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SIGNIFICANT ACCOUNTING POLICIES AND OTHER FINANCIAL DATA | 12 Months Ended
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Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Significant Accounting Policies And Other Financial Data | SIGNIFICANT ACCOUNTING POLICIES AND OTHER FINANCIAL DATAPRINCIPLES OF CONSOLIDATION Sempra Energy Sempra Energy’s 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 Global is the holding company for most of our subsidiaries that are not subject to California or Texas utility regulation. Sempra Energy’s businesses are managed within seven separate reportable segments, which we discuss in Note 17. All references in these Notes to our reportable segments are not intended to refer to any legal entity with the same or similar name. Our Sempra Mexico segment includes the operating companies of our subsidiary, IEnova, as well as certain holding companies and risk management activity. IEnova is a separate legal entity comprised of Sempra Energy’s operations in Mexico. IEnova is included within our Sempra Mexico reportable segment, but is not the same in its entirety as the reportable segment. IEnova’s financial results are reported in Mexico under International Financial Reporting Standards, as required by the Mexican Stock Exchange, where its shares are traded under the symbol IENOVA. Sempra Energy uses the equity method to account for investments in companies over which we have the ability to exercise significant influence, but not control. We discuss our investments in unconsolidated entities in Notes 5, 6 and 12. SDG&E SDG&E’s 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, which is a wholly owned subsidiary of Sempra Energy. SoCalGas SoCalGas’ common stock is wholly owned by PE, which is a wholly owned subsidiary of Sempra Energy. In this report, we refer to SDG&E and SoCalGas collectively as the California Utilities. 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 Consolidated Financial Statements and Notes to Consolidated Financial Statements when discussed together or collectively:
▪ | the Consolidated Financial Statements and related Notes of Sempra Energy and its subsidiaries and VIEs;
▪ | the Consolidated Financial Statements and related Notes of SDG&E and its VIE; and
▪ | the Financial Statements and related Notes of SoCalGas.
Reclassification on the Consolidated Statements of Operations We have made a reclassification on the Consolidated Statements of Operations for the years ended December 31, 2017 and 2016 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 our equity method investments 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) |  |
| Years ended December 31,
| 2017 |  | 2016
| As previously presented |  | As currently presented |  | As previously presented |  | As currently presented
Consolidated Statements of Operations: |  |  |  |  |  |  |
Equity earnings, before income tax | $ | 34 |  |  | $ | — |  |  | $ | 6 |  |  | $ | — |
Income before income taxes and equity earnings |  |  |  |  |  |  |
of certain unconsolidated subsidiaries | 1,585 |  |  | — |  |  | 1,830 |  |  | — |
Income before income taxes and equity earnings of |  |  |  |  |  |  |
unconsolidated entities | — |  |  | 1,551 |  |  | — |  |  | 1,824 |
Equity earnings, net of income tax | 42 |  |  | — |  |  | 78 |  |  | — |
Equity earnings | — |  |  | 76 |  |  | — |  |  | 84 |
Use of Estimates in the Preparation of the Financial Statements We have prepared our Consolidated Financial Statements in conformity with U.S. GAAP. This requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, including the disclosure of contingent assets and liabilities at the date of the financial statements. Although we believe the estimates and assumptions are reasonable, actual amounts ultimately may differ significantly from those estimates. Subsequent Events We evaluated events and transactions that occurred after December 31, 2018 through the date the financial statements were issued, and in the opinion of management, the accompanying statements reflect all adjustments and disclosures necessary for a fair presentation.EFFECTS OF REGULATION The California Utilities’ accounting policies and financial statements reflect the application of U.S. GAAP provisions governing rate-regulated operations and the policies of the CPUC and the FERC. Under these provisions, a regulated utility records regulatory assets, which are generally costs that would otherwise be charged to expense, if it is probable that, through the ratemaking process, the utility will recover those assets from customers. To the extent that recovery is no longer probable, the related regulatory assets are written off. Regulatory liabilities generally represent amounts collected from customers in advance of the actual expenditure by the utility. If the actual expenditures are less than amounts previously collected from ratepayers, the excess would be refunded to customers, generally by reducing future rates. Regulatory liabilities may also arise from other transactions such as unrealized gains on fixed price contracts and other derivatives or certain deferred income tax benefits that are passed through to customers in future rates. In addition, the California Utilities record regulatory liabilities when the CPUC or the FERC requires a refund to be made to customers or has required that a gain or other transaction of net allowable costs be given to customers over future periods. Determining probability of recovery of regulatory assets requires significant judgment by management and may include, but is not limited to, consideration of:
▪ | the nature of the event giving rise to the assessment;
▪ | existing statutes and regulatory code;
▪ | legal precedents;
▪ | regulatory principles and analogous regulatory actions;
▪ | testimony presented in regulatory hearings;
▪ | regulatory orders;
▪ | a commission-authorized mechanism established for the accumulation of costs;
▪ | status of applications for rehearings or state court appeals;
▪ | specific approval from a commission; and
▪ | historical experience.
Sempra Mexico’s natural gas distribution utility, Ecogas, also applies U.S. GAAP for rate-regulated utilities to its operations, including the same evaluation of probability of recovery of regulatory assets described above. We provide information concerning regulatory assets and liabilities in Note 4. 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. 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, and their subsidiaries. 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. Certain business activities at IEnova are regulated by the CRE and meet the regulatory accounting requirements of U.S. GAAP. Pipeline projects currently under construction by IEnova that meet the regulatory accounting requirements of U.S. GAAP record the impact of AFUDC related to equity. We discuss AFUDC below in “Property, Plant and Equipment.”FAIR VALUE MEASUREMENTS We measure certain assets and liabilities at fair value on a recurring basis, primarily nuclear decommissioning and benefit plan trust assets and derivatives. We also measure certain assets at fair value on a non-recurring basis in certain circumstances. These assets can include goodwill, intangible assets, equity method investments and other long-lived assets. “Fair value” is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). A fair value measurement reflects the assumptions market participants would use in pricing an asset or liability based on the best available information. These assumptions include the risk inherent in a particular valuation technique (such as a pricing model) and the risks inherent in the inputs to the model. Also, we consider an issuer’s credit standing when measuring its liabilities at fair value. We establish a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows: Level 1 – Pricing inputs are unadjusted quoted prices available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Our Level 1 financial instruments primarily consist of listed equities and U.S. government treasury securities, primarily in the NDT and benefit plan trusts, and exchange-traded derivatives. Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including:
▪ | quoted forward prices for commodities;
▪ | time value;
▪ | current market and contractual prices for the underlying instruments;
▪ | volatility factors; and
▪ | other relevant economic measures.
Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Our financial instruments in this category include listed equities, domestic corporate bonds, municipal bonds and other foreign bonds, primarily in the NDT and benefit plan trusts, and non-exchange-traded derivatives such as interest rate instruments and over-the-counter forwards and options. Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value from the perspective of a market participant. Our Level 3 financial instruments consist of CRRs and fixed-price electricity positions at SDG&E.CASH AND CASH EQUIVALENTS Cash equivalents are highly liquid investments with original maturities of three months or less at the date of purchase. RESTRICTED CASH Restricted cash at Sempra Energy was $56 million and $76 million at December 31, 2018 and 2017, respectively, and includes:
▪ | for SDG&E, $29 million and $17 million at December 31, 2018 and 2017, respectively, representing funds held by a trustee for Otay Mesa VIE to pay certain operating costs;
▪ | for Sempra Mexico, $27 million and $56 million at December 31, 2018 and 2017, respectively, primarily denominated in Mexican pesos, representing funds to pay for rights-of-way, license fees, permits, topographic surveys and other costs pursuant to trust and debt agreements related to pipeline projects;
▪ | for Sempra Renewables, $3 million at December 31, 2017, primarily representing funds held in accordance with debt agreements at our wholly owned solar project, which was sold along with certain other non-utility U.S. renewable assets in December 2018. We discuss the sale in Note 5; and
▪ | for Sempra South American Utilities, negligible amounts at both December 31, 2018 and 2017.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the Consolidated Balance Sheets to the sum of such amounts reported on the Consolidated Statements of Cash Flows.
