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GENERAL INFORMATION AND OTHER FINANCIAL DATA | 3 Months Ended
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Mar. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
GENERAL INFORMATION AND OTHER FINANCIAL DATA | GENERAL INFORMATION AND OTHER FINANCIAL DATA PRINCIPLES OF CONSOLIDATION Sempra Energy Sempra Energy’s Condensed Consolidated Financial Statements include the accounts of Sempra Energy, a California-based Fortune 500 energy-services holding company, and its consolidated subsidiaries and VIEs. Sempra 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 six separate reportable segments, which we discuss in Note 12. In the first quarter of 2019, our Sempra LNG & Midstream segment was renamed “Sempra LNG.” This segment name change had no impact on our historical position, results of operations, cash flow or segment level results previously reported. All references in these Notes to our reportable segments are not intended to refer to any legal entity with the same or similar name. SDG&E SDG&E’s Condensed Consolidated Financial Statements include its accounts and the accounts of a VIE of which SDG&E is the primary beneficiary, as we discuss below in “Variable Interest Entities.” SDG&E’s common stock is wholly owned by Enova Corporation, which is a wholly owned subsidiary of Sempra Energy. SoCalGas SoCalGas’ common stock is wholly owned by Pacific Enterprises, which is a wholly owned subsidiary of Sempra Energy. 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 Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements when discussed together or collectively:
▪ | the Condensed Consolidated Financial Statements and related Notes of Sempra Energy and its subsidiaries and VIEs;
▪ | the Condensed Consolidated Financial Statements and related Notes of SDG&E and its VIE; and
▪ | the Condensed Financial Statements and related Notes of SoCalGas.
We have prepared the Condensed Consolidated Financial Statements in conformity with U.S. GAAP and in accordance with the interim-period-reporting requirements of Form 10-Q. Results of operations for interim periods are not necessarily indicative of results for the entire year. We evaluated events and transactions that occurred after March 31, 2019 through the date the financial statements were issued and, in the opinion of management, the accompanying statements reflect all adjustments necessary for a fair presentation. These adjustments are only of a normal, recurring nature. All December 31, 2018 balance sheet information in the Condensed Consolidated Financial Statements has been derived from our audited 2018 Consolidated Financial Statements in the Annual Report, which for Sempra Energy has been retrospectively adjusted for discontinued operations, as we discuss below. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the interim-period-reporting provisions of U.S. GAAP and the SEC. We describe our significant accounting policies in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report and the impact of the adoption of new accounting standards on those policies in Note 2 below. We follow the same accounting policies for interim reporting purposes. You should read the information in this Quarterly Report in conjunction with the Annual Report. Discontinued Operations On January 25, 2019, our board of directors approved a plan to sell our South American businesses based on our strategic focus on North America. We determined that these businesses, which previously constituted the Sempra South American Utilities segment, and certain activities associated with these businesses, met the held-for-sale criteria. These businesses are presented as discontinued operations, as the planned sale represents a strategic shift that will have a major effect on our operations and financial results. Throughout this report, the financial information for all periods presented has been adjusted to reflect the presentation of these businesses as discontinued operations, which we discuss further in Note 5. Our discussions in the Notes below relate only to our continuing operations unless otherwise noted. Regulated Operations The California Utilities and Sempra Mexico’s natural gas distribution utility, Ecogas, prepare their financial statements in accordance with the provisions of U.S. GAAP governing rate-regulated operations. We discuss the effects of regulation and revenue recognition at our utilities in Notes 1 and 3 of the Notes to Consolidated Financial Statements in the Annual Report. Our Sempra Texas Utility segment is comprised of our equity method investment in Oncor Holdings, which owns 80.25 percent of Oncor, as we discuss in Notes 5 and 6. Oncor is a regulated electric transmission and distribution utility and prepares its financial statements in accordance with the provisions of U.S. GAAP governing rate-regulated operations. Our Sempra Mexico segment includes the operating companies of our subsidiary, IEnova. Certain business activities at IEnova are regulated by the Comisión Reguladora de Energía (Energy Regulatory Commission in Mexico) and meet the regulatory accounting requirements of U.S. GAAP. Pipeline projects under construction at IEnova that meet the regulatory accounting requirements of U.S. GAAP record the impact of AFUDC related to equity. We discuss AFUDC below and in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.CASH, CASH EQUIVALENTS AND RESTRICTED CASH The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the Condensed Consolidated Balance Sheets to the sum of such amounts reported on the Condensed Consolidated Statements of Cash Flows. We provide information about the nature of restricted cash in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH
(Dollars in millions)
| March 31, | December 31,
| 2019 | 2018
Sempra Energy Consolidated: |  |
Cash and cash equivalents | $ | 78 |  | $ | 102 |
Restricted cash, current | 41 |  | 35 |
Restricted cash, noncurrent | 21 |  | 21 |
Cash, cash equivalents and restricted cash in discontinued operations | 67 |  | 88 |
Total cash, cash equivalents and restricted cash on the Condensed Consolidated Statements of Cash Flows | $ | 207 |  | $ | 246 |
SDG&E: |  |  |
Cash and cash equivalents | $ | 10 |  | $ | 8 |
Restricted cash, current | 21 |  | 11 |
Restricted cash, noncurrent | 18 |  | 18 |
Total cash, cash equivalents and restricted cash on the Condensed Consolidated Statements of Cash Flows | $ | 49 |  | $ | 37 |
INVENTORIES The following table presents the components of inventories by segment.
