Sempra(SRE) - 2023 Q2 - Quarterly Report

Glossary This section defines key terms and abbreviations used throughout the financial report Information Regarding Forward-Looking Statements This section outlines the nature, risks, and disclaimers associated with forward-looking statements made in the report Forward-Looking Statements Overview The report contains forward-looking statements based on future assumptions, which involve risks and uncertainties and are not guarantees. The company does not assume an obligation to update or revise these statements - Forward-looking statements are based on assumptions with respect to the future, involve risks and uncertainties, and are not guarantees. Future results may differ materially from those expressed or implied[20] - The company assumes no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise[20] Factors Affecting Future Results Various factors could cause actual results to differ materially from forward-looking statements, including California wildfires, regulatory actions, business development and construction risks, litigation, cybersecurity threats, and financial market conditions - Key risk factors include California wildfires (potential liability and cost recovery), decisions and actions by governmental and regulatory bodies (CPUC, CRE, DOE, FERC, PUCT), and the success of business development efforts, construction projects, and acquisitions/divestitures[22] - Other significant risks involve litigation, cybersecurity threats (including ransomware), ability to borrow on favorable terms (due to credit rating actions, rising interest rates, inflation), failure of foreign governments/counterparties to honor contracts, and impacts on customer rates and cost of capital due to market volatility and clean energy transition costs[22] - Climate and sustainability policies, weather, natural disasters, equipment failures, availability of energy resources, and changes in tax/trade policies also pose material risks[22] PART I – FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Sempra, San Diego Gas & Electric Company (SDG&E), and Southern California Gas Company (SoCalGas) for the three and six months ended June 30, 2023 and 2022, including statements of operations, comprehensive income (loss), balance sheets, cash flows, and changes in equity Sempra Condensed Consolidated Statements of Operations (Six Months Ended June 30) | Metric | 2023 (Millions USD) | 2022 (Millions USD) | | :----- | :------------------ | :------------------ | | Total Revenues | $9,895 | $7,367 | | Net Income | $1,908 | $1,316 | | Earnings Attributable to Common Shares | $1,572 | $1,171 | | Basic EPS | $4.99 | $3.71 | | Diluted EPS | $4.97 | $3.70 | Sempra Condensed Consolidated Balance Sheets (As of June 30) | Metric | 2023 (Millions USD) | 2022 (Millions USD) | | :----- | :------------------ | :------------------ | | Total Current Assets | $4,847 | $5,912 | | Total Assets | $82,727 | $78,574 | | Total Current Liabilities | $8,451 | $9,899 | | Total Liabilities and Equity | $82,727 | $78,574 | Sempra Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30) | Metric | 2023 (Millions USD) | 2022 (Millions USD) | | :----- | :------------------ | :------------------ | | Net Cash Provided by Operating Activities | $3,737 | $2,364 | | Net Cash Used in Investing Activities | $(4,421) | $(2,535) | | Net Cash Provided by Financing Activities | $1,457 | $1,685 | | Increase in Cash, Cash Equivalents and Restricted Cash | $780 | $1,512 | Note 1. General Information and Other Financial Data This note details Sempra's legal name change, principles of consolidation for its subsidiaries (SDG&E, SoCalGas), basis of financial statement presentation, accounting for regulated operations, cash and restricted cash, credit loss allowances, inventory components, a note receivable from KKR Pinnacle, capitalized financing costs, variable interest entities (VIEs) including Oncor Holdings, Cameron LNG JV, CFIN, ECA LNG Phase 1, and Port Arthur LNG, pension and postretirement benefit costs, earnings per common share, comprehensive income, changes in accumulated other comprehensive income (AOCI), shareholders' equity, noncontrolling