SEMPRA (SRE) FY 2021 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

In 2018, we set out to simplify Sempra’s business model and sharpen our focus on our mission to be North America’s premier energy infrastructure company. Our 2021 operational and financial results reflect our focus on executing this strategy:

▪We completed the consolidation of our non-utility, energy infrastructure assets in North America under SI Partners

▪We completed the sale of a 20% NCI in SI Partners to KKR

▪We entered into an agreement to sell an additional 10% NCI in SI Partners to ADIA

▪We invested $5.6 billion in capital expenditures and investments

In the fourth quarter of 2021, we formed Sempra Infrastructure, a new segment that includes the operating companies of our subsidiary, SI Partners, as well as a holding company and certain services companies. Sempra Infrastructure develops, builds, operates and invests in energy infrastructure to help enable the energy transition in North American markets and globally.

Our former South American businesses and certain activities associated with those businesses are presented as discontinued operations. Nominal activities that are not classified as discontinued operations have been subsumed into Parent and other. We completed the sales of these businesses in the second quarter of 2020. Our discussions below exclude discontinued operations, unless otherwise noted.

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 our results of operations.

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OVERALL RESULTS OF OPERATIONS OF SEMPRA

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 NCI, where applicable.

(1)    Includes intercompany eliminations recorded in consolidation and certain corporate costs.

SDG&E

The decrease in earnings of $5 million (1%) in 2021 compared to 2020 was primarily due to:

▪$62 million decrease due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account, which we discuss in Note 4 of the Notes to Consolidated Financial Statements;

▪$10 million lower electric transmission margin, including the following favorable impacts in 2020 from the March 2020 FERC-approved TO5 settlement proceeding:

◦$18 million to conclude a rate base matter, and

◦$9 million from the retroactive application of the final TO5 settlement for 2019; and

▪$6 million higher income tax expense primarily from flow-through items, net of associated regulatory revenues; offset by

▪$44 million charge in 2020 for amounts to be refunded to customers and a fine related to the Energy Efficiency Program inquiry, which we discuss in Note 4 of the Notes to Consolidated Financial Statements; and

▪$31 million higher CPUC base operating margin, net of operating expenses and favorable resolution of regulatory matters in 2020.

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The increase in earnings of $57 million (7%) in 2020 compared to 2019 was primarily due to:

▪$62 million increase due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account;

▪$52 million higher electric transmission margin, including an increase in authorized ROE and the following favorable impacts in 2020 from the March 2020 FERC-approved TO5 settlement:

◦$18 million to conclude a rate base matter, and

◦$9 million from the retroactive application of the final TO5 settlement for 2019;

▪$23 million higher AFUDC equity; and

▪$16 million higher income tax benefits from flow-through items; offset by

▪$44 million charge in 2020 for amounts to be refunded to customers and a fine related to the Energy Efficiency Program inquiry;

▪$31 million income tax benefit in 2019 from the release of a regulatory liability established in connection with 2017 tax reform for excess deferred income tax balances that the CPUC directed to be allocated to shareholders in a January 2019 decision;

▪$13 million higher amortization and accretion of the Wildfire Fund asset and liability, respectively; and

▪$12 million higher net interest expense.

SoCalGas

Losses of $427 million in 2021 compared to earnings of $504 million in 2020 was primarily due to:

▪$915 million increase in charges related to civil litigation and regulatory matters pertaining to the Leak comprised of $1,148 million in 2021 compared to $233 million in 2020; and

▪$64 million decrease due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account; offset by

▪$23 million higher income tax benefits from flow-through items; and

▪$21 million higher CPUC base operating margin, net of operating expenses.

The decrease in earnings of $137 million (21%) in 2020 compared to 2019 was primarily due to:

▪$233 million from impacts in 2020 related to civil litigation and regulatory matters pertaining to the Leak;

▪$38 million income tax benefit in 2019 from the impact of the January 2019 CPUC decision allocating certain excess deferred income tax balances to shareholders; and

▪$12 million higher net interest expense; offset by

▪$64 million increase due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account;

▪$29 million higher CPUC base operating margin, net of operating expenses;

▪$21 million impairment of non-utility native gas assets in 2019;

▪$10 million higher income tax benefits from flow-through items; and

▪$8 million in penalties in 2019 related to the SoCalGas billing practices OII.

Sempra Texas Utilities

The increase in earnings of $37 million (6%) in 2021 compared to 2020 was primarily due to higher equity earnings from Oncor Holdings driven by increased revenues from rate updates to reflect increases in invested capital and customer growth, offset by increased operating costs and expenses attributable to invested capital.

The increase in earnings of $51 million (10%) in 2020 compared to 2019 was primarily due to higher equity earnings from Oncor Holdings driven by:

▪increased revenues from rate updates to reflect increases in invested capital and customer growth;

▪the impact of Oncor’s acquisition of InfraREIT in May 2019; and

▪higher AFUDC equity; offset by

▪unfavorable weather and increased operating costs and expenses attributable to invested capital.

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Sempra Infrastructure

Because Ecogas, our natural gas distribution utility in Mexico, uses the local currency as its functional currency, its revenues and expenses are translated into U.S. dollars at average exchange rates for the period for consolidation in Sempra’s results of operations. Prior year amounts used in the variances discussed below are as adjusted for the difference in foreign currency translation rates between years. We discuss these and other foreign currency effects below in “Impact of Foreign Currency and Inflation Rates on Results of Operations.”

The increase in earnings of $102 million (18%) in 2021 compared to 2020 was primarily due to:

▪$133 million higher equity earnings from Cameron LNG JV primarily due to the three-train liquefaction project achieving full commercial operations in August 2020;

▪$55 million higher earnings from asset and supply optimization primarily driven by changes in natural gas prices and higher volumes;

▪$23 million primarily due to the start of commercial operations of the Veracruz terminal in the first quarter of 2021;

▪$20 million favorable U.S. tax impact from converting SI Partners from a corporation to a partnership in October 2021;

▪$147 million earnings attributable to NCI in 2021 compared to $163 million in 2020, including a decrease of $87 million from the increase in our ownership interest in IEnova, offset by an increase of $98 million from the sale of a 20% NCI in SI Partners to KKR, which we discuss in Note 1 of the Notes to Consolidated Financial Statements; and

▪$13 million selling profit on a sales-type lease relating to the commencement of a rail facility lease at the Veracruz terminal in the third quarter of 2021; offset by

▪$76 million higher net interest expense primarily due to:

◦$37 million in charges associated with hedge termination costs and a write-off of unamortized debt issuance costs from the early redemptions of debt in October 2021, which we discuss in Note 7 of the Notes to Consolidated Financial Statements,

◦$19 million higher interest expense from IEnova’s issuance of senior unsecured notes in September 2020, and

◦$8 million lower net interest income from lower intercompany balances with Parent and other; and

▪$58 million unfavorable impact from foreign currency and inflation effects, net of foreign currency derivatives effects, comprised of a $47 million unfavorable impact in 2021 compared to an $11 million favorable impact in 2020.

The increase in earnings of $333 million in 2020 compared to 2019 was primarily due to:

▪$284 million higher equity earnings from Cameron LNG JV primarily due to the three-train liquefaction project achieving full commercial operations in August 2020;

▪$68 million favorable impact from foreign currency and inflation effects, net of foreign currency derivatives effects, comprised of an $11 million favorable impact in 2020 compared to a $57 million unfavorable impact in 2019;

▪$44 million higher earnings from asset and supply optimization primarily driven by changes in natural gas prices; and

▪$33 million higher earnings primarily due to the start of commercial operations of the Sur de Texas-Tuxpan marine pipeline at IMG JV in September 2019; offset by

▪$163 million earnings attributable to NCI in 2020 compared to $121 million in 2019;

▪$21 million lower earnings at the Guaymas-El Oro segment of the Sonora pipeline primarily from force majeure payments that ended in August 2019; and

▪$13 million lower earnings at TdM primarily due to scheduled major maintenance in the fourth quarter of 2020.

Sempra Renewables

As we discuss in Note 5 of the Notes to Consolidated Financial Statements, Sempra Renewables sold its remaining wind assets and investments in April 2019 upon which date the segment ceased to exist. Earnings of $59 million in 2019 included a $45 million gain on such sale.

Parent and Other

The decrease in losses of $127 million (23%) in 2021 compared to 2020 was primarily due to:

▪$50 million equity earnings in 2021 compared to $100 million equity losses in 2020 related to our investment in RBS Sempra Commodities to settle pending VAT matters and related legal costs, which we discuss in Note 16 of the Notes to Consolidated Financial Statements;

▪$105 million lower preferred dividends as a result of $124 million lower dividends due to the mandatory conversion of all series A preferred stock and series B preferred stock in January 2021 and July 2021, respectively, offset by $19 million higher dividends due to the issuance of series C preferred stock in June 2020;

▪$59 million lower net interest expense;

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▪$26 million gain on the sale of PXiSE in December 2021, which we discuss in Note 5 of the Notes to Consolidated Financial Statements; and

▪$14 million lower operating costs retained at Parent and other; offset by

▪$92 million in charges in 2021 associated with make-whole premiums and a write-off of unamortized discount and debt issuance costs from the early redemptions of debt in December 2021, which we discuss in Note 7 of the Notes to Consolidated Financial Statements;

▪$72 million net income tax expense related to the utilization of a deferred income tax asset upon completing the sale of a 20% NCI in SI Partners to KKR in October 2021;

▪$9 million income tax expense in 2021 compared to $26 million income tax benefit in 2020 due to changes in a valuation allowance against certain tax credit carryforwards; and

▪$31 million income tax benefit in 2020 for repatriation of foreign earnings due to extension of federal tax law.

The increase in losses of $48 million (9%) in 2020 compared to 2019 was primarily due to:

▪$100 million equity losses in 2020 related to our investment in RBS Sempra Commodities to settle pending VAT matters and related legal costs;

▪$26 million higher preferred dividends due to the issuance of series C preferred stock in June 2020;

▪$24 million consolidated California state income tax expense in 2020 associated with income from our investments in Sempra Infrastructure entities;

▪$10 million income tax benefit in 2019 from a reduction in a valuation allowance against certain NOL carryforwards as a result of our decision to sell our South American businesses; and

▪$9 million lower net investment gains on dedicated assets in support of our employee nonqualified benefit plan and deferred compensation obligations, net of deferred compensation expenses; offset by

▪$36 million lower net interest expense;

▪$26 million income tax benefit in 2020 compared to $7 million income tax expense in 2019 from changes to a valuation allowance against certain tax credit carryforwards;

▪$11 million income tax benefit in 2020 compared to $2 million income tax expense in 2019 related to share-based compensation; and

▪$8 million decrease in losses from foreign currency derivatives used to hedge exposure to fluctuations in the Peruvian sol and Chilean peso related to the sale of our South American businesses.

Discontinued Operations

Discontinued operations that were previously in our Sempra South American Utilities segment include our former 100% interest in Chilquinta Energía in Chile, our former 83.6% interest in Luz del Sur in Peru and our former interests in two energy-services companies, Tecnored and Tecsur, which provide electric construction and infrastructure services to Chilquinta Energía and Luz del Sur, respectively, as well as third parties. Discontinued operations also include activities, mainly income taxes related to the South American businesses, that were previously included in the holding company of the South American businesses at Parent and other.

As we discuss in Note 5 of the Notes to Consolidated Financial Statements, we completed the sales of our South American businesses in the second quarter of 2020. On April 24, 2020, we sold our equity interests in our Peruvian businesses, including our 83.6% interest in Luz del Sur and its interest in Tecsur, for cash proceeds of $3,549 million, net of transaction costs and as adjusted for post-closing adjustments, and on June 24, 2020, we sold our equity interests in our Chilean businesses, including our 100% interest in Chilquinta Energía and Tecnored and our 50% interest in Eletrans, for cash proceeds of $2,216 million, net of transaction costs and as adjusted for post-closing adjustments.

Earnings from discontinued operations of $1,840 million in 2020 included:

▪$1,499 million gain on the sale of our Peruvian businesses;

▪$248 million gain on the sale of our Chilean businesses;

▪$98 million operational earnings prior to the sale of our Peruvian and Chilean businesses; and

▪$7 million income tax benefit related to changes in outside basis differences from earnings and foreign currency effects.

The increase in earnings from our discontinued operations of $1,512 million in 2020 compared to 2019 was primarily due to:

▪$1,499 million gain on the sale of our Peruvian businesses;

▪$248 million gain on the sale of our Chilean businesses; and

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▪$7 million income tax benefit in 2020 compared to $51 million income tax expense in 2019 related to changes in outside basis differences from earnings and foreign currency effects since the January 25, 2019 approval of our plan to sell our South American businesses; offset by

▪$201 million lower operational earnings mainly as a result of the sales of our Peruvian and Chilean businesses; and

▪$89 million income tax benefit in 2019 related to outside basis differences existing as of January 25, 2019.

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 and Sempra 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. SoCalGas’ GCIM provides SoCalGas the opportunity to share in the savings and/or costs from buying natural gas for its core customers at prices below or above monthly market-based benchmarks. This mechanism permits full recovery of costs incurred when average purchase costs are within a price range around the benchmark price. Any higher costs incurred or savings realized outside this range are shared between the core customers and SoCalGas.

▪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 are offset in the changes in revenues and therefore do not impact earnings. In addition to the changes in cost or market prices, natural gas or electric revenues recorded during a period are impacted by 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 in this report.

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The table below summarizes utilities revenues and cost of sales.

(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 Sempra California 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.

In 2021 compared to 2020, our natural gas revenues increased by $922 million (17%) to $6.3 billion primarily due to:

▪$767 million increase at SoCalGas, which included:

◦$586 million increase in cost of natural gas sold, which we discuss below,

◦$129 million higher CPUC-authorized revenues,

◦$81 million higher revenues from incremental and balanced capital projects, and

◦$53 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M, offset by

◦$84 million decrease due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account, and

◦$15 million lower non-service component of net periodic benefit cost in 2021, which fully offsets in Other Income (Expense), Net;

▪$144 million increase at SDG&E, which included:

◦$80 million increase in cost of natural gas sold, which we discuss below,

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◦$24 million higher CPUC-authorized revenues,

◦$20 million higher revenues primarily associated with the Pipeline Safety Enhancement Plan, and

◦$15 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M, offset by

◦$6 million decrease due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account; and

▪$23 million increase at Sempra Infrastructure primarily due to a higher residential customer rate and cost of natural gas sold.

In 2020 compared to 2019, our natural gas revenues increased by $226 million (4%) to $5.4 billion primarily due to:

▪$223 million increase at SoCalGas, which included:

◦$198 million higher CPUC-authorized revenues,

◦$144 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M, and

◦$84 million increase due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account, offset by

◦$194 million decrease in cost of natural gas sold, which we discuss below, and

◦$19 million lower non-service component of net periodic benefit cost in 2020, which fully offsets in Other Income (Expense), Net; and

▪$36 million increase at SDG&E, which included:

◦$23 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M,

◦$15 million higher CPUC-authorized revenues, and

◦$6 million increase due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account, offset by

◦$14 million decrease in cost of natural gas sold, which we discuss below; offset by

▪$15 million decrease at Sempra Infrastructure primarily due to foreign currency effects and a regulatory rate adjustment.

Our cost of natural gas increased by $672 million to $1.6 billion in 2021 compared to 2020 primarily due to:

▪$586 million increase at SoCalGas primarily from higher average natural gas prices; and

▪$80 million increase at SDG&E primarily from higher average natural gas prices.

Our cost of natural gas decreased by $214 million (19%) to $925 million in 2020 compared to 2019 primarily due to:

▪$194 million decrease at SoCalGas, including $143 million from lower average natural gas prices and $51 million from lower volumes driven primarily by weather; and

▪$14 million decrease at SDG&E, including $7 million from lower average natural gas prices and $7 million from lower volumes driven primarily by weather.

Electric Revenues and Cost of Electric Fuel and Purchased Power

In 2021 compared to 2020, our electric revenues, substantially all of which are at SDG&E, increased by $44 million (1%) to $4.7 billion primarily due to:

▪$87 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M;

▪$51 million charge in 2020 for amounts to be refunded to customers related to the Energy Efficiency Program inquiry;

▪$49 million higher CPUC-authorized revenues;

▪$41 million higher revenues associated with SDG&E’s wildfire mitigation plan;

▪$14 million higher revenues associated with a new customer information system;

▪$13 million higher revenues associated with lower income tax benefits from flow-through items; and

▪$6 million higher revenues from transmission operations, including the following favorable impacts in 2020 from the March 2020 FERC-approved TO5 settlement proceeding:

◦$26 million to settle a rate base matter, and

◦$12 million from the retroactive application of the final TO5 settlement for 2019; offset by

▪$122 million lower cost of electric fuel and purchased power, which we discuss below;

▪$77 million decrease due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account; and

▪$22 million lower revenues due to favorable resolution of regulatory matters in 2020.

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In 2020 compared to 2019, our electric revenues, substantially all of which are at SDG&E, increased by $351 million (8%) to $4.6 billion primarily due to:

▪$242 million higher recovery of costs associated with refundable programs, which revenues are offset in O&M;

▪$112 million higher revenues from transmission operations, including an increase in authorized ROE and the following favorable impacts in 2020 from the March 2020 FERC-approved TO5 settlement proceeding:

◦$26 million to settle a rate base matter, and

◦$12 million from the retroactive application of the final TO5 settlement for 2019;

▪$77 million increase due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account;

▪$35 million higher CPUC-authorized revenues; and

▪$19 million higher revenues associated with SDG&E’s wildfire mitigation plan; offset by

▪$55 million lower cost of electric fuel and purchased power, which we discuss below; and

▪$51 million charge in 2020 for amounts to be refunded to customers related to the Energy Efficiency Program inquiry.

Our utility cost of electric fuel and purchased power includes utility-owned generation and power purchased from third parties, net of sales to the California ISO. The cost of electric fuel and purchased power decreased by $177 million (15%) to $1.0 billion in 2021 compared to 2020 primarily due to:

▪$122 million at SDG&E primarily from higher sales to the California ISO due to higher market prices and lower customer demand; and

▪$55 million higher intercompany eliminations associated with sales between SDG&E and Sempra Infrastructure due to the acquisition of ESJ in March 2021.

Our utility cost of electric fuel and purchased power, substantially all of which is at SDG&E, decreased by $1 million remaining at $1.2 billion in 2020 compared to 2019 primarily due to:

▪$55 million lower recoverable cost of electric fuel and purchased power primarily due to a decrease in residential demand mainly from an increase in rooftop solar adoption; offset by

▪$52 million associated with Otay Mesa VIE, which we deconsolidated in August 2019.

Energy-Related Businesses: Revenues and Cost of Sales

The table below shows revenues and cost of sales for our energy-related businesses.

(1)    Includes eliminations of intercompany activity.

(2)    Excludes depreciation and amortization, which are presented separately on Sempra’s Consolidated Statements of Operations.

In 2021 compared to 2020 revenues from our energy-related businesses, substantially all of which are at Sempra Infrastructure, increased by $521 million (39%) to $1.9 billion primarily due to:

▪$355 million increase in revenues from asset and supply optimization, contracts to sell natural gas to third parties and LNG offtake, including:

◦$309 million higher natural gas sales primarily from higher natural gas prices and volumes offset by higher unrealized losses on commodity derivatives, and

◦$46 million higher diversion revenues due to higher natural gas prices;

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▪$74 million higher revenues from the Veracruz and Mexico City terminals placed in service in March and July of 2021, respectively, including a $18 million selling profit on a sales-type lease relating to the commencement of a rail facility lease at the Veracruz terminal in the third quarter of 2021;

▪$63 million higher revenues from TdM mainly due to higher power prices and volumes; and

▪$41 million increase from the renewables business primarily due to the acquisition of ESJ in March 2021 and renewable assets placed in service in December 2020 and March 2021.

In 2020 compared to 2019, revenues from our energy-related businesses decreased by $36 million (3%) to $1.3 billion primarily due to:

▪$25 million lower revenues from TdM mainly due to lower volumes, offset by higher power prices;

▪$21 million lower transportation revenues primarily from force majeure payments that ended in August 2019 with respect to the Guaymas-El Oro segment of the Sonora pipeline; and

▪$18 million lower revenues from the expiration of capacity release contracts in the fourth quarter of 2019; offset by

▪$23 million increase in revenues from asset and supply optimization, contracts to sell natural gas to third parties and LNG offtake, including:

◦$44 million lower unrealized losses on commodity derivatives offset by lower natural gas sales primarily from lower natural gas prices and volumes, offset by

◦$21 million lower diversion revenues and turnback revenues due to lower natural gas prices and volumes.

The cost of sales for our energy-related businesses, substantially all of which are at Sempra Infrastructure, increased by $335 million to $611 million in 2021 compared to 2020. The increase is primarily from higher natural gas purchases related to asset and supply optimization and higher natural gas prices and volumes at TdM.

The cost of sales for our energy-related businesses, substantially all of which are at Sempra Infrastructure, decreased by $68 million (20%) to $276 million in 2020 compared to 2019. The decrease is primarily due to lower natural gas prices and volumes related to asset and supply optimization.

Operation and Maintenance

In the table below, we provide O&M by segment.

(1)    Excludes impairment losses of $2, $1, and $6 in 2021, 2020, and 2019, respectively.

(2)    Includes eliminations of intercompany activity.

Our O&M increased by $398 million (10%) to $4.3 billion in 2021 compared to 2020 primarily due to:

▪$151 million increase at SoCalGas, primarily due to:

◦$98 million higher non-refundable operating costs, and

◦$53 million higher expenses associated with refundable programs, which costs incurred are recovered in revenue;

▪$131 million increase at SDG&E, primarily due to:

◦$102 million higher expenses associated with refundable programs, which costs incurred are recovered in revenue, and

◦$29 million higher non-refundable operating costs; and

▪$122 million increase at Sempra Infrastructure primarily due to:

◦$46 million higher expenses associated with the growth in the business and certain non-capitalized expenses at ECA LNG Phase 1 in 2021, which reached a final investment decision in November 2020,

◦$24 million from the renewables business, including the acquisition of ESJ in March 2021,

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◦$17 million from the start of commercial operations of the Veracruz and Mexico City terminals in March and July of 2021, respectively, and

◦$7 million from expected credit losses on a guarantee.

Our O&M increased by $474 million (14%) to $3.9 billion in 2020 compared to 2019 primarily due to:

▪$279 million increase at SDG&E, primarily due to:

◦ $265 million higher expenses associated with refundable programs, which costs incurred are recovered in revenue, and

◦ $18 million higher amortization in 2020 of the Wildfire Fund asset and accretion of the Wildfire Fund obligation; and

▪ $249 million increase at SoCalGas, primarily due to:

◦ $144 million higher expenses associated with refundable programs, which costs incurred are recovered in revenue, and

◦ $105 million higher non-refundable operating costs, including labor, purchased materials and services, and administrative and support costs; offset by

▪ $53 million decrease at Parent and other primarily from lower deferred compensation expense and retained operating costs; and

▪ $18 million decrease at Sempra Renewables primarily due to lower general and administrative and other costs due to the wind-down of the business in 2019.

Aliso Canyon Litigation and Regulatory Matters

In 2021, SoCalGas recorded charges of $1,593 million compared to $307 million in 2020 related to civil litigation and regulatory matters pertaining to the Leak. We describe these charges in Note 16 of the Notes to Consolidated Financial Statements.

Impairment Losses

In 2019, SoCalGas recognized a $29 million impairment loss related to non-utility native gas assets. Also in 2019, SDG&E and SoCalGas recognized impairment losses of $6 million and $8 million, respectively, for certain disallowed capital costs in the 2019 GRC FD.

Gain (Loss) on Sale of Assets

In 2021, Parent and Other recognized a $36 million gain on the sale of PXiSE, which we discuss in Note 5 of the Notes to Consolidated Financial Statements. In 2019, Sempra Renewables recognized a $61 million gain on the sale of its remaining wind assets and investments.

Other Income (Expense), Net

As part of our central risk management function, we may enter into foreign currency derivatives to hedge SI 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) Benefit for SI Partners’ consolidated entities and in Equity Earnings for SI Partners’ equity method investments. We also utilized foreign currency derivatives in 2020 and 2019 to hedge exposure to fluctuations in the Peruvian sol and Chilean peso related to the sales of our operations in Peru and Chile, respectively. We discuss policies governing our risk management below in “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”

Other income, net, was $58 million in 2021 compared to other expense, net, of $48 million in 2020. The change was primarily due to:

▪$46 million lower net losses in 2021 from impacts associated with interest rate and foreign exchange instruments and foreign currency transactions primarily due to:

◦$36 million lower losses on foreign currency derivatives and cross-currency swaps as a result of fluctuation of the Mexican peso, and

◦$19 million lower foreign currency losses on a Mexican peso-denominated loan to IMG JV, which is offset in Equity Earnings, offset by

◦$11 million lower net gains in 2021 on other foreign currency transactional effects;

▪$35 million lower non-service component of net periodic benefit cost in 2021;

▪$9 million higher investment gains in 2021 on dedicated assets in support of our executive retirement and deferred compensation plans;

▪$7 million higher AFUDC equity at SoCalGas;

▪$6 million fine at SDG&E in 2020 related to the Energy Efficiency Program inquiry; and

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▪$5 million reversal of penalties in 2021 related to the SoCalGas billing practices OII; offset by

▪$8 million total decrease in regulatory interest at SDG&E and SoCalGas due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account.

Other expense, net, was $48 million in 2020 compared to other income, net, of $77 million in 2019. The change was primarily due to:

▪$92 million net losses in 2020 from interest rate and foreign exchange instruments and foreign currency transactions compared to net gains of $55 million in 2019 primarily due to:

◦$53 million losses in 2020 on foreign currency derivatives compared to $40 million gains in 2019 as a result of fluctuation of the Mexican peso, and

◦$42 million losses in 2020 compared to $30 million gains in 2019 on a Mexican peso-denominated loan to IMG JV, which is offset in Equity Earnings; offset by

◦$17 million gains in 2020 compared to $9 million losses in 2019 on other foreign currency transactional effects;

▪$20 million lower investment gains in 2020 on dedicated assets in support of our executive retirement and deferred compensation plans; and

▪$6 million fine at SDG&E in 2020 related to the Energy Efficiency Program inquiry; offset by

▪$34 million higher AFUDC equity, including $23 million at SDG&E and $7 million at SoCalGas;

▪$30 million lower non-service component of net periodic benefit cost in 2020;

▪$8 million total increase in regulatory interest at SDG&E and SoCalGas due to the release of a regulatory liability in 2020 related to 2016-2018 forecasting differences that are not subject to tracking in the income tax expense memorandum account; and

▪$8 million in penalties in 2019 related to the SoCalGas billing practices OII.

We provide further details of the components of other (expense) income, net, in Note 1 of the Notes to Consolidated Financial Statements.

Interest Expense

Interest expense increased by $117 million (11%) to $1.2 billion in 2021 compared to 2020 primarily due to:

▪$88 million increase at Parent and other primarily due to $126 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 securities in December 2021, offset by lower long-term debt balances due to scheduled maturities in 2021; and

▪$31 million increase at Sempra Infrastructure primarily due to $54 million in charges associated with hedge termination costs and a write-off of unamortized debt issuance costs from the early redemptions of debt in October 2021, offset by lower intercompany debt with Parent and other.

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Income Taxes

The table below shows the income tax expense (benefit) and ETRs for Sempra, SDG&E and SoCalGas.

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

Sempra

Sempra’s income tax expense decreased in 2021 compared to 2020 primarily due to:

▪$445 million income tax benefit in 2021 compared to $74 million income tax benefit in 2020 associated with charges related to civil litigation and regulatory matters pertaining to the Leak; and

▪$22 million income tax benefit in 2021 from the remeasurement of certain deferred income taxes; 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 in SI Partners to KKR in October 2021;

▪$4 million income tax expense in 2021 compared to $59 million income tax benefit in 2020 from foreign currency and inflation effects and associated derivatives;

▪$9 million income tax expense in 2021 compared to $26 million income tax benefit in 2020 due to changes in valuation allowances against certain tax credit carryforwards;

▪$31 million income tax benefit in 2020 for repatriation of foreign earnings due to extension of federal tax law;

▪$10 million lower income tax benefit related to share-based compensation; and

▪lower income tax benefits from flow-through items.

Sempra’s income tax expense decreased in 2020 compared to 2019 primarily due to:

▪$59 million income tax benefit in 2020 compared to $77 million income tax expense in 2019 from foreign currency and inflation effects and associated derivatives;

▪$26 million income tax benefit in 2020 compared to $7 million income tax expense in 2019 from changes to a valuation allowance against certain tax credit carryforwards; and

▪$19 million income tax benefit in 2020 compared to $4 million income tax expense in 2019 related to share-based compensation; offset by

▪$69 million total income tax benefits in 2019 from the release of regulatory liabilities at SDG&E and SoCalGas established in connection with 2017 tax reform for excess deferred income tax balances that the CPUC directed be allocated to shareholders in a January 2019 decision; and

▪$10 million income tax benefit in 2019 from a reduction in a valuation allowance against certain NOL carryforwards as a result of our decision to sell our South American businesses.

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

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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 increased in 2021 compared to 2020 primarily due to lower income tax benefits in 2021 from flow-through items.

SDG&E’s income tax expense increased in 2020 compared to 2019 primarily due to:

▪higher pretax income; and

▪$31 million income tax benefit in 2019 from the release of a regulatory liability established in connection with 2017 tax reform for excess deferred income tax balances that the CPUC directed be allocated to shareholders in a January 2019 decision; offset by

▪higher income tax benefits in 2020 from flow-through items.

SoCalGas

SoCalGas’ income tax benefit in 2021 compared to an income tax expense in 2020 was primarily due to:

▪$445 million income tax benefit in 2021 compared to $74 million income tax benefit in 2020 associated with charges related to civil litigation and regulatory matters pertaining to the Leak; and

▪higher income tax benefits in 2021 from flow-through items.

SoCalGas’ income tax expense decreased in 2020 compared to 2019 primarily due to:

▪lower pretax income; and

▪higher income tax benefits in 2020 from flow-through items; offset by

▪$38 million income tax benefit in 2019 from the release of a regulatory liability established in connection with 2017 tax reform for excess deferred income tax balances that the CPUC directed be allocated to shareholders in a January 2019 decision.

Equity Earnings

Equity earnings increased by $328 million (32%) to $1.3 billion in 2021 compared to 2020 primarily due to:

▪$50 million equity earnings in 2021 compared to $100 million equity losses in 2020 related to our investment in RBS Sempra Commodities to settle pending VAT matters and related legal costs; and

▪$136 million higher equity earnings at Sempra Infrastructure, which included:

◦$168 million higher equity earnings at Cameron LNG JV primarily due to the three-train liquefaction project achieving full commercial operations in August 2020, offset by

◦$20 million lower equity earnings at IMG JV, primarily due to foreign currency effects, including $19 million lower foreign currency gains on IMG JV’s Mexican peso-denominated loans from its JV owners, which is fully offset in Other Income (Expense), Net, and

◦$9 million lower equity earnings at TAG JV primarily due to higher income tax expense in 2021; and

▪$40 million higher equity earnings at Oncor Holdings primarily due to increased revenues from rate updates to reflect increases in invested capital and customer growth, offset by increased operating costs and expenses attributable to invested capital.

Equity earnings increased by $435 million to $1.0 billion in 2020 compared to 2019 primarily due to:

▪$487 million higher equity earnings at Sempra Infrastructure, which included:

◦$367 million higher equity earnings from Cameron LNG JV primarily due to the three-train liquefaction project achieving full commercial operations in August 2020,

◦$94 million higher equity earnings at IMG JV, primarily due to higher revenues from the start of commercial operations of the Sur de Texas-Tuxpan marine pipeline and foreign currency effects, including $42 million foreign currency gains in 2020 compared to $30 million foreign currency losses in 2019 on IMG JV’s Mexican peso-denominated loans from its JV owners, which is fully offset in Other (Expense) Income, Net, offset by lower AFUDC equity, and

◦$23 million higher equity earnings at TAG JV primarily due to lower income tax expense in 2020; and

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▪$51 million higher equity earnings at Oncor Holdings primarily due to higher revenues from rate updates and customer growth, the acquisition of InfraREIT in May 2019 and higher AFUDC equity, offset by unfavorable weather and increased operating costs; offset by

▪$100 million equity losses in 2020 related to our investment in RBS Sempra Commodities to settle pending VAT matters and related legal costs.

Earnings Attributable to Noncontrolling Interests

Earnings attributable to NCI were $145 million for 2021 compared to $172 million for 2020. The decrease of $27 million (16%) was primarily due to:

▪$87 million decrease from the increase in our ownership interest in IEnova as a result of the exchange offer and subsequent cash tender offer to acquire the publicly owned shares of IEnova; and

▪$28 million decrease mainly from foreign currency and inflation effects and associated derivatives; offset by

▪$98 million increase due to the increase in NCI as a result of the sale of a 20% NCI in SI Partners to KKR in October 2021.

Earnings attributable to NCI were $172 million for 2020 compared to $164 million for 2019. The net change of $8 million (5%) was primarily due to an increase at Sempra Infrastructure mainly from foreign currency effects as a result of fluctuation of the Mexico peso, offset by a decrease due to the sales of our Peruvian businesses in April 2020 and Chilean businesses in June 2020.

Preferred Dividends

Preferred dividends decreased by $105 million to $63 million in 2021 compared to 2020 primarily due to the conversion of all series A preferred stock and series B preferred stock in January 2021 and July 2021, respectively, offset by the issuance of series C preferred stock in June 2020.

Preferred dividends increased by $26 million (18%) to $168 million in 2020 compared to 2019 primarily due to dividends associated with our series C preferred stock, which was issued in June 2020.

IMPACT OF FOREIGN CURRENCY AND INFLATION RATES ON RESULTS OF OPERATIONS

Because our natural gas distribution utility in Mexico, Ecogas, uses its local currency as its functional currency, revenues and expenses are translated into U.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 in South 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 foreign currency translation rates between years were negligible in 2021 compared to 2020 and resulted in $9 million lower earnings in 2020 compared to 2019.

Transactional Impacts

Although the financial statements of most of our Mexican subsidiaries and JVs have the U.S. dollar as the functional currency, some transactions may be denominated in the local currency; such transactions are remeasured into U.S. dollars. This remeasurement creates transactional gains and losses that are included in Other Income (Expense), Net, for our consolidated subsidiaries and in Equity Earnings for our JVs.

We utilize cross-currency swaps that exchange our Mexican peso-denominated principal and interest payments into the U.S. dollar and swap Mexican fixed interest rates for U.S. fixed interest rates. The impacts of these cross-currency swaps are offset in OCI and are reclassified from AOCI into earnings through Other Income (Expense), Net and Interest Expense as settlements occur.

Certain of our Mexican pipelines (namely Los Ramones I at IEnova Pipelines and Los Ramones Norte at TAG JV) generate revenue based on tariffs that are set by government agencies in Mexico, with contracts denominated in Mexican pesos that are indexed to the U.S. dollar, adjusted annually for inflation and fluctuation in the exchange rate. The resultant gains and losses from remeasuring the local currency amounts into U.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:

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Foreign Currency Exchange Rate and Inflation Impacts on Income Taxes and Related Hedging Activity

Our Mexican subsidiaries have U.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 to U.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 the U.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 and 2019 to hedge exposure to fluctuations in the Peruvian sol and Chilean peso related to the sales of our operations in Peru and Chile in discontinued operations.

CAPITAL RESOURCES AND LIQUIDITY

OVERVIEW

Sempra

Impact of the COVID-19 Pandemic

Our businesses that invest in, develop and operate energy infrastructure and provide electric and gas services to customers have been identified as critical or essential services in the U.S. and Mexico and have continued to operate throughout the COVID-19 pandemic. As our businesses continue to operate, our priority is the safety of our employees, customers, partners and the communities we serve. We and other companies, including our partners, are taking steps to try to protect the health and well-being of our employees and other stakeholders. We continue to work closely with local, state and federal authorities in an effort to provide essential services with minimum interruption to customers and in accordance with applicable orders, including potential vaccination mandates.

For a further discussion of risks and uncertainties related to the COVID-19 pandemic, see “Part I – Item 1A. Risk Factors.”

Liquidity

We expect to meet our cash requirements through cash flows from operations, unrestricted cash and cash equivalents, borrowings under our credit facilities, issuances of debt, 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:

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▪finance capital expenditures

▪repay long-term debt

▪fund dividends

▪meet liquidity requirements

▪fund capital contribution requirements

▪fund expenditures related to the natural gas leak at SoCalGas’ Aliso Canyon natural gas storage facility

▪repurchase shares of our common stock

▪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 reasonable rates from commercial banks, under existing revolving credit facilities or through public offerings registered with the SEC. However, our ability to access the money markets and capital markets or obtain credit from commercial banks outside of our committed revolving credit facilities could become materially constrained if changing economic conditions and disruptions to the money markets and capital markets worsen. In addition, our financing activities and actions by credit rating agencies, as well as many other factors, could negatively affect the availability and cost of both short-term and long-term financing. Also, cash flows from operations may be impacted by the timing of commencement and completion, and potentially cost overruns, of large projects and other material events, such as significant outflows resulting from the agreements expected to resolve certain material litigation related to the Leak. If cash flows from operations were to be significantly reduced or we were unable to borrow under acceptable terms, we would likely first reduce or postpone discretionary capital expenditures (not related to safety) and investments in new businesses. We monitor our ability to finance the needs of our operating, investing and financing activities in a manner consistent with our goal to maintain our investment-grade credit ratings.

Postretirement Benefits

Sempra, SDG&E and SoCalGas have significant investments in several trusts to provide for future payments of pensions and other postretirement benefits. The trusts’ ability to make ongoing required benefit payments have 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 other postretirement benefits 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 $236 million, $53 million and $153 million, respectively, to pension and other postretirement benefit plans in 2022 and $2.2 billion, $393 million and $1.6 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.

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 2024, SI Partners has a three-year credit agreement expiring in 2024 and IEnova has committed lines of credit that expire in 2023 and 2024. In addition, IEnova and ECA LNG Phase 1 have uncommitted revolving credit facilities that expire in 2022 and 2023.

(1)    Amounts at Sempra include $205 held in non-U.S. jurisdictions. We discuss repatriation in Note 8 of the Notes to Consolidated Financial Statements.

(2)    Available unused credit is the total available on the 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.

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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. Revolving lines of credit, commercial paper and a term loan at SDG&E were our primary sources of short-term debt funding in 2021.

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.

Long-Term Debt Activities

Major issuances of and payments on long-term debt in 2021 included the following:

In December 2021, Sempra redeemed, at respective make-whole redemption prices, an aggregate principal amount of $2.35 billion of senior unsecured notes prior to scheduled maturities in 2022 through 2025. Upon the early redemptions, we recognized $126 million ($92 million after tax) in charges associated with the make-whole premiums and a write-off of unamortized discount and debt issuance costs.

In October 2021, Sempra Infrastructure used proceeds from borrowings against IEnova’s committed and uncommitted lines of credit to fully repay $550 million of outstanding principal plus accrued and unpaid interest on the ESJ and Ventika loans prior to their scheduled maturity dates through 2033 and recognized $54 million ($30 million after tax and NCI) in charges associated with hedge termination costs and a write-off of unamortized debt issuance costs.

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As we discuss in Note 7 of the Notes to Consolidated Financial Statements, on January 11, 2022, SI Partners completed a private offering of $400 million in aggregate principal amount of 3.25% senior notes due January 15, 2032. The notes were issued at 98.903% of the principal amount and require semi-annual interest payments in January and July, commencing July 15, 2022. Sempra Infrastructure intends to use the net proceeds of $390 million for general corporate purposes, which may include the repayment of certain indebtedness of its subsidiaries.

On February 18, 2022, SDG&E entered into a $400 million, two-year term loan with a maturity date of February 18, 2024. SDG&E may request up to three borrowings for an aggregate amount of $400 million through May 18, 2022. On February 18, 2022, SDG&E borrowed $200 million. The borrowing bears interest at benchmark rates plus 62.5 bps. The margin is based on SDG&E’s long-term senior unsecured credit rating.

At December 31, 2021, Sempra expects to make interest payments on long-term debt totaling $15.7 billion, of which $793 million is expected to be paid in 2022 and $14.9 billion is expected to be paid in subsequent years through 2079. At December 31, 2021, SDG&E expects to make interest payments on long-term debt totaling $4.4 billion, of which $244 million is expected to be paid in 2022 and $4.2 billion is expected to be paid in subsequent years through 2051. At December 31, 2021, SoCalGas expects to make interest payments on long-term debt totaling $2.8 billion, of which $167 million is expected to be paid in 2022 and $2.6 billion is expected to be paid in subsequent years through 2050. 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 calculate expected interest payments for variable-rate obligations based on forecasted rates in effect at December 31, 2021.

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 2021.

A downgrade of Sempra’s or any of its subsidiaries’ credit ratings or rating outlooks may, depending on the severity, result in a requirement for collateral to be posted in the case of certain financing arrangements and may materially and adversely affect the market prices of their equity and debt securities, the rates at which borrowings are made and commercial paper is issued, and the various fees on their outstanding credit facilities. This could make it more costly 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 three major rating agencies falls below BBB (or the equivalent), Oncor will suspend dividends and other distributions (except for contractual tax payments), unless otherwise allowed by the PUCT. Oncor’s senior secured debt was rated A2, A+ and A at Moody’s, S&P and Fitch, respectively, at December 31, 2021.

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.

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Loans to/from Affiliates

At December 31, 2021, Sempra had $637 million in loans due from unconsolidated affiliates and $287 million in loans due to unconsolidated affiliates.

Note Receivable

As we discuss in Note 1 of the Notes to Consolidated Financial Statements, in November 2021, Sempra loaned $300 million to KKR in exchange for an interest-bearing promissory note and reimbursed $5 million of loan-related transaction costs incurred by KKR. The promissory note is due to be repaid in full no later than October 1, 2029 and bears compound interest at 5% per annum.

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 the California legislature, litigation and the changing energy marketplace, as well as other matters described in this report. SDG&E and SoCalGas expect that the available unused credit from their credit facilities described above, cash flows from operations, and debt issuances will continue to be adequate to fund their respective current operations and planned capital expenditures. Additionally, as we discuss below, Sempra elected to make an equity contribution to SoCalGas in 2021 and may elect to make additional equity contributions in the future that are intended to maintain SoCalGas’ approved capital structure in connection with the accruals related to the Leak. We describe SDG&E’s and SoCalGas’ commitments related to construction projects, operating and finance leases, and purchase obligations related to the procurement of power and natural gas in Note 16 of the Notes to Consolidated Financial Statements. 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.

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 suspending service disconnections due to nonpayment for all customers (except for SoCalGas’ noncore customers), waiving late payment fees, and offering flexible payment plans. At the CPUC’s direction, SDG&E and SoCalGas are 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 the California Department of Community Services and Development under the 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 will apply the amounts directly to eligible customer accounts to reduce past due balances.

SDG&E and SoCalGas have been authorized to track and request recovery of incremental costs associated with complying with customer protection measures implemented by the CPUC related to the COVID-19 pandemic, including costs associated with suspending service disconnections and uncollectible expenses that arise from customers’ failure to pay. SDG&E and SoCalGas expect to pursue recovery of small and medium-large commercial and industrial customers’ tracked costs in rates in future CPUC proceedings, which recovery is not assured. Uncollectible expenses related to residential customers are recorded in a two-way balancing account as we discuss below.

The continuation of these circumstances could result in a further reduction in payments received from SDG&E’s and SoCalGas’ customers and a further increase in uncollectible accounts, which could become material, and any inability or delay in recovering all or a substantial portion of these costs could have a material adverse effect on the results of operations, financial condition, cash flows and/or prospects of Sempra, SDG&E and SoCalGas. We discuss regulatory mechanisms in Note 4 of the Notes to Consolidated Financial Statements.

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Disconnection OIR

In June 2020, the CPUC issued a decision addressing residential service disconnections that, among other things, allows SDG&E and SoCalGas to each establish a two-way balancing account to record the uncollectible expenses associated with residential customers’ inability to pay their electric or gas bills. This decision, which became effective in February 2021, also directs SDG&E and SoCalGas to each establish an AMP that provides successfully participating, income-qualified residential customers with relief from outstanding utility bill amounts. SDG&E and SoCalGas have recorded changes in their allowances for uncollectible accounts at December 31, 2021 primarily related to expected forgiveness of outstanding bill amounts for customers eligible under the AMP. The AMP could result in a further reduction in payments received from SDG&E’s and SoCalGas’ customers and a further increase to uncollectible accounts, which could become material, and any inability to recover these costs could have a material adverse effect on the results of operations, financial condition, cash flows and/or prospects of Sempra, SDG&E and SoCalGas.

CCM

A CPUC cost of capital proceeding determines a utility’s authorized capital structure and authorized return on rate base. In December 2019, the CPUC approved the cost of capital and rate structures for SDG&E and SoCalGas that became effective on January 1, 2020 and will remain in effect through December 31, 2022, subject to the CCM.

The CCM applies in the interim years between required cost of capital applications and considers changes in the cost of capital based on changes in interest rates based on the applicable utility bond index published by Moody’s (the CCM benchmark rate) for each 12-month period ending September 30 (the measurement period). The CCM benchmark rate is the basis of comparison to determine if the CCM is triggered, which occurs if the change in the applicable Moody’s utility bond index relative to the CCM benchmark rate is larger than plus or minus 1.000% at the end of the measurement period. The index applicable to SDG&E and SoCalGas is based on each utility’s credit rating. SDG&E’s CCM benchmark rate is 4.498% based on Moody’s Baa- utility bond index, and SoCalGas’ CCM benchmark rate is 4.029% based on Moody’s A- utility bond index. Alternatively, under the CCM, SDG&E and SoCalGas are permitted to file a cost of capital application in an interim year in which an extraordinary or catastrophic event materially impacts its cost of capital and affects utilities differently than the market as a whole.

For the measurement period ended September 30, 2021, the CCM would trigger for SDG&E because the average Moody’s Baa- utility bond index between October 1, 2020 and September 30, 2021 was 1.17% below SDG&E’s CCM benchmark rate of 4.498%. In August 2021, SDG&E filed an application with the CPUC to update its cost of capital effective January 1, 2022 due to the ongoing effects of the COVID-19 pandemic rather than have the CCM apply. In this application, SDG&E proposed to adjust its authorized capital structure by increasing its common equity ratio from 52% to 54%. SDG&E also proposed to increase its authorized ROE from 10.20% to 10.55% and decrease its authorized cost of debt from 4.59% to 3.84%. As a result, SDG&E’s proposed return on rate base would decrease from 7.55% to 7.46% if such application is approved by the CPUC as filed. SDG&E filed a joint motion with PG&E and Edison to consolidate all three utilities’ cost of capital applications given the overlapping issues of law and fact, which joint motion was granted in October 2021. In December 2021, the CPUC established a proceeding to determine if SDG&E’s cost of capital was impacted by an extraordinary event. If the CPUC finds that there was not an extraordinary event, the CCM would be effective retroactive to January 1, 2022 and would automatically adjust SDG&E’s authorized ROE from 10.20% to 9.62% and adjust its authorized cost of debt to reflect the then current embedded cost and projected interest rate. If the CPUC finds that there was an extraordinary event, it will then determine whether to suspend the CCM for 2022 and preserve SDG&E’s current authorized cost of capital or hold a second phase of the proceeding to set a new cost of capital for 2022. SDG&E expects a final decision in the second half of 2022. In December 2021, the CPUC granted SDG&E the establishment of memorandum accounts effective January 1, 2022 to track any differences in revenue requirement resulting from the interim cost of capital decision expected in 2022.

For the measurement period ended September 30, 2021, the CCM was not triggered for SoCalGas. SDG&E and SoCalGas are required to file their next cost of capital applications in April 2022 for a January 1, 2023 effective date. We further discuss the CCM in “Part I – Item 1A. Risk Factors.”

SDG&E

Wildfire Fund

The carrying value of SDG&E’s Wildfire Fund asset totals $360 million at December 31, 2021. We describe the Wildfire Legislation, related accounting treatment and SDG&E’s commitment to make annual shareholder contributions to the Wildfire Fund through 2028 in Note 1 of the Notes to Consolidated Financial Statements.

SDG&E is exposed to the risk that the participating California electric IOUs may incur third-party wildfire costs for which they will seek recovery from the Wildfire Fund with respect to wildfires that have occurred since enactment of the Wildfire Legislation

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in July 2019. In such a situation, SDG&E may recognize a reduction of its Wildfire Fund asset and record an impairment charge against earnings when there is a reduction of the available coverage due to recoverable claims from any of the participating IOUs. PG&E has indicated that it will seek reimbursement from the Wildfire Fund for losses associated with the Dixie Fire, which burned from July 2021 through October 2021 and was reported to be the largest single wildfire (measured by acres burned) in California history. If any California 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 our Wildfire Fund asset, with additional potential material exposure if SDG&E’s equipment is determined to be a cause of a fire. In addition, the Wildfire Fund could be completely exhausted due to fires in the other California electric IOUs’ service territories, by fires in SDG&E’s service territory or by a combination thereof. In the event that the Wildfire Fund is materially diminished, exhausted or terminated, SDG&E will lose the protection afforded by the Wildfire 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 Cost Recovery Mechanism

In July 2021, SDG&E filed a request with the CPUC to establish an interim cost recovery mechanism that would recover in rates 50% of its wildfire mitigation plan regulatory account balance as of January 1 of each year. Such potential recovery would be incremental to wildfire costs authorized in its GRC and would be subject to reasonableness review. We expect the CPUC to issue a final decision in the first half of 2022.

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.

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 will be impacted by the resolution of legal, regulatory and other matters concerning 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 October 23, 2015 through February 11, 2016, SoCalGas experienced a natural gas leak from one of the injection-and-withdrawal wells, SS25, at its Aliso Canyon natural gas storage facility located in Los Angeles County.

Cost Estimate, Accounting Impact and Insurance. At December 31, 2021, SoCalGas estimates certain costs related to the Leak are $3,221 million (the cost estimate). This cost estimate may increase significantly as more information becomes available. A portion of the cost estimate has been paid, and $1,983 million is accrued as Reserve for Aliso Canyon Costs at December 31, 2021 on SoCalGas’ and Sempra’s Consolidated Balance Sheets. Sempra elected to make an $800 million equity contribution to SoCalGas in September 2021 and may elect to make additional equity contributions in the future that are intended to maintain SoCalGas’ approved capital structure in connection with the accruals related to these agreements. Sempra does not expect to issue common equity to fund any such equity contributions.

Except for the amounts paid or estimated to settle certain legal and regulatory matters, the cost estimate does not include (i) any amounts necessary to resolve claims of Individual Plaintiffs who do not agree to participate in the settlement of the Individual Actions or members of the Property Class Action who opt out of that settlement or (ii) the matters that we describe in “Civil Litigation – Unresolved Litigation” and “Regulatory Proceedings” in Note 16 of the Notes to Consolidated Financial Statements 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 for damages, restitution, civil or administrative fines or penalties, defense, settlement or other costs or remedies that may be imposed or incurred. The cost estimate also does not include certain other costs incurred by Sempra

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associated with defending against shareholder derivative lawsuits and other potential costs that we currently do not anticipate incurring or that we cannot reasonably estimate. Further, we are not able to reasonably estimate the possible loss or a range of possible losses in excess of the amounts accrued. These costs or losses not included in the cost estimate could be significant and could have a material adverse effect on SoCalGas’ and Sempra’s results of operations, financial condition, cash flows and/or prospects.

We have received insurance payments for many of the categories of costs included in the cost estimate, including temporary relocation and associated processing costs, control-of-well expenses, costs of the government-ordered response to the Leak, certain legal costs and lost gas. As of December 31, 2021, we recorded the expected recovery of the cost estimate related to the Leak of $360 million as Insurance Receivable for Aliso Canyon Costs on SoCalGas’ and Sempra’s Consolidated Balance Sheets. This amount is exclusive of insurance retentions and $919 million of insurance proceeds we received through December 31, 2021. We intend to pursue the full extent of our insurance coverage for the costs we have incurred. Other than insurance for certain future defense costs we may incur as well as directors’ and officers’ liability, we have exhausted all of our insurance in this matter. We continue to pursue other sources of insurance coverage for costs related to this matter, but we may not be successful in obtaining additional insurance recovery for any of these costs. If we are not able to secure additional insurance recovery, if any costs we have recorded as an insurance receivable are not collected, if there are delays in receiving insurance recoveries, or if the insurance recoveries are subject to income taxes while the associated costs are not tax deductible, such amounts, which could be significant, could have a material adverse effect on SoCalGas’ 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 the Aliso Canyon natural gas storage facility as well as protocols for the withdrawal of gas, to support safe and reliable natural gas service. In February 2017, the CPUC opened a proceeding pursuant to the SB 380 OII to determine the feasibility of minimizing or eliminating the use of the Aliso 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.

At December 31, 2021, the Aliso Canyon natural gas storage facility had a net book value of $883 million. If the Aliso 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, incur higher than expected operating costs and/or be required to make additional capital expenditures (any or all of which may not be recoverable in rates), and natural gas reliability and electric generation could be jeopardized. Any such outcome could have a material adverse effect on SoCalGas’ and Sempra’s results of operations, financial condition, cash flows and/or prospects.

Labor Relations

Field, technical and most clerical employees at SoCalGas are represented by the Utility Workers Union of America or the International Chemical Workers Union Council. On October 1, 2021, a new collective bargaining agreement for these employees, covering wages, hours, working conditions, and medical and other benefits, went into effect through September 2024.

Franchise Agreement

SoCalGas’ natural gas franchise agreement with the City of Los Angeles expired on December 31, 2021. In December 2021, the Los Angeles City Council awarded SoCalGas a new, 21-year natural gas franchise following an invitation for bids, which was approved and signed by the City of Los Angeles mayor in January 2022. The 21-year term consists of an initial 13-year term from the effective date, followed by an 8-year term that the City of Los Angeles has the option to terminate. Among other conditions, the new franchise agreement is subject to CPUC approval of the rates and surcharges therein for it to become effective, which SoCalGas filed for in February 2022. In the interim, SoCalGas continues to serve customers located in the City of Los Angeles in accordance with the expired agreement by operation of law.

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Sempra Texas Utilities

Oncor relies on external financing as a significant source of liquidity for its capital requirements. In the event that Oncor fails to meet its capital requirements or is unable to access sufficient capital to finance its ongoing needs, we may elect to make additional capital contributions to Oncor (as our commitments to the PUCT prohibit us from making loans to Oncor), which could be substantial and 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 pay dividends 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 pay dividends 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.

Winter Weather Event

In February 2021, ERCOT required electric distribution companies, including Oncor, to significantly reduce demand on the grid because electricity generation was insufficient to meet demand due to extreme winter weather. As a result of the load shedding events and state-wide power outages, the PUCT, other governmental authorities or third parties, including Oncor’s customers, have taken or could take other measures to address financial challenges experienced as a result of the event, which could adversely impact Oncor’s collections and cash flows and, in turn, could adversely impact Sempra. The Texas Legislature has passed, and the Governor of Texas has signed, various legislation affecting the ERCOT market, which addresses matters including certain weatherization requirements and fines of up to $1 million per day for failures to comply with such requirements, enabling ERCOT to finance certain amounts owed by ERCOT market participants relating to the winter weather event, creation of the Texas Energy Reliability Council, identification of gas facilities that are critical to electric-generator fuel supplies, coordination between the gas and electric industries, and changes in the composition of the PUCT and the ERCOT board of directors. In addition, various regulatory and governmental entities have also commenced investigations or indicated an intent to investigate the operation of the ERCOT grid during this extreme winter weather event and potential future actions to improve grid reliability. Any significant changes relating to the ERCOT market that impact transmission and distribution utilities as a result of such proceedings or otherwise could materially adversely impact Oncor. If Oncor does not successfully respond to these changes and any other legislative, regulatory, or market or industry developments applicable to it, Oncor could suffer a deterioration in its results of operations, financial condition, cash flows and/or prospects, which could materially adversely affect Sempra’s results of operations, financial condition, cash flows and/or prospects.

Off-Balance Sheet Arrangement

Our investment in Oncor 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 the Sempra Infrastructure businesses. We expect Sempra 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 describe Sempra Infrastructure’s commitments related to construction and development projects in Note 16 of the Notes to Consolidated Financial Statements.

As we discuss in Note 1 of the Notes to Consolidated Financial Statements, in October 2021, Sempra Infrastructure completed the sale of a 20% NCI in SI Partners to KKR for cash proceeds of $3.2 billion, including post-closing adjustments and net of $173 million in transaction costs. We used the proceeds from the sale to KKR to partially fund the early redemption of $2.35 billion of Sempra’s long-term debt, which we discuss above in “Long-Term Debt Activities,” and to help fund capital investments in support of incremental growth at Sempra California and Sempra Texas Utilities.

In December 2021, we entered into an agreement to sell a 10% NCI in SI Partners to ADIA for cash proceeds of $1.8 billion, subject to adjustments. We expect the transaction will close in the summer of 2022. We intend to use the expected proceeds from the sale to ADIA to help fund incremental capital expenditures at Sempra California and Sempra Texas Utilities, to repay commercial paper borrowings used to repurchase $500 million in shares of our common stock ($300 million of which was completed in the fourth quarter of 2021 and an additional $200 million of which was completed in the first quarter of 2022), and further strengthen our balance sheet. Our ability to complete the ADIA transaction is subject to a number of risks, including, among others, the ability to obtain regulatory and third-party approvals and satisfy other customary closing conditions. If we are not able to obtain these approvals and satisfy all other closing conditions in a timely manner or on satisfactory terms, then the

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proposed transaction may be abandoned and/or our prospects for Sempra Infrastructure and, in turn, Sempra’s results of operations, financial condition, cash flows and/or prospects could be materially adversely affected.

Following the closing of the ADIA transaction, Sempra, KKR and ADIA would directly or indirectly own a 70%, 20%, and 10%, interest, respectively, in SI Partners. The sale of NCI in SI Partners to KKR has reduced and the agreed sale of NCI in SI Partners to ADIA would further reduce our ownership interest in SI Partners, and these sales require us to share control over certain business decisions with the minority partners, which introduces a number of risks associated with sharing business control. Moreover, the decrease in our ownership of SI Partners also decreases our share of the cash flows, profits and other benefits these businesses currently or may in the future produce, which could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.

LNG and Net-Zero Solutions

Cameron LNG JV Liquefaction Expansion Project (Phase 2). Cameron LNG JV received major permits and FTA and non-FTA approvals associated with the expansion of the current configuration of the Cameron LNG JV liquefaction project beyond Phase 1. Those permits for the Phase 2 project included up to two additional liquefaction trains and up to two additional full containment LNG storage tanks. In January 2022, Cameron LNG JV filed an amendment, subject to approval by the FERC, to modify the permits to allow the use of electric drives, instead of gas turbine drives, which would reduce overall emissions. We expect the proposed expansion project will initially have one train with offtake capacity of approximately 6.75 Mtpa, with the ability to increase capacity with debottlenecking of the existing trains, and the site can accommodate additional trains beyond Phase 2.

Sempra has entered into MOUs with TotalEnergies SE, Mitsui & Co., Ltd. and Mitsubishi Corporation that provide a framework for cooperation for the development of and offtake from the potential Cameron LNG JV Phase 2 project. The ultimate participation of and offtake by TotalEnergies SE, Mitsui & Co., Ltd. and Mitsubishi Corporation remains subject to negotiation and finalization of definitive agreements, among other factors, and TotalEnergies SE, Mitsui & Co., Ltd. and Mitsubishi Corporation have no commitment to participate in, or enter into offtake agreements with respect to, the Phase 2 project unless such definitive agreements are established.

Expansion of the Cameron LNG JV liquefaction facility beyond the first three trains is subject to certain restrictions and conditions under the JV project financing agreements, including among others, timing restrictions on expansion of the project unless appropriate prior consent is obtained from the Phase 1 project lenders. Under the Cameron LNG JV equity agreements, the expansion of the project requires the unanimous consent of all the partners, including with respect to the equity investment obligation of each partner. Discussions among all the Cameron LNG JV partners have been taking place regarding how an expansion may be structured, including a facility design utilizing electric drives, and we expect that discussions will continue. Although we are working towards making a final investment decision in the first half of 2023, the timing of when or if Cameron LNG JV will receive approval to amend the permits is uncertain, and there is no assurance that the Cameron LNG JV members will unanimously agree in a timely manner or at all on an expansion structure, which, if not accomplished, would materially and adversely impact the development of the Phase 2 project.

The development of the potential Cameron LNG JV 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; securing financing; negotiating and completing suitable commercial agreements, including a definitive EPC contract, equity acquisition and governance agreements; reaching a positive final investment decision; and other factors associated with this potential investment. For a discussion of these risks, see “Part I – Item 1A. Risk Factors.”

ECA LNG Liquefaction Export Projects. Sempra Infrastructure is developing two natural gas liquefaction export projects at its existing ECA Regas Facility. The liquefaction export projects, which are planned for development in two phases (a mid-scale project by ECA LNG Phase 1 that is under construction and a proposed large-scale project by ECA LNG Phase 2), are being developed to provide buyers with direct access to North American west coast LNG supplies. We do not expect the construction or operation of the ECA LNG Phase 1 project to disrupt operations at the ECA Regas Facility, but have planned measures to limit disruption of operations should any arise. However, 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, making the decisions on whether and how to pursue the ECA LNG Phase 2 project dependent in part on whether the investment in a large-scale liquefaction facility would, over the long term, be more beneficial financially than continuing to supply regasification services under our existing contracts.

In March 2019, ECA LNG received two authorizations from the DOE to export U.S.-produced natural gas to Mexico and to re-export LNG to non-FTA countries from its ECA LNG Phase 1 project, which is a one-train natural gas liquefaction facility with a

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nameplate capacity of 3.25 Mtpa and initial offtake capacity of approximately 2.5 Mtpa that is under construction, and its proposed ECA LNG Phase 2 project that is in development.

In April 2020, ECA LNG Phase 1 executed definitive 20-year LNG sale and purchase agreements with Mitsui & Co., Ltd. for approximately 0.8 Mtpa of LNG and with an affiliate of TotalEnergies SE for approximately 1.7 Mtpa of LNG. In December 2020, an affiliate of TotalEnergies SE acquired a 16.6% ownership interest in ECA LNG Phase 1, with Sempra Infrastructure retaining an 83.4% ownership interest. Our MOU with Mitsui & Co., Ltd. provides a framework for Mitsui & Co., Ltd.’s potential offtake of LNG from, and potential acquisition of an equity interest in, ECA LNG Phase 2.

In February 2020, we entered into an EPC contract with Technip Energies for the engineering, procurement and construction of the ECA LNG Phase 1 project. Since reaching a positive final investment decision with respect to the project in November 2020, we released Technip Energies to commence work to construct the ECA LNG Phase 1 project. The total price of the EPC contract is estimated at approximately $1.5 billion. We estimate that capital expenditures will approximate $2.0 billion, including capitalized interest and project contingency. The actual cost of the EPC contract and the actual amount of these capital expenditures may differ, perhaps substantially, from our estimates. We expect ECA LNG Phase 1 to begin producing LNG by the end of 2024.

In December 2020, ECA LNG Phase 1 entered into a five-year loan agreement for an aggregate principal amount of up to $1.6 billion, of which $341 million was outstanding at December 31, 2021. Proceeds from the loan are being used to finance the cost of construction of the ECA LNG Phase 1 project. We discuss the details of this loan in Note 7 of the Notes to Consolidated Financial Statements.

The construction of the ECA LNG Phase 1 project and the development of the potential ECA LNG Phase 2 project are subject to numerous risks and uncertainties. For Phase 1, these include maintaining permits and regulatory approvals; construction delays; securing and maintaining commercial arrangements, such as gas supply and transportation agreements; the impact of recent and proposed changes to the law in Mexico; and other factors associated with the project and its construction. For Phase 2, these include obtaining binding customer commitments; the receipt of a number of permits and regulatory approvals; obtaining financing; negotiating and completing suitable commercial agreements, including a definitive EPC contract, equity acquisition and governance agreements, LNG sales agreements and gas supply and transportation agreements; reaching a positive final investment decision; the impact of recent and proposed changes to the law in Mexico; and other factors associated with this potential investment. 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, an unfavorable judgment that does not allow Sempra Infrastructure to secure new or renew existing LDA authorizations, or an extended dispute with existing customers at the ECA Regas Facility, could materially adversely affect the development and construction of these projects 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 projects to date. For a discussion of these risks, see “Part I – Item 1A. Risk Factors.”

Port Arthur LNG Liquefaction Export Project. Sempra Infrastructure is developing a proposed natural gas liquefaction export project on a greenfield site that it owns in the vicinity of Port Arthur, Texas, located along the Sabine-Neches waterway. Sempra Infrastructure received authorizations from the DOE in August 2015 and May 2019 that collectively permit the LNG to be produced from the proposed Port Arthur LNG project to be exported to all current and future FTA and non-FTA countries. In February 2020, Sempra Infrastructure filed an application with the DOE to permit LNG produced from a second phase of the proposed Port Arthur LNG facility to be exported to all current and future FTA and non-FTA countries.

In April 2019, the FERC approved the siting, construction and operation of the proposed Port Arthur LNG liquefaction facility, along with certain natural gas pipelines, including the Louisiana Connector and Texas Connector Pipelines, that could be used to supply feed gas to the liquefaction facility if and when the project is completed. In February 2020, Sempra Infrastructure filed a FERC application for the siting, construction and operation of a second phase of the proposed Port Arthur LNG facility, including the potential addition of two liquefaction trains.

In February 2020, we entered into an EPC contract with Bechtel for the proposed Port Arthur LNG liquefaction project. The EPC contract contemplates the construction of two liquefaction trains with a nameplate capacity of approximately 13.5 Mtpa, two LNG storage tanks, a marine berth and associated loading facilities and related infrastructure necessary to provide liquefaction services. In December 2020, we amended and restated the EPC contract to reflect an estimated price of approximately $8.7 billion. Since we did not issue a full notice to proceed by July 15, 2021, agreement by both parties on an amendment to the EPC contract is necessary to proceed. Such amendment may adjust the EPC contract price and the EPC schedule and could potentially include other changes to the work and terms and conditions of the EPC contract. Any agreement on such an amendment by both parties or on favorable terms to Sempra cannot be assured.

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In December 2018, Polish Oil & Gas Company (PGNiG) and Port Arthur LNG entered into a definitive 20-year agreement for the sale and purchase of 2 Mtpa of LNG per year from the Port Arthur LNG liquefaction export project. In July 2021, the agreement was terminated and PGNiG and Sempra Infrastructure entered into an MOU to cooperate on the transition of the 2 Mtpa to Sempra Infrastructure’s portfolio of other projects.

In May 2019, Aramco Services Company and Sempra Infrastructure signed a Heads of Agreement for the negotiation of a definitive 20-year LNG sale and purchase agreement for 5 Mtpa of LNG offtake from the Port Arthur LNG liquefaction export project. The Heads of Agreement also included the negotiation of a potential 25% equity investment in the project. In January 2020, Aramco Services Company and Sempra Infrastructure signed an Interim Project Participation Agreement related to the proposed project. In June 2021, Aramco Services Company and Sempra Infrastructure agreed to allow the Heads of Agreement and Interim Project Participation Agreement to expire.

We continue work to progress development of the proposed Port Arthur LNG liquefaction export project and are evaluating design changes that could reduce overall emissions, including electric drives, renewable power sourcing and other technological solutions. Given uncertainties in the energy markets, including real-time developments of new technologies that could impact the design, scale and structure of the project, we continue to evaluate the timing of a final investment decision.

Development of the Port Arthur LNG liquefaction export project is subject to a number of risks and uncertainties, including obtaining customer commitments; identifying suitable project partners; completing the required commercial agreements, such as equity acquisition and governance agreements, LNG sales agreements and gas supply and transportation agreements; completing construction contracts, including an amendment to the EPC contract with Bechtel; securing and 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.”

Vista Pacifico LNG Liquefaction Export 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 of Topolobampo in Sinaloa, Mexico, under an MOU with the CFE that contemplates the negotiation of definitive agreements that would cover development of Vista Pacifico LNG, as well as a separate natural gas regasification project in La Paz Baja California Sur, and the potential re-routing of a portion of the Guaymas-El Oro segment of the Sonora pipeline and resumption of its operations through mutual agreements between the CFE and the Yaqui tribe. The proposed LNG terminal would be supplied with U.S. natural gas and would use excess natural gas and pipeline capacity on existing pipelines in Mexico with the intent of helping to meet growing demand for natural gas and LNG in the Mexican and Pacific markets. In November 2020, Sempra Infrastructure filed an application with the DOE to permit the export of natural gas to Mexico and for LNG produced from the proposed Vista Pacifico LNG facility to be re-exported to all current and future FTA and non-FTA countries. In April 2021, the DOE granted Vista Pacifico’s LNG export authorization application for FTA countries.

The development of the potential Vista Pacifico LNG project (as well as the other projects discussed above) 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 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 in Mexico; 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 capture and sequestration project in Hackberry, Louisiana. This proposed project in development is a carbon dioxide storage facility with the intended capability of permanently sequestering carbon dioxide from Cameron LNG JV. In the third quarter of 2021, Sempra Infrastructure filed an application with the EPA for a Class VI carbon injection well to advance this project.

The development of the potential Hackberry carbon capture and sequestration project is subject to numerous risks and uncertainties, including 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.”

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.

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In June 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, scheduled to occur in 2039, or replenishment of the amount withdrawn by Sempra Infrastructure from the SDSRA. We discuss this guarantee in Note 6 of the Notes to Consolidated Financial Statements.

In July 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. Sempra Infrastructure began commercial operations of its new terminals for the receipt, storage and delivery of refined fuel products in the new port of Veracruz on March 19, 2021 and in Mexico City on July 2, 2021. The two terminals have a combined storage capacity of more than 2.7 million barrels. The storage capacity for both terminals is contracted with Valero Energy Corporation.

Sempra Infrastructure is currently constructing additional terminals for the receipt, storage, and delivery of liquid fuels in the vicinity of Puebla and Topolobampo. 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, including Sempra Infrastructure’s refined products terminal in Puebla, to confirm that the gasoline and/or diesel in storage were legally imported. During the inspection of the Puebla terminal in September 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 in Sempra Infrastructure’s custody. In addition, in November 2021, the CRE notified Sempra Infrastructure of the commencement of an administrative proceeding for revoking the storage permit at the Puebla terminal due to alleged breach of its terms and conditions. Although Sempra Infrastructure filed an amparo lawsuit against the closure and has submitted proof of the legal origin of the products to the prosecutor’s office, we are unable to predict when the investigation will be completed, the outcome of the administrative proceeding or whether the facility will be able to commence commercial operations. If the terminal were to be shut down, storage permits were to be revoked or commissioning operations significantly curtailed for an extended period of time, Sempra’s results of operations, financial condition, cash flows and/or prospects could be materially adversely affected. We expect the Topolobampo project to commence commercial operations in the first half of 2022. 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.”

Sempra Infrastructure is also developing terminals for the receipt, storage, and delivery of liquid fuels in the vicinity of Manzanillo and Ensenada.

Expected commencement dates could be delayed by worsening or extended disruptions of project construction caused by the COVID-19 pandemic or other factors outside our control. Sempra Infrastructure is continuing to monitor the impacts of the COVID-19 pandemic on cash flows and results of operations.

Clean Power

Construction Projects. Sempra Infrastructure completed construction and began commercial operations of a new 150-MW solar power generation facility (Border Solar) in Ciudad Juárez, Chihuahua on March 25, 2021. Border Solar is fully contracted by third-party companies under long-term PPAs expiring in 2032 and 2037, though it requires an amendment to its self-supply permit granted by the CRE in order to supply its customers. The energy production is currently being sold in the open market at variable rates.

ESJ completed construction and began commercial operations of a second, 108-MW wind power generation facility on January 15, 2022. This second wind power generation facility is fully contracted by SDG&E under a long-term PPA expiring in 2042.

Acquisition of ESJ. As we discuss in Note 5 of the Notes to Consolidated Financial Statements, in March 2021, Sempra Infrastructure increased its ownership interest in ESJ from 50% to 100% by acquiring Saavi Energía’s 50% equity interest in ESJ.

Legal and Regulatory Matters

See Note 16 of the Notes to Consolidated Financial Statements for discussions of the following legal and regulatory matters affecting our operations in Mexico:

Energía Costa Azul

▪Land Disputes

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▪Environmental and Social Impact Permits

▪Customer Dispute

One or more unfavorable final decisions on these land and customer 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

▪Sasabe-Puerto Libertad-Guaymas Segment

Our investment in the Guaymas-El Oro segment of the Sonora pipeline could be subject to impairment if Sempra Infrastructure is unable to make certain repairs (which have not commenced) or 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, as described above) and resume operations in the Guaymas-El Oro segment of the Sonora pipeline or if Sempra Infrastructure terminates the contract and is unable to obtain recovery. In addition, the failure to stay the court judgment nullifying Sempra Infrastructure’s right-of-way easement for a portion of the Sasabe-Puerto Libertad-Guaymas segment of the Sonora pipeline pending the resolution of Sempra Infrastructure’s planned special judicial action or prevail in preserving the easement in the special judicial action could require us to modify the route of the pipeline and could require a temporary shutdown of this portion of the pipeline. Any such occurrence could have a material adverse effect on Sempra’s business, results of operations, financial condition, cash flows and/or prospects.

Regulatory and Other Actions by the Mexican Government

▪Transmission Rates for Legacy Generation Facilities

▪Offtakers of Legacy Generation Permits

▪Amendments to Mexico’s Electricity Industry Law

▪Amendments to Mexico’s Hydrocarbons Law

▪Amendments to Mexico’s General Foreign Trade Rules

▪Proposed Constitutional Reform in Mexico

Sempra Infrastructure and other parties affected by these resolutions, orders, decrees, regulations and proposed amendments to Mexican law have challenged them by filing amparo and other claims, some of which have been granted injunctive relief. The court-ordered injunctions or suspensions provide temporary relief until Mexico’s federal district court or Supreme Court ultimately resolves the amparo and other claims. If passed in its current form, the proposed constitutional reform introduces significant changes to the legal and economic principles underlying the country’s energy reform of 2013, generating imminent risks for private investments in this sector. An unfavorable decision on one or more of these amparo or other challenges, the potential for extended disputes, or if passed in its current form, the proposed constitutional reform may impact our ability to operate our facilities at existing levels or at all, may result in increased costs for Sempra Infrastructure and its customers, may adversely affect our ability to develop new projects, and may negatively impact our ability to recover the carrying values of our investments in Mexico, any of which may have a material adverse effect on our business, results of operations, financial condition, cash flows and/or prospects.

Parent and Other

PXiSE

In December 2021, Parent and other completed the sale of its 80% interest in PXiSE for total cash proceeds of $38 million, net of transaction costs totaling $4 million, and recorded a $36 million ($26 million after tax) gain, which is included in Gain (Loss) on Sale of Assets on Sempra’s Consolidated Statement of Operations.

SOURCES AND USES OF CASH

The following tables include only significant changes in cash flow activities for each of our registrants.

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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.

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Expenditures for Investments and Acquisitions

The following table summarizes by segment our investments in various JVs, as well as business and asset acquisitions.

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, the FERC and the PUCT, and various other factors described in this MD&A and in “Part I – Item 1A. Risk Factors.” In 2022, we expect to make capital expenditures and investments of approximately $6.2 billion (which excludes capital expenditures that will be funded by unconsolidated entities), as summarized by segment in the following table.

We expect the majority of our capital expenditures and investments in 2022 will relate to transmission and distribution improvements at our regulated public utilities, and construction of the ECA LNG Phase 1 liquefaction export project at Sempra Infrastructure.

From 2022 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 $24.4 billion (which excludes capital expenditures that will be funded by unconsolidated entities), as follows: $11.4 billion at SDG&E, $9.8 billion at SoCalGas, $1.1 billion at Sempra Texas Utilities and $2.1 billion at Sempra 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.

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 in U.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

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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 the FERC (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.

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 2022 based on our expected capital investments.

Capital Stock Transactions

Sempra

Cash provided by issuances of common and preferred stock was:

▪$5 million in 2021

▪$902 million in 2020

▪$1.8 billion in 2019

IEnova Exchange Offer and Cash Tender Offer. In May 2021, we acquired 381,015,194 publicly owned shares of IEnova in exchange for 12,306,777 newly issued shares of our common stock upon completion of our exchange offer launched in the U.S. and Mexico, which increased our ownership interest in IEnova from 70.2% to 96.4%. In September 2021, we completed a cash tender offer and acquired 51,014,545 publicly owned shares of IEnova for 4.0 billion Mexican pesos (approximately $202 million in U.S. dollars) in cash, which increased our ownership interest in IEnova from 96.4% to 99.9%. We describe these transactions in Note 1 of the Notes to Consolidated Financial Statements.

In addition to being traded on the New York Stock Exchange, Sempra’s common stock is also listed on the Mexican Stock Exchange under the trading symbol SRE.MX. IEnova’s shares were delisted from the Mexican Stock Exchange effective October 15, 2021. In connection with the delisting, we are maintaining a trust for the purpose of purchasing the 1,212,981 IEnova shares that remained publicly owned as of the completion of the cash tender offer for 78.97 Mexican pesos per share, the same price per share that was offered in our cash tender offer. The trust will be in place through the earlier of April 14, 2022 or the date on which we acquire all remaining publicly owned IEnova shares. As of February 16, 2022, an aggregate of 629,784 of the remaining publicly owned IEnova shares had been acquired by such trust.

Sempra Common Stock Repurchases. As we discuss in Note 14 of the Notes to Consolidated Financial Statements, in November and December of 2021, we entered into and completed an open market repurchase program under which we paid $300 million to repurchase 2,422,758 shares of our common stock at a weighted-average purchase price of $123.83 per share, excluding commissions. We repurchased an additional 1,472,756 shares of our common stock for $200 million pursuant to an ASR program that was completed on February 11, 2022. These share repurchases were funded with commercial paper borrowings that we plan to repay with a portion of the anticipated proceeds from the sale of NCI in SI Partners to ADIA, which we expect to close in the summer of 2022 subject to the receipt of certain regulatory and third-party approvals and other customary closing conditions.

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Dividends

Sempra

Sempra paid cash dividends of:

▪$1,331 million for common stock and $99 million for preferred stock in 2021

▪$1,174 million for common stock and $157 million for preferred stock in 2020

▪$993 million for common stock and $142 million for preferred stock in 2019

Dividends declared on common stock have increased in each of the last three years due to an increase in the per-share quarterly dividends approved by our board of directors to $1.10 in 2021 ($4.40 annually) from $1.045 in 2020 ($4.18 annually) and from $0.9675 in 2019 ($3.87 annually).

On February 24, 2022, our board of directors approved an increase in Sempra’s quarterly common stock dividend to $1.145 per share ($4.58 annually), the first of which is payable April 15, 2022. In addition, on February 24, 2022, our board of directors declared semi-annual dividends of $24.375 per share on our series C preferred stock, payable on April 15, 2022. 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 declared on an annual historical basis, including recent historical increases and annualized dividends for the current fiscal year, may not be indicative of future declarations.

SDG&E

In 2021 and 2020, SDG&E paid common stock dividends to Enova and Enova paid corresponding dividends to Sempra of $300 million and $200 million, respectively. SDG&E did not declare or pay common stock dividends in 2019. 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

In 2021, 2020 and 2019, SoCalGas paid common stock dividends to PE and PE paid corresponding dividends to Sempra of $75 million, $100 million and $150 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. At December 31, 2021, based on these regulations, Sempra could have received combined loans and dividends of approximately $798 million from SDG&E and $445 million from SoCalGas.

We provide additional information about dividend restrictions in “Restricted Net Assets” in Note 1 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:

▪$79.17 in 2021

▪$70.11 in 2020

▪$60.58 in 2019

The increase in 2021 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 in SI Partners to KKR, the IEnova exchange offer and

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subsequent cash tender offer, and the common shares issued from the conversion of series A preferred stock and series B preferred stock. In 2020, the increase was primarily due to comprehensive income exceeding dividends, offset by common stock repurchases.

Capitalization

Our debt to capitalization ratio, calculated as total debt as a percentage of total debt and equity, was as follows:

Significant changes in 2021 that affected capitalization included the following:

▪Sempra: decrease in long-term debt, offset by an increase in short-term debt and increase in equity primarily from the sale of NCI.

▪SDG&E: increase in short-term and long-term debt and increase in equity from comprehensive income exceeding dividends.

▪SoCalGas: decrease in equity from comprehensive loss, offset by equity contributions from Sempra exceeding dividends.

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.

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.

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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 provide the opportunity to earn a reasonable 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.

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.

DERIVATIVES ACCOUNTING

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Sempra, SDG&E

We record derivative instruments for which we do not apply a scope exception at fair value on the Consolidated Balance Sheets. We also use the normal purchase or sale exception for certain derivative contracts, which is applied on a contract-by-contract basis. Changes in assumed physical delivery on contracts for which we elected normal purchase or sale accounting may result in “tainting” of the election, which may preclude us from making this election in future transactions, thereby impacting Sempra’s and/or SDG&E’s results of operations. The impacts of derivatives accounting on SDG&E’s results of operations are typically not significant because regulatory accounting principles generally apply to its contracts. We provide details of our derivative instruments and our fair value approaches in Notes 11 and 12, respectively, of the Notes to Consolidated Financial Statements.

PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

Sempra, SDG&E, SoCalGas

To measure our pension and other postretirement benefit 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

▪mortality rates

▪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 other postretirement benefits, 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, accumulated benefit obligation for PBOP, and projected benefit costs, in each case if the discount rate or assumed rate of return on plan assets were changed by 100 bps at December 31, 2021:

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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 other postretirement benefit 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 $568 million as of December 31, 2021, 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:

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.

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:

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▪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 2021 and 2020, we performed a quantitative goodwill impairment test and determined that the estimated fair values of our reporting units in Mexico to which goodwill was allocated was substantially above their carrying value for each year as of October 1, our goodwill impairment testing date.

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.