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GENERAL INFORMATION AND OTHER FINANCIAL DATA

3 Months Ended

Mar. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

GENERAL INFORMATION AND OTHER FINANCIAL DATA

PRINCIPLES OF CONSOLIDATION

Sempra Energy

Sempra Energy’s Condensed Consolidated Financial Statements include the accounts of Sempra Energy, a California-based energy-services holding company, and its consolidated subsidiaries and VIEs. Sempra Global is the holding company for most of our subsidiaries that are not subject to California or Texas utility regulation. Sempra Energy’s businesses were managed within six separate reportable segments until April 2019 and five separate reportable segments thereafter, which we discuss in Note 12. All references in these Notes to our reportable segments are not intended to refer to any legal entity with the same or similar name.

SDG&E

SDG&E’s Condensed Consolidated Financial Statements include its accounts and the accounts of a VIE of which SDG&E was the primary beneficiary until August 23, 2019, at which time SDG&E deconsolidated the VIE. SDG&E’s common stock is wholly owned by Enova Corporation, which is a wholly owned subsidiary of Sempra Energy.

SoCalGas

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

In this report, we refer to SDG&E and SoCalGas collectively as the California Utilities.

BASIS OF PRESENTATION

This is a combined report of Sempra Energy, SDG&E and SoCalGas. We provide separate information for SDG&E and SoCalGas as required. References in this report to “we,” “us,” “our” and “Sempra Energy Consolidated” are to Sempra Energy and its consolidated entities, unless otherwise indicated by the context. We have eliminated intercompany accounts and transactions within the consolidated financial statements of each reporting entity.

Throughout this report, we refer to the following as Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements when discussed together or collectively:


▪	the Condensed Consolidated Financial Statements and related Notes of Sempra Energy and its subsidiaries and VIEs;


▪	the Condensed Consolidated Financial Statements and related Notes of SDG&E and its VIE (until deconsolidation of Otay Mesa VIE in August 2019); and


▪	the Condensed Financial Statements and related Notes of SoCalGas.

We have prepared the Condensed Consolidated Financial Statements in conformity with U.S. GAAP and in accordance with the interim-period-reporting requirements of Form 10-Q. Results of operations for interim periods are not necessarily indicative of results for the entire year or for any other period. We evaluated events and transactions that occurred after March 31, 2020 through the date the financial statements were issued and, in the opinion of management, the accompanying statements reflect all adjustments necessary for a fair presentation. These adjustments are only of a normal, recurring nature.

All December 31, 2019 balance sheet information in the Condensed Consolidated Financial Statements has been derived from our audited 2019 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, as the planned sales represent a strategic shift that will have a major effect on our operations and financial results. Our discussions in the Notes below relate only to our continuing operations unless otherwise noted.

Regulated Operations

The California Utilities and Sempra Mexico’s natural gas distribution utility, Ecogas, prepare their financial statements in accordance with the provisions of U.S. GAAP governing rate-regulated operations. We discuss the effects of regulation and revenue recognition at our utilities in Notes 1 and 3 of the Notes to Consolidated Financial Statements in the Annual Report.

Our Sempra Texas Utilities segment is comprised of our equity method investments in holding companies that own interests in regulated electric transmission and distribution utilities in Texas and prepare their financial statements in accordance with the provisions of U.S. GAAP governing rate-regulated operations.

Our Sempra Mexico segment includes the operating companies of our subsidiary, IEnova, as well as certain holding companies and risk management activity. Certain business activities at IEnova are regulated by the Comisión Reguladora de Energía (Energy Regulatory Commission of Mexico) and meet the regulatory accounting requirements of U.S. GAAP. Pipeline projects under construction at IEnova that meet the regulatory accounting requirements of U.S. GAAP record the impact of AFUDC related to equity. We discuss AFUDC below and in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.

CASH, CASH EQUIVALENTS AND RESTRICTED CASH

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the Condensed Consolidated Balance Sheets to the sum of such amounts reported on the Condensed Consolidated Statements of Cash Flows. We provide information about the nature of restricted cash in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.



RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH
(Dollars in millions)
	March 31,		December 31,
	2020		2019
Sempra Energy Consolidated:
Cash and cash equivalents	$	2,247	$	108
Restricted cash, current	23		31
Restricted cash, noncurrent	3		3
Cash, cash equivalents and restricted cash in discontinued operations	181		75
Total cash, cash equivalents and restricted cash on the Condensed Consolidated Statements of Cash Flows	$	2,454	$	217

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 our guarantees of Cameron LNG JV’s debt.

