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GENERAL INFORMATION AND OTHER FINANCIAL DATA

6 Months Ended

Jun. 30, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

GENERAL INFORMATION AND OTHER FINANCIAL DATA

PRINCIPLES OF CONSOLIDATION

Sempra

Sempra’s Condensed Consolidated Financial Statements include the accounts of Sempra Energy, a California-based holding company doing business as Sempra, and its consolidated entities. Sempra’s business activities are organized under five 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 common stock is wholly owned by Enova Corporation, which is a wholly owned subsidiary of Sempra.

SoCalGas

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

BASIS OF PRESENTATION

This is a combined report of Sempra, SDG&E and SoCalGas. We provide separate information for SDG&E and SoCalGas as required. References in this report to “we,” “our,” “us” and “Sempra” are to Sempra and its consolidated entities, collectively, unless otherwise stated or indicated by the context. We refer to SDG&E and SoCalGas collectively as the California Utilities. Sempra Global is the holding company for our subsidiaries that are not subject to California or Texas utility regulation. We have eliminated intercompany accounts and transactions within the consolidated financial statements of each reporting entity.

Throughout these Notes, 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;

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

▪the Condensed Financial Statements and related Notes of SoCalGas.

We have prepared our Condensed Consolidated Financial Statements in conformity with U.S. GAAP and in accordance with the interim-period-reporting requirements of Form 10-Q and applicable rules of the SEC. The financial statements reflect all adjustments that are necessary for a fair presentation of the results for the interim periods. These adjustments are only of a normal, recurring nature. Results of operations for interim periods are not necessarily indicative of results for the entire year or for any other period. We evaluated events and transactions that occurred after June 30, 2021 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.

All December 31, 2020 balance sheet information in the Condensed Consolidated Financial Statements has been derived from our audited 2020 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 period reporting purposes.

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

Discontinued Operations

In January 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, which we discuss further in Note 5. We completed the sales of our South American businesses in the second quarter of 2020. 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 revenue recognition and the effects of regulation at our utilities in Notes 3 and 4 below and in Notes 1, 3 and 4 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.

Our Sempra Mexico segment includes the operating companies of our subsidiary, IEnova, as well as certain holding companies and risk management activity. 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 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 Sempra’s Condensed Consolidated Balance Sheets to the sum of such amounts reported on Sempra’s 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)
	June 30,		December 31,
	2021		2020
Cash and cash equivalents	$	335	$	960
Restricted cash, current	33		22
Restricted cash, noncurrent	3		3
Total cash, cash equivalents and restricted cash on the Condensed Consolidated Statements of Cash Flows	$	371	$	985

CREDIT LOSSES

We are exposed to credit losses from financial assets measured at amortized cost, including trade and other accounts receivable and amounts due from unconsolidated affiliates. We are also exposed to credit losses from off-balance sheet arrangements through Sempra’s guarantee related to Cameron LNG JV’s SDSRA, which we discuss in Note 6.

We regularly monitor and evaluate credit losses and record allowances for expected credit losses, if necessary, for trade and other accounts receivable using a combination of factors, including past-due status based on contractual terms, trends in write-offs, the age of the receivable, historical and industry trends, counterparty creditworthiness, economic conditions and specific events, such as bankruptcies. We write off financial assets measured at amortized cost in the period in which we determine they are not recoverable. We record recoveries of amounts previously written off when it is known that they will be recovered.

In connection with the COVID-19 pandemic, the California Utilities implemented certain measures to assist customers, including suspending service disconnections due to nonpayment for all customers (except for SoCalGas’ noncore customers), waiving late payment fees, and offering flexible payment plans to customers experiencing difficulty paying their electric or gas bills. Such measures ended on June 30, 2021, except for the suspension of service disconnections that will continue through September 30, 2021. As we discuss in Note 4, the CPUC authorized each of the California Utilities to track and request recovery of incremental costs, including uncollectible expenses, associated with complying with customer protection measures ordered by the CPUC related to the COVID-19 pandemic.

In connection with a separate CPUC decision addressing residential service disconnections, the California Utilities each established a two-way balancing account to record the uncollectible expenses associated with residential customers’ inability to pay their electric or gas bills, including as a result of the relief from outstanding utility bill amounts provided under the AMP. We discuss the AMP in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.

The California Utilities have recorded increases in their allowances for expected credit losses primarily related to expected forgiveness of outstanding utility bill amounts, including increases due to the effect of the COVID-19 pandemic, for participating, income-qualified residential customers eligible under the AMP. Our businesses will continue to monitor macroeconomic factors and customer payment patterns when evaluating their allowances for credit losses, which may increase significantly due to the effects of the COVID-19 pandemic or other factors.

We provide below allowances and changes in allowances for credit losses for trade and other accounts receivable. The California Utilities record changes in the allowances for credit losses related to Accounts Receivable – Trade in regulatory accounts.


TRADE AND OTHER ACCOUNTS RECEIVABLE – ALLOWANCES FOR CREDIT LOSSES
(Dollars in millions)
	2021		2020
Sempra:
Allowances for credit losses at January 1	$	138	$	29
Incremental allowance upon adoption of ASU 2016-13	—		1
Provisions for expected credit losses	66		21
Write-offs	(12)		(7)

Allowances for credit losses at June 30(1)	$	192	$	44
SDG&E:
Allowances for credit losses at January 1	$	69	$	14
Provisions for expected credit losses	13		9
Write-offs	(7)		(4)

Allowances for credit losses at June 30(2)	$	75	$	19
SoCalGas:
Allowances for credit losses at January 1	$	68	$	15
Provisions for expected credit losses	52		12
Write-offs	(5)		(3)
Allowances for credit losses at June 30(3)	$	115	$	24

(1) At June 30, 2021, includes $153 million in Accounts Receivable – Trade, Net and $39 million in Accounts Receivable – Other, Net.

(2) At June 30, 2021, includes $60 million in Accounts Receivable – Trade, Net and $15 million in Accounts Receivable – Other, Net.

(3) At June 30, 2021, includes $91 million in Accounts Receivable – Trade, Net and $24 million in Accounts Receivable – Other, Net.

