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GENERAL INFORMATION AND OTHER FINANCIAL DATA
 9 Months Ended
Sep. 30, 2019
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 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 businesses were managed within six separate reportable segments until April 2019 and five separate reportable segments thereafter, which we discuss in Note 12. In the first quarter of 2019, our Sempra LNG & Midstream segment was renamed “Sempra LNG.” This segment name change had no impact on our historical position, results of operations, cash flow or segment level results previously reported. 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 was the primary beneficiary until August 23, 2019, at which time SDG&E deconsolidated the VIE, 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 (until deconsolidation of the VIE on August 23, 2019); 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, 2019 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, 2018 balance sheet information in the Condensed Consolidated Financial Statements has been derived from our audited 2018 Consolidated Financial Statements in the Annual Report, which for Sempra Energy has been retrospectively adjusted for discontinued operations, as we discuss below. 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.
Discontinued Operations
On January 25, 2019, our board of directors approved a plan to sell our South American businesses based on our strategic focus on North America. We determined that these businesses, which previously constituted the Sempra South American Utilities segment, and certain activities associated with these businesses, met the held-for-sale criteria. These businesses are presented as discontinued operations, as the planned sales represent a strategic shift that will have a major effect on our operations and financial results. Throughout this report, the financial information for all periods presented has been adjusted to reflect the presentation of these businesses as discontinued operations, which we discuss further in Note 5. Our discussions in the Notes below relate only to our continuing operations unless otherwise noted.
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 and revenue recognition at our utilities in Notes 1 and 3 of the Notes to Consolidated Financial Statements in the Annual Report.
Our Sempra Texas Utilities segment is comprised of our equity method investments in holding companies that own interests in regulated electric transmission and distribution utilities in Texas and prepare their financial statements in accordance with the provisions of U.S. GAAP governing rate-regulated operations.
Our Sempra Mexico segment includes the operating companies of our subsidiary, IEnova. Certain business activities at IEnova are regulated by the Comisión Reguladora de Energía (Energy Regulatory Commission of Mexico) and meet the regulatory accounting requirements of U.S. GAAP. Pipeline projects under construction at IEnova 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.
CASH, CASH EQUIVALENTS AND 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,
 
2019
2018
Sempra Energy Consolidated:
 
 
Cash and cash equivalents
$
106

$
102

Restricted cash, current
28

35

Restricted cash, noncurrent
3

21

Cash, cash equivalents and restricted cash in discontinued operations
360

88

Total cash, cash equivalents and restricted cash on the Condensed Consolidated Statements of Cash Flows
$
497

$
246

SDG&E:
 

 
Cash and cash equivalents
$
24

$
8

Restricted cash, current
—

11

Restricted cash, noncurrent
—

18

Total cash, cash equivalents and restricted cash on the Condensed Consolidated Statements of Cash Flows
$
24

$
37


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, 2019
 
December 31, 2018
 
 
September
30, 2019
 
December 31, 2018
 
 
September
 30, 2019
 
December 31, 2018
 
 
September
30, 2019
 
December 31, 2018
SDG&E
$
1

 
$
—

 
 
$
—

 
$
—

 
 
$
91

 
$
102

 
 
$
92

 
$
102

SoCalGas
87

 
92

 
 
—

 
—

 
 
47

 
42

 
 
134

 
134

Sempra Mexico
—

 
—

 
 
6

 
4

 
 
16

 
15

 
 
22

 
19

Sempra LNG
22

 
3

 
 
—

 
—

 
 
—

 
—

 
 
22

 
3

Sempra Energy Consolidated
$
110

 
$
95

 
 
$
6

 
$
4

 
 
$
154

 
$
159

 
 