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 deem 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 have implemented certain measures to assist customers, including suspending service disconnections due to nonpayment, waiving late payment fees for business customers, and offering

flexible payment plans for customers experiencing difficulty paying their electric or gas bills. On April 16, 2020, the CPUC approved a resolution authorizing each of the California Utilities to establish a CPPMA to track and request recovery, which is not assured, of incremental costs associated with complying with residential and small business customer relief measures implemented by the CPUC related to the COVID-19 pandemic. As of March 31, 2020, the California Utilities have evaluated the impact of the COVID-19 pandemic, including the measures described above, on their respective allowances for credit losses for customer receivables, with nominal impacts. The unique nature of the COVID-19 pandemic and the relatively short amount of time in which the California Utilities had been impacted as of March 31, 2020 result in limited support for modifying our evaluation of historical experience or forecasting future economic impacts that may or may not be experienced when calculating the allowances. Our businesses will continue to monitor economic impacts and customer payment patterns when evaluating their allowances for credit losses in future reporting periods, which may increase materially 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, excluding allowances related to amounts due from unconsolidated affiliates and off-balance sheet arrangements, which we discuss separately below the table.



TRADE AND OTHER ACCOUNTS RECEIVABLE – ALLOWANCES FOR CREDIT LOSSES
(Dollars in millions)
	Sempra Energy Consolidated⁽¹⁾			SDG&E⁽²⁾			SoCalGas⁽³⁾
Allowances for credit losses at December 31, 2019	$	29		$	14		$	15
Incremental allowance upon adoption of ASU 2016-13	1			—			—
Provisions for expected credit losses	6			3			3
Write-offs	(4		)	(3		)	(1		)
Recoveries	1			1			—
Allowances for credit losses at March 31, 2020	$	33		$	15		$	17


⁽¹⁾	Balance at March 31, 2020 includes $9 million and $24 million in Accounts Receivable – Trade, Net and Accounts Receivable – Other, Net, respectively.


⁽²⁾	Balance at March 31, 2020 includes $4 million and $11 million in Accounts Receivable – Trade, Net and Accounts Receivable – Other, Net, respectively.


⁽³⁾	Balance at March 31, 2020 includes $4 million and $13 million in Accounts Receivable – Trade, Net and Accounts Receivable – Other, Net, respectively.

For amounts due from unconsolidated affiliates and off-balance sheet arrangements, 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,” we have loans due from unconsolidated affiliates with varying tenors, interest rates and currencies. We provide below the 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 Energy Consolidated⁽¹⁾
Allowances for credit losses at December 31, 2019	$	—
Allowance established upon adoption of ASU 2016-13	6
Provisions for expected credit losses	1
Allowances for credit losses at March 31, 2020	$	7


⁽¹⁾	Balance at March 31, 2020 includes negligible amounts and $7 million in Due from Unconsolidated Affiliates – Current and Due from Unconsolidated Affiliates – Noncurrent, respectively.

As we discuss in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report, Sempra LNG has provided guarantees for a maximum aggregate amount of $4.0 billion associated with Cameron LNG JV’s debt obligations. We established a liability for credit losses of $6 million for this off-balance sheet arrangement upon adoption of ASU 2016-13 on January 1, 2020 and we subsequently reduced this liability by $1 million in the three months ended March 31, 2020 through a reduction to credit loss expense, which is included in O&M on the Sempra Energy Condensed Consolidated Statement of Operations. At March 31, 2020, expected credit losses of $4 million are included in Other Current Liabilities and $1 million are included in Deferred Credits and Other on the Sempra Energy Condensed Consolidated Balance Sheet.

CONCENTRATION OF CREDIT RISK

Credit risk is the risk of loss that would be incurred as a result of nonperformance by our counterparties on their contractual obligations. We have policies governing the management of credit risk that are administered by the respective credit departments at each of our segments and overseen by their separate risk management committees.

This oversight includes calculating current and potential credit risk on a regular basis and monitoring actual balances in comparison to approved limits. We establish credit limits based on risk and return considerations under terms customarily available in the industry. We avoid concentration of counterparties whenever possible, and we believe our credit policies significantly reduce overall credit risk. These policies include an evaluation of:


▪	prospective counterparties’ financial condition (including credit ratings)


▪	collateral requirements


▪	the use of standardized agreements that allow for the netting of positive and negative exposures associated with a single counterparty


▪	downgrade triggers

We believe that we have provided adequate reserves for counterparty nonperformance.

In the three months ended March 31, 2020, four customers each represented 10% or more of Sempra Mexico’s revenues (including intercompany transactions with affiliates consolidated by Sempra Energy). Additionally, for the same period, certain of our unconsolidated equity method investees (Oncor Holdings, Cameron LNG JV and IMG JV) had customers that each represented 10% or more of their respective revenues.

When our development projects become operational, we rely significantly on the ability of suppliers to perform under long-term agreements and on our ability to enforce contract terms in the event of nonperformance. Also, the factors that we consider in evaluating a development project include negotiating customer and supplier agreements and, therefore, we rely on these agreements for future performance. We also may condition our decision to go forward on development projects on first obtaining these customer and supplier agreements.