For amounts due from unconsolidated affiliates, on a quarterly basis, we evaluate credit losses and record allowances for expected credit losses, if necessary, based on credit quality indicators such as external credit ratings, published default rate studies, the maturity date of the instrument and past delinquencies. However, we do not record allowances for expected credit losses related to accrued interest receivable on loans due from unconsolidated affiliates because we write off such amounts, if any, through a reversal of interest income in the period we determine such amounts are uncollectible. In the absence of external credit ratings, we may utilize an internally developed credit rating based on our analysis of a counterparty’s financial statements to determine our expected credit losses.

As we discuss below in “Transactions with Affiliates,” Sempra has loans due from unconsolidated affiliates with varying tenors, interest rates and currencies. We provide below the allowances and changes in allowances for credit losses for loans and other amounts due from unconsolidated affiliates.


AMOUNTS DUE FROM UNCONSOLIDATED AFFILIATES – ALLOWANCES FOR CREDIT LOSSES
(Dollars in millions)
	Sempra
	2021		2020
Allowances for credit losses at January 1	$	3	$	—
Allowance established upon adoption of ASU 2016-13	—		6
Provisions for expected credit losses	(2)		(3)
Allowances for credit losses at June 30(1)	$	1	$	3

(1) At June 30, 2021, $1 million is included in Due from Unconsolidated Affiliates – Noncurrent.

As we discuss in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report, Sempra previously provided guarantees for the benefit of Cameron LNG JV related to its construction-period debt obligations for a maximum aggregate amount of $4.0 billion. In March 2021, Cameron LNG JV reached financial completion of the three-train liquefaction project, which terminated the guarantees. There are no longer any expected credit losses related to these terminated guarantees.

As we discuss in Note 6, Sempra provided a guarantee for the benefit of Cameron LNG JV related to amounts withdrawn by Sempra LNG from the SDSRA. At June 30, 2021, expected credit losses of $7 million related to this guarantee are included in Deferred Credits and Other on Sempra’s Condensed Consolidated Balance Sheet.

INVENTORIES

The components of inventories are as follows:


INVENTORY BALANCES
(Dollars in millions)
	Natural gas				LNG				Materials and supplies				Total
	June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020
Sempra	$	139	$	118	$	13	$	7	$	187	$	183	$	339	$	308
SDG&E	—		—		—		—		109		104		109		104
SoCalGas	62		94		—		—		64		59		126		153

WILDFIRE FUND

In July 2019, the Wildfire Legislation was signed into law to address certain issues related to catastrophic wildfires in the State of California and their impact on electric IOUs. We discuss the Wildfire Legislation further in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.

In July 2021, the CPUC approved SDG&E’s 2021 Wildfire Mitigation Plan Update. In July 2021, the CPUC’s Wildfire Safety Division became the Office of Energy Infrastructure Safety (OEIS) under the California Natural Resources Agency. As successor to the Wildfire Safety Division, OEIS maintains the duties and responsibilities of the former Wildfire Safety Division with respect to Wildfire Mitigation Plans.

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 district court dismissed the complaint and the plaintiffs have petitioned the U.S. Court of Appeals for the Ninth Circuit for review.

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 at 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 June 30,				Six months ended June 30,
	2021		2020		2021		2020
Sempra	$	55	$	50	$	114	$	98
SDG&E	28		26		58		53
SoCalGas	15		14		31		25

OTHER INTANGIBLE ASSETS

Other Intangible Assets included on Sempra’s Condensed Consolidated Balance Sheets are as follows:


OTHER INTANGIBLE ASSETS
(Dollars in millions)
	Amortization period (years)	June 30, 2021		December 31, 2020
Renewable energy transmission and consumption permits	15 to 19	$	169	$	169
O&M agreement	23	66		66
PPA	14	190		—
Other	10 to indefinite	15		15
		440		250
Less accumulated amortization:
Renewable energy transmission and consumption permits		(37)		(32)
O&M agreement		(10)		(9)
PPA		(3)		—
Other		(8)		(7)
		(58)		(48)
		$	382	$	202

Other Intangible Assets at June 30, 2021 primarily includes:

▪renewable energy transmission and consumption permits previously granted by the CRE at the Ventika wind power generation facilities, Don Diego Solar and Border Solar;

▪a favorable O&M agreement acquired in connection with the acquisition of Ductos y Energéticos del Norte, S. de R.L. de C.V.; and

▪an intangible asset of $190 million, representing the relative fair value of the PPA that was acquired in connection with the acquisition of ESJ in March 2021.

Intangible assets subject to amortization are amortized over their estimated useful lives. Amortization expense for intangible assets was $7 million, including $3 million recorded against revenues, and $2 million in the three months ended June 30, 2021 and 2020, respectively, and $10 million, including $3 million recorded against revenues, and $5 million in the six months ended June 30, 2021 and 2020, respectively. We estimate the remaining amortization expense in 2021 to be $13 million, including $7 million recorded against revenues, and amortization expense of $26 million per year for the next four years, including $13 million recorded against revenues.

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 whether an entity is a VIE and if we are 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 indirectly Sempra, is the primary beneficiary.

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 it considers 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 SDG&E determines that it is the primary beneficiary, SDG&E and Sempra consolidate the entity that owns the facility as a VIE.

In addition to tolling agreements, 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, including the operation and maintenance activities of the generating facility, 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.

SDG&E determined that none of its PPAs and tolling agreements resulted in SDG&E being the primary beneficiary of a VIE at June 30, 2021 and December 31, 2020. PPAs and tolling agreements that relate to SDG&E’s involvement with VIEs are primarily accounted for as finance leases. The carrying amounts of the assets and liabilities under these contracts are included in PP&E, net and finance lease liabilities with balances of $1,228 million and $1,237 million at June 30, 2021 and December 31, 2020, respectively. SDG&E recovers costs incurred on PPAs, tolling agreements and other variable interests through CPUC-approved long-term power procurement plans. SDG&E has no residual interest in the respective entities and has not provided or guaranteed any debt or equity support, liquidity arrangements, performance guarantees or other commitments associated with these contracts other than the purchase commitments described in Note 16 of the Notes to Consolidated Financial Statements in the Annual Report. As a result, SDG&E’s potential exposure to loss from its variable interest in these VIEs is not significant.

