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COMMITMENTS AND CONTINGENCIES | 12 Months Ended
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Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | COMMITMENTS AND CONTINGENCIES LEGAL PROCEEDINGS We accrue losses for a legal proceeding when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. However, the uncertainties inherent in legal proceedings make it difficult to reasonably estimate the costs and effects of resolving these matters. Accordingly, actual costs incurred may differ materially from amounts accrued, may exceed applicable insurance coverage and could materially adversely affect our business, cash flows, results of operations, financial condition and prospects. Unless otherwise indicated, we are unable to estimate reasonably possible losses in excess of any amounts accrued. At December 31, 2018, loss contingency accruals for legal matters, including associated legal fees, that are probable and estimable were $200 million for Sempra Energy Consolidated, including $2 million for SDG&E and $147 million for SoCalGas. Amounts for Sempra Energy and SoCalGas include $136 million for matters related to the Aliso Canyon natural gas storage facility gas leak, which we discuss below. We discuss our policy regarding accrual of legal fees in Note 1. SDG&E 2007 Wildfire Litigation and Net Cost Recovery Status SDG&E has resolved all litigation associated with three wildfires that occurred in October 2007. As a result of a CPUC decision denying SDG&E’s request to recover wildfire costs, SDG&E wrote off the wildfire regulatory asset, resulting in a charge of $351 million ($208 million after tax) in the third quarter of 2017. SDG&E continues to vigorously pursue recovery of these costs, which were incurred through settling claims brought under the doctrine of inverse condemnation. SDG&E applied to the CPUC for rehearing of its decision on January 2, 2018. On July 12, 2018, the CPUC adopted a decision denying the rehearing requests filed by SDG&E and other parties. On August 3, 2018, SDG&E filed an appeal with the California Court of Appeal seeking to reverse the CPUC’s decision. The filing also asked the court to direct the CPUC to award SDG&E recovery for payments made to settle inverse condemnation claims and limit any reasonableness review to the amounts of those payments. On November 13, 2018, the California Court of Appeal denied SDG&E’s petition. On November 26, 2018, SDG&E filed an appeal with the California Supreme Court seeking to reverse the decisions of the CPUC and the California Court of Appeal. In January 2019, the California Supreme Court denied SDG&E’s petition. We intend to appeal the decision up to the U.S. Supreme Court seeking to reverse the CPUC’s decision. SoCalGas Aliso Canyon Natural Gas Storage Facility Gas Leak On October 23, 2015, SoCalGas discovered a leak at one of its injection-and-withdrawal wells, SS25, at its Aliso Canyon natural gas storage facility, located in the northern part of the San Fernando Valley in Los Angeles County. The Aliso Canyon natural gas storage facility has been operated by SoCalGas since 1972. SS25 is one of more than 100 injection-and-withdrawal wells at the storage facility. SoCalGas worked closely with several of the world’s leading experts to stop the Leak, and on February 18, 2016, DOGGR confirmed that the well was permanently sealed. SoCalGas calculated that approximately 4.62 Bcf of natural gas was released from the Aliso Canyon natural gas storage facility as a result of the Leak. As discussed in “Cost Estimates and Accounting Impact” below, SoCalGas incurred significant costs for temporary relocation, to control the well and to stop the Leak, as well as to purchase natural gas to replace that lost through the Leak. As discussed in “Local Community Mitigation Efforts” below, during the Leak and in the months following the sealing of the well, SoCalGas provided support to nearby residents who wished to temporarily relocate as a result of the Leak. These programs ended in July 2016. SoCalGas has additionally incurred significant costs to defend against and, in certain cases settle, civil and criminal litigation arising from the Leak; to pay for the ongoing root cause analysis to investigate the technical cause of the Leak; to respond to various government and agency investigations regarding the Leak, and to comply with increased regulation imposed as a result of the Leak. As further described below in “Civil and Criminal Litigation,” “Regulatory Proceedings” and “Governmental Investigations and Orders and Additional Regulation,” these activities are ongoing and SoCalGas anticipates that it will incur additional such costs, which may also be significant. Local Community Mitigation Efforts. Pursuant to a directive by the DPH and orders by the LA Superior Court, SoCalGas provided temporary relocation support to residents in the nearby community who requested it. Following the permanent sealing of the well, the DPH conducted testing in certain homes in the Porter Ranch community and concluded that indoor conditions did not present a long-term health risk and that it was safe for those residents to return home. In May 2016, the DPH also issued a directive that SoCalGas additionally professionally clean (in accordance with the proposed protocol prepared by the DPH) the homes of all residents located within the Porter Ranch Neighborhood Council boundary, or who participated in the relocation program, or who are located within a five-mile radius of the Aliso Canyon natural gas storage facility and experienced symptoms from the Leak (the Directive). SoCalGas disputes the Directive, contending that it is invalid and unenforceable, and has filed a petition for writ of mandate to set aside the Directive. The costs incurred to remediate and stop the Leak and to mitigate local community impacts have been significant and may increase, and we may be subject to potentially significant damages, restitution, and civil, administrative and criminal fines, penalties and other costs. If any of these costs are not covered by insurance (including any costs in excess of applicable policy limits), if there are significant 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 could have a material adverse effect on SoCalGas’ and Sempra Energy’s cash flows, financial condition and results of operations. Civil and Criminal Litigation. As of February 21, 2019, 393 lawsuits, including approximately 48,000 plaintiffs, are pending against SoCalGas, some of which have also named Sempra Energy. All these cases, other than a matter brought by the Los Angeles County District Attorney, two complaints on behalf of certain firefighters and the federal securities class action discussed below, are coordinated before a single court in the LA Superior Court for pretrial management (the Coordination Proceeding). Pursuant to the Coordination Proceeding, in March 2017, the individuals and business entities asserting tort and Proposition 65 claims filed a Second Amended Consolidated Master Case Complaint for Individual Actions, through which their separate lawsuits will be managed for pretrial purposes. The consolidated complaint asserts causes of action for negligence, negligence per se, private and public nuisance (continuing and permanent), trespass, inverse condemnation, strict liability, negligent and intentional infliction of emotional distress, fraudulent concealment, loss of consortium and violations of Proposition 65 against SoCalGas, with certain causes also naming Sempra Energy. The consolidated complaint seeks compensatory and punitive damages for personal injuries, lost wages and/or lost profits, property damage and diminution in property value, injunctive relief, costs of future medical monitoring, civil penalties (including penalties associated with Proposition 65 claims alleging violation of requirements for warning about certain chemical exposures), and attorneys’ fees. In January 2017, pursuant to the Coordination Proceeding, two consolidated class action complaints were filed against SoCalGas and Sempra Energy, one on behalf of a putative class of persons and businesses who own or lease real property within a five-mile radius