XML 42 R17.htm IDEA: XBRL DOCUMENT
v3.19.1

DERIVATIVE FINANCIAL INSTRUMENTS | 3 Months Ended
--- | ---
Mar. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | DERIVATIVE FINANCIAL INSTRUMENTS We use derivative instruments primarily to manage exposures arising in the normal course of business. Our principal exposures are commodity market risk, benchmark interest rate risk and foreign exchange rate exposures. Our use of derivatives for these risks is integrated into the economic management of our anticipated revenues, anticipated expenses, assets and liabilities. Derivatives may be effective in mitigating these risks (1) that could lead to declines in anticipated revenues or increases in anticipated expenses, or (2) that our asset values may fall or our liabilities increase. Accordingly, our derivative activity summarized below generally represents an impact that is intended to offset associated revenues, expenses, assets or liabilities that are not included in the tables below. In certain cases, we apply the normal purchase or sale exception to derivative instruments and have other commodity contracts that are not derivatives. These contracts are not recorded at fair value and are therefore excluded from the disclosures below. In all other cases, we record derivatives at fair value on the Condensed Consolidated Balance Sheets. We designate each derivative as (1) a cash flow hedge, (2) a fair value hedge, or (3) undesignated. Depending on the applicability of hedge accounting and, for the California Utilities and other operations subject to regulatory accounting, the requirement to pass impacts through to customers, the impact of derivative instruments may be offset in OCI (cash flow hedge), on the balance sheet (fair value hedges and regulatory offsets), or recognized in earnings. We classify cash flows from the principal settlements of cross-currency swaps that hedge exposure related to Mexican peso-denominated debt as financing activities and settlements of other derivative instruments as operating activities on the Condensed Consolidated Statements of Cash Flows. HEDGE ACCOUNTING We may designate a derivative as a cash flow hedging instrument if it effectively converts anticipated cash flows associated with revenues or expenses to a fixed dollar amount. We may utilize cash flow hedge accounting for derivative commodity instruments, foreign currency instruments and interest rate instruments. Designating cash flow hedges is dependent on the business context in which the instrument is being used, the effectiveness of the instrument in offsetting the risk that the future cash flows of a given revenue or expense item may vary, and other criteria. ENERGY DERIVATIVES Our market risk is primarily related to natural gas and electricity price volatility and the specific physical locations where we transact. We use energy derivatives to manage these risks. The use of energy derivatives in our various businesses depends on the particular energy market, and the operating and regulatory environments applicable to the business, as follows:
▪ | The California Utilities use natural gas and electricity derivatives, for the benefit of customers, with the objective of managing price risk and basis risks, and stabilizing and lowering natural gas and electricity costs. These derivatives include fixed price natural gas and electricity positions, options, and basis risk instruments, which are either exchange-traded or over-the-counter financial instruments, or bilateral physical transactions. This activity is governed by risk management and transacting activity plans that have been filed with and approved by the CPUC. Natural gas and electricity derivative activities are recorded as commodity costs that are offset by regulatory account balances and are recovered in rates. Net commodity cost impacts on the Condensed Consolidated Statements of Operations are reflected in Cost of Electric Fuel and Purchased Power or in Cost of Natural Gas.
▪ | SDG&E is allocated and may purchase CRRs, which serve to reduce the regional electricity price volatility risk that may result from local transmission capacity constraints. Unrealized gains and losses do not impact earnings, as they are offset by regulatory account balances. Realized gains and losses associated with CRRs, which are recoverable in rates, are recorded in Cost of Electric Fuel and Purchased Power on the Condensed Consolidated Statements of Operations.
▪ | Sempra Mexico, Sempra LNG and Sempra Renewables may use natural gas and electricity derivatives, as appropriate, to optimize the earnings of their assets which support the following businesses: LNG, natural gas transportation and storage, and power generation. Gains and losses associated with undesignated derivatives are recognized in Energy-Related Businesses Revenues or in Cost of Sales on the Condensed Consolidated Statements of Operations. Certain of these derivatives may also be designated as cash flow hedges. Sempra Mexico may also use natural gas energy derivatives with the objective of managing price risk and lowering natural gas prices at its distribution operations. These derivatives, which are recorded as commodity costs that are offset by regulatory account balances and recovered in rates, are recognized in Cost of Natural Gas on the Condensed Consolidated Statements of Operations.