INVENTORIES

The components of inventories are as follows:



INVENTORY BALANCES
(Dollars in millions)
	Natural gas				LNG				Materials and supplies				Total
	March		December		March		December		March		December		March		December
	31, 2020		31, 2019		31, 2020		31, 2019		31, 2020		31, 2019		31, 2020		31, 2019
Sempra Energy Consolidated	$	55	$	110	$	5	$	9	$	157	$	158	$	217	$	277
SDG&E	1		1		—		—		92		93		93		94
SoCalGas	32		90		—		—		47		46		79		136

WILDFIRE FUND

On July 12, 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 a complaint filed in U.S. District Court for the Northern District of California in July 2019, plaintiffs seek to invalidate AB 1054, which established the Wildfire Fund, based on allegations that the legislation violates federal law. The California Attorney General has moved to dismiss the complaint.

Wildfire Fund Asset

In the third quarter of 2019, SDG&E recorded a Wildfire Fund asset for its commitment to make shareholder contributions totaling $451.5 million, measured at present value as of July 25, 2019 (the date by which both Edison and SDG&E opted to contribute to the Wildfire Fund). SDG&E is amortizing the Wildfire Fund asset to O&M on a straight-line basis over the estimated period of benefit, as adjusted for utilization by the IOUs. The estimated period of benefit of the Wildfire Fund asset is 15 years as of March 31, 2020.

We will periodically reevaluate the estimated period of benefit of the Wildfire Fund asset based on actual experience and changes in assumptions. SDG&E may recognize a reduction of its Wildfire Fund asset and record a charge against earnings in the period when there is a reduction of the available coverage due to recoverable claims from the IOUs. The reduction to the Wildfire Fund asset may be proportionate to the Wildfire Fund’s consumption (i.e., recoveries for outstanding wildfire claims that are recoverable from the Wildfire Fund, net of anticipated or actual reimbursement to the Wildfire Fund by the responsible IOU, would decrease the Wildfire Fund asset and remaining available coverage). In the three months ended March 31, 2020, there were no such known claims from the IOUs requiring a reduction of the Wildfire Fund asset.

At March 31, 2020 and December 31, 2019, the current portion of the Wildfire Fund asset of $29 million is included in Other Current Assets on Sempra Energy’s Condensed Consolidated Balance Sheets and in Prepaid Expenses on SDG&E’s Condensed Consolidated Balance Sheets, and the noncurrent portion of $385 million and $392 million, respectively, is included in Wildfire Fund on Sempra Energy’s and SDG&E’s Condensed Consolidated Balance Sheets. In the three months ended March 31, 2020, SDG&E recognized $7 million of amortization of the Wildfire Fund asset.

Wildfire Fund Obligation

In the third quarter of 2019, SDG&E recorded a Wildfire Fund obligation for its commitment to make shareholder contributions totaling $451.5 million, measured at present value as of July 25, 2019 (the date by which both Edison and SDG&E opted to contribute to the Wildfire Fund). SDG&E accretes the present value of the Wildfire Fund obligation to O&M until the liability is settled. At both March 31, 2020 and December 31, 2019, the Wildfire Fund obligation of $12.9 million is included in Other Current Liabilities and $86 million is included in Deferred Credits and Other on Sempra Energy’s and SDG&E’s Condensed Consolidated Balance Sheets. In the three months ended March 31, 2020, SDG&E recognized negligible accretion of the Wildfire Fund obligation.

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 March 31,
	2020		2019
Sempra Energy Consolidated	$	48	$	47
SDG&E	27		17
SoCalGas	11		11

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 thereby Sempra Energy, 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 we consider the operational characteristics of the facility, including its expected power generation output relative to its capacity to generate and the financial structure of the entity, among other factors. If we determine that SDG&E is the primary beneficiary, SDG&E and Sempra Energy consolidate the entity that owns the facility as a VIE.

SDG&E determined that none of its contracts resulted in SDG&E being the primary beneficiary of a VIE at March 31, 2020. 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 that most significantly impact the economic performance of the other VIEs. If our ongoing evaluation of these VIEs were to conclude that SDG&E becomes the primary beneficiary and consolidation by SDG&E becomes necessary, the effects could be significant to the financial position and liquidity of SDG&E and Sempra Energy.

Sempra Texas Utilities

Our 100% interest in Oncor Holdings is a VIE that owns an 80.25% interest in Oncor. Sempra Energy is not the primary beneficiary of the VIE because of the structural and operational ring-fencing and governance measures in place that prevent us from having the power to direct the significant activities of Oncor Holdings. As a result, we do not consolidate Oncor Holdings and instead account for our ownership interest as an equity method investment. See Note 6 for additional information about our equity method investment in Oncor Holdings and restrictions on our ability to influence its activities. Our maximum exposure to loss, which fluctuates over time, from our interest in Oncor Holdings does not exceed the carrying value of our investment, which was $11,619 million at March 31, 2020 and $11,519 million at December 31, 2019.

