SOUTHERN CALIFORNIA GAS COMPANY OVERVIEW
Our 2022 operational and financial results reflect our mission to be
?SDG&E and SoCalGas filed their 2024 GRC applications and a CPUC proposed decision is scheduled for the second quarter of 2024
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?SDG&E and SoCalGas received final decisions from the CPUC on their cost of capital for 2023 through 2025, and SDG&E received a final decision on its cost of capital for 2022
?SoCalGas made significant progress to substantially resolve legal and regulatory matters pertaining to the Leak
?Oncor filed its comprehensive base rate review and expects to receive a final order from the PUCT around the end of the first quarter of 2023
?
?Sempra Infrastructure advanced development of the PA LNG projects and Cameron LNG Phase 2 project and expects to make a final investment decision for the PA LNG Phase 1 project in the first quarter of 2023
?We invested
?We completed
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.
RESULTS OF OPERATIONS
We discuss the following in Results of Operations:
?Overall results of operations of Sempra;
?Segment results;
?Significant changes in revenues, costs and earnings; and
?Impact of foreign currency and inflation rates on results of operations.
We discuss herein our results of operations for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . For a discussion of our results of operations for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 , refer to " Part II - Item 7. MD&A - Results of Operations " in our 2021 annual report on Form 10-K filed with the SEC on February 25, 2022.
OVERALL RESULTS OF OPERATIONS OF SEMPRA
OVERALL RESULTS OF OPERATIONS OF SEMPRA (Dollars and shares in millions, except per share amounts)
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Our earnings and diluted EPS were impacted by variances discussed below in "Segment Results."
SEGMENT RESULTS
This section presents earnings (losses) by Sempra 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 foreign currency and inflation effects and
NCI, where applicable.
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SEMPRA EARNINGS (LOSSES) BY SEGMENT
(Dollars in millions)
Years ended December 31,
2022 2021 2020
SDG&E $ 915 $ 819 $ 824
SoCalGas 599 (427) 504
Sempra Texas Utilities 736 616 579
Sempra Infrastructure 310 682 580
Parent and other(1) (466) (436) (563)
Discontinued operations - - 1,840
Earnings attributable to common shares
(1) Includes intercompany eliminations recorded in consolidation and certain corporate costs.
SDG&E
The increase in earnings of
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SoCalGas
Earnings of
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The increase in earnings of
?higher revenues from rate updates to reflect increases in invested capital, higher customer consumption attributable primarily to weather, and customer growth; offset by
?higher depreciation expense and interest expense attributable to invested capital; and
?higher O&M.Sempra Infrastructure
The decrease in earnings of
?$283 million losses in 2022 compared to$148 million earnings in 2021 from asset and supply optimization driven by higher unrealized losses on commodity derivatives due to changes in natural gas prices, offset by higher diversion revenues; ?$169 million unfavorable impact from foreign currency and inflation effects on our monetary positions inMexico , net of foreign currency derivative effects, comprised of a$216 million unfavorable impact in 2022 compared to a$47 million unfavorable impact in 2021; and
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?$50 million lower net interest expense, including$37 million in charges associated with hedge termination costs and a write-off of unamortized debt issuance costs from the early redemptions of debt inOctober 2021 and$27 million net unrealized gains in 2022 on a contingent interest rate swap related to the proposed PA LNG Phase 1 project that we discuss in Note 11 of the Notes to Consolidated Financial Statements; ?$42 million higher earnings from the transportation business inMexico driven by higher rates and higher equity earnings at IMG excluding unfavorable impact from foreign currency and inflation; ?$14 million higher earnings due to the start of commercial operations of theVeracruz andMexico City terminals in March and July of 2021, respectively, and remeasurement of operating leases; ?$12 million higher earnings from the renewables business due toBorder Solar and the second phase of ESJ being placed in service inMarch 2021 andJanuary 2022 , respectively; and
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Parent and Other
The increase in losses of
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?$92 million in charges associated with make-whole premiums and a write-off of unamortized discount and debt issuance costs from the early redemptions of debt inDecember 2021 ; ?$72 million net income tax expense related to the utilization of a deferred income tax asset upon completing the sale of a 20% NCI inSI Partners to KKR inOctober 2021 ;
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SIGNIFICANT CHANGES IN REVENUES, COSTS AND EARNINGS
This section contains a discussion of the differences between periods in the specific line items of the Consolidated Statements of Operations for Sempra, SDG&E and SoCalGas.
Utilities Revenues and Cost of Sales
Our utilities revenues include natural gas revenues at SoCalGas and SDG&E andSempra Infrastructure's Ecogas and electric revenues at SDG&E. Intercompany revenues included in the separate revenues of each utility are eliminated in Sempra's 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 and without markup. The GCIM provides for SoCalGas 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 core customers and SoCalGas. We provide further discussion in Note 3 of the Notes to Consolidated Financial Statements. ?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.
?SoCalGas and SDG&E 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
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are offset in the changes in revenues and therefore do not impact earnings, other than potential impacts related to the GCIM for SoCalGas that we describe above. In addition to the changes in cost or market prices, natural gas or electric revenues recorded during a period are impacted by the difference between customer billings and recorded or CPUC-authorized amounts. 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 Consolidated Financial Statements.
The table below summarizes utilities revenues and cost of sales.
UTILITIES REVENUES AND COST OF SALES
(Dollars in millions)
Years ended December 31,
2022 2021 2020
Natural gas revenues:
SoCalGas $ 6,840 $ 5,515 $ 4,748
SDG&E 1,043 838 694
Sempra Infrastructure 89 81 58
Eliminations and adjustments (104) (101) (89)
Total 7,868 6,333 5,411
Electric revenues:
SDG&E 4,795 4,666 4,619
Eliminations and adjustments (12) (8) (5)
Total 4,783 4,658 4,614
Total utilities revenues $ 12,651 $ 10,991 $ 10,025
Cost of natural gas(1):
SoCalGas $ 2,233 $ 1,369 $ 783
SDG&E 363 242 162
Sempra Infrastructure 37 24 12
Eliminations and adjustments (30) (38) (32)
Total 2,603 1,597 925
Cost of electric fuel and purchased power(1):
SDG&E 994 1,069 1,191
Eliminations and adjustments (57) (59)
(4)
Total 937 1,010
1,187
Total utilities cost of sales$ 3,540 $ 2,607
(1) Excludes depreciation and amortization, which are presented separately on the Sempra, SDG&E and SoCalGas Consolidated Statements of Operations.
Natural Gas Revenues and Cost of Natural Gas
The table below summarizes the average cost of natural gas sold by SempraCalifornia and included in cost of natural gas. The average cost of natural gas sold at each utility is impacted by market prices, as well as transportation, tariff and other charges. SEMPRACALIFORNIA AVERAGE COST OF NATURAL GAS (Dollars per thousand cubic feet) Years ended December 31, 2022 2021 2020 SoCalGas$ 7.48 $ 4.53 $ 2.59 SDG&E 8.01 5.30 3.74
In 2022 compared to 2021, our natural gas revenues increased by
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•$864 million increase in cost of natural gas sold, which we discuss below,
•$202 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M,
•$146 million higher CPUC-authorized revenues,
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•$69 million higher revenues from incremental and balanced capital projects, and
•$35 million higher revenues associated with impacts resulting from changes in tax laws tracked in the income tax expense memorandum account; and
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•$121 million increase in cost of natural gas sold, which we discuss below,
•$35 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M,
•$31 million higher revenues from balanced capital projects, and
•$10 million higher CPUC-authorized revenues.
Our cost of natural gas increased by
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Electric Revenues and Cost of
In 2022 compared to 2021, our electric revenues, substantially all of which are
at SDG&E, increased by
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Our utility cost of electric fuel and purchased power includes utility-owned generation, power purchased from third parties, and net power purchases and sales to the California ISO. Our cost of electric fuel and purchased power decreased by$73 million (7%) to$937 million in 2022 compared to 2021 primarily due to$75 million at SDG&E from higher sales to the California ISO due to higher market prices offset by higher purchased power from the California ISO due to higher market prices, net of lower customer demand due to departing load now served by CCAs, and higher utility-owned generation costs.
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)
Years ended December 31,
2022 2021 2020
REVENUES
Sempra Infrastructure $ 1,830 $ 1,916 $ 1,342
Parent and other(1) (42) (50) 3
Total revenues $ 1,788 $ 1,866 $ 1,345
COST OF SALES(2)
Sempra Infrastructure $ 942 $ 608 $ 275
Parent and other(1) - 3 1
Total cost of sales $ 942 $ 611 $ 276
(1) Includes eliminations of intercompany activity.
(2) Excludes depreciation and amortization, which are presented separately on Sempra's Consolidated Statements of Operations.
In 2022 compared to 2021, revenues from our energy-related businesses decreased
by
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•$498 million lower revenues primarily driven by
•$83 million higher diversion fees due to higher natural gas prices, and
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•$71 million higher LNG sales; offset by
?$143 million higher revenues from TdM mainly due to higher power prices offset by lower volumes from scheduled major maintenance completed inMarch 2022 , which resulted in increased plant reliability;
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?$46 million higher revenues from the renewables business due toBorder Solar and the second phase of ESJ being placed in service inMarch 2021 andJanuary 2022 , respectively, the acquisition of ESJ inMarch 2021 and higher transmission rates; and ?$5 million higher revenues from theVeracruz andMexico City terminals placed in service in March and July of 2021, respectively, offset by an$18 million selling profit on a sales-type lease relating to the commencement of a rail facility lease at theVeracruz terminal in the third quarter of 2021 and a remeasurement of an operating lease. The cost of sales for our energy-related businesses increased by$331 million to$942 million in 2022 compared to 2021 primarily due to higher natural gas prices and higher LNG purchases related to asset and supply optimization and higher prices offset by lower volumes from scheduled major maintenance completed inMarch 2022 at TdM. Operation and Maintenance
In the table below, we provide O&M by segment.
OPERATION AND MAINTENANCE
(Dollars in millions)
Years ended December 31,
2022 2021 2020
SDG&E $ 1,677 $ 1,587 $ 1,455
SoCalGas 2,402 2,180 2,029
Sempra Texas Utilities 6 6 -
Sempra Infrastructure 656 550 427
Parent and other(1) 5 18 30
Total operation and maintenance
(1) Includes eliminations of intercompany activity.
