INVESTMENTS IN UNCONSOLIDATED ENTITIES

6 Months Ended

Jun. 30, 2019

INVESTMENTS IN UNCONSOLIDATED ENTITIES

We generally account for investments under the equity method when we have significant influence over, but do not have control of, these entities. Equity earnings and losses, both before and net of income tax, are combined and presented as Equity Earnings (Losses) on the Condensed Consolidated Statements of Operations. See Note 1 for information on how equity earnings and losses before income taxes are factored into the calculations of our pretax income or loss and ETR.

Our equity method investments include various domestic and foreign entities. Our domestic equity method investees are typically partnerships that are pass-through entities for income tax purposes and therefore they do not record income tax. Sempra Energy’s income tax on earnings from these equity method investees, other than Oncor Holdings as we discuss below, is included in Income Tax (Expense) Benefit on the Condensed Consolidated Statement of Operations. Our foreign equity method investees are corporations whose operations are generally taxable on a standalone basis in the countries in which they operate, and we recognize our equity in such income or loss net of investee income tax.

Oncor is a domestic partnership for U.S. federal income tax purposes and is not included in the consolidated income tax return of Sempra Energy. Rather, only our pretax equity earnings from our investment in Oncor Holdings (a disregarded entity for tax purposes) are included in our consolidated income tax return. A tax sharing agreement with TTI, Oncor Holdings and Oncor provides for the calculation of an income tax liability substantially as if Oncor Holdings and Oncor were taxed as corporations and requires tax payments determined on that basis. While partnerships are not subject to income taxes, in consideration of the tax

sharing agreement and Oncor being subject to the provisions of U.S. GAAP governing rate-regulated operations, Oncor recognizes amounts determined under cost-based regulatory rate-setting processes (with such costs including income taxes), as if it were taxed as a corporation. As a result, since Oncor Holdings consolidates Oncor, we recognize equity earnings from our investment in Oncor Holdings net of its recorded income tax.

We provide additional information concerning our equity method investments in Note 5 above and in Notes 5 and 6 of the Notes to Consolidated Financial Statements in the Annual Report.

SEMPRA TEXAS UTILITIES

Oncor Holdings

We account for our 100-percent ownership interest in Oncor Holdings as an equity method investment. Due to the ring-fencing measures, governance mechanisms, and commitments in effect following the Merger, we do not have the power to direct the significant activities of Oncor Holdings and Oncor. See Note 6 of the Notes to Consolidated Financial Statements in the Annual Report for additional information related to the restrictions on our ability to direct the significant activities of Oncor Holdings and Oncor.

Sempra Energy contributed $1,180 million to Oncor in the six months ended June 30, 2019, which includes $1,067 million to fund Oncor’s acquisition of interests in InfraREIT and certain acquisition-related expenses, which we discuss in Note 5. In the six months ended June 30, 2018, Sempra Energy contributed $117 million to Oncor. In the six months ended June 30, 2019, Oncor Holdings distributed to Sempra Energy $108 million in dividends and $6 million in tax sharing payments.

We provide summarized income statement information for Oncor Holdings in the following table.



SUMMARIZED FINANCIAL INFORMATION – ONCOR HOLDINGS
(Dollars in millions)
	Three months ended June 30,						Six months ended June 30, 2019			March 9 - June 30, 2018
	2019			2018
Operating revenues	$	1,041		$	1,021		$	2,057		$	1,257
Operating expense	(757		)	(730		)	(1,532		)	(915		)
Income from operations	284			291			525			342
Interest expense	(93		)	(87		)	(179		)	(109		)
Income tax expense	(30		)	(45		)	(53		)	(52		)
Net income	136			141			250			160
Noncontrolling interest held by TTI	(27		)	(28		)	(50		)	(32		)
Earnings attributable to Sempra Energy	109			113			200			128

Sharyland Holdings

As we discuss in Note 5, on May 16, 2019, we acquired an indirect, 50-percent interest in Sharyland Holdings for $102 million, which we account for as an equity method investment.

SEMPRA MEXICO

Sempra Mexico invested cash of $25 million in the IMG JV in the six months ended June 30, 2018.

SEMPRA RENEWABLES

As we discuss in Note 5, Sempra Renewables recorded an other-than-temporary impairment on certain of its wind equity method investments totaling $200 million in June 2018. In April 2019, Sempra Renewables completed the sale of its remaining wind assets and investments.

SEMPRA LNG

Sempra LNG capitalized $26 million and $22 million of interest in the six months ended June 30, 2019 and 2018, respectively, related to its investment in Cameron LNG JV, which had not yet commenced planned principal operations. In the six months

ended June 30, 2019 and 2018, Sempra LNG invested cash of $77 million and $102 million, respectively, in this unconsolidated JV.

GUARANTEES

At June 30, 2019, we had outstanding guarantees aggregating a maximum of $3.9 billion. The related carrying value of these guarantees was fully amortized at June 30, 2019. We discuss these guarantees in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report.