▪ | From time to time, our various businesses, including the California Utilities, may use other energy derivatives to hedge exposures such as the price of vehicle fuel and GHG allowances.
The following table summarizes net energy derivative volumes.
NET ENERGY DERIVATIVE VOLUMES
(Quantities in millions)
Commodity | Unit of measure |  | March 31, 2019 |  | December 31, 2018
Sempra Energy Consolidated: |  |  |  |  |
Natural gas | MMBtu |  | 33 |  |  | 35 |
Electricity | MWh |  | 2 |  |  | 2 |
Congestion revenue rights | MWh |  | 50 |  |  | 52 |
SDG&E: |  |  |  |  |
Natural gas | MMBtu |  | 32 |  |  | 33 |
Electricity | MWh |  | 2 |  |  | 2 |
Congestion revenue rights | MWh |  | 50 |  |  | 52 |
In addition to the amounts noted above, we use commodity derivatives to manage risks associated with the physical locations of contractual obligations and assets, such as natural gas purchases and sales. INTEREST RATE DERIVATIVES We are exposed to interest rates primarily as a result of our current and expected use of financing. The California Utilities, as well as Sempra Energy and its other subsidiaries and JVs, periodically enter into interest rate derivative agreements intended to moderate our exposure to interest rates and to lower our overall costs of borrowing. In addition, we may utilize interest rate swaps, typically designated as cash flow hedges, to lock in interest rates on outstanding debt or in anticipation of future financings. Separately, Otay Mesa VIE has entered into interest rate swap agreements, designated as cash flow hedges, to moderate its exposure to interest rate changes. The following table presents the net notional amounts of our interest rate derivatives, excluding JVs.
INTEREST RATE DERIVATIVES
(Dollars in millions)
| March 31, 2019 |  | December 31, 2018
| Notional debt |  | Maturities |  | Notional debt |  | Maturities
Sempra Energy Consolidated: |  |  |  |  |  |  |
Cash flow hedges(1) | $ | 1,430 |  |  | 2019-2032 |  | $ | 594 |  |  | 2019-2032
SDG&E: |  |  |  |  |  |  |
Cash flow hedge(1) | 142 |  |  | 2019 |  | 142 |  |  | 2019
(1) | Includes Otay Mesa VIE. All of SDG&E’s interest rate derivatives relate to Otay Mesa VIE. In December 2018, OMEC LLC entered into new floating-to-fixed interest rate swaps with notional amounts of $159 million effective April 30, 2019 through October 31, 2019, and a swaption with a notional amount of $142 million effective October 31, 2019 through October 31, 2023.
FOREIGN CURRENCY DERIVATIVES We utilize cross-currency swaps to hedge exposure related to Mexican peso-denominated debt at our Mexican subsidiaries and JVs. These cash flow hedges exchange our Mexican peso-denominated principal and interest payments into the U.S. dollar and swap Mexican variable interest rates for U.S. fixed interest rates. From time to time, Sempra Mexico and its JVs may use other foreign currency derivatives to hedge exposures related to cash flows associated with revenues from contracts denominated in Mexican pesos that are indexed to the U.S. dollar. We are also exposed to exchange rate movements at our Mexican subsidiaries and JVs, which have U.S. dollar-denominated cash balances, receivables, payables and debt (monetary assets and liabilities) that give rise to Mexican currency exchange rate movements for Mexican income tax purposes. They also have deferred income tax assets and liabilities denominated in the Mexican peso, which must be translated to U.S. dollars for financial reporting purposes. In addition, monetary assets and liabilities and certain nonmonetary assets and liabilities are adjusted for Mexican inflation for Mexican income tax purposes. We utilize foreign currency derivatives as a means to manage the risk of exposure to significant fluctuations in our income tax expense and equity earnings from these impacts; however, we generally do not hedge our deferred income tax assets and liabilities or for inflation. The following table presents the net notional amounts of our foreign currency derivatives, excluding JVs.