interests (NCI) activities including sales and contributions, and transactions with affiliates - Sempra changed its legal name from Sempra Energy to Sempra effective May 12, 2023[61] Allowances for Credit Losses (Sempra) | Metric | June 30, 2023 (Millions USD) | December 31, 2022 (Millions USD) | | :----- | :--------------------------- | :------------------------------- | | Allowances for credit losses at January 1 | $181 | $136 | | Provisions for expected credit losses | $228 | $77 | | Write-offs | $(43) | $(36) | | Allowances for credit losses at June 30 | $366 | $177 | - Sempra consolidated ECA LNG Phase 1 and Port Arthur LNG as VIEs due to insufficient equity at risk and Sempra's power to direct significant activities. Sempra does not consolidate Oncor Holdings or Cameron LNG JV, accounting for them as equity method investments due to ring-fencing measures and lack of power to direct significant activities[90][91][93][94] Sempra Earnings Per Common Share (Six Months Ended June 30) | Metric | 2023 (Thousands) | 2022 (Thousands) | | :----- | :--------------- | :--------------- | | Earnings attributable to common shares (Millions USD) | $1,572 | $1,171 | | Weighted-average common shares outstanding for basic EPS | 314,963 | 315,595 | | Basic EPS | $4.99 | $3.71 | | Diluted EPS | $4.97 | $3.70 | - In March 2023, an indirect subsidiary of SI Partners completed the sale of an indirect 30% NCI in the PA LNG Phase 1 project to an affiliate of ConocoPhillips for approximately $265 million cash, resulting in a $237 million increase in equity held by NCI and an $18 million increase in Sempra's shareholders' equity[120][121] - KKR Pinnacle used $186 million of its $200 million credit to fund its share of contributions to SI Partners in the six months ended June 30, 2023, resulting in a $186 million increase in NCI equity and a $134 million decrease in Sempra's shareholders' equity[125] Note 2. New Accounting Standards There are no recent accounting pronouncements that have had or may have a significant effect on the company's results of operations, financial condition, cash flows, or disclosures - No recent accounting pronouncements have had or are expected to have a significant effect on the company's financial statements[139] Note 3. Revenues This note disaggregates revenues from contracts with customers by major service line and market, provides a reconciliation to total revenues by segment, and details remaining performance obligations, contract liabilities, and receivables from contracts with customers Sempra Disaggregated Revenues (Six Months Ended June 30, 2023) | Segment/Category | Utilities (Millions USD) | Energy-related businesses (Millions USD) | Total (Millions USD) | | :--------------- | :----------------------- | :------------------------------------- | :------------------- | | SDG&E | $3,165 | — | $2,915 | | SoCalGas | $5,132 | — | $5,261 | | Sempra Infrastructure | $49 | $547 | $1,856 | | Consolidating adjustments and Parent and other | $(72) | $(40) | $(137) | | Total Revenues | $8,274 | $507 | $9,895 | Sempra Remaining Performance Obligations (Millions USD) | Year | Sempra | SDG&E | | :--- | :----- | :---- | | 2023 (excluding first six months) | $175 | $2 | | 2024 | $300 | $4 | | 2025 | $338 | $4 | | 2026 | $365 | $4 | | 2027 | $365 | $4 | | Thereafter | $4,077 | $59 | | Total | $5,620 | $77 | Sempra Receivables from Contracts with Customers (Millions USD) | Metric | June 30, 2023 | December 31, 2022 | | :----- | :------------ | :---------------- | | Accounts receivable – trade, net | $1,828 | $2,291 | | Accounts receivable – other, net | $14 | $25 | | Due from unconsolidated affiliates – current | $7 | $9 | | Other long-term assets | $3 | $9 | | Total | $1,852 | $2,334 | Note 4. Regulatory Matters This note provides updates on regulatory matters, including regulatory assets and liabilities, the CPUC General Rate Case (GRC) for SDG&E and SoCalGas, and the CPUC authorized cost of capital. It also discusses FERC rate matters for SDG&E Sempra Regulatory Assets (Liabilities) (Millions USD) | Segment | June 30, 2023 | December 31, 2022 | | :------ | :------------ | :---------------- | | SDG&E | $(1,035) | $(942) | | SoCalGas | $199 | $(42) | | Sempra Infrastructure | $83 | $78 | | Total Sempra | $(753) | $(906) | - SDG&E and SoCalGas filed their 2024 GRC applications in May 2022, requesting 2024 revenue requirements of $3.0 billion and $4.4 billion, respectively, with expected annual increases of 8-11% for SDG&E and 6-8% for SoCalGas for 2025-2027. A proposed decision is expected in Q2 2024, with effects retroactive to January 1, 2024[152] CPUC Authorized Cost of Capital for 2023–2025 | Component | SDG&E Weighted Return on Rate Base | SoCalGas Weighted Return on Rate Base | | :-------- | :------------------------------- | :-------------------------------- | | Long-Term Debt | 1.83% | 1.86% | | Preferred Equity | 0.17% | 0.14% | | Common Equity | 5.17% | 5.10% | | Total Weighted Return on Rate Base | 7.18% | 7.10% | - SDG&E's FERC-regulated electric transmission operations have an authorized ROE of 10.60% (10.10% base + 50 bps California ISO adder)[155] Note 5. Investments in Unconsolidated Entities This note details Sempra's equity method investments, including Oncor Holdings, Cameron LNG JV, and CFIN. It provides summarized financial information for Oncor Holdings and discusses Sempra's guarantees related to Cameron LNG JV's SDSRA and CFIN's Support Agreement Summarized Financial Information – Oncor Holdings (Six Months Ended June 30) | Metric | 2023 (Millions USD) | 2022 (Millions USD) | | :----- | :------------------ | :------------------ | | Operating revenues | $2,635 | $2,542 | | Net income | $296 | $417 | | Earnings attributable to Sempra | $236 | $333 | - Sempra provided a promissory note and letters of credit to secure a proportionate share of Cameron LNG JV's obligation to fund the SDSRA, with a maximum exposure to loss of $165 million. The guarantee liability was $20 million at June 30, 2023[163] - Sempra provided a guarantee for CFIN's bank debt, with a maximum exposure to loss of $979 million. The fair value of the Support Agreement was $23 million at June 30, 2023[165] Note 6. Debt and Credit Facilities This note outlines Sempra's short-term and long-term debt arrangements, including committed and uncommitted lines of credit, weighted-average interest rates, and recent debt issuances and repayments for Sempra, SDG&E, SoCalGas, and Sempra Infrastructure Committed Lines of Credit (June 30, 2023) | Borrower | Total Facility (Millions USD) | Commercial Paper Outstanding (Millions USD) | Amounts Outstanding (Millions USD) | Letters of Credit Outstanding (Millions USD) | Available Unused Credit (Millions USD) | | :------- | :---------------------------- | :------------------------------------------ | :--------------------------------- | :----------------------------------- | :------------------------------------ | | Sempra | $4,000 | $(813) | — | — | $3,187 | | SDG&E | $1,500 | — | — | — | $1,500 | | SoCalGas | $1,200 | $(238) | — | — | $962 | | SI Partners | $1,000 | — | — | — | $1,000 | | IEnova and SI Partners | $350 | — | $(350) | — | — | | IEnova and SI Partners | $150 | — | — | — | $150 | | IEnova and SI Partners | $1,500 | — | $(1,086) | — | $414 | | Port Arthur LNG | $200 | — | — | $(15) | $185 | | Total | $9,900 | $(1,051) | $(1,436) | $(15) | $7,398 | Weighted-Average Interest Rates on Short-Term Debt | Entity | June 30, 2023 | December 31, 2022 | | :----- | :------------ | :---------------- | | Sempra | 5.92% | 5.57% | | SDG&E | — | 4.76% | | SoCalGas | 5.14% | 4.71% | - In March 2023, SDG&E issued $800 million of 5.35% first mortgage bonds due 2053. In May 2023, SoCalGas issued $500 million of 5.20% first mortgage bonds due 2033 and $500 million of 5.75% first mortgage bonds due 2053. In June 2023, Sempra issued $550 million of 5.40% senior unsecured notes due 2026 and $700 million of 5.50% senior unsecured notes due 2033[177][178][179] - Port Arthur LNG entered into a $6.8 billion term loan facility agreement in March 2023 to finance construction of the PA LNG Phase 1 project, with $228 million outstanding at June 30, 2023, at a weighted-average interest rate of 5.58%[181] Note 7. Derivative Financial Instruments This note details the company's use of derivative instruments to manage commodity, interest