of the well (the Property Class Action), and a second on behalf of a putative class of all persons and entities conducting business within five miles of the facility (the Business Class Action). Both complaints assert claims for strict liability for ultra-hazardous activities, negligence and violation of the California Unfair Competition Law. The Property Class Action also asserts claims for negligence per se, trespass, permanent and continuing public and private nuisance, and inverse condemnation. The Business Class Action also asserts a claim for negligent interference with prospective economic advantage. Both complaints seek compensatory, statutory and punitive damages, injunctive relief and attorneys’ fees. In December 2017, the California Court of Appeal, Second Appellate District ruled that the purely economic damages alleged in the Business Class Action are not recoverable under the law. In February 2018, the California Supreme Court granted a petition filed by the plaintiffs to review that ruling. In September and October of 2017, property developers filed two complaints, one of which was amended in July 2018, against SoCalGas and Sempra Energy alleging causes of action for strict liability, negligence per se, negligence, continuing nuisance, permanent nuisance and violation of the California Unfair Competition Law, as well as claims for negligence against certain directors of SoCalGas. The complaints seek compensatory, statutory and punitive damages, injunctive relief and attorneys’ fees. These claims are joined in the Coordination Proceeding. In addition to the lawsuits described above, in October 2018 and January 2019, complaints were filed on behalf of 51 plaintiffs who are firefighters stationed near the Aliso Canyon natural gas storage facility and allege they were injured by exposure to chemicals released during the Leak. The complaints against SoCalGas and Sempra Energy assert causes of actions for negligence, negligence per se, private and public nuisance (continuing and permanent), trespass, inverse condemnation, strict liability, negligent and intentional infliction of emotional distress, fraudulent concealment and loss of consortium. The complaints seek compensatory and punitive damages for personal injuries, lost wages and/or lost profits, property damage and diminution in property value, and attorney’s fees. SoCalGas expects that these cases will be joined in the Coordination Proceeding. In addition, a federal securities class action alleging violation of the federal securities laws has been filed against Sempra Energy and certain of its officers and certain of its directors in the SDCA. In March 2018, the District Court dismissed the action with prejudice, and in December 2018 the Court denied the plaintiffs’ request for reconsideration of that order. The plaintiffs have filed a notice of appeal of the dismissal. Five shareholder derivative actions are also pending in the Coordination Proceeding alleging breach of fiduciary duties against certain officers and certain directors of Sempra Energy and/or SoCalGas, four of which were joined in a Consolidated Shareholder Derivative Complaint in August 2017. Three actions filed by public entities are pending in the Coordination Proceeding. First, in July 2016, the County of Los Angeles, on behalf of itself and the people of the State of California, filed a complaint against SoCalGas in the LA Superior Court for public nuisance, unfair competition, breach of franchise agreement, breach of lease, and damages. This suit alleges that the four natural gas storage fields operated by SoCalGas in Los Angeles County require safety upgrades, including the installation of a sub-surface safety shut-off valve on every well. It additionally alleges that SoCalGas failed to comply with the DPH Directive. It seeks preliminary and permanent injunctive relief, civil penalties, and damages for the County’s costs to respond to the Leak, as well as punitive damages and attorneys’ fees. Second, in August 2016, the California Attorney General, acting in an independent capacity and on behalf of the people of the State of California and the CARB, together with the Los Angeles City Attorney, filed a third amended complaint on behalf of the people of the State of California against SoCalGas alleging public nuisance, violation of the California Unfair Competition Law, violations of California Health and Safety Code sections 41700 (prohibiting discharge of air contaminants that cause annoyance to the public) and 25510 (requiring reporting of the release of hazardous material), as well as California Government Code section 12607 for equitable relief for the protection of natural resources. The complaint seeks an order for injunctive relief, to abate the public nuisance, and to impose civil penalties. Third, a petition for writ of mandate filed by the County of Los Angeles is pending against DOGGR and its State Oil and Gas Supervisor and the CPUC and its Executive Director, as to which SoCalGas is the real party in interest. The petition alleges that in issuing its July 2017 determination that the requirements for the resumption of injection operations were met (discussed under “Natural Gas Storage Operations and Reliability” below), DOGGR failed to comply with the provisions of SB 380, which requires a comprehensive safety review of the Aliso Canyon natural gas storage facility before injection of natural gas may resume. The County alleges, among other things, that DOGGR failed to comply with the provisions of SB 380 in declaring the safety review complete and authorizing the resumption of injection of natural gas into the facility before the root cause analysis was complete, failing to make its safety-review documents available to the public and failing to address seismic risks to the field as part of its safety review. The County further alleges that CEQA required DOGGR to prepare an environmental impact review before the resumption of injection of natural gas at the facility may be approved. The petition seeks a writ of mandate requiring DOGGR and the State Oil and Gas Supervisor to comply with SB 380 and CEQA, and to produce records in response to the County’s Public Records Act request, as well as declaratory and injunctive relief against any authorization to inject natural gas and attorneys’ fees. In August 2018, SoCalGas entered into a settlement agreement with the Los Angeles City Attorney’s Office, the County of Los Angeles, the California Office of the Attorney General and CARB (collectively, the Government Plaintiffs) to settle the three public entity actions for payments and funding for environmental projects totaling $120 million, including $21 million in civil penalties (the Government Plaintiffs Settlement). Under the settlement agreement, SoCalGas also agreed to continue its fence-line methane monitoring program, establish a safety committee and hire an independent ombudsman to monitor and report on the safety at the facility. This settlement also fully resolves SoCalGas’ commitment to mitigate the actual natural gas released during the Leak and fulfills the requirements of the Governor’s Order, described below, for SoCalGas to pay for a mitigation program developed by CARB. The Government Plaintiffs Settlement was approved by the LA Superior Court in February 2019. Separately, in February 2016, the Los Angeles County District Attorney’s Office filed a misdemeanor criminal complaint against SoCalGas seeking penalties and other remedies for alleged failure to provide timely notice of the Leak pursuant to California Health and Safety Code section 25510(a), Los Angeles County Code section 12.56.030, and Title 19 California Code of Regulations section 2703(a), and for allegedly violating California Health and Safety Code section 41700 prohibiting discharge of air contaminants that cause annoyance to the public. Pursuant to a settlement agreement with the Los Angeles County District Attorney’s Office, SoCalGas agreed to plead no contest to the notice charge under Health and Safety Code section 25510(a) and agreed to pay the maximum fine of $75,000, penalty assessments of approximately $233,500, and operational commitments estimated to cost approximately $6 