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REGULATORY MATTERS | 6 Months Ended
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Jun. 30, 2023
Regulated Operations [Abstract] |
REGULATORY MATTERS | REGULATORY MATTERS We discuss regulatory matters in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report and provide updates to those discussions and information about new regulatory matters below. With the exception of regulatory balancing accounts, we generally do not earn a return on our regulatory assets until such time as a related cash expenditure has been made. Upon the occurrence of a cash expenditure associated with a regulatory asset, the related amounts are recoverable through a regulatory account mechanism for which we earn a return authorized by applicable regulators, which generally approximates the three-month commercial paper rate. The periods during which we recognize a regulatory asset while we do not earn a return vary by regulatory asset.
REGULATORY ASSETS (LIABILITIES)
(Dollars in millions)
| June 30, 2023 |  | December 31, 2022
SDG&E: |  |  |
Fixed-price contracts and other derivatives | $ | 8 |  |  | $ | (110) |
Deferred income taxes recoverable in rates | 429 |  |  | 296 |
Pension and PBOP plan obligations | 3 |  |  | 11 |
Removal obligations | (2,371) |  |  | (2,248) |
Environmental costs | 106 |  |  | 107 |
Sunrise Powerlink fire mitigation | 121 |  |  | 123 |
Regulatory balancing accounts(1)(2): |  |  |
Commodity – electric | 181 |  |  | 220 |
Gas transportation | 7 |  |  | 60 |
Safety and reliability | 158 |  |  | 107 |
Public purpose programs | (109) |  |  | (69) |
Wildfire mitigation plan | 519 |  |  | 375 |
Liability insurance premium | 102 |  |  | 99 |
Other balancing accounts | (342) |  |  | (50) |
Other regulatory assets, net(2) | 153 |  |  | 137 |
Total SDG&E | (1,035) |  |  | (942) |
SoCalGas: |  |  |
Deferred income taxes recoverable in rates | 241 |  |  | 161 |
Pension and PBOP plan obligations | (232) |  |  | (170) |
Employee benefit costs | 24 |  |  | 24 |
Removal obligations | (591) |  |  | (616) |
Environmental costs | 37 |  |  | 38 |
Regulatory balancing accounts(1)(2): |  |  |
Commodity – gas, including transportation | (362) |  |  | (257) |
Safety and reliability | 644 |  |  | 575 |
Public purpose programs | (152) |  |  | (158) |
Liability insurance premium | 22 |  |  | 23 |
Other balancing accounts | 288 |  |  | 115 |
Other regulatory assets, net(2) | 280 |  |  | 223 |
Total SoCalGas | 199 |  |  | (42) |
Sempra Infrastructure: |  |  |
Deferred income taxes recoverable in rates | 78 |  |  | 78 |
Other regulatory assets | 5 |  |  | — |
Total Sempra Infrastructure | 83 |  |  | 78 |
Total Sempra | $ | (753) |  |  | $ | (906) |
(1) At June 30, 2023 and December 31, 2022, the noncurrent portion of regulatory balancing accounts – net undercollected for SDG&E was $748 and $562, respectively, and for SoCalGas was $859 and $692, respectively. (2) Includes regulatory assets earning a return authorized by applicable regulators, which generally approximates the three-month commercial paper rate. SEMPRA CALIFORNIA CPUC GRC The CPUC uses GRCs to set revenues to allow SDG&E and SoCalGas to recover their reasonable operating costs and to provide the opportunity to realize their authorized rates of return on their investments. In May 2022, SDG&E and SoCalGas filed their 2024 GRC applications requesting CPUC approval of test year revenue requirements for 2024 and attrition year adjustments for 2025 through 2027. SDG&E and SoCalGas requested revenue requirements for 2024 of $3.0 billion and $4.4 billion, respectively. SDG&E and SoCalGas proposed post-test year revenue requirement changes using various mechanisms that are estimated to result in annual increases of approximately 8% to 11% at SDG&E and approximately 6% to 8% at SoCalGas. Intervening parties have proposed various adjustments to SDG&E’s and SoCalGas’ revenue requirement requests. In October 2022, the CPUC issued a scoping ruling that set a schedule for the proceeding, including the expected issuance of a proposed decision in the second quarter of 2024. The CPUC has authorized SDG&E and SoCalGas to recognize the effects of the GRC final decision retroactive to January 1, 2024. SDG&E expects to submit separate requests in its GRC for review and recovery of its wildfire mitigation plan costs in the second half of 2023 for costs incurred from 2019 through 2022 and in mid-2024 for costs incurred in 2023. The results of the GRC may materially and adversely differ from what is contained in the GRC applications. CPUC Cost of Capital The CPUC approved the following cost of capital for SDG&E and SoCalGas that became effective on January 1, 2023 and will remain in effect through December 31, 2025, subject to the CCM. The CPUC will open a second phase of this cost of capital proceeding to evaluate the CCM.