$
270

 
$
258


WILDFIRE FUND
On July 12, 2019, AB 1054 and AB 111 (together, the Wildfire Legislation) were signed into law. The Wildfire Legislation addresses certain issues related to catastrophic wildfires in the State of California and their impact on electric IOUs. Investor-owned gas distribution utilities such as SoCalGas are not covered by this legislation. The issues addressed include wildfire mitigation, cost recovery standards and requirements, a wildfire fund, a cap on liability, and the establishment of a wildfire safety board.
The Wildfire Legislation requires SDG&E to install at least $215 million of fire risk mitigation capital improvements, which will be the first $215 million of capital included in its wildfire mitigation plan, and recover its securitized financing costs without a ROE.
The Wildfire Legislation establishes a revised legal standard for the recovery of wildfire costs (Revised Prudent Manager Standard) and establishes a fund (the Wildfire Fund) to provide liquidity to SDG&E, PG&E and Edison (each a California electric IOU) to pay IOU wildfire-related claims in the event that the governmental agency responsible for determining causation determines the applicable IOU’s equipment caused the ignition of a wildfire, the primary insurance coverage is exceeded and certain other conditions are satisfied. The primary purpose of the Wildfire Fund is to pool resources provided by shareholders and ratepayers of the IOUs and make those resources available to reimburse the IOUs for third-party wildfire claims incurred after July 12, 2019, the effective date of the Wildfire Legislation, subject to certain limitations.
An IOU may seek payment from the Wildfire Fund for settled or adjudicated third-party damage claims arising from certain wildfires that exceed, in aggregate in a calendar year, the greater of $1 billion or the IOU’s required amount of insurance coverage as recommended by the Wildfire Fund’s administrator. Wildfire claims approved by the Wildfire Fund’s administrator will be paid by the Wildfire Fund to the IOU to the extent funds are available. These utilized funds will be subject to review by the CPUC, which will make a determination as to the degree an IOU’s conduct related to an ignition of a wildfire was prudent or imprudent. The Revised Prudent Manager Standard requires that the CPUC apply clear standards when reviewing wildfire liability losses paid when determining the reasonableness of an IOU’s conduct related to an ignition. Under this standard, the conduct under review related to the ignition may include factors within and beyond the IOU’s control, including humidity, temperature and winds. Costs and expenses may be allocated for cost recovery in full or in part. Also, under this standard, an IOU’s conduct will be deemed reasonable if a valid annual safety certification is in place at the time of the ignition, unless a serious doubt is raised, in which case the burden shifts to the utility to dispel that doubt. The IOUs will receive an annual safety certification from the CPUC if they meet various requirements.
If an IOU has maintained a valid annual safety certification, to the extent it is found to be imprudent, claims will be reimbursable by the IOU to the Wildfire Fund up to a cap based on the IOU’s rate base. The aggregate requirement to reimburse the Wildfire Fund over a trailing three calendar year period is capped at 20 percent of the equity portion of an IOU’s electric transmission and distribution rate base in the year of the prudency determination. SDG&E received its annual safety certification from the CPUC on July 26, 2019, which is valid for 12 months. Based on 2018 rate base, the initial liability cap for SDG&E is approximately $825 million, which will be adjusted annually. The liability cap will apply on a rolling three-year basis so long as future annual safety certifications are received and the Wildfire Fund has not been terminated, which could occur if funds are exhausted. Amounts in excess of the liability cap and amounts that are determined to be prudently incurred do not need to be reimbursed by an IOU to the Wildfire Fund. The Wildfire Fund does not have a specified term and coverage will continue until the assets of the Wildfire Fund are exhausted and the Wildfire Fund is terminated, in which case, the remaining funds will be transferred to California’s general fund to be used for fire risk mitigation programs.
The Wildfire Fund could initially be funded up to $10.5 billion by a loan from the State of California Surplus Money Investment Fund, $2 billion of which was loaned to the Wildfire Fund in August 2019. Such lending will subsequently be financed through an anticipated DWR bond, securitized through a dedicated surcharge on ratepayers’ bills attributable to the DWR. In October 2019, the CPUC adopted a decision authorizing a non-bypassable charge to be collected by the IOUs to support the anticipated DWR bond issuance authorized by AB 1054. The CPUC decision also determined that ratepayers of non-participating electrical corporations shall not pay the non-bypassable charge. PG&E has agreed to participate in the Wildfire Fund, subject to bankruptcy court approval. Accordingly, if PG&E is unable to participate in the Wildfire Fund, its customers will not pay the non-bypassable charge, resulting in significantly lower Wildfire Fund contributions from ratepayers than the anticipated $10.5 billion.
The Wildfire Fund could also be funded by up to $7.5 billion in initial shareholder contributions from the IOUs (SDG&E’s share is $322.5 million, PG&E’s share is $4.8 billion and Edison’s share is $2.4 billion). The IOUs could also be required to make annual shareholder contributions to the Wildfire Fund with an aggregate value of $3 billion over a 10-year period (SDG&E’s share is $129 million, PG&E’s share is $1.9 billion and Edison’s share is $945 million). If PG&E is unable to participate in the Wildfire Fund, SDG&E’s and Edison’s aggregate shareholder contributions to the Wildfire Fund will not change and are expected to total approximately $3.8 billion. When estimating the period of benefit of the Wildfire Fund asset that we discuss below, we assume PG&E will participate in the Wildfire Fund. The contributions are not subject to rate recovery.
SDG&E paid its initial shareholder contribution of $322.5 million to the Wildfire Fund in September 2019. SDG&E funded this contribution with proceeds from an equity contribution from Sempra Energy. Sempra Energy funded the equity contribution to SDG&E with proceeds from settling forward sale agreements through physical delivery of shares of Sempra Energy common stock in exchange for cash, which we discuss in “Shareholders’ Equity and Noncontrolling Interests – Sempra Energy Common Stock Offerings” in Note 1. Edison paid its initial shareholder contribution in September 2019.
In a complaint filed in U.S. District Court for the Northern District of California in July 2019, plaintiffs seek to invalidate AB 1054 based on allegations that the legislation violates federal law. The California Attorney General has moved to dismiss the complaint.
Wildfire Fund Asset
SDG&E recorded a Wildfire Fund asset for its commitment to make shareholder contributions totaling $451.5 million, measured at present value as of July 25, 2019 (the date by which both Edison and SDG&E opted to contribute to the Wildfire Fund). SDG&E is amortizing the Wildfire Fund asset to O&M on a straight-line basis over a 10-year estimated period of benefit, as adjusted for utilization by the IOUs. The estimated period of benefit of the Wildfire Fund asset is based on several assumptions, including, but not limited to:
•
historical wildfire experience of each IOU in the State of California, including frequency and severity of the wildfires;
•
the value of property potentially damaged by wildfires;
•
the effectiveness of wildfire risk mitigation efforts by each IOU;
•
liability cap of each IOU;
•
IOU prudency determination levels;
•
FERC jurisdictional allocation levels; and
•
insurance coverage levels.
The use of different assumptions, or changes to the assumptions used, could have a significant impact on the estimated period of benefit of the Wildfire Fund asset.
We will periodically reevaluate the estimated period of benefit of the Wildfire Fund asset based on actual experience and changes in the above assumptions. SDG&E may recognize a reduction of its Wildfire Fund asset and record a charge against earnings in the period when there is a reduction of the available coverage due to recoverable claims from the IOUs. The reduction to the Wildfire Fund asset may be proportionate to the Wildfire Fund’s consumption (i.e., recoveries for outstanding wildfire claims that are recoverable from the Wildfire Fund, net of anticipated or actual reimbursement to the Wildfire Fund by the responsible IOU, would decrease the Wildfire Fund asset and remaining available coverage). In the three months ended September 30, 2019, there were no such known claims from the IOUs requiring an incremental reduction of the Wildfire Fund asset.
At September 30, 2019, the current portion of the Wildfire Fund asset was $43 million in Other Current Assets on Sempra Energy’s Condensed Consolidated Balance Sheet and in Prepaid Expenses on SDG&E’s Condensed Consolidated Balance Sheet, and the noncurrent portion of $381 million was in Wildfire Fund on Sempra Energy’s and SDG&E’s Condensed Consolidated Balance Sheets.
Wildfire Fund Obligation
SDG&E recorded a Wildfire Fund obligation for its commitment to make shareholder contributions totaling $451.5 million, measured at present value as of July 25, 2019 (the date by which both Edison and SDG&E opted to contribute to the Wildfire Fund). SDG&E paid its initial shareholder contribution of $322.5 million to the Wildfire Fund in September 2019. At September 30, 2019, SDG&E expects to make annual shareholder contributions of $12.9 million in each of the next 10 years by January 1 of each year, beginning July 25, 2019. SDG&E accretes the present value of the Wildfire Fund obligation to O&M until the liability is settled.
At September 30, 2019, the Wildfire Fund obligation was $12.9 million in Other Current Liabilities and $97 million in Deferred Credits and Other on Sempra Energy’s and SDG&E’s Condensed Consolidated Balance Sheets.
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,
 
