempra Energy Consolidated:
Allowance for equity funds used during construction	$	23		$	27		$	79		$	139
Investment gains(2)	8			13			13			43
Gains on interest rate and foreign exchange instruments, net	39			5			46			99
Foreign currency transaction gains (losses), net(3)	28			(10		)	17			7
Non-service component of net periodic benefit (cost) credit	(4		)	(1		)	35			21
Interest on regulatory balancing accounts, net	1			1			2			3
Sundry, net	2			5			4			10
Total	$	97		$	40		$	196		$	322
SDG&E:
Allowance for equity funds used during construction	$	15		$	15		$	49		$	46
Non-service component of net periodic benefit credit	8			4			25			12
Interest on regulatory balancing accounts, net	2			1			4			3
Sundry, net	(1		)	—			(1		)	—
Total	$	24		$	20		$	77		$	61
SoCalGas:
Allowance for equity funds used during construction	$	8		$	11		$	30		$	33
Non-service component of net periodic benefit (cost) credit	(1		)	5			27			23
Interest on regulatory balancing accounts, net	(1		)	—			(2		)	—
Sundry, net	(3		)	(3		)	(6		)	(5		)
Total	$	3		$	13		$	49		$	51

⁽¹⁾  As adjusted for the retrospective adoption of ASU 2017-07, which we discuss in Note 2.

⁽²⁾  Represents investment 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.

⁽³⁾ 

Includes gains of $33 million and $25 million in the three months and nine months ended September 30, 2018, respectively, and losses of $6 million and a negligible amount in the three months and nine months ended September 30, 2017, respectively, from translation to U.S. dollars of a Mexican peso-denominated loan to the IMG joint venture, which are offset by corresponding amounts included in Equity Earnings on the Condensed Consolidated Statements of Operations.INCOME TAXES

INCOME TAX EXPENSE (BENEFIT) AND EFFECTIVE INCOME TAX RATES
(Dollars in millions)
	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
Sempra Energy Consolidated:
Income tax expense (benefit)	$	167		$	(84	)	$	(127	)	$	378
Income (loss) before income taxes and equity earnings
of unconsolidated subsidiaries	$	427		$	5		$	(15	)	$	1,154
Equity (losses) earnings, before income tax(1)	(52		)	10			(236		)	31
Pretax income (loss)	$	375		$	15		$	(251	)	$	1,185
Effective income tax rate	45		%	(560		)%	51		%	32		%
SDG&E:
Income tax expense (benefit)	$	53		$	(72	)	$	151		$	72
Income (loss) before income taxes	$	269		$	(91	)	$	682		$	363
Effective income tax rate	20		%	79		%	22		%	20		%
SoCalGas:
Income tax (benefit) expense	$	(7	)	$	(14	)	$	75		$	103
(Loss) income before income taxes	$	(21	)	$	(7	)	$	320		$	372
Effective income tax rate	33		%	200		%	23		%	28		%

⁽¹⁾  We discuss how we recognize equity earnings in Note 6.  

Sempra Energy, SDG&E and SoCalGas record income taxes for interim periods utilizing a forecasted ETR anticipated for the full year, in accordance with U.S. GAAP. Unusual and infrequent items and items that cannot be reliably estimated are recorded in the interim period in which they occur, which can result in variability in the ETR.

For SDG&E and SoCalGas, the CPUC requires flow-through rate-making treatment for the current income tax benefit or expense arising from certain property-related and other temporary differences between the treatment for financial reporting and income tax, which will reverse over time. Under the regulatory accounting treatment required for these flow-through temporary differences, deferred income tax assets and liabilities are not recorded to deferred income tax expense, but rather to a regulatory asset or liability, which impacts the ETR. As a result, changes in the relative size of these items compared to pretax income, from period to period, can cause variations in the ETR. The following items are subject to flow-through treatment:

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

▪ the equity portion of AFUDC

▪ 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

The AFUDC related to equity recorded for regulated construction projects at Sempra Mexico has similar flow-through treatment.

We record income tax (expense) benefit from the transactional effects of foreign currency and inflation. Such effects are partially mitigated by net gains (losses) from foreign currency derivatives that are hedging Sempra Mexico parent’s exposure to movements in the Mexico peso from its controlling interest in IEnova.

On December 22, 2017, the TCJA was signed into law. The TCJA reduced the U.S. statutory corporate federal income tax rate from 35 percent to 21 percent, effective January 1, 2018. In the fourth quarter of 2017, we recorded $870 million of income tax expense related to the effects of the TCJA. This expense was provisional, using our best estimates and the information available to us through the date those financial statements were issued. As permitted by and in accordance with the guidance issued by the SEC and codified in ASU 2018-05, we may adjust our provisional estimates in reporting periods throughout 2018 as we complete our analysis and as more information becomes available, and these adjustments may affect earnings. Events and information that may still result in adjustments to our provisional estimates include interpretations of the TCJA by the U.S. Department of the Treasury, conformity by the states of the application of the TCJA, assessment of the impact of the TCJA global intangible low-taxed income provisions on the realizability of deferred tax assets, and the finalization of our calculation of foreign undistributed earnings. In the nine months ended September 30, 2018, Sempra Energy recorded $25 million of additional income tax expense to adjust the provisional estimates recorded in 2017. Additionally, SDG&E and SoCalGas adjusted their provisional estimates relating to the remeasurement of deferred income taxes. In the nine months ended September 30, 2018, SDG&E’s deferred tax liabilities decreased by $38 million and SoCalGas’ deferred tax liabilities increased by $5 million, with each amount offset by a change in their respective regulatory liabilities.

We provide additional information about the TCJA and our accounting for income taxes in Notes 1 and 6 of the Notes to Consolidated Financial Statements in the Annual Report.