INVENTORY BALANCES
(Dollars in millions)
| Natural gas |  |  | LNG |  |  | Materials and supplies |  |  | Total
| March 31, 2019 |  | December 31, 2018 |  |  | March 31, 2019 |  | December 31, 2018 |  |  | March 31, 2019 |  | December 31, 2018 |  |  | March 31, 2019 |  | December 31, 2018
SDG&E | $ | — |  |  | $ | — |  |  |  | $ | — |  |  | $ | — |  |  |  | $ | 99 |  |  | $ | 102 |  |  |  | $ | 99 |  |  | $ | 102 |
SoCalGas | 12 |  |  | 92 |  |  |  | — |  |  | — |  |  |  | 46 |  |  | 42 |  |  |  | 58 |  |  | 134 |
Sempra Mexico | — |  |  | — |  |  |  | 7 |  |  | 4 |  |  |  | 16 |  |  | 15 |  |  |  | 23 |  |  | 19 |
Sempra LNG | 9 |  |  | 3 |  |  |  | — |  |  | — |  |  |  | — |  |  | — |  |  |  | 9 |  |  | 3 |
Sempra Energy Consolidated | $ | 21 |  |  | $ | 95 |  |  |  | $ | 7 |  |  | $ | 4 |  |  |  | $ | 161 |  |  | $ | 159 |  |  |  | $ | 189 |  |  | $ | 258 |
CAPITALIZED FINANCING COSTS Capitalized financing costs include capitalized interest costs and AFUDC related to both debt and equity financing of construction projects. We capitalize interest costs incurred to finance capital projects and interest on equity method investments that have not commenced planned principal operations. The table below summarizes capitalized interest and AFUDC.
CAPITALIZED FINANCING COSTS |  |  |
(Dollars in millions) |  |  |
| Three months ended March 31,
| 2019 |  | 2018
Sempra Energy Consolidated | $ | 47 |  |  | $ | 49 |
SDG&E | 17 |  |  | 24 |
SoCalGas | 11 |  |  | 13 |
VARIABLE INTEREST ENTITIES We consolidate a VIE if we are the primary beneficiary of the VIE. Our determination of whether we are the primary beneficiary is based on qualitative and quantitative analyses, which assess:
▪ | the purpose and design of the VIE;
▪ | the nature of the VIE’s risks and the risks we absorb;
▪ | the power to direct activities that most significantly impact the economic performance of the VIE; and
▪ | the obligation to absorb losses or the right to receive benefits that could be significant to the VIE.
We will continue to evaluate our VIEs for any changes that may impact our determination of the primary beneficiary. SDG&E SDG&E’s power procurement is subject to reliability requirements that may require SDG&E to enter into various PPAs that include variable interests. SDG&E evaluates the respective entities to determine if variable interests exist and, based on the qualitative and quantitative analyses described above, if SDG&E, and thereby Sempra Energy, is the primary beneficiary. Tolling Agreements SDG&E has agreements under which it purchases power generated by facilities for which it supplies all of the natural gas to fuel the power plant (i.e., tolling agreements). SDG&E’s obligation to absorb natural gas costs may be a significant variable interest. In addition, SDG&E has the power to direct the dispatch of electricity generated by these facilities. Based on our analysis, the ability to direct the dispatch of electricity may have the most significant impact on the economic performance of the entity owning the generating facility because of the associated exposure to the cost of natural gas, which fuels the plants, and the value of electricity produced. To the extent that SDG&E (1) is obligated to purchase and provide fuel to operate the facility, (2) has the power to direct the dispatch, and (3) purchases all of the output from the facility for a substantial portion of the facility’s useful life, SDG&E may be the primary beneficiary of the entity owning the generating facility. SDG&E determines if it is the primary beneficiary in these cases based on a qualitative approach in which we consider the operational characteristics of the facility, including its expected power generation output relative to its capacity to generate and the financial structure of the entity, among other factors. If we determine that SDG&E is the primary beneficiary, SDG&E and Sempra Energy consolidate the entity that owns the facility as a VIE. Otay Mesa VIE SDG&E has a tolling agreement to purchase power generated at OMEC, a 605-MW generating facility. Under the terms of a related agreement, OMEC LLC can require SDG&E to purchase the power plant (referred to as the put option) on or before October 3, 2019 for $280 million, subject to adjustments, 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 $102 million at March 31, 2019 and $100 million at December 31, 2018 is included on the Condensed 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 and the CPUC in December 2018 and February 2019, respectively. However, given certain pending requests for rehearing of the CPUC’s decisions related to OMEC, on March 28, 2019, OMEC LLC exercised the put option requiring SDG&E to purchase the power plant by October 3, 2019. The outcome of these rehearing requests could impact the effectiveness of the resource adequacy capacity agreement and whether the OMEC facility is purchased by SDG&E. OMEC LLC has a loan outstanding of $220 million at March 31, 2019, which we describe in Note 7 of the Notes to Consolidated Financial Statements in the Annual Report. 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 is SDG&E required to assume OMEC LLC’s loan under the put option. The Condensed Consolidated Statements of Operations of Sempra Energy and SDG&E include the following amounts associated with Otay Mesa VIE. The amounts are net of eliminations of transactions between SDG&E and Otay Mesa VIE. The captions in the table below correspond to SDG&E’s Condensed Consolidated Statements of Operations.