FOREIGN CURRENCY DERIVATIVES
(Dollars in millions)
| March 31, 2019 |  | December 31, 2018
| Notional amount |  | Maturities |  | Notional amount |  | Maturities
Sempra Energy Consolidated: |  |  |  |  |  |  |
Cross-currency swaps | $ | 306 |  |  | 2019-2023 |  | $ | 306 |  |  | 2019-2023
Other foreign currency derivatives | 1,084 |  |  | 2019-2020 |  | 1,158 |  |  | 2019-2020
FINANCIAL STATEMENT PRESENTATION The Condensed Consolidated Balance Sheets reflect the offsetting of net derivative positions and cash collateral with the same counterparty when a legal right of offset exists. The following tables provide the fair values of derivative instruments on the Condensed Consolidated Balance Sheets, including the amount of cash collateral receivables that were not offset, as the cash collateral was in excess of liability positions.
DERIVATIVE INSTRUMENTS ON THE CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
| March 31, 2019
| Current assets: Other(1) |  | Other assets: Sundry |  | Current liabilities: Other |  | Deferred credits and other liabilities: Deferred credits and other
Sempra Energy Consolidated: |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |
Interest rate and foreign exchange instruments(2) | $ | — |  |  | $ | — |  |  | $ | (5 | ) |  | $ | (146 | )
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Foreign exchange instruments | 12 |  |  | — |  |  | — |  |  | — |
Commodity contracts not subject to rate recovery | 58 |  |  | 6 |  |  | (65 | ) |  | (5 | )
Associated offsetting commodity contracts | (47 | ) |  | (2 | ) |  | 47 |  |  | 2 |
Commodity contracts subject to rate recovery | 50 |  |  | 236 |  |  | (41 | ) |  | (65 | )
Associated offsetting commodity contracts | (5 | ) |  | (2 | ) |  | 5 |  |  | 2 |
Associated offsetting cash collateral | — |  |  | — |  |  | 3 |  |  | 3 |
Net amounts presented on the balance sheet | 68 |  |  | 238 |  |  | (56 | ) |  | (209 | )
Additional cash collateral for commodity contracts not subject to rate recovery | 25 |  |  | — |  |  | — |  |  | — |
Additional cash collateral for commodity contracts subject to rate recovery | 26 |  |  | — |  |  | — |  |  | — |
Total(3) | $ | 119 |  |  | $ | 238 |  |  | $ | (56 | ) |  | $ | (209 | )
SDG&E: |  |  |  |  |  |  |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Commodity contracts subject to rate recovery | $ | 45 |  |  | $ | 234 |  |  | $ | (37 | ) |  | $ | (65 | )
Associated offsetting commodity contracts | (5 | ) |  | (2 | ) |  | 5 |  |  | 2 |
Associated offsetting cash collateral | — |  |  | — |  |  | 3 |  |  | 3 |
Net amounts presented on the balance sheet | 40 |  |  | 232 |  |  | (29 | ) |  | (60 | )
Additional cash collateral for commodity contracts subject to rate recovery | 25 |  |  | — |  |  | — |  |  | — |
Total(3) | $ | 65 |  |  | $ | 232 |  |  | $ | (29 | ) |  | $ | (60 | )
SoCalGas: |  |  |  |  |  |  |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Commodity contracts subject to rate recovery | $ | 5 |  |  | $ | 2 |  |  | $ | (4 | ) |  | $ | — |
Net amounts presented on the balance sheet | 5 |  |  | 2 |  |  | (4 | ) |  | — |
Additional cash collateral for commodity contracts subject to rate recovery | 1 |  |  | — |  |  | — |  |  | — |
Total | $ | 6 |  |  | $ | 2 |  |  | $ | (4 | ) |  | $ | — |
(1) Included in Current Assets: Fixed-Price Contracts and Other Derivatives for SDG&E. (2) Includes a negligible amount for Otay Mesa VIE. (3) Normal purchase contracts previously measured at fair value are excluded.