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH |  |  |
(Dollars in millions)
| At December 31,
| 2018 |  | 2017
Sempra Energy Consolidated: |  |  |
Cash and cash equivalents | $ | 190 |  |  | $ | 288 |
Restricted cash, current | 35 |  |  | 62 |
Restricted cash, noncurrent | 21 |  |  | 14 |
Total cash, cash equivalents and restricted cash on the Consolidated Statements of Cash Flows | $ | 246 |  |  | $ | 364 |
SDG&E: |  |  |  |  |
Cash and cash equivalents | $ | 8 |  |  | $ | 12 |
Restricted cash, current | 11 |  |  | 6 |
Restricted cash, noncurrent | 18 |  |  | 11 |
Total cash, cash equivalents and restricted cash on the Consolidated Statements of Cash Flows | $ | 37 |  |  | $ | 29 |
COLLECTION ALLOWANCES We record allowances for the collection of trade and other accounts and notes receivable, which include allowances for doubtful customer accounts and for other receivables. We show the changes in these allowances in the table below:
COLLECTION ALLOWANCES
(Dollars in millions)
| Years ended December 31,
| 2018 |  | 2017 |  | 2016
Sempra Energy Consolidated: |  |  |  |  |
Allowances for collection of receivables at January 1 | $ | 33 |  |  | $ | 35 |  |  | $ | 32 |
Provisions for uncollectible accounts | 14 |  |  | 16 |  |  | 23 |
Write-offs of uncollectible accounts | (17 | ) |  | (18 | ) |  | (20 | )
Allowances for collection of receivables at December 31 | $ | 30 |  |  | $ | 33 |  |  | $ | 35 |
SDG&E: |  |  |  |  |  |  |  |
Allowances for collection of receivables at January 1 | $ | 9 |  |  | $ | 8 |  |  | $ | 9 |
Provisions for uncollectible accounts | 9 |  |  | 8 |  |  | 6 |
Write-offs of uncollectible accounts | (7 | ) |  | (7 | ) |  | (7 | )
Allowances for collection of receivables at December 31 | $ | 11 |  |  | $ | 9 |  |  | $ | 8 |
SoCalGas: |  |  |  |  |  |  |  |
Allowances for collection of receivables at January 1 | $ | 16 |  |  | $ | 21 |  |  | $ | 17 |
Provisions for uncollectible accounts | 1 |  |  | 4 |  |  | 14 |
Write-offs of uncollectible accounts | (7 | ) |  | (9 | ) |  | (10 | )
Allowances for collection of receivables at December 31 | $ | 10 |  |  | $ | 16 |  |  | $ | 21 |
We evaluate accounts receivable collectability using a combination of factors, including past due status based on contractual terms, trends in write-offs, the age of the receivable, counterparty creditworthiness, economic conditions and specific events, such as bankruptcies. Adjustments to collection allowances are made when necessary based on the results of analysis, the aging of receivables, and historical and industry trends. We write off accounts receivable in the period in which we deem the receivable to be uncollectible. We record recoveries of accounts receivable previously written off when it is known that they will be received.INVENTORIES The California Utilities value natural gas inventory using the LIFO method. As inventories are sold, differences between the LIFO valuation and the estimated replacement cost are reflected in customer rates. These differences are generally temporary, but may become permanent if the natural gas inventory withdrawn from storage during the year is not replaced by year end. The California Utilities generally value materials and supplies at the lower of average cost or net realizable value. Sempra South American Utilities, Sempra Mexico, Sempra Renewables and Sempra LNG & Midstream value natural gas inventory and materials and supplies at the lower of average cost or net realizable value. Sempra Mexico and Sempra LNG & Midstream value LNG inventory using the first-in first-out method. The components of inventories by segment are as follows:
INVENTORY BALANCES AT DECEMBER 31
(Dollars in millions)
| Natural gas |  | LNG |  | Materials and supplies |  | Total
| 2018 |  | 2017 |  | 2018 |  | 2017 |  | 2018 |  | 2017 |  | 2018 |  | 2017
SDG&E | $ | — |  |  | $ | 4 |  |  | $ | — |  |  | $ | — |  |  | $ | 102 |  |  | $ | 101 |  |  | $ | 102 |  |  | $ | 105 |
SoCalGas | 92 |  |  | 75 |  |  | — |  |  | — |  |  | 42 |  |  | 49 |  |  | 134 |  |  | 124 |
Sempra South American Utilities | — |  |  | — |  |  | — |  |  | — |  |  | 38 |  |  | 30 |  |  | 38 |  |  | 30 |
Sempra Mexico | — |  |  | — |  |  | 4 |  |  | 7 |  |  | 15 |  |  | 2 |  |  | 19 |  |  | 9 |
Sempra Renewables | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 5 |  |  | — |  |  | 5 |
Sempra LNG & Midstream | 3 |  |  | 30 |  |  | — |  |  | 4 |  |  | — |  |  | — |  |  | 3 |  |  | 34 |
Sempra Energy Consolidated | $ | 95 |  |  | $ | 109 |  |  | $ | 4 |  |  | $ | 11 |  |  | $ | 197 |  |  | $ | 187 |  |  | $ | 296 |  |  | $ | 307 |
INCOME TAXES Income tax expense includes current and deferred income taxes. We record deferred income taxes for temporary differences between the book and the tax basis of assets and liabilities. ITCs from prior years are amortized to income by the California Utilities over the estimated service lives of the properties as required by the CPUC. At our other businesses, we reduce the book basis of the related asset by the amount of ITCs earned. At Sempra Renewables, PTCs have been recognized as income tax benefits as earned. Under the regulatory accounting treatment required for flow-through temporary differences, the California Utilities and Sempra Mexico recognize:
▪ | regulatory assets to offset deferred income tax liabilities if it is probable that the amounts will be recovered from customers; and
▪ | regulatory liabilities to offset deferred income tax assets if it is probable that the amounts will be returned to customers.
When there are uncertainties related to potential income tax benefits, in order to qualify for recognition, the position we take has to have at least a more likely than not chance of being sustained (based on the position’s technical merits) upon challenge by the respective authorities. The term “more likely than not” means a likelihood of more than 50 percent. Otherwise, we may not recognize any of the potential tax benefit associated with the position. We recognize a benefit for a tax position that meets the more likely than not criterion at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon its effective resolution. Unrecognized tax benefits involve management’s judgment regarding the likelihood of the benefit being sustained. The final resolution of uncertain tax positions could result in adjustments to recorded amounts and may affect our ETR. On December 22, 2017, the TCJA was signed into law. As a result, all cumulative undistributed earnings from non-U.S. subsidiaries were deemed repatriated and subjected to a one-time U.S. federal deemed repatriation tax. To the extent we intend to repatriate cash into the U.S., incremental U.S. state and non-U.S. withholding taxes are accrued. We currently do not record deferred income taxes for other basis differences between financial statement and income tax investment amounts in non-U.S. subsidiaries to the extent the related cumulative undistributed earnings are indefinitely reinvested. We recognize income tax expense for basis differences related to global intangible low-taxed income as a period cost if and when incurred. We provide additional information about income taxes in Note 8.GREENHOUSE GAS ALLOWANCES AND OBLIGATIONSThe California Utilities, Sempra Mexico and Sempra LNG & Midstream are required by California AB 32 to acquire GHG allowances for every metric ton of carbon dioxide equivalent emitted into the atmosphere during electric generation and natural gas transportation. At the California Utilities, many GHG allowances are allocated to us on behalf of our customers at no cost. We record purchased and allocated GHG allowances at the lower of weighted-average cost or market. We measure the compliance obligation, which is based on emissions, at the carrying value of allowances held plus the fair value of additional allowances necessary to satisfy the obligation. The California Utilities balance costs and revenues associated with the GHG program through regulatory balancing accounts. Sempra Mexico and Sempra LNG & Midstream record the cost of GHG obligations in cost of sales. We remove the assets and liabilities from the balance sheets as the allowances are surrendered.RENEWABLE ENERGY CERTIFICATES RECs are energy rights established by governmental agencies for the environmental and social promotion of renewable electricity generation. A REC, and its associated attributes and benefits, can be sold separately from the underlying physical electricity associated with a renewable-based generation source in certain markets. Retail sellers of electricity obtain RECs through renewable energy PPAs, internal generation or separate purchases in the market to comply with the RPS established by the governmental agencies. RECs provide documentation for the generation of a unit of renewable energy that is used to verify compliance with the RPS. The cost of RECs at SDG&E, which is recoverable in rates, is recorded in Cost of Electric Fuel and Purchased Power on the Consolidated Statements of Operations.PROPERTY, PLANT AND EQUIPMENT PP&E primarily represents the buildings, equipment and other facilities used by the California Utilities to provide natural gas and electric utility services, and by the Sempra Global businesses in their operations, including construction work in progress at these segments. PP&E also includes lease improvements and other equipment at Parent and Other, as well as property acquired under a build-to-suit lease, which we discuss further in Note 16. Our plant costs include:
▪ | labor;
▪ | materials and contract services; and
▪ | expenditures for replacement parts incurred during a major maintenance outage of a plant.
In addition, the cost of utility plant at our rate-regulated businesses and PP&E under regulated projects that meet the regulatory accounting requirements of U.S. GAAP at Sempra Mexico includes AFUDC. We discuss AFUDC below. The cost of other PP&E includes capitalized interest. Maintenance costs are expensed as incurred. The cost of most retired depreciable utility plant assets less salvage value is charged to accumulated depreciation. We discuss assets collateralized as security for certain indebtedness in Note 7.