Our O&M increased by
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•$202 million higher expenses associated with refundable programs, which costs incurred are recovered in revenue, and
•$20 million higher non-refundable operating costs; and
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•$28 million at the transportation business due to maintenance on pipelines and new compressor stations and higher administrative costs,
•$28 million higher development costs and purchased services,
•$20 million from the renewables business primarily due to construction repairs and maintenance at Ventika,
•$19 million due to the start of commercial operations of the
•$10 million higher operating costs at TdM from higher purchased materials and
services due to scheduled major maintenance completed in
•$16 million lower operating cost due to remeasurement of operating leases at the refined products terminals; and
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•$70 million higher expenses associated with refundable programs, which costs incurred are recovered in revenue, and
•$20 million higher non-refundable operating costs; offset by
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Aliso Canyon Litigation and Regulatory Matters
SoCalGas recorded charges of$259 million and$1,593 million in 2022 and 2021, respectively, relating to litigation and regulatory matters pertaining to the Leak. We describe these charges in Note 16 of the Notes to Consolidated Financial Statements. 2022 Form 10-K | 66
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In 2021, Parent and other recognized a
Other Income (Expense), Net
As part of our central risk management function, we may enter into foreign currency derivatives to hedgeSI Partners' 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 forSI Partners' consolidated entities and in equity earnings forSI Partners' equity method investments. We discuss policies governing our risk management below in "Part II - Item 7A. Quantitative and Qualitative Disclosures About Market Risk."
Other income (expense), net, decreased by
?$42 million investment losses in 2022 compared to$50 million investment gains in 2021 on dedicated assets in support of our executive retirement and deferred compensation plans; and
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•$12 million gains in 2022 on cross-currency swaps compared to$28 million losses in 2021 on foreign currency derivatives and cross-currency swaps as a result of fluctuation of the Mexican peso, and
•$12 million lower foreign currency losses on a Mexican peso-denominated loan to IMG, which is offset in equity earnings, offset by
•$13 million losses in 2022 compared to
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We provide further details of the components of other income (expense), net, in Note 1 of the Notes to Consolidated Financial Statements.
Interest Expense
Interest expense decreased by
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•$54 million in charges associated with hedge termination costs and a write-off of unamortized debt issuance costs from the early redemptions of debt inOctober 2021 , and •$33 million net unrealized gains in 2022 on a contingent interest rate swap related to the proposed PA LNG Phase 1 project that we discuss in Note 11 of the Notes to Consolidated Financial Statements; offset by
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The table below shows the income tax expense (benefit) and ETRs for Sempra, SDG&E and SoCalGas.
INCOME TAX EXPENSE (BENEFIT) AND EFFECTIVE INCOME TAX RATES
(Dollars in millions)
Years ended December 31,
2022 2021 2020
Sempra:
Income tax expense from continuing operations $ 556 Income from continuing operations before income taxes and equity earnings
$ 1,343 $ 219 $ 1,489 Equity earnings, before income tax(1) 666 614 294 Pretax income$ 2,009
Effective income tax rate 28 % 12 % 14 %
SDG&E:
Income tax expense$ 182 $ 201 $ 190 Income before income taxes$ 1,097 $ 1,020 $ 1,014 Effective income tax rate 17 % 20 % 19 %
SoCalGas:
Income tax expense (benefit)$ 138 $ (310) $ 96 Income (loss) before income taxes$ 738 $ (736) $ 601 Effective income tax rate 19 % 42 % 16 %
(1) We discuss how we recognize equity earnings in Note 6 of the Notes to Consolidated Financial Statements.
Sempra
Sempra's income tax expense increased by
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?lower income tax benefits from flow-through items; offset by
?$72 million net income tax expense related to the utilization of a deferred income tax asset upon completing the sale of a 20% NCI inSI Partners to KKR inOctober 2021 ;
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We report as part of our pretax results the income or loss attributable to NCI. However, we do not record income taxes for a portion of this income or loss, as some of our entities with NCI are currently treated as partnerships for income tax purposes, and thus we are only liable for income taxes on the portion of the earnings that are allocated to us. Our pretax income, however, includes 100% of these entities. If our entities with NCI grow, and if we continue to invest in such entities, the impact on our ETR may become more significant. 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 Notes 1 and 8 of the Notes to Consolidated Financial Statements 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 by
?higher income tax benefits from flow-through items; and
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?higher income tax expense from higher pretax income.
SoCalGas
SoCalGas'
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? lower income tax benefits from flow-through items.
Equity Earnings
Equity earnings increased by
?$118 million higher equity earnings atOncor Holdings due to higher revenues from rate updates to reflect increases in invested capital, higher customer consumption attributable primarily to weather, and customer growth, offset by higher depreciation expense and interest expense attributable to invested capital and higher O&M; and
?
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?$15 million lower equity earnings at IMG due to higher income tax expense and foreign currency effects, including$12 million lower foreign currency gains on IMG's Mexican peso-denominated loans from its JV owners, which is fully offset in other income (expense), net, offset by lower interest expense.
Earnings Attributable to Noncontrolling Interests
Earnings attributable to NCI increased by
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Preferred Dividends
Preferred dividends decreased by
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, its revenues and expenses are translated intoU.S. dollars at average exchange rates for the period for consolidation in Sempra'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. 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 in Sempra's comparative results of operations. Changes in our earnings as a result of foreign currency translation rates between years were negligible in 2022 compared to 2021.
Transactional Impacts
Although the financial statements of most of our Mexican subsidiaries and JVs have theU.S. dollar as the functional currency, some transactions may be denominated in the local currency; such transactions are remeasured intoU.S. dollars. This remeasurement creates transactional gains and losses that are included in other income (expense), net, for our consolidated entities and in equity earnings for our JVs.
We utilize cross-currency swaps that exchange our Mexican peso-denominated
principal and interest payments into the
Certain of our Mexican pipelines (namelyLos Ramones I at IEnova Pipelines andLos Ramones Norte at TAG) generate revenue based on tariffs that are set by government agencies inMexico , with contracts denominated in Mexican pesos that are indexed to 2022 Form 10-K | 69
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theU.S. dollar, adjusted annually for inflation and fluctuation in the exchange rate. The resultant gains and losses from remeasuring the local currency amounts intoU.S. dollars and the offsetting settlement of foreign currency forwards and swaps related to these contracts are included in revenues: energy-related businesses or equity earnings. 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 included Total reported amounts in reported amounts
Years ended
2022 2021 2020 2022 2021 2020
Other income (expense), net $ 24 $ 58 $ (48) $ (13) $ (46) $ (92)
Income tax expense (556) (99) (249) (169) (4) 59
Equity earnings 1,498 1,343 1,015 (36) 2 41
Income from continuing operations, net of income
tax 2,285 1,463 2,255 (218) (48) 8
Income from discontinued operations, net of
income tax - - 1,850 - - 15
Earnings attributable to noncontrolling
interests (146) (145) (172) 54 4 (24)
Earnings attributable to common shares 2,094 1,254 3,764 (164) (44) (1)
Foreign Currency Exchange Rate and Inflation Impacts on Income Taxes and Related Hedging Activity
Our Mexican subsidiaries haveU.S. dollar-denominated cash balances, receivables, payables and debt (monetary assets and liabilities) that are affected by Mexican currency exchange rate movements for Mexican income tax purposes. They also have deferred income tax assets and liabilities, which are significant, denominated in the Mexican peso that must be translated toU.S. dollars for financial reporting purposes. In addition, monetary assets and liabilities and certain nonmonetary assets and liabilities are adjusted for Mexican inflation for Mexican income tax purposes. As a result, fluctuations in both the currency exchange rate for the Mexican peso against theU.S. dollar and Mexican inflation may expose us to fluctuations in income tax expense, other income (expense), net, and equity earnings. We may use foreign currency derivatives as a means to help manage exposure to the currency exchange rate on our monetary assets and liabilities, and this derivative activity impacts other income (expense), net. However, we generally do not hedge our deferred income tax assets and liabilities, which makes us susceptible to volatility in income tax expense caused by exchange rate fluctuations and inflation.
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 in
CAPITAL RESOURCES AND LIQUIDITY
OVERVIEW Sempra Liquidity We expect to meet our cash requirements through cash flows from operations, unrestricted cash and cash equivalents, borrowings under or supported by our credit facilities, other incurrences of debt including issuing debt securities and obtaining term loans, distributions from our equity method investments, project financing and funding from minority interest owners. We believe that these cash flow sources, combined with available funds, will be adequate to fund our operations in both the short-term and long-term, including to:
?finance capital expenditures
?repay debt
?fund dividends
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?fund contractual and other obligations and otherwise meet liquidity requirements
?fund capital contribution requirements
?fund new business or asset acquisitions or start-ups
Sempra, SDG&E and SoCalGas currently have reasonable access to the money markets and capital markets and are not currently constrained in their ability to borrow money at market rates from commercial banks, under existing revolving credit facilities, through public offerings registered with theSEC , or through private placements of debt supported by our revolving credit facilities in the case of commercial paper. 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 or disruptions to or volatility in the money markets and capital markets worsen. These sources of funding have become less attractive due to the recent rise in both short-term and long-term interest rates. 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 and other material events, such as the settlement of material litigation. 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/reliability) 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 goal to maintain our investment-grade credit ratings.
Available Funds
Our committed lines of credit provide liquidity and support commercial paper. Sempra, SDG&E and SoCalGas each have five-year credit agreements expiring in 2027 andSempra Infrastructure has a three-year credit agreement expiring in 2024, committed lines of credit expiring in 2023 and 2024, and an uncommitted revolving credit facility expiring in 2023. AVAILABLE FUNDS ATDECEMBER 31, 2022 (Dollars in millions) Sempra SDG&E
SoCalGas
Unrestricted cash and cash equivalents(1)
7,348 1,295 1,100
(1) Amounts at Sempra include
(2) Available unused credit is the total available on committed and uncommitted lines of credit that we discuss in Note 7 of the Notes to Consolidated Financial Statements. 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.
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. SDG&E and SoCalGas use short-term debt primarily to meet working capital needs or to help fund event-specific costs, such as payments made by SoCalGas relating to litigation and regulatory matters pertaining to the Leak. Commercial paper, lines of credit and term loans were our primary sources of short-term debt funding in 2022.
We discuss our short-term debt activities in Note 7 of the Notes to Consolidated Financial Statements and below in "Sources and Uses of Cash."
The following table shows selected statistics for our commercial paper
borrowings.