CPUC AUTHORIZED COST OF CAPITAL FOR 2023 – 2025
SDG&E |  | SoCalGas
Authorized weighting | Return on rate base | Weighted return on rate base(1) |  | Authorized weighting | Return on rate base | Weighted return on rate base
45.25 | % | 4.05 | % | 1.83 | % | Long-Term Debt | 45.60 | % | 4.07 | % | 1.86 | %
2.75 |  | 6.22 |  | 0.17 |  | Preferred Equity | 2.40 |  | 6.00 |  | 0.14 |
52.00 |  | 9.95 |  | 5.17 |  | Common Equity | 52.00 |  | 9.80 |  | 5.10 |
100.00 | % |  | 7.18 | % |  | 100.00 | % |  | 7.10 | %
(1) Total weighted return on rate base does not sum due to rounding differences. SDG&E FERC Rate Matters SDG&E files separately with the FERC for its authorized ROE on FERC-regulated electric transmission operations and assets. SDG&E’s currently effective TO5 settlement provides for a ROE of 10.60%, consisting of a base ROE of 10.10% plus an additional 50 bps for participation in the California ISO (the California ISO adder). If the FERC issues an order ruling that California IOUs are no longer eligible for the California ISO adder, SDG&E would refund the California ISO adder as of the refund effective date (June 1, 2019) if such a refund is determined to be required by the terms of the TO5 settlement. The TO5 term is effective June 1, 2019 and shall remain in effect until terminated by a notice provided at least six months before the end of the calendar year. Following such notice, SDG&E would file an updated rate request with an effective date of January 1 of the following year. SAN ONOFRE NUCLEAR GENERATING STATION We provide below updates to ongoing matters related to SONGS, a nuclear generating facility near San Clemente, California that permanently ceased operations in June 2013, and in which SDG&E has a 20% ownership interest. We discuss SONGS further in Note 15 of the Notes to Consolidated Financial Statements in the Annual Report. NUCLEAR DECOMMISSIONING AND FUNDING As a result of Edison’s decision to permanently retire SONGS Units 2 and 3, Edison began the decommissioning phase of the plant. Major decommissioning work began in 2020. We expect the majority of the decommissioning work to take approximately 10 years. Decommissioning of Unit 1, removed from service in 1992, is largely complete. The remaining work for Unit 1 will be completed once Units 2 and 3 are dismantled and the spent fuel is removed from the site. The spent fuel is currently being stored on-site, until the DOE identifies a spent fuel storage facility and puts in place a program for the fuel’s disposal. SDG&E is responsible for approximately 20% of the total decommissioning cost. In accordance with state and federal requirements and regulations, SDG&E has assets held in the NDT to fund its share of decommissioning costs for SONGS Units 1, 2 and 3. Amounts that were collected in rates for SONGS’ decommissioning are invested in the NDT, which is comprised of externally managed trust funds. Amounts held by the NDT are invested in accordance with CPUC regulations. SDG&E classifies debt and equity securities held in the NDT as available-for-sale. The NDT assets are presented on the Sempra and SDG&E Condensed Consolidated Balance Sheets at fair value with the offsetting credits recorded in noncurrent Regulatory Liabilities. Except for the use of funds for the planning of decommissioning activities or NDT administrative costs, CPUC approval is required for SDG&E to access the NDT assets to fund SONGS decommissioning costs for Units 2 and 3. In December 2022, the CPUC granted SDG&E authorization to access NDT funds of up to $81 million for forecasted 2023 costs. The following table shows the fair values and gross unrealized gains and losses for the securities held in the NDT on the Sempra and SDG&E Condensed Consolidated Balance Sheets. We provide additional fair value disclosures for the NDT in Note 8.