DERIVATIVE INSTRUMENTS ON THE CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
| December 31, 2018
| Current assets: Other(1) |  | Other assets: Sundry |  | Current liabilities: Other |  | Deferred credits and other liabilities: Deferred credits and other
Sempra Energy Consolidated: |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |
Interest rate and foreign exchange instruments(2) | $ | 2 |  |  | $ | — |  |  | $ | (3 | ) |  | $ | (147 | )
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Commodity contracts not subject to rate recovery | 153 |  |  | 7 |  |  | (164 | ) |  | (6 | )
Associated offsetting commodity contracts | (133 | ) |  | (3 | ) |  | 133 |  |  | 3 |
Commodity contracts subject to rate recovery | 64 |  |  | 233 |  |  | (42 | ) |  | (72 | )
Associated offsetting commodity contracts | (6 | ) |  | (2 | ) |  | 6 |  |  | 2 |
Associated offsetting cash collateral | — |  |  | — |  |  | — |  |  | 2 |
Net amounts presented on the balance sheet | 80 |  |  | 235 |  |  | (70 | ) |  | (218 | )
Additional cash collateral for commodity contracts not subject to rate recovery | 19 |  |  | — |  |  | — |  |  | — |
Additional cash collateral for commodity contracts subject to rate recovery | 33 |  |  | — |  |  | — |  |  | — |
Total(3) | $ | 132 |  |  | $ | 235 |  |  | $ | (70 | ) |  | $ | (218 | )
SDG&E: |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |
Interest rate instruments(2) | $ | — |  |  | $ | — |  |  | $ | (1 | ) |  | $ | — |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Commodity contracts subject to rate recovery | 60 |  |  | 233 |  |  | (37 | ) |  | (72 | )
Associated offsetting commodity contracts | (6 | ) |  | (2 | ) |  | 6 |  |  | 2 |
Associated offsetting cash collateral | — |  |  | — |  |  | — |  |  | 2 |
Net amounts presented on the balance sheet | 54 |  |  | 231 |  |  | (32 | ) |  | (68 | )
Additional cash collateral for commodity contracts subject to rate recovery | 28 |  |  | — |  |  | — |  |  | — |
Total(3) | $ | 82 |  |  | $ | 231 |  |  | $ | (32 | ) |  | $ | (68 | )
SoCalGas: |  |  |  |  |  |  |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Commodity contracts subject to rate recovery | $ | 4 |  |  | $ | — |  |  | $ | (5 | ) |  | $ | — |
Net amounts presented on the balance sheet | 4 |  |  | — |  |  | (5 | ) |  | — |
Additional cash collateral for commodity contracts subject to rate recovery | 5 |  |  | — |  |  | — |  |  | — |
Total | $ | 9 |  |  | $ | — |  |  | $ | (5 | ) |  | $ | — |
(1) Included in Current Assets: Fixed-Price Contracts and Other Derivatives for SDG&E. (2) Includes Otay Mesa VIE. All of SDG&E’s amounts relate to Otay Mesa VIE. (3) Normal purchase contracts previously measured at fair value are excluded. The table below includes the effects of derivative instruments designated as cash flow hedges on the Condensed Consolidated Statements of Operations and in OCI and AOCI:
CASH FLOW HEDGE IMPACTS
(Dollars in millions)
| Pretax gain (loss) recognized in OCI |  |  |  | Pretax gain (loss) reclassified from AOCI into earnings
| Three months ended March 31, |  |  |  | Three months ended March 31,
| 2019 |  | 2018 |  | Location |  | 2019 |  | 2018
Sempra Energy Consolidated: |  |  |  |  |  |  |  |  |
Interest rate and foreign exchange instruments(1) | $ | (3 | ) |  | $ | 54 |  |  | Interest Expense |  | $ | (1 | ) |  | $ | 2 |
|  |  |  |  | Other Income, Net |  | 3 |  |  | 18 |
Interest rate and foreign exchange instruments | (68 | ) |  | 70 |  |  | Equity Earnings (Losses) |  | (1 | ) |  | (4 | )
Foreign exchange instruments | (3 | ) |  | (7 | ) |  | Revenues: Energy- Related Businesses |  | (1 | ) |  | — |
Total | $ | (74 | ) |  | $ | 117 |  |  |  |  | $ | — |  |  | $ | 16 |
SDG&E: |  |  |  |  |  |  |  |  |
Interest rate instruments(1) | $ | — |  |  | $ | 1 |  |  | Interest Expense |  | $ | (1 | ) |  | $ | (3 | )
(1) | Amounts include Otay Mesa VIE. All of SDG&E’s interest rate derivative activity relates to Otay Mesa VIE.