million, reimbursements and assessments in exchange for the Los Angeles County District Attorney’s Office moving to dismiss the remaining counts at sentencing and settling the complaint (the District Attorney Settlement). In November 2016, SoCalGas completed the commitments and obligations under the District Attorney Settlement, and on November 29, 2016, the LA Superior Court approved the settlement and entered judgment on the notice charge. Certain individuals who object to the settlement have filed an appeal of the judgment, contending they should be granted restitution. The costs of defending against these civil and criminal lawsuits, and any damages, restitution, and civil, administrative and criminal fines, penalties and other costs, if awarded or imposed, as well as the costs of mitigating the actual natural gas released, could be significant. If any of these costs are not covered by insurance (including any costs in excess of applicable policy limits), if there are significant delays in receiving insurance recoveries, or if the insurance recoveries are subject to income taxes, such amounts could have a material adverse effect on SoCalGas’ and Sempra Energy’s cash flows, financial condition and results of operations. Regulatory Proceedings. In February 2017, the CPUC opened a proceeding pursuant to SB 380 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. The CPUC indicated it intends to conduct the proceeding in two phases, with Phase 1 undertaking a comprehensive effort to develop the appropriate analyses and scenarios to evaluate the impact of reducing or eliminating the use of the Aliso Canyon natural gas storage facility and Phase 2 using those analyses and scenarios to evaluate the impacts of reducing or eliminating the use of the Aliso Canyon natural gas storage facility. The order establishing the scope of the proceeding expressly excludes issues with respect to air quality, public health, causation, culpability or cost responsibility regarding the Leak. In January 2019, the CPUC concluded Phase 1 of the proceeding by establishing a framework for the hydraulic, production cost and economic modeling assumptions for the potential reduction in usage or elimination of the Aliso Canyon natural gas storage facility. Phase 2 of the proceeding is expected to begin in the first quarter of 2019 and will evaluate the impacts of reducing or eliminating the Aliso Canyon natural gas storage facility using the established framework and models. Section 455.5 of the California Public Utilities Code, among other things, directs regulated utilities to notify the CPUC if all or any portion of a major facility has been out of service for nine consecutive months. Following an OII proceeding, the CPUC ruled in September 2018 that the Aliso Canyon natural gas storage facility had not been out of service for nine consecutive months within the meaning of section 455.5. Governmental Investigations and Orders and Additional Regulation. Various governmental agencies, including DOE, DOGGR, DPH, SCAQMD, CARB, Los Angeles Regional Water Quality Control Board, California Division of Occupational Safety and Health, CPUC, PHMSA, EPA, Los Angeles County District Attorney’s Office and California Attorney General’s Office, have investigated or are investigating this incident. In January 2016, DOGGR and the CPUC selected Blade Energy Partners to conduct, under their supervision, an independent analysis of the technical root cause of the Leak, to be funded by SoCalGas. The root cause analysis is ongoing, and its timing is under the control of Blade Energy Partners, DOGGR and the CPUC. In January 2016, the Governor of the State of California proclaimed a state of emergency in Los Angeles County due to the Leak. The proclamation ordered various actions with respect to the Leak, including: (1) applicable agencies must convene an independent panel of scientific and medical experts to review public health concerns stemming from the natural gas leak and evaluate whether additional measures are needed to protect public health; (2) the CPUC must ensure that SoCalGas covers costs related to the natural gas leak and its response while protecting ratepayers; (3) CARB must develop a program, to be funded by SoCalGas, to fully mitigate the Leak’s emissions of methane; and (4) DOGGR, CPUC, CARB and the CEC must submit to the Governor’s Office a report that assesses the long-term viability of natural gas storage facilities in California. In March 2016, the CARB issued its “Aliso Canyon Methane Leak Climate Impacts Mitigation Program” recommending a program to fully mitigate the emissions from the Leak. In October 2016, CARB issued a report concluding that SoCalGas should mitigate 109,000 metric tons of methane to fully mitigate the GHG impacts of the Leak. The Government Plaintiffs Settlement described above satisfies the mitigation requirement of the Governor’s emergency proclamation. Cost Estimates and Accounting Impact. At December 31, 2018, SoCalGas estimates its costs related to the Leak are $1,055 million (the cost estimate), which includes $1,027 million of costs recovered or probable of recovery from insurance. Approximately 54 percent of the cost estimate is for the temporary relocation program (including cleaning costs and certain labor costs). The remaining portion of the cost estimate includes costs incurred to defend litigation, for the root cause analysis being conducted by an independent third party, for efforts to control the well, to mitigate the actual natural gas released, for the cost of replacing the lost gas, and other costs, as well as the estimated costs to settle certain actions. SoCalGas adjusts the cost estimate as additional information becomes available. A substantial portion of the cost estimate has been paid, and $160 million is accrued as Reserve for Aliso Canyon Costs as of December 31, 2018 on SoCalGas’ and Sempra Energy’s Consolidated Balance Sheets. As of December 31, 2018, we recorded the expected recovery of the cost estimate related to the Leak of $461 million as Insurance Receivable for Aliso Canyon Costs on SoCalGas’ and Sempra Energy’s Consolidated Balance Sheets. This amount is net of insurance retentions and $566 million of insurance proceeds we received through December 31, 2018 related to portions of the cost estimate described above, including temporary relocation and associated processing costs, control-of-well expenses, legal costs and lost gas. If we were to conclude that this receivable or a portion of it is no longer probable of recovery from insurers, some or all of this receivable would be charged against earnings, which could have a material adverse effect on SoCalGas’ and Sempra Energy’s cash flows, financial condition and results of operations. As described in “Civil and Criminal Litigation” above, the actions seek compensatory, statutory and punitive damages, restitution, and civil, administrative and criminal fines, penalties and other costs, which, except for the amounts paid or estimated to settle certain actions, are not included in the cost estimate as it is not possible at this time to predict the outcome of these actions or reasonably estimate the amount of damages, restitution or civil, administrative or criminal fines, penalties or other costs that may be imposed. The recorded amounts above also do not include the costs to clean additional homes pursuant to the Directive, future legal costs necessary to defend litigation, and other potential costs that we currently do not anticipate incurring or that we cannot reasonably estimate. Furthermore, the cost estimate does not include certain other costs incurred by Sempra Energy associated with defending against shareholder derivative lawsuits. Insurance. Excluding directors’ and officers’ liability insurance, we have at least four kinds of insurance policies that together we estimate provide between $1.2 billion to $1.4 billion in insurance coverage, depending on the nature of the claims. We cannot predict all of the potential categories of costs or the total amount of costs that we may incur as a result of the Leak. Subject to various policy limits, exclusions and conditions, based on what we know as of the filing date of this report, we believe