You should read the following discussion in conjunction with the Condensed Consolidated Financial Statements and the Notes thereto in this report, and the Consolidated Financial Statements and the Notes thereto, "Part I - Item 1A. Risk Factors" and "Part II - Item 7. MD&A" in the Annual Report.
OVERVIEW
Sempra Energy is aCalifornia -based holding company with energy infrastructure investments inNorth America . Our businesses invest in, develop and operate energy infrastructure, and provide electric and gas services to customers through regulated public utilities. As we discuss in Note 12 of the Notes to Condensed Consolidated Financial Statements in this report and in "Part I - Item 1. Business" in the Annual Report, our business activities are organized under five separately managed reportable segments. Our former South American businesses and certain activities associated with those businesses are presented as discontinued operations. Nominal activities that are not classified as discontinued operations have been subsumed into Parent and other. We completed the sales of these businesses in the second quarter of 2020. Our discussions below exclude discontinued operations, unless otherwise noted. This report includes information for the following separate registrants: ?Sempra Energy and its consolidated entities; ?SDG&E; and ?SoCalGas. References in this report to "we," "our," "us," "our company" and "Sempra Energy Consolidated" are toSempra Energy and its consolidated entities, collectively, unless otherwise indicated by the context. We refer to SDG&E and SoCalGas collectively as theCalifornia Utilities , which do not include the utilities in ourSempra Texas Utilities or Sempra Mexico segments or the utilities in our former South American businesses included in discontinued operations. All references in this report to our reportable segments are not intended to refer to any legal entity with the same or similar name. 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 ofSempra Energy and its subsidiaries and VIEs; •the Condensed Financial Statements and related Notes of SDG&E; and •the Condensed Financial Statements and related Notes of SoCalGas. 77 -------------------------------------------------------------------------------- RESULTS OF OPERATIONS We discuss the following in Results of Operations: ?Overall results of operations of Sempra Energy Consolidated; ?Segment results; ?Significant changes in revenues, costs and earnings; and ?Impact of foreign currency and inflation rates on our results of operations. OVERALL RESULTS OF OPERATIONS OF SEMPRA ENERGY CONSOLIDATED In the three months endedMarch 31, 2021 , we reported earnings of$874 million and diluted EPS of$2.87 compared to earnings of$760 million and diluted EPS of$2.53 for the same period in 2020. The change in diluted EPS in the three months endedMarch 31, 2021 compared to the same period in 2020 included an increase of$0.05 due to a decrease in weighted-average common shares outstanding. Our earnings and diluted EPS were impacted by variances discussed in "Segment Results" below. SEGMENT RESULTS This section presents earnings (losses) bySempra Energy segment, as well as Parent and other and discontinued operations, and a related discussion of the changes in segment earnings (losses). Throughout the MD&A, our reference to earnings represents earnings attributable to common shares. Variance amounts presented are the after-tax earnings impact (based on applicable statutory tax rates), unless otherwise noted, and before NCI, where applicable. SEMPRA ENERGY EARNINGS (LOSSES) BY SEGMENT (Dollars in millions) Three months ended March 31, 2021 2020 SDG&E$ 212 $ 262 SoCalGas 407 303 Sempra Texas Utilities 135 105 Sempra Mexico 57 191 Sempra LNG 146 75 Parent and other(1) (83) (248) Discontinued operations - 72 Earnings attributable to common shares
(1) Includes intercompany eliminations recorded in consolidation and certain corporate costs.
SDG&E
The decrease in earnings of$50 million (19%) in the three months endedMarch 31, 2021 compared to the same period in 2020 was primarily due to: ?$26 million lower electric transmission margin, including the following impacts in 2020 from theMarch 2020 FERC -approved TO5 settlement proceeding: •$18 million to conclude a rate base matter, and •$9 million favorable impact from the retroactive application of the final T05 settlement for 2019; and ?$21 million lower CPUC base operating margin, net of operating expenses, primarily due to favorable resolution of regulatory matters in 2020. SoCalGas The increase in earnings of$104 million (34%) in the three months endedMarch 31, 2021 compared to the same period in 2020 was primarily due to: ?$72 million charge in 2020 from impacts associated with theAliso Canyon natural gas storage facility litigation; and ?$35 million higher CPUC base operating margin, net of operating expenses. 78 --------------------------------------------------------------------------------Sempra Texas Utilities The increase in earnings of$30 million (29%) in the three months endedMarch 31, 2021 compared to the same period in 2020 was primarily due to higher equity earnings fromOncor Holdings driven by: ?increased revenues from rate updates to reflect increases in invested capital; and ?higher consumption due to weather; offset by ?increased operating costs and expenses attributable to invested capital. Sempra Mexico Because Ecogas, our natural gas distribution utility inMexico , uses the local currency as its functional currency, its revenues and expenses are translated intoU.S. dollars at average exchange rates for the period for consolidation inSempra Energy's results of operations. Prior year amounts used in the variances discussed below are as adjusted for the difference in foreign currency translation rates between years. We discuss these and other foreign currency effects below in "Impact of Foreign Currency and Inflation Rates on Results of Operations." The decrease in earnings of$134 million in the three months endedMarch 31, 2021 compared to the same period in 2020 was primarily due to: ?$226 million unfavorable impact from foreign currency and inflation effects net of foreign currency derivative effects comprised of a$12 million favorable impact in 2021 compared to a$238 million favorable impact in 2020; offset by ?$34 million earnings attributable to NCI at IEnova in 2021 compared to$144 million earnings in 2020. Sempra LNG The increase in earnings of$71 million in the three months endedMarch 31, 2021 compared to the same period in 2020 was primarily due to: ?$62 million higher equity earnings from Cameron LNG JV primarily due to the three-train liquefaction project achieving commercial operations inAugust 2020 ; and ?$6 million higher earnings from marketing operations, primarily driven by changes in natural gas prices. Parent and Other The decrease in losses of$165 million in the three months endedMarch 31, 2021 compared to the same period in 2020 was primarily due to: ?$100 million equity losses in 2020 from our investment inRBS Sempra Commodities to settle pending tax matters and related legal costs; ?$2 million net investment gains in 2021 compared to$19 million net investment losses in 2020 on dedicated assets in support of our employee nonqualified benefit plan and deferred compensation obligations; ?$19 million lower net interest expense; ?$15 million lower operating costs retained at Parent and other; and ?$15 million lower preferred dividends from$26 million lower dividends due to the mandatory conversion of all series A preferred stock inJanuary 2021 , offset by$11 million higher dividends due to the issuance of series C preferred stock inJune 2020 . Discontinued Operations Discontinued operations that were previously in ourSempra South American Utilities segment include our former 100% interest in Chilquinta Energía inChile , our former 83.6% interest in Luz del Sur inPeru and our former interests in two energy-services companies, Tecnored andTecsur , which provide electric construction and infrastructure services to Chilquinta Energía and Luz del Sur, respectively, as well as third parties. Discontinued operations also include activities, mainly income taxes related to the South American businesses, that were previously included in the holding company of the South American businesses at Parent and other. As we discuss in Note 5 of the Notes to Consolidated Financial Statements in the Annual Report, we completed the sales of our South American businesses in the second quarter of 2020. The decrease in earnings from our discontinued operations of$72 million in the three months endedMarch 31, 2021 compared to the same period in 2020 was primarily due to: ?