PROPERTY, PLANT AND EQUIPMENT BY MAJOR FUNCTIONAL CATEGORY |
(Dollars in millions) |
| PP&E at December 31, |  | Depreciation rates for years ended December 31, |
| 2018 |  | 2017 |  | 2018 |  | 2017 |  | 2016 |
SDG&E: |  |  |  |  |  |  |  |  |  |
Natural gas operations | $ | 2,382 |  |  | $ | 2,186 |  |  | 2.44 | % |  | 2.40 | % |  | 2.40 | % |
Electric distribution | 7,462 |  |  | 6,975 |  |  | 3.91 |  |  | 3.92 |  |  | 3.86 |  |
Electric transmission(1) | 6,222 |  |  | 5,626 |  |  | 2.76 |  |  | 2.71 |  |  | 2.66 |  |
Electric generation(2) | 2,967 |  |  | 2,435 |  |  | 4.12 |  |  | 4.05 |  |  | 4.00 |  |
Other electric(3) | 1,408 |  |  | 1,114 |  |  | 6.43 |  |  | 5.54 |  |  | 5.66 |  |
Construction work in progress(1) | 1,221 |  |  | 1,451 |  |  | NA |  |  | NA |  |  | NA |  |
Total SDG&E | 21,662 |  |  | 19,787 |  |  |  |  |  |  |  |  |  |  |
SoCalGas: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Natural gas operations(4) | 17,268 |  |  | 15,759 |  |  | 3.60 |  |  | 3.63 |  |  | 3.64 |  |
Other non-utility | 34 |  |  | 32 |  |  | 5.39 |  |  | 5.28 |  |  | 6.55 |  |
Construction work in progress | 836 |  |  | 981 |  |  | NA |  |  | NA |  |  | NA |  |
Total SoCalGas | 18,138 |  |  | 16,772 |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  | Estimated | Weighted-average
Other operating units and parent(5): |  |  |  |  |  |  | useful lives | useful life
Land and land rights | 429 |  |  | 416 |  |  | 16 to 50 years(6) | 30
Machinery and equipment: |  |  |  |  |  |  |  |  |  |  |  |  |
Utility electric distribution operations | 1,977 |  |  | 1,751 |  |  | 10 to 45 years | 41
Generating plants | 1,051 |  |  | 2,242 |  |  | 5 to 100 years | 30
LNG terminals | 1,134 |  |  | 1,133 |  |  | 43 years | 43
Pipelines and storage | 3,413 |  |  | 4,408 |  |  | 5 to 50 years | 41
Other | 205 |  |  | 269 |  |  | 1 to 50 years | 7
Construction work in progress | 684 |  |  | 691 |  |  | NA | NA
Other(7) | 622 |  |  | 639 |  |  | 3 to 80 years | 31
| 9,515 |  |  | 11,549 |  |  |  |  |  |  |  |  |
Total Sempra Energy Consolidated | $ | 49,315 |  |  | $ | 48,108 |  |  |  |  |  |  |  |  |
(1) | At December 31, 2018, includes $457 million in electric transmission assets and $26 million in construction work in progress related to SDG&E’s 92-percent interest in the Southwest Powerlink transmission line, jointly owned by SDG&E with other utilities. SDG&E, and each of the other owners, holds its undivided interest as a tenant in common in the property. Each owner is responsible for its share of the project and participates in decisions concerning operations and capital expenditures. SDG&E’s share of operating expenses is included in Sempra Energy’s and SDG&E’s Consolidated Statements of Operations.
(2) | Includes capital lease assets of $1.3 billion and $757 million at December 31, 2018 and 2017, respectively.
(3) | Includes capital lease assets of $13 million and $22 million at December 31, 2018 and 2017, respectively.
(4) | Includes capital lease assets of $40 million and $34 million at December 31, 2018 and 2017, respectively.
(5) | Includes $154 million and $145 million at December 31, 2018 and 2017, respectively, of utility plant, primarily pipelines and other distribution assets at Ecogas.
(6) | Estimated useful lives are for land rights.
(7) | Includes capital lease assets of $136 million and associated leasehold improvements of $24 million at both December 31, 2018 and 2017 related to a build-to-suit lease.
Depreciation expense is computed using the straight-line method over the asset’s estimated original composite useful life, the CPUC-prescribed period for the California Utilities, or the remaining term of the site leases, whichever is shortest.
DEPRECIATION EXPENSE
(Dollars in millions)
| Years ended December 31,
| 2018 |  | 2017 |  | 2016
Sempra Energy Consolidated | $ | 1,528 |  |  | $ | 1,422 |  |  | $ | 1,236 |
SDG&E | 686 |  |  | 621 |  |  | 583 |
SoCalGas | 553 |  |  | 514 |  |  | 474 |
ACCUMULATED DEPRECIATION
(Dollars in millions)
| December 31,
| 2018 |  | 2017
SDG&E: |  |  |
Accumulated depreciation: |  |  |
Electric(1) | $ | 4,558 |  |  | $ | 4,193 |
Natural gas | 794 |  |  | 756 |
Total SDG&E | 5,352 |  |  | 4,949 |
SoCalGas: |  |  |  |  |
Accumulated depreciation of natural gas utility plant in service(2) | 5,685 |  |  | 5,352 |
Accumulated depreciation – other non-utility | 14 |  |  | 14 |
Total SoCalGas | 5,699 |  |  | 5,366 |
Other operating units and parent and other: |  |  |  |  |
Accumulated depreciation – other(3) | 1,125 |  |  | 972 |
Accumulated depreciation of utility electric distribution operations | 343 |  |  | 318 |
| 1,468 |  |  | 1,290 |
Total Sempra Energy Consolidated | $ | 12,519 |  |  | $ | 11,605 |
(1) | Includes accumulated depreciation for capital lease assets of $48 million and $47 million at December 31, 2018 and 2017, respectively. Includes $252 million at December 31, 2018 related to SDG&E’s 92-percent interest in the Southwest Powerlink transmission line, jointly owned by SDG&E and other utilities.
(2) | Includes accumulated depreciation for capital lease assets of $37 million and $33 million at December 31, 2018 and 2017, respectively.
(3) | Includes accumulated depreciation for capital lease assets of $10 million and $7 million and for associated leasehold improvements of $3 million and $2 million at December 31, 2018 and 2017, respectively, related to a build-to-suit lease. Includes $43 million and $39 million at December 31, 2018 and 2017, respectively, of accumulated depreciation for utility plant at Ecogas.
The California Utilities finance their construction projects with debt and equity funds. The CPUC and the FERC allow the recovery of the cost of these funds by the capitalization of AFUDC, calculated using rates authorized by the CPUC and the FERC, as a cost component of PP&E. The California Utilities earn a return on the capitalized AFUDC after the utility property is placed in service and recover the AFUDC from their customers over the expected useful lives of the assets. Pipeline projects currently under construction by Sempra Mexico that are both subject to certain regulation and meet U.S. GAAP regulatory accounting requirements record the impact of AFUDC. We capitalize interest costs incurred to finance capital projects. We also capitalize 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)
| Years ended December 31,
| 2018 |  | 2017 |  | 2016
Sempra Energy Consolidated | $ | 202 |  |  | $ | 256 |  |  | $ | 236 |
SDG&E | 82 |  |  | 85 |  |  | 62 |
SoCalGas | 48 |  |  | 60 |  |  | 55 |
GOODWILL AND OTHER INTANGIBLE ASSETS Goodwil l Goodwill is the excess of the purchase price over the fair value of the identifiable net assets of acquired companies measured at the time of acquisition. Goodwill is not amortized, but we test it for impairment annually on October 1 or whenever events or changes in circumstances necessitate an evaluation. If the carrying value of the reporting unit, including goodwill, exceeds its fair value, and the book value of goodwill is greater than its fair value on the test date, we record a goodwill impairment loss. For our annual goodwill impairment testing, under current U.S. GAAP guidance we have the option to first make a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before applying the two-step, quantitative goodwill impairment test. If we elect to perform the qualitative assessment, we evaluate relevant events and circumstances, including but not limited to, macroeconomic conditions, industry and market considerations, cost factors, changes in key personnel and the overall financial performance of the reporting unit. If, after assessing these qualitative factors, we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we perform the two-step goodwill impairment test. When we perform the two-step, quantitative goodwill impairment test, we exercise judgment to develop estimates of the fair value of the reporting unit and the corresponding goodwill. Our fair value estimates are developed from the perspective of a knowledgeable market participant. We consider observable transactions in the marketplace for similar investments, if available, as well as an income-based approach such as discounted cash flow analysis. A discounted cash flow analysis may be based directly on anticipated future revenues and expenses and may be performed based on free cash flows generated within the reporting unit. Critical assumptions that affect our estimates of fair value may include:
▪ | consideration of market transactions;
▪ | future cash flows;
▪ | the appropriate risk-adjusted discount rate;
▪ | country risk; and
▪ | entity risk.
Changes in the carrying amount of goodwill on the Sempra Energy Consolidated Balance Sheets are as follows:
GOODWILL |  |  |  |  |
(Dollars in millions) |  |  |  |  |
| Sempra South American Utilities |  | Sempra Mexico |  | Total
Balance at December 31, 2016 | $ | 749 |  |  | $ | 1,615 |  |  | $ | 2,364 |
Acquisition of business – measurement period adjustment | — |  |  | (13 | ) |  | (13 | )
Foreign currency translation(1) | 46 |  |  | — |  |  | 46 |
Balance at December 31, 2017 | 795 |  |  | 1,602 |  |  | 2,397 |
Acquisition of business | 38 |  |  | — |  |  | 38 |
Foreign currency translation(1) | (62 | ) |  | — |  |  | (62 | )
Balance at December 31, 2018 | $ | 771 |  |  | $ | 1,602 |  |  | $ | 2,373 |
(1) | We record the offset of this fluctuation to OCI.
As we discuss in Note 5, Sempra South American Utilities recorded goodwill of $38 million in connection with its acquisition of CTNG in 2018. In 2017, Sempra Mexico recorded a reduction to goodwill of $13 million for a measurement period adjustment in connection with its acquisition of Ventika. Other Intangible Assets Other Intangible Assets included on the Sempra Energy Consolidated Balance Sheets are as follows:
OTHER INTANGIBLE ASSETS |  |  |  |  |
(Dollars in millions) |  |  |  |  |
| Amortization period (years) |  | December 31,
|  | 2018 |  | 2017
Development rights | 50 |  | $ | — |  |  | $ | 322 |
Renewable energy transmission and consumption permit | 19 |  | 154 |  |  | 154 |
Storage rights | 46 |  | — |  |  | 138 |
O&M agreement | 23 |  | 66 |  |  | 66 |
Concession permits | Indefinite |  | 50 |  |  | — |
Other | 10 years to indefinite |  | 28 |  |  | 18 |
|  |  | 298 |  |  | 698 |
Less accumulated amortization: |  |  |  |  |  |  |
Development rights |  |  | — |  |  | (60 | )
Renewable energy transmission and consumption permit |  |  | (16 | ) |  | (8 | )
Storage rights |  |  | — |  |  | (28 | )
O&M agreement |  |  | (3 | ) |  | — |
Other |  |  | (7 | ) |  | (6 | )
|  |  | (26 | ) |  | (102 | )
|  |  | $ | 272 |  |  | $ | 596 |
Other Intangible Assets at December 31, 2018 primarily includes:
▪ | a renewable energy transmission and consumption permit previously granted by the CRE that was acquired in connection with the acquisition of the Ventika wind power generation facilities;
▪ | a favorable O&M agreement acquired in connection with the acquisition of DEN, which we discuss in Note 5; and
▪ | in connection with the CTNG acquisition that we disclose in Note 5, concession permits allowing CTNG to operate transmission lines and substation assets into perpetuity.