that our insurance policies collectively should cover the following categories of costs: costs incurred for temporary relocation and associated processing costs (including cleaning costs and certain labor costs), costs to address the Leak and stop or reduce emissions, the root cause analysis being conducted to investigate the cause of the Leak, the value of lost gas, costs incurred to mitigate the actual natural gas released, costs associated with litigation and claims by nearby residents and businesses, any costs to clean additional homes pursuant to the Directive, and, in some circumstances depending on their nature and manner of assessment, fines and penalties. We have been communicating with our insurance carriers and, as discussed above, we have received insurance payments for portions of the costs described above, including temporary relocation and associated processing costs, control-of-well expenses, legal costs and lost gas. We intend to pursue the full extent of our insurance coverage for the costs we have incurred or may incur. There can be no assurance that we will be successful in obtaining additional insurance recovery for these costs, and to the extent we are not successful in obtaining coverage or these costs exceed the amount of our coverage, such costs could have a material adverse effect on SoCalGas’ and Sempra Energy’s cash flows, financial condition and results of operations. At December 31, 2018, SoCalGas’ estimate of costs related to the Leak of $1,055 million include $1,027 million of costs recovered or probable of recovery from insurance. This estimate may rise significantly as more information becomes available. Costs not included in the $1,055 million cost estimate could be material. If any costs are not covered by insurance (including any costs in excess of applicable policy limits), if there are significant 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 could have a material adverse effect on SoCalGas’ and Sempra Energy’s cash flows, financial condition and results of operations. Natural Gas Storage Operations and Reliability. Natural gas withdrawn from storage is important for service reliability during peak demand periods, including peak electric generation needs in the summer and heating needs in the winter. The Aliso Canyon natural gas storage facility, with a capacity of 86 Bcf (representing 63 percent of SoCalGas’ natural gas storage capacity), is the largest SoCalGas storage facility and an important element of SoCalGas’ delivery system. As a result of the Leak, SoCalGas suspended injection of natural gas into the Aliso Canyon natural gas storage facility beginning in October 2015, and following a comprehensive safety review and authorization by DOGGR and the CPUC’s Executive Director, resumed limited injection operations in July 2017. During the suspension period, SoCalGas advised the California ISO, CEC, CPUC and PHMSA of its concerns that the inability to inject natural gas into the Aliso Canyon natural gas storage facility posed a risk to energy reliability in Southern California. The CPUC has issued a series of directives to SoCalGas establishing the range of working gas to be maintained in the Aliso Canyon natural gas storage facility to help ensure safety and reliability for the region and just and reasonable rates in California, the most recent of which, issued July 2, 2018, directed SoCalGas to maintain up to 34 Bcf of working gas. Limited withdrawals of natural gas from the facility were made in 2018 to augment natural gas supplies during critical demand periods. If the Aliso Canyon natural gas storage facility were to be permanently closed, or if future cash flows were otherwise insufficient to recover its carrying value, it could result in an impairment of the facility and significantly higher than expected operating costs and/or additional capital expenditures, and natural gas reliability and electric generation could be jeopardized. At December 31, 2018, the Aliso Canyon natural gas storage facility had a net book value of $724 million. Any significant impairment of this asset could have a material adverse effect on SoCalGas’ and Sempra Energy’s results of operations for the period in which it is recorded. Higher operating costs and additional capital expenditures incurred by SoCalGas may not be recoverable in customer rates, and could have a material adverse effect on SoCalGas’ and Sempra Energy’s cash flows, financial condition and results of operations. Sempra Mexico Property Disputes and Permit Challenges Energía Costa Azul. Sempra Mexico has been engaged in a long-running land dispute relating to property adjacent to its ECA LNG terminal near Ensenada, Mexico. A claimant to the adjacent property filed complaints in the federal Agrarian Court challenging the refusal of SEDATU in 2006 to issue a title to him for the disputed property. In November 2013, the federal Agrarian Court ordered that SEDATU issue the requested title and cause it to be registered. Both SEDATU and Sempra Mexico challenged the ruling, due to lack of notification of the underlying process. Both challenges are pending to be resolved by a Federal Court in Mexico. Sempra Mexico expects additional proceedings regarding the claims. Several administrative challenges are pending in Mexico before the Mexican environmental protection agency and the Federal Tax and Administrative Courts seeking revocation of the environmental impact authorization issued to ECA in 2003. These cases generally allege that the conditions and mitigation measures in the environmental impact authorization are inadequate and challenge findings that the activities of the terminal are consistent with regional development guidelines. Additionally, in August 2018, a claimant filed a challenge in the federal district court in Ensenada, Baja California in relation to the environmental and social impact permits issued to ECA in September 2017 and December 2017, respectively, to allow natural gas liquefaction activities at the ECA LNG terminal. The court issued a provisional injunction on September 28, 2018 that has uncertain application and requires clarification by the court, which is being pursued through additional proceedings. In December 2018, the relevant Mexican regulators approved the requested modifications to the permits to allow natural gas liquefaction activities at the ECA LNG terminal. Cases involving t wo parcels of real property have been filed against ECA. In one case, filed in the federal Agrarian Court in 2006, the plaintiffs seek to annul the recorded property title for a parcel on which the ECA LNG terminal is situated and to obtain possession of a different parcel that allegedly sits in the same place. Another civil complaint filed in the state court was served in April 2012 seeking to invalidate the contract by which ECA purchased another of the terminal parcels, on the grounds the purchase price was unfair; the plaintiff filed a second complaint in 2013 in the federal Agrarian Court seeking an order that SEDATU issue title to her. In January 2016, the federal Agrarian Court ruled against the plaintiff, and the plaintiff appealed the ruling. In May 2018, the state court dismissed the civil complaint, and the plaintiff has appealed. Sempra Mexico expects further proceedings on these two matters. Guaymas-El Oro Segment of the Sonora Pipeline. IEnova’s Sonora natural gas pipeline consists of two segments, the Sasabe-Puerto Libertad-Guaymas segment, and the Guaymas-El Oro segment. Each segment has its own service agreement with the CFE. In 2015, the Yaqui tribe, with the exception of some members living in the Bácum community, granted its consent and a right-of-way easement agreement for the construction of the Guaymas-El Oro segment of the Sonora natural gas pipeline that crosses its territory. Representatives of the Bácum community filed a legal challenge in Mexican Federal Court demanding the right to withhold consent for the project, the stoppage of work in the Yaqui territory and damages. In 2016, the judge granted a suspension order that prohibited the construction of such segment through the Bácum community territory. Because the pipeline does not pass through the Bácum community, IEnova did not