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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Schedule of Effective Income Tax Rate Reconciliation

We provide our calculations of ETRs in the following table.

INCOME TAX EXPENSE AND EFFECTIVE INCOME TAX RATES
(Dollars in millions)
	Years ended December 31,
	2018				2017				2016
Sempra Energy Consolidated:
Income tax expense	$	96			$	1,276			$	389
Income before income taxes and equity earnings of unconsolidated entities	$	1,046			$	1,551			$	1,824
Equity (losses) earnings, before income tax(1)	(236		)		34				6
Pretax income	$	810			$	1,585			$	1,830
Effective income tax rate	12		%		81		%		21		%
SDG&E:
Income tax expense	$	173			$	155			$	280
Income before income taxes	$	849			$	576			$	845
Effective income tax rate	20		%		27		%		33		%
SoCalGas:
Income tax expense	$	92			$	160			$	143
Income before income taxes	$	493			$	557			$	493
Effective income tax rate	19		%		29		%		29		%

⁽¹⁾  We discuss how we recognize equity earnings in Note 6.

We present in the table below reconciliations of net U.S. statutory federal income tax rates to our ETRs.

RECONCILIATION OF FEDERAL INCOME TAX RATES TO EFFECTIVE INCOME TAX RATES
	Years ended December 31,
	2018			2017			2016
Sempra Energy Consolidated:
U.S. federal statutory income tax rate	21	%		35	%		35	%
Effects of the TCJA	11			55			—
Non-U.S. earnings taxed at rates different from the U.S. statutory income tax rate(1)	9			(3	)		(3	)
Utility depreciation	7			6			4
Foreign exchange and inflation effects(2)	4			3			(2	)
Compensation-related items	3			—			(2	)
Unrecognized income tax benefits	2			—			—
Noncontrolling interests in tax equity arrangements	2			—			—
Resolution of prior years’ income tax items	—			(2	)		—
Impairment losses at Sempra LNG & Midstream	(19	)		—			—
Utility repairs expenditures	(8	)		(6	)		(4	)
Tax credits	(6	)		(4	)		(3	)
State income taxes, net of federal income tax benefit	(5	)		1			1
Self-developed software expenditures	(4	)		(4	)		(3	)
Allowance for equity funds used during construction	(3	)		(3	)		(2	)
Amortization of excess deferred income taxes	(2	)		—			—
Merger-related transaction costs	(1	)		—			—
Other, net	1			3			—
Effective income tax rate	12	%		81	%		21	%
SDG&E:
U.S. federal statutory income tax rate	21	%		35	%		35	%
State income taxes, net of federal income tax benefit	5			3			5
Depreciation	3			7			5
Effects of the TCJA	—			5			—
Resolution of prior years’ income tax items	—			(4	)		(1	)
Compensation-related items	—			—			(1	)
Repairs expenditures	(3	)		(8	)		(4	)
Self-developed software expenditures	(2	)		(6	)		(3	)
Allowance for equity funds used during construction	(2	)		(4	)		(2	)
Amortization of excess deferred income taxes	(1	)		—			—
Other, net	(1	)		(1	)		(1	)
Effective income tax rate	20	%		27	%		33	%
SoCalGas:
U.S. federal statutory income tax rate	21	%		35	%		35	%
Depreciation	7			9			9
Unrecognized income tax benefits	4			—			—
State income taxes, net of federal income tax benefit	2			3			2
Compensation-related items	1			—			(1	)
Repairs expenditures	(7	)		(8	)		(9	)
Self-developed software expenditures	(3	)		(5	)		(6	)
Allowance for equity funds used during construction	(2	)		(3	)		(2	)
Amortization of excess deferred income taxes	(2	)		—			—
Resolution of prior years’ income tax items	(1	)		(2	)		2
Other, net	(1	)		—			(1	)
Effective income tax rate	19	%		29	%		29	%

⁽¹⁾  Related to operations in Mexico, Chile and Peru.

⁽²⁾  Primarily due to fluctuation of the Mexican peso against the U.S. dollar. We record income tax expense (benefit) from the transactional effects of foreign currency and inflation because of appreciation (depreciation) of the Mexican peso. We also recognize gains (losses) in Other Income, Net, on the Consolidated Statements of Operations from foreign currency derivatives that are partially hedging Sempra Mexico parent’s exposure to movements in the Mexican peso from its controlling interest in IEnova.

Schedule of Impact of Changes in Legislation

The table below summarizes the effects of the TCJA in 2018 and 2017:

