REGULATORY MATTERS

9 Months Ended

Sep. 30, 2023

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, 2023		December 31, 2022

SDG&E:
Fixed-price contracts and other derivatives	$	(10)	$	(110)
Deferred income taxes recoverable in rates	518		296
Pension and PBOP plan obligations	(2)		11
Removal obligations	(2,382)		(2,248)
Environmental costs	105		107
Sunrise Powerlink fire mitigation	123		123
Regulatory balancing accounts(1)(2):
Commodity – electric	111		220
Gas transportation	15		60
Safety and reliability	186		107
Public purpose programs	(133)		(69)
Wildfire mitigation plan	607		375
Liability insurance premium	96		99
Other balancing accounts	(338)		(50)
Other regulatory assets, net(2)	96		137
Total SDG&E	(1,008)		(942)
SoCalGas:
Deferred income taxes recoverable in rates	244		161
Pension and PBOP plan obligations	(265)		(170)
Employee benefit costs	24		24
Removal obligations	(597)		(616)
Environmental costs	39		38
Regulatory balancing accounts(1)(2):
Commodity – gas, including transportation	(356)		(257)
Safety and reliability	691		575
Public purpose programs	(149)		(158)
Liability insurance premium	23		23
Other balancing accounts	519		115
Other regulatory assets, net(2)	224		223
Total SoCalGas	397		(42)
Sempra Infrastructure:
Deferred income taxes recoverable in rates	78		78
Other regulatory assets	3		—
Total Sempra Infrastructure	81		78
Total Sempra	$	(530)	$	(906)

(1) At September 30, 2023 and December 31, 2022, the noncurrent portion of regulatory balancing accounts – net undercollected for SDG&E was $842 and $562, respectively, and for SoCalGas was $957 and $692, respectively.

(2) Includes regulatory assets earning a return authorized by applicable regulators, which generally approximates the three-month commercial paper rate.

SEMPRA CALIFORNIA

CPUC GRC

The CPUC uses GRCs to set revenues to allow SDG&E and SoCalGas to recover their reasonable operating costs and to provide the opportunity to realize their authorized rates of return on their investments.

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 proposed 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. Intervening parties have proposed various adjustments to SDG&E’s and SoCalGas’ revenue requirement requests. 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. The CPUC has authorized SDG&E and SoCalGas to recognize the effects of the GRC final decision retroactive to January 1, 2024. In October 2023, SDG&E submitted a separate request with the CPUC in its 2024 GRC describing $2.2 billion in costs to implement its wildfire mitigation plans from 2019 through 2022, and seeking review and recovery of the incremental wildfire mitigation plan costs incurred during that period, totaling $1.5 billion. SDG&E expects to receive a proposed decision on this request in the second half of 2024. SDG&E also expects to submit in mid-2024 a separate request in its 2024 GRC for review and recovery of its wildfire mitigation plan costs incurred in 2023. The results of the GRC may materially and adversely differ from what is contained in the GRC applications.

CPUC Cost of Capital

The CPUC approved the following cost of capital for SDG&E and SoCalGas that became effective on January 1, 2023 and will remain in effect through December 31, 2025, subject to the CCM. The CPUC has issued a ruling to initiate a second phase of this cost of capital proceeding to evaluate potential modifications to the CCM.


CPUC AUTHORIZED COST OF CAPITAL FOR 2023 – 2025

SDG&E							SoCalGas
Authorized weighting		Return on rate base		Weighted return on rate base(1)			Authorized weighting		Return on rate base		Weighted return on rate base
45.25	%	4.05	%	1.83	%	Long-Term Debt	45.60	%	4.07	%	1.86	%
2.75		6.22		0.17		Preferred Equity	2.40		6.00		0.14
52.00		9.95		5.17		Common Equity	52.00		9.80		5.10
100.00	%			7.18	%		100.00	%			7.10	%

(1) Total weighted return on rate base does not sum due to rounding differences.

The CCM was triggered for SDG&E and SoCalGas on September 30, 2023 and, subject to regulatory approval, would increase each of their authorized rates of return effective January 1, 2024 as follows:


PROPOSED CPUC COST OF CAPITAL FOR 2024 – 2025

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	%	4.34	%	1.96	%	Long-Term Debt	45.60	%	4.54	%	2.07	%
2.75		6.22		0.17		Preferred Equity	2.40		6.00		0.14
52.00		10.65		5.54		Common Equity	52.00		10.50		5.46
100.00	%			7.67	%		100.00	%			7.67	%

SDG&E

FERC Rate Matters

SDG&E files separately with the FERC for its authorized ROE on FERC-regulated electric transmission operations and assets. SDG&E’s currently effective TO5 settlement provides for a ROE of 10.60%, consisting of a base ROE of 10.10% plus an additional 50 bps for participation in the California ISO (the California ISO adder). If the FERC issues an order ruling that California IOUs are no longer eligible for the California ISO adder, SDG&E would refund the California ISO adder as of the refund effective date (June 1, 2019) if such a refund is determined to be required by the terms of the TO5 settlement. The TO5 term is effective June 1, 2019 and shall remain in effect until terminated by a notice provided at least six months before the end of the calendar year. Following such notice, SDG&E would file an updated rate request with an effective date of January 1 of the following year.

SAN ONOFRE NUCLEAR GENERATING STATION

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.

NUCLEAR DECOMMISSIONING AND FUNDING

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 be completed around 2030. 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. SDG&E is responsible for approximately 20% of the total decommissioning cost.

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 2022, the CPUC granted SDG&E authorization to access NDT funds of up to $81 million for forecasted 2023 costs.

The following table shows the fair values and gross unrealized gains and losses for the securities held in the NDT on the Sempra and SDG&E Condensed Consolidated Balance Sheets. We provide additional fair value disclosures for the NDT in Note 8.


NUCLEAR DECOMMISSIONING TRUSTS
(Dollars in millions)
	Cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
	September 30, 2023
Debt securities:
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies(1)	$	44	$	1	$	(2)	$	43
Municipal bonds(2)	278		—		(18)		260
Other securities(3)	234		1		(19)		216
Total debt securities	556		2		(39)		519
Equity securities	99		201		(5)		295
Short-term investments, primarily cash equivalents	24		—		—		24
Receivables (payables), net	(11)		—		—		(11)
Total	$	668	$	203	$	(44)	$	827

	December 31, 2022
Debt securities:
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies	$	40	$	1	$	(1)	$	40
Municipal bonds	283		1		(14)		270
Other securities	248		—		(21)		227
Total debt securities	571		2		(36)		537
Equity securities	111		194		(8)		297
Short-term investments, primarily cash equivalents	11		—		—		11
Receivables (payables), net	(4)		—		—		(4)
Total	$	689	$	196	$	(44)	$	841

(1) Maturity dates are 2023-2054.

(2) Maturity dates are 2023-2062.

(3) Maturity dates are 2023-2072.

The following table shows the proceeds from sales of securities in the NDT and gross realized gains and losses on those sales.


SALES OF SECURITIES IN THE NUCLEAR DECOMMISSIONING TRUSTS
(Dollars in millions)
	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Proceeds from sales	$	143	$	133	$	437	$	530
Gross realized gains	12		2		20		16
Gross realized losses	(3)		(3)		(9)		(14)

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.

ASSET RETIREMENT OBLIGATION

The present value of SDG&E’s ARO related to decommissioning costs for all three SONGS units was $512 million at September 30, 2023 and is based on a cost study prepared in 2020 that is pending CPUC approval. SDG&E expects to receive a proposed decision in the fourth quarter of 2023.