INVESTMENTS IN UNCONSOLIDATED ENTITIES

9 Months Ended

Sep. 30, 2020

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 on the Condensed Consolidated Statements of Operations. See Note 12 for information on equity earnings and losses, both before and net of income tax, by segment. 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.

We provide additional information concerning our equity method investments 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% ownership interest in Oncor Holdings, which owns an 80.25% interest in Oncor, as an equity method investment. Due to the ring-fencing measures, governance mechanisms, and commitments in effect, 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.

In the nine months ended September 30, 2020, Sempra Energy contributed $209 million to Oncor Holdings, and Oncor Holdings distributed to Sempra Energy $220 million in dividends.

In the nine months ended September 30, 2019, Sempra Energy contributed $1,236 million to Oncor Holdings, which includes $1,067 million to fund Oncor’s May 2019 acquisition of interests in InfraREIT and certain acquisition-related expenses, which we discuss in Note 5 of the Notes to Consolidated Financial Statements in the Annual Report. In the nine months ended September 30, 2019, Oncor Holdings distributed to Sempra Energy $162 million in dividends.

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


SUMMARIZED FINANCIAL INFORMATION – ONCOR HOLDINGS
(Dollars in millions)
	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Operating revenues	$	1,232	$	1,211	$	3,394	$	3,268
Operating expenses	(819)		(787)		(2,387)		(2,319)
Income from operations	413		424		1,007		949
Interest expense	(102)		(97)		(305)		(276)
Income tax expense	(50)		(53)		(115)		(106)
Net income	255		261		557		511
Noncontrolling interest held by TTI	(50)		(52)		(111)		(102)
Earnings attributable to Sempra Energy	205		209		446		409

SEMPRA LNG

Cameron LNG JV

In the nine months ended September 30, 2020, Sempra LNG contributed $54 million to Cameron LNG JV, and Cameron LNG JV distributed to Sempra LNG dividends of $209 million and a distribution in the form of a return of investment of $803 million.

In the nine months ended September 30, 2019, Sempra LNG invested cash of $77 million in Cameron LNG JV and, prior to commencing commercial operations in August 2019, Sempra LNG capitalized $32 million of interest related to its investment in Cameron LNG JV.

As of September 30, 2020, Sempra Energy has provided guarantees aggregating a maximum of $4.0 billion with an aggregate carrying value of $1 million, which is included in Other Current Liabilities on the Sempra Energy Condensed Consolidated Balance Sheet associated with Cameron LNG JV’s debt obligations. We discuss these guarantees in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report.

Sempra Energy Support Agreement for CFIN

In July 2020, CFIN entered into a financing arrangement with Cameron LNG JV’s four project owners and received aggregate proceeds of $1.5 billion from two project owners and from external lenders on behalf of the other two project owners (collectively, the affiliate loans), based on their proportionate ownership interest in Cameron LNG JV. CFIN used the proceeds from the affiliate loans to provide a loan to Cameron LNG JV. The affiliate loans mature in 2039. Principal and interest will be paid from Cameron LNG JV’s project cash flows from its three-train natural gas liquefaction facility. Cameron LNG JV used the proceeds from its loan to return equity to its project owners. Sempra Energy used its $753 million share of the proceeds for working capital and other general corporate purposes, including the repayment of indebtedness.

Sempra Energy’s $753 million proportionate share of the affiliate loans, based on its 50.2% ownership interest in Cameron LNG JV, was funded by external lenders comprised of a syndicate of eight banks (the bank debt) to whom Sempra Energy has provided a guarantee pursuant to a Support Agreement. Under the terms of the Support Agreement, Sempra Energy has severally guaranteed repayment of the bank debt plus accrued and unpaid interest if CFIN fails to pay the external lenders. Additionally, the external lenders may exercise an option to put the bank debt to Sempra Energy on every one-year anniversary of the closing of the affiliate loans, as well as upon the occurrence of certain events, including a failure by CFIN to meet its payment obligations under the bank debt. In addition, some or all of the bank debt will be transferred by each external lender back to Sempra Energy on the

five-year anniversary of the affiliate loans, unless the external lenders elect to waive their transfer rights six months prior to the five-year anniversary of the affiliate loans. Sempra Energy also has a right to call the bank debt back from, or to refinance the bank debt with, the external lenders at any time. The Support Agreement will terminate upon full repayment of the bank debt, including repayment following an event in which the bank debt is put to Sempra Energy. In exchange for this guarantee, the external lenders will pay a guarantee fee that is based on the credit rating of Sempra Energy’s long-term senior unsecured non-credit enhanced debt rating, which guarantee fee Sempra LNG will recognize as interest income as earned. Sempra Energy’s maximum exposure to loss is the bank debt plus any accrued and unpaid interest and related fees, subject to a liability cap of 130% of the bank debt, or $979 million. We measure the Support Agreement at fair value, net of related guarantee fees, on a recurring basis (see Note 9). At September 30, 2020, the fair value of the Support Agreement was $6 million, which is included in Other Current Assets on the Sempra Energy Condensed Consolidated Balance Sheet.

RBS SEMPRA COMMODITIES

As we discuss in Note 11, in the first quarter of 2020, we recorded a charge of $100 million in Equity Earnings on Sempra Energy’s Condensed Consolidated Statement of Operations for losses from our investment in RBS Sempra Commodities. We recognized a corresponding liability of $25 million in Other Current Liabilities and $75 million in Deferred Credits and Other for our share of estimated losses in excess of the carrying value of our equity method investment.