Sempra Texas Utilities

Our 100% interest in Oncor Holdings is a VIE that owns an 80.25% interest in Oncor. Sempra 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 of the Notes to Consolidated Financial Statements in the Annual Report 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 $12,655 million at June 30, 2021 and $12,440 million at December 31, 2020.

Sempra LNG

Cameron LNG JV

Cameron LNG JV is a VIE principally due to contractual provisions that transfer certain risks to customers. Sempra 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, including LNG production and operation and maintenance activities at the liquefaction facility. 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 $416 million at June 30, 2021 and $433 million at December 31, 2020. Our maximum exposure to loss, which fluctuates over time, includes the carrying value of our investment and our obligation under the SDSRA, which we discuss in Note 6.

CFIN

As we discuss in Note 6, in July 2020, Sempra entered into a Support Agreement, which was amended in June 2021, for the benefit of CFIN, which is a VIE. Since we do not have the power to direct the most significant activities of the VIE, we are not the primary beneficiary. The conditional obligations of the Support Agreement represent a variable interest that we measure at fair value on a recurring basis (see Note 9). Sempra’s maximum exposure to loss under the terms of the Support Agreement is $979 million.

ECA LNG Phase 1

ECA LNG Phase 1 is a VIE because its total equity at risk is not sufficient to finance its activities without additional subordinated financial support. We expect that ECA LNG Phase 1 will require future capital contributions or other financial support to finance the construction of the facility. Sempra is the primary beneficiary of the VIE because we have the power to direct the

development activities related to the construction of the liquefaction facility, which we consider to be the most significant activities of ECA LNG Phase 1 during the construction phase of its natural gas liquefaction export project. As a result, we consolidate ECA LNG Phase 1. Sempra LNG consolidated $425 million and $207 million of assets at June 30, 2021 and December 31, 2020, respectively, consisting primarily of PP&E, net, attributable to ECA LNG Phase 1 that could be used only to settle obligations of the VIE and that are not available to settle obligations of Sempra, and $267 million and $49 million of liabilities at June 30, 2021 and December 31, 2020, respectively, consisting primarily of long-term debt and accounts payable attributable to ECA LNG Phase 1 for which creditors do not have recourse to the general credit of Sempra. Additionally, as we discuss in Note 7 of the Notes to Consolidated Financial Statements in the Annual Report, Sempra, IEnova and TOTAL SE have provided guarantees for the loan facility supporting construction of the liquefaction facility based on their respective proportionate ownership interest in ECA LNG Phase 1.

PENSION AND OTHER POSTRETIREMENT BENEFITS

Settlement Accounting for Lump Sum Payments

Sempra recorded settlement charges of $7 million in the six months ended June 30, 2021 and $4 million and $9 million in the three months and six months ended June 30, 2020, respectively, in net periodic benefit cost for lump sum payments from its nonqualified pension plan that were in excess of the plan’s service cost plus interest cost.

Net Periodic Benefit Cost

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


NET PERIODIC BENEFIT COST – SEMPRA
(Dollars in millions)
	Pension benefits				Other postretirement benefits
	Three months ended June 30,
	2021		2020		2021		2020
Service cost	$	36	$	33	$	5	$	4
Interest cost	28		33		7		8
Expected return on assets	(43)		(43)		(15)		(14)
Amortization of:
Prior service cost	2		3		—		—
Actuarial loss (gain)	11		8		(2)		(2)
Settlement charges	—		4		—		—

Net periodic benefit cost (credit)	34		38		(5)		(4)
Regulatory adjustments	22		22		5		4
Total expense recognized	$	56	$	60	$	—	$	—

	Six months ended June 30,
	2021		2020		2021		2020
Service cost	$	73	$	66	$	11	$	9
Interest cost	56		65		14		16
Expected return on assets	(86)		(85)		(30)		(27)
Amortization of:
Prior service cost (credit)	5		6		(1)		(1)
Actuarial loss (gain)	22		17		(4)		(5)
Settlement charges	7		9		—		—

Net periodic benefit cost (credit)	77		78		(10)		(8)
Regulatory adjustments	(7)		(6)		10		8
Total expense recognized	$	70	$	72	$	—	$	—


NET PERIODIC BENEFIT COST – SDG&E
(Dollars in millions)
	Pension benefits				Other postretirement benefits
	Three months ended June 30,
	2021		2020		2021		2020
Service cost	$	9	$	8	$	1	$	1
Interest cost	6		8		2		1
Expected return on assets	(13)		(12)		(3)		(2)
Amortization of:

Actuarial loss (gain)	1		1		(1)		—


Net periodic benefit cost (credit)	3		5		(1)		—
Regulatory adjustments	11		9		1		—
Total expense recognized	$	14	$	14	$	—	$	—

	Six months ended June 30,
	2021		2020		2021		2020
Service cost	$	17	$	16	$	2	$	2
Interest cost	12		15		3		3
Expected return on assets	(25)		(25)		(5)		(5)
Amortization of:
Prior service cost	—		1		—		—
Actuarial loss (gain)	1		2		(1)		(1)


Net periodic benefit cost (credit)	5		9		(1)		(1)
Regulatory adjustments	9		6		1		1
Total expense recognized	$	14	$	15	$	—	$	—


NET PERIODIC BENEFIT COST – SOCALGAS
(Dollars in millions)
	Pension benefits				Other postretirement benefits
	Three months ended June 30,
	2021		2020		2021		2020
Service cost	$	25	$	22	$	4	$	4
Interest cost	20		22		6		6
Expected return on assets	(30)		(27)		(12)		(11)
Amortization of:
Prior service cost (credit)	2		2		—		(1)
Actuarial loss (gain)	10		7		(2)		(2)


Net periodic benefit cost (credit)	27		26		(4)		(4)
Regulatory adjustments	11		13		4		4
Total expense recognized	$	38	$	39	$	—	$	—

	Six months ended June 30,
	2021		2020		2021		2020
Service cost	$	50	$	44	$	8	$	7
Interest cost	40		44		11		12
Expected return on assets	(58)		(54)		(24)		(21)
Amortization of:
Prior service cost (credit)	4		4		(1)		(1)
Actuarial loss (gain)	19		13		(3)		(4)


Net periodic benefit cost (credit)	55		51		(9)		(7)
Regulatory adjustments	(16)		(12)		9		7
Total expense recognized	$	39	$	39	$	—	$	—

RABBI TRUSTIn support of its Supplemental Executive Retirement, Cash Balance Restoration and Deferred Compensation Plans, Sempra maintains dedicated assets, including a Rabbi Trust and investments in life insurance contracts, which totaled $523 million and $512 million at June 30, 2021 and December 31, 2020, respectively.