AMOUNTS ASSOCIATED WITH OTAY MESA VIE |  |  |  |
(Dollars in millions) |  |  |  |
|  | Three months ended March 31,
|  | 2019 |  | 2018
Operating expenses |  |  |  |
Cost of electric fuel and purchased power |  | $ | (16 | ) |  | $ | (16 | )
Operation and maintenance |  | 4 |  |  | 4 |
Depreciation and amortization |  | 7 |  |  | 8 |
Total operating expenses |  | (5 | ) |  | (4 | )
Operating income |  | 5 |  |  | 4 |
Interest expense |  | (4 | ) |  | (5 | )
Income (losses) before income taxes/Net income (loss) |  | 1 |  |  | (1 | )
(Earnings) losses attributable to noncontrolling interest |  | (1 | ) |  | 1 |
Earnings attributable to common shares |  | $ | — |  |  | $ | — |
SDG&E has determined that no contracts, other than the one relating to Otay Mesa VIE described above, resulted in SDG&E being the primary beneficiary of a VIE at March 31, 2019. 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 of the Notes to Consolidated Financial Statements in the Annual Report. We provide additional information regarding Otay Mesa VIE in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report. Sempra Texas Utility On March 9, 2018, we completed the acquisition of an indirect, 100-percent interest in Oncor Holdings, a VIE that owns an 80.25-percent interest in Oncor. Sempra Energy is not the primary beneficiary of the VIE because of the structural and operational ring-fencing and governance 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 Note 6 for additional information about our equity method investment in Oncor Holdings and restrictions on our ability to influence its activities. Our current maximum exposure to loss from our interest in Oncor Holdings does not exceed the carrying value of our investment, which was $9,748 million at March 31, 2019 and $9,652 million at December 31, 2018. Our maximum exposure will fluctuate over time, including as a result of our commitment to contribute an estimated $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 pending acquisition of InfraREIT, which we discuss in Note 5. Sempra Renewables Certain of Sempra Renewables’ wind and solar power generation projects were held by limited liability companies whose members were Sempra Renewables and financial institutions. We sold the solar entities in December 2018 and the wind entities in April 2019. The financial institutions are noncontrolling tax equity investors to which earnings, tax attributes and cash flows were allocated in accordance with the respective limited liability company agreements. These entities were VIEs and Sempra Energy was 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 impacted the economic performance of these VIEs. As the primary beneficiary of these tax equity limited liability companies, we consolidated them. Sempra Energy’s Condensed Consolidated Balance Sheets include equity of $161 million at March 31, 2019 and $158 million at December 31, 2018 of Other Noncontrolling Interests associated with these entities. Sempra Energy’s Condensed Consolidated Statements of Operations include the following amounts associated with the tax equity limited liability companies, net of eliminations of transactions between Sempra Energy and these entities.
AMOUNTS ASSOCIATED WITH TAX EQUITY ARRANGEMENTS |  |
(Dollars in millions) |  |  |
|  | Three months ended March 31,
|  | 2019 |  | 2018
REVENUES |  |  |
Energy-related businesses | $ | 6 |  |  | $ | 17 |
EXPENSES |  |  |
Operation and maintenance | (2 | ) |  | (4 | )
Depreciation and amortization | (3 | ) |  | (11 | )
Income before income taxes | 1 |  |  | 2 |
Income tax benefit (expense) | 1 |  |  | (5 | )
Net income (loss) | 2 |  |  | (3 | )
(Earnings) losses attributable to noncontrolling interests(1) | (3 | ) |  | 21 |
(Losses) earnings attributable to common shares | $ | (1 | ) |  | $ | 18 |
(1) | Net income or loss attributable to NCI is computed using the HLBV method and is not based on ownership percentages.
We provide additional information regarding the tax equity limited liability companies in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report. Sempra LNG 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 in Cameron LNG JV under the equity method. The carrying value of our investment, including amounts recognized in AOCI related to interest-rate cash flow hedges at Cameron LNG JV, was $1,255 million at March 31, 2019 and $1,271 million at December 31, 2018. Our current maximum exposure to loss, which fluctuates over time, includes the carrying value of our investment and the guarantees that we discuss in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report. 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. The assets of these VIEs totaled approximately $502 million at March 31, 2019 and $286 million at December 31, 2018, and consisted primarily of PP&E 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.PENSION AND OTHER POSTRETIREMENT BENEFITS Net Periodic Benefit Cost The following three tables provide the components of net periodic benefit cost.