Sempra Mexico

Sempra Mexico’s businesses also enter into arrangements that could include variable interests. We evaluate these arrangements and applicable entities based on the qualitative and quantitative analyses described above. Certain of these entities are service or project companies that are VIEs because the total equity at risk is not sufficient for the entities to finance their activities without additional subordinated financial support. As the primary beneficiary of these companies, we consolidate them. The assets of these VIEs totaled approximately $131 million at March 31, 2020 and $126 million at December 31, 2019 and consisted primarily of PP&E and other long-term assets. Our maximum exposure to loss is equal to the carrying value of these assets.

Sempra LNG

Cameron LNG JV is a VIE principally due to contractual provisions that transfer certain risks to customers. Sempra Energy is not the primary beneficiary of the VIE because we do not have the power to direct the most significant activities of Cameron LNG JV, and therefore we account for our investment in Cameron LNG JV under the equity method. The carrying value of our investment, including amounts recognized in AOCI related to interest-rate cash flow hedges at Cameron LNG JV, was $1,184 million at March 31, 2020 and $1,256 million at December 31, 2019. Our maximum exposure to loss, which fluctuates over time, includes the carrying value of our investment and guarantees that we discuss in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report.

PENSION AND OTHER POSTRETIREMENT BENEFITS

Settlement Accounting for Lump Sum Payments

In the three months ended March 31, 2020, Sempra Energy recorded settlement charges of $5 million 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 ENERGY CONSOLIDATED
(Dollars in millions)
	Pension benefits						Other postretirement benefits
	Three months ended March 31,
	2020			2019			2020			2019
Service cost	$	33		$	27		$	5		$	4
Interest cost	32			35			8			9
Expected return on assets	(42		)	(36		)	(13		)	(18		)
Amortization of:
Prior service cost (credit)	3			3			(1		)	—
Actuarial loss (gain)	9			14			(3		)	(2		)
Settlement charges	5			—			—			—
Net periodic benefit cost (credit)	40			43			(4		)	(7		)
Regulatory adjustments	(28		)	(36		)	4			7
Total expense recognized	$	12		$	7		$	—		$	—



NET PERIODIC BENEFIT COST – SDG&E
(Dollars in millions)
	Pension benefits						Other postretirement benefits
	Three months ended March 31,
	2020			2019			2020			2019
Service cost	$	8		$	8		$	1		$	1
Interest cost	7			9			2			2
Expected return on assets	(13		)	(11		)	(3		)	(3		)
Amortization of:
Prior service cost	1			1			—			1
Actuarial loss (gain)	1			4			(1		)	(1		)
Net periodic benefit cost (credit)	4			11			(1		)	—
Regulatory adjustments	(3		)	(11		)	1			—
Total expense recognized	$	1		$	—		$	—		$	—



NET PERIODIC BENEFIT COST – SOCALGAS
(Dollars in millions)
	Pension benefits						Other postretirement benefits
	Three months ended March 31,
	2020			2019			2020			2019
Service cost	$	22		$	16		$	3		$	3
Interest cost	22			23			6			7
Expected return on assets	(27		)	(24		)	(10		)	(14		)
Amortization of:
Prior service cost (credit)	2			2			—			(1		)
Actuarial loss (gain)	6			9			(2		)	(2		)
Net periodic benefit cost (credit)	25			26			(3		)	(7		)
Regulatory adjustments	(25		)	(25		)	3			7
Total expense recognized	$	—		$	1		$	—		$	—

Benefit Plan Contributions

The following table shows our year-to-date contributions to pension and other postretirement benefit plans and the amounts we expect to contribute in 2020.



BENEFIT PLAN CONTRIBUTIONS
(Dollars in millions)
	Sempra Energy Consolidated		SDG&E		SoCalGas
Contributions through March 31, 2020:
Pension plans	$	20	$	—	$	1
Other postretirement benefit plans	1		—		—
Total expected contributions in 2020:
Pension plans	$	268	$	53	$	154
Other postretirement benefit plans	7		—		1

RABBI TRUST

In support of its Supplemental Executive Retirement, Cash Balance Restoration and Deferred Compensation Plans, Sempra Energy maintains dedicated assets, including a Rabbi Trust and investments in life insurance contracts, which totaled $413 million and $488 million at March 31, 2020 and December 31, 2019, respectively.

EARNINGS PER COMMON SHARE

Basic EPS is calculated by dividing earnings attributable to common shares (from both continuing and discontinued operations) by the weighted-average number of common shares outstanding for the period. Diluted EPS includes the potential dilution of common stock equivalent shares that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.