In 2018, we recognized an impairment of $369 million for the net carrying value of Other Intangible Assets at Sempra LNG & Midstream, representing development and storage rights related to the natural gas storage facilities of Mississippi Hub and Bay Gas. This impairment is included in Sempra LNG & Midstream’s total net impairment of $1.1 billion, which is recorded in Impairment Losses on Sempra Energy’s Consolidated Statements of Operations, as we discuss in Notes 5 and 12. Also in 2018, Other Intangible Assets increased due to Sempra Mexico’s acquisition of self-supply permits for development projects. These self-supply permits allow generators to compete directly with the CFE’s retail tariffs and, thus, have access to PPAs with a competitive pricing position. The useful life of a self-supply permit is based on the life of the interconnection agreement with the CFE. Amortization of self-supply permits begins when the project has commenced planned principal operations. Intangible assets subject to amortization are amortized over their estimated useful lives. Amortization expense for intangible assets in 2018, 2017 and 2016 was $16 million, $18 million and $11 million, respectively. We estimate the amortization expense for the next five years to be $12 million per year.LONG-LIVED ASSETS We test long-lived assets for recoverability whenever events or changes in circumstances have occurred that may affect the recoverability or the estimated useful lives of long-lived assets. Long-lived assets include intangible assets subject to amortization, but do not include investments in unconsolidated entities. Events or changes in circumstances that indicate that the carrying amount of a long-lived asset may not be recoverable may include:
▪ | significant decreases in the market price of an asset;
▪ | a significant adverse change in the extent or manner in which we use an asset or in its physical condition;
▪ | a significant adverse change in legal or regulatory factors or in the business climate that could affect the value of an asset;
▪ | a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection of continuing losses associated with the use of a long-lived asset; and
▪ | a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.
A long-lived asset may be impaired when the estimated future undiscounted cash flows are less than the carrying amount of the asset. If that comparison indicates that the asset’s carrying value may not be recoverable, the impairment is measured based on the difference between the carrying amount and the fair value of the asset. This evaluation is performed at the lowest level for which separately identifiable cash flows exist.Otay Mesa VIE SDG&E has a tolling agreement to purchase power generated at OMEC, a 605-MW generating facility. A related agreement provided SDG&E with the option to purchase OMEC at a predetermined price (referred to as the call option). SDG&E’s call option has since expired unexercised. Under the terms of the agreement, on or before April 1, 2019, OMEC LLC can require SDG&E to purchase the power plant on or before October 3, 2019 for $280 million, subject to adjustments (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 $100 million at December 31, 2018 and $28 million at December 31, 2017 is included on the Consolidated Balance Sheets in Other Noncontrolling Interests for Sempra Energy and in Noncontrolling Interest for SDG&E. In October 2018, SDG&E and OMEC LLC signed a resource adequacy capacity agreement for a term that would commence at the expiration of the current tolling agreement in October 2019 and end in August 2024. The capacity agreement was approved by OMEC LLC’s lenders in December 2018, but is contingent upon receiving final and non-appealable approval from the CPUC before the expiration of the put option on April 1, 2019. If a timely and non-appealable approval of the resource adequacy capacity agreement is received, OMEC LLC will waive its right to exercise the put option and, as a result, SDG&E would no longer consolidate Otay Mesa VIE. SDG&E received CPUC approval of the resource adequacy capacity agreement in February 2019 and the period for appeal expires on March 25, 2019. OMEC LLC has a loan outstanding of $220 million at December 31, 2018, which we describe in Note 7. 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 LLC’s loan under the put option purchase scenario. The Consolidated Financial Statements 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 tables below correspond to SDG&E’s Consolidated Balance Sheets and Consolidated Statements of Operations.
AMOUNTS ASSOCIATED WITH OTAY MESA VIE
(Dollars in millions)
| December 31,
| 2018 |  | 2017
Cash and cash equivalents | $ | — |  |  | $ | 4 |
Restricted cash | 11 |  |  | 6 |
Inventories | 4 |  |  | 4 |
Other | 2 |  |  | 1 |
Total current assets | 17 |  |  | 15 |
Restricted cash | 18 |  |  | 11 |
Property, plant and equipment, net | 295 |  |  | 321 |
Total assets | $ | 330 |  |  | $ | 347 |
Current portion of long-term debt | $ | 28 |  |  | $ | 10 |
Fixed-price contracts and other derivatives | 1 |  |  | 10 |
Other | 3 |  |  | 5 |
Total current liabilities | 32 |  |  | 25 |
Long-term debt | 190 |  |  | 284 |
Fixed-price contracts and other derivatives | — |  |  | 3 |
Deferred credits and other | 8 |  |  | 7 |
Noncontrolling interest | 100 |  |  | 28 |
Total liabilities and equity | $ | 330 |  |  | $ | 347 |
| Years ended December 31,
| 2018 |  | 2017 |  | 2016
Operating expenses |  |  |  |  |
Cost of electric fuel and purchased power | $ | (75 | ) |  | $ | (79 | ) |  | $ | (79 | )
Operation and maintenance | 17 |  |  | 17 |  |  | 29 |
Depreciation and amortization | 30 |  |  | 28 |  |  | 35 |
Total operating expenses | (28 | ) |  | (34 | ) |  | (15 | )
Operating income | 28 |  |  | 34 |  |  | 15 |
Other income | 2 |  |  | 2 |  |  | — |
Interest expense | (23 | ) |  | (22 | ) |  | (20 | )
Income (loss) before income taxes/Net income (loss) | 7 |  |  | 14 |  |  | (5 | )
(Earnings) losses attributable to noncontrolling interest | (7 | ) |  | (14 | ) |  | 5 |
Earnings attributable to common shares | $ | — |  |  | $ | — |  |  | $ | — |
SDG&E has determined that no contracts, other than the one relating to Otay Mesa VIE mentioned above, resulted in SDG&E being the primary beneficiary of a VIE at December 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 16. 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 did not exceed the carrying value of our investment, which was $9,652 million at December 31, 2018. Our maximum exposure will fluctuate over time, including as a result of our commitment to contribute approximately $1,025 million in capital (excluding Sempra Energy’s share of approximately $40 million for a management agreement termination fee, as well as other customary transaction costs incurred by InfraREIT that would be borne by Oncor as part of the acquisition) to partially fund Oncor’s acquisition of interests in InfraREIT, which we discuss in Note 5. Sempra Renewables Certain of Sempra Renewables’ wind (and previously 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. In December 2018, $1.1 billion of property, plant and equipment, net, plus other assets and liabilities associated with these entities, was included in the sale of solar assets to a subsidiary of Con Ed, as we discuss in Note 5. The Consolidated Financial Statements of Sempra Energy include the following amounts associated with these entities.