NET PERIODIC BENEFIT COST – SEMPRA ENERGY CONSOLIDATED
(Dollars in millions)
| Pension benefits |  | Other postretirement benefits
| Three months ended March 31,
| 2019 |  | 2018 |  | 2019 |  | 2018
Service cost | $ | 27 |  |  | $ | 33 |  |  | $ | 4 |  |  | $ | 6 |
Interest cost | 35 |  |  | 35 |  |  | 9 |  |  | 9 |
Expected return on assets | (36 | ) |  | (42 | ) |  | (18 | ) |  | (18 | )
Amortization of: |  |  |  |  |  |  |
Prior service cost | 3 |  |  | 3 |  |  | — |  |  | — |
Actuarial loss (gain) | 14 |  |  | 9 |  |  | (2 | ) |  | (1 | )
Settlement charges | — |  |  | 14 |  |  | — |  |  | — |
Net periodic benefit cost (credit) | 43 |  |  | 52 |  |  | (7 | ) |  | (4 | )
Regulatory adjustment | (36 | ) |  | (45 | ) |  | 7 |  |  | 4 |
Total expense recognized | $ | 7 |  |  | $ | 7 |  |  | $ | — |  |  | $ | — |
NET PERIODIC BENEFIT COST – SDG&E
(Dollars in millions)
| Pension benefits |  | Other postretirement benefits
| Three months ended March 31,
| 2019 |  | 2018 |  | 2019 |  | 2018
Service cost | $ | 8 |  |  | $ | 8 |  |  | $ | 1 |  |  | $ | 1 |
Interest cost | 9 |  |  | 9 |  |  | 2 |  |  | 2 |
Expected return on assets | (11 | ) |  | (13 | ) |  | (3 | ) |  | (3 | )
Amortization of: |  |  |  |  |  |  |
Prior service cost | 1 |  |  | — |  |  | 1 |  |  | 1 |
Actuarial loss (gain) | 4 |  |  | 1 |  |  | (1 | ) |  | (1 | )
Settlement charges | — |  |  | 14 |  |  | — |  |  | — |
Net periodic benefit cost | 11 |  |  | 19 |  |  | — |  |  | — |
Regulatory adjustment | (11 | ) |  | (19 | ) |  | — |  |  | — |
Total expense recognized | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
NET PERIODIC BENEFIT COST – SOCALGAS
(Dollars in millions)
| Pension benefits |  | Other postretirement benefits
| Three months ended March 31,
| 2019 |  | 2018 |  | 2019 |  | 2018
Service cost | $ | 16 |  |  | $ | 22 |  |  | $ | 3 |  |  | $ | 4 |
Interest cost | 23 |  |  | 23 |  |  | 7 |  |  | 7 |
Expected return on assets | (24 | ) |  | (26 | ) |  | (14 | ) |  | (14 | )
Amortization of: |  |  |  |  |  |  |
Prior service cost (credit) | 2 |  |  | 2 |  |  | (1 | ) |  | (1 | )
Actuarial loss (gain) | 9 |  |  | 6 |  |  | (2 | ) |  | — |
Net periodic benefit cost (credit) | 26 |  |  | 27 |  |  | (7 | ) |  | (4 | )
Regulatory adjustment | (25 | ) |  | (26 | ) |  | 7 |  |  | 4 |
Total expense recognized | $ | 1 |  |  | $ | 1 |  |  | $ | — |  |  | $ | — |
Benefit Plan Contributions The following table shows our year-to-date contributions to pension and other postretirement benefit plans and the amounts we expect to contribute in 2019.
BENEFIT PLAN CONTRIBUTIONS
(Dollars in millions)
|  | Sempra Energy Consolidated |  | SDG&E |  | SoCalGas
Contributions through March 31, 2019: |  |  |  |  |  |
Pension plans |  | $ | 9 |  |  | $ | — |  |  | $ | 1 |
Other postretirement benefit plans |  | 2 |  |  | — |  |  | — |
Total expected contributions in 2019: |  |  |  |  |  |
Pension plans |  | $ | 234 |  |  | $ | 40 |  |  | $ | 118 |
Other postretirement benefit plans |  | 9 |  |  | — |  |  | 1 |
RABBI TRUSTIn support of its Supplemental Executive Retirement, Cash Balance Restoration and Deferred Compensation Plans, Sempra Energy maintains dedicated assets, including a Rabbi Trust and investments in life insurance contracts, which totaled $413 million and $416 million at March 31, 2019 and December 31, 2018, respectively.EARNINGS PER COMMON SHARE The following table provides EPS computations for the three months ended March 31, 2019 and 2018. Basic EPS is calculated by dividing earnings attributable to common shares (from both continuing and discontinued operations) by the weighted-average number of common shares outstanding for the period. Diluted EPS includes the potential dilution of common stock equivalent shares that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
EARNINGS PER COMMON SHARE COMPUTATIONS |  |  |
(Dollars in millions, except per share amounts; shares in thousands) |  |  |
| Three months ended March 31,
| 2019 |  | 2018
Numerator for continuing operations: |  |  |
Income from continuing operations, net of income tax | $ | 560 |  |  | $ | 330 |
(Earnings) losses attributable to noncontrolling interests | (32 | ) |  | 24 |
Mandatory convertible preferred stock dividends | (36 | ) |  | (28 | )
Earnings from continuing operations attributable to common shares | $ | 492 |  |  | $ | 326 |
Numerator for discontinued operations: |  |  |
(Loss) income from discontinued operations, net of income tax | $ | (42 | ) |  | $ | 28 |
Earnings attributable to noncontrolling interests | (9 | ) |  | (7 | )
(Losses) earnings from discontinued operations attributable to common shares | $ | (51 | ) |  | $ | 21 |
Numerator for earnings: |  |  |
Earnings attributable to common shares | $ | 441 |  |  | $ | 347 |
Denominator: |  |  |
Weighted-average common shares outstanding for basic EPS(1) | 274,674 |  |  | 257,932 |
Dilutive effect of stock options and RSUs(2) | 969 |  |  | 933 |
Dilutive effect of common shares sold forward | 1,585 |  |  | 625 |
Weighted-average common shares outstanding for diluted EPS | 277,228 |  |  | 259,490 |
Basic EPS: |  |  |
Earnings from continuing operations attributable to common shares | $ | 1.79 |  |  | $ | 1.26 |
(Losses) earnings from discontinued operations attributable to common shares | $ | (0.19 | ) |  | $ | 0.08 |
Earnings attributable to common shares | $ | 1.60 |  |  | $ | 1.34 |
Diluted EPS: |  |  |
Earnings from continuing operations attributable to common shares | $ | 1.78 |  |  | $ | 1.25 |
(Losses) earnings from discontinued operations attributable to common shares | $ | (0.19 | ) |  | $ | 0.08 |
Earnings attributable to common shares | $ | 1.59 |  |  | $ | 1.33 |
(1) | Includes 613 and 628 average fully vested RSUs held in our Deferred Compensation Plan for the three months ended March 31, 2019 and 2018, respectively. These fully vested RSUs are included in weighted-average common shares outstanding for basic EPS because there are no conditions under which the corresponding shares will not be issued.