EARNINGS (LOSSES) PER COMMON SHARE COMPUTATIONS
(Dollars in millions, except per share amounts; shares in thousands)
	Three months ended March 31,
	2020			2019
Numerator for continuing operations:
Income from continuing operations, net of income tax	$	867		$	560
Earnings attributable to noncontrolling interests	(143		)	(32		)
Mandatory convertible preferred stock dividends	(36		)	(36		)
Earnings from continuing operations attributable to common shares for basic EPS	688			492
Add back dividends for dilutive mandatory convertible preferred stock⁽¹⁾	36			—
Earnings from continuing operations attributable to common shares for diluted EPS	$	724		$	492

Numerator for discontinued operations:
Income (loss) from discontinued operations, net of income tax	$	80		$	(42	)
Earnings attributable to noncontrolling interests	(8		)	(9		)
Earnings (losses) from discontinued operations attributable to common shares	$	72		$	(51	)

Numerator for earnings:
Earnings attributable to common shares for basic EPS	$	760		$	441
Add back dividends for dilutive mandatory convertible preferred stock⁽¹⁾	36			—
Earnings attributable to common shares for diluted EPS	$	796		$	441

Denominator:
Weighted-average common shares outstanding for basic EPS⁽²⁾	292,790			274,674
Dilutive effect of stock options and RSUs⁽³⁾	1,304			969
Dilutive effect of common shares sold forward	—			1,585
Dilutive effect of mandatory convertible preferred stock	19,831			—
Weighted-average common shares outstanding for diluted EPS	313,925			277,228

Basic EPS:
Earnings from continuing operations	$	2.35		$	1.79
Earnings (losses) from discontinued operations	$	0.25		$	(0.19	)
Earnings	$	2.60		$	1.60

Diluted EPS:
Earnings from continuing operations	$	2.30		$	1.78
Earnings (losses) from discontinued operations	$	0.23		$	(0.19	)
Earnings	$	2.53		$	1.59


⁽¹⁾	In the three months ended March 31, 2020, due to the dilutive effect of mandatory convertible preferred stock, the numerator used to calculate diluted EPS includes an add-back of mandatory convertible preferred stock dividends declared in that quarter.


⁽²⁾	Includes 542 and 613 average fully vested RSUs held in our Deferred Compensation Plan for the three months ended March 31, 2020 and 2019, 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 Energy common stock and the comparative indices used to determine the vesting percentage of our total shareholder return performance-based RSUs, which we discuss in Note 10 of the Notes to Consolidated Financial Statements in the Annual Report, dilutive RSUs may vary widely from period-to-period.

The potentially dilutive impact from stock options and RSUs is calculated under the treasury stock method. Under this method, proceeds based on the exercise price and unearned compensation are assumed to be used to repurchase shares on the open market at the average market price for the period, reducing the number of potential new shares to be issued and sometimes causing an antidilutive effect. The computation of diluted EPS for the three months ended March 31, 2020 and 2019 excludes 254,257 and 316,385 potentially dilutive shares, respectively, because to include them would be antidilutive for the period. However, these shares could potentially dilute basic EPS in the future.

The potentially dilutive impact from the forward sale of our common stock pursuant to forward sale agreements that we entered into in 2018 and fully settled by the end of 2019 is reflected in our diluted EPS calculation using the treasury stock method until settlement. After settlement, those shares are included in weighted-average common shares outstanding for basic EPS.

The potentially dilutive impact from mandatory convertible preferred stock is calculated under the if-converted method. The computation of diluted EPS for the three months ended March 31, 2020 and 2019 excludes zero and 18,601,085 potentially dilutive shares, respectively, because to include them would be antidilutive for the period. However, these shares could potentially dilute basic EPS in the future.

In January 2020, pursuant to our Sempra Energy share-based compensation plans, the Compensation Committee of Sempra Energy’s Board of Directors granted 154,860 nonqualified stock options that vest over a three-year period, 258,470 performance-based RSUs and 100,972 service-based RSUs.

We discuss share-based compensation plans and related awards and the terms and conditions of Sempra Energy’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 March 31, 2020 and 2019
Sempra Energy Consolidated⁽²⁾:
Balance as of December 31, 2019	$	(607	)	$	(215	)	$	(117	)	$	(939	)
OCI before reclassifications	(138		)	(154		)	16			(276		)
Amounts reclassified from AOCI	—			19			6			25
Net OCI	(138		)	(135		)	22			(251		)
Balance as of March 31, 2020	$	(745	)	$	(350	)	$	(95	)	$	(1,190	)

Balance as of December 31, 2018	$	(564	)	$	(82	)	$	(118	)	$	(764	)
Cumulative-effect adjustment from change in accounting principle	—			(25		)	(17		)	(42		)
OCI before reclassifications	32			(45		)	1			(12		)
Amounts reclassified from AOCI	—			(1		)	2			1
Net OCI	32			(46		)	3			(11		)
Balance as of March 31, 2019	$	(532	)	$	(153	)	$	(132	)	$	(817	)
SDG&E:
Balance as of December 31, 2019 and March 31, 2020							$	(16	)	$	(16	)