AMOUNTS ASSOCIATED WITH TAX EQUITY ARRANGEMENTS |
(Dollars in millions) |
| December 31,
| 2018 | 2017
Cash and cash equivalents | $ | 7 |  | $ | 23 |
Accounts receivable – trade, net | 2 |  | 5 |
Inventories | — |  | 1 |
Other | 1 |  | 1 |
Total current assets | 10 |  | 30 |
Sundry | — |  | 2 |
Property, plant and equipment, net | 286 |  | 1,412 |
Total assets | 296 |  | 1,444 |
Accounts payable | 2 |  | 42 |
Other | 1 |  | 1 |
Total current liabilities | 3 |  | 43 |
Asset retirement obligations | 6 |  | 40 |
Deferred income taxes | 7 |  | 10 |
Deferred credits and other | — |  | 1 |
Total liabilities | 16 |  | 94 |
Other noncontrolling interests | 158 |  | 631 |
Net assets less other noncontrolling interests | $ | 122 |  | $ | 719 |
| Years ended December 31,
| 2018 |  | 2017 |  | 2016
REVENUES |  |  |  |  |
Energy-related businesses | $ | 92 |  |  | $ | 61 |  |  | $ | 2 |
EXPENSES |  |  |  |  |
Operation and maintenance | (16 | ) |  | (9 | ) |  | (1 | )
Depreciation and amortization | (47 | ) |  | (32 | ) |  | — |
Income before income taxes | 29 |  |  | 20 |  |  | 1 |
Income tax expense | (18 | ) |  | (4 | ) |  | — |
Net income | 11 |  |  | 16 |  |  | 1 |
Losses attributable to noncontrolling interests(1) | 58 |  |  | 23 |  |  | 4 |
Earnings | $ | 69 |  |  | $ | 39 |  |  | $ | 5 |
(1) Net income or loss attributable to NCI is computed using the HLBV method and is not based on ownership percentages. Sempra LNG & Midstream Cameron LNG JV is 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, and therefore we account for our investment under the equity method. 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 $1,271 million at December 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 guarantees that we discuss in Note 6. Other Variable Interest Entities Sempra Energy’s other businesses also enter into arrangements that 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 because the total equity at risk is not sufficient for the entities to finance their activities without additional subordinated financial support. As the primary beneficiary of these companies, we consolidate them. At December 31, 2018, the assets of these VIEs totaled approximately $286 million and consisted primarily of property, plant and equipment and other long-term assets. Sempra Energy’s exposure to loss is equal to the carrying value of these assets. In all other cases, we have determined that these arrangements are not variable interests in a VIE and therefore are not subject to the U.S. GAAP requirements concerning the consolidation or disclosures of VIEs.ASSET RETIREMENT OBLIGATIONS For tangible long-lived assets, we record AROs for the present value of liabilities of future costs expected to be incurred when assets are retired from service, if the retirement process is legally required and if a reasonable estimate of fair value can be made. We also record a liability if a legal obligation to perform an asset retirement exists and can be reasonably estimated, but performance is conditional upon a future event. We record the estimated retirement cost over the life of the related asset by depreciating the asset retirement cost (measured as the present value of the obligation at the time the asset is placed into service), and accreting the obligation until the liability is settled. Our rate-regulated entities, including the California Utilities, record regulatory assets or liabilities as a result of the timing difference between the recognition of costs in accordance with U.S. GAAP and costs recovered through the rate-making process. We have recorded AROs related to various assets, including: SDG&E and SoCalGas
▪ | fuel and storage tanks
▪ | natural gas transmission and distribution systems
▪ | hazardous waste storage facilities
▪ | asbestos-containing construction materials
SDG&E
▪ | nuclear power facilities
▪ | electric transmission and distribution systems
▪ | energy storage systems
▪ | power generation plants
SoCalGas
▪ | underground natural gas storage facilities and wells
All Other Sempra Energy Businesses
▪ | electric transmission and distribution systems
▪ | natural gas transportation and distribution systems
▪ | power generation plants
▪ | LNG terminal
▪ | LPG terminal
▪ | underground natural gas storage facilities (classified as held for sale at December 31, 2018)
The changes in ARO are as follows:
CHANGES IN ASSET RETIREMENT OBLIGATIONS
(Dollars in millions)
| Sempra Energy Consolidated |  | SDG&E |  | SoCalGas
| 2018 |  | 2017 |  | 2018 |  | 2017 |  | 2018 |  | 2017
Balance as of January 1(1) | $ | 2,877 |  |  | $ | 2,553 |  |  | $ | 839 |  |  | $ | 830 |  |  | $ | 1,953 |  |  | $ | 1,659 |
Accretion expense | 121 |  |  | 109 |  |  | 39 |  |  | 39 |  |  | 78 |  |  | 66 |
Liabilities incurred | 7 |  |  | 34 |  |  | — |  |  | 17 |  |  | — |  |  | — |
Deconsolidation and reclassification(2) | (61 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Payments | (42 | ) |  | (63 | ) |  | (39 | ) |  | (61 | ) |  | (3 | ) |  | (2 | )
Revisions(3) | 71 |  |  | 244 |  |  | 35 |  |  | 14 |  |  | 35 |  |  | 230 |
Balance at December 31(1) | $ | 2,973 |  |  | $ | 2,877 |  |  | $ | 874 |  |  | $ | 839 |  |  | $ | 2,063 |  |  | $ | 1,953 |
(1) | Current portion of the ARO for Sempra Energy Consolidated is included in Other Current Liabilities on the Consolidated Balance Sheets.
(2) | In 2018, we reclassified $6 million at Sempra Renewables and $8 million at Sempra LNG & Midstream to Liabilities Held for Sale, and $5 million related to TdM from Liabilities Held for Sale, and deconsolidated $52 million at Sempra Renewables, as we discuss in Note 5.
(3) In 2017, revised estimates were primarily related to underground natural gas storage facilities and wells at SoCalGas.CONTINGENCIES We accrue losses for the estimated impacts of various conditions, situations or circumstances involving uncertain outcomes. For loss contingencies, we accrue the loss if an event has occurred on or before the balance sheet date and:
▪ | information available through the date we file our financial statements indicates it is probable that a loss has been incurred, given the likelihood of uncertain future events; and
▪ | the amount of the loss can be reasonably estimated.
We do not accrue contingencies that might result in gains. We continuously assess contingencies for litigation claims, environmental remediation and other events.LEGAL FEESLegal fees that are associated with a past event for which a liability has been recorded are accrued when it is probable that fees also will be incurred and amounts are estimable.COMPREHENSIVE INCOME Comprehensive income includes all changes in the equity of a business enterprise (except those resulting from investments by owners and distributions to owners), including:
▪ | foreign currency translation adjustments;
▪ | certain hedging activities;
▪ | changes in unamortized net actuarial gain or loss and prior service cost related to pension and other postretirement benefits plans; and
▪ | unrealized gains or losses on available-for-sale securities.
The Consolidated Statements of Comprehensive Income (Loss) show the changes in the components of OCI, including the amounts attributable to NCI. 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)
Sempra Energy Consolidated: |  |  |  |  |  |  |
Balance as of December 31, 2015 | $ | (582 | ) |  | $ | (137 | ) |  | $ | (87 | ) |  | $ | (806 | )
OCI before reclassifications | 42 |  |  | (7 | ) |  | (15 | ) |  | 20 |
Amounts reclassified from AOCI(2) | 13 |  |  | 19 |  |  | 6 |  |  | 38 |
Net OCI | 55 |  |  | 12 |  |  | (9 | ) |  | 58 |
Balance as of December 31, 2016 | (527 | ) |  | (125 | ) |  | (96 | ) |  | (748 | )
OCI before reclassifications | 107 |  |  | (4 | ) |  | — |  |  | 103 |
Amounts reclassified from AOCI | — |  |  | 7 |  |  | 12 |  |  | 19 |
Net OCI | 107 |  |  | 3 |  |  | 12 |  |  | 122 |
Balance as of December 31, 2017 | (420 | ) |  | (122 | ) |  | (84 | ) |  | (626 | )
Cumulative-effect adjustment from change in accounting principle(3) | — |  |  | (3 | ) |  | — |  |  | (3 | )
OCI before reclassifications | (144 | ) |  | 40 |  |  | (52 | ) |  | (156 | )
Amounts reclassified from AOCI | — |  |  | 3 |  |  | 18 |  |  | 21 |
Net OCI | (144 | ) |  | 43 |  |  | (34 | ) |  | (135 | )
Balance as of December 31, 2018 | $ | (564 | ) |  | $ | (82 | ) |  | $ | (118 | ) |  | $ | (764 | )
SDG&E: |  |  |  |  |  |  |
Balance as of December 31, 2015 |  |  |  |  |  |  | $ | (8 | ) |  | $ | (8 | )
OCI before reclassifications |  |  |  |  |  |  | (1 | ) |  | (1 | )
Amounts reclassified from AOCI |  |  |  |  |  |  | 1 |  |  | 1 |
Net OCI |  |  |  |  |  |  | — |  |  | — |
Balance as of December 31, 2016 |  |  |  |  |  |  | (8 | ) |  | (8 | )
OCI before reclassifications |  |  |  |  |  |  | (1 | ) |  | (1 | )
Amounts reclassified from AOCI |  |  |  |  |  |  | 1 |  |  | 1 |
Net OCI |  |  |  |  |  |  | — |  |  | — |
Balance as of December 31, 2017 |  |  |  |  |  |  | (8 | ) |  | (8 | )
OCI before reclassifications |  |  |  |  |  |  | (6 | ) |  | (6 | )
Amounts reclassified from AOCI |  |  |  |  |  |  | 4 |  |  | 4 |
Net OCI |  |  |  |  |  |  | (2 | ) |  | (2 | )
Balance as of December 31, 2018 |  |  |  |  |  |  | $ | (10 | ) |  | $ | (10 | )
SoCalGas: |  |  |  |  |  |  |
Balance as of December 31, 2015 |  |  |  | $ | (14 | ) |  | $ | (5 | ) |  | $ | (19 | )
OCI before reclassifications |  |  |  | — |  |  | (4 | ) |  | (4 | )
Amounts reclassified from AOCI |  |  | 1 |  |  | — |  |  | 1 |
Net OCI |  |  |  | 1 |  |  | (4 | ) |  | (3 | )
Balance as of December 31, 2016 |  |  |  | (13 | ) |  | (9 | ) |  | (22 | )
Amounts reclassified from AOCI |  |  | — |  |  | 1 |  |  | 1 |
Net OCI |  |  |  | — |  |  | 1 |  |  | 1 |
Balance as of December 31, 2017 |  |  |  | (13 | ) |  | (8 | ) |  | (21 | )
OCI before reclassifications |  |  |  | — |  |  | (1 | ) |  | (1 | )
Amounts reclassified from AOCI |  |  |  | 1 |  |  | 1 |  |  | 2 |
Net OCI |  |  |  | 1 |  |  | — |  |  | 1 |
Balance as of December 31, 2018 |  |  |  | $ | (12 | ) |  | $ | (8 | ) |  | $ | (20 | )
(1) | All amounts are net of income tax, if subject to tax, and exclude NCI.
(2) | Total AOCI includes $20 million associated with the October 2016 sale of NCI, discussed below in “Sale of Noncontrolling Interests – Sempra Mexico – Follow-On Offerings,” which does not impact the Consolidated Statement of Comprehensive Income.
(3) | Represents impact from adoption of ASU 2017-12, which we discuss in Note 2.