(2) | Due to market fluctuations of both Sempra Energy common stock and the comparative indices used to determine the vesting percentage of our total shareholder return performance-based RSUs, which we discuss in Note 10 of the Notes to Consolidated Financial Statements in the Annual Report, dilutive RSUs may vary widely from period-to-period.
The potentially dilutive impact from stock options and RSUs is calculated under the treasury stock method. Under this method, proceeds based on the exercise price and unearned compensation are assumed to be used to repurchase shares on the open market at the average market price for the period, reducing the number of potential new shares to be issued and sometimes causing an antidilutive effect. The computation of diluted EPS for the three months ended March 31, 2019 and 2018 excludes 316,385 and 80,449 potentially dilutive shares, respectively, because to include them would be antidilutive for the period. However, these shares could potentially dilute basic EPS in the future. The potentially dilutive impact from the forward sale of our common stock pursuant to the forward sale agreements that we entered into in 2018 is reflected in our diluted EPS calculation using the treasury stock method. We anticipate there will be a dilutive effect on our EPS when the average market price of shares of our common stock is above the applicable adjusted forward sale price, subject to increase or decrease based on the overnight bank funding rate, less a spread, and subject to decrease by amounts related to expected dividends on shares of our common stock during the term of the forward sale agreements. Additionally, if we decide to physically settle or net share settle the forward sale agreements, delivery of our shares to the forward purchasers on any such physical settlement or net share settlement of the forward sale agreements would result in dilution to our EPS. The potentially dilutive impact from mandatory convertible preferred stock that we issued in 2018 is calculated under the if-converted method. The computation of diluted EPS for the three months ended March 31, 2019 and 2018 excludes 18,601,085 and 15,592,572 potentially dilutive shares, respectively, because to include them would be antidilutive for the period. However, these shares could potentially dilute basic EPS in the future. Pursuant to our Sempra Energy share-based compensation plans, Sempra Energy’s Board of Directors granted 261,075 non-qualified stock options that are exercisable over a three-year period, 384,373 performance-based RSUs and 214,502 service-based RSUs in the three months ended March 31, 2019, primarily in January. We discuss share-based compensation plans and related awards further in Note 10 of the Notes to Consolidated Financial Statements in the Annual Report.COMPREHENSIVE INCOME The following tables present the changes in AOCI by component and amounts reclassified out of AOCI to net income, excluding amounts attributable to NCI.
CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT(1)
(Dollars in millions)
| Foreign currency translation adjustments |  | Financial instruments |  | Pension and other postretirement benefits |  | Total accumulated other comprehensive income (loss)
| Three months ended March 31, 2019 and 2018
Sempra Energy Consolidated(2): |  |  |  |  |  |  |
Balance as of December 31, 2018 | $ | (564 | ) |  | $ | (82 | ) |  | $ | (118 | ) |  | $ | (764 | )
Cumulative-effect adjustment from change in accounting principle | — |  |  | (25 | ) |  | (17 | ) |  | (42 | )
OCI before reclassifications | 32 |  |  | (45 | ) |  | 1 |  |  | (12 | )
Amounts reclassified from AOCI | — |  |  | (1 | ) |  | 2 |  |  | 1 |
Net OCI | 32 |  |  | (46 | ) |  | 3 |  |  | (11 | )
Balance as of March 31, 2019 | $ | (532 | ) |  | $ | (153 | ) |  | $ | (132 | ) |  | $ | (817 | )
Balance as of December 31, 2017 | $ | (420 | ) |  | $ | (122 | ) |  | $ | (84 | ) |  | $ | (626 | )
Cumulative-effect adjustment from change in accounting principle | — |  |  | (3 | ) |  | — |  |  | (3 | )
OCI before reclassifications | 24 |  |  | 66 |  |  | — |  |  | 90 |
Amounts reclassified from AOCI | — |  |  | (8 | ) |  | 2 |  |  | (6 | )
Net OCI | 24 |  |  | 58 |  |  | 2 |  |  | 84 |
Balance as of March 31, 2018 | $ | (396 | ) |  | $ | (67 | ) |  | $ | (82 | ) |  | $ | (545 | )
SDG&E: |  |  |  |  |  |  |
Balance as of December 31, 2018 |  |  |  |  | $ | (10 | ) |  | $ | (10 | )
Cumulative-effect adjustment from change in accounting principle |  |  |  |  | (2 | ) |  | (2 | )
Balance as of March 31, 2019 |  |  |  |  | $ | (12 | ) |  | $ | (12 | )
Balance as of December 31, 2017 and March 31, 2018 |  |  |  |  | $ | (8 | ) |  | $ | (8 | )
SoCalGas: |  |  |  |  |  |  |
Balance as of December 31, 2018 |  |  | $ | (12 | ) |  | $ | (8 | ) |  | $ | (20 | )
Cumulative-effect adjustment from change in accounting principle |  |  | (2 | ) |  | (2 | ) |  | (4 | )
Balance as of March 31, 2019 |  |  | $ | (14 | ) |  | $ | (10 | ) |  | $ | (24 | )
Balance as of December 31, 2017 and March 31, 2018 |  |  | $ | (13 | ) |  | $ | (8 | ) |  | $ | (21 | )
(1) | All amounts are net of income tax, if subject to tax, and exclude NCI.
(2) | Includes discontinued operations.
RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
Details about accumulated other comprehensive income (loss) components | Amounts reclassified from accumulated other comprehensive income (loss) |  | Affected line item on Condensed Consolidated Statements of Operations
| Three months ended March 31, |  |
| 2019 |  | 2018 |  |
Sempra Energy Consolidated: |  |  |  |  |
Financial instruments: |  |  |  |  |
Interest rate and foreign exchange instruments(1) | $ | 1 |  |  | $ | (2 | ) |  | Interest Expense
| (3 | ) |  | (18 | ) |  | Other Income, Net
Interest rate and foreign exchange instruments | 1 |  |  | 4 |  |  | Equity Earnings (Losses)
Foreign exchange instruments | 1 |  |  | — |  |  | Revenues: Energy-Related Businesses
Total before income tax | — |  |  | (16 | ) |  |
| — |  |  | 3 |  |  | Income Tax Expense
Net of income tax | — |  |  | (13 | ) |  |
| (1 | ) |  | 5 |  |  | (Earnings) Losses Attributable to Noncontrolling Interests
| $ | (1 | ) |  | $ | (8 | ) |  |
Pension and other postretirement benefits: |  |  |  |  |
Amortization of actuarial loss(2) | $ | 2 |  |  | $ | 3 |  |  | Other Income, Net
Amortization of prior service cost(2) | 1 |  |  | — |  |  | Other Income, Net
Total before income tax | 3 |  |  | 3 |  |  |
| (1 | ) |  | (1 | ) |  | Income Tax Expense
Net of income tax | $ | 2 |  |  | $ | 2 |  |  |
Total reclassifications for the period, net of tax | $ | 1 |  |  | $ | (6 | ) |  |
SDG&E: |  |  |  |  |
Financial instruments: |  |  |  |  |
Interest rate instruments(1) | $ | 1 |  |  | $ | 3 |  |  | Interest Expense
| (1 | ) |  | (3 | ) |  | (Earnings) Losses Attributable to Noncontrolling Interest
Total reclassifications for the period, net of tax | $ | — |  |  | $ | — |  |  |
(1) | Amounts include Otay Mesa VIE. All of SDG&E’s interest rate derivative activity relates to Otay Mesa VIE.
(2) | Amounts are included in the computation of net periodic benefit cost (see “Pension and Other Postretirement Benefits” above).
For the three months ended March 31, 2019 and 2018, reclassifications out of AOCI to net income were negligible for SoCalGas.
SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS Sempra Energy Mandatory Convertible Preferred Stock Offerings In January 2018, we issued 17,250,000 shares of our series A preferred stock in a registered public offering resulting in net proceeds of approximately $1.69 billion. In July 2018, we issued 5,750,000 shares of our series B preferred stock in a registered public offering resulting in net proceeds of approximately $565 million. Each share of series A preferred stock and series B preferred stock has a liquidation value of $100.00. We discuss the preferred stock offerings in Note 13 of the Notes to Consolidated Financial Statements in the Annual Report. Sempra Energy Common Stock Offerings In January 2018, we completed the offering of 26,869,158 shares of our common stock, no par value, in a registered public offering at $107.00 per share (approximately $105.07 per share after deducting underwriting discounts), pursuant to forward sale agreements. We received net proceeds totaling approximately $1.27 billion from the sale of shares in the January 2018 offering (including $367 million to cover overallotments) and from the settlement of forward sales in the first quarter of 2018 under the forward sale agreements. We received net proceeds of approximately $800 million from the settlement of forward sales in the second quarter of 2018 under the forward sale agreements. In July 2018, we completed the offering of 11,212,500 shares of our common stock, no par value, in a registered public offering at $113.75 per share (approximately $111.87 per share after deducting underwriting discounts), pursuant to forward sale agreements. We received net proceeds of approximately $164 million from the sale of shares in the July 2018 offering to cover overallotments. We discuss the common stock offerings in Note 14 of the Notes to Consolidated Financial Statements in the Annual Report. As of May 7, 2019, a total of 16,906,185 shares of Sempra Energy common stock remain subject to future settlement under these forward sale agreements, which may be settled on one or more dates specified by us occurring no later than December 15, 2019, which is the final settlement date under the agreements. Although we expect to settle the forward sale agreements entirely by the physical delivery of shares of our common stock in exchange for cash proceeds, we may, subject to certain conditions, elect cash settlement or net share settlement for all or a portion of our obligations under the forward sale agreements. The forward sale agreements are also subject to acceleration by the forward purchasers upon the occurrence of certain events. SoCalGas Preferred Stock The preferred stock at SoCalGas is presented at Sempra Energy as a noncontrolling interest. Sempra Energy records charges against income related to NCI for preferred stock dividends declared by SoCalGas. We provide additional information regarding preferred stock in Note 13 of the Notes to Consolidated Financial Statements in the Annual Report. Other 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. Sempra Mexico In the first quarter of 2019, IEnova repurchased 1,600,000 shares of its outstanding common stock held by NCI for approximately $6 million, resulting in an increase in Sempra Energy’s ownership interest in IEnova from 66.5 percent at December 31, 2018 to 66.6 percent at March 31, 2019. Sempra Renewables As we discuss in Note 5, in April 2019, Sempra Renewables sold its remaining wind assets and investments, which included its wind tax equity arrangements. The remaining ownership interest in PXiSE Energy Solutions, LLC was subsumed into Parent and other. Sempra LNG On February 7, 2019, Sempra LNG purchased for $20 million the 9.1-percent minority interest in Bay Gas immediately prior to the sale of 100 percent of Bay Gas, which we discuss in Note 5. The following table provides information on noncontrolling ownership interests held by others (not including preferred shareholders) in Other Noncontrolling Interests in Total Equity on Sempra Energy’s Condensed Consolidated Balance Sheets.