SEMPRA 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 PER COMMON SHARE COMPUTATIONS
(Dollars in millions, except per share amounts; shares in thousands)
	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
Numerator for continuing operations:
Income from continuing operations, net of income tax	$	455	$	528	$	1,383	$	1,395
Earnings attributable to noncontrolling interests	(10)		(26)		(43)		(169)
Preferred dividends	(20)		(37)		(41)		(73)
Preferred dividends of subsidiary	(1)		(1)		(1)		(1)
Earnings from continuing operations attributable to common shares for basic EPS	424		464		1,298		1,152
Add back dividends for dilutive mandatory convertible preferred stock(1)	—		—		—		52
Earnings from continuing operations attributable to common shares for diluted EPS	$	424	$	464	$	1,298	$	1,204

Numerator for discontinued operations:
Income from discontinued operations, net of income tax	$	—	$	1,777	$	—	$	1,857
Earnings attributable to noncontrolling interests	—		(2)		—		(10)
Earnings from discontinued operations attributable to common shares	$	—	$	1,775	$	—	$	1,847

Numerator for earnings:
Earnings attributable to common shares for basic EPS	$	424	$	2,239	$	1,298	$	2,999
Add back dividends for dilutive mandatory convertible preferred stock(1)	—		—		—		52
Earnings attributable to common shares for diluted EPS	$	424	$	2,239	$	1,298	$	3,051

Denominator:
Weighted-average common shares outstanding for basic EPS(2)	307,800		293,060		304,372		292,925
Dilutive effect of stock options and RSUs(3)	807		1,095		846		1,199
Dilutive effect of mandatory convertible preferred stock	—		—		1,066		13,838
Weighted-average common shares outstanding for diluted EPS	308,607		294,155		306,284		307,962

Basic EPS:
Earnings from continuing operations	$	1.38	$	1.58	$	4.27	$	3.93
Earnings from discontinued operations	$	—	$	6.06	$	—	$	6.31
Earnings	$	1.38	$	7.64	$	4.27	$	10.24

Diluted EPS:
Earnings from continuing operations	$	1.37	$	1.58	$	4.24	$	3.91
Earnings from discontinued operations	$	—	$	6.03	$	—	$	6.00
Earnings	$	1.37	$	7.61	$	4.24	$	9.91

(1) In the six months ended June 30, 2020, due to the dilutive effect of the series A preferred stock, the numerator used to calculate diluted EPS included an add-back of dividends declared on our series A preferred stock.

(2) Includes 447 and 530 fully vested RSUs held in our Deferred Compensation Plan for the three months ended June 30, 2021 and 2020, respectively, and 454 and 536 of such RSUs for the six months ended June 30, 2021 and 2020, 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) Due to market fluctuations of both Sempra 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 and six months ended June 30, 2021 excludes 145,247 and 287,061 potentially dilutive shares, respectively, because to include them would be antidilutive for the period. The computation of diluted EPS for the three months and six months ended June 30, 2020 excludes 216,922 and 235,589 potentially

dilutive shares, respectively, of such potentially dilutive shares. However, these shares could potentially dilute basic EPS in the future.

The potentially dilutive impact from mandatory convertible preferred stock is calculated under the if-converted method until the mandatory conversion date. After the mandatory conversion date, the converted shares are included in weighted-average common shares outstanding for basic EPS. As we discuss below in “Shareholders’ Equity and Noncontrolling Interests,” we converted our series A preferred stock into common stock on January 15, 2021. The computation of diluted EPS for both the three months and six months ended June 30, 2021 excludes 4,256,725 potentially dilutive shares. The computation of diluted EPS for the three months and six months ended June 30, 2020 excludes 18,450,579 and 4,612,645 potentially dilutive shares, respectively. We discuss the conversion of the series B preferred stock into common stock on July 15, 2021 below in “Shareholders’ Equity and Noncontrolling Interests.”

Pursuant to Sempra’s share-based compensation plans, the Compensation and Talent Committee of Sempra’s board of directors granted 222,620 nonqualified stock options, 323,889 performance-based RSUs and 142,105 service-based RSUs in the six months ended June 30, 2021, primarily in January.

We discuss share-based compensation plans and related awards and the terms and conditions of Sempra’s equity securities further in Notes 10, 13 and 14 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 June 30, 2021 and 2020
Sempra(2):
Balance at March 31, 2021	$	(69)	$	(239)	$	(91)	$	(399)

OCI before reclassifications	(19)		(36)		(2)		(57)
Amounts reclassified from AOCI	—		10		2		12
Net OCI(3)	(19)		(26)		—		(45)
Balance at June 30, 2021	$	(88)	$	(265)	$	(91)	$	(444)

Balance at March 31, 2020	$	(745)	$	(350)	$	(95)	$	(1,190)

OCI before reclassifications(4)	17		(13)		(14)		(10)
Amounts reclassified from AOCI(4)	645		2		11		658
Net OCI	662		(11)		(3)		648
Balance at June 30, 2020	$	(83)	$	(361)	$	(98)	$	(542)
SDG&E:




Balance at March 31, 2021 and June 30, 2021					$	(10)	$	(10)

Balance at March 31, 2020					$	(16)	$	(16)

Amounts reclassified from AOCI(4)					4		4
Net OCI					4		4
Balance at June 30, 2020					$	(12)	$	(12)
SoCalGas:
Balance at March 31, 2021			$	(13)	$	(18)	$	(31)

Amounts reclassified from AOCI			—		1		1
Net OCI			—		1		1
Balance at June 30, 2021			$	(13)	$	(17)	$	(30)

Balance at March 31, 2020			$	(13)	$	(10)	$	(23)
Amounts reclassified from AOCI			—		1		1
Net OCI			—		1		1
Balance at June 30, 2020			$	(13)	$	(9)	$	(22)

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

(2) Includes discontinued operations in 2020.