EFFECTS OF THE TAX CUTS AND JOBS ACT OF 2017
(Dollars in millions)
	Sempra Energy Consolidated				SDG&E				SoCalGas
2018:
Consolidated Balance Sheets:
Increase (decrease) in net deferred income tax liabilities
due to remeasurement	$	16			$	(38	)		$	5
Increase (decrease) in net regulatory liabilities from
remeasurement of deferred income tax assets and liabilities	$	33			$	38			$	(5	)
Consolidated Statements of Operations:
Income tax expense related to remeasurement of deferred
income tax assets and liabilities	$	49			$	—			$	—
Income tax benefit related to deemed repatriation	(8		)		—				—
U.S. state and non-U.S. withholding tax expense related to
expected future repatriation of foreign earnings	44				—				—
Total increase in income tax expense	$	85			$	—			$	—
2017:
Consolidated Balance Sheets:
Decrease in net deferred income tax liabilities due
to remeasurement	$	(2,220	)		$	(1,400	)		$	(972	)
Increase in net regulatory liabilities from remeasurement of
deferred income tax assets and liabilities	$	2,402			$	1,428			$	974
Consolidated Statements of Operations:
Income tax expense related to remeasurement of deferred
income tax assets and liabilities	$	182			$	28			$	2
Income tax expense related to deemed repatriation	328				—				—
U.S. state and non-U.S. withholding tax expense related to
expected future repatriation of foreign earnings	360				—				—
Total increase in income tax expense	$	870			$	28			$	2

Schedule Of Geographic Components Of Income Before Income Taxes And Equity Earnings Of Certain Unconsolidated Subsidiaries

The table below presents the geographic components of pretax income.

PRETAX INCOME – SEMPRA ENERGY CONSOLIDATED
(Dollars in millions)
	Years ended December 31,
	2018				2017				2016
By geographic components:
U.S.	$	(102	)		$	878			$	773
Non-U.S.	912				707				1,057
Total(1)	$	810			$	1,585			$	1,830

⁽¹⁾ 

See “Income Tax Expense and Effective Income Tax Rates” table above for calculation of pretax income.

Schedule Of Components Of Income Tax Expense

The components of income tax expense are as follows.

INCOME TAX EXPENSE (BENEFIT)
(Dollars in millions)
	Years ended December 31,
	2018				2017				2016
Sempra Energy Consolidated:
Current:
U.S. federal	$	(2	)		$	—			$	—
U.S. state	66				—				1
Non-U.S.	214				116				171
Total	278				116				172
Deferred:
U.S. federal	(120		)		536				78
U.S. state	(159		)		297				9
Non-U.S.	101				327				135
Total	(178		)		1,160				222
Deferred investment tax credits	(4		)		—				(5		)
Total income tax expense	$	96			$	1,276			$	389
SDG&E:
Current:
U.S. federal	$	104			$	100			$	—
U.S. state	30				65				22
Total	134				165				22
Deferred:
U.S. federal	17				29				223
U.S. state	24				(41		)		38
Total	41				(12		)		261
Deferred investment tax credits	(2		)		2				(3		)
Total income tax expense	$	173			$	155			$	280
SoCalGas:
Current:
U.S. federal	$	4			$	—			$	—
U.S. state	10				23				40
Total	14				23				40
Deferred:
U.S. federal	78				144				123
U.S. state	2				(5		)		(18		)
Total	80				139				105
Deferred investment tax credits	(2		)		(2		)		(2		)
Total income tax expense	$	92			$	160			$	143

Schedule Of Components Of Deferred Tax Assets And Liabilities

The tables below present the components of deferred income taxes:

DEFERRED INCOME TAXES – SEMPRA ENERGY CONSOLIDATED
(Dollars in millions)
	December 31,
	2018				2017
Deferred income tax liabilities:
Differences in financial and tax bases of fixed assets, investments and other assets(1)	$	3,780			$	4,233
U.S. state and non-U.S. withholding tax on repatriation of foreign earnings	382				360
Regulatory balancing accounts	359				376
Property taxes	41				37
Other deferred income tax liabilities	130				117
Total deferred income tax liabilities	4,692				5,123
Deferred income tax assets:
Tax credits	1,114				1,066
Net operating losses	725				968
Compensation-related items	181				199
Postretirement benefits	255				251
Other deferred income tax assets	92				115
Accrued expenses not yet deductible	69				60
Deferred income tax assets before valuation allowances	2,436				2,659
Less: valuation allowances	164				133
Total deferred income tax assets	2,272				2,526
Net deferred income tax liability(2)	$	2,420			$	2,597

⁽¹⁾  In addition to the financial over tax basis differences in fixed assets, the amount also includes financial over tax basis differences in various interests in partnerships and certain subsidiaries.

⁽²⁾  At December 31, 2018 and 2017, includes $151 million and $170 million, respectively, recorded as a noncurrent asset and $2,571 million and $2,767 million, respectively, recorded as a noncurrent liability on the Consolidated Balance Sheets.

DEFERRED INCOME TAXES – SDG&E AND SOCALGAS
(Dollars in millions)
	SDG&E								SoCalGas
	December 31,								December 31,
	2018				2017				2018				2017
Deferred income tax liabilities:
Differences in financial and tax bases of
utility plant and other assets	$	1,578			$	1,472			$	1,077			$	987
Regulatory balancing accounts	84				113				283				271
Property taxes	29				26				13				12
Other	10				10				2				1
Total deferred income tax liabilities	1,701				1,621				1,375				1,271
Deferred income tax assets:
Net operating losses	—				—				—				58
Tax credits	6				7				3				15
Postretirement benefits	58				43				140				152
Compensation-related items	5				5				25				25
State income taxes	6				14				3				7
Accrued expenses not yet deductible	4				3				13				12
Other	6				19				14				7
Total deferred income tax assets	85				91				198				276
Net deferred income tax liability	$	1,616			$	1,530			$	1,177			$	995

Summary of Tax Credit Carryforwards

The following table summarizes our unused NOLs and tax credit carryforwards.