OTHER NONCONTROLLING INTERESTS
(Dollars in millions) |  |
| Percent ownership held by noncontrolling interests |  | Equity (deficit) held by noncontrolling interests
| March 31, 2019 |  | December 31, 2018 |  | March 31, 2019 |  | December 31, 2018
SDG&E: |  |  |  |  |  |  |
Otay Mesa VIE | 100 | % | 100 | % | $ | 102 |  |  | $ | 100 |
Sempra Mexico: |  |  |  |  |  |  |
IEnova | 33.4 |  | 33.5 |  | 1,611 |  |  | 1,592 |
IEnova subsidiaries(1) | 10.0 – 47.6 |  | 10.0 – 49.0 |  | 13 |  |  | 13 |
Sempra Renewables: |  |  |  |  |  |  |
Tax equity arrangements – wind(2) | NA |  | NA |  | 161 |  |  | 158 |
PXiSE Energy Solutions, LLC | 11.1 |  | 11.1 |  | — |  |  | 1 |
Sempra LNG: |  |  |  |  |  |  |
Bay Gas | — |  | 9.1 |  | — |  |  | 18 |
Liberty Gas Storage, LLC | 24.6 |  | 24.6 |  | (12 | ) |  | (12 | )
Discontinued Operations: |  |  |  |  |  |  |
Chilquinta Energía subsidiaries(1) | 19.7 – 43.4 |  | 19.7 – 43.4 |  | 24 |  |  | 23 |
Luz del Sur | 16.4 |  | 16.4 |  | 201 |  |  | 193 |
Tecsur | 9.8 |  | 9.8 |  | 4 |  |  | 4 |
Total Sempra Energy |  |  |  |  | $ | 2,104 |  |  | $ | 2,090 |
(1) | IEnova and Chilquinta Energía have subsidiaries with NCI held by others. Percentage range reflects the highest and lowest ownership percentages among these subsidiaries.
(2) Net income or loss attributable to NCI is computed using the HLBV method and is not based on ownership percentages.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)
| March 31, 2019 |  | December 31, 2018
Sempra Energy Consolidated: |  |  |
Total due from various unconsolidated affiliates – current | $ | 50 |  |  | $ | 37 |
Sempra Mexico(1): |  |  |
IMG – Note due March 15, 2022(2) | $ | 668 |  |  | $ | 641 |
Energía Sierra Juárez – Note(3) | — |  |  | 3 |
Total due from unconsolidated affiliates – noncurrent | $ | 668 |  |  | $ | 644 |
Total due to various unconsolidated affiliates – current | $ | (10 | ) |  | $ | (10 | )
Sempra Mexico(1): |  |  |
Total due to unconsolidated affiliates – noncurrent – TAG – Note due December 20, 2021(4) | $ | (38 | ) |  | $ | (37 | )
SDG&E: |  |  |
Sempra Energy | $ | (37 | ) |  | $ | (43 | )
SoCalGas | (14 | ) |  | (6 | )
Various affiliates | (12 | ) |  | (12 | )
Total due to unconsolidated affiliates – current | $ | (63 | ) |  | $ | (61 | )
Income taxes due (to) from Sempra Energy(5) | $ | (29 | ) |  | $ | 5 |
SoCalGas: |  |  |
SDG&E | $ | 14 |  |  | $ | 6 |
Various affiliates | 1 |  |  | 1 |
Total due from unconsolidated affiliates – current | $ | 15 |  |  | $ | 7 |
Sempra Energy | $ | (39 | ) |  | $ | (34 | )
Various affiliates | (3 | ) |  | — |
Total due to unconsolidated affiliates – current | $ | (42 | ) |  | $ | (34 | )
Income taxes due to Sempra Energy(5) | $ | (88 | ) |  | $ | (4 | )
(1) | Amounts include principal balances plus accumulated interest outstanding.
(2) | Mexican peso-denominated revolving line of credit for up to 14.2 billion Mexican pesos or approximately $729 million U.S. dollar-equivalent, at a variable interest rate based on the 91-day Interbank Equilibrium Interest Rate plus 220 bps (10.69 percent at March 31, 2019), to finance construction of the natural gas marine pipeline.
(3) | 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).
(4) | U.S. dollar-denominated loan, at a variable interest rate based on the 6-month LIBOR plus 290 bps (5.54 percent at March 31, 2019).
(5) | SDG&E and SoCalGas are included in the consolidated income tax return of Sempra Energy and are allocated income tax expense from Sempra Energy in an amount equal to that which would result from each company having always filed a separate return.
The following table summarizes revenues and cost of sales from unconsolidated affiliates.