2019
 
2018
 
2019
 
2018
Sempra Energy Consolidated
$
46

 
$
47

 
$
144

 
$
150

SDG&E
19

 
20

 
56

 
67

SoCalGas
13

 
10

 
35

 
39


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 on 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
Through October 3, 2019, SDG&E had a tolling agreement to purchase power generated at OMEC, a 605-MW generating facility owned by OMEC LLC, which is a VIE that we refer to as Otay Mesa VIE. Under the terms of a related agreement, OMEC LLC could have required SDG&E to purchase the power plant (referred to as the put option) on or before October 3, 2019 for $280 million, subject to adjustments, or upon earlier termination of the PPA. SDG&E determined that it was the primary beneficiary of Otay Mesa VIE, and therefore, SDG&E and Sempra Energy consolidated Otay Mesa VIE.
In October 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 in August 2024. The capacity agreement was approved by OMEC LLC’s lenders and the CPUC in December 2018 and February 2019, respectively. However, given certain then pending requests for rehearing of the CPUC’s decision approving the capacity agreement, on March 28, 2019, OMEC LLC exercised the put option requiring SDG&E to purchase the power plant. On August 6, 2019, the CPUC denied the rehearing requests, and on August 23, 2019, SDG&E and OMEC LLC executed an amended resource adequacy capacity agreement that irrevocably rescinded exercise of the put option. Consequently, SDG&E and Sempra Energy deconsolidated Otay Mesa VIE on August 23, 2019. No gain or loss was recognized upon deconsolidation.
Prior to deconsolidation, on August 14, 2019, OMEC LLC paid in full its variable-rate loan that was scheduled to mature in August 2024, which we describe in Note 7.
The following table summarizes the deconsolidation:
DECONSOLIDATION OF OTAY MESA VIE
 
(Dollars in millions)
 
 
 August 23, 2019
Cash and cash equivalents
$
8

Accounts receivable, net
11

Inventories
4

Total current assets
23

Property, plant and equipment, net
272

Other noncurrent assets
27

Total assets
$
322

 
 
Accounts payable
$
10

Other
2

Total current liabilities
12

 
 
Asset retirement obligations
2

Deferred credits and other
27

Total deferred credits and other liabilities
29

 
 
Noncontrolling interest
281

Total liabilities and equity
$
322


Otay Mesa VIE’s equity of $100 million at December 31, 2018 is included on the Condensed Consolidated Balance Sheets in Other Noncontrolling Interests for Sempra Energy and in Noncontrolling Interest for SDG&E.
The Condensed Consolidated Statements of Operations of Sempra Energy and SDG&E include the following amounts associated with Otay Mesa VIE until its deconsolidation on August 23, 2019. 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,
 
2019(1)
 
2018
 
2019(1)
 
2018
Operating expenses
 
 
 
 
 
 
 
Cost of electric fuel and purchased power
$
(17
)
 
$
(28
)
 
$
(52
)
 
$
(60
)
Operation and maintenance
2

 
3

 
10

 
11

Depreciation and amortization
8

 
8

 
23

 
23

Total operating expenses
(7
)
 
(17
)
 
(19
)
 
(26
)
Operating income
7

 
17

 
19

 
26

Interest expense
(4
)
 
(6
)
 
(12
)
 
(16
)
Income before income taxes/Net income
3

 
11

 
7

 
10

Earnings attributable to noncontrolling interest
(3
)
 
(11
)
 
(7
)
 
(10
)
Earnings attributable to common shares
$
—

 
$
—

 
$
—

 
$
—


(1)
Amounts for 2019 include activity until deconsolidation on August 23, 2019.

SDG&E determined that none of its contracts resulted in SDG&E being the primary beneficiary of a VIE at September 30, 2019. 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. 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 16 of the Notes to Consolidated Financial Statements in the Annual Report.
We provide additional information regarding Otay Mesa VIE in Note 11 below and in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.
Sempra Texas Utilities
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 and governance 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 Note 6 for additional information about our equity method investment in Oncor Holdings and restrictions on our ability to influence its activities. Our maximum exposure to loss, which fluctuates over time, from our interest in Oncor Holdings does not exceed the carrying value of our investment, which was $11,145 million at September 30, 2019 and $9,652 million at December 31, 2018.
Sempra Renewables
Certain of Sempra Renewables’ wind and solar power generation projects were held by limited liability companies whose members were Sempra Renewables and financial institutions. The financial institutions were noncontrolling tax equity investors to which earnings, tax attributes and cash flows were allocated in accordance with the respective limited liability company agreements. These entities were VIEs and Sempra Energy was 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 impacted the economic performance of these VIEs. As the primary beneficiary of these tax equity limited liability companies, we consolidated them. We sold the solar entities in December 2018 and the wind entities in April 2019.
Sempra Energy’s Condensed Consolidated Balance Sheet includes equity of $158 million at December 31, 2018 of Other Noncontrolling Interests associated with these entities. 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(1)
 
 
(Dollars in millions)
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended
September 30,
 
 
2018
 
2019
 
2018
REVENUES
 
 
 
 
 
Energy-related businesses
$
28

 
$
8

 
$
77

EXPENSES
 
 
 
 
 
Operation and maintenance
(5
)
 
(2
)
 
(13
)
Depreciation and amortization
(13
)
 
(4
)
 
(36
)
Income before income taxes
10

 
2

 
28

Income tax expense
(4
)
 
—

 
(16
)
Net income
6

 
2

 
12

Losses (earnings) attributable to noncontrolling interests(2)
9

 
(1
)
 
50

Earnings attributable to common shares
$
15

 
$
1

 
$
62

(1)
Amounts for 2019 include activity until deconsolidation of the wind entities in April 2019. Amounts for 2018 include activity until deconsolidation of the solar entities in December 2018.
(2)
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
Cameron LNG JV is 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, and therefore we account for our investment in Cameron LNG JV under the equity method. The carrying value of our investment, including amounts recognized in AOCI related to interest-rate cash flow hedges at Cameron LNG JV, was $1,216 million at September 30, 2019 and $1,271 million at December 31, 2018. Our maximum exposure to loss, which fluctuates over time, includes the carrying value of our investment and the guarantees that we discuss in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report.
Other Variable Interest Entities
Sempra Energy’s other businesses also enter into arrangements that 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 because the total equity at risk is not sufficient for the entities to finance their activities without additional subordinated financial support. As the primary beneficiary of these companies, we consolidate them. The assets of these VIEs totaled approximately $779 million at September 30, 2019 and $286 million at December 31, 2018 and consisted primarily of PP&E and other long-term assets. Sempra Energy’s exposure to loss is equal to the carrying value of these assets. 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 or disclosures of VIEs.
PENSION AND OTHER POSTRETIREMENT BENEFITS
Settlement Accounting for Lump Sum Payments
In the nine months ended September 30, 2019, Sempra Energy recorded settlement charges of $22 million in net periodic benefit cost for lump sum payments from its non-qualified pension plan that were in excess of the plan’s service cost plus interest cost.
Sale of Qualified Pension Plan Annuity Contracts
In March 2018, an insurance company purchased certain annuities for 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.
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,
 