rate, and foreign exchange rate risks. It covers hedge accounting, net energy derivative volumes, interest rate and foreign currency derivative notional amounts, financial statement presentation of derivatives, and the impact of cash flow hedges and undesignated derivatives on financial statements, including credit risk-related contingent features Net Energy Derivative Volumes (June 30, 2023) | Commodity | Unit of Measure | Sempra | SDG&E | SoCalGas | | :-------- | :-------------- | :----- | :---- | :------- | | Natural gas | MMBtu | 380 | 20 | 271 | | Electricity | MWh | — | — | — | | Congestion revenue rights | MWh | 35 | 35 | — | Interest Rate Derivatives (June 30, 2023) | Entity | Notional Debt (Millions USD) | Maturities | | :----- | :--------------------------- | :--------- | | Sempra (Cash flow hedges) | $4,454 | 2023-2048 | Foreign Currency Derivatives (June 30, 2023) | Entity | Notional Amount (Millions USD) | Maturities | | :----- | :----------------------------- | :--------- | | Sempra (Cross-currency swaps) | — | — | | Sempra (Other foreign currency derivatives) | $65 | 2023-2024 | - For Sempra, the total fair value of derivative instruments in a liability position with credit limits was $50 million at June 30, 2023. For SoCalGas, it was $46 million. If credit ratings fall below investment grade, additional collateral could be required[211] Note 8. Fair Value Measurements This note describes the valuation techniques and inputs used for recurring fair value measurements of financial assets and liabilities, categorized by Level 1, 2, and 3 of the fair value hierarchy. It includes details on nuclear decommissioning trusts, short-term investments, interest rate and commodity contracts, and the Support Agreement for CFIN, along with Level 3 reconciliations and fair values of other financial instruments Sempra Recurring Fair Value Measures – Assets (June 30, 2023) | Asset Category | Level 1 (Millions USD) | Level 2 (Millions USD) | Level 3 (Millions USD) | Total (Millions USD) | | :------------- | :--------------------- | :--------------------- | :--------------------- | :------------------- | | Nuclear decommissioning trusts | $365 | $504 | — | $869 | | Short-term investments held in Rabbi Trust | $51 | — | — | $51 | | Interest rate instruments | — | $62 | — | $62 | | Commodity contracts not subject to rate recovery | — | $19 | — | $19 | | Commodity contracts subject to rate recovery | — | $1 | $20 | $21 | | Support Agreement, net of related guarantee fees | — | — | $23 | $23 | | Total Assets | $624 | $586 | $48 | $1,258 | - The fair value of the Support Agreement for CFIN is classified as Level 3 due to significant unobservable inputs, such as CFIN's internally developed credit rating and related default/survival rates[233] Sempra Fair Value of Long-Term Debt (June 30, 2023) | Metric | Carrying Amount (Millions USD) | Fair Value (Millions USD) | | :----- | :----------------------------- | :------------------------ | | Total long-term debt | $27,419 | $24,630 | Note 9. San Onofre Nuclear Generating Station This note provides updates on the decommissioning of SONGS, SDG&E's 20% ownership interest, and the funding mechanisms through Nuclear Decommissioning Trusts (NDT). It details the fair values of securities held in the NDT, sales of NDT securities, and the Asset Retirement Obligation (ARO) for decommissioning costs - SDG&E is responsible for approximately 20% of SONGS decommissioning costs, with major work expected to take about 10 years from 2020. Funds are held in NDTs, which are externally managed trust funds[239][240] Nuclear Decommissioning Trusts (June 30, 2023) | Asset Category | Cost (Millions USD) | Gross Unrealized Gains (Millions USD) | Gross Unrealized Losses (Millions USD) | Estimated Fair Value (Millions USD) | | :------------- | :------------------ | :------------------------------------ | :----------------------------------- | :---------------------------------- | | Debt securities | $551 | $2 | $(30) | $523 | | Equity securities | $104 | $222 | $(4) | $322 | | Short-term investments | $24 | — | — | $24 | | Receivables (payables), net | $(6) | — | — | $(6) | | Total | $673 | $224 | $(34) | $863 | Sales of Securities in NDTs (Six Months Ended June 30) | Metric | 2023 (Millions USD) | 2022 (Millions USD) | | :----- | :------------------ | :------------------ | | Proceeds from sales | $294 | $397 | | Gross realized gains | $8 | $14 | | Gross realized losses | $(6) | $(11) | - The present value of SDG&E's ARO for SONGS decommissioning costs was $523 million at June 30, 2023, based on a 2020 cost study pending CPUC approval[246] Note 10. Commitments and Contingencies This note outlines legal proceedings, including the Aliso Canyon natural gas storage facility leak litigation and regulatory matters, land disputes and permit challenges for Sempra Infrastructure's Energía Costa Azul (ECA) Regas Facility, and other litigation such as RBS Sempra Commodities and asbestos claims. It also covers lease commitments, significant changes in contractual commitments for natural gas and LNG, and environmental issues - At June 30, 2023, loss contingency accruals for legal matters, including Aliso Canyon, totaled $222 million for Sempra, with $142 million for SoCalGas[248] - SoCalGas incurred charges of $45 million (Q2 2022) and $137 million (YTD 2022) related to Aliso Canyon litigation and regulatory matters. At June 30, 2023, $126 million is accrued in Reserve for Aliso Canyon Costs[259][260] - Sempra Infrastructure faces long-running land disputes and environmental/social impact permit challenges affecting its ECA Regas Facility and proposed LNG liquefaction facilities in Mexico. Unfavorable decisions could materially impact operations and projects[261][262][263][264][265][266] - Sempra Infrastructure's Sonora natural gas pipeline's Guaymas-El Oro segment has been inoperable since August 2017 due to damage and legal challenges, which were definitively resolved in March 2023 based on an agreement to re-route the pipeline portion in Yaqui territory[269][421] Sempra Lessor Information on Condensed Consolidated Statements of Operations (Six Months Ended June 30) | Lease Type | 2023 (Millions USD) | 2022 (Millions USD) | | :--------- | :------------------ | :------------------ | | Sales-type leases: Interest income | $3 | $4 | | Operating leases: Fixed lease payments | $156 | $140 | | Operating leases: Variable lease payments | $16 | $4 | - Sempra Infrastructure's natural gas contracts and storage/transportation commitments increased by approximately $863 million since December 31, 2022, primarily from new contracts[283] Note 11. Segment Information This note describes Sempra's four reportable segments: SDG&E, SoCalGas, Sempra Texas Utilities, and Sempra Infrastructure. It provides selected financial information by segment, including revenues, depreciation and amortization, interest income and expense, income tax expense (benefit), equity earnings, earnings (losses) attributable to common shares, expenditures for property, plant & equipment, assets, and equity method investments - Sempra operates through four reportable segments: SDG&E (electric/natural gas in San Diego/Orange counties), SoCalGas (natural gas in Southern/central California), Sempra Texas Utilities (equity investments in Texas electric transmission/distribution utilities), and Sempra Infrastructure (energy infrastructure development/operation in North America and globally)[287] Sempra Segment Earnings (Losses) Attributable to Common Shares (Six Months Ended June 30) | Segment | 2023 (Millions USD) | 2022 (Millions USD) | | :------ | :------------------ | :------------------ | | SDG&E | $442 | $410 | | SoCalGas | $515 | $421 | | Sempra Texas Utilities | $243 | $348 | | Sempra Infrastructure | $523 | $278 | | All other | $(151) | $(286) | | Total | $1,572 | $1,171 | Sempra Segment Expenditures for Property, Plant & Equipment (Six Months Ended June 30) | Segment | 2023 (Millions USD) | 2022 (Millions USD) | | :------ | :------------------ | :------------------ | | SDG&E | $1,239 | $1,090 | | SoCalGas | $961 | $931 | | Sempra Infrastructure | $2,078 | $336 | | All other | $4 | $4 | | Total | $4,282 | $2,361 | Note 12. Subsequent Event This note discloses a subsequent event: Sempra's board of directors declared a two-for-one stock split in the form of a 100% stock