NET OPERATING LOSSES AND TAX CREDIT CARRYFORWARDS
(Dollars in millions)
		Unused amount at December 31, 2018			Year expiration begins
Sempra Energy Consolidated:
U.S. federal:
NOLs(1)		$	2,688		2031
General business tax credits(1)		417			2032
Foreign tax credits(2)		624			2024
U.S. state(2):
NOLs		1,942			2019
General business tax credits		82			2019
Non-U.S.(2)
NOLs		264			2019

⁽¹⁾  We have recorded deferred income tax benefits on these NOLs and tax credits, in total, because we currently believe they will be realized on a more-likely-than-not-basis.

⁽²⁾  We have not recorded deferred income tax benefits on a portion of these NOLs and tax credits because we currently believe they will not be realized on a more-likely-than-not-basis, as discussed below.

Summary of Operating Loss Carryforwards

The following table summarizes our unused NOLs and tax credit carryforwards.

NET OPERATING LOSSES AND TAX CREDIT CARRYFORWARDS
(Dollars in millions)
		Unused amount at December 31, 2018			Year expiration begins
Sempra Energy Consolidated:
U.S. federal:
NOLs(1)		$	2,688		2031
General business tax credits(1)		417			2032
Foreign tax credits(2)		624			2024
U.S. state(2):
NOLs		1,942			2019
General business tax credits		82			2019
Non-U.S.(2)
NOLs		264			2019

⁽¹⁾  We have recorded deferred income tax benefits on these NOLs and tax credits, in total, because we currently believe they will be realized on a more-likely-than-not-basis.

⁽²⁾ 

We have not recorded deferred income tax benefits on a portion of these NOLs and tax credits because we currently believe they will not be realized on a more-likely-than-not-basis, as discussed below.

Summary of Income Tax Contingencies

Following is a reconciliation of the changes in unrecognized income tax benefits and the potential effect on our ETR for the years ended December 31:

RECONCILIATION OF UNRECOGNIZED INCOME TAX BENEFITS
(Dollars in millions)
	2018				2017				2016
Sempra Energy Consolidated:
Balance at January 1	$	89			$	90			$	87
Increase in prior period tax positions	7				22				2
Decrease in prior period tax positions	(1		)		(15		)		(2		)
Increase in current period tax positions	24				4				6
Settlements with taxing authorities	—				(12		)		(3		)
Balance at December 31	$	119			$	89			$	90
Of December 31 balance, amounts related to tax positions that
if recognized in future years would
decrease the effective tax rate(1)	$	(107	)		$	(77	)		$	(87	)
increase the effective tax rate(1)	24				20				36
SDG&E:
Balance at January 1	$	10			$	22			$	20
Increase in prior period tax positions	1				9				—
Decrease in prior period tax positions	—				(11		)		—
Increase in current period tax positions	—				—				2
Settlements with taxing authorities	—				(10		)		—
Balance at December 31	$	11			$	10			$	22
Of December 31 balance, amounts related to tax positions that
if recognized in future years would
decrease the effective tax rate(1)	$	(9	)		$	(7	)		$	(19	)
increase the effective tax rate(1)	1				1				13
SoCalGas:
Balance at January 1	$	35			$	29			$	27
Increase in prior period tax positions	2				3				—
Decrease in prior period tax positions	—				—				(2		)
Increase in current period tax positions	24				4				4
Settlements with taxing authorities	—				(1		)		—
Balance at December 31	$	61			$	35			$	29
Of December 31 balance, amounts related to tax positions that
if recognized in future years would
decrease the effective tax rate(1)	$	(51	)		$	(26	)		$	(29	)
increase the effective tax rate(1)	23				20				24

⁽¹⁾  Includes temporary book and tax differences that are treated as flow-through for ratemaking purposes, as discussed above.

Summary of Positions for which Significant Change in Unrecognized Tax Benefits is Reasonably Possible

It is reasonably possible that within the next 12 months, unrecognized income tax benefits could decrease due to the following:

POSSIBLE DECREASES IN UNRECOGNIZED INCOME TAX BENEFITS WITHIN 12 MONTHS
(Dollars in millions)
	At December 31,
	2018				2017				2016
Sempra Energy Consolidated:
Expiration of statutes of limitations on tax assessments	$	(1	)		$	—			$	(2	)
Potential resolution of audit issues with various
U.S. federal, state and local and non-U.S. taxing authorities	(40		)		(8		)		(36		)
	$	(41	)		$	(8	)		$	(38	)
SDG&E:
Expiration of statutes of limitations on tax assessments	$	—			$	—			$	(1	)
Potential resolution of audit issues with various
U.S. federal, state and local taxing authorities	(6		)		(6		)		(10		)
	$	(6	)		$	(6	)		$	(11	)
SoCalGas:
Potential resolution of audit issues with various
U.S. federal, state and local taxing authorities	$	(2	)		$	(2	)		$	(25	)

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