believe the 2016 suspension order prohibited construction in the remainder of the Yaqui territory. Because of the dispute, however, IEnova was delayed in the construction of approximately 14 kilometers of pipeline that pass through territory of the Yaqui tribe. IEnova declared a force majeure under its contract with the CFE as a result of such construction delays. The CFE agreed to extend the deadline for commercial operations of the Guaymas-El Oro segment until the second quarter of 2017 and to pay fixed charge payments pursuant to the service agreement during such extension. Construction of the Guaymas-El Oro segment was completed, and commercial operations began in May 2017. Following the start of commercial operations of the Guaymas-El Oro segment, an appellate court ruled that the scope of the 2016 suspension order encompassed the wider Yaqui territory. The legal challenge remains pending. IEnova has subsequently reported damage and declared a force majeure event for the Guaymas-El Oro segment of the Sonora pipeline in the Yaqui territory that has interrupted its operations since August 23, 2017. IEnova will continue to exercise its rights under the contract, which includes seeking (i) force majeure payments; and (ii) just compensation following the expiration of the two-year period such force majeure payments are required to be made. The Sasabe-Puerto Libertad-Guaymas segment of the Sonora pipeline remains in full operation. Other Litigation Sempra Energy holds an NCI in RBS Sempra Commodities, a limited liability partnership in the process of being liquidated. NatWest Markets plc, formerly RBS, our partner in the JV, paid an assessment of £86 million (approximately $138 million in U.S. dollars) in October 2014 to HMRC for denied VAT refund claims filed in connection with the purchase of carbon credit allowances by RBS SEE, a subsidiary of RBS Sempra Commodities. RBS SEE has since been sold to JP Morgan and later to Mercuria Energy Group, Ltd. HMRC asserted that RBS was not entitled to reduce its VAT liability by VAT paid on certain carbon credit purchases during 2009 because RBS knew or should have known that certain vendors in the trading chain did not remit their own VAT to HMRC. After paying the assessment, RBS filed a Notice of Appeal of the assessment with the First-Tier Tribunal. Trial on the matter has not been scheduled. During 2015, liquidators filed a claim in the High Court of Justice against RBS and Mercuria Energy Europe Trading Limited (the Defendants) on behalf of ten companies (the Liquidating Companies) that engaged in carbon credit trading via chains that included a company that traded directly with RBS SEE. The claim alleges that the Defendants’ participation in the purchase and sale of carbon credits resulted in the Liquidating Companies’ carbon credit trading transactions creating a VAT liability they were unable to pay, and that the Defendants are liable to provide for equitable compensation due to dishonest assistance and for compensation under the U.K. Insolvency Act of 1986. Trial on the matter was held in June and July of 2018, at the close of which the Liquidating Companies asserted that the Defendants were liable to the Liquidating Companies in the amount of £71.5 million (approximately $91 million in U.S. dollars at December 31, 2018) for dishonest assistance and, to the extent that claim is unsuccessful, to the liquidators in the same amount under the U.K. Insolvency Act of 1986. If the High Court of Justice finds the Defendants liable, it will determine the amount. JP Morgan has notified us that Mercuria Energy Group, Ltd. has sought indemnity for the claim, and JP Morgan has in turn sought indemnity from Sempra Energy and RBS. While the ultimate outcome remains uncertain, we continue to evaluate the likelihood of recovery of our investment. Accordingly, in the third quarter of 2018, we fully impaired our remaining $65 million equity method investment in RBS Sempra Commodities, which is included in Equity Earnings on Sempra Energy’s Consolidated Statement of Operations. Certain EFH subsidiaries that we acquired as part of the Merger are defendants in personal injury lawsuits brought in state courts throughout the U.S. As of February 21, 2019, 119 such lawsuits are pending, and 1,685 such lawsuits have been filed but not served. These cases allege illness or death as a result of exposure to asbestos in power plants designed and/or built by companies whose assets were purchased by predecessor entities to the EFH subsidiaries, and generally assert claims for product defects, negligence, strict liability and wrongful death. They seek compensatory and punitive damages. Additionally, in connection with the EFH bankruptcy proceeding, approximately 28,000 proofs of claim were filed on behalf of persons who allege exposure to asbestos under similar circumstances and assert the right to file such lawsuits in the future. We anticipate additional lawsuits will be filed. None of these claims or lawsuits were discharged in the EFH bankruptcy proceeding. We are also defendants in ordinary routine litigation incidental to our businesses, including personal injury, employment litigation, product liability, property damage and other claims. Juries have demonstrated an increasing willingness to grant large awards, including punitive damages, in these types of cases. CONTRACTUAL COMMITMENTS Natural Gas Contracts SoCalGas has the responsibility for procuring natural gas for both SDG&E’s and SoCalGas’ core customers in a combined portfolio. SoCalGas buys natural gas under short-term and long-term contracts for this portfolio. Purchases are from various producing regions in the southwestern U.S., U.S. Rockies and Canada and are primarily based on published monthly bid-week indices. SoCalGas transports natural gas primarily under long-term firm interstate pipeline capacity agreements that provide for annual reservation charges, which are recovered in rates. SoCalGas has commitments with interstate pipeline companies for firm pipeline capacity under contracts that expire at various dates through 2031. Sempra LNG & Midstream’s and Sempra Mexico’s businesses have various capacity agreements for natural gas storage and transportation. In addition, Sempra Mexico has a natural gas purchase agreement to fuel a natural gas-fired power plant. In May 2016, Sempra LNG & Midstream permanently released certain pipeline capacity that it held with Rockies Express and others. The effect of the permanent capacity releases resulted in a pretax charge of $206 million ($123 million after tax), which is included in Other Cost of Sales on the Sempra Energy Consolidated Statement of Operations. The charge represented an acceleration of costs that would otherwise have been recognized over the duration of the contracts. Sempra LNG & Midstream has recorded a liability for these costs, less expected proceeds generated from the permanent capacity releases. Sempra LNG & Midstream’s related obligation to make future capacity payments through November 2019 is included in the table below. In May 2017, Sempra LNG & Midstream received settlement proceeds of $57 million from a breach of contract claim against a counterparty in bankruptcy court. Of the total proceeds, $47 million related to the $206 million charge we recorded in 2016 resulting from the permanent release of certain pipeline capacity. Sempra LNG & Midstream recorded the settlement proceeds as a reduction to Other Cost of Sales on Sempra Energy’s Consolidated Statement of Operations in 2017. At December 31, 2018, the future estimated payments under existing natural gas contracts and natural gas storage and transportation contracts are as follows:
FUTURE ESTIMATED PAYMENTS – SEMPRA ENERGY CONSOLIDATED
(Dollars in millions) |  |  |  |  |
| Storage and transportation |  | Natural gas(1) |  | Total(1)
2019 | $ | 230 |  |  | $ | 33 |  |  | $ | 263 |
2020 | 158 |  |  | 15 |  |  | 173 |
2021 | 144 |  |  | 12 |  |  | 156 |
2022 | 73 |  |  | 12 |  |  | 85 |
2023 | 50 |  |  | 13 |  |  | 63 |
Thereafter | 262 |  |  | 18 |  |  | 280 |
Total estimated payments | $ | 917 |  |  | $ | 103 |  |  | $ | 1,020 |
(1) | Excludes amounts related to the LNG purchase agreement discussed below.
