We discuss regulatory matters in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report and provide updates to those discussions and information about new regulatory matters below. With the exception of regulatory balancing accounts, we generally do not earn a return on our regulatory assets until such time as a related cash expenditure has been made. Upon the occurrence of a cash expenditure associated with a regulatory asset, the related amounts are recoverable through a regulatory account mechanism for which we earn a return authorized by applicable regulators, which generally approximates the three-month commercial paper rate. The periods during which we recognize a regulatory asset while we do not earn a return vary by regulatory asset.


REGULATORY ASSETS (LIABILITIES)
(Dollars in millions)
	September 30, 2022		December 31, 2021

SDG&E:
Fixed-price contracts and other derivatives	$	(33)	$	(50)
Deferred income taxes recoverable in rates	217		125
Pension and other postretirement benefit plan obligations	(32)		(7)
Removal obligations	(2,175)		(2,251)
Environmental costs	61		62
Sunrise Powerlink fire mitigation	122		122
Regulatory balancing accounts(1)(2)
Commodity – electric	185		77
Gas transportation	45		49
Safety and reliability	93		67
Public purpose programs	(96)		(107)
Wildfire mitigation plan	316		178
Liability insurance premium	100		110
Other balancing accounts	144		207
Other regulatory assets, net(2)	140		119
Total SDG&E	(913)		(1,299)
SoCalGas:
Deferred income taxes recoverable in rates	122		44
Pension and other postretirement benefit plan obligations	(36)		51
Employee benefit costs	31		31
Removal obligations	(606)		(627)
Environmental costs	33		34
Regulatory balancing accounts(1)(2)
Commodity – gas, including transportation	(24)		(146)
Safety and reliability	491		339
Public purpose programs	(197)		(183)
Liability insurance premium	21		16
Other balancing accounts	135		42
Other regulatory assets, net(2)	167		142
Total SoCalGas	137		(257)
Sempra Infrastructure:
Deferred income taxes recoverable in rates	77		77

Total Sempra	$	(699)	$	(1,479)

In May 2022, SDG&E and SoCalGas filed their 2024 GRC applications requesting CPUC approval of test year revenue requirements for 2024 and attrition year adjustments for 2025 through 2027. SDG&E and SoCalGas requested revenue requirements for 2024 of $3.0 billion and $4.4 billion, respectively. SDG&E and SoCalGas are proposing post-test year revenue requirement changes using various mechanisms that are estimated to result in annual increases of approximately 8% to 11% at SDG&E and approximately 6% to 8% at SoCalGas. In October 2022, the CPUC issued a scoping ruling that set a schedule for the proceeding, including the expected issuance of a proposed decision in the second quarter of 2024. SDG&E and SoCalGas expect the final decision will be effective retroactive to January 1, 2024. SDG&E expects to submit separate requests in its GRC for review and recovery of its wildfire mitigation plan costs in mid-2023 for costs incurred from 2019 through 2022 and in mid-2024 for costs incurred in 2023.

A CPUC cost of capital proceeding determines a utility’s authorized capital structure and authorized return on rate base. The CCM applies in the interim years between required cost of capital applications and considers changes in the cost of capital based on changes in interest rates based on the applicable utility bond index published by Moody’s (the CCM benchmark rate) for each 12-month period ending September 30 (the measurement period). The CCM benchmark rate is the basis of comparison to determine if the CCM is triggered, which occurs if the change in the applicable Moody’s utility bond index relative to the CCM benchmark rate is larger than plus or minus 1.000% at the end of the measurement period. The index applicable to SDG&E and SoCalGas is based on each utility’s credit rating. Alternatively, each of SDG&E and SoCalGas is permitted to file a cost of capital application in an interim year in which an extraordinary or catastrophic event materially impacts its cost of capital and affects utilities differently than the market as a whole to have its cost of capital determined in lieu of the CCM.

In December 2019, the CPUC approved the cost of capital (shown in the table below) for SDG&E and SoCalGas that became effective on January 1, 2020 and will remain in effect through December 31, 2022, subject to the CCM. SDG&E’s CCM benchmark rate is 4.498% based on Moody’s Baa- utility bond index, and SoCalGas’ CCM benchmark rate is 4.029% based on Moody’s A- utility bond index.


AUTHORIZED CPUC COST OF CAPITAL, SUBJECT TO THE CCM

SDG&E							SoCalGas
Authorized weighting		Return on rate base		Weighted return on rate base			Authorized weighting		Return on rate base		Weighted return on rate base
45.25	%	4.59	%	2.08	%	Long-Term Debt	45.60	%	4.23	%	1.93	%
2.75		6.22		0.17		Preferred Equity	2.40		6.00		0.14
52.00		10.20		5.30		Common Equity	52.00		10.05		5.23
100.00	%			7.55	%		100.00	%			7.30	%

For the measurement period that ended September 30, 2021, the CCM would trigger for SDG&E if the CPUC determines that the CCM should be implemented because the average Moody’s Baa- utility bond index between October 1, 2020 and September 30, 2021 was 1.17% below SDG&E’s CCM benchmark rate of 4.498%. In August 2021, SDG&E filed an application with the CPUC to update its cost of capital due to the ongoing effects of the COVID-19 pandemic rather than have the CCM apply. In December 2021, the CPUC established a proceeding to determine if SDG&E’s cost of capital was impacted by an extraordinary event such that the CCM should not apply.