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 Consolidated Statements of Operations
| Years ended December 31, |  |
| 2018 |  | 2017 |  | 2016 |  |
Sempra Energy Consolidated: |  |  |  |  |  |  |
Financial instruments: |  |  |  |  |  |  |  |  |  |
Interest rate and foreign exchange instruments(1) | $ | — |  |  | $ | (4 | ) |  | $ | 17 |  |  | Interest Expense
| (2 | ) |  | — |  |  | — |  |  | Other Income, Net
Interest rate instruments | 9 |  |  | — |  |  | — |  |  | Gain on Sale of Assets
Interest rate and foreign exchange instruments | 7 |  |  | 20 |  |  | 15 |  |  | Equity Earnings
Interest rate and foreign exchange instruments | — |  |  | — |  |  | 7 |  |  | Remeasurement of Equity Method Investment
Foreign exchange instruments | (1 | ) |  | (2 | ) |  | — |  |  | Revenues: Energy-Related Businesses
Commodity contracts not subject to rate recovery | — |  |  | 9 |  |  | (6 | ) |  | Revenues: Energy-Related Businesses
Total before income tax | 13 |  |  | 23 |  |  | 33 |  |  |
| (4 | ) |  | (6 | ) |  | (6 | ) |  | Income Tax Expense
Net of income tax | 9 |  |  | 17 |  |  | 27 |  |  |
| (6 | ) |  | (10 | ) |  | (15 | ) |  | Earnings Attributable to Noncontrolling Interests
| $ | 3 |  |  | $ | 7 |  |  | $ | 12 |  |  |
Pension and other postretirement benefits: |  |  |  |  |  |  |  |  |
Amortization of actuarial loss(2) | $ | 12 |  |  | $ | 10 |  |  | $ | 10 |  |  | Other Income, Net
Amortization of prior service cost(2) | 2 |  |  | 1 |  |  | 1 |  |  | Other Income, Net
Settlements(2) | 12 |  |  | 8 |  |  | — |  |  | Other Income, Net
Total before income tax | 26 |  |  | 19 |  |  | 11 |  |  |
| (8 | ) |  | (7 | ) |  | (5 | ) |  | Income Tax Expense
Net of income tax | $ | 18 |  |  | $ | 12 |  |  | $ | 6 |  |  |
Total reclassifications for the period, net of tax | $ | 21 |  |  | $ | 19 |  |  | $ | 18 |  |  |
SDG&E: |  |  |  |  |  |  |  |  |  |
Financial instruments: |  |  |  |  |  |  |  |  |  |
Interest rate instruments(1) | $ | 7 |  |  | $ | 13 |  |  | $ | 12 |  |  | Interest Expense
| (7 | ) |  | (13 | ) |  | (12 | ) |  | (Earnings) Losses Attributable to Noncontrolling Interest
| $ | — |  |  | $ | — |  |  | $ | — |  |  |
Pension and other postretirement benefits: |  |  |  |  |  |  |  |  |  |
Amortization of actuarial loss(2) | $ | 1 |  |  | $ | 1 |  |  | $ | 1 |  |  | Other Income, Net
Settlements(2) | 4 |  |  | — |  |  | — |  |  | Other Income, Net
Total before income tax | 5 |  |  | 1 |  |  | 1 |  |  |
| (1 | ) |  | — |  |  | — |  |  | Income Tax Expense
Net of income tax | $ | 4 |  |  | $ | 1 |  |  | $ | 1 |  |  |
Total reclassifications for the period, net of tax | $ | 4 |  |  | $ | 1 |  |  | $ | 1 |  |  |
SoCalGas: |  |  |  |  |  |  |  |  |  |
Financial instruments: |  |  |  |  |  |  |  |  |  |
Interest rate instruments | $ | 1 |  |  | $ | — |  |  | $ | 1 |  |  | Interest Expense
Pension and other postretirement benefits: |  |  |  |  |  |  |  |  |  |
Amortization of prior service cost(2) | $ | 1 |  |  | $ | 1 |  |  | $ | — |  |  | Other Income, Net
Total reclassifications for the period, net of tax | $ | 2 |  |  | $ | 1 |  |  | $ | 1 |  |  |
(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 “Net Periodic Benefit Cost” in Note 9).NONCONTROLLING INTERESTS 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 Consolidated Balance Sheets. Earnings or losses attributable to NCI are separately identified on the Consolidated Statements of Operations, and net income or loss and comprehensive income or loss attributable to NCI are separately identified on the Consolidated Statements of Comprehensive Income (Loss) and Consolidated Statements of Changes in Equity. Sempra Mexico – Share Repurchases In the fourth quarter of 2018, IEnova repurchased 2,000,000 shares of its outstanding common stock held by NCI for approximately $7 million, resulting in an increase in Sempra Energy’s ownership interest in IEnova from 66.4 percent to 66.5 percent. In February 2019, IEnova repurchased an additional 1,600,000 shares for approximately $6 million. Sale of Noncontrolling Interests Sempra Mexico – Follow-On Offerings On October 13, 2016, IEnova priced a private follow-on offering of its common stock in the U.S. and outside of Mexico (the International Offering) and a concurrent public common stock offering in Mexico (the Mexican Offering) at 80.00 Mexican pesos per share. The initial purchasers in the International Offering and the underwriters in the Mexican Offering were granted a 30-day option to purchase additional common shares at the global offering price, less the underwriting discount, to cover overallotments. These options were exercised on October 17, 2016. Sempra Energy also participated in the Mexican Offering by purchasing 83,125,000 shares of common stock for approximately $351 million. After the offerings, including the issuance of shares pursuant to the exercise of the overallotment options, the aggregate shares of common stock sold in the offerings totaled 380,000,000. The net proceeds of the offerings were approximately $1.57 billion in U.S. dollars or 29.86 billion Mexican pesos. IEnova used the net proceeds of the offerings to repay debt financing, including the $1.15 billion bridge loan from Sempra Global that was used to finance the IEnova Pipelines acquisition, $100 million in loans from its parent and $250 million of borrowings under its revolving credit facility. Additionally, $50 million of net proceeds was used to partially fund the Ventika acquisition. Remaining proceeds were used to fund capital expenditures and for general corporate purposes. We discuss these acquisitions in Note 5. All U.S. dollar equivalents presented here are based on an exchange rate of 18.96 Mexican pesos to 1.00 U.S. dollar as of October 13, 2016, the pricing date for the offerings. Net proceeds are after reduction for underwriting discounts and commissions and offering expenses. Upon completion of the offerings on October 19, 2016 (including the issuance of shares pursuant to the exercise of the overallotment options), Sempra Energy’s beneficial ownership of IEnova decreased from approximately 81.1 percent to 66.4 percent, which did not result in a change in control. When there are changes in NCI of a subsidiary that do not result in a change of control, any difference between carrying value and fair value related to the change in ownership is recorded as an adjustment to shareholders’ equity. As a result of the offerings, we recorded an increase in Sempra Energy’s shareholders’ equity of $281 million, net of $351 million for our participation in the Mexican Offering, and a $948 million increase in Other Noncontrolling Interests for the sale of IEnova shares to third parties. The International Offering was exempt from registration under the U.S. Securities Act of 1933, as amended (the Securities Act), and shares in the International Offering were offered and sold only to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to persons outside of the U.S., in accordance with Regulation S under the Securities Act. The shares were not registered under the Securities Act or any state securities laws, and may not be offered or sold in the U.S. absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable securities laws. Sempra Renewables – Tax Equity Arrangements In the fourth quarter of 2017, Sempra Renewables entered into membership interest purchase agreements with financial institutions to form two separate tax equity limited liability companies: one that includes a Sempra Renewables’ portfolio of four solar power generation projects located in Fresno County, California and one for a wind power generation project located in Huron County, Michigan. For the solar power generation projects, Sempra Renewables received $104 million, net of offering costs, in tax equity funding for three of the four phases in the fourth quarter of 2017. Additional funding of $85 million, net of offering costs, for the fourth phase of the tax equity arrangement occurred in April 2018. Under the purchase agreement for the wind power generation project, Sempra Renewables received cash proceeds of $92 million, net of offering costs, and the formation of the tax equity arrangement occurred in December 2017. In December 2016, Sempra Renewables closed a transaction with a financial institution to form a portfolio tax equity limited liability company that includes three Sempra Renewables solar power generation projects. Also in December 2016, Sempra Renewables closed another transaction with two financial institutions to form a tax equity limited liability company involving a Sempra Renewables wind power generation project. Sempra Renewables received cash proceeds of $474 million, net of offering costs, for the sale of NCI relating to these transactions. Sempra Renewables consolidates these entities and reports NCI representing the financial institutions’ respective membership interests in the tax equity arrangements. The financial institutions are noncontrolling, tax equity investors that are allocated earnings, tax attributes and cash flows in accordance with the respective limited liability company agreements. Sempra Renewables has determined that these tax equity arrangements represent substantive profit-sharing arrangements. Sempra Renewables has further determined that the appropriate method for attributing income and loss to the NCI each period is a balance sheet approach referred to as the HLBV method. Under the HLBV method, the amounts of income and loss attributable to NCI in Sempra Energy’s Consolidated Statements of Operations reflect changes in the amounts the members would hypothetically receive at each balance sheet date under the liquidation provisions of the respective limited liability company agreements, assuming the net assets of these entities were liquidated at recorded amounts, after taking into account any capital transactions, such as contributions or distributions, between the entities and the members. As we discuss in Note 5, on June 25, 2018 our board of directors approved a plan of sale that included the sale of tax equity investments and projects in development at Sempra Renewables. In December 2018, Sempra Renewables completed the sale of and deconsolidated its interests in all its solar tax equity investments. As a result of the sale, Sempra Renewables recorded a decrease of $486 million in Other Noncontrolling Interests related to the ownership held by NCI on Sempra Energy’s Consolidated Balance Sheets. In February 2019, Sempra Renewables entered into an agreement to sell its remaining wind assets and investments, which includes its wind tax equity investments. We expect to complete the sale in the second quarter of 2019. Preferred Stock The preferred stock at SoCalGas is presented at Sempra Energy as NCI. Sempra Energy records charges against income related to NCI for preferred stock dividends declared by SoCalGas. We provide additional information regarding SoCalGas’ preferred stock in Note 13. Other Noncontrolling Interests The following table provides information about noncontrolling ownership interests held by others (not including preferred shareholders) recorded in Other Noncontrolling Interests in Total Equity on Sempra Energy’s Consolidated Balance Sheets:
OTHER NONCONTROLLING INTERESTS |  |
(Dollars in millions) |  |
| Percent ownership held by noncontrolling interests |  | Equity (deficit) held by noncontrolling interests
| December 31, |  | December 31,
| 2018 |  | 2017 |  | 2018 |  | 2017
SDG&E: |  |  |  |  |  |  |
Otay Mesa VIE | 100 | % |  | 100 | % |  | $ | 100 |  |  | $ | 28 |
Sempra South American Utilities: |  |  |  |  |  |  |  |  |  |  |
Chilquinta Energía subsidiaries(1) | 19.7 - 43.4 |  |  | 22.9 - 43.4 |  |  | 23 |  |  | 24 |
Luz del Sur | 16.4 |  |  | 16.4 |  |  | 193 |  |  | 189 |
Tecsur | 9.8 |  |  | 9.8 |  |  | 4 |  |  | 4 |
Sempra Mexico: |  |  |  |  |  |  |  |  |  |  |
IEnova(2)(3) | 33.5 |  |  | 33.6 |  |  | 1,605 |  |  | 1,532 |
Sempra Renewables: |  |  |  |  |  |  |
Tax equity arrangements – wind(4) | NA |  |  | NA |  |  | 158 |  |  | 181 |
Tax equity arrangements – solar(4) | — |  |  | NA |  |  | — |  |  | 450 |
PXiSE Energy Solutions, LLC | 11.1 |  |  | — |  |  | 1 |  |  | — |
Sempra LNG & Midstream: |  |  |  |  |  |  |  |  |  |  |
Bay Gas | 9.1 |  |  | 9.1 |  |  | 18 |  |  | 28 |
Liberty Gas Storage, LLC | 24.6 |  |  | 24.6 |  |  | (12 | ) |  | 14 |
Total Sempra Energy |  |  |  |  |  |  | $ | 2,090 |  |  | $ | 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 December 31, 2018 and 2017.