REVENUES AND COST OF SALES FROM UNCONSOLIDATED AFFILIATES
(Dollars in millions)
| Three months ended March 31,
| 2019 |  | 2018
Revenues: |  |  |
Sempra Energy Consolidated | $ | 14 |  |  | $ | 16 |
SDG&E | 1 |  |  | 2 |
SoCalGas | 17 |  |  | 17 |
Cost of Sales: |  |  |
Sempra Energy Consolidated | $ | 14 |  |  | $ | 12 |
SDG&E | 20 |  |  | 19 |
SoCalGas | 4 |  |  | — |
Guarantees Sempra Energy has provided guarantees to certain of its JVs, including guarantees related to the financing of the Cameron LNG JV project, as we discuss in Note 6 below and in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report.OTHER INCOME, NET Other Income, Net on the Condensed Consolidated Statements of Operations consisted of the following:
OTHER INCOME, NET |  |
(Dollars in millions) |  |
| Three months ended March 31,
| 2019 |  | 2018
Sempra Energy Consolidated: |  |  |
Allowance for equity funds used during construction | $ | 21 |  |  | $ | 27 |
Investment gains (losses)(1) | 26 |  |  | (1 | )
Gains on interest rate and foreign exchange instruments, net | 13 |  |  | 62 |
Foreign currency transaction gains, net(2) | 7 |  |  | 30 |
Non-service component of net periodic benefit credit | 24 |  |  | 32 |
Penalties related to billing practices OII | (8 | ) |  | — |
Interest on regulatory balancing accounts, net | (1 | ) |  | — |
Sundry, net | — |  |  | 2 |
Total | $ | 82 |  |  | $ | 152 |
SDG&E: |  |  |
Allowance for equity funds used during construction | $ | 12 |  |  | $ | 18 |
Non-service component of net periodic benefit credit | 9 |  |  | 9 |
Sundry, net | 1 |  |  | 1 |
Total | $ | 22 |  |  | $ | 28 |
SoCalGas: |  |  |
Allowance for equity funds used during construction | $ | 8 |  |  | $ | 9 |
Non-service component of net periodic benefit credit | 18 |  |  | 25 |
Penalties related to billing practices OII | (8 | ) |  | — |
Interest on regulatory balancing accounts, net | (1 | ) |  | — |
Sundry, net | (1 | ) |  | (1 | )
Total | $ | 16 |  |  | $ | 33 |
(1) | Represents investment gains (losses) 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 Condensed Consolidated Statements of Operations.
(2) Includes gains of $10 million and $39 million in the three months ended March 31, 2019 and 2018, 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 (Losses) on the Condensed Consolidated Statements of Operations.INCOME TAXES We provide our calculations of ETRs in the following table.
INCOME TAX EXPENSE AND EFFECTIVE INCOME TAX RATES
(Dollars in millions)
| Three months ended March 31,
| 2019 |  | 2018
Sempra Energy Consolidated: |  |  |
Income tax expense from continuing operations | $ | 42 |  |  | $ | 242 |
Income from continuing operations before income taxes |  |  |
and equity earnings (losses) of unconsolidated entities | $ | 501 |  |  | $ | 593 |
Equity earnings, before income tax(1) | 5 |  |  | 5 |
Pretax income | $ | 506 |  |  | $ | 598 |
Effective income tax rate | 8 | % |  | 40 | %
SDG&E: |  |  |
Income tax expense | $ | 5 |  |  | $ | 56 |
Income before income taxes | $ | 182 |  |  | $ | 225 |
Effective income tax rate | 3 | % |  | 25 | %
SoCalGas: |  |  |
Income tax expense | $ | 19 |  |  | $ | 59 |
Income before income taxes | $ | 283 |  |  | $ | 284 |
Effective income tax rate | 7 | % |  | 21 | %
(1) | We discuss how we recognize equity earnings in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report.
Sempra Energy, SDG&E and SoCalGas record income taxes for interim periods utilizing a forecasted ETR anticipated for the full year. Unusual and infrequent items and items that cannot be reliably estimated are recorded in the interim period in which they occur, which can result in variability in the ETR. For SDG&E and SoCalGas, the CPUC requires flow-through rate-making treatment for the current income tax benefit or expense arising from certain property-related and other temporary differences between the treatment for financial reporting and income tax, which will reverse over time. Under the regulatory accounting treatment required for these flow-through temporary differences, deferred income tax assets and liabilities are not recorded to deferred income tax expense, but rather to a regulatory asset or liability, which impacts the ETR. As a result, changes in the relative size of these items compared to pretax income, from period to period, can cause variations in the ETR. The following items are subject to flow-through treatment:
▪ | repairs expenditures related to a certain portion of utility plant fixed assets;
▪ | the equity portion of AFUDC, which is non-taxable;
▪ | a portion of the cost of removal of utility plant assets;
▪ | utility self-developed software expenditures;
▪ | depreciation on a certain portion of utility plant assets; and
▪ | state income taxes.
The AFUDC related to equity recorded for regulated construction projects at Sempra Mexico has similar flow-through treatment. We record income tax (expense) benefit from the transactional effects of foreign currency and inflation. Such effects are partially mitigated by net gains (losses) from foreign currency derivatives that are hedging Sempra Mexico parent’s exposure to movements in the Mexico peso from its controlling interest in IEnova. In the three months ended March 31, 2019, SDG&E and SoCalGas recorded income tax benefits of $31 million and $35 million, respectively, from the release of a regulatory liability established in connection with 2017 tax reform for excess deferred income tax balances that the CPUC directed be allocated to shareholders in a January 2019 decision. Discontinued Operations On January 25, 2019, our board of directors approved a plan to sell our South American businesses, as we discuss in Note 5. Prior to this decision, our repatriation estimate excluded post-2017 earnings and other basis differences related to our South American businesses. Because of our decision to sell our South American businesses, we no longer assert indefinite reinvestment of these basis differences and have recorded the following in discontinued operations in the three months ended March 31, 2019:
▪ | $103 million income tax expense related to outside basis differences existing as of the January 25, 2019 approval of our plan to sell our South American businesses; and
▪ | $13 million income tax expense related to the increase in outside basis differences from 2019 earnings since January 25, 2019.
We have not changed our indefinite reinvestment assertion or repatriation plan for our continuing international operations.

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