Balance as of December 31, 2018							$	(10	)	$	(10	)
Cumulative-effect adjustment from change in accounting principle							(2		)	(2		)
Balance as of March 31, 2019							$	(12	)	$	(12	)
SoCalGas:
Balance as of December 31, 2019 and March 31, 2020				$	(13	)	$	(10	)	$	(23	)

Balance as of December 31, 2018				$	(12	)	$	(8	)	$	(20	)
Cumulative-effect adjustment from change in accounting principle				(2		)	(2		)	(4		)
Balance as of March 31, 2019				$	(14	)	$	(10	)	$	(24	)


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


⁽²⁾	Includes discontinued operations.



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 March 31,
	2020			2019
Sempra Energy Consolidated:
Financial instruments:
Interest rate and foreign exchange instruments⁽¹⁾	$	2		$	1		Interest Expense
	41			(3		)	Other (Expense) Income, Net
Interest rate and foreign exchange instruments	—			1			Equity Earnings
Foreign exchange instruments	(2		)	1			Revenues: Energy-Related Businesses
	(2		)	—			Other (Expense) Income, Net
Total before income tax	39			—
	(12		)	—			Income Tax Benefit (Expense)
Net of income tax	27			—
	(8		)	(1		)	Earnings Attributable to Noncontrolling Interests
	$	19		$	(1	)
Pension and other postretirement benefits⁽²⁾:
Amortization of actuarial loss	$	2		$	2		Other (Expense) Income, Net
Amortization of prior service cost	1			1			Other (Expense) Income, Net
Settlement charges	5			—			Other (Expense) Income, Net
Total before income tax	8			3
	(2		)	(1		)	Income Tax Benefit (Expense)
Net of income tax	$	6		$	2

Total reclassifications for the period, net of tax	$	25		$	1
SDG&E:
Financial instruments:
Interest rate instruments⁽¹⁾	$	—		$	1		Interest Expense
	—			(1		)	Earnings Attributable to Noncontrolling Interest
Total reclassifications for the period, net of tax	$	—		$	—


⁽¹⁾	Amounts in 2019 include Otay Mesa VIE. All of SDG&E’s interest rate derivative activity relates to Otay Mesa VIE.


⁽²⁾	Amounts are included in the computation of net periodic benefit cost (see “Pension and Other Postretirement Benefits” above).

For the three months ended March 31, 2020 and 2019, reclassifications out of AOCI to net income were negligible for SoCalGas.

SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS

Ownership interests that are held by owners other than Sempra Energy in subsidiaries or entities consolidated by us are accounted for and reported as NCI.

SoCalGas Preferred Stock

The preferred stock at SoCalGas is presented at Sempra Energy as a noncontrolling interest. Sempra Energy records charges against income related to NCI for preferred stock dividends declared by SoCalGas. We provide additional information regarding preferred stock in Note 13 of the Notes to Consolidated Financial Statements in the Annual Report.

Other Noncontrolling Interests

Sempra Mexico

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 terminals for the receipt, storage and delivery of liquid fuels.

In the first quarter of 2019, IEnova repurchased 1,600,000 shares of its outstanding common stock held by NCI for approximately $6 million, resulting in an increase in Sempra Energy’s ownership interest in IEnova from 66.5% to 66.6%.

Sempra LNG

On March 30, 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 Energy’s shareholders’ equity of $2 million for the difference between the carrying value and fair value related to the change in ownership.

In February 2019, Sempra LNG purchased for $20 million the 9.1% minority interest in Bay Gas immediately prior to the sale of 100% of Bay Gas.

Sempra LNG and IEnova are jointly developing a proposed natural gas liquefaction project at the site of IEnova’s existing ECA LNG Regasification terminal. Sempra LNG consolidates the ECA LNG JV proposed liquefaction project. Thus, Sempra Energy’s NCI in IEnova’s 50% interest in the proposed project is reported at Sempra LNG.

The following table provides information about noncontrolling ownership interests held by others (not including preferred shareholders) recorded in Other Noncontrolling Interests in Total Equity on Sempra Energy’s Condensed Consolidated Balance Sheets.



OTHER NONCONTROLLING INTERESTS
(Dollars in millions)
	Percent ownership held by noncontrolling interests				Equity (deficit) held by noncontrolling interests
	March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
Sempra Mexico:
IEnova	33.4	%	33.4	%	$	1,726	$	1,608
IEnova subsidiaries⁽¹⁾	10.0 – 17.5		10.0 – 46.3		6		15
Sempra LNG:
Liberty Gas Storage LLC	—		24.6		—		(13		)
ECA LNG JV	16.7		16.7		14		12
Parent and other:
PXiSE Energy Solutions, LLC	20.0		20.0		1		1
Discontinued Operations:
Chilquinta Energía subsidiaries⁽¹⁾	19.7 – 43.4		19.7 – 43.4		21		23
Luz del Sur	16.4		16.4		205		205
Tecsur	9.8		9.8		5		5
Total Sempra Energy					$	1,978	$	1,856

⁽¹⁾

IEnova and Chilquinta Energía have subsidiaries with NCI held by others. Percentage range reflects the highest and lowest ownership percentages among these subsidiaries.