(3) | IEnova has a subsidiary with a 49-percent NCI held by others. The equity held by NCI is $13 million at December 31, 2018.
(4) Net income or loss attributable to NCI is computed using the HLBV method and is not based on ownership percentages.REVENUES See Note 3 for a description of significant accounting policies for revenues. OTHER COST OF SALES Other Cost of Sales primarily includes:
▪ | pipeline capacity costs, including the permanent release of pipeline capacity in 2016 and the associated recoveries in 2017, at Sempra LNG & Midstream;
▪ | pipeline transportation and natural gas marketing costs at Sempra LNG & Midstream;
▪ | electric construction services costs at Sempra South American Utilities’ energy-services companies; and
▪ | energy management service fees and costs associated with construction performed for and invoiced to third parties at Sempra Mexico.
OPERATION AND MAINTENANCE EXPENSES Operation and Maintenance includes O&M and general and administrative costs, consisting primarily of personnel costs, purchased materials and services, litigation expense and rent.FOREIGN CURRENCY TRANSLATION The majority of our operations in South America as well as our natural gas distribution utility in Mexico use their local currency as their functional currency. The assets and liabilities of their foreign operations are translated into U.S. dollars at current exchange rates at the end of the reporting period, and revenues and expenses are translated at average exchange rates for the year. The resulting noncash translation adjustments do not enter into the calculation of earnings or retained earnings, but are reflected in OCI and in AOCI. Cash flows of these consolidated foreign subsidiaries are translated into U.S. dollars using average exchange rates for the period. We report the effect of exchange rate changes on cash balances held in foreign currencies in “Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash” on the Sempra Energy Consolidated Statements of Cash Flows. Currency transaction losses in a currency other than the entity’s functional currency were $5 million, $35 million and $1 million for the years ended December 31, 2018, 2017 and 2016, respectively, and are included in Other Income, Net, on the Sempra Energy Consolidated Statements of Operations.TRANSACTIONS WITH AFFILIATES We summarize amounts due from and to unconsolidated affiliates at Sempra Energy Consolidated, SDG&E and SoCalGas in the following table.
AMOUNTS DUE FROM (TO) UNCONSOLIDATED AFFILIATES
(Dollars in millions)
| December 31,
| 2018 |  | 2017
Sempra Energy Consolidated: |  |  |
Total due from various unconsolidated affiliates – current | $ | 39 |  |  | $ | 37 |
Sempra South American Utilities(1): |  |  |  |  |
Eletrans – 4% Note(2) | $ | 43 |  |  | $ | 103 |
Other related party receivables | 1 |  |  | 1 |
Sempra Mexico(1): |  |  |  |  |
IMG – Note due March 15, 2022(3) | 641 |  |  | 487 |
Energía Sierra Juárez – Note(4) | 3 |  |  | 7 |
Total due from unconsolidated affiliates – noncurrent | $ | 688 |  |  | $ | 598 |
Total due to various unconsolidated affiliates – current | $ | (10 | ) |  | $ | (7 | )
Sempra Mexico(1): |  |  |
Total due to unconsolidated affiliates – noncurrent – TAG – Note due December 20, 2021(5) | $ | (37 | ) |  | $ | (35 | )
SDG&E: |  |  |  |  |
Sempra Energy | $ | (43 | ) |  | $ | (30 | )
SoCalGas | (6 | ) |  | (4 | )
Various affiliates | (12 | ) |  | (6 | )
Total due to unconsolidated affiliates – current | $ | (61 | ) |  | $ | (40 | )
Income taxes due from Sempra Energy(6) | $ | 5 |  |  | $ | 27 |
SoCalGas: |  |  |  |  |
SDG&E | $ | 6 |  |  | $ | 4 |
Various affiliates | 1 |  |  | — |
Total due from unconsolidated affiliates – current | $ | 7 |  |  | $ | 4 |
Total due to unconsolidated affiliates – current – Sempra Energy | $ | (34 | ) |  | $ | (35 | )
Income taxes due (to) from Sempra Energy(6) | $ | (4 | ) |  | $ | 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 JVs of Chilquinta Energía.
(3) | Mexican peso-denominated revolving line of credit for up to 14.2 billion Mexican pesos or approximately $721 million U.S. dollar-equivalent, at a variable interest rate based on the 91-day Interbank Equilibrium Interest Rate plus 220 bps (10.84 percent at December 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 (8.89 percent at December 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 6-month LIBOR plus 290 bps (5.77 percent at December 31, 2018).
(6) | S DG&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.
The following table summarizes revenues and cost of sales from unconsolidated affiliates.
REVENUES AND COST OF SALES FROM UNCONSOLIDATED AFFILIATES
(Dollars in millions)
| Years ended December 31,
| 2018 |  | 2017 |  | 2016
Revenues: |  |  |  |  |
Sempra Energy Consolidated | $ | 64 |  |  | $ | 43 |  |  | $ | 25 |
SDG&E | 5 |  |  | 8 |  |  | 7 |
SoCalGas | 64 |  |  | 74 |  |  | 76 |
Cost of Sales: |  |  |  |  |
Sempra Energy Consolidated | $ | 46 |  |  | $ | 47 |  |  | $ | 72 |
SDG&E | 73 |  |  | 71 |  |  | 64 |
California Utilities Sempra Energy, SDG&E and SoCalGas provide certain services to each other and are charged an allocable share of the cost of such services. Also, from time-to-time, SDG&E and SoCalGas may make short-term advances of surplus cash to Sempra Energy at interest rates based on the federal funds effective rate plus a margin of 13 to 20 bps, depending on the loan balance. SoCalGas provides natural gas transportation and storage services for SDG&E and charges SDG&E for such services monthly. SoCalGas records revenues and SDG&E records a corresponding amount to cost of sales. SDG&E and SoCalGas charge one another, as well as other Sempra Energy affiliates, for shared asset depreciation. SoCalGas and SDG&E record revenues and the affiliates record corresponding amounts to O&M. The natural gas supply for SDG&E’s and SoCalGas’ core natural gas customers is purchased by SoCalGas as a combined procurement portfolio managed by SoCalGas. Core customers are primarily residential and small commercial and industrial customers. This core gas procurement function is considered a shared service; therefore, revenues and costs related to SDG&E are presented net in SoCalGas’ Statements of Operations. SDG&E has a 20-year contract for up to 155 MW of renewable power supplied from the Energía Sierra Juárez wind power generation facility, which, as a lessee, SDG&E accounts for as an operating lease. Energía Sierra Juárez is a 50-percent owned and unconsolidated JV of Sempra Mexico. Sempra Mexico Sempra Mexico, through its wholly owned subsidiaries, DEN and IEnova Pipelines, provides operating and maintenance services to TAG, and also provides personnel under an administrative services arrangement. Sempra Renewables Sempra Renewables, through its wholly owned subsidiary, Sempra Renewables Services, Inc., provides project administration and operating and maintenance services to certain of its renewable energy unconsolidated JVs. Sempra LNG & Midstream Sempra LNG & Midstream provides project administration and operating and maintenance services to Cameron LNG JV, and also provides personnel under an administrative services arrangement. Sempra LNG & Midstream has an agreement to provide transportation services to Cameron LNG JV for capacity on the Cameron Interstate Pipeline. Sempra LNG & Midstream has an agreement with Rockies Express for capacity on REX. We sold our 25-percent interest in Rockies Express in March 2016, at which time Rockies Express ceased being an affiliate. Guarantees Sempra Energy has provided guarantees to certain of its JVs as we discuss in Note 6.RESTRICTED NET ASSETS Sempra Energy Consolidated As we discuss below, the California Utilities and certain other Sempra Energy subsidiaries have restrictions on the amount of funds that can be transferred to Sempra Energy by dividend, advance or loan as a result of conditions imposed by various regulators. Additionally, certain other Sempra Energy subsidiaries are subject to various financial and other covenants and other restrictions contained in debt and credit agreements (described in Note 7) and in other agreements that limit the amount of funds that can be transferred to Sempra Energy. At December 31, 2018, Sempra Energy was in compliance with all covenants related to its debt agreements. At December 31, 2018, the amount of restricted net assets of consolidated entities of Sempra Energy, including the California Utilities discussed below, that may not be distributed to Sempra Energy in the form of a loan or dividend is $9.3 billion. Additionally, the amount of restricted net assets of our unconsolidated entities is $18.6 billion. Although the restrictions cap the amount of funding that the various operating subsidiaries can provide to Sempra Energy, we do not believe these restrictions will have a significant impact on our ability to access cash to pay dividends and fund operating needs. As we discuss in Note 6, $332 million of Sempra Energy’s consolidated retained earnings represents undistributed earnings of equity method investments at December 31, 2018. California Utilitie s The CPUC’s regulation of the California Utilities’ capital structures limits the amounts available for dividends and loans to Sempra Energy. At December 31, 2018, Sempra Energy could have received combined loans and dividends of approximately $552 million from SDG&E and approximately $618 million from SoCalGas. The payment and amount of future dividends by SDG&E and SoCalGas are at the discretion of their respective boards of directors. The following restrictions limit the amount of retained earnings that may be paid as common stock dividends or loaned to Sempra Energy from either utility:
▪ | The CPUC requires that SDG&E’s and SoCalGas’ common equity ratios be no lower than one percentage point below the CPUC-authorized percentage of each entity’s authorized capital structure. The authorized percentage at December 31, 2018 is 52 percent at both SDG&E and SoCalGas.