2019
 
2018
 
2019
 
2018
Service cost
$
27

 
$
29

 
$
4

 
$
4

Interest cost
34

 
35

 
9

 
9

Expected return on assets
(36
)
 
(35
)
 
(17
)
 
(18
)
Amortization of:
 
 
 
 
 
 
 
Prior service cost
3

 
3

 
—

 
—

Actuarial loss (gain)
8

 
6

 
(3
)
 
(2
)
Settlement charges
4

 
9

 
—

 
—

Special termination benefits
—

 
—

 
—

 
5

Net periodic benefit cost (credit)
40

 
47

 
(7
)
 
(2
)
Regulatory adjustments
3

 
(11
)
 
8

 
2

Total expense recognized
$
43

 
$
36

 
$
1

 
$
—

 
 
 
 
 
 
 
 
 
Nine months ended September 30,
 
2019
 
2018
 
2019
 
2018
Service cost
$
82

 
$
95

 
$
12

 
$
15

Interest cost
104

 
104

 
27

 
27

Expected return on assets
(108
)
 
(117
)
 
(52
)
 
(53
)
Amortization of:
 
 
 
 
 
 
 
Prior service cost
9

 
8

 
—

 
—

Actuarial loss (gain)
29

 
25

 
(8
)
 
(4
)
Settlement charges
26

 
48

 
—

 
—

Special termination benefits
—

 
—

 
—

 
5

Net periodic benefit cost (credit)
142

 
163

 
(21
)
 
(10
)
Regulatory adjustments
(30
)
 
(91
)
 
22

 
11

Total expense recognized
$
112

 
$
72

 
$
1

 
$
1

NET PERIODIC BENEFIT COST – SDG&E
(Dollars in millions)
 
Pension benefits
 
Other postretirement benefits
 
Three months ended September 30,
 
2019
 
2018
 
2019
 
2018
Service cost
$
7

 
$
7

 
$
1

 
$
1

Interest cost
9

 
9

 
1

 
2

Expected return on assets
(9
)
 
(10
)
 
(3
)
 
(3
)
Amortization of:
 
 
 
 
 
 
 
Prior service cost
—

 
—

 
1

 
—

Actuarial loss (gain)
2

 
—

 
—

 
(1
)
Settlement charges
—

 
1

 
—

 
—

Special termination benefits
—

 
—

 
—

 
3

Net periodic benefit cost
9

 
7

 
—

 
2

Regulatory adjustments
(1
)
 
(7
)
 
—

 
(2
)
Total expense recognized
$
8

 
$
—

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
Nine months ended September 30,
 
2019
 
2018
 
2019
 
2018
Service cost
$
22

 
$
23

 
$
3

 
$
3

Interest cost
26

 
26

 
5

 
5

Expected return on assets
(29
)
 
(35
)
 
(9
)
 
(10
)
Amortization of:

 
 
 

 
 
Prior service cost
2

 
1

 
2

 
2

Actuarial loss (gain)
9

 
3

 
(1
)
 
(2
)
Settlement charges
—

 
17

 
—

 
—

Special termination benefits
—

 
—

 
—

 
3

Net periodic benefit cost
30

 
35

 
—

 
1

Regulatory adjustments
(13
)
 
(34
)
 
—

 
(1
)
Total expense recognized
$
17

 
$
1

 
$
—

 
$
—

NET PERIODIC BENEFIT COST – SOCALGAS
(Dollars in millions)
 
Pension benefits
 
Other postretirement benefits
 
Three months ended September 30,
 
2019
 
2018
 
2019
 
2018
Service cost
$
17

 
$
19

 
$
3

 
$
3

Interest cost
23

 
23

 
6

 
6

Expected return on assets
(24
)
 
(22
)
 
(14
)
 
(13
)
Amortization of:
 
 
 
 
 
 
 
Prior service cost (credit)
2

 
2

 
(1
)
 
(1
)
Actuarial loss (gain)
3

 
3

 
(2
)
 
(1
)
Settlement charges
—

 
2

 
—

 
—

Special termination benefits
—

 
—

 
—

 
2

Net periodic benefit cost (credit)
21

 
27

 
(8
)
 
(4
)
Regulatory adjustments
4

 
(4
)
 
8

 
4

Total expense recognized
$
25

 
$
23

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
Nine months ended September 30,
 
2019
 
2018
 
2019
 
2018
Service cost
$
51

 
$
62

 
$
9

 
$
11

Interest cost
68

 
68

 
20

 
20

Expected return on assets
(71
)
 
(73
)
 
(43
)
 
(41
)
Amortization of:
 
 
 
 

 
 
Prior service cost (credit)
6

 
6

 
(2
)
 
(2
)
Actuarial loss (gain)
14

 
15

 
(6
)
 
(2
)
Settlement charges
—

 
25

 
—

 
—

Special termination benefits
—

 
—

 
—

 
2

Net periodic benefit cost (credit)
68

 
103

 
(22
)
 
(12
)
Regulatory adjustments
(17
)
 
(57
)
 
22

 
12

Total expense recognized
$
51

 
$
46

 
$
—

 
$
—


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 2019.
BENEFIT PLAN CONTRIBUTIONS
(Dollars in millions)
 
 
Sempra Energy
Consolidated
 
SDG&E
 
SoCalGas
Contributions through September 30, 2019:
 
 
 
 
 
 
Pension plans
 
$
130

 
$
17

 
$
51

Other postretirement benefit plans
 
6

 
—

 
1

Total expected contributions in 2019:
 
 
 
 
 
 
Pension plans
 
$
280

 
$
53

 
$
152

Other postretirement benefit plans
 
8

 
1

 
1


RABBI TRUST
In 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 $439 million and $416 million at September 30, 2019 and December 31, 2018, respectively.
EARNINGS PER COMMON SHARE
Basic EPS is calculated by dividing earnings attributable to common shares (from both continuing and discontinued operations) 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 (LOSSES) PER COMMON SHARE COMPUTATIONS
 
 
 
 
 
 
 
(Dollars in millions, except per share amounts; shares in thousands)
 
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2019
 
2018
 
2019
 
2018
Numerator for continuing operations:
 
 
 
 
 
 
 