FUTURE ESTIMATED PAYMENTS – SOCALGAS
(Dollars in millions) |  |  |  |  |
| Transportation |  | Natural gas |  | Total
2019 | $ | 114 |  |  | $ | 12 |  |  | $ | 126 |
2020 | 118 |  |  | 4 |  |  | 122 |
2021 | 104 |  |  | — |  |  | 104 |
2022 | 37 |  |  | — |  |  | 37 |
2023 | 23 |  |  | 1 |  |  | 24 |
Thereafter | 49 |  |  | — |  |  | 49 |
Total estimated payments | $ | 445 |  |  | $ | 17 |  |  | $ | 462 |
Total payments under natural gas contracts and natural gas storage and transportation contracts as well as payments to meet additional portfolio needs at Sempra Energy Consolidated and SoCalGas were as follows:
PAYMENTS UNDER NATURAL GAS CONTRACTS
(Dollars in millions) |  |  |  |  |
| Years ended December 31,
| 2018 |  | 2017 |  | 2016
Sempra Energy Consolidated | $ | 1,345 |  |  | $ | 1,429 |  |  | $ | 1,169 |
SoCalGas | 1,169 |  |  | 1,213 |  |  | 966 |
LNG Purchase Agreement Sempra LNG & Midstream has a sale and purchase agreement for the supply of LNG to the ECA terminal. The commitment amount is calculated using a predetermined formula based on estimated forward prices of the index applicable from 2019 to 2029. Although this agreement specifies a number of cargoes to be delivered, under its terms, the customer may divert certain cargoes, which would reduce amounts paid under the agreement by Sempra LNG & Midstream. At December 31, 2018, the following LNG commitment amounts are based on the assumption that all cargoes, less those already confirmed to be diverted, under the agreement are delivered:
LNG COMMITMENT AMOUNTS
(Dollars in millions)
2019 | $ | 289 |
2020 | 372 |
2021 | 368 |
2022 | 373 |
2023 | 385 |
Thereafter | 2,475 |
Total | $ | 4,262 |
Actual LNG purchases in 2018, 2017 and 2016 have been significantly lower than the maximum amount provided under the agreement due to the customer electing to divert most cargoes as allowed by the agreement. Purchased-Power Contracts For 2019, SDG&E expects to meet its customer power requirements from the following resource types:
▪ | Long-term contracts: 37 percent (of which 36 percent is provided by renewable energy contracts expiring on various dates through 2041)
▪ | Other SDG&E-owned generation and tolling contracts (including OMEC): 55 percent
▪ | Spot market purchases: 8 percent
Chilquinta Energía and Luz del Sur also have purchased-power contracts, expiring on various dates extending through 2031, which cover most of the consumption needs of the companies’ customers. These commitments are included under Sempra Energy Consolidated in the table below. At December 31, 2018, the future estimated payments under long-term purchased-power contracts are as follows:
FUTURE ESTIMATED PAYMENTS – PURCHASED-POWER CONTRACTS
(Dollars in millions)
| Sempra Energy Consolidated |  | SDG&E
2019 | $ | 654 |  |  | $ | 527 |
2020 | 629 |  |  | 510 |
2021 | 631 |  |  | 510 |
2022 | 592 |  |  | 496 |
2023 | 549 |  |  | 451 |
Thereafter | 5,185 |  |  | 5,026 |
Total estimated payments(1)(2) | $ | 8,240 |  |  | $ | 7,520 |
(1) | Excludes purchase agreements accounted for as capital leases and amounts related to Otay Mesa VIE, as it is consolidated by Sempra Energy and SDG&E.
(2) | Includes $5.2 billion of expected payments under purchase agreements accounted for as operating leases at SDG&E, comprised of renewable energy PPAs for which there are no future minimum operating lease payments.
Payments on these contracts represent capacity charges and minimum energy and transmission purchases that exceed the minimum commitment. SDG&E and Luz del Sur are required to pay additional amounts for actual purchases of energy that exceed the minimum energy commitments. Total payments under purchased-power contracts were as follows:
PAYMENTS UNDER PURCHASED-POWER CONTRACTS
(Dollars in millions)
| Years ended December 31,
| 2018 |  | 2017 |  | 2016
Sempra Energy Consolidated | $ | 1,582 |  |  | $ | 1,694 |  |  | $ | 1,667 |
SDG&E | 712 |  |  | 781 |  |  | 752 |
Operating Leases Sempra Energy Consolidated, SDG&E and SoCalGas have operating leases on real and personal property expiring at various dates from 2019 through 2042. Certain leases on office facilities contain escalation clauses requiring annual increases in rent ranging from two percent to five percent at Sempra Energy Consolidated, SDG&E and SoCalGas. The rentals payable under these leases may increase by a fixed amount each year or by a percentage of a base year, and most leases contain extension options that we could exercise. The California Utilities have operating lease agreements for future acquisitions of fleet vehicles with an aggregate maximum lease limit of $201 million, $130 million of which has been utilized as of December 31, 2018. Rent expense for operating leases was as follows:
RENT EXPENSE – OPERATING LEASES
(Dollars in millions)
| Years ended December 31,
| 2018 |  | 2017 |  | 2016
Sempra Energy Consolidated | $ | 123 |  |  | $ | 109 |  |  | $ | 77 |
SDG&E | 27 |  |  | 28 |  |  | 28 |
SoCalGas | 41 |  |  | 43 |  |  | 38 |
At December 31, 2018, the rental commitments payable in future years under all noncancelable operating leases, including estimated payments, are as follows:
FUTURE RENTAL PAYMENTS – OPERATING LEASES
(Dollars in millions)
| 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | Total
Sempra Energy Consolidated: |  |  |  |  |  |  |
Future minimum lease payments | $ | 79 |  | $ | 56 |  | $ | 54 |  | $ | 51 |  | $ | 44 |  | $ | 259 |  | $ | 543 |
Future estimated rental payments | 12 |  | 12 |  | 13 |  | 13 |  | 13 |  | 44 |  | 107 |
Total future rental commitments | $ | 91 |  | $ | 68 |  | $ | 67 |  | $ | 64 |  | $ | 57 |  | $ | 303 |  | $ | 650 |
SDG&E: |  |  |  |  |  |  |
Future minimum lease payments | $ | 23 |  | $ | 22 |  | $ | 22 |  | $ | 21 |  | $ | 17 |  | $ | 48 |  | $ | 153 |
Future estimated rental payments | 2 |  | 2 |  | 2 |  | 2 |  | 2 |  | 7 |  | 17 |
Total future rental commitments | $ | 25 |  | $ | 24 |  | $ | 24 |  | $ | 23 |  | $ | 19 |  | $ | 55 |  | $ | 170 |
SoCalGas: |  |  |  |  |  |  |
Future minimum lease payments | $ | 26 |  | $ | 22 |  | $ | 21 |  | $ | 20 |  | $ | 16 |  | $ | 28 |  | $ | 133 |
Future estimated rental payments | 10 |  | 10 |  | 11 |  | 11 |  | 11 |  | 37 |  | 90 |
Total future rental commitments | $ | 36 |  | $ | 32 |  | $ | 32 |  | $ | 31 |  | $ | 27 |  | $ | 65 |  | $ | 223 |
Capital Leases Power Purchase Agreements SDG&E has six PPAs with peaker plant facilities, one of which went into commercial operation in December 2018. All are accounted for as capital leases, four with a 25-year term, one with a 20-year term and one with a 9-year term. At December 31, 2018, the aggregate carrying value of these capital lease obligations was $1,270 million. The entities that own the peaker plant facilities are VIEs of which SDG&E is not the primary beneficiary. SDG&E does not have any additional implicit or explicit financial responsibility related to these VIEs. At December 31, 2018, the future minimum lease payments and present value of the net minimum lease payments under these capital leases for both Sempra Energy Consolidated and SDG&E are as follows:
FUTURE MINIMUM PAYMENTS – POWER PURCHASE AGREEMENTS
(Dollars in millions)
2019 | $ | 210 |
2020 | 210 |
2021 | 211 |
2022 | 211 |
2023 | 211 |
Thereafter | 3,196 |
Total minimum lease payments(1) | 4,249 |
Less: estimated executory costs | (480 | )
Less: interest(2) | (2,483 | )
Present value of net minimum lease payments(3) | $ | 1,286 |
(1) | This expense receives ratemaking treatment consistent with purchased-power costs, which are recovered in rates and have been recorded over the lives of the leases as Cost of Electric Fuel and Purchased Power on Sempra Energy’s and SDG&E’s Consolidated Statements of Operations. See discussion in Note 2 regarding the classification of this expense after adoption of the new lease standard in 2019.