dividend, effective August 21, 2023, with trading on a post-split basis commencing August 22, 2023 - On August 2, 2023, Sempra's board declared a two-for-one stock split (100% stock dividend) for shareholders of record on August 14, 2023, to be distributed after market close on August 21, 2023. Trading on a post-split basis will begin August 22, 2023[293] Pro Forma Diluted EPS on a Post-Split Basis (Six Months Ended June 30) | Metric | 2023 (Post-Split) | 2022 (Post-Split) | | :----- | :---------------- | :---------------- | | Earnings attributable to common shares (Millions USD) | $1,572 | $1,171 | | Weighted-average common shares outstanding for diluted EPS (Thousands) | 632,185 | 633,294 | | Diluted EPS | $2.49 | $1.85 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's discussion and analysis of Sempra's financial condition and results of operations, including an overview of the company's business, detailed segment results, significant changes in revenues, costs, and earnings, and an analysis of capital resources and liquidity. It also covers critical accounting estimates and new accounting standards Overview Sempra is a California-based holding company that invests in, develops, and operates energy infrastructure across North America, providing electric and gas services to customers - Sempra is a California-based holding company focused on energy infrastructure investments in North America, providing electric and gas services[296] Results of Operations This section analyzes Sempra's overall and segment-specific financial performance for the three and six months ended June 30, 2023 and 2022. It details variances in earnings, revenues, cost of sales, operation and maintenance expenses, Aliso Canyon charges, other income/expense, interest expense, income taxes, equity earnings, noncontrolling interests, and the impact of foreign currency and inflation rates Sempra Earnings Attributable to Common Shares (Six Months Ended June 30) | Segment | 2023 (Millions USD) | 2022 (Millions USD) | Change (Millions USD) | | :------ | :------------------ | :------------------ | :-------------------- | | SDG&E | $442 | $410 | $32 | | SoCalGas | $515 | $421 | $94 | | Sempra Texas Utilities | $243 | $348 | $(105) | | Sempra Infrastructure | $523 | $278 | $245 | | Parent and other | $(151) | $(286) | $135 | | Total | $1,572 | $1,171 | $401 | - SDG&E's earnings increased by $32 million (8%) in the six months ended June 30, 2023, primarily due to higher CPUC base operating margin and lower authorized cost of capital[302] - SoCalGas' earnings increased by $94 million (22%) in the six months ended June 30, 2023, driven by a $98 million charge in 2022 related to Aliso Canyon litigation, higher income tax benefits (including $25 million from gas repairs expenditures), and regulatory awards[305] - Sempra Texas Utilities' earnings decreased by $105 million (30%) in the six months ended June 30, 2023, mainly due to lower equity earnings from Oncor Holdings, impacted by the write-off of rate base disallowances and higher interest/depreciation expenses[305] - Sempra Infrastructure's earnings increased by $245 million in the six months ended June 30, 2023, primarily from $607 million in asset and supply optimization (unrealized gains on commodity derivatives and higher LNG diversion revenues) and $85 million from the transportation business, partially offset by higher NCI earnings and unfavorable foreign currency/inflation impacts[307] Sempra Utilities Revenues and Cost of Sales (Six Months Ended June 30) | Metric | 2023 (Millions USD) | 2022 (Millions USD) | | :----- | :------------------ | :------------------ | | Total utilities revenues | $8,153 | $6,330 | | Total utilities cost of sales | $3,196 | $1,786 | - Sempra's income tax expense increased by $137 million (33%) in the six months ended June 30, 2023, primarily due to higher foreign currency and inflation effects on monetary positions in Mexico and higher pretax income, partially offset by deferred income tax expense in 2022 and income tax benefits from gas repairs expenditures and energy storage investment tax credits in 2023[332] - Equity earnings decreased by $94 million (13%) in