(3) Total AOCI includes $24 million of foreign currency translation adjustments and $14 million of financial instruments associated with the IEnova exchange offer, which we discuss below in “Other Noncontrolling Interests – Sempra Mexico,” and which does not impact the Condensed Consolidated Statement of Comprehensive Income (Loss).

(4) Pension and Other Postretirement Benefits and Total AOCI include $3 million in transfers of liabilities from SDG&E to Sempra in 2020 related to the nonqualified pension plans.


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)
	Six months ended June 30, 2021 and 2020
Sempra(2):
Balance as of December 31, 2020	$	(64)	$	(331)	$	(105)	$	(500)

OCI before reclassifications	(24)		37		5		18
Amounts reclassified from AOCI	—		29		9		38
Net OCI(3)	(24)		66		14		56
Balance as of June 30, 2021	$	(88)	$	(265)	$	(91)	$	(444)

Balance as of December 31, 2019	$	(607)	$	(215)	$	(117)	$	(939)
OCI before reclassifications(4)	(121)		(167)		2		(286)
Amounts reclassified from AOCI(4)	645		21		17		683
Net OCI	524		(146)		19		397
Balance as of June 30, 2020	$	(83)	$	(361)	$	(98)	$	(542)
SDG&E:





Balance at December 31, 2020 and June 30, 2021					$	(10)	$	(10)

Balance as of December 31, 2019					$	(16)	$	(16)

Amounts reclassified from AOCI(4)					4		4
Net OCI					4		4
Balance as of June 30, 2020					$	(12)	$	(12)
SoCalGas:
Balance as of December 31, 2020			$	(13)	$	(18)	$	(31)


Amounts reclassified from AOCI			—		1		1
Net OCI			—		1		1
Balance as of June 30, 2021			$	(13)	$	(17)	$	(30)

Balance as of December 31, 2019			$	(13)	$	(10)	$	(23)

Amounts reclassified from AOCI			—		1		1
Net OCI			—		1		1
Balance as of June 30, 2020			$	(13)	$	(9)	$	(22)

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

(2) Includes discontinued operations in 2020.

(4) Pension and Other Postretirement Benefits and Total AOCI include $3 million in transfers of liabilities from SDG&E to Sempra in 2020 related to the nonqualified pension plans.


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 June 30,
	2021		2020
Sempra:
Foreign currency translation adjustments	$	—	$	645	Income from Discontinued Operations, Net of Income Tax

Financial instruments:
Interest rate instruments	$	(1)	$	1	Interest Expense
Interest rate instruments	19		1		Equity Earnings(1)

Foreign exchange instruments	—		1		Other Income (Expense), Net

Interest rate and foreign exchange instruments	—		1		Interest Expense
	(7)		(4)		Other Income (Expense), Net
Total before income tax	11		—
	(1)		—		Income Tax (Expense) Benefit
Net of income tax	10		—
	—		2		Earnings Attributable to Noncontrolling Interests
	$	10	$	2
Pension and other postretirement benefits(2):
Amortization of actuarial loss	$	1	$	1	Other Income (Expense), Net
Amortization of actuarial loss	—		6		Income from Discontinued Operations, Net of Income Tax
Amortization of prior service cost	1		1		Other Income (Expense), Net
Settlement charges	—		4		Other Income (Expense), Net
Total before income tax	2		12
	—		(2)		Income from Discontinued Operations, Net of Income Tax
	—		(2)		Income Tax (Expense) Benefit
Net of income tax	$	2	$	8

Total reclassifications for the period, net of tax	$	12	$	655
SDG&E:




Pension and other postretirement benefits(2):
Amortization of prior service cost	$	—	$	1	Other Income, Net



Total reclassifications for the period, net of tax	$	—	$	1
SoCalGas:


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

Total reclassifications for the period, net of tax	$	1	$	1

(1) Equity earnings at Sempra Mexico are recognized after tax.

(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
	Six months ended June 30,
	2021		2020
Sempra:
Foreign currency translation adjustments	$	—	$	645	Income from Discontinued Operations, Net of Income Tax

Financial instruments:
Interest rate instruments	$	1	$	3	Interest Expense
Interest rate instruments	38		3		Equity Earnings(1)
Foreign exchange instruments	1		(2)		Revenues: Energy-Related Businesses
	—		(1)		Other Income (Expense), Net
Foreign exchange instruments	1		(2)		Equity Earnings(1)
Interest rate and foreign exchange instruments	—		1		Interest Expense
	(1)		37		Other Income (Expense), Net
Total before income tax	40		39
	(9)		(12)		Income Tax (Expense) Benefit
Net of income tax	31		27
	(2)		(6)		Earnings Attributable to Noncontrolling Interests
	$	29	$	21
Pension and other postretirement benefits(2):
Amortization of actuarial loss	$	3	$	3	Other Income (Expense), Net
Amortization of actuarial loss	—		6		Income from Discontinued Operations, Net of Income Tax
Amortization of prior service cost	2		2		Other Income (Expense), Net
Settlement charges	7		9		Other Income (Expense), Net
Total before income tax	12		20
	—		(2)		Income from Discontinued Operations, Net of Income Tax
	(3)		(4)		Income Tax (Expense) Benefit
Net of income tax	$	9	$	14

Total reclassifications for the period, net of tax	$	38	$	680
SDG&E:




Pension and other postretirement benefits(2):
Amortization of prior service cost	$	—	$	1	Other Income, Net



Total reclassifications for the period, net of tax	$	—	$	1
SoCalGas:


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


Total reclassifications for the period, net of tax	$	1	$	1

(1) Equity earnings at Sempra Mexico are recognized after tax.

(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 Series A Preferred Stock

On January 15, 2021, we converted 17,250,000 shares of series A preferred stock into 13,781,025 shares of our common stock based on a conversion rate of 0.7989 shares of our common stock for each issued and outstanding share of series A preferred stock. As a consequence, no shares of series A preferred stock were outstanding after January 15, 2021 and the 17,250,000 shares that were formerly series A preferred stock have returned to the status of authorized and unissued shares of preferred stock.