TRANSACTIONS WITH AFFILIATES

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



AMOUNTS DUE FROM (TO) UNCONSOLIDATED AFFILIATES
(Dollars in millions)
	March 31, 2020			December 31, 2019
Sempra Energy Consolidated:
Total due from various unconsolidated affiliates – current, net of negligible allowance for credit losses at March 31, 2020⁽¹⁾⁽²⁾	$	64		$	32

Sempra Texas Utilities – TTHC, net of allowance for credit losses of $1 at March 31, 2020⁽²⁾⁽³⁾	$	6		$	—
Sempra Mexico – IMG JV – Note due March 15, 2022, net of allowance for credit losses of $6 at March 31, 2020⁽²⁾⁽⁴⁾	586			742
Total due from unconsolidated affiliates – noncurrent	$	592		$	742

Total due to various unconsolidated affiliates – current	$	(8	)	$	(5	)

Sempra Mexico⁽²⁾:
TAG Pipelines Norte, S. de. R.L. de C.V.:
Note due December 20, 2021⁽⁵⁾	$	(40	)	$	(39	)
5.5% Note due January 9, 2024⁽⁶⁾	(65		)	—
TAG JV – 5.74% Note due December 17, 2029⁽⁶⁾	(158		)	(156		)
Total due to unconsolidated affiliates – noncurrent	$	(263	)	$	(195	)
SDG&E:
Sempra Energy	$	(45	)	$	(37	)
SoCalGas	(6		)	(10		)
Various affiliates	(8		)	(6		)
Total due to unconsolidated affiliates – current	$	(59	)	$	(53	)

Income taxes due from Sempra Energy⁽⁷⁾	$	64		$	130
SoCalGas:
SDG&E	$	6		$	10
Various affiliates	1			1
Total due from unconsolidated affiliates – current	$	7		$	11

Sempra Energy	$	(49	)	$	(45	)
Various affiliates	—			(2		)
Total due to unconsolidated affiliates – current	$	(49	)	$	(47	)

Income taxes due from Sempra Energy⁽⁷⁾	$	104		$	152

⁽¹⁾

Amount at March 31, 2020 includes $23 million of outstanding principal and a negligible amount of accrued interest receivable from a U.S. dollar-denominated loan from IEnova to ESJ at a variable interest rate based on 1-month LIBOR plus 196 bps (3.54% at March 31, 2020) with a maturity date of June 30, 2020. Pursuant to the agreement, if ESJ is unable to meet certain conditions for an expansion project by May 13, 2020, IEnova and ESJ have the option to convert the loan to a 10-year note.


⁽²⁾	Amounts include principal balances plus accumulated interest outstanding.


⁽³⁾	U.S. dollar-denominated loans at fixed interest rates of 6.25% and 6.45% with maturity dates of November 5, 2028 and November 5, 2030, respectively.

⁽⁴⁾

Mexican peso-denominated revolving line of credit for up to 14.2 billion Mexican pesos or approximately $604 million U.S. dollar-equivalent, at a variable interest rate based on the 91-day Interbank Equilibrium Interest Rate plus 220 bps (8.79% at March 31, 2020), to finance construction of the natural gas marine pipeline. At March 31, 2020, $2 million of accrued interest receivable is included in Due From Unconsolidated Affiliates – Current.


⁽⁵⁾	U.S. dollar-denominated loan at a variable interest rate based on 6-month LIBOR plus 290 bps (4.08% at March 31, 2020).


⁽⁶⁾	U.S. dollar-denominated loan at a fixed interest rate.


⁽⁷⁾	SDG&E and SoCalGas are included in the consolidated income tax return of Sempra Energy and their respective income tax expense is computed as an amount equal to that which would result from each company having always filed a separate return.

The following table summarizes revenues and cost of sales from unconsolidated affiliates.



REVENUES AND COST OF SALES FROM UNCONSOLIDATED AFFILIATES
(Dollars in millions)
	Three months ended March 31,
	2020		2019
Revenues:
Sempra Energy Consolidated	$	12	$	14
SDG&E	1		1
SoCalGas	18		17
Cost of Sales:
Sempra Energy Consolidated	$	11	$	14
SDG&E	17		20
SoCalGas	—		4

Guarantees

Sempra Energy has provided guarantees related to the financing of the Cameron LNG JV project, as we discuss in Note 6 below and in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report.

