INVESTMENTS IN UNCONSOLIDATED ENTITIES

6 Months Ended

Jun. 30, 2021

INVESTMENTS IN UNCONSOLIDATED ENTITIES

We generally account for investments under the equity method when we have significant influence over, but do not have control of, these entities. Equity earnings and losses, both before and net of income tax, are combined and presented as Equity Earnings on the Condensed Consolidated Statements of Operations. See Note 12 for information on equity earnings and losses, both before and net of income tax, by segment. See Note 1 for information on how equity earnings and losses before income taxes are factored into the calculations of our pretax income or loss and ETR.

We provide additional information concerning our equity method investments in Notes 5 and 6 of the Notes to Consolidated Financial Statements in the Annual Report.

SEMPRA TEXAS UTILITIES

Oncor Holdings

We account for our 100% ownership interest in Oncor Holdings, which owns an 80.25% interest in Oncor, as an equity method investment. Due to the ring-fencing measures, governance mechanisms and commitments in effect, we do not have the power to direct the significant activities of Oncor Holdings and Oncor. See Note 6 of the Notes to Consolidated Financial Statements in the Annual Report for additional information related to the restrictions on our ability to direct the significant activities of Oncor Holdings and Oncor.

In the six months ended June 30, 2021 and 2020, Sempra contributed $100 million and $139 million, respectively, to Oncor Holdings, and Oncor Holdings distributed $162 million and $146 million, respectively, in dividends to Sempra.

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


SUMMARIZED FINANCIAL INFORMATION – ONCOR HOLDINGS
(Dollars in millions)
	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
Operating revenues	$	1,147	$	1,090	$	2,286	$	2,162
Operating expenses	(836)		(767)		(1,665)		(1,568)
Income from operations	311		323		621		594
Interest expense	(102)		(102)		(204)		(203)
Income tax expense	(34)		(37)		(70)		(65)
Net income	167		173		332		302
Noncontrolling interest held by TTI	(34)		(35)		(67)		(61)
Earnings attributable to Sempra(1)	133		138		265		241

(1) Excludes adjustments to equity earnings related to amortization of a tax sharing liability associated with a tax sharing arrangement and changes in basis differences in AOCI within the carrying value of our equity method investment.

SEMPRA MEXICO

ESJ

As we discuss in Note 5, on March 19, 2021, IEnova completed the acquisition of the remaining 50% equity interest in ESJ and ESJ became a wholly owned, consolidated subsidiary. Prior to the acquisition date, IEnova owned 50% of ESJ and accounted for its interest as an equity method investment. In each of the six months ended June 30, 2021 and 2020, ESJ distributed a $4 million return of investment to IEnova.

SEMPRA LNG

Cameron LNG JV

In the six months ended June 30, 2021 and 2020, Cameron LNG JV distributed to Sempra LNG dividends of $378 million, of which $165 million relates to the distribution from Cameron LNG JV’s SDSRA that we discuss below, and $74 million, respectively.

In March 2021, Cameron LNG JV reached financial completion of the three-train liquefaction project, and Sempra’s related guarantees for a maximum aggregate amount of $4.0 billion were terminated. We discuss these guarantees in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report.

Sempra Promissory Note for SDSRA Distribution

Cameron LNG JV’s debt agreements require Cameron LNG JV to maintain the SDSRA, which is an additional reserve account beyond the Senior Debt Service Accrual Account where funds accumulate from operations to satisfy senior debt obligations due and payable on the next payment date. Both accounts can be funded with cash or authorized investments. In June 2021, Sempra LNG received a distribution of $165 million based on its proportionate share of the SDSRA, for which Sempra provided a promissory note and letters of credit to secure a proportionate share of Cameron LNG JV’s obligation to fund the SDSRA. Sempra’s maximum exposure to loss is replenishment of the amount withdrawn by Sempra LNG from the SDSRA, or $165 million. We recorded a guarantee liability of $1 million and $21 million in Other Current Liabilities and Deferred Credits and Other, respectively, on Sempra’s Condensed Consolidated Balance Sheet for the fair value of the promissory note, which will be reduced over the duration of the guarantee through Sempra LNG’s investment in Cameron LNG JV. The guarantee will terminate upon full repayment of Cameron LNG JV’s debt, scheduled to occur in 2039, or replenishment of the amount withdrawn by Sempra LNG from the SDSRA.

Sempra Support Agreement for CFIN

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

Sempra LNG’s $753 million proportionate share of the affiliate loans, based on its 50.2% ownership interest in Cameron LNG JV, was funded by external lenders comprised of a syndicate of eight banks (the bank debt) to whom Sempra has provided a guarantee pursuant to a Support Agreement, as amended on June 29, 2021, under which:

▪Sempra has severally guaranteed repayment of the bank debt plus accrued and unpaid interest if CFIN fails to pay the external lenders;

▪the external lenders may exercise an option to put the bank debt to Sempra LNG upon the occurrence of certain events, including a failure by CFIN to meet its payment obligations under the bank debt;

▪the external lenders will put some or all of the bank debt to Sempra LNG on the fifth, tenth, or fifteenth anniversary date of the affiliate loans, except the portion of the debt owed to any external lender that has elected not to participate in the put option six months prior to the respective anniversary date;

▪Sempra LNG also has a right to call the bank debt back from, or to refinance the bank debt with, the external lenders at any time; and

▪the Support Agreement will terminate upon full repayment of the bank debt, including repayment following an event in which the bank debt is put to Sempra LNG.

In exchange for this guarantee, the external lenders will pay a guarantee fee that is based on the credit rating of Sempra’s long-term senior unsecured non-credit enhanced debt rating, which guarantee fee Sempra LNG will recognize as interest income as earned. Sempra’s maximum exposure to loss is the bank debt plus any accrued and unpaid interest and related fees, subject to a liability cap of 130% of the bank debt, or $979 million. We measure the Support Agreement at fair value, net of related guarantee fees, on a recurring basis (see Note 9). At June 30, 2021, the fair value of the Support Agreement was $4 million, of which $7 million is included in Other Current Assets offset by $3 million included in Deferred Credits and Other on Sempra’s Condensed Consolidated Balance Sheet.

RBS SEMPRA COMMODITIESAs we discuss in Note 11, in the first quarter of 2020, we recorded a charge of $100 million in Equity Earnings on Sempra’s Condensed Consolidated Statement of Operations representing our share of estimated losses in excess of the carrying value of our equity method investment in RBS Sempra Commodities. In the second quarter of 2021, we reduced this charge by $50 million based on the favorable outcome of a settlement with HMRC and revised assumptions on the High Court of Justice case. At June 30, 2021, $50 million is included in Other Current Liabilities on Sempra’s Condensed Consolidated Balance Sheet.