COMMERCIAL PAPER STATISTICS
(Dollars in millions)
Sempra SDG&E SoCalGas
December 31, December 31, December 31,
2022 2021 2022 2021 2022 2021
Amount outstanding at period end
$ 401 $ 100 $ 385 Weighted-average interest rate at period end 4.75 % 0.34 % 4.79 % 0.47 % 4.41 % 0.21 % Daily weighted-average outstanding balance$ 905 $ 1,107 $ 59 $ 168 $ 145 $ 118 Daily weighted-average yield 1.58 % 0.16 % 0.28 % 0.12 % 1.16 % 0.07 % Maximum daily amount outstanding$ 2,364 $ 2,824 $ 401 $ 473 $ 607 $ 580 2022 Form 10-K | 71
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Significant issuances of and payments on long-term debt in 2022 included the following:
LONG-TERM DEBT ISSUANCES AND PAYMENTS
(Dollars in millions)
Amount at
Issuances: issuance MaturitySempra 3.30% fixed rate notes$ 750 2025 Sempra 3.70% fixed rate notes 500 2029 SDG&E variable rate term loan 400 2024 SDG&E 3.00% first mortgage bonds 500 2032 SDG&E 3.70% first mortgage bonds 500 2052 SoCalGas 2.95% fixed rate notes 700 2027 SoCalGas 6.35% first mortgage bonds 600 2052 Sempra Infrastructure variable rate notes 298 2025 Sempra Infrastructure 3.25% fixed rate notes 400 2032 Payments: Payments Maturity SDG&E 1.914% amortizing first mortgage bonds$ 17 2022
162 2022-2026
Sempra Infrastructure variable rate notes 64 2025
At December 31, 2022 , Sempra expects to make interest payments on long-term debt
totaling $17.3 billion , of which $1.0 billion is expected to be paid in 2023 and
$16.3 billion is expected to be paid in subsequent years through 2079. At
December 31, 2022 , SDG&E expects to make interest payments on long-term debt
totaling $4.9 billion , of which $298 million is expected to be paid in 2023 and
$4.6 billion is expected to be paid in subsequent years through 2052. At
December 31, 2022 , SoCalGas expects to make interest payments on long-term debt
totaling $3.9 billion , of which $255 million is expected to be paid in 2023 and
$3.6 billion is expected to be paid in subsequent years through 2052. We
calculate expected interest payments using the stated interest rate for
fixed-rate obligations, including floating-to-fixed interest rate swaps and
cross-currency swaps. We calculated expected interest payments for variable-rate
obligations based on forecasted rates in effect at December 31, 2022 .
We discuss our long-term debt activities, including the use of proceeds on long-term debt issuances, and maturities in Note 7 of the Notes to Consolidated Financial Statements.
Credit Ratings
The credit ratings of Sempra, SDG&E and SoCalGas remained at investment grade levels in 2022.
CREDIT RATINGS AT
Sempra SDG&E SoCalGas
Baa2 with a stable
Moody's outlook A3 with a stable outlook A2 with a stable outlook
BBB+ with a negative BBB+ with a stable
S&P outlook outlook A with a negative outlook
BBB+ with a stable BBB+ with a stable
Fitch outlook outlook A with a stable outlook
A downgrade of Sempra's or any of its subsidiaries' credit ratings or rating
outlooks may, depending on the severity, result in the imposition of financial
or other burdensome covenants or 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 for Sempra,
SDG&E, SoCalGas and Sempra's other subsidiaries to issue debt securities, to
borrow under credit facilities and to raise certain other types of financing. We
provide additional information about our credit ratings at Sempra, SDG&E and
SoCalGas in "Part I - Item 1A. Risk Factors."
Sempra has agreed that, if the credit rating of Oncor's senior secured debt by
any of the 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, at December 31, 2022 .
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Sempra, SDG&E and SoCalGas have committed lines of credit to provide liquidity and to support commercial paper. Borrowings under these facilities bear interest at benchmark rates plus a margin that varies with market index rates and each borrower's credit rating. Each facility also requires a commitment fee on available unused credit that may be impacted by each borrower's credit rating. For example, assuming a one-notch downgrade: ?If Sempra were to experience a ratings downgrade from its current level, the rate at which borrowings bear interest would increase by 25 bps. The commitment fee on available unused credit would also increase 5 bps.
?If SDG&E were to experience a ratings downgrade from its current level, the rate at which borrowings bear interest would increase by 12.5 bps. The commitment fee on available unused credit would also increase 5 bps.
?If SoCalGas were to experience a ratings downgrade from its current level, the rate at which borrowings bear interest would increase by 12.5 bps. The commitment fee on available unused credit would also increase 2.5 bps.
Sempra's, SDG&E's and SoCalGas' credit ratings also may affect their respective credit limits related to derivative instruments, as we discuss in Note 11 of the Notes to Consolidated Financial Statements.
Loans to/from Affiliates
At
Postretirement Benefits
Sempra, SDG&E and SoCalGas have significant investments in several trusts to provide for future payments of pensions and PBOP. The trusts' ability to make ongoing required benefit payments has not been materially adversely affected by changes in asset values, which are dependent on market fluctuations, contributions and withdrawals. However, changes in asset values 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 PBOP plans. Additionally, contributions to our plans are based on our funding policy, which generally limits payments from exceeding plan assets of 110% of the projected benefit obligation, which are subject to maximum income tax deduction limitations. Sempra, SDG&E and SoCalGas expect to contribute$238 million ,$54 million and$154 million , respectively, to pension and PBOP plans in 2023 and$1.8 billion ,$459 million and$1.1 billion , respectively, in the nine years thereafter. At SDG&E and SoCalGas, funding requirements are generally recoverable in rates. We discuss our employee benefit plans and our expected contributions to those plans in Note 9 of the Notes to Consolidated Financial Statements. Inflation Reduction Act The IRA was signed into law inAugust 2022 . The IRA includes tax credits and other incentives for energy and climate initiatives and introduces a 15% corporate alternative minimum tax on adjusted financial statement income for tax years beginning afterDecember 31, 2022 . We continue to assess the impacts of the IRA as theU.S. Department of the Treasury and theIRS issue guidance on tax implementation, and theEPA andDOE issue guidance on energy and climate initiatives. We do not expect the IRA to have a material adverse impact on Sempra's, SDG&E's or SoCalGas' results of operations, financial condition and/or cash flows. Sempra California 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 funds from their credit facilities described above, which also supports their commercial paper programs, cash flows from operations, and other incurrences of debt including issuing debt securities and obtaining term loans will continue to be adequate to fund their respective current operations and planned capital expenditures. Additionally, as we discuss below, Sempra elected to make equity contributions to SoCalGas of$800 million inSeptember 2021 ,$150 million inJune 2022 and$500 million inAugust 2022 . These voluntary equity contributions were intended to assist SoCalGas in maintaining its authorized capital structure. SDG&E and SoCalGas manage their capital structures and pay dividends when appropriate and as approved by their respective boards of directors.
As we discuss in Note 4 of the Notes to Consolidated Financial Statements, 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 or refunded in rates through billings to customers.
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Table of Contents COVID-19 Pandemic Protections
SDG&E and SoCalGas 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.
In connection with the COVID-19 pandemic and at the direction of the CPUC, SDG&E and SoCalGas implemented certain measures to assist customers, including automatically enrolling residential and small business customers with past-due balances in long-term repayment plans. In 2021, SDG&E and SoCalGas applied, on behalf of their customers, for financial assistance from theCalifornia Department of Community Services and Development under the 2021 California Arrearage Payment Program, which provided funds of$63 million and$79 million for SDG&E and SoCalGas, respectively. In the first quarter of 2022, SDG&E and SoCalGas received and applied the amounts directly to eligible customer accounts to reduce past due balances. InJune 2022 , AB 205 was approved establishing, among other things, the 2022 California Arrearage Payment Program. InDecember 2022 , SDG&E and SoCalGas received funding of$51 million and$59 million , respectively, related to this program and, inJanuary 2023 , applied the amounts directly to eligible customer accounts to reduce past due balances. SDG&EWildfire Fund The carrying value ofSDG&E's Wildfire Fund asset totaled$332 million atDecember 31, 2022 . We describe the Wildfire Legislation and SDG&E's commitment to make annual shareholder contributions to theWildfire Fund through 2028 in Note 1 of the Notes to Consolidated Financial Statements. 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 with respect to wildfires that have occurred since enactment of the Wildfire Legislation inJuly 2019 . In such a situation, SDG&E may recognize a reduction of itsWildfire Fund asset and record an impairment charge against earnings when available coverage is reduced due to recoverable claims from any of the participating IOUs. PG&E has indicated that it will seek reimbursement from theWildfire Fund for losses associated with the Dixie Fire, which burned fromJuly 2021 throughOctober 2021 and was reported to be the largest single wildfire (measured by acres burned) inCalifornia history. 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 and Sempra'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 have a material adverse effect on SDG&E's and Sempra's results of operations, financial condition, cash flows and/or prospects.
Wildfire Mitigation Cost Recovery Mechanism
InJuly 2021 , SDG&E filed a request with the CPUC to establish an interim cost recovery mechanism that would recover 50% of its costs associated with implementation of its wildfire mitigation plan. The proposed recovery would be incremental to wildfire costs currently authorized in its GRC and subject to reasonableness review. InMay 2022 , the CPUC issued a final decision denying SDG&E's request and directing SDG&E to file for the review and recovery of its wildfire mitigation plan costs through its next GRC or a separate application. SDG&E expects to submit separate requests in its GRC for review and recovery of its wildfire mitigation plan costs in mid-2023 for costs incurred from 2019 through 2022 and in mid-2024 for costs incurred in 2023.
SONGS Decommissioning
SDG&E has significant investments in the SONGS NDT to provide for future
payments of nuclear decommissioning. The NDT's ability to make ongoing required
payments have not been materially or adversely affected by changes in asset
values, which are dependent on market fluctuations, contributions and
withdrawals. However, asset values could be materially and adversely affected by
future activity in the equity and fixed income markets, and changes in the
estimated decommissioning costs, or in the assumptions and judgments made by
management underlying these estimates, could cause revisions to the estimated
total cost associated with retiring the assets. Funding requirements are
generally recoverable in rates. We discuss SDG&E's NDT and its expected SONGS
decommissioning payments in Note 15 of the Notes to Consolidated Financial
Statements.
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Off-Balance Sheet Arrangements
SDG&E has entered into PPAs and tolling agreements that are variable interests in unconsolidated entities. We discuss variable interests in Note 1 of the Notes to Consolidated Financial Statements.
SoCalGas
SoCalGas' future performance and liquidity may be impacted by the resolution of legal, regulatory and other matters pertaining to the Leak, which we discuss below, in Note 16 of the Notes to Consolidated Financial Statements and in "Part I - Item 1A. Risk Factors."
Aliso Canyon Natural Gas Storage Facility Gas Leak
From
Cost Estimate, Insurance and Accounting and Other Impacts. AtDecember 31, 2022 , SoCalGas estimates certain costs related to the Leak are$3,486 million (the cost estimate), including$1,279 million of costs recovered from insurance. Other than insurance for directors' and officers' liability, we have exhausted all of our insurance for 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. AtDecember 31, 2022 ,$129 million of the cost estimate is accrued in Reserve for Aliso Canyon Costs and$4 million of the cost estimate is accrued in Deferred Credits and Other on SoCalGas' and Sempra's Consolidated Balance Sheets. Sempra elected to make equity contributions to SoCalGas of$800 million inSeptember 2021 ,$150 million inJune 2022 and$500 million inAugust 2022 . These voluntary equity contributions were intended to assist SoCalGas in maintaining its authorized capital structure. SoCalGas paid$1.79 billion in 2022 related to the settlement of the Individual Plaintiff Litigation. SoCalGas funded the settlement payment using a combination of equity contributions from Sempra, short-term debt and cash on hand. Except for the amounts paid or estimated to settle certain legal and regulatory matters, the cost estimate does not include any amounts necessary to resolve the matters that we describe in "Litigation - Unresolved" and "Regulatory Proceedings - Unresolved" in Note 16 of the Notes to Consolidated Financial Statements, threatened litigation, other potential litigation or other costs, in each case to the extent it is not possible to predict at this time the outcome of these actions or reasonably estimate the possible costs or a range of possible costs. Further, we are not able to reasonably estimate the possible loss or a range of possible losses in excess of the amounts accrued. The costs or losses not included in the cost estimate could be significant. An adverse outcome with respect to (i) the litigation described in Note 16 of the Notes to Consolidated Financial Statements under "Litigation - Unresolved," (ii) threatened or other potential litigation related to the Leak, (iii) the Leak OII that we discuss in Note 16 of the Notes to Consolidated Financial Statements, if approval of the negotiated settlement is not obtained, or (iv) the unresolved proceeding pursuant to the SB 380 OII that we discuss below, could have a material adverse effect on SoCalGas' and Sempra's results of operations, financial condition, cash flows and/or prospects. 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 component 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. AtDecember 31, 2022 , theAliso Canyon natural gas storage facility had a net book value of$958 million . 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, we may record an impairment of the facility, which could be material, or we could incur materially higher than expected operating costs and/or be required to make material additional capital expenditures (any or all of which may not be recoverable in rates), and natural gas reliability and electric generation could be jeopardized. 2022 Form 10-K | 75
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Table of ContentsSempra 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, access sufficient capital, or raise capital on favorable terms 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 reduce the cash available to us for other purposes, increase our indebtedness and ultimately materially adversely affect our results of operations, financial condition, cash flows and/or prospects. Oncor's ability to make distributions may be limited by factors such as its credit ratings, regulatory capital requirements, increases in its capital plan, debt-to-equity ratio approved by the PUCT and other restrictions and considerations. In addition, Oncor will not make distributions if a majority of Oncor's independent directors or any minority member director determines it is in the best interests of Oncor to retain such amounts to meet expected future requirements.
Off-Balance Sheet Arrangement
Our investment inOncor Holdings is a variable interest in an unconsolidated entity. We discuss variable interests in Note 1 of the Notes to Consolidated Financial Statements.Sempra Infrastructure Sempra Infrastructure expects to fund capital expenditures, investments and operations in part with available funds, including credit facilities, and cash flows from operations of theSempra Infrastructure businesses. We expectSempra Infrastructure will require additional funding for the development and expansion of its portfolio of projects, which may be financed through a combination of funding from the parent and minority interest owners, bank financing, issuances of debt, project financing and partnering in JVs. We describeSempra Infrastructure's commitments related to construction and development projects in Note 16 of the Notes to Consolidated Financial Statements. InJune 2022 , we completed the sale of a 10% NCI inSI Partners to ADIA for cash proceeds of$1.7 billion . We used a portion of the proceeds from the sale to ADIA to repay commercial paper borrowings used to repurchase$750 million in shares of our common stock ($300 million of which was completed in the fourth quarter of 2021,$200 million of which was completed in the first quarter of 2022 and$250 million of which was completed in the second quarter of 2022), and we used the remaining proceeds to help fund capital expenditures atSempra California and Sempra Texas Utilities and to further strengthen our balance sheet. Following the closing of the ADIA transaction, Sempra, KKR and ADIA directly or indirectly own a 70%, 20%, and 10% interest, respectively, inSI Partners . The sale of NCI inSI Partners to ADIA has reduced our ownership interest inSI Partners and requires us to involve a new minority partner in making certain business decisions. Moreover, the decrease in our ownership ofSI Partners also decreases our share of the cash flows, profits and other benefits these businesses currently or may in the future produce.
In 2022,
LNG and Net-Zero Solutions
Cameron LNG Phase 2 Project. Cameron LNG JV is developing a proposed expansion project that would add one liquefaction train with an expected maximum production capacity of approximately 6.75 Mtpa and would increase the production capacity of the existing three trains at the Cameron LNG Phase 1 facility by up to approximately 1 Mtpa through debottlenecking activities. The Cameron LNG JV site can accommodate additional trains beyond the proposed Cameron LNG Phase 2 project. Cameron LNG JV previously received major permits and FTA and non-FTA approvals associated with the potential expansion that included up to two additional liquefaction trains and up to two additional full containment LNG storage tanks. InJanuary 2022 , Cameron LNG JV filed an amendment, subject to approval by theFERC , to modify the permits to allow the use of electric drives, instead of gas turbine drives, which would reduce overall emissions. The amendment, if approved, would also change the design from a two-train gas turbine expansion to a one-train electric drive expansion along with other design enhancements that, together, are expected to result in a more cost-effective and efficient facility, while also reducing overall GHG emissions.Sempra Infrastructure and the other Cameron LNG JV members, namely affiliates of TotalEnergies SE, Mitsui & Co., Ltd. andJapan LNG Investment, LLC , a company jointly owned by Mitsubishi Corporation and Nippon Yusen Kabushiki Kaisha, have entered into an HOA for the potential development of the Cameron LNG Phase 2 project. The HOA provides a commercial framework for the proposed project, including the contemplated allocation toSempra Infrastructure of 50.2% of the fourth train production capacity and 25% of the debottlenecking capacity from the project under tolling agreements. The HOA contemplates the remaining capacity to be allocated equally to the existing Cameron LNG Phase 1 facility customers.Sempra Infrastructure plans to sell the LNG corresponding to its allocated capacity from the proposed Cameron LNG Phase 2 project under long-term 2022 Form 10-K | 76
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SPAs prior to making a final investment decision. The HOA is a non-binding arrangement. The ultimate participation in and offtake bySempra Infrastructure , TotalEnergies SE, Mitsui & Co., Ltd. andJapan LNG Investment, LLC remain subject to negotiation and finalization of definitive agreements, among other factors, and the HOA does not commit any party to enter into definitive agreements with respect to the proposed Cameron LNG Phase 2 project.
Cameron LNG JV, upon the unanimous approval of the Cameron LNG JV board, awarded two FEED contracts, one to Bechtel and the other to a joint venture betweenJGC America Inc. andZachry Industrial Inc. At the conclusion of the resulting competitive FEED process, we expect to select one contractor to be the EPC contractor for the proposed Cameron LNG Phase 2 project. In connection with the execution of the Phase 2 Project Development Agreement and the award of the FEED contracts, the Cameron LNG JV board unanimously approved an expansion development budget to fund, subject to the terms of the Phase 2 Project Development Agreement, development work necessary to prepare for a potential final investment decision. Cameron LNG JV has entered into an MOU withEntergy Louisiana, LLC , a subsidiary of Entergy Corporation, to negotiate the terms and conditions for a new electric service agreement intended to reduce Cameron LNG JV's scope 2 emissions from the electricity it purchases fromEntergy Louisiana, LLC . The MOU sets forth a framework forEntergy Louisiana, LLC and Cameron LNG JV to finalize and sign a minimum 20-year agreement for the procurement of new renewable generation resources inLouisiana , subject to the ultimate approval of theLouisiana Public Service Commission and Cameron LNG JV. The MOU is a non-binding arrangement. The ultimate arrangement betweenCameron LNG JV andEntergy Louisiana, LLC remains subject to negotiation and finalization of definitive agreements, among other factors, and the MOU does not commit any party to enter into definitive agreements with respect to the proposed electric services agreement.Sempra Infrastructure has entered into a non-binding HOA for the negotiation and potential finalization of a definitive 20-year SPA with ORLEN for 2 Mtpa of LNG offtake from the proposed Cameron LNG Phase 2 project.Sempra Infrastructure also entered into a non-binding HOA for the negotiation and potential finalization of definitive SPAs withWilliams for two 20-year terms for approximately 3 Mtpa of LNG offtake in the aggregate from the PA LNG Phase 2 project and Cameron LNG Phase 2 project that are under development, and a separate natural gas sales agreement for approximately 0.5 Bcf per day to be delivered as feed gas supply for the proposed PA LNG projects and Cameron LNG Phase 2 project. In addition, the parties anticipate forming a strategic JV to own, expand and operate the existing Cameron Interstate Pipeline that we expect will deliver natural gas to the proposed Cameron LNG Phase 2 project and the proposed Port Arthur Pipeline Louisiana Connector that we expect will deliver natural gas to the proposed PA LNG projects. The ultimate participation in and offtake from the proposed projects remain subject to negotiation and finalization of definitive agreements, among other factors, and the HOAs do not commit any party to enter into definitive agreements with respect to any of the applicable proposed projects. Expansion of the Cameron LNG Phase 1 facility beyond the first three trains is subject to certain restrictions and conditions under the JV project financing agreements, including among others, scope restrictions on expansion of the project unless appropriate prior consent is obtained from the existing 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 obligation of each partner. Working under the framework established in the Phase 2 Project Development Agreement,Sempra Infrastructure is targeting completing the FEED work in the summer of 2023 and expects to be in a position to make a final investment decision shortly thereafter. The timing of when or if Cameron LNG JV will receive approval from theFERC to amend its permits and from the existing project lenders to conduct the expansion under its financing agreements is uncertain, and there is no assurance thatSempra Infrastructure will complete the necessary development work or that the Cameron LNG JV members will unanimously agree in a timely manner or at all on making a final investment decision, which, if not accomplished, would materially and adversely impact the development of the Cameron LNG Phase 2 project. The development of the proposed Cameron LNG Phase 2 project is subject to numerous other risks and uncertainties, including securing binding customer commitments; reaching unanimous agreement with our partners to proceed; obtaining and maintaining a number of permits and regulatory approvals, including approval from theFERC for amendments to existing permits; securing certain consents under the existing financing agreements and securing sufficient new financing; negotiating and completing suitable commercial agreements for the project, including a definitive EPC contract and definitive tolling 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." 2022 Form 10-K | 77
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ECA LNG Phase 1 Project.SI Partners owns an 83.4% interest in ECA LNG Phase 1, and an affiliate of TotalEnergies SE owns the remaining 16.6% interest. ECA LNG Phase 1 is constructing a one-train natural gas liquefaction facility at the site ofSempra Infrastructure's existing ECA Regas Facility with a nameplate capacity of 3.25 Mtpa and an initial offtake capacity of 2.5 Mtpa. We do not expect the construction or operation of the ECA LNG Phase 1 project to disrupt operations at the ECA Regas Facility, and have planned measures to limit disruption of operations should any arise. We expect the ECA LNG Phase 1 project to commence commercial operations in the summer of 2025. We received authorizations from theDOE to exportU.S. -produced natural gas toMexico and to re-export LNG to non-FTA countries from the ECA LNG Phase 1 project. ECA LNG Phase 1 has definitive 20-year SPAs with an affiliate of TotalEnergies SE for approximately 1.7 Mtpa of LNG and with Mitsui & Co., Ltd. for approximately 0.8 Mtpa of LNG. InFebruary 2020 , we entered into an EPC contract with Technip Energies for the ECA LNG Phase 1 project. Since reaching a positive final investment decision with respect to the project inNovember 2020 , Technip Energies has been working to construct the ECA LNG Phase 1 project. We estimate the total price of the EPC contract to be approximately$1.5 billion , with capital expenditures approximating$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 substantially from our estimates. ECA LNG Phase 1 has a five-year loan agreement with a syndicate of seven external lenders that matures inDecember 2025 for an aggregate principal amount of up to$1.3 billion , of which$575 million was outstanding atDecember 31, 2022 . 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 Consolidated Financial Statements. The construction of the ECA LNG Phase 1 project is subject to numerous risks and uncertainties, including maintaining permits and regulatory approvals; construction delays; securing and maintaining commercial arrangements, such as gas supply and transportation agreements; the impact of recent and proposed changes to the law inMexico ; and other factors associated with the project and its construction. In addition, as we discuss in Note 16 of the Notes to Consolidated Financial Statements, an unfavorable decision on certain property disputes or permit challenges could materially adversely affect construction of this project and Sempra's results of operations, financial condition, cash flows and/or prospects, including the impairment of 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." ECA LNG Phase 2 Project.Sempra Infrastructure is developing a second, large-scale natural gas liquefaction project at the site of its existing ECA Regas Facility. We expect the proposed ECA LNG Phase 2 project to be comprised of two trains and one LNG storage tank and produce approximately 12 Mtpa of export capacity. We expect that construction of the proposed 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. This makes the decisions on whether, when and how to pursue the proposed 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 received authorizations from theDOE to exportU.S. -produced natural gas toMexico and to re-export LNG to non-FTA countries from the proposed ECA LNG Phase 2 project. We have MOUs and/or HOAs with Mitsui & Co., Ltd., TotalEnergies SE, and ConocoPhillips that provide a framework for their potential offtake of LNG from the proposed ECA LNG Phase 2 project and potential acquisition of an equity interest in ECA LNG Phase 2. These MOUs and HOAs are non-binding arrangements. The ultimate participation in and offtake by these parties remains subject to negotiation and finalization of definitive agreements, among other factors, and the MOUs and HOAs do not commit any party to enter into definitive agreements with respect to the proposed ECA LNG Phase 2 project. Development of the ECA LNG Phase 2 project is subject to numerous risks and uncertainties, including 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; the impact of recent and proposed changes to the law inMexico ; the property disputes and permit challenges that we reference in the ECA LNG Phase 1 project discussion above; and other factors associated with this potential investment. PA LNG Phase 1 Project.Sempra Infrastructure is developing a proposed natural gas liquefaction project on a greenfield site that it owns in the vicinity ofPort Arthur, Texas , located along theSabine -Neches waterway. We are developing the PA LNG Phase 1 project, which we expect will consist of two liquefaction trains, two LNG storage tanks, a marine berth and associated loading facilities and related infrastructure necessary to provide liquefaction services with a nameplate capacity of approximately 13 Mtpa and an initial offtake capacity of approximately 10.5 Mtpa. 2022 Form 10-K | 78
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InApril 2019 , theFERC approved the siting, construction and operation of the proposed PA LNG Phase 1 project facilities, along with certain natural gas pipelines, including the Port Arthur Pipeline Louisiana Connector andTexas Connector, that could be used to supply feed gas to the liquefaction facility if and when the project is completed.Sempra Infrastructure received authorizations from theDOE inAugust 2015 andMay 2019 that collectively permit the LNG to be produced from the proposed PA LNG Phase 1 project to be exported to all current and future FTA and non-FTA countries.Sempra Infrastructure has entered into the following definitive SPAs, each of which is subject to making a positive final investment decision and customary closing conditions, for LNG offtake from the proposed PA LNG Phase 1 project with: ?ConocoPhillips for a 20-year term for 5 Mtpa of LNG. In addition, the parties entered into an equity purchase and sale agreement whereby ConocoPhillips will acquire a 30% ownership interest in the proposed PA LNG Phase 1 project, and a natural gas supply management agreement whereby ConocoPhillips will manage the feed gas supply requirements for the proposed facility.
?
?
?ORLEN for a 20-year term for approximately 1 Mtpa of LNG.
?ENGIE S.A. for a 15-year term for approximately 0.875 Mtpa of LNG.
InFebruary 2020 , we entered into an EPC contract with Bechtel for the proposed PA LNG Phase 1 project. We have no obligation to move forward under the EPC contract, and we may release Bechtel to perform portions of the work pursuant to limited notices to proceed. InOctober 2022 , we amended and restated the EPC contract to reflect an estimated price of approximately$10.5 billion , subject to adjustments. The contract price is valid untilMay 8, 2023 , subject to certain conditions, including timely issuances of limited notices to proceed and price escalations of up to a maximum of$149 million .Sempra Infrastructure and Bechtel must mutually agree to an adjustment to the contract price if the full notice to proceed is issued afterMay 8, 2023 . Any agreement on such an amendment to the EPC contract by both parties or on favorable terms toSempra Infrastructure cannot be assured. Either party may terminate the EPC contract if the full notice to proceed is not issued byMay 8, 2024 . We are progressing the development of the proposed PA LNG Phase 1 project, and are targeting a final investment decision in the first quarter of 2023 taking into account market demands given the current geopolitical environment, executing definitive agreements for LNG offtake and equity investments, and obtaining financing. Development of the PA LNG Phase 1 project is subject to a number of risks and uncertainties, including obtaining binding customer commitments; identifying suitable project and equity partners; completing the required commercial agreements, such as equity acquisition and governance agreements and gas supply and transportation agreements; maintaining 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 on Sempra's results of operations, financial condition, cash flows and/or prospects, including the impairment of 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." PA LNG Phase 2 Project.Sempra Infrastructure is developing a second phase of the natural gas liquefaction project that we expect will be a similar size to the proposed PA LNG Phase 1 project. We are progressing the development of the proposed PA LNG Phase 2 project, while continuing to evaluate overall opportunities to develop the entirety of thePort Arthur site as well as potential design changes that could reduce overall emissions, including a facility design utilizing renewable power sourcing and other technological solutions. InFebruary 2020 ,Sempra Infrastructure filed an application, subject to approval by theFERC , for the siting, construction and operation of the proposed PA LNG Phase 2 project, including the potential addition of up to two liquefaction trains. Also inFebruary 2020 ,Sempra Infrastructure filed an application with theDOE to permit LNG produced from the proposed PA LNG Phase 2 project to be exported to all current and future FTA and non-FTA countries.Sempra Infrastructure has entered into non-binding HOAs for the negotiation and potential finalization of definitive SPAs withINEOS for approximately 0.2 Mtpa of LNG offtake and withWilliams , as we discuss above, for LNG offtake, in each case from the proposed PA LNG Phase 2 project. The ultimate participation in and offtake from the proposed project remains subject to negotiation and finalization of definitive agreements, among other factors, and the HOAs do not commit any party to enter into a definitive agreement with respect to the proposed project. Development of the PA LNG Phase 2 project is subject to a number of risks and uncertainties, including obtaining binding customer commitments; identifying suitable project and equity partners; completing the required commercial agreements, such as equity acquisition and governance agreements, LNG sales agreements and gas supply and transportation agreements; securing and 2022 Form 10-K | 79
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maintaining all necessary permits and approvals, including approval from theFERC ; 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 on Sempra's results of operations, financial condition, cash flows and/or prospects, including the impairment of 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."Vista Pacifico LNG Liquefaction Project .Sempra Infrastructure is developing Vista Pacifico LNG, a potential natural gas liquefaction, storage, and mid-scale export facility proposed to be located in the vicinity ofTopolobampo inSinaloa, Mexico , under an MOU with the CFE, which was subsequently updated inJuly 2022 , that contemplates the negotiation of definitive agreements that would cover development of Vista Pacifico LNG and the re-routing of a portion of theGuaymas -El Oro segment of theSonora pipeline and resumption of its operations. The proposed LNG export terminal would be supplied withU.S. natural gas and would use excess natural gas and pipeline capacity on existing pipelines inMexico with the intent of helping to meet growing demand for natural gas and LNG in the Mexican and Pacific markets.Sempra Infrastructure received authorization from theDOE to permit the export ofU.S. -produced natural gas toMexico and for LNG produced from the proposed Vista Pacifico LNG facility to be re-exported to all current and future FTA countries inApril 2021 and non-FTA countries inDecember 2022 . InMarch 2022 , TotalEnergies SE andSempra Infrastructure entered into an MOU that contemplates TotalEnergies SE potentially contracting approximately one-third of the long-term export production of the proposed Vista Pacifico LNG project and potentially participating as a minority partner in the project.
The MOUs related to the proposed Vista Pacifico LNG project are non-binding arrangements. The ultimate participation in and offtake from the proposed project remain subject to negotiation and finalization of definitive agreements, among other factors, and the MOUs do not commit any party to enter into definitive agreements with respect to the project.
The development of the potential Vista Pacifico LNG project is subject to numerous risks and uncertainties, including securing binding customer commitments; obtaining and maintaining a number of permits and regulatory approvals; securing financing; identifying suitable project partners; negotiating and completing suitable commercial agreements, including definitive EPC contracts, equity acquisition and governance agreements, LNG sales agreements and gas supply and transportation agreements; reaching a positive final investment decision; the impact of recent and proposed changes to the law inMexico ; and other factors associated with this potential investment. For a discussion of these risks, see "Part I - Item 1A. Risk Factors."Hackberry Carbon Sequestration Project .Sempra Infrastructure is developing the potential Hackberry Carbon Sequestration project nearHackberry, Louisiana . This proposed project under development is designed to permanently sequester carbon dioxide from the Cameron LNG Phase 1 facility and the proposed Cameron LNG Phase 2 project. In the third quarter of 2021,Sempra Infrastructure filed an application with theEPA for a Class VI carbon injection well to advance this project. InMay 2022 ,Sempra Infrastructure , TotalEnergies SE, Mitsui & Co., Ltd. and Mitsubishi Corporation signed a Participation Agreement for the development of the proposed Hackberry Carbon Sequestration project. The Participation Agreement contemplates that the combined Cameron LNG Phase 1 facility and proposed Cameron LNG Phase 2 project would potentially serve as the anchor source for the capture and sequestration of carbon dioxide by the proposed project. It also provides the basis for the parties to enter into a JV withSempra Infrastructure for the Hackberry Carbon Sequestration project. The development of the potential Hackberry Carbon Sequestration project is subject to numerous risks and uncertainties, including obtaining required consents from the Cameron LNG JV members, securing binding customer commitments; identifying suitable project partners; obtaining and maintaining a number of permits and regulatory approvals; securing financing; negotiating and completing suitable commercial agreements, including a definitive EPC contract, and 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." Asset and Supply Optimization. As we discuss in "Part II - Item 7A. Quantitative and Qualitative Disclosures About Market Risk,"Sempra Infrastructure enters into hedging transactions to help mitigate commodity price risk.Sempra Infrastructure posted net margin of approximately$1.4 billion in 2022 and anticipates that, once the natural gas is sold and derivatives are settled, the previously unrealized gains or losses associated with the economic hedge positions would be realized, with the cash collateral posted largely offset by collections from natural gas sales. Off-Balance Sheet Arrangements. Our investment in Cameron LNG JV is a variable interest in an unconsolidated entity. We discuss variable interests in Note 1 of the Notes to Consolidated Financial Statements. InJune 2021 , Sempra provided a promissory note, which constitutes a guarantee, for the benefit of Cameron LNG JV with a maximum exposure to loss of$165 million . The guarantee will terminate upon full repayment of Cameron LNG JV's debt, 2022 Form 10-K | 80
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scheduled to occur in 2039, or replenishment of the amount withdrawn bySempra Infrastructure from the SDSRA. We discuss this guarantee in Note 6 of the Notes to Consolidated Financial Statements. InJuly 2020 , Sempra entered into a Support Agreement, which contains a guarantee and represents a variable interest, for the benefit of CFIN with a maximum exposure to loss of$979 million . The guarantee will terminate upon full repayment of the guaranteed debt by 2039, including repayment following an event in which the guaranteed debt is put to Sempra. We discuss this guarantee in Notes 1, 6 and 9 of the Notes to Consolidated Financial Statements.
Energy Networks
Construction Projects. In 2022,Sempra Infrastructure completed construction of a terminal for the receipt, storage, and delivery of refined products in the vicinity ofPuebla .Sempra Infrastructure is also developing terminals for the receipt, storage, and delivery of refined products in the vicinity ofManzanillo andEnsenada . As part of an industrywide audit and investigative process initiated by the CRE to enforce fuel procurement laws, federal prosecutors conducted inspections at several refined products terminals, includingSempra Infrastructure's refined products terminal inPuebla , to confirm that the gasoline and/or diesel in storage were legally imported. During the inspection of thePuebla terminal inSeptember 2021 , a federal prosecutor took samples from all the train and storage tanks in the terminal and ordered that the facility be temporarily shut down during the pendency of the analysis of the samples and investigation, while leaving the terminal inSempra Infrastructure's custody. InNovember 2021 , the CRE notifiedSempra Infrastructure that it had started a process to revokeSempra Infrastructure's storage permit at thePuebla terminal. InDecember 2021 ,Sempra Infrastructure filed its response to the CRE. InMay 2022 , the CRE provided a final resolution that stopped the permit revocation process. InAugust 2022 , the federal prosecutor concluded the investigation and lifted the order that had temporarily shut down the facility. Commissioning activities were restarted, and commercial operations commenced inOctober 2022 . Construction of theTopolobampo terminal was substantially completed inMay 2022 , at which time commissioning activities commenced. Subject to the receipt of pending permits, we expect theTopolobampo terminal will commence commercial operations in the first half of 2023.
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."
Construction Projects. ESJ completed construction and began commercial operations of a second, 108-MW wind power generation facility inJanuary 2022 . This second wind power generation facility is fully contracted by SDG&E under a long-term PPA expiring in 2042.
Legal and Regulatory Matters
See Note 16 of the Notes to Consolidated Financial Statements and "Part I - Item 1A. Risk Factors" for discussions of the following legal and regulatory matters affecting our operations inMexico :
Energía
? Land Disputes
? Environmental and Social Impact Permits
One or more unfavorable final decisions on these land disputes or environmental and social impact permit challenges could materially adversely affect our existing natural gas regasification operations and proposed natural gas liquefaction projects at the site of the ECA Regas Facility and have a material adverse effect on Sempra's business, results of operations, financial condition, cash flows and/or prospects. Sonora Pipeline ? Guaymas-El Oro Segment Our investment in theGuaymas -El Oro segment of theSonora pipeline could be subject to impairment ifSempra Infrastructure and the CFE are unable to re-route a portion of the pipeline (which has not been agreed to by the parties, but is subject to negotiation pursuant to a non-binding MOU and a Shareholders' Agreement with the CFE that remains subject to regulatory and corporate authorizations) and resume operations or ifSempra Infrastructure terminates the contract and is unable to obtain recovery. Any such occurrence could have a material adverse effect on Sempra's business, results of operations, financial condition, cash flows and/or prospects. 2022 Form 10-K | 81
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Regulatory and Other Actions by the Mexican Government
? Amendments to
? Amendments to
Sempra Infrastructure and other parties affected by these amendments to Mexican law have challenged them by filing amparo and other claims, some of which remain pending. An unfavorable decision on one or more of these amparo or other challenges, the impact of the amendments that have become effective (due to unsuccessful amparo challenges or otherwise), or the possibility of future reforms to the energy industry through additional amendments to Mexican laws, regulations or rules (including through amendments to the constitution) may impact our ability to operate our facilities at existing levels or at all, may result in increased costs forSempra Infrastructure and its customers, may adversely affect our ability to develop new projects, may result in decreased revenues and cash flows, and may negatively impact our ability to recover the carrying values of our investments inMexico , any of which may have a material adverse effect on our business, results of operations, financial condition, cash flows and/or prospects. SOURCES AND USES OF CASH We discuss herein our sources and uses of cash for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . For a discussion of our sources and uses of cash for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 , refer to " Part II - Item 7. MD&A -
Sources and Uses of Cash " in our 2021 annual report on Form 10-K filed
with the
The following tables include only significant changes in cash flow activities for each of our registrants.
CASH FLOWS FROM OPERATING ACTIVITIES (Dollars in millions) Years ended December 31, Sempra SDG&E SoCalGas 2022$ 1,142 $ 1,729 $ (454) 2021 3,842 1,376 1,033 Change$ (2,700) $ 353 $ (1,487)
Net decrease in Reserve for Aliso Canyon Costs, current
and noncurrent, due to
$ (3,382) $ (3,382) Change in net margin posted (1,154)$ 3 29 Change in accounts receivable (377) (58) (129)
Change in net undercollected regulatory balancing accounts (including long-term amounts in regulatory assets)
(288) 62 (350)
Change in GHG allowances, current and noncurrent (108) (72) (27)
Change in accounts payable 167 146 10
Change in GHG liabilities, current and noncurrent 171 34 141
Higher proceeds received from Insurance Receivable for
275 275
Higher net income, adjusted for noncash items included
in earnings 1,992 155 1,750
Other 4 83 196
$ (2,700) $ 353 $ (1,487)
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CASH FLOWS FROM INVESTING ACTIVITIES (Dollars in millions) Years ended December 31, Sempra SDG&E SoCalGas 2022$ (5,039) $ (2,412) $ (1,993) 2021 (5,508) (2,213) (1,984) Change$ 469 $ (199) $ (9)
Higher repayments received from a note receivable from IMG
$ 588 Advance to note receivable with KKR in 2021 305 Lower contributions toOncor Holdings 225
Acquisition of 50% interest in ESJ in
65
Higher contributions to Cameron LNG JV (28)
Proceeds received from sale of PXiSE in 2021 (38)
Increase in capital expenditures (342) $ (253) $ (9)
Distributions from Oncor Holdings in 2021 (361)
Other 55 54
$ 469 $ (199) $ (9)
CASH FLOWS FROM FINANCING ACTIVITIES
(Dollars in millions)
Years ended December 31, Sempra SDG&E SoCalGas
2022 $ 3,779 $ 665 $ 2,431
2021 1,260 600 984
Change $ 2,519 $ 65 $ 1,447 Lower (higher) payments on long-term debt and finance leases
$ 4,147 $ 563 $ (3) Higher (lower) issuances of short-term debt with maturities greater than 90 days 3,640 (375) 800 Higher issuances of long-term debt 2,571 650 1,295
Proceeds from sale of NCI to ADIA in 2022, net of
1,719
Purchases of NCI in 2021 224
Make-whole premium payments related to early redemptions of debt in 2021
121
Lower early termination of interest rate swap 66
Lower preferred dividends paid 55
Higher contributions from noncontrolling interest 27
(Higher) lower common dividends paid (99) 200 75
Higher repurchases of common stock (139)
Distributions to
(237)
Higher payments for commercial paper and other
short-term debt with maturities greater than 90 days (3,168) (375)
Change in borrowings and repayments of short-term debt, net
(3,179) (597) (557)
Proceeds from sale of NCI to KKR in 2021, net of
(3,199)
Lower equity contributions from Sempra Energy (150)
Other (30) (1) (13)
$ 2,519 $ 65 $ 1,447
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Expenditures for PP&E
We invest the majority of our capital expenditures in Sempra California,
primarily for transmission and distribution improvements, including pipeline and
wildfire safety. The following table summarizes by segment capital expenditures
for the last three years.
EXPENDITURES FOR PP&E
(Dollars in millions)
Years ended December 31,
2022 2021 2020
SDG&E $ 2,473 $ 2,220 $ 1,942
SoCalGas 1,993 1,984 1,843
Sempra Infrastructure 884 802 879
Parent and other 7 9 12
Total $ 5,357 $ 5,015 $ 4,676 Expenditures for Investments and Acquisitions
The following table summarizes by segment our investments in entities that we account for under the equity method, as well as asset acquisitions.
EXPENDITURES FOR INVESTMENTS AND ACQUISITIONS
(Dollars in millions)
Years ended December 31,
2022 2021 2020
Sempra Texas Utilities $ 346 $ 566 $ 648
Sempra Infrastructure 30 67 4
Total $ 376 $ 633 $ 652 Future Capital Expenditures and Investments
The amounts and timing of capital expenditures and certain investments are generally subject to approvals by various regulatory and other governmental and environmental bodies, including the CPUC, theFERC and the PUCT, and various other factors described in this MD&A and in "Part I - Item 1A. Risk Factors." In 2023, we expect to make capital expenditures and investments of approximately$5.7 billion (which excludes capital expenditures that will be funded by unconsolidated entities), as summarized by segment in the following table. FUTURE CAPITAL EXPENDITURES AND INVESTMENTS (Dollars in millions) Year ending December 31, 2023 SDG&E $ 2,300 SoCalGas 2,100 Sempra Texas Utilities 300 Sempra Infrastructure 1,000 Total $ 5,700 We expect the majority of our capital expenditures and investments in 2023 will relate to transmission and distribution improvements at our regulated public utilities, and construction of the ECA LNG Phase 1 liquefaction project and natural gas pipelines atSempra Infrastructure . From 2023 through 2026, and subject to the factors described below, which could cause these estimates to vary substantially, Sempra expects to make aggregate capital expenditures and investments of approximately$18.7 billion (which excludes capital expenditures that will be funded by unconsolidated entities), as follows:$8.9 billion at SDG&E,$7.8 billion at SoCalGas,$0.8 billion atSempra Texas Utilities and$1.2 billion atSempra Infrastructure . Capital expenditure amounts include capitalized interest and AFUDC related to debt.
Periodically, we review our construction, investment and financing programs and revise them in response to changes in regulation, economic conditions, competition, customer growth, inflation, customer rates, the cost and availability of capital, and safety and environmental requirements.
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Our level of capital expenditures and investments in the next few years may vary substantially and will depend on, among other things, the cost and availability of financing, regulatory approvals, changes inU.S. federal tax law and business opportunities providing desirable rates of return. See "Part I - Item 1A. Risk Factors" for a discussion of other factors that could affect future levels of our capital expenditures and investments. We intend to finance our capital expenditures in a manner that will maintain our investment-grade credit ratings and capital structure, but there is no guarantee that we will be able to do so.
Weighted-Average Rate Base
Rate base is the value of assets on which SDG&E and SoCalGas are permitted to earn a specified rate of return in accordance with rules set by regulatory agencies, including the CPUC and theFERC (for SDG&E), which is calculated using a 13-month average in accordance with CPUC methodology as adopted in rate-setting proceedings. The following table summarizes the weighted-average rate base for SDG&E and SoCalGas for the last three years. WEIGHTED-AVERAGE RATE BASE (Dollars in millions) 2022 2021 2020 SDG&E$ 13,780 $ 12,527 $ 11,109 SoCalGas 10,494 9,371 8,228 The increase in weighted-average rate base reflects the significant capital investments that SDG&E and SoCalGas have made in transmission and distribution safety and reliability. We expect the weighted-average rate base to continue to increase in 2023 based on our expected capital investments.
Capital Stock Transactions
Sempra
Cash provided by issuances of common and preferred stock was:
?$4 million in 2022 ?$5 million in 2021 ?$902 million in 2020
Cash used for repurchases of common stock was:
?$478 million in 2022 ?$339 million in 2021 ?$566 million in 2020 Sempra Common Stock Repurchases. As we discuss in Note 14 of the Notes to Consolidated Financial Statements, we repurchased 1,472,756 shares of our common stock for$200 million pursuant to an ASR program that was completed inFebruary 2022 . We repurchased an additional 1,471,957 shares of our common stock for$250 million pursuant to an ASR program that was completed inApril 2022 . These share repurchases were funded with commercial paper borrowings that we repaid with a portion of the proceeds received from the sale of NCI inSI Partners to ADIA, which closed inJune 2022 .
Dividends
Sempra
Sempra paid cash dividends of:
?
?
?
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DIVIDENDS PER SHARE ON SEMPRA COMMON STOCK
(As approved by our board of directors)
[[Image Removed: sre-20221231_g11.jpg]]
On February 27, 2023 , our board of directors declared a dividend of $1.19 per
share on our common stock and a dividend of $24.375 per share on our series C
preferred stock, both payable on April 15, 2023 .
All declarations of dividends on our common stock and preferred stock are made
at the discretion of the board of directors. While we view dividends as an
integral component of shareholder return, the amount of future dividends will
depend on earnings, cash flows, financial and legal requirements, and other
relevant factors at that time. As a result, Sempra's dividends on common stock
and preferred stock declared on a historical basis may not be indicative of
future declarations.
SDG&E
In 2022, 2021 and 2020, SDG&E paid common stock dividends to Enova and Enova paid corresponding dividends to Sempra of$100 million ,$300 million and$200 million , respectively. SDG&E's dividends on common stock declared on an annual historical basis may not be indicative of future declarations and could be impacted over the next few years in order for SDG&E to maintain its authorized capital structure while managing its capital investment program.
Enova, a wholly owned subsidiary of Sempra, owns all of SDG&E's outstanding common stock. Accordingly, dividends paid by SDG&E to Enova and dividends paid by Enova to Sempra are eliminated in Sempra's consolidated financial statements.
SoCalGas
SoCalGas did not declare or pay common stock dividends in 2022. In 2021 and 2020, SoCalGas paid common stock dividends to PE and PE paid corresponding dividends to Sempra of$75 million and$100 million , respectively. SoCalGas' dividends on common stock declared on an annual historical basis may not be indicative of future declarations and could be impacted over the next few years in order for SoCalGas to maintain its authorized capital structure.
PE, a wholly owned subsidiary of Sempra, owns all of SoCalGas' outstanding common stock. Accordingly, dividends paid by SoCalGas to PE and dividends paid by PE to Sempra are eliminated in Sempra's consolidated financial statements.
Dividend Restrictions
The board of directors for each of Sempra, SDG&E and SoCalGas has the discretion to determine whether to declare and, if declared, the amount of any dividends by each such entity. The CPUC's regulation of SDG&E's and SoCalGas' capital structures limits the amounts that are available for loans and dividends to Sempra. AtDecember 31, 2022 , based on these regulations, 2022 Form 10-K | 86
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Sempra could have received combined loans and dividends of approximately$504 million from SDG&E and$347 million from SoCalGas. In addition, the terms of Sempra's series C preferred stock limit Sempra's ability to declare dividends on its common stock under certain circumstances. We provide additional information about dividend restrictions in "Restricted Net Assets" in Note 1 of the Notes to Consolidated Financial Statements and in Note 13 of the Notes to Consolidated Financial Statements.
Book Value Per Common Share
Sempra's book value per common share on the last day of each of the last three fiscal years was as follows:
?$83.43 in 2022 ?$79.17 in 2021 ?$70.11 in 2020 The increase in 2022 was primarily due to comprehensive income exceeding dividends and a fair value that was higher than carrying value related to the change in ownership, which did not result in a change of control, from the sale of NCI inSI Partners to ADIA. In 2021, the increase was primarily due to a fair value that was higher than carrying value related to the change in ownership, which did not result in a change of control, from the sale of NCI inSI Partners to KKR, the IEnova exchange offer and subsequent cash tender offer, and the common shares issued from the conversion of series A preferred stock and series B preferred stock. Capitalization
Our debt to capitalization ratio, calculated as total debt as a percentage of total debt and equity, was as follows:
TOTAL CAPITALIZATION AND DEBT-TO-CAPITALIZATION RATIOS
(Dollars in millions)
Sempra SDG&E SoCalGas
December 31, 2022
Total capitalization $ 58,175 $ 18,258 $ 13,696
Debt-to-capitalization ratio 50 % 50 % 51 %
December 31, 2021
Total capitalization $ 52,064 $ 16,655 $ 10,611
Debt-to-capitalization ratio 47 % 50 % 49 %
Significant changes in 2022 that affected capitalization included the following:
?Sempra: increase in long-term debt, offset by a decrease in short-term debt and increase in equity primarily from comprehensive income exceeding dividends and the sale of NCI.
?SDG&E: increase in long-term debt, offset by a decrease in short-term debt and increase in equity from comprehensive income exceeding dividends.
?SoCalGas: increase in short-term and long-term debt, offset by an increase in equity from comprehensive income and equity contributions from Sempra.
CRITICAL ACCOUNTING ESTIMATES
Management views certain accounting estimates as critical because their
application is the most relevant, judgmental and/or material to our financial
position and results of operations, and/or because they require the use of
material judgments and estimates. We discuss critical accounting estimates that
are material to our financial statements with the Audit Committee of Sempra's
board of directors.
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Table of Contents CONTINGENCIES Sempra, SDG&E, SoCalGas We accrue losses for the estimated impacts of various conditions, situations or circumstances involving uncertain outcomes. For loss contingencies, we accrue the loss if an event has occurred on or before the balance sheet date and if:
?information available through the date we file our financial statements indicates it is probable that a loss has been incurred, given the likelihood of uncertain future events
?the amount of the loss or a range of possible losses can be reasonably estimated
We do not accrue contingencies that might result in gains. We continuously assess contingencies for litigation claims, environmental remediation and other events.
Actual amounts realized upon settlement of contingencies may be different than amounts recorded and disclosed and may affect our results of operations, financial condition and cash flows. Details of our issues in this area are discussed in Note 16 of the Notes to Consolidated Financial Statements.
REGULATORY ACCOUNTING
Sempra, SDG&E, SoCalGas
As regulated entities, SDG&E's and SoCalGas' customer rates, as set and monitored by regulators, are designed to recover the cost of providing service and to provide the opportunity to realize their authorized rates of return on their investments. SDG&E and SoCalGas assess probabilities of future rate recovery associated with regulatory account balances at the end of each reporting period and whenever new and/or unusual events occur, such as:
?changes in the regulatory and political environment or the utility's competitive position
?issuance of a regulatory commission order
?passage of new legislation
To the extent that circumstances associated with regulatory balances change, the regulatory balances are evaluated and adjusted if appropriate.
Significant management judgment is required to evaluate the anticipated recovery of regulatory assets and plant investments, the recognition of incentives and revenues subject to refund, as well as the existence and amount of regulatory liabilities. Adverse regulatory or legislative actions could materially impact the amounts of our regulatory assets and liabilities and could materially adversely impact our results of operations and financial condition. Specifically, if future recovery of costs ceases to be probable, all or part of the associated regulatory assets and/or plant investments would need to be written off against current period earnings, or adverse regulatory or legislative actions could give rise to material new or higher regulatory liabilities. We discuss details of SDG&E's and SoCalGas' regulatory assets and liabilities and additional factors that management considers when assessing probabilities associated with regulatory balances in Notes 1, 4, 15 and 16 of the Notes to Consolidated Financial Statements.
INCOME TAXES
Sempra, SDG&E, SoCalGas
Our income tax expense and related balance sheet amounts involve significant management judgments and estimates. Amounts of deferred income tax assets and liabilities, as well as current and noncurrent accruals, involve judgments and estimates of the timing and probability of recognition of income and deductions by taxing authorities. When we evaluate the anticipated resolution of income tax issues, we consider:
? past resolutions of the same issue or similar issues
? the status of any income tax examination in progress
? positions taken by taxing authorities with other taxpayers with similar issues
The likelihood of deferred income tax recovery is based on analyses of the
deferred income tax assets and our expectation of future taxable income, based
on our strategic planning. Should a change in facts or circumstances lead to a
change in judgment about the ultimate realizability of a deferred tax asset, we
would record or adjust the related valuation allowance in the period that the
change in facts and circumstances occurs, along with a corresponding increase or
decrease in the provision for income taxes.
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Actual income taxes could vary from estimated amounts because of:
? future impacts of various items, including changes in tax laws, regulations, interpretations and rulings
? our financial condition in future periods
? the resolution of various income tax issues between us and taxing and regulatory authorities
Unrecognized tax benefits involve management's judgment regarding the likelihood of the benefit being sustained. The final resolution of uncertain tax positions could result in adjustments to recorded amounts and may affect our results of operations, financial condition and cash flows. We discuss these matters and additional information related to accounting for income taxes, including uncertainty in income taxes, in Note 8 of the Notes to Consolidated Financial Statements.
PENSION AND PBOP PLANS
Sempra, SDG&E, SoCalGas
To measure our pension and PBOP obligations, costs and liabilities, we rely on several assumptions. We consider current market conditions, including interest rates, in making these assumptions. We review these assumptions annually and update when appropriate.
The critical assumptions used to develop the required estimates include the following key factors:
?discount rates
?expected return on plan assets
?health care cost trend rates
?interest crediting rate on cash balance accounts
?mortality rate
?rate of compensation increases
?termination and retirement rates
?utilization of postretirement welfare benefits
?payout elections (lump sum or annuity)
?lump sum interest rates
The actuarial assumptions we use may differ materially from actual results due to:
?return on plan assets
?changing market and economic conditions
?higher or lower withdrawal rates
?longer or shorter participant life spans
?more or fewer lump sum versus annuity payout elections made by plan participants
?higher or lower retirement rates
Changes in the estimated costs or timing of pension and PBOP, or the assumptions and judgments used by management underlying these estimates (primarily the discount rate and assumed rate of return on plan assets), as well as changes in the circumstances associated with rate recovery, could have a material effect on the recorded expenses and liabilities. The following tables summarize the impact to our projected benefit obligation for pension and accumulated benefit obligation for PBOP atDecember 31, 2022 , and 2022 net periodic benefit costs, in each case if the discount rate or assumed rate of return on plan assets were changed by 100 bps. 2022 Form 10-K | 89
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IMPACT DUE TO INCREASE/DECREASE IN DISCOUNT RATE
(Dollars in millions)
Sempra SDG&E SoCalGas
Increase Decrease Increase Decrease Increase Decrease
Pension:
(Decrease) increase to projected
benefit obligation,
net $ (251) $ 279 $ (38) $ 40 $ (198) $ 223
(Decrease) increase to net periodic
benefit cost (16) 23 5 (2) (21) 25
PBOP:
(Decrease) increase to accumulated
benefit
obligation, net (69) 85 (13) 16 (54) 67
(Decrease) increase to net periodic
benefit cost (8) 11 (2) 2 (7) 9
IMPACT DUE TO INCREASE/DECREASE IN RETURN ON PLAN ASSETS
(Dollars in millions)
Sempra SDG&E SoCalGas
Increase Decrease Increase Decrease Increase Decrease
Pension:
(Decrease) increase to net periodic
benefit cost $ (29) $ 29 $ (8) $ 8 $ (19) $ 19
PBOP:
(Decrease) increase to net periodic
benefit cost (14) 14 (2) 2 (11) 11
For SDG&E and SoCalGas plans, the effects of the assumptions on earnings are expected to be recovered in rates and therefore are offset in regulatory accounts. We provide details of our pension and PBOP plans in Note 9 of the Notes to Consolidated Financial Statements.
ASSET RETIREMENT OBLIGATIONS
Sempra, SDG&E
SDG&E's legal AROs related to the decommissioning of SONGS are estimated based on a site-specific study performed no less than every three years. The estimate of the obligations includes:
? estimated decommissioning costs, including labor, equipment, material and other disposal costs
? inflation adjustment applied to estimated cash flows
? discount rate based on a credit-adjusted risk-free rate
? actual decommissioning costs, progress to date and expected duration of decommissioning activities
SDG&E's nuclear decommissioning expenses are subject to rate recovery and, therefore, rate-making accounting treatment is applied to SDG&E's nuclear decommissioning activities. SDG&E recognizes a regulatory asset, or liability, to the extent that its SONGS ARO exceeds, or is less than, the amount collected from customers and the amount earned in SDG&E's NDT. SDG&E's ARO related to the decommissioning of SONGS was$540 million as ofDecember 31, 2022 , based on the decommissioning cost study prepared in 2020. Changes in the estimated costs, execution strategy or timing of decommissioning, or in the assumptions and judgments by management underlying these estimates, could cause material revisions to the estimated total cost to decommission this facility, which could have a material effect on the recorded liability.
The following table illustrates the increase to SDG&E's and Sempra's ARO liability if the cost escalation rate was adjusted while leaving all other assumptions constant:
INCREASE TO ARO AND REGULATORY ASSET
(Dollars in millions)
December 31, 2022
Uniform increase in escalation percentage of 1 percentage point $ 62
The increase in the ARO liability driven by an increase in the cost escalation
rate would result in a decrease in the regulatory liability for recoveries in
excess of ARO liabilities. We provide additional detail in Note 15 of the Notes
to Consolidated Financial Statements.
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IMPAIRMENT TESTING OF LONG-LIVED ASSETS
Sempra
Whenever events or changes in circumstances indicate that an asset's carrying amount may not be recoverable, we consider if the estimated future undiscounted cash flows are less than the carrying amount of the asset. If so, we estimate the fair value of the asset to determine the extent to which carrying value exceeds fair value. For such an estimate, we may consider data from multiple valuation methods, including data from market participants. We exercise judgment to estimate the future cash flows and the useful life of a long-lived asset and to determine our intent to use the asset. Our intent to use or dispose of a long-lived asset is subject to re-evaluation and can change over time. If an impairment test is required, the fair value of a long-lived asset can vary if differing estimates and assumptions are used in the valuation techniques applied as indicated by changing market or other conditions. Critical assumptions that affect our estimates of fair value may include:
?consideration of market transactions
?future cash flows
?the appropriate risk-adjusted discount rate, including the impacts of country risk and entity risk
We discuss impairment of long-lived assets in Note 1 of the Notes to Consolidated Financial Statements.
IMPAIRMENT TESTING OF GOODWILL
Sempra
When determining if goodwill is impaired, the fair value of the reporting unit can vary if differing estimates and assumptions are used in the valuation techniques applied as indicated by changing market or other conditions. As a result, recognizing a goodwill impairment may or may not be required. When we perform the quantitative goodwill impairment test, we exercise judgment to develop estimates of the fair value of the reporting unit and compare that to its carrying value. Our fair value estimates are developed from the perspective of a knowledgeable market participant. We consider observable transactions in the marketplace for similar investments, if available, as well as an income-based approach such as a discounted cash flow analysis. A discounted cash flow analysis may be based directly on anticipated future revenues and expenses and may be performed based on free cash flows generated within the reporting unit. Critical assumptions that affect our estimates of fair value may include:
?consideration of market transactions
?future cash flows
?projected revenue and expense growth rates
?the appropriate risk-adjusted discount rate, including the impacts of country risk and entity risk
In 2022 and 2021, we performed a quantitative goodwill impairment test and determined that the estimated fair values of our reporting units inMexico to which goodwill was allocated was substantially above their carrying value for each year as ofOctober 1 , our goodwill impairment testing date. Our goodwill impairment test is determined based on assumptions existing as of that point in time. Changes in the business (such as loss of future cash flows from customer disputes, renegotiation of customer contracts or the macroeconomic environment, including rising interest rates) may result in us having to perform an interim goodwill impairment test, which could result in an impairment of our goodwill.
NEW ACCOUNTING STANDARDS
We discuss the recent accounting pronouncements that have had or may have a significant effect on our financial statements and/or disclosures in Note 2 of the Notes to Consolidated Financial Statements.
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