Sempra Series B Preferred Stock

The terms of our series B preferred stock require a notice to holders when the aggregate adjustment to the conversion rates at which shares of series B preferred stock are convertible into shares of Sempra common stock is more than 1%. On July 7, 2021, we notified the holders of the series B preferred stock of such an adjustment. These adjustments, which resulted from the incremental impact of our second quarter dividend declared on our common stock and which became effective as of July 6, 2021, the ex-dividend date for such dividend, included adjustments to the minimum and maximum conversion rates and the related initial and threshold appreciation prices as shown in the following table:


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 $135.0804 (which is the adjusted threshold appreciation price)						0.7403 shares (equal to $100.00 divided by the adjusted threshold appreciation price)
Equal to or less than $135.0804 but greater than or equal to $112.5746						Between 0.7403 and 0.8883 shares, determined by dividing $100.00 by the applicable market value of our common stock
Less than $112.5746 (which is the adjusted initial price)						0.8883 shares (equal to $100.00 divided by the adjusted initial price)

As of July 15, 2021, we had converted, pursuant to either early conversions at the election of the holder or the mandatory conversion of all outstanding shares, all 5,750,000 shares of series B preferred stock into an aggregate of 4,256,720 shares of our common stock and a nominal amount of cash in lieu of fractional share interests, based on a conversion rate of 0.7403 shares of our common stock for each issued and outstanding share of series B preferred stock. As a consequence, no shares of series B preferred stock were outstanding after July 15, 2021 and the 5,750,000 shares that were formerly series B preferred stock have returned to the status of authorized and unissued shares of preferred stock.

Sempra Series C Preferred Stock

On June 19, 2020, we issued 900,000 shares of our 4.875% fixed-rate reset cumulative redeemable perpetual preferred stock, series C (series C preferred stock) in a registered public offering at a price to the public of $1,000 per share and received net proceeds of $889 million after deducting the underwriting discount and equity issuance costs of $11 million. We used the net proceeds for working capital and other general corporate purposes, including the repayment of indebtedness.

Other Noncontrolling Interests

The following table provides information about NCI held by others in subsidiaries or entities consolidated by us and recorded in Other Noncontrolling Interests in Total Equity on Sempra’s Condensed Consolidated Balance Sheets.


OTHER NONCONTROLLING INTERESTS
(Dollars in millions)
	Percent ownership held by noncontrolling interests				Equity held by noncontrolling interests
	June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020
Sempra Mexico:
IEnova	3.6	%	29.8	%	$	184	$	1,487
ICM Ventures Holdings B.V.	17.5		17.5		6		7
Sempra LNG:
ECA LNG Phase 1	18.1		29.0		31		46
Parent and other:
PXiSE Energy Solutions, LLC	20.0		20.0		—		1
Total Sempra					$	221	$	1,541

Sempra Mexico

In May 2021, we acquired 381,015,194 publicly held shares of IEnova in exchange for 12,306,777 newly issued shares of our common stock upon completion of our exchange offer launched in the U.S. and Mexico. In addition to being traded on the New York Stock Exchange, Sempra’s common stock is now also listed on the Mexican Stock Exchange under the ticker symbol SRE.MX. We acquired the IEnova shares at an exchange ratio of 0.0323 shares of our common stock for each one IEnova ordinary share. In connection with the exchange offer, we recorded an increase in Sempra’s shareholders’ equity of $1,361 million, net of $12 million in transactions costs, and increased our ownership interest in IEnova from 70.2% to 96.4%.

We intend to launch a tender offer to acquire for cash the remaining 52,227,526 publicly held shares of IEnova that were not tendered in the exchange offer in the third quarter of 2021.

In the second quarter of 2020, IEnova repurchased 3,694,156 shares of its outstanding common stock held by NCI for $10 million, resulting in an increase in Sempra’s ownership interest in IEnova from 66.6% at December 31, 2019 to 66.8% at June 30, 2020.

In the first quarter of 2020, IEnova purchased additional shares in ICM Ventures Holdings B.V. for $9 million, increasing its ownership from 53.7% to 82.5%. ICM Ventures Holdings B.V. owns certain permits and land where IEnova is building a terminal for the receipt, storage and delivery of liquid fuels. On July 6, 2021, IEnova acquired the remaining 17.5% interest held by NCI in ICM Ventures Holdings B.V. for $7 million.

Sempra LNG

In March 2020, Sempra LNG purchased for $7 million the 24.6% minority interest in Liberty Gas Storage LLC, which owns 100% of LA Storage, LLC, increasing Sempra LNG’s ownership in Liberty Gas Storage LLC to 100%. Prior to the purchase, the minority partner converted $22 million in notes payable due from Sempra LNG to equity. As a result of the purchase, we recorded an increase in Sempra’s shareholders’ equity of $2 million for the difference between the carrying value and fair value related to the change in ownership.

Sempra Infrastructure Partners

Sale of NCI. On April 4, 2021, Sempra and its wholly owned subsidiary, Sempra Global, entered into a purchase and contribution agreement (the Purchase Agreement) with KKR Pinnacle Aggregator L.P., an affiliate of Kohlberg Kravis Roberts & Co. L.P. (KKR), pursuant to which KKR will acquire for an aggregate purchase price of $3.37 billion (the Purchase Price), subject to the adjustments described below, newly designated Class A Units representing 20% of the equity interests of Sempra Global. In preparation for closing the transaction, we are conducting an internal legal reorganization to consolidate the assets of Sempra LNG and our ownership in IEnova under Sempra Global, which will be renamed Sempra Infrastructure Partners. We anticipate completing this transaction around the end of the third quarter of 2021.

As we discuss above, we currently own 96.4% of the outstanding ordinary shares of IEnova and intend to launch a cash tender offer to acquire the remaining 52,227,526 publicly held shares of IEnova for cash. Under the terms of the Purchase Agreement, to the extent we do not acquire all of the outstanding shares of IEnova prior to closing, the Purchase Price may be subject to downward adjustment based on the results of the exchange and tender offers.

We expect that Sempra Infrastructure Partners will have approximately $8.37 billion of direct and indirect net debt at the time of closing. There will be a customary adjustment to the Purchase Price to the extent Sempra Infrastructure Partners’ actual net debt at closing is greater or less than the expected amount. Direct and indirect net debt at Sempra Infrastructure Partners includes consolidated long-term and short-term debt less cash at Sempra LNG and IEnova plus their proportionate ownership share of equity method investees’ long-term and short-term debt less cash.