$70 million lower operational earnings mainly as a result of the sales of our Peruvian and Chilean businesses; and ?$7 million income tax benefit in 2020 related to changes in outside basis differences from earnings and foreign currency effects. 79 -------------------------------------------------------------------------------- SIGNIFICANT CHANGES IN REVENUES, COSTS AND EARNINGS This section contains a discussion of the differences between periods in the specific line items of the Condensed Consolidated Statements of Operations forSempra Energy , SDG&E and SoCalGas. Utilities Revenues and Cost of Sales Our utilities revenues include natural gas revenues at ourCalifornia Utilities and Sempra Mexico's Ecogas and electric revenues at SDG&E. Intercompany revenues included in the separate revenues of each utility are eliminated in the Sempra Energy Condensed Consolidated Statements of Operations. SoCalGas and SDG&E currently operate under a regulatory framework that permits: ?The cost of natural gas purchased for core customers (primarily residential and small commercial and industrial customers) to be passed through to customers in rates substantially as incurred. However, SoCalGas' Gas Cost Incentive Mechanism provides SoCalGas the opportunity to share in the savings and/or costs from buying natural gas for its core customers at prices below or above monthly market-based benchmarks. This mechanism permits full recovery of costs incurred when average purchase costs are within a price range around the benchmark price. Any higher costs incurred or savings realized outside this range are shared between the core customers and SoCalGas. We provide further discussion in Note 3 of the Notes to Consolidated Financial Statements in the Annual Report. ?SDG&E to recover the actual cost incurred to generate or procure electricity based on annual estimates of the cost of electricity supplied to customers. The differences in cost between estimates and actual are recovered or refunded in subsequent periods through rates. ?The California Utilities to recover certain program expenditures and other costs authorized by the CPUC, or "refundable programs." Because changes in SoCalGas' and SDG&E's cost of natural gas and/or electricity are recovered in rates, changes in these costs are offset in the changes in revenues and therefore do not impact earnings. In addition to the changes in cost or market prices, natural gas or electric revenues recorded during a period are impacted by customer billing cycles causing a difference between customer billings and recorded or authorized costs. These differences are required to be balanced over time, resulting in over- and undercollected regulatory balancing accounts. We discuss balancing accounts and their effects further in Note 4 of the Notes to Condensed Consolidated Financial Statements in this report and in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.The California Utilities' revenues are decoupled from, or not tied to, actual sales volumes. SoCalGas recognizes annual authorized revenue for core natural gas customers using seasonal factors established in the Triennial Cost Allocation Proceeding, resulting in a significant portion of SoCalGas' earnings being recognized in the first and fourth quarters of each year. SDG&E's authorized revenue recognition is also impacted by seasonal factors, resulting in higher earnings in the third quarter when electric loads are typically higher than in the other three quarters of the year. We discuss this decoupling mechanism and its effects further in Note 3 of the Notes to Consolidated Financial Statements in the Annual Report. 80 -------------------------------------------------------------------------------- The table below summarizes utilities revenues and cost of sales. UTILITIES REVENUES AND COST OF SALES (Dollars in millions) Three months ended March 31, 2021 2020 Natural gas revenues: SoCalGas$ 1,508 $ 1,395 SDG&E 268 219 Sempra Mexico 27 20 Eliminations and adjustments (26) (17) Total 1,777 1,617 Electric revenues: SDG&E 1,069 1,050 Eliminations and adjustments (1) (2) Total 1,068 1,048 Total utilities revenues$ 2,845 $ 2,665 Cost of natural gas(1): SoCalGas $ 273$ 278 SDG&E 82 60 Sempra Mexico 6 3 Eliminations and adjustments (12) (4) Total $ 349$ 337 Cost of electric fuel and purchased power(1): SDG&E $ 241$ 231 Eliminations and adjustments (9) (2) Total $ 232$ 229
(1) Excludes depreciation and amortization, which are presented separately on
the
Natural Gas Revenues and Cost of Natural Gas The table below summarizes the average cost of natural gas sold by theCalifornia Utilities and included in Cost of Natural Gas on the Condensed Consolidated Statements of Operations. The average cost of natural gas sold at each utility is impacted by market prices, as well as transportation, tariff and other charges.CALIFORNIA UTILITIES AVERAGE COST OF NATURAL GAS (Dollars per thousand cubic feet) Three months ended March 31, 2021 2020 SoCalGas$ 2.60 $ 2.54 SDG&E 4.44 3.75 In the three months endedMarch 31, 2021 , our natural gas revenues increased by$160 million (10%) to$1.8 billion compared to the same period in 2020 primarily due to: ?$113 million increase at SoCalGas, which included: •$59 million higher CPUC-authorized revenues, •$41 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M, and •$11 million higher revenues from incremental and balanced capital projects; and ?$49 million increase at SDG&E, which included: •$22 million increase in cost of natural gas sold, which we discuss below, •$16 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M, and •$10 million higher CPUC-authorized revenues. In the three months endedMarch 31, 2021 , our cost of natural gas increased by$12 million (4%) to$349 million compared to the same period in 2020 primarily due to: 81 -------------------------------------------------------------------------------- ?$22 million increase at SDG&E due to$13 million higher average natural gas prices and$9 million from higher volumes primarily driven by weather; offset by ?$5 million decrease at SoCalGas due to$11 million from lower volumes driven by weather, offset by$6 million from higher average natural gas prices. Electric Revenues and Cost ofElectric Fuel and Purchased Power In the three months endedMarch 31, 2021 , our electric revenues, substantially all of which are at SDG&E, increased by$20 million (2%) to$1.1 billion compared to the same period in 2020 primarily due to: ?$54 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M; ?$10 million higher CPUC-authorized revenues; and ?$10 million higher cost of electric fuel and purchased power, which we discuss below; offset by ?$35 million lower revenues from transmission operations, including the following impacts in 2020 related to theMarch 2020 FERC -approved TO5 settlement proceeding: •$26 million to settle a rate base matter, and •$12 million favorable impact from the retroactive application of the final TO5 settlement for 2019; and ?$22 million lower revenues due to favorable resolution of regulatory matters in 2020. Our utility cost of electric fuel and purchased power, substantially all of which is at SDG&E, increased by$3 million (1%) to$232 million in the three months endedMarch 31, 2021 compared to the same period in 2020 primarily due to an increase in market costs, offset by a decrease in demand from the adoption of rooftop solar. Energy-Related Businesses: Revenues and Cost of Sales The table below shows revenues and cost of sales for our energy-related businesses. ENERGY-RELATED BUSINESSES: REVENUES AND COST OF SALES (Dollars in millions) Three months ended March 31, 2021 2020 REVENUES Sempra Mexico $ 340$ 289 Sempra LNG 196 123 Parent and other(1) (122) (48) Total revenues $ 414$ 364 COST OF SALES(2) Sempra Mexico $ 119$ 69 Sempra LNG 101 39 Parent and other(1) (111) (49) Total cost of sales $ 109$ 59
(1) Includes eliminations of intercompany activity. (2) Excludes depreciation and amortization, which are presented separately on the Sempra Energy Condensed Consolidated Statements of Operations.
In the three months endedMarch 31, 2021 , revenues from our energy-related businesses increased by$50 million (14%) to$414 million compared to the same period in 2020 primarily due to: ?$73 million increase at Sempra LNG primarily due to: •$61 million increase in revenues from LNG marketing operations primarily from higher natural gas sales to Sempra Mexico mainly as a result of higher natural gas prices, and from higher diversion revenues due to higher natural gas prices, and •$13 million increase from natural gas marketing operations primarily due to changes in natural gas prices; and ?$51 million increase at Sempra Mexico primarily due to: •$59 million from the marketing business primarily due to higher natural gas prices, offset by •$13 million lower revenues from TdM mainly due to unrealized losses on commodity derivatives, offset by higher power prices; offset by ?$74 million decrease primarily from higher intercompany eliminations associated with sales between Sempra LNG and Sempra Mexico. 82 -------------------------------------------------------------------------------- In the three months endedMarch 31, 2021 , the cost of sales for our energy-related businesses increased by$50 million to$109 million compared to the same period in 2020 primarily due to: ?$62 million increase at Sempra LNG mainly from natural gas marketing activities due to higher natural gas purchases; and ?$50 million increase at Sempra Mexico primarily due to higher natural gas prices at the marketing business and TdM; offset by ?$62 million decrease primarily from higher intercompany eliminations associated with sales between Sempra LNG and Sempra Mexico. Operation and Maintenance In the three months endedMarch 31, 2021 , O&M increased by$150 million (18%) to$1.0 billion compared to the same period in 2020 primarily due to: ?$80 million increase at SDG&E primarily due to: •$70 million higher expenses associated with refundable programs, which costs incurred are recovered in revenue, and •$10 million higher non-refundable operating costs; ?$60 million increase at SoCalGas primarily due to: •$41 million higher expenses associated with refundable programs, which costs incurred are recovered in revenue, and •$19 million higher non-refundable operating costs; and ?$15 million increase at Parent and other primarily from higher deferred compensation expense. Aliso Canyon Litigation and Regulatory Matters InMarch 2020 , SoCalGas recorded a charge of$100 million inAliso Canyon Litigation and Regulatory Matters related to settlement discussions in connection with civil litigation associated with the Leak, which we describe in Note 11 of the Notes to Condensed Consolidated Financial Statements. Other Income (Expense), Net As part of our central risk management function, we may enter into foreign currency derivatives to hedge Sempra Mexico parent's exposure to movements in the Mexican peso from its controlling interest in IEnova. The gains/losses associated with these derivatives are included in Other Income (Expense), Net, as described below, and partially mitigate the transactional effects of foreign currency and inflation included in Income Tax Expense for Sempra Mexico's consolidated entities and in Equity Earnings for Sempra Mexico's equity method investments. We also utilized foreign currency derivatives in 2020 to hedge exposure to fluctuations in the Peruvian sol and Chilean peso related to the sales of our operations inPeru andChile , respectively. We discuss policies governing our risk management in "Part II - Item 7A. Quantitative and Qualitative Disclosures About Market Risk" in the Annual Report. Other income, net, in the three months endedMarch 31, 2021 was$35 million compared to other expense, net, of$254 million in the same period in 2020. The change was primarily due to: ?$227 million lower net losses from impacts associated with interest rate and foreign exchange instruments and foreign currency transactions primarily due to: •$126 million lower foreign currency losses on a Mexican peso-denominated loan to IMG JV, which is offset in Equity Earnings, and •$101 million lower losses on foreign currency derivatives as a result of fluctuation of the Mexican peso, offset by •$11 million net gains in 2020 of foreign currency derivatives used to hedge exposure to fluctuations in the Peruvian sol and Chilean peso related to the sales of our businesses inPeru andChile ; and ?$9 million investment gains in 2021 compared to$37 million investment losses in 2020 on dedicated assets in support of our executive retirement and deferred compensation plans. 83 -------------------------------------------------------------------------------- Income Taxes The table below shows the income tax expense (benefit) and ETRs for Sempra Energy Consolidated, SDG&E and SoCalGas. INCOME TAX EXPENSE (BENEFIT) AND EFFECTIVE INCOME TAX RATES (Dollars in millions) Three months endedMarch 31, 2021 2020 Sempra Energy Consolidated: Income tax expense (benefit) from continuing operations
Income from continuing operations before income taxes and equity earnings
$ 768 $ 397 Equity earnings (losses), before income tax(1) 135 (43) Pretax income$ 903 $ 354 Effective income tax rate 18 % (58) % SDG&E: Income tax expense$ 45 $ 58 Income before income taxes$ 257 $ 320 Effective income tax rate 18 % 18 % SoCalGas: Income tax expense$ 94 $ 52 Income before income taxes$ 501 $ 355 Effective income tax rate 19 % 15 % (1) We discuss how we recognize equity earnings in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report. Sempra Energy ConsolidatedSempra Energy's income tax expense in the three months endedMarch 31, 2021 compared to an income tax benefit in the same period in 2020 was due to higher pretax income and the following items: ?$42 million income tax benefit in 2021 compared to$337 million income tax benefit in 2020 from foreign currency and inflation effects and associated derivatives; and ?$11 million lower income tax benefit in 2021 related to share-based compensation. We discuss the impact of foreign currency exchange rates and inflation on income taxes below in "Impact of Foreign Currency and Inflation Rates on Results of Operations." See Note 1 of the Notes to Condensed Consolidated Financial Statements in this report and Notes 1 and 8 of the Notes to Consolidated Financial Statements in the Annual Report for further details about our accounting for income taxes and items subject to flow-through treatment. SDG&E SDG&E's income tax expense decreased in the three months endedMarch 31, 2021 compared to the same period in 2020 primarily due to lower pretax income. SoCalGas SoCalGas' income tax expense increased in the three months endedMarch 31, 2021 compared to the same period in 2020 primarily due to higher pretax income. Equity Earnings In the three months endedMarch 31, 2021 , equity earnings increased by$55 million (21%) to$318 million compared to the same period in 2020 primarily due to: ?$100 million equity losses atRBS Sempra Commodities in 2020, which represents an estimate of our obligations to settle pending tax matters and related legal costs at our equity method investment; ?$77 million higher equity earnings at Cameron LNG JV primarily due to the three-train liquefaction project achieving commercial operations inAugust 2020 ; and ?$30 million higher equity earnings atOncor Holdings primarily due to higher revenues from rate updates and higher consumption due to weather, offset by increased operating costs and expenses attributable to invested capital; offset by ?$153 million lower equity earnings at Sempra Mexico, which included: 84 -------------------------------------------------------------------------------- •$131 million lower equity earnings at IMG JV, primarily due to foreign currency effects, including$126 million lower foreign currency gains in 2021 on IMG JV's Mexican peso-denominated loans from its JV owners, which is fully offset in Other Income (Expense), Net, and •$18 million lower equity earnings at TAG JV primarily due to income tax benefits in 2020. Earnings Attributable to Noncontrolling Interests In the three months endedMarch 31, 2021 , earnings attributable to NCI decreased by$118 million to$33 million compared to the same period in 2020 primarily due to a decrease in earnings attributable to NCI at Sempra Mexico mainly from foreign currency and inflation effects as a result of fluctuation of the Mexico peso. IMPACT OF FOREIGN CURRENCY AND INFLATION RATES ON RESULTS OF OPERATIONS Because our natural gas distribution utility inMexico , Ecogas, uses its local currency as its functional currency, revenues and expenses are translated intoU.S. dollars at average exchange rates for the period for consolidation inSempra Energy's results of operations. Prior to the sales of our South American businesses in 2020, our operations inSouth America used their local currency as their functional currency. We discuss further the impact of foreign currency and inflation rates on results of operations, including impacts on income taxes and related hedging activity, in "Part II - Item 7. MD&A - Impact of Foreign Currency and Inflation Rates on Results of Operations" in the Annual Report. Foreign Currency Translation Any difference in average exchange rates used for the translation of income statement activity from year to year can cause a variance inSempra Energy's comparative results of operations. In the three months endedMarch 31, 2021 , the change in our earnings as a result of foreign currency translation rates was not material compared to the same period in 2020. Transactional Impacts Income statement activities at our foreign operations and their JVs are also impacted by transactional gains and losses, a summary of which is shown in the table below: TRANSACTIONAL (LOSSES) GAINS FROM FOREIGN CURRENCY AND INFLATION EFFECTS AND ASSOCIATED DERIVATIVES (Dollars in millions) Transactional (losses) gains Total reported amounts included in reported amounts
Three months ended
2021 2020 2021 2020 Other income (expense), net$ 35 $ (254) $ (49)$ (276) Income tax (expense) benefit (158) 207 42 337 Equity earnings 318 263 19 181 Income from continuing operations, net of income tax 928 867 12 242
Income from discontinued operations, net of income tax
- 80 - 16 Earnings attributable to noncontrolling interests (33) (151) (9) (108) Earnings attributable to common shares 874 760 3 150 CAPITAL RESOURCES AND LIQUIDITY OVERVIEW Sempra Energy Consolidated Impact of the COVID-19 Pandemic Our businesses that invest in, develop and operate energy infrastructure and provide electric and gas services to customers have been identified as critical or essential services in theU.S. and Mexico and have continued to operate throughout the COVID-19 pandemic. As our businesses continue to operate, our priority is the safety of our employees, customers, partners and the communities we serve. We and other companies, including our partners, are taking steps to try to protect the health and well-being 85 -------------------------------------------------------------------------------- of our employees and other stakeholders. We continue to work closely with local, state and federal authorities in an effort to provide essential services with minimum interruption to customers and in accordance with applicable social distancing and other orders. For a further discussion of risks and uncertainties related to the COVID-19 pandemic, see "Part I - Item 1A. Risk Factors" and "Part II - Item 7. MD&A - Capital Resources and Liquidity" in the Annual Report.Sempra Infrastructure Partners InApril 2021 , we entered into an agreement to sell a 20% equity interest inSempra Infrastructure Partners , which generally represents the combined businesses of Sempra LNG and IEnova, for cash proceeds of$3.37 billion , subject to adjustments. We expect to complete this transaction in mid-2021. We intend to use the expected proceeds from the sale to fund capital investments to support additional growth opportunities and strengthen our balance sheet by reducing debt. The completion of the sale of NCI inSempra Infrastructure Partners will reduce our ownership interest inSempra Infrastructure Partners and require us to share control over certain business decisions with our minority partner, which introduces a number of risks similar to those associated with sharing business control. Moreover, any decrease in our ownership ofSempra Infrastructure Partners would also decrease our share of the cash flows, profits and other benefits these businesses currently or may in the future produce, which could materially adversely affect our results of operations, cash flows, financial condition and/or prospects. Our ability to complete this transaction is subject to a number of risks, including, among others, the ability to obtain governmental, regulatory and third-party approvals and satisfy other customary closing conditions. If we are not able to obtain these approvals and satisfy all other closing conditions in a timely manner or on satisfactory terms, then the proposed transaction may be abandoned and/or our prospects could be materially adversely affected. This transaction is subject to a number of risks and uncertainties that we discuss further in "Part I - Item 1A. Risk Factors" in the Annual Report. Liquidity We expect to meet our cash requirements through cash flows from operations, unrestricted cash and cash equivalents, borrowings under our credit facilities, distributions from our equity method investments, issuances of debt, project financing and partnering with NCI investors. We believe that these cash flow sources, combined with available funds, will be adequate to fund our current operations, including to: ?finance capital expenditures ?meet liquidity requirements ?fund dividends ?fund new business or asset acquisitions or start-ups ?fund capital contribution requirements ?repay long-term debt ?fund expenditures related to the natural gas leak atSoCalGas' Aliso Canyon natural gas storage facilitySempra Energy and theCalifornia Utilities currently have reasonable access to the money markets and capital markets and are not currently constrained in their ability to borrow money at reasonable rates from commercial banks, under existing revolving credit facilities or through public offerings registered with theSEC . However, our ability to access the money markets and capital markets or obtain credit from commercial banks outside of our committed revolving credit facilities could become materially constrained if changing economic conditions and disruptions to the money markets and capital markets, due to the COVID-19 pandemic or otherwise, worsen. In addition, our financing activities and actions by credit rating agencies, as well as many other factors, could negatively affect the availability and cost of both short-term and long-term financing. Also, cash flows from operations may be impacted by the timing of commencement and completion, and potentially cost overruns, of large projects. If cash flows from operations were to be significantly reduced or we were unable to borrow under acceptable terms, we would likely first reduce or postpone discretionary capital expenditures (not related to safety) and investments in new businesses. We monitor our ability to finance the needs of our operating, investing and financing activities in a manner consistent with our intention to maintain our investment-grade credit ratings and capital structure. We have significant investments in several trusts to provide for future payments of pensions and other postretirement benefits and nuclear decommissioning. Changes in asset values, which are dependent on activity in the equity and fixed income markets, have not materially and adversely affected the trust funds' abilities to make required payments. However, changes in these or other factors in future periods, such as changes to discount rates, assumed rates of return, mortality tables and regulations, may impact funding requirements for pension and other postretirement benefits plans. Funding requirements for SDG&E's NDT could also be impacted by the timing and amount of SONGS decommissioning costs. At theCalifornia Utilities , funding requirements are 86 -------------------------------------------------------------------------------- generally recoverable in rates. We discuss our employee benefit plans and SDG&E's NDT, including our investment allocation strategies for assets in these trusts, in Notes 9 and 15, respectively, of the Notes to Consolidated Financial Statements in the Annual Report. Available Funds Our committed lines of credit provide liquidity and support commercial paper. As we discuss in Note 7 of the Notes to Condensed Consolidated Financial Statements,Sempra Energy ,Sempra Global , SDG&E and SoCalGas each have five-year credit agreements expiring in 2024. In addition, Sempra Mexico has committed lines of credit that expire in 2021 and 2024 and uncommitted revolving credit facilities that expire in 2023. The table below shows the amount of available funds atMarch 31, 2021 , including available unused credit on these primaryU.S. and foreign lines of credit. AVAILABLE FUNDS ATMARCH 31, 2021 (Dollars in millions) Sempra Energy Consolidated SDG&E
SoCalGas
Unrestricted cash and cash equivalents(1) $ 725
6,768 1,370
750
(1) Amounts at Sempra Energy Consolidated include$285 million held in non-U.S. jurisdictions. We discuss repatriation in Note 8 of the Notes to Consolidated Financial Statements in the Annual Report. (2) Available unused credit is the total available onSempra Energy's ,Sempra Global's , SDG&E's, SoCalGas' and Sempra Mexico's credit facilities that we discuss in Note 7 of the Notes to Condensed Consolidated Financial Statements. (3) Because our commercial paper programs are supported by these lines, we reflect the amount of commercial paper outstanding as a reduction to the available unused credit. In anticipation of the closing of the sale of NCI inSempra Infrastructure Partners , we anticipate that theSempra Global credit agreement will be assigned toSempra Energy and we are also planning to replaceSempra Global's commercial paper program with financing arrangements atSempra Energy .Sempra Infrastructure Partners also may enter into its own revolving credit facility, although such a credit facility and its timing remain uncertain. Short-Term Borrowings We use short-term debt primarily to meet liquidity requirements, fund shareholder dividends, and temporarily finance capital expenditures, acquisitions or start-ups. OurCalifornia Utilities use short-term debt primarily to meet working capital needs. Revolving lines of credit and commercial paper were our primary sources of short-term debt funding in the first three months of 2021. We discuss our short-term debt activities in Note 7 of the Notes to Condensed Consolidated Financial Statements. Long-Term Debt Activities Issuances of and payments on long-term debt in the first three months of 2021 included the following: LONG-TERM DEBT ISSUANCES AND PAYMENTS (Dollars in millions) Issuances: Amount at issuance
Maturity
Sempra LNG variable rate notes $ 102
2025
Payments: Payments
Maturity
Sempra Energy variable rate notes $ 850
2021
SDG&E 1.914% amortizing first mortgage bonds 18
2021
SDG&E variable rate 364-day term loan 200
2021
Sempra Mexico variable rate notes 11
2021
Sempra Mexico variable and fixed rate bank loans 5
2021
We discuss our long-term debt activities in Note 7 of the Notes to Condensed Consolidated Financial Statements. Credit Ratings We provide additional information about the credit ratings ofSempra Energy , SDG&E and SoCalGas in "Part I - Item 1A. Risk Factors" and "Part II - Item 2. MD&A - Capital Resources and Liquidity" in the Annual Report. 87 -------------------------------------------------------------------------------- The credit ratings ofSempra Energy , SDG&E and SoCalGas remained at investment grade levels in the first three months of 2021. CREDIT RATINGS ATMARCH 31, 2021 Sempra Energy SDG&E SoCalGas Moody's Baa2 with a stable outlook A3 with a stable outlook A2 with a stable outlook S&P BBB+ with a negative outlook BBB+ with a negative outlook A with a negative outlook Fitch BBB+ with a stable outlook BBB+ with a stable outlook A with a stable outlook A downgrade ofSempra Energy's or any of its subsidiaries' credit ratings or rating outlooks may, depending on the severity, result in a requirement for collateral to be posted in the case of certain financing arrangements and may materially and adversely affect the market prices of their equity and debt securities, the rates at which borrowings are made and commercial paper is issued, and the various fees on their outstanding credit facilities. This could make it more costly forSempra Energy , SDG&E, SoCalGas andSempra Energy's other subsidiaries to issue debt securities, to borrow under credit facilities and to raise certain other types of financing.Sempra Energy has agreed that, if the credit rating of Oncor's senior secured debt by any of the three major rating agencies falls below BBB (or the equivalent), Oncor will suspend dividends and other distributions (except for contractual tax payments), unless otherwise allowed by the PUCT. Oncor's senior secured debt was rated A2, A+ and A at Moody's, S&P and Fitch, respectively, atMarch 31, 2021 . Loans with Affiliates AtMarch 31, 2021 ,Sempra Energy had$676 million in loans due from unconsolidated affiliates and$299 million in loans due to unconsolidated affiliates. California Utilities SDG&E's and SoCalGas' operations have historically provided relatively stable earnings and liquidity. Their future performance and liquidity will depend primarily on the ratemaking and regulatory process, environmental regulations, economic conditions, actions by theCalifornia legislature, litigation and the changing energy marketplace, as well as other matters described in this report. SDG&E and SoCalGas expect that the available unused credit from their credit facilities described above, cash flows from operations, and debt issuances will continue to be adequate to fund their respective current operations and planned capital expenditures.The California Utilities manage their capital structure and pay dividends when appropriate and as approved by their respective boards of directors. As we discuss in Note 4 of the Notes to Condensed Consolidated Financial Statements in this report and in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report, changes in balancing accounts for significant costs at SDG&E and SoCalGas, particularly a change between over- and undercollected status, may have a significant impact on cash flows. These changes generally represent the difference between when costs are incurred and when they are ultimately recovered in rates through billings to customers. COVID-19 Pandemic ProtectionsThe California Utilities are continuing to monitor the impacts of the COVID-19 pandemic on cash flows and results of operations. Some customers have experienced and continue to experience a diminished ability to pay their electric or gas bills, leading to slower payments and higher levels of nonpayment than has been the case historically. These impacts could become significant and could require modifications to our financing plans. The CPUC has required that all energy companies under its jurisdiction, including theCalifornia Utilities , take action to implement several emergency customer protection measures to supportCalifornia customers affected by the COVID-19 pandemic.The California Utilities have implemented certain measures to assist customers in response to these requirements, including suspending service disconnections due to nonpayment for residential, small business and medium-large commercial and industrial customers (which represent the entire customer population except for SoCalGas' noncore customers), waiving late payment fees, and offering flexible payment plans to customers experiencing difficulty paying their electric or gas bills. The customer protection measures are in place throughJune 2021 and the CPUC may extend them further. The CPUC authorized each of theCalifornia Utilities to track and request recovery of incremental costs associated with complying with customer protection measures implemented by the CPUC related to the COVID-19 pandemic, including costs associated with suspending service disconnections and uncollectible expenses that arise from these customers' failure to pay. Although we are tracking these costs in various regulatory mechanisms, recovery is not assured. The continuation of these 88 -------------------------------------------------------------------------------- circumstances could result in a further reduction in payments received from theCalifornia Utilities' customers and a further increase in uncollectible accounts, which could become material, and any inability or delay in recovering all or a substantial portion of these costs could have a material adverse effect on the cash flows, financial condition and results of operations ofSempra Energy , SDG&E and SoCalGas. We discuss regulatory mechanisms in Note 4 of the Notes to Condensed Consolidated Financial Statements. Disconnection OIR InJune 2020 , the CPUC issued a decision addressing service disconnections that, among other things, allows each of theCalifornia Utilities to establish a two-way balancing account to record the uncollectible expenses associated with residential customers' inability to pay their electric or gas bills. This decision also directs theCalifornia Utilities to establish an AMP that provides successfully participating, income-qualified residential customers with relief from outstanding utility bill amounts and became effective inFebruary 2021 .The California Utilities have recorded increases in their allowances for uncollectible accounts primarily related to expected forgiveness of outstanding bill amounts for customers eligible under the AMP. The AMP could result in a further reduction in payments received from theCalifornia Utilities' customers and a further increase to uncollectible accounts, which could become material, and any inability to recover these costs could have a material adverse effect on the cash flows, financial condition and results of operations ofSempra Energy , SDG&E and SoCalGas. CCM A CPUC cost of capital proceeding determines a utility's authorized capital structure and authorized return on rate base and addresses the CCM. The CCM, if triggered in 2021, would be effectiveJanuary 1, 2022 , and would automatically update theCalifornia Utilities' authorized cost of debt based on actual costs and update theCalifornia Utilities' authorized ROE. A trigger of the CCM that requires a downward adjustment beginningJanuary 1, 2022 could materially adversely affect the results of operations and cash flows ofSempra Energy and, depending on the CCM that is triggered, SDG&E and SoCalGas. We discuss the CCM further in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report. SDG&E Wildfire Fund The carrying value ofSDG&E's Wildfire Fund asset totals$385 million atMarch 31, 2021 . We describe the Wildfire Legislation and related accounting treatment in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report. SDG&E is exposed to the risk that the participatingCalifornia electric IOUs may incur third-party wildfire costs for which they will seek recovery from theWildfire Fund . In such a situation, SDG&E may recognize a reduction of itsWildfire 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 any of the participating IOUs. As a result, if anyCalifornia electric IOU's equipment is determined to be a cause of a fire, it could have a material adverse effect on SDG&E's andSempra Energy's financial condition and results of operations up to the carrying value of ourWildfire Fund asset, with additional potential material exposure if SDG&E's equipment is determined to be a cause of a fire. In addition, theWildfire Fund could be completely exhausted due to fires in the otherCalifornia electric IOUs' service territories, by fires in SDG&E's service territory or by a combination thereof. In the event that theWildfire Fund is materially diminished, exhausted or terminated, SDG&E will lose the protection afforded by theWildfire Fund , and as a consequence, a fire in SDG&E's service territory could cause a material adverse effect on SDG&E's andSempra Energy's cash flows, results of operations and financial condition. Franchise Agreement InDecember 2020 , theCity of San Diego and SDG&E agreed to extend the natural gas and electric franchises toJune 1, 2021 . The extension is intended to provide newly elected officials time to seek public input and additional information. InMarch 2021 , the City announced a new competitive bid process, and inApril 2021 , SDG&E participated in the bid process. SDG&E and the City are in negotiations to reach an agreement on which theCity Council will vote. SoCalGas SoCalGas' future performance and liquidity will be impacted by the resolution of legal, regulatory and other matters concerning the Leak, which we discuss below and in Note 11 of the Notes to Condensed Consolidated Financial Statements in this report and in "Part I - Item 1A. Risk Factors" in the Annual Report. 89 -------------------------------------------------------------------------------- Aliso Canyon Natural Gas Storage Facility Gas Leak FromOctober 23, 2015 throughFebruary 11, 2016 , SoCalGas experienced a natural gas leak from one of the injection-and-withdrawal wells, SS25, at itsAliso Canyon natural gas storage facility located inLos Angeles County . InFebruary 2016 , CalGEM confirmed that the well was permanently sealed. Cost Estimates, Accounting Impact and Insurance. AtMarch 31, 2021 , SoCalGas estimates certain costs related to the Leak are$1,627 million (the cost estimate). This cost estimate may increase significantly as more information becomes available. A substantial portion of the cost estimate has been paid, and$437 million is accrued as Reserve for Aliso Canyon Costs on SoCalGas' andSempra Energy's Condensed Consolidated Balance Sheets. Except for the amounts paid or estimated to settle certain actions, the cost estimate does not include litigation, regulatory proceedings or regulatory costs to the extent it is not possible to predict at this time the outcome of these actions or reasonably estimate the costs to defend or resolve the actions or the amount of damages, restitution, civil or administrative fines, sanctions, penalties or other costs or remedies that may be imposed or incurred. The cost estimate also does not include certain other costs incurred bySempra Energy associated with defending against shareholder derivative lawsuits and other potential costs that we currently do not anticipate incurring or that we cannot reasonably estimate. These costs not included in the cost estimate could be significant and could have a material adverse effect on SoCalGas' andSempra Energy's cash flows, financial condition and results of operations. We have received insurance payments for many of the costs included in the cost estimate, including temporary relocation and associated processing costs, control-of-well expenses, costs of the government-ordered response to the Leak, certain legal costs and lost gas. As ofMarch 31, 2021 , we recorded the expected recovery of the cost estimate related to the Leak of$414 million as Insurance Receivable for Aliso Canyon Costs on SoCalGas' andSempra Energy's Condensed Consolidated Balance Sheets. This amount is exclusive of insurance retentions and$865 million of insurance proceeds we received throughMarch 31, 2021 . We intend to pursue the full extent of our insurance coverage for the costs we have incurred. Other than insurance for certain future defense costs we may incur as well as directors' and officers' liability, we have exhausted all of our insurance in this matter. We continue to pursue other sources of insurance coverage for costs related to this matter, but we may not be successful in obtaining additional insurance recovery for any of these costs. If we are not able to secure additional insurance recovery, if any costs we have recorded as an insurance receivable are not collected, if there are delays in receiving insurance recoveries, or if the insurance recoveries are subject to income taxes while the associated costs are not tax deductible, such amounts, which could be significant, could have a material adverse effect on SoCalGas' andSempra Energy's cash flows, financial condition and results of operations. Natural Gas Storage Operations and Reliability. Natural gas withdrawn from storage is important for service reliability during peak demand periods, including peak electric generation needs in the summer and consumer heating needs in the winter.The Aliso Canyon natural gas storage facility is the largest SoCalGas storage facility and an important element of SoCalGas' delivery system. As a result of the Leak, the CPUC has issued a series of directives to SoCalGas specifying the range of working gas to be maintained in theAliso Canyon natural gas storage facility as well as protocols for the withdrawal of gas, to support safe and reliable natural gas service. InFebruary 2017 , the CPUC opened a proceeding pursuant to the SB 380 OII to determine the feasibility of minimizing or eliminating the use of theAliso Canyon natural gas storage facility while still maintaining energy and electric reliability for the region, including considering alternative means for meeting or avoiding the demand for the facility's services if it were eliminated. If theAliso Canyon natural gas storage facility were to be permanently closed, or if future cash flows from its operation were otherwise insufficient to recover its carrying value, it could result in an impairment of the facility and significantly higher than expected operating costs and/or additional capital expenditures, and natural gas reliability and electric generation could be jeopardized. AtMarch 31, 2021 , theAliso Canyon natural gas storage facility had a net book value of$840 million . Any significant impairment of this asset, or higher operating costs and additional capital expenditures incurred by SoCalGas that may not be recoverable in customer rates, could have a material adverse effect on SoCalGas' andSempra Energy's results of operations, financial condition and cash flows.Sempra Texas Utilities Oncor relies on external financing as a significant source of liquidity for its capital requirements. In the event that Oncor fails to meet its capital requirements or is unable to access sufficient capital to finance its ongoing needs, we may elect to make additional capital contributions to Oncor (as our commitments to the PUCT prohibit us from making loans to Oncor) which could be substantial and which would reduce the cash available to us for other purposes, could increase our indebtedness and could ultimately materially adversely affect our results of operations, liquidity, financial condition and prospects. Oncor's ability to pay dividends may be limited by factors such as its credit ratings, regulatory capital requirements, debt-to-equity ratio approved by the PUCT and other restrictions. In addition, Oncor will not pay dividends if a majority of Oncor's independent directors or any 90 -------------------------------------------------------------------------------- minority member director determines it is in the best interests of Oncor to retain such amounts to meet expected future requirements. Winter Weather Event InFebruary 2021 ,ERCOT required transmission companies, including Oncor, to significantly reduce demand on the grid due to insufficient electricity generation caused by extreme winter weather, resulting in power outages throughoutERCOT . As a result of the winter weather event, in February and March of 2021, the PUCT issued a moratorium on customer disconnections due to nonpayment and a waiver of certain late payment fees, and it or other governmental authorities or third parties, including Oncor's customers, have taken or could take other measures to address financial challenges experienced as a result of the event, which could adversely impact Oncor's collections and cash flows and, in turn, could adversely impactSempra Energy . Legislation has been proposed inTexas that would impact theERCOT market, and various regulatory and governmental entities have commenced investigations or indicated an intent to investigate the operation of theERCOT grid during this extreme winter weather event. Any significant changes relating to theERCOT market that impact transmission and distribution utilities as a result of such proceedings or otherwise could materially adversely impact Oncor. If Oncor does not successfully respond to these changes and any other legislative, regulatory, or market or industry developments applicable to it, Oncor could suffer a deterioration in its results of operations, financial condition, cash flows and/or prospects, which could materially adversely affectSempra Energy's results of operations, financial condition, cash flows and/or prospects. Sempra Mexico Construction Projects Sempra Mexico began commercial operations of its new marine terminal for the receipt, storage and delivery of refined fuel products in the new port ofVeracruz onMarch 19, 2021 . The terminal has a storage capacity of more than two million barrels and its customer is Valero Energy Corporation. Sempra Mexico also completed construction and began commercial operations of a new solar facility (Border Solar ) in Juárez, Chihuahua onMarch 25, 2021 . Sempra Mexico is currently constructing additional terminals for the receipt, storage, and delivery of liquid fuels in the vicinity ofMexico City ,Puebla andTopolobampo . Sempra Mexico is also developing terminals for the receipt, storage, and delivery of liquid fuels in the vicinity ofManzanillo ,Guadalajara andEnsenada . We expect to fund these capital expenditures, investments and operations at IEnova with available funds, including credit facilities, and funds internally generated by the Sempra Mexico businesses, as well as funds from project financing, sales of securities, interim funding from the parent or affiliates, and partnering in JVs. We expect the projects under construction to commence commercial operations on various dates in 2021. However, expected commencement dates could be delayed by worsening or extended disruptions of project construction or development caused by the COVID-19 pandemic or other factors outside our control. Sempra Mexico is continuing to monitor the impacts of the COVID-19 pandemic on cash flows and results of operations. The ability to successfully complete major construction projects is subject to a number of risks and uncertainties. For a discussion of these risks and uncertainties, see "Part I - Item 1A. Risk Factors" in the Annual Report. Legal and Regulatory Matters As we discuss in Note 11 of the Notes to Condensed Consolidated Financial Statements, theGuaymas -El Oro segment of theSonora pipeline has been inoperable sinceAugust 2017 . Under an agreement between IEnova and the CFE, the CFE will resume making payments only when the damaged section of theGuaymas -El Oro segment of theSonora pipeline is repaired. If the pipeline is not repaired bySeptember 14, 2021 and the parties do not agree on a new service start date, IEnova retains the right to terminate the contract and seek to recover its reasonable and documented costs and lost profits. If IEnova is unable to make such repairs (which have not commenced) and resume operations in theGuaymas -El Oro segment of theSonora pipeline or if IEnova terminates the contract and is unable to obtain recovery, we may record an impairment of the carrying value of our investment that could have a material adverse impact onSempra Energy's results of operations. AtMarch 31, 2021 , theGuaymas -El Oro segment of theSonora pipeline had a net book value of$442 million . InMay 2020 , the two third-party capacity customers at the ECA Regas Facility,Shell Mexico and Gazprom, asserted that a 2019 update of the general terms and conditions for service at the facility, as approved by the CRE, resulted in a breach of contract by IEnova and a force majeure event. Citing these circumstances, the customers subsequently stopped making payments of amounts due under their respective LNG storage and regasification agreements. IEnova has rejected the customers' assertions and has drawn (and expects to continue to draw) on the customers' letters of credit provided as payment security. The parties engaged in discussions under the applicable contractual dispute resolution procedures without coming to a mutually acceptable resolution. InJuly 2020 ,Shell Mexico submitted a request for arbitration of the dispute and although Gazprom has joined the proceeding, 91 -------------------------------------------------------------------------------- Gazprom has since replenished the amounts drawn on its letter of credit and has resumed making regular monthly payments under its LNG storage and regasification agreement and as a consequence IEnova is not currently drawing on its letter of credit. IEnova intends to avail itself of its available claims, defenses, rights and remedies in the arbitration proceeding, including seeking dismissal of the customers' claims. In addition to the arbitration proceeding,Shell Mexico also filed a constitutional challenge to the CRE's approval of the update to the general terms and conditions. InOctober 2020 ,Shell Mexico's request to stay the CRE's approval was denied and, subsequently,Shell Mexico filed an appeal of that decision. As we discuss in Note 11 of the Notes to Condensed Consolidated Financial Statements, certain Mexican governmental agencies have issued orders and regulations that would reduce or limit the renewable energy sector's participation in the country's energy market. Those orders would, among other things, create barriers for renewable energy facilities to enter the wholesale electricity market, threaten the prospects for private-party renewable energy generation in the country, limit the ability to dispatch renewable energy and to receive or maintain operation permits, and increase costs of electricity for legacy renewables and cogeneration energy contract holders. Most of these newly enacted regulations and policies have been temporarily suspended through litigation and judicial rulings obtained by businesses operating in the power sector, including by IEnova. IEnova cannot predict whether it will ultimately be successful in the ongoing litigation, or whether there will be new regulations or policies or further amendments to existing regulations with a similar intent or impact, which could have a material adverse impact on our results of operations and cash flows, our ability to recover the carrying values of our renewable energy investments inMexico , and our prospects for developing new renewable energy projects in the country. Acquisition of ESJ As we discuss in Note 5 of the Notes to Condensed Consolidated Financial Statements, onMarch 19, 2021 , IEnova increased its ownership interest in ESJ from 50% to 100% by acquiring Saavi Energía's 50% equity interest in ESJ for a purchase price of approximately$65 million (net of$14 million of acquired cash and cash equivalents) plus the assumption of$277 million in debt (including$94 million owed from ESJ to IEnova that eliminates upon consolidation). ESJ owns a fully operating wind power generation facility with a nameplate capacity of 155 MW that is fully contracted by SDG&E under a long-term PPA. ESJ is constructing a second wind power generation facility with a nameplate capacity of 108 MW that we expect will be completed in late 2021 or in the first quarter of 2022. Exchange Offer InApril 2021 , we launched an offer to acquire up to 100% of the publicly held shares of IEnova in exchange for shares of our common stock at an exchange ratio of 0.0323 shares of our common stock for each one IEnova ordinary share. We expect to complete this transaction in the second quarter of 2021, subject to customary closing conditions. This proposed transaction is subject to a number of risks that we discuss in "Part I - Item 1A. Risk Factors" in the Annual Report. Sempra LNG Sempra LNG is pursuing development of additional LNG export facilities on theGulf Coast andPacific Coast of North America through its proposed Cameron LNG JV Phase 2 liquefaction expansion project inLouisiana , ECA LNG liquefaction export projects inMexico , and Port Arthur LNG liquefaction export project inTexas . We expect Sempra LNG to require funding for the development and expansion of its portfolio of projects, which may be financed through a combination of operating cash flows, funding from the parent, project financing and participating in JVs.Cameron LNG JV Liquefaction Expansion Project (Phase 2) Cameron LNG JV has received the major permits and FTA and non-FTA approvals necessary to expand the current configuration of the Cameron LNG JV liquefaction project beyond Phase 1. The permits for the Phase 2 project include up to two additional liquefaction trains and up to two additional full containment LNG storage tanks.Sempra Energy has entered MOUs with TOTAL SE, Mitsui & Co., Ltd. and Mitsubishi Corporation that provide a framework for cooperation for the development of and 100% of the offtake from the potential Cameron LNG JV Phase 2 project. The ultimate participation of and offtake by TOTAL SE, Mitsui & Co., Ltd. and Mitsubishi Corporation remains subject to negotiation and finalization of definitive agreements, among other factors, and TOTAL SE, Mitsui & Co., Ltd. and Mitsubishi Corporation have no commitment to participate in or enter into offtake agreements with the Phase 2 project until such definitive agreements are established. Expansion of the Cameron LNG JV liquefaction facility beyond the first three trains is subject to certain restrictions and conditions under the JV project financing agreements, including among others, timing restrictions on expansion of the project unless appropriate prior consent is obtained from the Phase 1 project lenders. Under the Cameron LNG JV equity agreements, the expansion of the project requires the unanimous consent of all the partners, including with respect to the equity investment 92 -------------------------------------------------------------------------------- obligation of each partner. Discussions among all the Cameron LNG JV partners have been taking place regarding how an expansion may be structured and we expect that discussions will continue. There is no assurance that the Cameron LNG JV members will unanimously agree in a timely manner or at all on an expansion structure, which, if not accomplished, would materially and adversely impact the development of the Phase 2 expansion project. In light of this and other considerations, we are unable to predict whether or when Cameron LNG JV might be able to move forward on the Phase 2 expansion of the Cameron LNG JV liquefaction facility beyond the first three trains. The development of the potential Cameron LNG JV Phase 2 expansion project is subject to numerous other risks and uncertainties, including securing binding customer commitments; reaching unanimous agreement with our partners to proceed; obtaining a number of permits and regulatory approvals; securing financing; negotiating and completing suitable commercial agreements, including a definitive EPC contract, equity acquisition and governance agreements; reaching a positive final investment decision; and other factors associated with this potential investment. For a discussion of these risks, see "Part I - Item 1A. Risk Factors" in the Annual Report. ECA LNG Liquefaction Export Projects Sempra LNG and IEnova are developing two natural gas liquefaction export projects at IEnova's existing ECA Regas Facility. The liquefaction export projects, which are planned for development in two phases (a mid-scale project by ECA LNG Phase 1 that is under construction and a proposed large-scale project by ECA LNG Phase 2), are being developed to provide buyers with direct access to North American west coast LNG supplies. We do not expect the construction of the ECA LNG Phase 1 project to disrupt operations at the ECA Regas Facility. However, construction of the ECA LNG Phase 2 project would conflict with the current operations at the ECA Regas Facility, which currently has long-term regasification contracts for 100% of the regasification facility's capacity through 2028, making the decisions on whether and how to pursue the ECA LNG Phase 2 project dependent in part on whether the investment in a large-scale liquefaction facility would, over the long term, be more beneficial financially than continuing to supply regasification services under our existing contracts. We have planned measures to limit disruption of operations at the ECA Regas Facility with the construction of the ECA LNG Phase 1 project. InMarch 2019 , ECA LNG received two authorizations from theDOE to exportU.S. -produced natural gas to Mexico and to re-export LNG to non-FTA countries from its ECA LNG Phase 1 project, which is a one-train natural gas liquefaction facility with a nameplate capacity of 3.25 Mtpa and initial offtake capacity of approximately 2.5 Mtpa that is under construction, and its proposed ECA LNG Phase 2 project that is in development. InApril 2020 , ECA LNG Phase 1 executed definitive 20-year LNG sale and purchase agreements with Mitsui & Co., Ltd. for approximately 0.8 Mtpa of LNG and with an affiliate of TOTAL SE for approximately 1.7 Mtpa of LNG. InDecember 2020 , an affiliate of TOTAL SE acquired a 16.6% ownership interest in ECA LNG Phase 1, with Sempra LNG and IEnova each retaining a 41.7% ownership interest. Our MOU with Mitsui & Co., Ltd. provides a framework for Mitsui & Co., Ltd.'s potential offtake of LNG from, and potential acquisition of an equity interest in, ECA LNG Phase 2. InFebruary 2020 , we entered into an EPC contract with Technip Energies for the engineering, procurement and construction of the ECA LNG Phase 1 project. Since reaching a positive final investment decision with respect to the project inNovember 2020 , we released Technip Energies to commence work to construct the ECA LNG Phase 1 project. The total price of the EPC contract is estimated at approximately$1.5 billion . We estimate that capital expenditures will approximate$2.0 billion , including capitalized interest and project contingency. The actual cost of the EPC contract and the actual amount of these capital expenditures may differ, perhaps substantially, from our estimates. InDecember 2020 , ECA LNG Phase 1 entered into a five-year loan agreement for an aggregate principal amount of up to$1.6 billion , of which$119 million was outstanding atMarch 31, 2021 . Proceeds from the loan are being used to finance the cost of construction of the ECA LNG Phase 1 project. We discuss the details of this loan in Note 7 of the Notes to Condensed Consolidated Financial Statements in this report and in Note 7 of the Notes to Consolidated Financial Statements in the Annual Report. The construction of the ECA LNG Phase 1 project and the development of the potential ECA LNG Phase 2 project are subject to numerous risks and uncertainties. For Phase 1, these include maintaining permits and regulatory approvals; construction delays; securing and maintaining commercial arrangements, such as gas supply and transportation agreements; and other factors associated with the project and its construction. For Phase 2, these include obtaining binding customer commitments; the receipt of a number of permits and regulatory approvals; obtaining financing; negotiating and completing suitable commercial agreements, including a definitive EPC contract, equity acquisition and governance agreements, LNG sales agreements and gas supply and transportation agreements; reaching a positive final investment decision; and other factors associated with this potential investment. In addition, as we discuss in Note 11 of the Notes to Condensed Consolidated Financial Statements, an unfavorable decision on certain property disputes or permit challenges, or an extended dispute with existing customers at the ECA 93 -------------------------------------------------------------------------------- Regas Facility, could materially adversely affect the development of these projects andSempra Energy's financial condition, results of operations, cash flows and prospects, including the impairment of all or a substantial portion of the capital costs invested in the projects to date. For a discussion of these risks, see "Part I - Item 1A. Risk Factors" in the Annual Report.Port Arthur LNG Liquefaction Export Project Sempra LNG is developing a proposed natural gas liquefaction export project on a greenfield site that it owns in the vicinity ofPort Arthur, Texas , located along theSabine -Neches waterway. Sempra LNG received authorizations from theDOE inAugust 2015 andMay 2019 that collectively permit the LNG to be produced from the proposed Port Arthur LNG project to be exported to all current and future FTA and non-FTA countries. InApril 2019 , theFERC approved the siting, construction and operation of the proposed Port Arthur LNG liquefaction facility, along with certain natural gas pipelines, including the Louisiana Connector and Texas Connector Pipelines, that could be used to supply feed gas to the liquefaction facility, assuming the project is completed. InFebruary 2020 , Sempra LNG filed aFERC application for the siting, construction and operation of a second phase at the proposed Port Arthur LNG facility, including the potential addition of two liquefaction trains. InFebruary 2020 , we entered into an EPC contract with Bechtel for the proposed Port Arthur LNG liquefaction project. The EPC contract contemplates the construction of two liquefaction trains with a nameplate capacity of approximately 13.5 Mtpa, two LNG storage tanks, a marine berth and associated loading facilities and related infrastructure necessary to provide liquefaction services. We have no obligation to move forward on the EPC contract, and we may release Bechtel to perform portions of the work pursuant to limited notices to proceed. We have the option to fully release Bechtel to perform all of the work to construct the Port Arthur LNG liquefaction export project only after we reach a positive final investment decision with respect to the project and after certain other conditions are met, including obtaining project financing. InDecember 2020 , we amended and restated the EPC contract to reflect an estimated price of approximately$8.7 billion , depending on the timing of a full notice to proceed, which, if not issued byJuly 15, 2021 , will require renegotiation of the EPC contract. Any changes to the EPC contract will require the agreement of both parties, which cannot be assured. InDecember 2018 , Polish Oil & Gas Company (PGNiG) and Port Arthur LNG entered into a definitive 20-year agreement for the sale and purchase of 2 Mtpa of LNG per year from the Port Arthur LNG liquefaction export project. Under the agreement, LNG purchases by PGNiG from Port Arthur LNG will be made on a free-on-board basis, with PGNiG responsible for shipping the LNG from thePort Arthur facility to the final destination. Port Arthur LNG will manage the gas pipeline transportation, liquefaction processing and cargo loading. The agreement is subject to certain conditions precedent, including Port Arthur LNG making a positive final investment decision within certain agreed timelines. The failure of these conditions precedent to be satisfied or waived within the agreed timelines could result in the termination of the agreement. InMay 2019 ,Aramco Services Company and Sempra LNG signed a Heads of Agreement for the negotiation of a definitive 20-year LNG sale and purchase agreement for 5 Mtpa of LNG offtake from the Port Arthur LNG liquefaction export project. The Heads of Agreement also includes the negotiation of a potential 25% equity investment in the project. InJanuary 2020 ,Aramco Services Company and Sempra LNG signed an Interim Project Participation Agreement, which sets forth certain mechanisms for the parties to work towards receipt of corporate approvals to enter into and proceed with the transaction, execution of the transaction agreements and the fulfillment or waiver of the conditions precedent contemplated by these agreements, making a final investment decision and other pre-final investment decision activities. The Heads of Agreement and Interim Project Participation Agreement do not obligate the parties to ultimately execute any agreements or participate in the project. InNovember 2019 , Port Arthur LNG commenced the relocation and upgrade of approximately three miles of highway where the Port Arthur LNG liquefaction export project would be located. We continue to progress development of the proposed Port Arthur LNG liquefaction export project. Given the impact of the COVID-19 pandemic on the global economy and remaining uncertainties in the energy markets, we are working with our partners and customers to evaluate the timing of a final investment decision. At this time, we do not expect to make a final investment decision in 2021. Development of the Port Arthur LNG liquefaction export project is subject to a number of risks and uncertainties, including obtaining additional customer commitments; completing the required commercial agreements, such as equity acquisitions and governance agreements, LNG sales agreements and gas supply and transportation agreements; completing construction contracts; securing all necessary permits and approvals; obtaining financing and incentives; reaching a positive final investment decision; and other factors associated with the potential investment. An unfavorable outcome with respect to any of these factors could have a material adverse effect onSempra Energy's financial condition, results of operations and prospects, including the impairment of 94
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all or a substantial portion of the capital costs invested in the project to date. For a discussion of these risks, see "Part I - Item 1A. Risk Factors" in the Annual Report.
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