PROPOSED CPUC COST OF CAPITAL

SDG&E							SoCalGas
Authorized weighting		Return on rate base		Weighted return on rate base			Authorized weighting		Return on rate base		Weighted return on rate base
46.00	%	4.05	%	1.86	%	Long-Term Debt	45.60	%	4.07	%	1.86	%
—		—		—		Preferred Equity	0.40		6.00		0.02
54.00		10.55		5.70		Common Equity	54.00		10.75		5.81
100.00	%			7.56	%		100.00	%			7.69	%

In October 2019, the CPUC issued an OSC to determine whether SoCalGas should be sanctioned for violation of certain CPUC code sections and orders relating to energy efficiency (EE) codes and standards advocacy activities, which were undertaken by SoCalGas following a CPUC decision disallowing SoCalGas’ future engagement in advocacy around such EE codes and standards. In March 2022, the CPUC issued a final decision that found that SoCalGas did undertake prohibited EE codes and standards advocacy activities using ratepayer funds. The final decision imposed on SoCalGas a financial penalty of $10 million; customer refunds for certain ratepayer expenditures and shareholder incentives that SoCalGas estimates will be negligible; and a prohibition from recovering from ratepayers costs of proposed codes and standards advocacy activities until SoCalGas demonstrates policies, practices and procedures that adhere to the CPUC’s intent for codes and standards advocacy.

In December 2019, the CPUC issued a second OSC to determine whether SoCalGas is entitled to the EE program’s shareholder incentives for codes and standards advocacy activities in 2016 and 2017 (later expanded to include 2014 and 2015), whether its shareholders should bear the costs of those advocacy activities, and to address whether any other remedies are appropriate. In April 2022, the CPUC issued a final decision that found there were violations of certain legal principles and imposed a financial penalty of $150,000.

We provide below updates to ongoing matters related to SONGS, a nuclear generating facility near San Clemente, California that permanently ceased operations in June 2013, and in which SDG&E has a 20% ownership interest. We discuss SONGS further in Note 15 of the Notes to Consolidated Financial Statements in the Annual Report.

As a result of Edison’s decision to permanently retire SONGS Units 2 and 3, Edison began the decommissioning phase of the plant. Major decommissioning work began in 2020. We expect the majority of the decommissioning work to take approximately 10 years. Decommissioning of Unit 1, removed from service in 1992, is largely complete. The remaining work for Unit 1 will be completed once Units 2 and 3 are dismantled and the spent fuel is removed from the site. The spent fuel is currently being stored on-site, until the DOE identifies a spent fuel storage facility and puts in place a program for the fuel’s disposal, as we discuss below. SDG&E is responsible for approximately 20% of the total decommissioning cost.

The Samuel Lawrence Foundation filed a writ petition under the California Coastal Act in LA Superior Court in December 2019 seeking to invalidate the coastal development permit and to obtain injunctive relief to stop decommissioning work. The petition was denied in September 2021. In December 2021, the Samuel Lawrence Foundation filed a notice of appeal. In August 2022, the court dismissed the case based on the Samuel Lawrence Foundation’s request for dismissal, which finally resolves the writ petition. Decommissioning work was not interrupted as a result of this writ petition.

In accordance with state and federal requirements and regulations, SDG&E has assets held in the NDT to fund its share of decommissioning costs for SONGS Units 1, 2 and 3. Amounts that were collected in rates for SONGS’ decommissioning are invested in the NDT, which is comprised of externally managed trust funds. Amounts held by the NDT are invested in accordance with CPUC regulations. SDG&E classifies debt and equity securities held in the NDT as available-for-sale. The NDT assets are presented on the Sempra and SDG&E Condensed Consolidated Balance Sheets at fair value with the offsetting credits recorded in noncurrent Regulatory Liabilities.

Except for the use of funds for the planning of decommissioning activities or NDT administrative costs, CPUC approval is required for SDG&E to access the NDT assets to fund SONGS decommissioning costs for Units 2 and 3. In December 2021, SDG&E received authorization from the CPUC to access NDT funds of up to $78 million for forecasted 2022 costs.


NUCLEAR DECOMMISSIONING TRUSTS
(Dollars in millions)
	Cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
	September 30, 2022
Debt securities:
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies(1)	$	34	$	2	$	(2)	$	34
Municipal bonds(2)	294		—		(21)		273
Other securities(3)	253		1		(28)		226
Total debt securities	581		3		(51)		533
Equity securities	110		172		(13)		269
Short-term investments, primarily cash equivalents	17		—		—		17
Receivables (payables), net	(3)		—		—		(3)
Total	$	705	$	175	$	(64)	$	816

	December 31, 2021
Debt securities:
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies	$	56	$	—	$	—	$	56
Municipal bonds	309		13		(1)		321
Other securities	255		7		(2)		260
Total debt securities	620		20		(3)		637
Equity securities	104		262		(2)		364
Short-term investments, primarily cash equivalents	3		—		—		3
Receivables (payables), net	8		—		—		8
Total	$	735	$	282	$	(5)	$	1,012


SALES OF SECURITIES IN THE NUCLEAR DECOMMISSIONING TRUSTS
(Dollars in millions)
	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Proceeds from sales	$	133	$	187	$	530	$	729
Gross realized gains	2		9		16		48
Gross realized losses	(3)		(1)		(14)		(4)

Net unrealized gains and losses, as well as realized gains and losses that are reinvested in the NDT, are included in noncurrent Regulatory Liabilities on Sempra’s and SDG&E’s Condensed Consolidated Balance Sheets. We determine the cost of securities in the trusts on the basis of specific identification.

The SONGS owners have nuclear property damage insurance of $130 million, which exceeds the minimum federal requirement of $50 million. This insurance coverage is provided through NEIL. The NEIL policies have specific exclusions and limitations that can result in reduced coverage. Insured members as a group are subject to retrospective premium assessments to cover losses sustained by NEIL under all issued policies. SDG&E could be assessed up to $4.1 million of retrospective premiums based on overall member claims.