(2) | Amount necessary to reduce net minimum lease payments to present value at the inception of the leases.
(3) | Includes $15 million in Current Portion of Long-Term Debt and $1,255 million in Long-Term Debt on Sempra Energy’s and SDG&E’s Consolidated Balance Sheets at December 31, 2018. The remaining present value of net minimum lease payments of $16 million will be recorded as finance leases when construction of the battery storage facilities is completed and delivery of contracted power commences.
The annual amortization charge for the PPAs was $11 million, $8 million and $4 million in 2018, 2017 and 2016, respectively. Headquarters Build-to-Suit Lease Sempra Energy has a 25-year, build-to-suit lease for its San Diego, California, headquarters completed in 2015. As a result of our involvement during and after the construction period, we have recorded the related assets and financing liability for construction costs incurred under this build-to-suit leasing arrangement. See discussion in Note 2 regarding the expected impact on this build-to-suit lease from the adoption of the new lease standard in 2019. The building is being depreciated on a straight-line basis over its estimated useful life and the associated lease payments are allocated between interest expense and amortization of the financing obligation over the lease period. Further, a portion of the lease payments pertain to the lease of the underlying land and are recorded as rental expense. The balance of the financing obligation, representing the net present value of the future minimum lease payments on the building, is $138 million at December 31, 2018. At December 31, 2018, the future minimum lease payments on the lease are as follows:
FUTURE MINIMUM PAYMENTS – BUILD-TO-SUIT LEASE
(Dollars in millions)
2019 | $ | 10 |
2020 | 11 |
2021 | 11 |
2022 | 11 |
2023 | 11 |
Thereafter | 217 |
Total minimum lease payments | $ | 271 |
Other Capital Leases At December 31, 2018, the future minimum lease payments under capital leases for fleet vehicles and other assets for Sempra Energy Consolidated are $6 million in 2019, $2 million in 2020, $1 million in 2021, negligible amounts in 2022 and 2023 and $9 million thereafter. The net present value of the minimum lease payments is $11 million at December 31, 2018. At December 31, 2018, SDG&E and SoCalGas have capital lease obligations for fleet vehicles of $2 million and $3 million, respectively, all of which are payable in 2019. The annual depreciation charge for fleet vehicles and other assets in 2018, 2017 and 2016 was $8 million, $3 million and $2 million, respectively, at Sempra Energy Consolidated, including $2 million, $1 million and $1 million, respectively, at SDG&E and $6 million, $2 million and $1 million, respectively, at SoCalGas. Construction and Development Projects Sempra Energy Consolidated has various capital projects in progress in the U.S., Mexico and South America. Sempra Energy’s total commitments at December 31, 2018 under these projects are approximately $686 million, requiring future payments of $396 million in 2019, $86 million in 2020, $43 million in 2021, $28 million in 2022, $18 million in 2023 and $115 million thereafter. The following is a summary by segment of contractual commitments and contingencies related to such projects. SDG&E At December 31, 2018, SDG&E has commitments to make future payments of $144 million for construction projects that include:
▪ | $135 million for infrastructure improvements for electric and natural gas transmission and distribution systems; and
▪ | $9 million related to spent fuel management at SONGS.
SDG&E expects future payments under these contractual commitments to be $43 million in 2019, $62 million in 2020, $22 million in 2021, $11 million in 2022, $2 million in 2023 and $4 million thereafter. Sempra South American Utilities At December 31, 2018, Sempra South American Utilities has commitments to make future payments of $14 million for the construction of substations and related transmission lines in Peru. The future payments under these contractual commitments are all expected to be made in 2019. Sempra Mexico At December 31, 2018, Sempra Mexico has commitments to make future payments of $469 million for construction projects that include:
▪ | $266 million for natural gas pipelines and ongoing maintenance services;
▪ | $94 million for liquid fuels terminals; and
▪ | $109 million for renewables projects.
Sempra Mexico expects future payments under these contractual commitments to be $287 million in 2019, $21 million in 2020, $18 million in 2021, $16 million in 2022, $16 million in 2023 and $111 million thereafter. Sempra Renewables At December 31, 2018, Sempra Renewables has commitments to make future payments of $13 million for contracts related to its wind assets. Sempra Renewables expects future payments under these contractual commitments to be $6 million in 2019, $3 million in 2020, $3 million in 2021 and $1 million in 2022. Sempra LNG & Midstream At December 31, 2018, Sempra LNG & Midstream has commitments to make future payments of $46 million primarily for LNG liquefaction development costs and natural gas transportation projects. The future payments under these contractual commitments are all expected to be made in 2019. OTHER COMMITMENTS SDG&E We discuss nuclear insurance and nuclear fuel disposal related to SONGS in Note 15. In connection with the completion of the Sunrise Powerlink project in 2012, the CPUC required that SDG&E establish a fire mitigation fund to minimize the risk of fire as well as reduce the potential wildfire impact on residences and structures near the Sunrise Powerlink. The future payments for these contractual commitments, for which a liability has been recorded, are expected to be $3 million per year in 2019 through 2023 and $105 million thereafter, subject to escalation of 2 percent per year, for a remaining 51-year period. At December 31, 2018, the present value of these future payments of $120 million has been recorded as a regulatory asset as the amounts represent a cost that is expected to be recovered from customers in the future. Sempra LNG & Midstream Additional consideration for a 2006 comprehensive legal settlement with the State of California to resolve the Continental Forge litigation included an agreement that, for a period of 18 years beginning in 2011, Sempra LNG & Midstream would sell to the California Utilities, subject to annual CPUC approval, up to 500 MMcf per day of regasified LNG from Sempra Mexico’s ECA facility that is not delivered or sold in Mexico at the price indexed to the California border minus $0.02 per MMBtu. There are no specified minimums required, and to date, Sempra LNG & Midstream has not been required to deliver any natural gas pursuant to this agreement. ENVIRONMENTAL ISSUES Our operations are subject to federal, state and local environmental laws. We also are subject to regulations related to hazardous wastes, air and water quality, land use, solid waste disposal and the protection of wildlife. These laws and regulations require that we investigate and correct the effects of the release or disposal of materials at sites associated with our past and our present operations. These sites include those at which we have been identified as a PRP under the federal Superfund laws and similar state laws. In addition, we are required to obtain numerous governmental permits, licenses and other approvals to construct facilities and operate our businesses. The related costs of environmental monitoring, pollution control equipment, cleanup costs, and emissions fees are significant. Increasing national and international concerns regarding global warming and mercury, carbon dioxide, nitrogen oxide and sulfur dioxide emissions could result in requirements for additional pollution control equipment or significant emissions fees or taxes that could adversely affect Sempra LNG & Midstream and Sempra Mexico. The California Utilities’ costs to operate their facilities in compliance with these laws and regulations generally have been recovered in customer rates. We discuss environmental matters related to the natural gas leak at SoCalGas’ Aliso Canyon natural gas storage facility above in “Legal Proceedings – SoCalGas – Aliso Canyon Natural Gas Storage Facility Gas Leak.” Other Environmental Issues We generally capitalize the significant costs we incur to mitigate or prevent future environmental contamination or extend the life, increase the capacity, or improve the safety or efficiency of property used in current operations. The following table shows our capital expenditures (including construction work in progress) in order to comply with environmental laws and regulations:
CAPITAL EXPENDITURES FOR ENVIRONMENTAL ISSUES
(Dollars in millions)
| Years ended December 31,
| 2018 |  | 2017 |  | 2016
Sempra Energy Consolidated(1) | $ | 101 |  |  | $ | 92 |  |  | $ | 53 |
SDG&E | 38 |  |  | 46 |  |  | 17 |
SoCalGas | 62 |  |  | 45 |  |  | 35 |
(1) | In cases of non-wholly owned affiliates, includes only our share.