the six months ended June 30, 2023, mainly due to lower equity earnings at Oncor Holdings and IMG, partially offset by higher equity earnings at TAG[338] Capital Resources and Liquidity This section details Sempra's strategy for meeting cash requirements through operations, credit facilities, debt, equity, and project financing. It discusses available funds, short-term and long-term debt activities, credit ratings, the impact of the Inflation Reduction Act (IRA), and segment-specific liquidity considerations, including the Wildfire Fund, Aliso Canyon leak, Oncor's capital structure, and Sempra Infrastructure's project developments - Sempra expects to meet cash requirements through cash flows from operations, unrestricted cash, credit facilities, debt, equity, and project financing, aiming to maintain investment-grade credit ratings[343][344] Available Funds at June 30, 2023 (Millions USD) | Entity | Unrestricted Cash and Cash Equivalents | Available Unused Credit | | :----- | :------------------------------------- | :---------------------- | | Sempra | $1,077 | $7,566 | | SDG&E | $332 | $1,500 | | SoCalGas | $1 | $962 | Credit Ratings at June 30, 2023 | Agency | Sempra | SDG&E | SoCalGas | | :----- | :----- | :---- | :------- | | Moody's | Baa2 (stable) | A3 (stable) | A2 (stable) | | S&P | BBB+ (stable) | BBB+ (stable) | A (negative) | | Fitch | BBB+ (stable) | BBB+ (stable) | A (stable) | - The IRA, signed in August 2022, includes tax credits and incentives for energy/climate initiatives and a 15% corporate alternative minimum tax. Sempra does not currently expect a material adverse impact[354] - SDG&E's Wildfire Fund asset was $317 million at June 30, 2023. The fund provides protection against third-party wildfire costs, but exhaustion of the fund could materially adversely affect SDG&E and Sempra[359][360] - SoCalGas' future performance and liquidity are impacted by the Aliso Canyon leak legal and regulatory matters. Accruals for these costs totaled $126 million at June 30, 2023[362][364] - Sempra Infrastructure is developing several LNG and net-zero solutions projects, including Cameron LNG Phase 2, ECA LNG Phase 1 and 2, PA LNG Phase 1 and 2, Vista Pacifico LNG, and the Hackberry Carbon Sequestration Project. These projects require significant funding and are subject to various risks and approvals[373][385][390][395][404][408][413] Sempra Capital Expenditures and Investments (Six Months Ended June 30) | Segment | 2023 (Millions USD) | 2022 (Millions USD) | | :------ | :------------------ | :------------------ | | SDG&E | $1,239 | $1,090 | | SoCalGas | $961 | $931 | | Sempra Texas Utilities | $178 | $171 | | Sempra Infrastructure | $2,084 | $346 | | Parent and other | $4 | $4 | | Total | $4,466 | $2,542 | - Sempra expects aggregate capital expenditures and investments of approximately $38.6 billion from 2023 through 2027, with $14.7 billion allocated to Sempra Infrastructure. The 2023 projection increased to $9.4 billion from $5.7 billion, mainly due to the PA LNG Phase 1 project[436][437] Critical Accounting Estimates Management's critical accounting estimates are discussed in detail in the Annual Report, as they are highly relevant, judgmental, and material to the financial position and results of operations - Critical accounting estimates are discussed in the Annual Report due to their relevance, judgment, and materiality to financial position and results[440] New Accounting Standards Recent accounting pronouncements and their potential effects on financial statements are discussed in Note 2 of the Notes to Condensed Consolidated Financial Statements - Recent accounting pronouncements are discussed in Note 2 of the Notes to Condensed Consolidated Financial Statements[441] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section provides disclosures on market risks, including commodity price risk, interest rate risk, and foreign currency exchange rate risk and inflation exposure. It details the impact of hypothetical changes in market conditions on earnings and the company's strategies for managing these risks - A hypothetical 10% change in commodity prices would result in an estimated $22 million change