For Sempra Energy Consolidated, we expect that net gains of $5 million, which are net of income tax expense, that are currently recorded in AOCI (including $1 million of losses in NCI related to Otay Mesa VIE at SDG&E) related to cash flow hedges will be reclassified into earnings during the next 12 months as the hedged items affect earnings. SoCalGas expects that $1 million of losses, net of income tax benefit, that are currently recorded in AOCI related to cash flow hedges will be reclassified into earnings during the next 12 months as the hedged items affect earnings. Actual amounts ultimately reclassified into earnings depend on the interest rates in effect when derivative contracts mature. For all forecasted transactions, the maximum remaining term over which we are hedging exposure to the variability of cash flows at March 31, 2019 is approximately 13 years and less than one year for Sempra Energy Consolidated and SDG&E, respectively. The maximum remaining term for which we are hedging exposure to the variability of cash flows at our equity method investees is 15 years. The following table summarizes the effects of derivative instruments not designated as hedging instruments on the Condensed Consolidated Statements of Operations.
UNDESIGNATED DERIVATIVE IMPACTS
(Dollars in millions)
|  | Pretax gain (loss) on derivatives recognized in earnings
|  | Three months ended March 31,
| Location | 2019 |  | 2018
Sempra Energy Consolidated: |  |  |  |
Foreign exchange instruments | Other Income, Net | $ | 10 |  |  | $ | 44 |
Commodity contracts not subject to rate recovery | Revenues: Energy-Related Businesses | — |  |  | (9 | )
Commodity contracts subject to rate recovery | Cost of Electric Fuel and Purchased Power | 2 |  |  | 2 |
Commodity contracts subject to rate recovery | Cost of Natural Gas | 2 |  |  | 1 |
Total |  | $ | 14 |  |  | $ | 38 |
SDG&E: |  |  |  |
Commodity contracts subject to rate recovery | Cost of Electric Fuel and Purchased Power | $ | 2 |  |  | $ | 2 |
SoCalGas: |  |  |  |
Commodity contracts subject to rate recovery | Cost of Natural Gas | $ | 2 |  |  | $ | 1 |
CONTINGENT FEATURES For Sempra Energy Consolidated, SDG&E and SoCalGas, certain of our derivative instruments contain credit limits which vary depending on our credit ratings. Generally, these provisions, if applicable, may reduce our credit limit if a specified credit rating agency reduces our ratings. In certain cases, if our credit ratings were to fall below investment grade, the counterparty to these derivative liability instruments could request immediate payment or demand immediate and ongoing full collateralization. For Sempra Energy Consolidated, the total fair value of this group of derivative instruments in a net liability position at March 31, 2019 and December 31, 2018 was $14 million and $16 million, respectively. For SoCalGas, the total fair value of this group of derivative instruments in a net liability position at March 31, 2019 and December 31, 2018 was $4 million and $5 million, respectively. At March 31, 2019, if the credit ratings of Sempra Energy or SoCalGas were reduced below investment grade, $15 million and $4 million, respectively, of additional assets could be required to be posted as collateral for these derivative contracts. For Sempra Energy Consolidated, SDG&E and SoCalGas, some of our derivative contracts contain a provision that would permit the counterparty, in certain circumstances, to request adequate assurance of our performance under the contracts. Such additional assurance, if needed, is not material and is not included in the amounts above.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration