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GENERAL INFORMATION AND OTHER FINANCIAL DATA | 3 Months Ended
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Mar. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
GENERAL INFORMATION AND OTHER FINANCIAL DATA | GENERAL INFORMATION AND OTHER FINANCIAL DATA PRINCIPLES OF CONSOLIDATION Sempra Energy Sempra Energy’s Condensed Consolidated Financial Statements include the accounts of Sempra Energy, a California-based Fortune 500 energy-services holding company, and its consolidated subsidiaries and VIEs. Sempra Energy’s operating units are:
▪ | Sempra Utilities, which includes our SDG&E, SoCalGas, Sempra South American Utilities and our newly formed Sempra Texas Utility reportable segments. We discuss our new Sempra Texas Utility reportable segment in Notes 5 and 6; and
▪ | Sempra Infrastructure, which includes our Sempra Mexico, Sempra Renewables and Sempra LNG & Midstream reportable segments.
We refer to SDG&E and SoCalGas collectively as the California Utilities, which do not include our Texas utility investment, South American utilities or the utility in our Sempra Infrastructure operating unit. Sempra Global is the holding company for most of our subsidiaries that are not subject to California or Texas utility regulation. All references in these Notes to “Sempra Utilities,” “Sempra Infrastructure” and their respective reportable segments are not intended to refer to any legal entity with the same or similar name. SDG&E SDG&E’s Condensed Consolidated Financial Statements include its accounts and the accounts of a VIE of which SDG&E is the primary beneficiary, as we discuss below in “Variable Interest Entities.” SDG&E’s common stock is wholly owned by Enova Corporation, which is a wholly owned subsidiary of Sempra Energy. SoCalGas SoCalGas’ common stock is wholly owned by Pacific Enterprises, which is a wholly owned subsidiary of Sempra Energy. BASIS OF PRESENTATION This is a combined report of Sempra Energy, SDG&E and SoCalGas. We provide separate information for SDG&E and SoCalGas as required. References in this report to “we,” “our” and “Sempra Energy Consolidated” are to Sempra Energy and its consolidated entities, unless otherwise indicated by the context. We have eliminated intercompany accounts and transactions within the consolidated financial statements of each reporting entity. Throughout this report, we refer to the following as Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements when discussed together or collectively:
▪ | the Condensed Consolidated Financial Statements and related Notes of Sempra Energy and its subsidiaries and VIEs;
▪ | the Condensed Consolidated Financial Statements and related Notes of SDG&E and its VIE; and
▪ | the Condensed Financial Statements and related Notes of SoCalGas.
We have prepared the Condensed Consolidated Financial Statements in conformity with U.S. GAAP and in accordance with the interim-period-reporting requirements of Form 10-Q. Results of operations for interim periods are not necessarily indicative of results for the entire year. We evaluated events and transactions that occurred after March 31, 2018 through the date the financial statements were issued and, in the opinion of management, the accompanying statements reflect all adjustments necessary for a fair presentation. These adjustments are only of a normal, recurring nature. All December 31, 2017 balance sheet information in the Condensed Consolidated Financial Statements has been derived from our audited 2017 Consolidated Financial Statements in the Annual Report. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the interim-period-reporting provisions of U.S. GAAP and the SEC. We describe our significant accounting policies in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report and the impact of the adoption of new accounting standards on those policies in Note 2 below. We follow the same accounting policies for interim reporting purposes. You should read the information in this Quarterly Report in conjunction with the Annual Report. Reclassification on the Condensed Consolidated Statement of Operations We have made a reclassification on the Condensed Consolidated Statement of Operations for the three months ended March 31, 2017 to conform to current year presentation. Line item captions for equity earnings (losses) before income tax and net of income tax have been combined into one line and presented after income tax expense (benefit). This reclassification is intended to treat the presentation of earnings from all equity method investees consistently and simplify the presentation on the statement of operations, while continuing to provide additional detail in the notes to the financial statements. We discuss this presentation further in Note 6. The following table summarizes the financial statement line items that were affected by this reclassification:
SEMPRA ENERGY – RECLASSIFICATION
(Dollars in millions) |  |
|  |  |  | Three months ended March 31, 2017
|  |  |  |  | As previously presented |  | As currently presented
Condensed Consolidated Statement of Operations: |  |  |  |  |  |  |
Equity earnings, before income tax |  |  |  |  | $ | 3 |  |  | $ | — |
Income before income taxes and equity losses of certain |  |  |  |  |  |  |
unconsolidated subsidiaries |  |  |  |  | 755 |  |  | — |
Income before income taxes and equity losses of |  |  |  |  |  |  |
unconsolidated subsidiaries |  |  |  |  | — |  |  | 752 |
Equity losses, net of income tax |  |  |  |  | (8 | ) |  | — |
Equity losses |  |  |  |  | — |  |  | (5 | )
Regulated Operations The California Utilities and Sempra Mexico’s natural gas distribution utility, Ecogas, prepare their financial statements in accordance with the provisions of U.S. GAAP governing rate-regulated operations. We discuss the effects of regulation in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report and revenue recognition at our utilities in Note 3 below. Sempra South American Utilities has controlling interests in two electric distribution utilities in South America, Chilquinta Energía in Chile and Luz del Sur in Peru. Revenues are based on tariffs that are set by government agencies in their respective countries based on an efficient model distribution company defined by those agencies. Because the tariffs are based on a model and are intended to cover the costs of the model company, but are not based on the costs of the specific utility and may not result in full cost recovery, these utilities do not meet the requirements necessary for, and therefore do not apply, regulatory accounting treatment under U.S. GAAP. Our Sempra Mexico segment includes the operating companies of our subsidiary, IEnova. Certain business activities at IEnova are regulated by the CRE and meet the regulatory accounting requirements of U.S. GAAP. Pipeline projects under construction at Sempra Mexico that meet the regulatory accounting requirements of U.S. GAAP record the impact of AFUDC related to equity. We discuss AFUDC below and in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report. Our Sempra Texas Utility segment is comprised of our equity method investment in Oncor Holdings, which owns 80.25 percent of Oncor, as we discuss in Notes 5 and 6. Oncor is a regulated electric transmission and distribution utility in the state of Texas. Oncor’s rates are regulated by the PUCT and certain cities, and are subject to regulatory rate-setting processes and annual earnings oversight. Oncor prepares its financial statements in accordance with the provisions of U.S. GAAP governing rate-regulated operations.RESTRICTED CASH The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the Condensed Consolidated Balance Sheets to the sum of such amounts reported on the Condensed Consolidated Statements of Cash Flows. We provide information about the nature of restricted cash in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
(Dollars in millions)
| March 31,
| 2018
Sempra Energy Consolidated: |
Cash and cash equivalents | $ | 239 |
Restricted cash, current | 54 |
Restricted cash, noncurrent | 14 |
Total cash, cash equivalents and restricted cash on the Condensed Consolidated Statement of Cash Flows | $ | 307 |
SDG&E: |  |
Cash and cash equivalents | $ | 9 |
Restricted cash, current | 5 |
Restricted cash, noncurrent | 11 |
Total cash, cash equivalents and restricted cash on the Condensed Consolidated Statement of Cash Flows | $ | 25 |
INVENTORIES The components of inventories by segment are as follows:
INVENTORY BALANCES
(Dollars in millions)
| Natural gas |  |  | LNG |  |  | Materials and supplies |  |  | Total
| March 31, 2018 |  | December 31, 2017 |  |  | March 31, 2018 |  | December 31, 2017 |  |  | March 31, 2018 |  | December 31, 2017 |  |  | March 31, 2018 |  | December 31, 2017
SDG&E | $ | 2 |  |  | $ | 4 |  |  |  | $ | — |  |  | $ | — |  |  |  | $ | 104 |  |  | $ | 101 |  |  |  | $ | 106 |  |  | $ | 105 |
SoCalGas | 55 |  |  | 75 |  |  |  | — |  |  | — |  |  |  | 41 |  |  | 49 |  |  |  | 96 |  |  | 124 |
Sempra South American Utilities | — |  |  | — |  |  |  | — |  |  | — |  |  |  | 32 |  |  | 30 |  |  |  | 32 |  |  | 30 |
Sempra Mexico | 1 |  |  | — |  |  |  | 7 |  |  | 7 |  |  |  | 3 |  |  | 2 |  |  |  | 11 |  |  | 9 |
Sempra Renewables | — |  |  | — |  |  |  | — |  |  | — |  |  |  | 5 |  |  | 5 |  |  |  | 5 |  |  | 5 |
Sempra LNG & Midstream | 35 |  |  | 30 |  |  |  | — |  |  | 4 |  |  |  | — |  |  | — |  |  |  | 35 |  |  | 34 |
Sempra Energy Consolidated | $ | 93 |  |  | $ | 109 |  |  |  | $ | 7 |  |  | $ | 11 |  |  |  | $ | 185 |  |  | $ | 187 |  |  |  | $ | 285 |  |  | $ | 307 |
GOODWILLWe discuss goodwill in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report. The increase in goodwill from $2,397 million at December 31, 2017 to $2,406 million at March 31, 2018 is due to foreign currency translation at Sempra South American Utilities. We record the offset of this fluctuation in OCI.CAPITALIZED FINANCING COSTS Capitalized financing costs include capitalized interest costs and AFUDC related to both debt and equity financing of construction projects. We capitalize interest costs incurred to finance capital projects and interest on equity method investments that have not commenced planned principal operations. Interest capitalized and AFUDC are as follows:
CAPITALIZED FINANCING COSTS
(Dollars in millions)
| Three months ended March 31,
| 2018 |  | 2017
Sempra Energy Consolidated | $ | 51 |  |  | $ | 82 |
SDG&E | 24 |  |  | 20 |
SoCalGas | 13 |  |  | 15 |
VARIABLE INTEREST ENTITIES We consolidate a VIE if we are the primary beneficiary of the VIE. Our determination of whether we are the primary beneficiary is based upon qualitative and quantitative analyses, which assess:
▪ | the purpose and design of the VIE;
▪ | the nature of the VIE’s risks and the risks we absorb;
▪ | the power to direct activities that most significantly impact the economic performance of the VIE; and
▪ | the obligation to absorb losses or the right to receive benefits that could be significant to the VIE.
We will continue to evaluate our VIEs for any changes that may impact our determination of the primary beneficiary. SDG&E SDG&E’s power procurement is subject to reliability requirements that may require SDG&E to enter into various PPAs that include variable interests. SDG&E evaluates the respective entities to determine if variable interests exist and, based on the qualitative and quantitative analyses described above, if SDG&E, and thereby Sempra Energy, is the primary beneficiary. Tolling Agreements SDG&E has agreements under which it purchases power generated by facilities for which it supplies all of the natural gas to fuel the power plant (i.e., tolling agreements). SDG&E’s obligation to absorb natural gas costs may be a significant variable interest. In addition, SDG&E has the power to direct the dispatch of electricity generated by these facilities. Based on our analysis, the ability to direct the dispatch of electricity may have the most significant impact on the economic performance of the entity owning the generating facility because of the associated exposure to the cost of natural gas, which fuels the plants, and the value of electricity produced. To the extent that SDG&E (1) is obligated to purchase and provide fuel to operate the facility, (2) has the power to direct the dispatch, and (3) purchases all of the output from the facility for a substantial portion of the facility’s useful life, SDG&E may be the primary beneficiary of the entity owning the generating facility. SDG&E determines if it is the primary beneficiary in these cases based on a qualitative approach in which we consider the operational characteristics of the facility, including its expected power generation output relative to its capacity to generate and the financial structure of the entity, among other factors. If we determine that SDG&E is the primary beneficiary, SDG&E and Sempra Energy consolidate the entity that owns the facility as a VIE. Otay Mesa VIE SDG&E has a tolling agreement to purchase power generated at OMEC, a 605-MW generating facility. A related agreement provides SDG&E with the option to purchase OMEC at the end of the contract term in October 2019, or upon earlier termination of the PPA, at a predetermined price subject to adjustments. If SDG&E does not exercise its option (referred to as the call option), under the terms of the agreement, the counterparty can require SDG&E to purchase the power plant for $280 million, subject to adjustments, on or before October 3, 2019 (referred to as the put option), or upon earlier termination of the PPA. The facility owner, OMEC LLC, is a VIE, which we refer to as Otay Mesa VIE, of which SDG&E is the primary beneficiary. SDG&E has no OMEC LLC voting rights, holds no equity in OMEC LLC and does not operate OMEC. In addition to the risks absorbed under the tolling agreement, SDG&E absorbs separately through the put option a significant portion of the risk that the value of Otay Mesa VIE could decline. Accordingly, SDG&E and Sempra Energy consolidate Otay Mesa VIE. Otay Mesa VIE’s equity of $30 million at March 31, 2018 and $28 million at December 31, 2017 is included on the Condensed Consolidated Balance Sheets in Other Noncontrolling Interests for Sempra Energy and in Noncontrolling Interest for SDG&E. OMEC LLC has a loan outstanding of $292 million at March 31, 2018, the proceeds of which were used for the construction of OMEC. The loan is with third party lenders and is collateralized by OMEC’s assets. SDG&E is not a party to the loan agreement and does not have any additional implicit or explicit financial responsibility to OMEC LLC, nor would SDG&E be required to assume OMEC’s loan under the call or put option purchase scenarios. The loan fully matures in April 2019, prior to the put option, and bears interest at rates varying with market rates. In addition, OMEC LLC has entered into interest rate swap agreements to moderate its exposure to interest rate changes. We provide additional information concerning the interest rate swaps in Note 8. The Condensed Consolidated Statements of Operations of Sempra Energy and SDG&E include the following amounts associated with Otay Mesa VIE. The amounts are net of eliminations of transactions between SDG&E and Otay Mesa VIE. The captions in the table below correspond to SDG&E’s Condensed Consolidated Statements of Operations.
AMOUNTS ASSOCIATED WITH OTAY MESA VIE
(Dollars in millions)
| Three months ended March 31,
| 2018 |  | 2017
Operating expenses |  |  |
Cost of electric fuel and purchased power | $ | (16 | ) |  | $ | (18 | )
Operation and maintenance | 4 |  |  | 4 |
Depreciation and amortization | 8 |  |  | 7 |
Total operating expenses | (4 | ) |  | (7 | )
Operating income | 4 |  |  | 7 |
Interest expense | (5 | ) |  | (5 | )
(Losses) income before income taxes/Net (loss) income | (1 | ) |  | 2 |
Losses (earnings) attributable to noncontrolling interest | 1 |  |  | (2 | )
Earnings attributable to common shares | $ | — |  |  | $ | — |
SDG&E has determined that no contracts, other than the one relating to Otay Mesa VIE mentioned above, result in SDG&E being the primary beneficiary of a VIE at March 31, 2018. In addition to the tolling agreements described above, other variable interests involve various elements of fuel and power costs, and other components of cash flows expected to be paid to or received by our counterparties. In most of these cases, the expectation of variability is not substantial, and SDG&E generally does not have the power to direct activities that most significantly impact the economic performance of the other VIEs. In addition, SDG&E is not exposed to losses or gains as a result of these other VIEs, because all such variability would be recovered in rates. If our ongoing evaluation of these VIEs were to conclude that SDG&E becomes the primary beneficiary and consolidation by SDG&E becomes necessary, the effects could be significant to the financial position and liquidity of SDG&E and Sempra Energy. We provide additional information about PPAs with power plant facilities that are VIEs of which SDG&E is not the primary beneficiary in Note 15 of the Notes to Consolidated Financial Statements in the Annual Report. We provide additional information regarding Otay Mesa VIE in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report. Sempra Texas Utility On March 9, 2018, we completed the acquisition of an indirect, 100-percent interest in Oncor Holdings, a VIE that owns an 80.25-percent interest in Oncor. Sempra Energy is not the primary beneficiary of the VIE because of the structural and operational ring-fencing measures in place that prevent us from having the power to direct the significant activities of Oncor Holdings. As a result, we do not consolidate Oncor Holdings and instead account for our ownership interest as an equity method investment. See Notes 5 and 6 for additional information about our equity method investment in Oncor Holdings and restrictions in our ability to influence its activities. Our current maximum exposure to loss from our interest in Oncor Holdings does not exceed the carrying value of our investment, which is $9,176 million at March 31, 2018. Our maximum exposure will fluctuate over time. Sempra Renewables Certain of Sempra Renewables’ wind and solar power generation projects are held by limited liability companies whose members are Sempra Renewables and financial institutions. The financial institutions are noncontrolling tax equity investors to which earnings, tax attributes and cash flows are allocated in accordance with the respective limited liability company agreements. These entities are VIEs and Sempra Energy is the primary beneficiary, generally due to Sempra Energy’s power as the operator of the renewable energy projects to direct the activities that most significantly impact the economic performance of these VIEs. As the primary beneficiary of these tax equity limited liability companies, we consolidate them. Sempra Energy’s Condensed Consolidated Balance Sheets include $1,412 million of property, plant and equipment, net, at both March 31, 2018 and December 31, 2017 and equity of $607 million and $631 million included in Other Noncontrolling Interests at March 31, 2018 and December 31, 2017, respectively, associated with these entities. Sempra Energy’s Condensed Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017 include the following amounts associated with the tax equity limited liability companies. The amounts are net of eliminations of transactions between Sempra Energy and these entities.
AMOUNTS ASSOCIATED WITH TAX EQUITY ARRANGEMENTS |  |
(Dollars in millions) |  |
|  | Three months ended March 31,
|  | 2018 |  | 2017
REVENUES |  |  |
Energy-related businesses | $ | 17 |  |  | $ | 13 |
EXPENSES |  |  |
Operation and maintenance | (4 | ) |  | (2 | )
Depreciation and amortization | (11 | ) |  | (8 | )
Income before income taxes | 2 |  |  | 3 |
Income tax expense | (5 | ) |  | (2 | )
Net (loss) income | (3 | ) |  | 1 |
Losses attributable to noncontrolling interests(1) | 21 |  |  | 3 |
Earnings | $ | 18 |  |  | $ | 4 |
(1) | Net income or loss attributable to NCI is computed using the HLBV method and is not based on ownership percentages.
We provide additional information regarding the tax equity limited liability companies in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report. Sempra LNG & Midstream Sempra Energy’s equity method investment in Cameron LNG JV is considered to be a VIE principally due to contractual provisions that transfer certain risks to customers. Sempra Energy is not the primary beneficiary of the VIE because we do not have the power to direct the most significant activities of Cameron LNG JV. The carrying value of our investment in Cameron LNG JV, including amounts recognized in AOCI related to interest-rate cash flow hedges at Cameron LNG JV, was $1,085 million at March 31, 2018 and $997 million at December 31, 2017. Our current maximum exposure to loss, which fluctuates over time, includes the carrying value of our investment and the guarantees that we discuss in Note 6 below and in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report. Other Variable Interest Entities Sempra Energy’s other businesses also enter into arrangements which could include variable interests. We evaluate these arrangements and applicable entities based on the qualitative and quantitative analyses described above. Certain of these entities are service or project companies that are VIEs. As the primary beneficiary of these companies, we consolidate them; however, their financial statements are not material to the financial statements of Sempra Energy. In all other cases, we have determined that these contracts are not variable interests in a VIE and therefore are not subject to the U.S. GAAP requirements concerning the consolidation of VIEs.PENSION AND OTHER POSTRETIREMENT BENEFITS Sale of Qualified Pension Plan Annuity Contracts In March 2018, an insurance company purchased certain annuities for current annuitants in the SDG&E and SoCalGas qualified pension plans and assumed the obligation for payment of these annuities. At SDG&E, the liability transferred for these annuities, plus the total year-to-date lump-sum payments, exceeded the settlement threshold, which triggered settlement accounting. This resulted in a reduction of the recorded pension liability and pension plan assets of $83 million at Sempra Energy Consolidated and SDG&E. This also resulted in a settlement charge in net periodic benefit cost of $14 million at Sempra Energy Consolidated and SDG&E in the first quarter of 2018. This settlement charge at SDG&E was recorded as a regulatory asset on the Condensed Consolidated Balance Sheets. The measurement date of March 31, 2018 was used for the settlement accounting, as the liability for the annuities transferred, plus the year-to-date lump sum benefit payments, first exceeded the settlement threshold in March 2018. Acquisition On March 9, 2018, Sempra Energy completed the Merger, as we discuss in Note 5, and assumed other postretirement employee benefits obligations for health care and life insurance benefits, resulting in an increase of $21 million in the other postretirement benefit plan liability at Sempra Energy Consolidated. Net Periodic Benefit Cost The following three tables provide the components of net periodic benefit cost:
NET PERIODIC BENEFIT COST – SEMPRA ENERGY CONSOLIDATED
(Dollars in millions)
| Pension benefits |  | Other postretirement benefits
| Three months ended March 31,
| 2018 |  | 2017 |  | 2018 |  | 2017
Service cost | $ | 33 |  |  | $ | 28 |  |  | $ | 6 |  |  | $ | 6 |
Interest cost | 35 |  |  | 37 |  |  | 9 |  |  | 9 |
Expected return on assets | (42 | ) |  | (40 | ) |  | (18 | ) |  | (16 | )
Amortization of: |  |  |  |  |  |  |
Prior service cost | 3 |  |  | 3 |  |  | — |  |  | — |
Actuarial loss (gain) | 9 |  |  | 8 |  |  | (1 | ) |  | (1 | )
Settlements | 14 |  |  | — |  |  | — |  |  | — |
Net periodic benefit cost (credit) | 52 |  |  | 36 |  |  | (4 | ) |  | (2 | )
Regulatory adjustment | (45 | ) |  | (12 | ) |  | 4 |  |  | 2 |
Total expense recognized | $ | 7 |  |  | $ | 24 |  |  | $ | — |  |  | $ | — |
NET PERIODIC BENEFIT COST – SDG&E
(Dollars in millions)
| Pension benefits |  | Other postretirement benefits
| Three months ended March 31,
| 2018 |  | 2017 |  | 2018 |  | 2017
Service cost | $ | 8 |  |  | $ | 8 |  |  | $ | 1 |  |  | $ | 1 |
Interest cost | 9 |  |  | 9 |  |  | 2 |  |  | 2 |
Expected return on assets | (13 | ) |  | (11 | ) |  | (3 | ) |  | (3 | )
Amortization of: |  |  |  |  |  |  |
Prior service cost | — |  |  | — |  |  | 1 |  |  | 1 |
Actuarial loss (gain) | 1 |  |  | 2 |  |  | (1 | ) |  | — |
Settlements | 14 |  |  | — |  |  | — |  |  | — |
Net periodic benefit cost | 19 |  |  | 8 |  |  | — |  |  | 1 |
Regulatory adjustment | (19 | ) |  | (7 | ) |  | — |  |  | (1 | )
Total expense recognized | $ | — |  |  | $ | 1 |  |  | $ | — |  |  | $ | — |
NET PERIODIC BENEFIT COST – SOCALGAS
(Dollars in millions)
| Pension benefits |  | Other postretirement benefits
| Three months ended March 31,
| 2018 |  | 2017 |  | 2018 |  | 2017
Service cost | $ | 22 |  |  | $ | 18 |  |  | $ | 4 |  |  | $ | 4 |
Interest cost | 23 |  |  | 24 |  |  | 7 |  |  | 7 |
Expected return on assets | (26 | ) |  | (26 | ) |  | (14 | ) |  | (13 | )
Amortization of: |  |  |  |  |  |  |
Prior service cost (credit) | 2 |  |  | 2 |  |  | (1 | ) |  | (1 | )
Actuarial loss | 6 |  |  | 4 |  |  | — |  |  | — |
Net periodic benefit cost (credit) | 27 |  |  | 22 |  |  | (4 | ) |  | (3 | )
Regulatory adjustment | (26 | ) |  | (5 | ) |  | 4 |  |  | 3 |
Total expense recognized | $ | 1 |  |  | $ | 17 |  |  | $ | — |  |  | $ | — |
Benefit Plan Contributions The following table shows our year-to-date contributions to pension and other postretirement benefit plans and the amounts we expect to contribute in 2018:
BENEFIT PLAN CONTRIBUTIONS
(Dollars in millions)
|  | Sempra Energy Consolidated |  | SDG&E |  | SoCalGas
Contributions through March 31, 2018: |  |  |  |  |  |
Pension plans |  | $ | 10 |  |  | $ | 2 |  |  | $ | — |
Other postretirement benefit plans |  | 1 |  |  | — |  |  | 1 |
Total expected contributions in 2018: |  |  |  |  |  |
Pension plans |  | $ | 226 |  |  | $ | 48 |  |  | $ | 113 |
Other postretirement benefit plans |  | 9 |  |  | 3 |  |  | 2 |
RABBI TRUSTIn support of its Supplemental Executive Retirement, Cash Balance Restoration and Deferred Compensation Plans, Sempra Energy maintains dedicated assets, including a Rabbi Trust and investments in life insurance contracts, which totaled $421 million and $455 million at March 31, 2018 and December 31, 2017, respectively.EARNINGS PER COMMON SHARE The following table provides EPS computations for the three months ended March 31, 2018 and 2017. Basic EPS is calculated by dividing earnings attributable to common stock by the weighted-average number of common shares outstanding for the period. Diluted EPS includes the potential dilution of common stock equivalent shares that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
EARNINGS PER COMMON SHARE COMPUTATIONS |  |  |
(Dollars in millions, except per share amounts; shares in thousands) |  |  |
| Three months ended March 31,
| 2018 |  | 2017
Numerator: |  |  |
Earnings/Income attributable to common shares | $ | 347 |  |  | $ | 441 |
Denominator: |  |  |
Weighted-average common shares outstanding for basic EPS(1) | 257,932 |  |  | 251,131 |
Dilutive effect of stock options, RSAs and RSUs(2) | 933 |  |  | 1,115 |
Dilutive effect of common stock shares sold forward | 625 |  |  | — |
Weighted-average common shares outstanding for diluted EPS | 259,490 |  |  | 252,246 |
EPS: |  |  |
Basic | $ | 1.34 |  |  | $ | 1.76 |
Diluted | $ | 1.33 |  |  | $ | 1.75 |
(1) | Includes 628 and 600 average fully vested RSUs held in our Deferred Compensation Plan for the three months ended March 31, 2018 and 2017, respectively. These fully vested RSUs are included in weighted-average common shares outstanding for basic EPS because there are no conditions under which the corresponding shares will not be issued.
(2) | Due to market fluctuations of both Sempra Energy common stock and the comparative indices used to determine the vesting percentage of our total shareholder return performance-based RSUs, which we discuss in Note 8 of the Notes to Consolidated Financial Statements in the Annual Report, dilutive RSUs may vary widely from period-to-period.
The potentially dilutive impact from stock options, RSAs and RSUs is calculated under the treasury stock method. Under this method, proceeds based on the exercise price and unearned compensation are assumed to be used to repurchase shares on the open market at the average market price for the period, reducing the number of potential new shares to be issued and sometimes causing an antidilutive effect. The computation of diluted EPS for the three months ended March 31, 2018 and 2017 excludes 80,449 and 6,801 potentially dilutive shares, respectively, because to include them would be antidilutive for the period. However, these shares could potentially dilute basic EPS in the future. The potentially dilutive impact from the forward sale of our common stock pursuant to the forward sale agreements that we discuss below in “Shareholders’ Equity and Noncontrolling Interests – Sempra Energy Common Stock Offering,” is reflected in our diluted EPS calculation using the treasury stock method. We anticipate there will be a dilutive effect on our EPS except during periods when the average market price of shares of our common stock is below the applicable adjusted forward sale price, subject to increase or decrease based on the overnight bank funding rate, less a spread, and subject to decrease by amounts related to expected dividends on shares of our common stock during the term of the forward sale agreements. Additionally, if we decide to physically settle or net share settle the forward sale agreements, delivery of our shares to the forward purchasers on any such physical settlement or net share settlement of the forward sale agreements would result in dilution to our EPS. The potentially dilutive impact from our 6% mandatory convertible preferred stock, series A (mandatory convertible preferred stock) issued in January 2018 is calculated under the if-converted method. The computation of diluted EPS for the three months ended March 31, 2018 excludes 15,592,572 potentially dilutive shares, because to include them would be antidilutive for the period. However, these shares could potentially dilute basic EPS in the future. We discuss the issuance of the mandatory convertible preferred stock in “Shareholders’ Equity and Noncontrolling Interests – Sempra Energy 6% Mandatory Convertible Preferred Stock, Series A” below. Pursuant to our Sempra Energy share-based compensation plans, Sempra Energy’s Board of Directors granted 356,496 performance-based RSUs and 195,994 service-based RSUs during the three months ended March 31, 2018, primarily in January. During the three months ended March 31, 2018, IEnova granted 437,729 RSUs from the IEnova 2013 Long-Term Incentive Plan, under which awards are cash settled at vesting based on the price of IEnova common stock. We discuss share-based compensation plans and related awards further in Note 8 of the Notes to Consolidated Financial Statements in the Annual Report.COMPREHENSIVE INCOME The following tables present the changes in AOCI by component and amounts reclassified out of AOCI to net income, excluding amounts attributable to NCI:
CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT(1)
(Dollars in millions)
| Foreign currency translation adjustments |  | Financial instruments |  | Pension and other postretirement benefits |  | Total accumulated other comprehensive income (loss)
| Three months ended March 31, 2018 and 2017
Sempra Energy Consolidated: |  |  |  |  |  |  |
Balance as of December 31, 2017 | $ | (420 | ) |  | $ | (122 | ) |  | $ | (84 | ) |  | $ | (626 | )
Cumulative-effect adjustment from change in accounting principle | — |  |  | (3 | ) |  | — |  |  | (3 | )
OCI before reclassifications | 24 |  |  | 66 |  |  | — |  |  | 90 |
Amounts reclassified from AOCI | — |  |  | (8 | ) |  | 2 |  |  | (6 | )
Net OCI | 24 |  |  | 58 |  |  | 2 |  |  | 84 |
Balance as of March 31, 2018 | $ | (396 | ) |  | $ | (67 | ) |  | $ | (82 | ) |  | $ | (545 | )
|  |  |  |  | . |  |
Balance as of December 31, 2016 | $ | (527 | ) |  | $ | (125 | ) |  | $ | (96 | ) |  | $ | (748 | )
OCI before reclassifications | 46 |  |  | (2 | ) |  | — |  |  | 44 |
Amounts reclassified from AOCI | — |  |  | 6 |  |  | 2 |  |  | 8 |
Net OCI | 46 |  |  | 4 |  |  | 2 |  |  | 52 |
Balance as of March 31, 2017 | $ | (481 | ) |  | $ | (121 | ) |  | $ | (94 | ) |  | $ | (696 | )
SDG&E: |  |  |  |  |  |  |
Balance as of December 31, 2017 and March 31, 2018 |  |  |  |  | $ | (8 | ) |  | $ | (8 | )
Balance as of December 31, 2016 and March 31, 2017 |  |  |  |  | $ | (8 | ) |  | $ | (8 | )
SoCalGas: |  |  |  |  |  |  |
Balance as of December 31, 2017 and March 31, 2018 |  |  | $ | (13 | ) |  | $ | (8 | ) |  | $ | (21 | )
Balance as of December 31, 2016 and March 31, 2017 |  |  | $ | (13 | ) |  | $ | (9 | ) |  | $ | (22 | )
(1) | All amounts are net of income tax, if subject to tax, and exclude NCI.
RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
Details about accumulated other comprehensive income (loss) components | Amounts reclassified from accumulated other comprehensive income (loss) |  | Affected line item on Condensed Consolidated Statements of Operations
| Three months ended March 31, |  |
| 2018 |  | 2017 |  |
Sempra Energy Consolidated: |  |  |  |  |
Financial instruments: |  |  |  |  |
Interest rate and foreign exchange instruments(1) | $ | (2 | ) |  | $ | (3 | ) |  | Interest Expense
| (18 | ) |  | — |  |  | Other Income, Net
Interest rate and foreign exchange instruments | 4 |  |  | 4 |  |  | Equity Losses
Foreign exchange instruments | — |  |  | 2 |  |  | Revenues: Energy-Related Businesses
Commodity contracts not subject to rate recovery | — |  |  | 9 |  |  | Revenues: Energy-Related Businesses
Total before income tax | (16 | ) |  | 12 |  |  |
| 3 |  |  | (4 | ) |  | Income Tax Expense
Net of income tax | (13 | ) |  | 8 |  |  |
| 5 |  |  | (2 | ) |  | Losses (Earnings) Attributable to Noncontrolling Interests
| $ | (8 | ) |  | $ | 6 |  |  |
Pension and other postretirement benefits: |  |  |  |  |
Amortization of actuarial loss(2) | $ | 3 |  |  | $ | 3 |  |  | Other Income, Net
| (1 | ) |  | (1 | ) |  | Income Tax Expense
Net of income tax | $ | 2 |  |  | $ | 2 |  |  |
Total reclassifications for the period, net of tax | $ | (6 | ) |  | $ | 8 |  |  |
SDG&E: |  |  |  |  |
Financial instruments: |  |  |  |  |
Interest rate instruments(1) | $ | 3 |  |  | $ | 3 |  |  | Interest Expense
| (3 | ) |  | (3 | ) |  | Losses (Earnings) Attributable to Noncontrolling Interest
Total reclassifications for the period, net of tax | $ | — |  |  | $ | — |  |  |
(1) | Amounts include Otay Mesa VIE. All of SDG&E’s interest rate derivative activity relates to Otay Mesa VIE.
(2) | Amounts are included in the computation of net periodic benefit cost (see “Pension and Other Postretirement Benefits” above).
For the three months ended March 31, 2018 and 2017, reclassifications out of AOCI to net income were negligible for SoCalGas.
SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS The following tables provide reconciliations of changes in Sempra Energy’s, SDG&E’s and SoCalGas’ shareholders’ equity and NCI for the three months ended March 31, 2018 and 2017.
SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS – SEMPRA ENERGY CONSOLIDATED
(Dollars in millions)
| Sempra Energy shareholders’ equity |  | Non- controlling interests(1) |  | Total equity
Balance at December 31, 2017 | $ | 12,670 |  |  | $ | 2,470 |  |  | $ | 15,140 |
Cumulative-effect adjustment from change in accounting principle | (1 | ) |  | — |  |  | (1 | )
Comprehensive income (loss) | 459 |  |  | (2 | ) |  | 457 |
Share-based compensation expense | 15 |  |  | — |  |  | 15 |
Mandatory convertible preferred stock dividends declared | (28 | ) |  | — |  |  | (28 | )
Common stock dividends declared | (236 | ) |  | — |  |  | (236 | )
Issuances of mandatory convertible preferred stock | 1,693 |  |  | — |  |  | 1,693 |
Issuances of common stock | 1,291 |  |  | — |  |  | 1,291 |
Repurchases of common stock | (19 | ) |  | — |  |  | (19 | )
Distributions to noncontrolling interests | — |  |  | (7 | ) |  | (7 | )
Balance at March 31, 2018 | $ | 15,844 |  |  | $ | 2,461 |  |  | $ | 18,305 |
Balance at December 31, 2016 | $ | 12,951 |  |  | $ | 2,290 |  |  | $ | 15,241 |
Comprehensive income | 493 |  |  | 22 |  |  | 515 |
Share-based compensation expense | 10 |  |  | — |  |  | 10 |
Common stock dividends declared | (206 | ) |  | — |  |  | (206 | )
Issuances of common stock | 30 |  |  | — |  |  | 30 |
Repurchases of common stock | (14 | ) |  | — |  |  | (14 | )
Distributions to noncontrolling interests | — |  |  | (7 | ) |  | (7 | )
Balance at March 31, 2017 | $ | 13,264 |  |  | $ | 2,305 |  |  | $ | 15,569 |
(1) | NCI includes the preferred stock of SoCalGas and other NCI as listed in the table below under “Other Noncontrolling Interests.”
SHAREHOLDER’S EQUITY AND NONCONTROLLING INTEREST – SDG&E
(Dollars in millions)
| SDG&E shareholder’s equity |  | Non- controlling interest |  | Total equity
Balance at December 31, 2017 | $ | 5,598 |  |  | $ | 28 |  |  | $ | 5,626 |
Comprehensive income | 170 |  |  | 3 |  |  | 173 |
Distributions to noncontrolling interest | — |  |  | (1 | ) |  | (1 | )
Balance at March 31, 2018 | $ | 5,768 |  |  | $ | 30 |  |  | $ | 5,798 |
Balance at December 31, 2016 | $ | 5,641 |  |  | $ | 37 |  |  | $ | 5,678 |
Comprehensive income | 155 |  |  | 5 |  |  | 160 |
Common stock dividends declared | (175 | ) |  | — |  |  | (175 | )
Distributions to noncontrolling interest | — |  |  | (3 | ) |  | (3 | )
Balance at March 31, 2017 | $ | 5,621 |  |  | $ | 39 |  |  | $ | 5,660 |
SHAREHOLDERS’ EQUITY – SOCALGAS
(Dollars in millions)
| Total equity
Balance at December 31, 2017 | $ | 3,907 |
Comprehensive income | 225 |
Balance at March 31, 2018 | $ | 4,132 |
Balance at December 31, 2016 | $ | 3,510 |
Comprehensive income | 203 |
Balance at March 31, 2017 | $ | 3,713 |
Ownership interests that are held by owners other than Sempra Energy and SDG&E in subsidiaries or entities consolidated by them are accounted for and reported as NCI. As a result, NCI is reported as a separate component of equity on the Condensed Consolidated Balance Sheets. Earnings or losses attributable to NCI are separately identified on the Condensed Consolidated Statements of Operations, and comprehensive income or loss attributable to NCI is separately identified on the Condensed Consolidated Statements of Comprehensive Income (Loss). Sempra Energy 6% Mandatory Convertible Preferred Stock, Series A On January 9, 2018, we sold 17,250,000 shares of our mandatory convertible preferred stock at $100.00 per share (or $98.20 per share after deducting the underwriting discount), including 2,250,000 shares purchased by the underwriters directly from us as a result of fully exercising their option to purchase such shares from us solely to cover overallotments. Each share of mandatory convertible preferred stock has a liquidation value of $100.00. We used the net proceeds of approximately $1.69 billion (net of underwriting discounts and equity issuance costs of $32 million) to fund a portion of the Merger Consideration, as we discuss in Note 5. We discuss the terms of the mandatory convertible preferred stock in Note 18 of the Notes to Consolidated Financial Statements in the Annual Report. Sempra Energy Common Stock Offering On January 9, 2018, we completed the offering of 23,364,486 shares of our common stock, no par value, in a registered public offering at $107.00 per share ($105.074 per share after deducting the underwriting discount), pursuant to forward sale agreements with each of Morgan Stanley & Co. LLC, an affiliate of RBC Capital Markets, LLC and an affiliate of Barclays Capital Inc. (the forward purchasers). The shares offered pursuant to the forward sale agreements were borrowed by the underwriters and therefore are not newly issued shares. The underwriters of the offering fully exercised the option we granted them to purchase an additional 3,504,672 shares of common stock directly from us solely to cover overallotments. After the offering, including the issuance of shares pursuant to the exercise of the overallotment option, the aggregate shares of common stock sold in the offering totaled 26,869,158. We received net proceeds of $367 million (net of underwriting discounts and equity issuance costs of $8 million) from the sale of shares to cover overallotments. The initial forward sale price under the forward sale agreements is $105.074 per share, which was the public offering price in the common stock offering less the underwriting discount. However, the forward sale price is subject to adjustment pursuant to the forward sale agreements. We did not initially receive any proceeds from the sale of our common stock sold by the forward sellers to the underwriters. On March 8, 2018, we settled approximately $900 million (net of underwriting discounts of $16 million) of forward sales under the forward sale agreements by delivering 8,556,630 shares of newly issued Sempra Energy common stock at a forward sale price of $105.1816 per share. As of May 7, 2018, a total of 14,807,856 shares of Sempra Energy common stock remain subject to future settlement under the forward sale agreements, which may be settled on one or more dates specified by us occurring no later than December 15, 2019. Although we expect to settle the forward sale agreements entirely by the physical delivery of shares of our common stock in exchange for cash proceeds, we may, subject to certain conditions, elect cash settlement or net share settlement for all or a portion of our obligations under the forward sale agreements. The forward sale agreements are also subject to acceleration by the forward purchasers upon the occurrence of certain events. We used the net proceeds from the sale of shares in the January 2018 offering and from the settlement of forward sales in March 2018 under the forward sale agreements to fund a portion of the Merger Consideration, as we discuss in Note 5. SoCalGas Preferred Stock The preferred stock at SoCalGas is presented at Sempra Energy as a noncontrolling interest. Sempra Energy records charges against income related to NCI for preferred stock dividends declared by SoCalGas. We provide additional information regarding preferred stock in Note 11 of the Notes to Consolidated Financial Statements in the Annual Report. Other Noncontrolling Interests At March 31, 2018 and December 31, 2017, we reported the following noncontrolling ownership interests held by others (not including preferred shareholders) in Other Noncontrolling Interests in Total Equity on Sempra Energy’s Condensed Consolidated Balance Sheets:
OTHER NONCONTROLLING INTERESTS
(Dollars in millions) |  |
| Percent ownership held by noncontrolling interests |  | Equity held by noncontrolling interests
| March 31, 2018 |  | December 31, 2017 |  | March 31, 2018 |  | December 31, 2017
SDG&E: |  |  |  |  |  |  |
Otay Mesa VIE | 100 | % | 100 | % | $ | 30 |  |  | $ | 28 |
Sempra South American Utilities: |  |  |  |  |  |  |
Chilquinta Energía subsidiaries(1) | 22.9 – 43.4 |  | 22.9 – 43.4 |  | 26 |  |  | 24 |
Luz del Sur | 16.4 |  | 16.4 |  | 193 |  |  | 189 |
Tecsur | 9.8 |  | 9.8 |  | 4 |  |  | 4 |
Sempra Mexico: |  |  |  |  |  |  |
IEnova(2) | 33.6 |  | 33.6 |  | 1,539 |  |  | 1,532 |
Sempra Renewables: |  |  |  |  |  |  |
Tax equity arrangements – wind(3) | NA |  | NA |  | 167 |  |  | 181 |
Tax equity arrangements – solar(3) | NA |  | NA |  | 440 |  |  | 450 |
Sempra LNG & Midstream: |  |  |  |  |  |  |
Bay Gas | 9.1 |  | 9.1 |  | 29 |  |  | 28 |
Liberty Gas Storage, LLC | 23.4 |  | 23.3 |  | 13 |  |  | 14 |
Total Sempra Energy |  |  |  |  | $ | 2,441 |  |  | $ | 2,450 |
(1) | Chilquinta Energía has four subsidiaries with NCI held by others. Percentage range reflects the highest and lowest ownership percentages among these subsidiaries.
(2) | IEnova has a subsidiary with a 10-percent NCI held by others. The equity held by NCI is negligible at both March 31, 2018 and December 31, 2017.
(3) | Net income or loss attributable to NCI is computed using the HLBV method and is not based on ownership percentages.
Sempra Renewables In the fourth quarter of 2017, Sempra Renewables entered into a membership interest purchase agreement with a financial institution to form a tax equity limited liability company that includes a Sempra Renewables’ portfolio of four solar power generation projects located in Fresno County, California. Sempra Renewables received tax equity funding for three of the four phases in the fourth quarter of 2017. Additional funding for the fourth phase of the tax equity arrangement occurred in April 2018. Sempra Renewables continues to consolidate the entity and report NCI representing the financial institution’s membership interest in the tax equity arrangement.TRANSACTIONS WITH AFFILIATES Amounts due from and to unconsolidated affiliates at Sempra Energy Consolidated, SDG&E and SoCalGas are as follows:
AMOUNTS DUE FROM (TO) UNCONSOLIDATED AFFILIATES
(Dollars in millions)
| March 31, 2018 |  | December 31, 2017
Sempra Energy Consolidated: |  |  |
Total due from various unconsolidated affiliates – current | $ | 63 |  |  | $ | 37 |
Sempra South American Utilities(1): |  |  |
Eletrans – 4% Note(2) | $ | 38 |  |  | $ | 103 |
Other related party receivables | 1 |  |  | 1 |
Sempra Mexico(1): |  |  |
IMG – Note due March 15, 2022(3) | 621 |  |  | 487 |
Energía Sierra Juárez – Note(4) | 6 |  |  | 7 |
Total due from unconsolidated affiliates – noncurrent | $ | 666 |  |  | $ | 598 |
Total due to various unconsolidated affiliates – current | $ | (6 | ) |  | $ | (7 | )
Sempra Mexico(1): |  |  |
Total due to unconsolidated affiliates – noncurrent – TAG – Note due December 20, 2021(5) | $ | (35 | ) |  | $ | (35 | )
SDG&E: |  |  |
Sempra Energy | $ | (32 | ) |  | $ | (30 | )
SoCalGas | (5 | ) |  | (4 | )
Various affiliates | (6 | ) |  | (6 | )
Total due to unconsolidated affiliates – current | $ | (43 | ) |  | $ | (40 | )
Income taxes due (to) from Sempra Energy(6) | $ | (39 | ) |  | $ | 27 |
SoCalGas: |  |  |
SDG&E | $ | 5 |  |  | $ | 4 |
Various affiliates | 1 |  |  | — |
Total due from unconsolidated affiliates – current | $ | 6 |  |  | $ | 4 |
Total due to unconsolidated affiliates – current – Sempra Energy | $ | (37 | ) |  | $ | (35 | )
Income taxes due (to) from Sempra Energy(6) | $ | (2 | ) |  | $ | 10 |
(1) | Amounts include principal balances plus accumulated interest outstanding.
(2) | U.S. dollar-denominated loan, at a fixed interest rate with no stated maturity date, to provide project financing for the construction of transmission lines at Eletrans, comprising joint ventures of Chilquinta Energía.
(3) | Mexican peso-denominated revolving line of credit for up to $14.2 billion Mexican pesos or approximately $777 million U.S. dollar-equivalent, at a variable interest rate based on the 91-day Interbank Equilibrium Interest Rate plus 220 bps (10.07 percent at March 31, 2018), to finance construction of the natural gas marine pipeline.
(4) | U.S. dollar-denominated loan, at a variable interest rate based on the 30-day LIBOR plus 637.5 bps (8.26 percent at March 31, 2018) with no stated maturity date, to finance the first phase of the Energía Sierra Juárez wind project, which is a joint venture of IEnova.
(5) | U.S. dollar-denominated loan, at a variable interest rate based on the 6-month LIBOR plus 290 bps (5.35 percent at March 31, 2018).
(6) | SDG&E and SoCalGas are included in the consolidated income tax return of Sempra Energy and are allocated income tax expense from Sempra Energy in an amount equal to that which would result from each company having always filed a separate return.
Revenues and cost of sales from unconsolidated affiliates are as follows:
REVENUES AND COST OF SALES FROM UNCONSOLIDATED AFFILIATES
(Dollars in millions)
| Three months ended March 31,
| 2018 |  | 2017
Revenues: |  |  |
Sempra Energy Consolidated | $ | 16 |  |  | $ | 7 |
SDG&E | 2 |  |  | 2 |
SoCalGas | 17 |  |  | 18 |
Cost of Sales: |  |  |
Sempra Energy Consolidated | $ | 12 |  |  | $ | 14 |
SDG&E | 19 |  |  | 20 |
Guarantees Sempra Energy has provided guarantees to certain of its joint ventures, entered into guarantees related to the financing of the Cameron LNG JV project and has provided guarantees to certain third parties for the benefit of IMG, as we discuss in Note 6 below and in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.OTHER INCOME, NET Other Income, Net on the Condensed Consolidated Statements of Operations consists of the following:
OTHER INCOME, NET |  |
(Dollars in millions) |  |
| Three months ended March 31,
| 2018 |  | 2017(1)
Sempra Energy Consolidated: |  |  |
Allowance for equity funds used during construction | $ | 27 |  |  | $ | 72 |
Investment (losses) gains(2) | (1 | ) |  | 16 |
Gains on interest rate and foreign exchange instruments, net | 62 |  |  | 63 |
Foreign currency transaction gains, net(3) | 30 |  |  | 10 |
Non-service component of net periodic benefit credit | 32 |  |  | 5 |
Interest on regulatory balancing accounts, net | — |  |  | 2 |
Sundry, net | 3 |  |  | 6 |
Total | $ | 153 |  |  | $ | 174 |
SDG&E: |  |  |
Allowance for equity funds used during construction | $ | 18 |  |  | $ | 15 |
Non-service component of net periodic benefit credit | 9 |  |  | 4 |
Interest on regulatory balancing accounts, net | — |  |  | 2 |
Sundry, net | 1 |  |  | 1 |
Total | $ | 28 |  |  | $ | 22 |
SoCalGas: |  |  |
Allowance for equity funds used during construction | $ | 9 |  |  | $ | 11 |
Non-service component of net periodic benefit credit | 25 |  |  | 3 |
Sundry, net | (1 | ) |  | — |
Total | $ | 33 |  |  | $ | 14 |
(1) | As adjusted for the retrospective adoption of ASU 2017-07, which we discuss in Note 2.
(2) | Represents investment (losses) gains on dedicated assets in support of our executive retirement and deferred compensation plans. These amounts are partially offset by corresponding changes in compensation expense related to the plans, recorded in Operation and Maintenance on the Condensed Consolidated Statements of Operations.
(3) Includes $39 million gain in 2018 from translation to U.S. dollars of a Mexican peso-denominated loan to the IMG joint venture, which is offset by a $39 million loss in Equity Losses on the Condensed Consolidated Statement of Operations.INCOME TAXES
INCOME TAX EXPENSE AND EFFECTIVE INCOME TAX RATES
(Dollars in millions)
| Pretax income |  | Income tax expense |  | ETR |  | Pretax income |  | Income tax expense |  | ETR
| Three months ended March 31,
| 2018 |  | 2017
Sempra Energy Consolidated(1) | $ | 672 |  |  | $ | 289 |  |  | 43 | % |  | $ | 755 |  |  | $ | 295 |  |  | 39 | %
SDG&E | 225 |  |  | 56 |  |  | 25 |  |  | 247 |  |  | 90 |  |  | 36 |
SoCalGas | 284 |  |  | 59 |  |  | 21 |  |  | 301 |  |  | 98 |  |  | 33 |
(1) | Sempra Energy's pretax income represents Income Before Income Taxes and Equity Losses of Unconsolidated Subsidiaries plus equity earnings before income tax of $5 million and $3 million in the three months ended March 31, 2018 and 2017, respectively. We discuss how we recognize equity earnings in Note 6.
Sempra Energy, SDG&E and SoCalGas record income taxes for interim periods utilizing a forecasted ETR anticipated for the full year, in accordance with U.S. GAAP. Unusual and infrequent items and items that cannot be reliably estimated are recorded in the interim period in which they actually occur, which can result in variability in the ETR. For SDG&E and SoCalGas, the CPUC requires flow-through rate-making treatment for the current income tax benefit or expense arising from certain property-related and other temporary differences between the treatment for financial reporting and income tax, which will reverse over time. Under the regulatory accounting treatment required for these flow-through temporary differences, deferred income tax assets and liabilities are not recorded to deferred income tax expense, but rather to a regulatory asset or liability, which impacts the ETR. As a result, changes in the relative size of these items compared to pretax income, from period to period, can cause variations in the ETR. The following items are subject to flow-through treatment:
▪ | repairs expenditures related to a certain portion of utility plant assets
▪ | the equity portion of AFUDC
▪ | a portion of the cost of removal of utility plant assets
▪ | utility self-developed software expenditures
▪ | depreciation on a certain portion of utility plant assets
▪ | state income taxes
The AFUDC related to equity recorded for regulated construction projects at Sempra Mexico has similar flow-through treatment. On December 22, 2017, the TCJA was signed into law. The TCJA reduced the U.S. statutory corporate federal income tax rate from 35 percent to 21 percent, effective January 1, 2018. In the fourth quarter of 2017, we recorded $870 million of income tax expense related to the effects of the TCJA. This expense was provisional, using our best estimates and the information available to us through the date those financial statements were issued. As permitted by and in accordance with the guidance issued by the SEC, we may adjust our provisional estimates in reporting periods throughout 2018 as we complete our analysis and as more information becomes available, and these adjustments may affect earnings. Events and information that may still result in adjustments to our provisional estimates include interpretations of rulings by the U.S. Department of the Treasury or states, the filing of our 2017 income tax return and the finalization of our calculation of foreign undistributed earnings. In the three months ended March 31, 2018, Sempra Energy recorded $25 million of additional income tax expense to adjust the provisional estimates recorded in 2017. Additionally, SDG&E and SoCalGas adjusted their provisional estimates relating to the remeasurement of deferred income taxes. SDG&E decreased its deferred tax liabilities by $38 million and SoCalGas increased its deferred tax liabilities by $5 million, with each amount offset by a change in their respective regulatory liabilities. In the three months ended March 31, 2018 and 2017, we recorded $94 million ($63 million after NCI) and $97 million ($65 million after NCI), respectively, of income tax expense primarily from the transactional effects of Mexican foreign currency and inflation. In the three months ended March 31, 2018 and 2017, we recorded net gains of $44 million ($32 million after-tax) and $65 million ($39 million after-tax), respectively, in Other Income, Net, on the Condensed Consolidated Statements of Operations, from foreign currency derivatives that are hedging Sempra Mexico parent’s exposure to movements in the Mexican peso from its controlling interest in IEnova. We provide additional information about the TCJA and our accounting for income taxes in Notes 1 and 6 of the Notes to Consolidated Financial Statements in the Annual Report.

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