OTHER (EXPENSE) INCOME, NET

Other (Expense) Income, Net on the Condensed Consolidated Statements of Operations consists of the following:



OTHER (EXPENSE) INCOME, NET
(Dollars in millions)
	Three months ended March 31,
	2020			2019
Sempra Energy Consolidated:
Allowance for equity funds used during construction	$	31		$	21
Investment (losses) gains⁽¹⁾	(37		)	26
(Losses) gains on interest rate and foreign exchange instruments, net	(153		)	13
Foreign currency transaction (losses) gains, net⁽²⁾	(123		)	7
Non-service component of net periodic benefit credit	26			24
Penalties related to billing practices OII	—			(8		)
Interest on regulatory balancing accounts, net	2			(1		)
Total	$	(254	)	$	82
SDG&E:
Allowance for equity funds used during construction	$	21		$	12
Non-service component of net periodic benefit credit	8			9
Interest on regulatory balancing accounts, net	2			—
Sundry, net	—			1
Total	$	31		$	22
SoCalGas:
Allowance for equity funds used during construction	$	8		$	8
Non-service component of net periodic benefit credit	25			18
Penalties related to billing practices OII	—			(8		)
Interest on regulatory balancing accounts, net	—			(1		)
Sundry, net	(3		)	(1		)
Total	$	30		$	16


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

⁽²⁾

Includes losses of $149 million and gains of $10 million in the three months ended March 31, 2020 and 2019, 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 (BENEFIT) EXPENSE AND EFFECTIVE INCOME TAX RATES
(Dollars in millions)
	Three months ended March 31,
	2020			2019
Sempra Energy Consolidated:
Income tax (benefit) expense from continuing operations	$	(207	)	$	42

Income from continuing operations before income taxes and equity earnings	$	397		$	501
Equity (losses) earnings, before income tax⁽¹⁾	(43		)	5
Pretax income	$	354		$	506

Effective income tax rate	(58		)%	8		%
SDG&E:
Income tax expense	$	58		$	5
Income before income taxes	$	320		$	182
Effective income tax rate	18		%	3		%
SoCalGas:
Income tax expense	$	52		$	19
Income before income taxes	$	355		$	283
Effective income tax rate	15		%	7		%


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

Sempra Energy, SDG&E and SoCalGas record income taxes for interim periods utilizing a forecasted ETR anticipated for the full year. Unusual and infrequent items and items that cannot be reliably estimated are recorded in the interim period in which they occur, which can result in variability in the ETR.

For SDG&E and SoCalGas, the CPUC requires flow-through rate-making treatment for the current income tax benefit or expense arising from certain property-related and other temporary differences between the treatment for financial reporting and income tax, which will reverse over time. Under the regulatory accounting treatment required for these flow-through temporary differences, deferred income tax assets and liabilities are not recorded to deferred income tax expense, but rather to a regulatory asset or liability, which impacts the ETR. As a result, changes in the relative size of these items compared to pretax income, from period to period, can cause variations in the ETR. The following items are subject to flow-through treatment:


▪	repairs expenditures related to a certain portion of utility plant fixed assets


▪	the equity portion of AFUDC, which is non-taxable


▪	a portion of the cost of removal of utility plant assets


▪	utility self-developed software expenditures


▪	depreciation on a certain portion of utility plant assets


▪	state income taxes

The AFUDC related to equity recorded for regulated construction projects at Sempra Mexico has similar flow-through treatment.

We record income tax (expense) benefit from the transactional effects of foreign currency and inflation. Such effects are partially mitigated by net gains (losses) from foreign currency derivatives that are hedging Sempra Mexico parent’s exposure to movements in the Mexico peso from its controlling interest in IEnova.

In the three months ended March 31, 2019, SDG&E and SoCalGas recorded income tax benefits of $31 million and $35 million, respectively, from the release of a regulatory liability established in connection with 2017 tax reform for excess deferred income tax balances that the CPUC directed be allocated to shareholders in a January 2019 decision.

Discontinued Operations

In January 2019, our board of directors approved a plan to sell our South American businesses, as we discuss in Note 5. Prior to this decision, our repatriation estimate excluded post-2017 earnings and other basis differences related to our South American businesses. Because of our decision to sell our South American businesses, we no longer assert indefinite reinvestment of these basis differences. Accordingly, we recorded the following income tax impacts from changes in outside basis differences in our discontinued operations in South America:


▪	$103 million income tax expense in 2019 related to outside basis differences existing as of the January 25, 2019 approval of our plan to sell our South American businesses; and


▪	$7 million income tax benefit in 2020 compared to $13 million income tax expense in 2019 related to changes in outside basis differences from earnings and foreign currency effects since January 25, 2019.

As of March 31, 2020, we have not changed our indefinite reinvestment assertion or repatriation plan.