Income from continuing operations, net of income tax
$
653

 
$
280

 
$
1,570

 
$
25

(Earnings) losses attributable to noncontrolling interests
(52
)
 
(16
)
 
(121
)
 
10

Mandatory convertible preferred stock dividends
(36
)
 
(36
)
 
(107
)
 
(89
)
Preferred dividends of subsidiary
—

 
—

 
(1
)
 
(1
)
Earnings (losses) from continuing operations attributable to common shares for basic EPS
565

 
228

 
1,341

 
(55
)
Add back dividends for dilutive mandatory convertible preferred stock(1)
26

 
—

 
—

 
—

Earnings (losses) from continuing operations attributable to common shares for diluted EPS
$
591

 
$
228

 
$
1,341

 
$
(55
)
 
 
 
 
 
 
 
 
Numerator for discontinued operations:
 
 
 
 
 
 
 
Income from discontinued operations, net of income tax
$
256

 
$
54

 
$
292

 
$
137

Earnings attributable to noncontrolling interests
(8
)
 
(8
)
 
(25
)
 
(22
)
Earnings from discontinued operations attributable to common shares
$
248

 
$
46

 
$
267

 
$
115

 
 
 
 
 
 
 
 
Numerator for earnings:
 
 
 
 
 
 
 
Earnings attributable to common shares for basic EPS
$
813

 
$
274

 
$
1,608

 
$
60

Add back dividends for dilutive mandatory convertible preferred stock(1)
26

 
—

 
—

 
—

Earnings attributable to common shares for diluted EPS
$
839

 
$
274

 
$
1,608

 
$
60

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted-average common shares outstanding for basic EPS(2)
277,360

 
273,944

 
275,684

 
265,963

Dilutive effect of stock options and RSUs(3)(4)
1,636

 
854

 
1,381

 
—

Dilutive effect of common shares sold forward(3)
3,555

 
1,109

 
2,744

 
—

Dilutive effect of mandatory convertible preferred stock
13,238

 
—

 
—

 
—

Weighted-average common shares outstanding for diluted EPS
295,789

 
275,907

 
279,809

 
265,963

 
 
 
 
 
 
 
 
Basic EPS:
 
 
 
 
 
 
 
Earnings (losses) from continuing operations attributable to common shares
$
2.04

 
$
0.83

 
$
4.86

 
$
(0.21
)
Earnings from discontinued operations attributable to common shares
$
0.89

 
$
0.17

 
$
0.97

 
$
0.44

Earnings attributable to common shares
$
2.93

 
$
1.00

 
$
5.83

 
$
0.23

 
 
 
 
 
 
 
 
Diluted EPS:
 
 
 
 
 
 
 
Earnings (losses) from continuing operations attributable to common shares
$
2.00

 
$
0.82

 
$
4.79

 
$
(0.21
)
Earnings from discontinued operations attributable to common shares
$
0.84

 
$
0.17

 
$
0.95

 
$
0.44

Earnings attributable to common shares
$
2.84

 
$
0.99

 
$
5.74

 
$
0.23

(1) 
In the three months ended September 30, 2019, due to the dilutive effect of the series A preferred stock, the numerator used to calculate diluted EPS includes an add-back of series A preferred stock dividends declared in that quarter.
(2)
Includes 618 and 645 average fully vested RSUs held in our Deferred Compensation Plan for the three months ended September 30, 2019 and 2018, respectively, and 615 and 638 of such RSUs for the nine months ended September 30, 2019 and 2018, 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) 
In the nine months ended September 30, 2018, the total weighted-average potentially dilutive stock options and RSUs of 736 and common stock shares sold forward of 945 were not included in the computation of diluted EPS since to do so would have decreased the losses from continuing operations attributable to common shares.
(4) 
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.

The potentially dilutive impact from stock options 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, 2019 and 2018 excludes zero and 508 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, 2019 and 2018 excludes 107,042 and 1,552 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 entered into in 2018 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 both the three months and nine months ended September 30, 2019 excludes zero potentially dilutive shares because to include them would be antidilutive for those periods. 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, 2019 excludes 4,219,350 and 17,457,000 potentially dilutive shares, respectively, because to include them would be antidilutive for those periods. The computation of dilutive EPS for the three months and nine months ended September 30, 2018 excludes 19,152,109 and 15,863,530 such potentially dilutive shares, respectively.
Pursuant to our Sempra Energy share-based compensation plans, Sempra Energy’s Board of Directors granted 261,075 non-qualified stock options that are exercisable over a three-year period, 389,825 performance-based RSUs and 260,594 service-based RSUs in the nine months ended September 30, 2019, primarily in January.
We discuss share-based compensation plans and related awards further in Note 10 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, 2019 and 2018
Sempra Energy Consolidated(2):
 
 
 
 
 
 
 
Balance as of June 30, 2019
$
(518
)
 
$
(213
)
 
$
(117
)
 
$
(848
)
OCI before reclassifications
(91
)
 
(41
)
 
(7
)
 
(139
)
Amounts reclassified from AOCI
—

 
4

 
5

 
9

Net OCI
(91
)
 
(37
)
 
(2
)
 
(130
)
Balance as of September 30, 2019
$
(609
)
 
$
(250
)
 
$
(119
)
 
$
(978
)
 
 
 
 
 
 
 
 
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
)
SDG&E:
 
 
 
 
 
 
 
Balance as of June 30, 2019 and September 30, 2019
 
 
 
 
$
(11
)
 
$
(11
)
 
 
 
 
 
 
 
 
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
)
SoCalGas:
 
 
 
 
 
 
 
Balance as of June 30, 2019
 
 
$
(14
)
 
$
(6
)
 
$
(20
)
Amounts reclassified from AOCI
 
 
1

 
—

 
1

Net OCI
 
 
1

 
—

 
1

Balance as of September 30, 2019
 
 
$
(13
)
 
$
(6
)
 
$
(19
)
 
 
 
 
 
 
 
 
Balance as of June 30, 2018 and September 30, 2018
 
 
$
(13
)
 
$
(7
)
 
$
(20
)
(1) 
All amounts are net of income tax, if subject to tax, and exclude NCI.
(2) 
Includes discontinued operations.
CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT(1) (CONTINUED)
(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, 2019 and 2018
Sempra Energy Consolidated(2):
 
 
 
 
 
 
 
Balance as of December 31, 2018
$
(564
)
 
$
(82
)
 
$
(118
)
 
$
(764
)
Cumulative-effect adjustment from change in accounting principle
—

 
(25
)
 
(17
)
 
(42
)
OCI before reclassifications(3)
(45
)
 
(153
)
 
(13
)
 
(211
)
Amounts reclassified from AOCI(3)
—

 
10

 
29

 
39

Net OCI
(45
)
 
(143
)
 
16

 
(172
)
Balance as of September 30, 2019
$
(609
)
 
$
(250
)
 
$
(119
)
 
$
(978
)
 
 
 
 
 
 
 
 
Balance as of December 31, 2017
$
(420
)
 
$
(122
)
 
$
(84
)
 
$
(626
)
Cumulative-effect adjustment from change in accounting principle
—

 
(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
)
SDG&E:
 
 
 
 
 
 
 
Balance as of December 31, 2018
 
 
 
 
$
(10
)
 
$
(10
)
Cumulative-effect adjustment from change in accounting principle
 
 
 
 
(2
)
 
(2
)
Amounts reclassified from AOCI
 
 
 
 
1

 
1

Net OCI
 
 
 
 
1

 
1

Balance as of September 30, 2019
 
 
 
 
$
(11
)
 
$
(11
)
 
 
 
 
 
 
 
 
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
)
SoCalGas:
 
 
 
 
 
 
 
Balance as of December 31, 2018
 
 
$
(12
)
 
$
(8
)
 
$
(20
)
Cumulative-effect adjustment from change in accounting principle
 
 
(2
)
 
(2
)
 
(4
)
Amounts reclassified from AOCI(3)
 
 
1

 
4

 
5

Net OCI
 
 
1

 
4

 
5

Balance as of September 30, 2019
 
 
$
(13
)
 
$
(6
)
 
$
(19
)
 
 
 
 
 
 
 
 
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
)

(1) 
All amounts are net of income tax, if subject to tax, and exclude NCI.
(2) 
Includes discontinued operations.
(3) 
Pension and Other Postretirement Benefits and Total AOCI include a $4 million transfer of liabilities from SoCalGas to Sempra Energy related to the nonqualified pension plan.
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,
 
 
 
2019
 
2018
 
 
Sempra Energy Consolidated:
 
 
 
 
 
Financial instruments:
 
 
 
 
 
Interest rate and foreign exchange instruments(1)
$
1

 
$
—

 
Interest Expense
 
5

 
(11
)
 
Other (Expense) Income, Net
Interest rate and foreign exchange instruments
2

 
3

 
Equity Earnings
Total before income tax
8

 
(8
)
 
 
 
(2
)
 
4

 
Income Tax (Expense) Benefit
Net of income tax
6

 
(4
)
 
 
 
(2
)
 
—

 
Earnings Attributable to Noncontrolling Interests
 
$
4

 
$
(4
)
 
 
Pension and other postretirement benefits:
 
 
 
 
 
Amortization of actuarial loss(2)
$
3

 
$
9

 
Other (Expense) Income, Net
Amortization of prior service cost(2)
1

 
1

 
Other (Expense) Income, Net
Settlement charges(2)
4

 
—

 
Other (Expense) Income, Net
Total before income tax
8

 
10

 
 
 
(3
)
 
(2
)
 
Income Tax (Expense) Benefit
Net of income tax
$
5

 
$
8

 
 
 
 
 
 
 
 
Total reclassifications for the period, net of tax
$
9

 
$
4

 
 
SDG&E:
 
 
 
 
 
Financial instruments:
 
 
 
 
 
Interest rate instruments(1)
$
1

 
$
2

 
Interest Expense
 
(1
)
 
(2
)
 
Earnings Attributable to Noncontrolling Interest
Total reclassifications for the period, net of tax
$
—

 
$
—

 
 
SoCalGas:
 

 
 

 
 
Financial instruments:
 
 
 
 
 
Interest rate instruments
$
1

 
$
—

 
Interest Expense
Total reclassifications for the period, net of tax
$
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).

RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (CONTINUED)
(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,
 
 
 
2019
 
2018
 
 
Sempra Energy Consolidated:
 
 
 
 
 
Financial instruments:
 
 
 
 
 
Interest rate and foreign exchange instruments(1)
$
2

 
$
(1
)
 
Interest Expense
 
—

 
(11
)
 
Other (Expense) Income, Net
Interest rate instruments
10

 
—

 
(Loss) Gain on Sale of Assets
Interest rate and foreign exchange instruments
3

 
8

 
Equity Earnings
Foreign exchange instruments
1

 
(1
)
 
Revenues: Energy-Related Businesses
Total before income tax
16

 
(5
)
 
 
 
(3
)
 
3

 
Income Tax (Expense) Benefit
Net of income tax
13

 
(2
)
 
 
 
(3
)
 
(2
)
 
Earnings Attributable to Noncontrolling Interests
 
$
10

 
$
(4
)
 
 
Pension and other postretirement benefits:
 
 
 
 
 
Amortization of actuarial loss(2)
$
7

 
$
15

 
Other (Expense) Income, Net
Amortization of prior service cost(2)
2

 
1

 
Other (Expense) Income, Net
Settlement charges(2)
26

 
—

 
Other (Expense) Income, Net
Total before income tax
35

 
16

 
 
 
(10
)
 
(4
)
 
Income Tax (Expense) Benefit
Net of income tax
$
25

 
$
12

 
 
 
 
 
 
 
 
Total reclassifications for the period, net of tax
$
35

 
$
8

 
 
SDG&E:
 
 
 
 
 
Financial instruments:
 
 
 
 
 
Interest rate instruments(1)
$
3

 
$
6

 
Interest Expense
 
(3
)
 
(6
)
 
Earnings Attributable to Noncontrolling Interest
 
$
—

 
$
—

 
 
Pension and other postretirement benefits:
 
 
 
 
 
Amortization of prior service cost(2)
$
1

 
$
—

 
Other Income, Net
 
 
 
 
 
 
Total reclassifications for the period, net of tax
$
1

 
$
—

 
 
SoCalGas:
 

 
 

 
 
Financial instruments:
 
 
 
 
 
Interest rate instruments
$
1

 
$
—

 
Interest Expense
Pension and other postretirement benefits:
 

 
 

 
 
Amortization of actuarial loss(2)
$
—

 
$
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
In January 2018, we issued 17,250,000 shares of our series A preferred stock in a registered public offering resulting in net proceeds of approximately $1.69 billion. In July 2018, we issued 5,750,000 shares of our series B preferred stock in a registered public offering resulting in net proceeds of approximately $565 million. Each share of series A preferred stock and series B preferred stock has a liquidation value of $100.00. We discuss the preferred stock offerings in Note 13 of the Notes to Consolidated Financial Statements in the Annual Report.
Sempra Energy Common Stock Offerings
In January 2018, we completed the offering of 26,869,158 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. Through September 30, 2019, we received net proceeds totaling approximately $2.8 billion to fully settle these shares, as follows:
▪
$367 million (net of underwriting discounts and equity issuance costs of $8 million) to cover overallotment shares of 3,504,672 in the first quarter of 2018;
▪
$900 million (net of underwriting discounts of $16 million) from the settlement of 8,556,630 shares in the first quarter of 2018;
▪
$800 million (net of underwriting discounts of $14 million) from the settlement of 7,651,671 shares in the second quarter of 2018; and
▪
$728 million (net of underwriting discounts of $13 million) from the settlement of 7,156,185 shares in the third quarter of 2019.
In July 2018, we completed the offering of 11,212,500 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. We received net proceeds of approximately $164 million (net of underwriting discounts and equity issuance costs of $3 million) from the sale of 1,462,500 shares in the third quarter of 2018 to cover overallotments.
As of November 1, 2019, a total of 9,750,000 shares of Sempra Energy common stock are subject to future settlement under the July 2018 forward sale agreements, which may be settled on one or more dates specified by us occurring no later than December 15, 2019, 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.
We provide additional information regarding the common stock offerings in Note 14 of the Notes to Consolidated Financial Statements in the Annual Report.
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 13 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.
SDG&E
As we discuss in “Variable Interest Entities” above, on August 23, 2019, SDG&E and Sempra Energy deconsolidated Otay Mesa VIE after SDG&E determined that it is no longer the primary beneficiary of the VIE.
Sempra Mexico
In the nine months ended September 30, 2019, IEnova repurchased 2,620,000 shares of its outstanding common stock held by NCI for approximately $10 million, resulting in an increase in Sempra Energy’s ownership interest in IEnova from 66.5 percent at December 31, 2018 to 66.6 percent at September 30, 2019.
Sempra Renewables
As we discuss in Note 5, in April 2019, Sempra Renewables sold its remaining wind assets and investments, which included its wind tax equity arrangements. The remaining ownership interest in PXiSE Energy Solutions, LLC was subsumed into Parent and other.
Sempra LNG
On February 7, 2019, Sempra LNG purchased for $20 million the 9.1-percent minority interest in Bay Gas immediately prior to the sale of 100 percent of Bay Gas, which we discuss in Note 5.
Sempra LNG and IEnova are jointly developing a proposed natural gas liquefaction project at the site of IEnova’s existing regasification terminal at ECA. Sempra LNG consolidates the proposed project. Thus, Sempra Energy’s NCI in IEnova’s 50-percent interest in the proposed project is reported at Sempra LNG.
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,
2019
 
December 31,
2018
 
September 30,
2019
 
December 31,
2018
SDG&E:
 
 
 
 
 
 
 
Otay Mesa VIE
—
%
100
%
$
—

 
$
100

Sempra Mexico:
 
 
 
 
 
 
 
IEnova
33.4
 
33.5
 
1,676

 
1,592

IEnova subsidiaries(1)
10.0 – 46.3
 
10.0 – 49.0
 
16

 
13

Sempra Renewables:
 
 
 
 
 
 
 
Tax equity arrangements – wind(2)
—
 
 NA
 
—

 
158

PXiSE Energy Solutions, LLC(3)
—
 
11.1
 
—

 
1

Sempra LNG:
 
 
 
 
 
 
 
Bay Gas
—
 
9.1
 
—

 
18

Liberty Gas Storage, LLC
24.6
 
24.6
 
(13
)
 
(12
)
ECA LNG proposed liquefaction project
16.7
 
—
 
3

 
—

Parent and other:
 
 
 
 
 
 
 
PXiSE Energy Solutions, LLC(3)
20.0
 
—
 
1

 
—

Discontinued Operations:
 
 
 
 
 
 
 
Chilquinta Energía subsidiaries(1)
19.7 – 43.4
 
19.7 – 43.4
 
23

 
23

Luz del Sur
16.4
 
16.4
 
200

 
193

Tecsur
9.8
 
9.8
 
5

 
4

Total Sempra Energy
 
 
 
 
$
1,911

 
$
2,090

(1) 
IEnova and Chilquinta Energía have subsidiaries with NCI held by others. Percentage range reflects the highest and lowest ownership percentages among these subsidiaries.
(2) 
Net income or loss attributable to NCI is computed using the HLBV method and is not based on ownership percentages.
(3) 
In April 2019, PXiSE Energy Solutions, LLC was subsumed into Parent and other.
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,
2019
 
December 31,
2018
Sempra Energy Consolidated:
 
 
 
Total due from various unconsolidated affiliates – current
$
40

 
$
37

 
 
 
 
Sempra Mexico(1):
 
 
 
IMG – Note due March 15, 2022(2)
$
712

 
$
641

Energía Sierra Juárez – Note(3)
—

 
3

Total due from unconsolidated affiliates – noncurrent
$
712

 
$
644

 
 
 
 
Total due to various unconsolidated affiliates – current
$
(12
)
 
$
(10
)
 
 
 
 
Sempra Mexico(1):
 
 
 
Total due to unconsolidated affiliates – noncurrent – TAG – Note due December 20, 2021(4)
$
(39
)
 
$
(37
)
SDG&E:
 
 
 
Total due from unconsolidated affiliates – current – SoCalGas
$
1

 
$
—

 
 
 
 
Sempra Energy(1)(5)
$
(14
)
 
$
(43
)
SoCalGas
—

 
(6
)
Various affiliates
(12
)
 
(12
)
Total due to unconsolidated affiliates – current
$
(26
)
 
$
(61
)
 
 
 
 
Income taxes due from Sempra Energy(6)
$
5

 
$
5

SoCalGas:
 
 
 
SDG&E
$
—

 
$
6

Various affiliates
—

 
1

Total due from unconsolidated affiliates – current
$
—

 
$
7

 
 
 
 
Sempra Energy
$
(35
)
 
$
(34
)
Pacific Enterprises
(150
)
 
—

SDG&E
(1
)
 
—

Various affiliates
(1
)
 
—

Total due to unconsolidated affiliates – current
$
(187
)
 
$
(34
)
 
 
 
 
Income taxes due to Sempra Energy(6)
$
(19
)
 
$
(4
)
(1) 
Amounts include principal balances plus accumulated interest outstanding.
(2) 
Mexican peso-denominated revolving line of credit for up to 14.2 billion Mexican pesos or approximately $718 million U.S. dollar-equivalent, at a variable interest rate based on the 91-day Interbank Equilibrium Interest Rate plus 220 bps (10.13 percent at September 30, 2019), to finance construction of the natural gas marine pipeline.
(3) 
U.S. dollar-denominated loan, at a variable interest rate based on the 30-day LIBOR plus 637.5 bps (8.89 percent at December 31, 2018).
(4) 
U.S. dollar-denominated loan, at a variable interest rate based on the 6-month LIBOR plus 290 bps (4.96 percent at September 30, 2019).
(5) 
At September 30, 2019, net payable includes outstanding advances to Sempra Energy of $25 million at an interest rate of 2.03 percent.
(6) 
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.

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,
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
Sempra Energy Consolidated
$
13

 
$
17

 
$
40

 
$
49

SDG&E
2

 
1

 
5

 
4

SoCalGas
16

 
15

 
50

 
47

Cost of Sales:
 
 
 
 
 
 
 
Sempra Energy Consolidated
$
12

 
$
9

 
$
40

 
$
36

SDG&E
16

 
21

 
56

 
56

SoCalGas
2

 
—

 
6

 
—


Guarantees
Sempra Energy has provided guarantees related to the financing of the Cameron LNG JV project, as we discuss in Note 6 below and in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report.
OTHER (EXPENSE) INCOME, NET
Other (Expense) Income, Net on the Condensed Consolidated Statements of Operations consisted of the following:
OTHER (EXPENSE) INCOME, NET
 
 
 
 
 
 
(Dollars in millions)
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2019
 
2018
 
2019
 
2018
Sempra Energy Consolidated:
 
 
 
 
 
 
 
Allowance for equity funds used during construction
$
25

 
$
23

 
$
69

 
$
79

Investment gains(1)
9

 
8

 
46

 
13

(Losses) gains on interest rate and foreign exchange instruments, net
(17
)
 
39

 
7

 
46

Foreign currency transaction (losses) gains, net(2)
(13
)
 
28

 
(2
)
 
16

Non-service component of net periodic benefit (cost) credit
(13
)
 
(3
)
 
(19
)
 
37

Penalties related to billing practices OII
—

 
—

 
(8
)
 
—

Interest on regulatory balancing accounts, net
4

 
1

 
9

 
2

Sundry, net
(2
)
 
—

 
1

 
(1
)
Total
$
(7
)
 
$
96

 
$
103

 
$
192

SDG&E:
 
 
 
 
 
 
 
Allowance for equity funds used during construction
$
15

 
$
15

 
$
42

 
$
49

Non-service component of net periodic benefit credit
—

 
8

 
8

 
25

Interest on regulatory balancing accounts, net
4

 
2

 
10

 
4

Sundry, net
—

 
(1
)
 
—

 
(1
)
Total
$
19

 
$
24

 
$
60

 
$
77

SoCalGas:
 
 
 
 
 
 
 
Allowance for equity funds used during construction
$
9

 
$
8

 
$
25

 
$
30

Non-service component of net periodic benefit (cost) credit
(5
)
 
(1
)
 
9

 
27

Penalties related to billing practices OII
—

 
—

 
(8
)
 
—

Interest on regulatory balancing accounts, net
—

 
(1
)
 
(1
)
 
(2
)
Sundry, net
(3
)
 
(3
)
 
(7
)
 
(6
)
Total
$
1

 
$
3

 
$
18

 
$
49

(1) 
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.
(2) 
Includes losses of $17 million and a negligible amount in the three months and nine months ended September 30, 2019, respectively, and gains of $33 million and $25 million in the three months and nine months ended September 30, 2018, respectively, from translation to U.S. dollars of a Mexican peso-denominated loan to the IMG JV, which are offset by corresponding amounts included in Equity Earnings on the Condensed Consolidated Statements of Operations.
INCOME TAXES
We provide our calculations of ETRs in the following table.
INCOME TAX EXPENSE (BENEFIT) AND EFFECTIVE INCOME TAX RATES
(Dollars in millions)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2019
 
2018
 
2019
 
2018
Sempra Energy Consolidated:
 
 
 
 
 
 
 
Income tax expense (benefit) from continuing operations
$
61

 
$
139

 
$
150

 
$
(221
)
 
 
 
 
 
 
 
 
Income (loss) from continuing operations before income taxes
 
 
 
 
 
 
 
 and equity earnings
$
448

 
$
345

 
$
1,235

 
$
(245
)
Equity earnings (losses), before income tax(1)
17

 
(52
)
 
24

 
(236
)
Pretax income (loss)
$
465

 
$
293

 
$
1,259

 
$
(481
)
 
 
 
 
 
 
 
 
Effective income tax rate
13
%
 
47
%
 
12
%
 
46
%
SDG&E:
 
 
 
 
 
 
 
Income tax expense
$
71

 
$
53

 
$
111

 
$
151

Income before income taxes
$
337

 
$
269

 
$
700

 
$
682

Effective income tax rate
21
%
 
20
%
 
16
%
 
22
%
SoCalGas:
 
 
 
 
 
 
 
Income tax expense (benefit)
$
35

 
$
(7
)
 
$
50

 
$
75

Income (loss) before income taxes
$
178

 
$
(21
)
 
$
488

 
$
320

Effective income tax rate
20
%
 
33
%
 
10
%
 
23
%

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

Sempra Energy, SDG&E and SoCalGas record income taxes for interim periods utilizing a forecasted ETR anticipated for the full year. 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 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; and
▪
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.
In the nine months ended September 30, 2019, SDG&E and SoCalGas recorded income tax benefits of $31 million and $38 million, respectively, from the release of a regulatory liability 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.
Discontinued Operations
On January 25, 2019, our board of directors approved a plan to sell our South American businesses, as we discuss in Note 5. Prior to this decision, our repatriation estimate excluded post-2017 earnings and other basis differences related to our South American businesses. Because of our decision to sell our South American businesses, we no longer assert indefinite reinvestment of these basis differences and have recorded the following in discontinued operations in the nine months ended September 30, 2019:
▪
$89 million income tax benefit primarily related to outside basis differences existing as of the January 25, 2019 approval of our plan to sell our South American businesses. The amount is comprised of $103 million of income tax expense recorded in the first quarter of 2019, which was then reduced by $192 million in the third quarter of 2019 as a result of a change in the anticipated structure of the sale; and
▪
$32 million income tax expense related to the increase in outside basis differences from 2019 earnings since January 25, 2019.
We have not changed our indefinite reinvestment assertion or repatriation plan for our continuing international operations.