NUCLEAR DECOMMISSIONING TRUSTS
(Dollars in millions)
| Cost |  | Gross unrealized gains |  | Gross unrealized losses |  | Estimated fair value
| June 30, 2023
Debt securities: |  |  |  |  |  |  |
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies(1) | $ | 40 |  |  | $ | 1 |  |  | $ | (2) |  |  | $ | 39 |
Municipal bonds(2) | 277 |  |  | 1 |  |  | (12) |  |  | 266 |
Other securities(3) | 234 |  |  | — |  |  | (16) |  |  | 218 |
Total debt securities | 551 |  |  | 2 |  |  | (30) |  |  | 523 |
Equity securities | 104 |  |  | 222 |  |  | (4) |  |  | 322 |
Short-term investments, primarily cash equivalents | 24 |  |  | — |  |  | — |  |  | 24 |
Receivables (payables), net | (6) |  |  | — |  |  | — |  |  | (6) |
Total | $ | 673 |  |  | $ | 224 |  |  | $ | (34) |  |  | $ | 863 |
| December 31, 2022
Debt securities: |  |  |  |  |  |  |
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies | $ | 40 |  |  | $ | 1 |  |  | $ | (1) |  |  | $ | 40 |
Municipal bonds | 283 |  |  | 1 |  |  | (14) |  |  | 270 |
Other securities | 248 |  |  | — |  |  | (21) |  |  | 227 |
Total debt securities | 571 |  |  | 2 |  |  | (36) |  |  | 537 |
Equity securities | 111 |  |  | 194 |  |  | (8) |  |  | 297 |
Short-term investments, primarily cash equivalents | 11 |  |  | — |  |  | — |  |  | 11 |
Receivables (payables), net | (4) |  |  | — |  |  | — |  |  | (4) |
Total | $ | 689 |  |  | $ | 196 |  |  | $ | (44) |  |  | $ | 841 |
(1) Maturity dates are 2023-2053. (2) Maturity dates are 2023-2062. (3) Maturity dates are 2023-2072. The following table shows the proceeds from sales of securities in the NDT and gross realized gains and losses on those sales.
SALES OF SECURITIES IN THE NUCLEAR DECOMMISSIONING TRUSTS
(Dollars in millions)
| Three months ended June 30, |  | Six months ended June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Proceeds from sales | $ | 138 |  |  | $ | 155 |  |  | $ | 294 |  |  | $ | 397 |
Gross realized gains | 6 |  |  | 3 |  |  | 8 |  |  | 14 |
Gross realized losses | (3) |  |  | (7) |  |  | (6) |  |  | (11) |
Net unrealized gains and losses, as well as realized gains and losses that are reinvested in the NDT, are included in noncurrent Regulatory Liabilities on Sempra’s and SDG&E’s Condensed Consolidated Balance Sheets. We determine the cost of securities in the trusts on the basis of specific identification. ASSET RETIREMENT OBLIGATION The present value of SDG&E’s ARO related to decommissioning costs for all three SONGS units was $523 million at June 30, 2023 and is based on a cost study prepared in 2020 that is pending CPUC approval, which SDG&E expects to receive in 2023.

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