▪ | The FERC requires SDG&E to maintain a common equity ratio of 30 percent or above.
▪ | The California Utilities have a combined revolving credit line that requires each utility to maintain a ratio of consolidated indebtedness to consolidated capitalization (as defined in the agreement) of no more than 65 percent, as we discuss in Note 7.
Based on these restrictions, at December 31, 2018, SDG&E’s restricted net assets were $5.5 billion and SoCalGas’ restricted net assets were $3.6 billion, which could not be transferred to Sempra Energy. Sempra Texas Utility Sempra Texas Utility owns an indirect, 100-percent interest in Oncor Holdings, which owns an 80.25-percent interest in Oncor. As we discuss in Note 6, we account for our investment in Oncor Holdings under the equity method. Significant restrictions at Oncor include:
▪ | Oncor may not pay any dividends or make any other distributions (except for contractual tax payments) if a majority of its independent directors or a minority member director determines that it is in the best interests of Oncor to retain such amounts to meet expected future requirements.
▪ | At all times, Oncor will remain in compliance with the debt-to-equity ratio established by the PUCT for ratemaking purposes, and Oncor will not pay dividends or other distributions (except for contractual tax payments), if that payment would cause its debt-to-equity ratio to exceed the ratio approved by the PUCT. The PUCT authorized debt-to-equity ratio at December 31, 2018 is 57.5 percent debt to 42.5 percent equity.
▪ | If the credit rating on Oncor’s senior secured debt by any of the three major credit rating agencies falls below BBB (or the equivalent), Oncor will suspend dividends and other distributions (except for contractual tax payments), unless otherwise allowed by the PUCT. At December 31, 2018, all of Oncor’s senior secured ratings were above BBB.
▪ | Oncor has a revolving credit line and term loan credit agreement that requires it to maintain a consolidated senior debt-to-capitalization ratio of no more than 65 percent and observe certain customary reporting requirements and other affirmative covenants. At December 31, 2018, Oncor was in compliance with this and all other covenants.
Based on these restrictions, at December 31, 2018, Oncor’s restricted net assets were $9.7 billion, which could not be transferred to Sempra Energy. Sempra South American Utilitie s At Sempra South American Utilities, Peru requires domestic corporations to maintain minimum legal reserves as a percentage of capital stock, resulting in restricted net assets of $35 million at Luz del Sur at December 31, 2018. Sempra Mexico Significant restrictions at Sempra Mexico include:
▪ | Mexico requires domestic corporations to maintain minimum legal reserves as a percentage of capital stock, resulting in restricted net assets of $153 million at Sempra Energy’s consolidated Mexican subsidiaries at December 31, 2018.
▪ | Wholly owned IEnova Pipelines has a long-term debt agreement that requires it to maintain a reserve account to pay the projects’ debt. Under this restriction, net assets totaling $10 million are restricted at December 31, 2018.
▪ | Wholly owned Ventika has long-term debt agreements that require it to maintain reserve accounts to pay the projects’ debt. The debt agreements may limit the project companies’ ability to incur liens, incur additional indebtedness, make investments, pay cash dividends and undertake certain additional actions. Under these restrictions, net assets totaling $14 million are restricted at December 31, 2018.
▪ | Energía Sierra Juárez, a 50-percent owned and unconsolidated JV of Sempra Mexico, has long-term debt agreements that require the establishment and funding of project and reserve accounts to which the proceeds of loans, letter of credit borrowings, project revenues and other amounts are deposited and applied in accordance with the debt agreements. The long-term debt agreements also limit the JV’s ability to incur liens, incur additional indebtedness, make acquisitions and undertake certain actions. Under these restrictions, net assets totaling $14 million are restricted at December 31, 2018.
▪ | TAG, a 50-percent owned and unconsolidated JV of Sempra Mexico, has a long-term debt agreement that requires it to maintain a reserve account to pay the projects’ debt. Under these restrictions, net assets totaling $89 million are restricted at December 31, 2018.
Sempra Renewables Sempra Renewables has 50-percent owned and unconsolidated wind JVs, which have debt agreements that require each JV to maintain reserve accounts in order to pay the projects’ debt service and O&M requirements. We discuss Sempra Energy guarantees associated with these requirements in Note 6. At December 31, 2018, as a result of these requirements, there were total restricted net assets at these JVs of approximately $122 million. Sempra LNG & Midstream Sempra LNG & Midstream has an equity method investment in Cameron LNG JV, which has debt agreements that require the establishment and funding of project accounts to which the proceeds of loans, project revenues and other amounts are deposited and applied in accordance with the debt agreements. The debt agreements require the JV to maintain reserve accounts in order to pay the project debt service, and also contain restrictions related to the payment of dividends and other distributions to the members of the JV. We discuss Sempra Energy guarantees associated with Cameron LNG JV’s debt agreements in Note 6. Under these restrictions, net assets of Cameron LNG JV of approximately $8.7 billion are restricted at December 31, 2018.OTHER INCOME, NET Other Income, Net on the Consolidated Statements of Operations consists of the following:
OTHER INCOME, NET
(Dollars in millions)
| Years ended December 31,
| 2018 |  | 2017(1) |  | 2016(1)
Sempra Energy Consolidated: |  |  |  |  |
Allowance for equity funds used during construction | $ | 98 |  |  | $ | 168 |  |  | $ | 116 |
Investment (losses) gains(2) | (6 | ) |  | 56 |  |  | 23 |
Gains (losses) on interest rate and foreign exchange instruments, net | 7 |  |  | 47 |  |  | (32 | )
Foreign currency transaction losses(3) | (5 | ) |  | (35 | ) |  | (1 | )
Non-service component of net periodic benefit (cost) credit | (37 | ) |  | (21 | ) |  | 6 |
Electrical infrastructure relocation income | 7 |  |  | 3 |  |  | 10 |
Interest on regulatory balancing accounts, net | 2 |  |  | 3 |  |  | 4 |
Sundry, net | 6 |  |  | 12 |  |  | 12 |
Total | $ | 72 |  |  | $ | 233 |  |  | $ | 138 |
SDG&E: |  |  |  |  |  |  |  |
Allowance for equity funds used during construction | $ | 61 |  |  | $ | 63 |  |  | $ | 46 |
Non-service component of net periodic benefit (cost) credit | (6 | ) |  | 4 |  |  | 14 |
Interest on regulatory balancing accounts, net | 4 |  |  | 3 |  |  | 3 |
Sundry, net | (3 | ) |  | — |  |  | 1 |
Total | $ | 56 |  |  | $ | 70 |  |  | $ | 64 |
SoCalGas: |  |  |  |  |  |  |  |
Allowance for equity funds used during construction | $ | 36 |  |  | $ | 44 |  |  | $ | 40 |
Non-service component of net periodic benefit (cost) credit | (10 | ) |  | (5 | ) |  | 6 |
Interest on regulatory balancing accounts, net | (2 | ) |  | — |  |  | 1 |
Sundry, net | (9 | ) |  | (8 | ) |  | (9 | )
Total | $ | 15 |  |  | $ | 31 |  |  | $ | 38 |
(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 O&M on the Consolidated Statements of Operations.
(3) Includes losses of $3 million and $35 million in 2018 and 2017, respectively, from translation to U.S. dollars of a Mexican peso-denominated loan to the IMG JV, which are offset by corresponding amounts included in Equity Earnings on the Consolidated Statements of Operations.

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