in the fair value of Sempra Infrastructure's commodity-based natural gas and electricity derivatives at June 30, 2023[443] Nominal Amount of Debt (June 30, 2023) | Debt Type | Sempra (Millions USD) | SDG&E (Millions USD) | SoCalGas (Millions USD) | | :-------- | :-------------------- | :------------------- | :---------------------- | | Short-term: Sempra California | $238 | — | $238 | | Short-term: Other | $2,281 | — | — | | Long-term: Sempra California fixed-rate | $14,959 | $8,200 | $6,759 | | Long-term: Sempra California variable-rate | $400 | $400 | — | | Long-term: Other fixed-rate | $11,322 | — | — | | Long-term: Other variable-rate | $738 | — | — | - A hypothetical 10% change in weighted-average interest rates on short-term debt would result in an approximate $10 million change in earnings over the next 12 months. For variable-rate long-term debt, the impact would be approximately $5 million[445] - SDG&E and SoCalGas have experienced inflationary pressures on costs, which may not be fully recoverable in rates due to regulatory lag. Sempra Infrastructure generally uses long-term contracts with inflation adjustments and lump-sum EPC contracts to manage inflation risk[447][448] Item 4. Controls and Procedures This section confirms the effectiveness of Sempra's, SDG&E's, and SoCalGas' disclosure controls and procedures as of June 30, 2023, and states that there have been no material changes in internal control over financial reporting during the most recent fiscal quarter - Sempra, SDG&E, and SoCalGas' disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2023[450] - There have been no material changes in internal control over financial reporting for Sempra, SDG&E, or SoCalGas during the most recent fiscal quarter[451] PART II – OTHER INFORMATION This part covers legal proceedings, risk factors, other disclosures, and an index of exhibits Item 1. Legal Proceedings This section refers to the detailed discussions of material legal proceedings in Notes 9 and 10 of the Condensed Consolidated Financial Statements and in the Annual Report, indicating no other material pending legal proceedings beyond ordinary routine litigation - Material legal proceedings are discussed in Notes 9 and 10 of the Condensed Consolidated Financial Statements and in the Annual Report[452] Item 1A. Risk Factors This section advises readers to carefully consider the risk factors discussed in this report and other SEC filings, including the Annual Report, as these risks could materially adversely affect the company's results of operations, financial condition, cash flows, prospects, and security trading prices - Readers should carefully consider risk factors described in this report and other SEC filings, including the Annual Report, as they could materially adversely affect the company's financial performance and security prices[453] Item 5. Other Information This section states that there have been no material changes to the procedures for security holders to recommend director nominees and that no Sempra, SDG&E, or SoCalGas director or officer adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the most recent fiscal quarter - No material changes to procedures for security holders to recommend nominees to Sempra's board of directors[456] - No Sempra, SDG&E, or SoCalGas director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the most recent fiscal quarter[456] Item 6. Exhibits This section provides an index of exhibits filed with the report, including articles of incorporation, bylaws, instruments defining security holder rights, and certifications (Section 302, Section 906, and Interactive Data File) - The exhibit index includes Articles of Incorporation and Bylaws for Sempra, SDG&E, and SoCalGas, instruments defining security holder rights, and Section 302 and 906 certifications[457][458][459] Signatures This section contains the duly authorized signatures of officers for Sempra, San Diego Gas & Electric Company, and Southern California Gas Company, certifying the filing of the report - The report is signed by Peter R. Wall (Sempra), Valerie A. Bille (SDG&E), and Mia L. DeMontigny (SoCalGas) as duly authorized officers[463][464]