We have not identified any significant environmental issues outside the U.S. At the California Utilities, costs that relate to current operations or an existing condition caused by past operations are generally recorded as a regulatory asset due to the probability that these costs will be recovered in rates. The environmental issues currently facing us, except for those related to the Aliso Canyon natural gas storage facility leak as we discuss above or resolved during the last three years, include (1) investigation and remediation of the California Utilities’ manufactured-gas sites, (2) cleanup of third-party waste-disposal sites used by the California Utilities at sites for which we have been identified as a PRP and (3) mitigation of damage to the marine environment caused by the cooling-water discharge from SONGS. The table below shows the status at December 31, 2018 of the California Utilities’ manufactured-gas sites and the third-party waste-disposal sites for which we have been identified as a PRP:
STATUS OF ENVIRONMENTAL SITES
| # Sites complete(1) |  | # Sites in process
SDG&E: |  |  |
Manufactured-gas sites | 3 |  |  | — |
Third-party waste-disposal sites | 2 |  |  | 1 |
SoCalGas: |  |  |
Manufactured-gas sites | 39 |  |  | 3 |
Third-party waste-disposal sites | 5 |  |  | 2 |
(1) | There may be ongoing compliance obligations for completed sites, such as regular inspections, adherence to land use covenants and water quality monitoring.
We record environmental liabilities at undiscounted amounts when our liability is probable and the costs can be reasonably estimated. In many cases, however, investigations are not yet at a stage where we can determine whether we are liable or, if the liability is probable, to reasonably estimate the amount or range of amounts of the costs. Estimates of our liability are further subject to uncertainties such as the nature and extent of site contamination, evolving cleanup standards and imprecise engineering evaluations. We review our accruals periodically and, as investigations and cleanups proceed, we make adjustments as necessary. The following table shows our accrued liabilities for environmental matters at December 31, 2018:
ACCRUED LIABILITIES FOR ENVIRONMENTAL MATTERS
(Dollars in millions)
| Manufactured- gas sites |  | Waste disposal sites (PRP)(1) |  | Other hazardous waste sites |  | Total(2)
SDG&E(3) | $ | — |  |  | $ | 2 |  |  | $ | 3 |  |  | $ | 5 |
SoCalGas(4) | 30 |  |  | 1 |  |  | — |  |  | 31 |
Other | — |  |  | 1 |  |  | — |  |  | 1 |
Total Sempra Energy | $ | 30 |  |  | $ | 4 |  |  | $ | 3 |  |  | $ | 37 |
(1) | Sites for which we have been identified as a PRP.
(2) | Includes $10 million, $1 million and $9 million classified as current liabilities, and $27 million, $4 million and $22 million classified as noncurrent liabilities on Sempra Energy’s, SDG&E’s and SoCalGas’ Consolidated Balance Sheets, respectively.
(3) | Does not include SDG&E’s liability for SONGS marine environment mitigation.
(4) | Does not include SoCalGas’ liability for environmental matters for the Leak at the Aliso Canyon natural gas storage facility. We discuss matters related to the Leak above in “Legal Proceedings – SoCalGas – Aliso Canyon Natural Gas Storage Facility Gas Leak.”
We expect to pay the majority of these accruals over the next three years. In connection with the issuance of operating permits, SDG&E and the other owners of SONGS previously reached an agreement with the CCC to mitigate the damage to the marine environment caused by the cooling-water discharge from SONGS during its operation. SONGS’ early retirement, described in Note 15, does not reduce SDG&E’s mitigation obligation. SDG&E’s share of the estimated mitigation costs is $68 million, of which $45 million has been incurred through December 31, 2018 and $23 million is accrued for remaining costs through 2050, which is recoverable in rates and included in noncurrent Regulatory Assets on Sempra Energy’s and SDG&E’s Consolidated Balance Sheets. The requirements for enhanced fish protection and restoration of coastal wetlands for the SONGS mitigation are in process. Work on the artificial reef that was dedicated in 2008 continues. The CCC has stated that it now requires an expansion of the reef because the existing reef may be too small to consistently meet the performance standards. In December 2016, SDG&E and Edison filed a joint application with the CPUC seeking rate recovery of the costs of the reef expansion. In October 2017, SDG&E, Edison, TURN and Cal PA filed a joint motion requesting approval of a settlement agreement that amends the rate recovery application and allows costs to be recorded to a memorandum account until rate recovery is approved. The CPUC approved the settlement agreement in March 2018. In accordance with the settlement agreement, an updated cost forecast will be submitted to the CPUC for rate recovery approval when the project’s coastal development permit is approved. We expect to submit the updated cost forecast in 2019. Rates, if approved, would be effective January 2020. SDG&E’s share of the reef expansion costs currently forecasted through 2023 is $4 million. CONCENTRATION OF CREDIT RISK We maintain credit policies and systems designed to manage our overall credit risk. These policies include an evaluation of potential counterparties’ financial condition and an assignment of credit limits. These credit limits are established based on risk and return considerations under terms customarily available in the industry. We grant credit to utility customers and counterparties, substantially all of whom are located in our service territory, which covers most of Southern California and a portion of central California for SoCalGas, and all of San Diego County and an adjacent portion of Orange County for SDG&E. We also grant credit to utility customers and counterparties of our other companies providing natural gas or electric services in Mexico, Chile and Peru. Projects and businesses owned or partially owned by Sempra Energy place significant reliance on the ability of their suppliers, customers and partners to perform on long-term agreements and on our ability to enforce contract terms in the event of nonperformance. We consider many factors, including the negotiation of supplier and customer agreements, when we evaluate and approve development projects and investment opportunities.

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