Pursuant to the Purchase Agreement, the parties made customary representations and warranties and agreed to various customary covenants that apply between the date the Purchase Agreement was signed and the closing. In addition, we have agreed to indemnify Sempra Infrastructure Partners for, among other things, certain losses arising from liabilities of Sempra Infrastructure Partners and its subsidiaries to the extent not primarily relating to the undertaking of the business of Sempra Infrastructure Partners, and we have agreed to indemnify KKR for losses attributable to pre-closing taxes. The consummation of the transaction is subject to receipt of regulatory approval in Mexico by the Comisión Federal de Competencia Económica (Mexico’s Competition Commission); certain other third-party approvals; the completion of our internal legal reorganization; and other customary closing conditions. We have agreed to pay at closing certain expenses KKR has incurred in connection with the transaction not to exceed $150 million. If the closing has not occurred on or before October 5, 2021, we and KKR would each have the right to unilaterally terminate the Purchase Agreement. We will be entitled to receive a reverse termination fee of $134.8 million from KKR if KKR fails to receive its financing proceeds by the closing and the transactions contemplated by the Purchase Agreement are otherwise ready to be consummated.

We have also entered into an accommodation and support agreement under which KKR, during the period beginning on the 31st day after the closing through December 31, 2025, may request one or more disbursements from Sempra up to an aggregate amount of $300 million. Any amounts disbursed will be repaid in full no later than the eighth anniversary of the date of closing and will bear compound interest at 5% per annum.

Limited Partnership Agreement. At the closing of the sale of NCI in Sempra Infrastructure Partners, Sempra will enter into a limited partnership agreement with KKR (the LP Agreement), which will govern our respective rights and obligations in respect of our ownership of Sempra Infrastructure Partners. We will maintain control of Sempra Infrastructure Partners with KKR having certain minority protections commensurate with the size of its investment, and we will own and control the general partner of Sempra Infrastructure Partners.

Sempra Infrastructure Partners will initially have two authorized classes of units, designated as “Class A Units” (which are common voting units) and “Sole Risk Interests.” The interests in the general partner will be owned separately by us. If KKR approves our request that a project proposed to be developed by Sempra Infrastructure Partners not be pursued jointly, or if KKR decides not to participate in any proposed project for which we nevertheless desire to make a positive final investment decision, we will be permitted to proceed with such project either independently through a different investment vehicle or as a “Sole Risk Project” within Sempra Infrastructure Partners and receive Sole Risk Interests in respect thereof. Sole Risk Projects will be separated from other Sempra Infrastructure Partners projects and will be conducted at our sole cost, expense and liability and we will receive, through the acquisition of Sole Risk Interests, all economic and other benefits from any such proposed projects. KKR will not be entitled to any benefits or rights in respect of any Sole Risk Project. Upon the formation of Sempra Infrastructure Partners, the Guaymas-El Oro segment of the Sonora pipeline at IEnova will constitute a Sole Risk Project. After the closing date, KKR will have certain discretionary rights to cause the Guaymas-El Oro segment of the Sonora pipeline to cease to be a Sole Risk Project, until a specified date.

Under the LP Agreement, Sempra Infrastructure Partners’ general partner will delegate its authority to manage Sempra Infrastructure Partners to a board of managers comprised of members designated by us and by KKR. Matters will generally be decided by majority vote. The managers designated by us and the managers designated by KKR will each, as a group, have voting power equivalent to the ownership percentage of their respective designating member. However, Sempra Infrastructure Partners and its controlled subsidiaries will be prohibited from taking certain actions without the prior written approval of KKR (subject to KKR maintaining certain ownership thresholds in Sempra Infrastructure Partners).

The LP Agreement will contain certain default remedies if we or KKR fails to fund any amounts required to be funded under the LP Agreement.

The LP Agreement will also require that Sempra Infrastructure Partners distribute to us and to KKR at least 85% of distributable cash of Sempra Infrastructure Partners and its subsidiaries on a quarterly basis, subject to certain exceptions and reserves. Generally, distributions from Sempra Infrastructure Partners will be made to us and KKR on a pro rata basis in accordance with our and their respective ownership interests in Sempra Infrastructure Partners. However, KKR will be entitled to certain priority distributions in the event of material deviations between certain specified projected cash flows and actual cash flows. Additionally, KKR will be entitled to certain priority distributions in the event a specified project that has a positive final

investment decision does not have projected internal rates of return over a specified threshold or in the event we have not made positive final investment decisions by certain dates on certain LNG projects that are currently in development.

In addition, under the LP Agreement, both parties are granted customary registration rights in the event of an initial public offering of Sempra Infrastructure Partners and are subject to certain customary restrictions on transfers of their interests in Sempra Infrastructure Partners.

Discontinued Operations

As we discuss in Note 5, we completed the sales of our equity interests in our Peruvian and Chilean businesses in the second quarter of 2020. The minority interests in Luz del Sur and Tecsur were deconsolidated upon the sale of our Peruvian businesses in April 2020, and the minority interests in Chilquinta Energía and its subsidiaries were deconsolidated upon the sale of our Chilean businesses in June 2020.

TRANSACTIONS WITH AFFILIATES

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


AMOUNTS DUE FROM (TO) UNCONSOLIDATED AFFILIATES
(Dollars in millions)
	June 30, 2021		December 31, 2020
Sempra:
Total due from various unconsolidated affiliates – current	$	11	$	20

Sempra Mexico(1):
ESJ – Note due December 31, 2022, net of negligible allowance for credit losses at December 31, 2020(2)	$	—	$	85
IMG JV – Note due March 15, 2022, net of allowance for credit losses of $1 and $3 at June 30, 2021 and December 31, 2020, respectively(3)	702		695
Total due from unconsolidated affiliates – noncurrent	$	702	$	780

Sempra Mexico – TAG Pipelines Norte, S. de. R.L. de C.V. – Note due December 20, 2021(1)(4)	$	(42)	$	(41)
Various affiliates	—		(4)
Total due to various unconsolidated affiliates – current	$	(42)	$	(45)

Sempra Mexico(1)(5):
TAG Pipelines Norte, S. de. R.L. de C.V.:
5.5% Note due January 9, 2024	$	(70)	$	(68)
5.5% Note due January 14, 2025	(21)		—
TAG JV – 5.74% Note due December 17, 2029	(171)		(166)
Total due to unconsolidated affiliates – noncurrent	$	(262)	$	(234)
SDG&E:




Sempra	$	(22)	$	(38)
SoCalGas	(12)		(21)

Various affiliates	(10)		(5)
Total due to unconsolidated affiliates – current	$	(44)	$	(64)

Income taxes due from Sempra(6)	$	21	$	—
SoCalGas:
SDG&E	$	12	$	21
Various affiliates	1		1
Total due from unconsolidated affiliates – current	$	13	$	22

Sempra	$	(36)	$	(31)
Pacific Enterprises	(25)		—

Total due to unconsolidated affiliates – current	$	(61)	$	(31)

Income taxes due to Sempra(6)	$	(39)	$	(37)

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

(2) U.S. dollar-denominated loan at a variable interest rate based on 1-month LIBOR plus 196 bps (2.11% at December 31, 2020). At December 31, 2020, $1 million of accrued interest receivable is included in Due from Unconsolidated Affiliates – Current. In March 2021, IEnova acquired the 50% equity interest in ESJ that it did not already own and ESJ became a wholly owned, consolidated subsidiary, resulting in the elimination of this note receivable.

(3) Mexican peso-denominated revolving line of credit for up to 14.2 billion Mexican pesos or approximately $711 million U.S. dollar-equivalent at June 30, 2021, at a variable interest rate based on the 91-day Interbank Equilibrium Interest Rate plus 220 bps (6.79% at June 30, 2021), to finance construction of a natural gas marine pipeline. At both June 30, 2021 and December 31, 2020, $2 million of accrued interest receivable is included in Due from Unconsolidated Affiliates – Current. At June 30, 2021, we classified this revolving line of credit as noncurrent because we expect to extend the maturity date on a long-term basis prior to its stated maturity date.

(4) U.S. dollar-denominated loan at a variable interest rate based on 6-month LIBOR plus 290 bps (3.06% at June 30, 2021).

(5) U.S. dollar-denominated loan at a fixed interest rate.

(6) SDG&E and SoCalGas are included in the consolidated income tax return of Sempra 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 income statement information from unconsolidated affiliates.


INCOME STATEMENT IMPACT FROM UNCONSOLIDATED AFFILIATES
(Dollars in millions)
	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
Sempra:
Revenues	$	7	$	10	$	15	$	22
Cost of sales	—		15		11		26
Interest income	12		15		27		32
Interest expense	3		4		7		7
SDG&E:
Revenues	$	2	$	2	$	4	$	3
Cost of sales	27		22		55		39
SoCalGas:
Revenues	$	23	$	20	$	48	$	38
Cost of sales	—		—		3		—

Guarantees

Sempra provided guarantees related to Cameron LNG JV’s construction-period debt, which were terminated in March 2021, as well as guarantees related to Cameron LNG JV’s SDSRA and CFIN’s Support Agreement, which remain outstanding. We discuss these guarantees in Note 6 below and in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report.

OTHER INCOME (EXPENSE), NET

Other income (expense), net, consists of the following:


OTHER INCOME (EXPENSE), NET
(Dollars in millions)
	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
Sempra:
Allowance for equity funds used during construction	$	34	$	31	$	72	$	62
Investment gains (losses)(1)	19		30		28		(7)
Gains (losses) on interest rate and foreign exchange instruments, net	7		5		(23)		(148)
Foreign currency transaction gains (losses), net(2)	26		13		7		(110)
Non-service component of net periodic benefit (cost) credit	(15)		(23)		14		3
Interest on regulatory balancing accounts, net	2		11		3		13
Sundry, net	(1)		(5)		6		(5)
Total	$	72	$	62	$	107	$	(192)
SDG&E:
Allowance for equity funds used during construction	$	22	$	19	$	45	$	40
Non-service component of net periodic benefit (cost) credit	(4)		(5)		5		3
Interest on regulatory balancing accounts, net	2		6		3		8
Sundry, net	2		(2)		4		(2)
Total	$	22	$	18	$	57	$	49
SoCalGas:
Allowance for equity funds used during construction	$	11	$	10	$	23	$	18
Non-service component of net periodic benefit (cost) credit	(9)		(13)		19		12
Interest on regulatory balancing accounts, net	—		5		—		5
Sundry, net	(4)		(4)		(5)		(7)
Total	$	(2)	$	(2)	$	37	$	28

(1) Represents investment gains (losses) on dedicated assets in support of our executive retirement and deferred compensation plans. These amounts are offset by corresponding changes in compensation expense related to the plans, recorded in O&M on the Condensed Consolidated Statements of Operations.

(2) Includes gains of $28 million and $5 million in the three months and six months ended June 30, 2021, respectively, and gains of $14 million and losses of $135 million in the three months and six months ended June 30, 2020, respectively, from translation to U.S. dollars of a Mexican peso-denominated loan to 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 June 30,						Six months ended June 30,
	2021			2020			2021			2020
Sempra:
Income tax expense (benefit) from continuing operations	$	139		$	168		$	297		$	(39)

Income from continuing operations before income taxes and equity earnings	$	281		$	463		$	1,049		$	860
Equity earnings, before income tax(1)	185			84			320			41
Pretax income	$	466		$	547		$	1,369		$	901

Effective income tax rate	30		%	31		%	22		%	(4)		%
SDG&E:
Income tax expense	$	33		$	70		$	78		$	128
Income before income taxes	$	219		$	263		$	476		$	583
Effective income tax rate	15		%	27		%	16		%	22		%
SoCalGas:
Income tax expense	$	8		$	49		$	102		$	101
Income before income taxes	$	103		$	196		$	604		$	551
Effective income tax rate	8		%	25		%	17		%	18		%

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

Sempra, 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

▪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. Through the first quarter of 2021, such effects were offset by net gains (losses) from foreign currency derivatives that were hedging Sempra Mexico parent’s exposure to movements in the Mexican peso from its controlling interest in IEnova.

Discontinued Operations

In January 2019, our board of directors approved a plan to sell our South American businesses. We completed the sales in the second quarter of 2020, as we discuss in Note 5. Because of our decision to sell our South American businesses, we no longer asserted indefinite reinvestment of basis differences related to these businesses. Accordingly, in the six months ended June 30, 2020, we recorded a $7 million income tax benefit from changes in outside basis differences in our discontinued operations in South America.