XML 61 R29.htm IDEA: XBRL DOCUMENT
v3.24.3

DERIVATIVE FINANCIAL INSTRUMENTS | 9 Months Ended
--- | ---
Sep. 30, 2024
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 could cause our asset values to fall or our liabilities to 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 contracts that otherwise would have been accounted for as 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 may have derivatives that are (1) cash flow hedges, (2) fair value hedges, or (3) undesignated. Depending on the applicability of hedge accounting and, for SDG&E and SoCalGas 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 hedges), on the balance sheet (regulatory offsets), or recognized in earnings (fair value hedges and undesignated derivatives not subject to rate recovery). We classify cash flows from the principal settlements of cross-currency swaps that hedge exposure related to Mexican peso-denominated debt and amounts related to terminations or early settlements of interest rate swaps 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 of variability of future cash flows of a given revenue or expense item, 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: ▪SDG&E and SoCalGas use natural gas derivatives and SDG&E uses electricity derivatives, for the benefit of customers, with the objective of managing price risk and basis risk, 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 limited by company policy. SDG&E’s risk management and transacting activity plans for electricity derivatives are also required to be filed with, and have been approved by, the CPUC. SoCalGas is also subject to certain regulatory requirements and thresholds related to natural gas procurement under the GCIM. 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 Natural Gas or in Cost of Electric Fuel and Purchased Power. ▪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 Infrastructure may use natural gas and electricity derivatives, as appropriate, in an effort to optimize the earnings of its assets which support the following businesses: LNG, natural gas pipelines and storage, and power generation. Gains and losses associated with undesignated derivatives are recognized in Energy-Related Businesses Revenues on the Condensed Consolidated Statements of Operations. ▪From time to time, our various businesses, including SDG&E and SoCalGas, may use other derivatives to hedge exposures such as GHG allowances. The following table summarizes net energy derivative volumes.
NET ENERGY DERIVATIVE VOLUMES
(Quantities in millions)
Commodity | Unit of measure |  | September 30, 2024 |  | December 31, 2023
Sempra: |  |  |  |  |
Natural gas | MMBtu |  | 455 |  |  | 361 |
Electricity | MWh |  | — |  |  | 1 |
Congestion revenue rights | MWh |  | 16 |  |  | 36 |
SDG&E: |  |  |  |  |
Natural gas | MMBtu |  | 18 |  |  | 17 |
Congestion revenue rights | MWh |  | 16 |  |  | 36 |
SoCalGas: |  |  |  |  |
Natural gas | MMBtu |  | 405 |  |  | 268 |
INTEREST RATE DERIVATIVES We are exposed to interest rates primarily as a result of our current and expected use of financing. SDG&E and SoCalGas, as well as Sempra 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. In March 2023, Port Arthur LNG entered into floating-to-fixed interest rate swaps maturing in 2048, which were designated as cash flow hedges. On September 30, 2024, Port Arthur LNG voluntarily de-designated those interest rate swaps that begin hedging interest payments in March 2026 to provide for future financing flexibility. At the time of de-designation, $40 million of deferred gains related to the de-designated notional amount were included in AOCI, which will remain in AOCI until the hedged interest payments impact earnings or such hedged interest payments become probable of not occurring. In October 2024, Port Arthur LNG received a cash settlement of $46 million, net of transaction costs, for the termination of $1.0 billion of the notional amount of both the designated and de-designated interest rate swaps, with the associated deferred gains remaining in AOCI. The following table presents the notional amounts of our interest rate derivatives, excluding those in our equity method investments.
INTEREST RATE DERIVATIVES
(Dollars in millions)
| September 30, 2024 |  | December 31, 2023
| Notional amount |  | Maturities |  | Notional amount |  | Maturities
Sempra: |  |  |  |  |  |  |
Cash flow hedges(1) | $ | 3,571 |  |  | 2024-2034 |  | $ | 4,451 |  |  | 2024-2048
Undesignated derivatives(2) | 4,163 |  |  | 2026-2048 |  | — |  |  | — |
(1) At September 30, 2024, cash flow hedges include Port Arthur LNG interest rate swaps with a maximum notional amount of $3,286 that mature in March 2026. At September 30, 2024 and December 31, 2023, cash flow hedges accrued interest based on a notional amount of $1,422 and $488, respectively. (2) At September 30, 2024, undesignated derivatives consist of Port Arthur LNG de-designated interest rate swaps with a maximum notional amount of $4,163 that begin hedging interest payments in March 2026. FOREIGN CURRENCY DERIVATIVES We may 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 fixed interest rates for U.S. fixed interest rates. From time to time, Sempra Infrastructure 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. In May 2024, Oncor entered into cross-currency swaps designated as fair value hedges intended to offset foreign currency exchange rate risk related to its Euro-denominated debt. 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 may 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 notional amounts of our foreign currency derivatives, excluding those in our equity method investments.
FOREIGN CURRENCY DERIVATIVES
(Dollars in millions)
| September 30, 2024 |  | December 31, 2023
| Notional amount |  | Maturities |  | Notional amount |  | Maturities
Sempra: |  |  |  |  |  |  |
Foreign currency derivatives | $ | 201 |  |  | 2024-2026 |  | $ | 176 |  |  | 2024-2025
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 because the cash collateral was in excess of liability positions. We discuss the fair value of derivative assets and liabilities in Note 8.
DERIVATIVE INSTRUMENTS ON THE CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
| September 30, 2024
| Current assets: Fixed-price contracts and other derivatives(1) |  | Other long-term assets |  | Other current liabilities |  | Deferred credits and other
Sempra: |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |
Interest rate instruments | $ | 14 |  |  | $ | 23 |  |  | $ | — |  |  | $ | (3) |
Foreign exchange instruments | 5 |  |  | 1 |  |  | (1) |  |  | — |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Interest rate instruments | — |  |  | 40 |  |  | — |  |  | — |
Commodity contracts not subject to rate recovery | 22 |  |  | 37 |  |  | (17) |  |  | (47) |
Associated offsetting commodity contracts | (14) |  |  | (26) |  |  | 14 |  |  | 26 |
Commodity contracts subject to rate recovery | 5 |  |  | 7 |  |  | (52) |  |  | (14) |
Associated offsetting commodity contracts | (2) |  |  | (3) |  |  | 2 |  |  | 3 |
Associated offsetting cash collateral | — |  |  | — |  |  | 9 |  |  | 5 |
Net amounts presented on the balance sheet | 30 |  |  | 79 |  |  | (45) |  |  | (30) |
Additional cash collateral for commodity contracts not subject to rate recovery | 55 |  |  | — |  |  | — |  |  | — |
Additional cash collateral for commodity contracts subject to rate recovery | 26 |  |  | — |  |  | — |  |  | — |
Total(2) | $ | 111 |  |  | $ | 79 |  |  | $ | (45) |  |  | $ | (30) |
SDG&E: |  |  |  |  |  |  |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Commodity contracts subject to rate recovery | $ | 4 |  |  | $ | 7 |  |  | $ | (11) |  |  | $ | (8) |
Associated offsetting commodity contracts | (1) |  |  | (3) |  |  | 1 |  |  | 3 |
Associated offsetting cash collateral | — |  |  | — |  |  | 9 |  |  | 5 |
Net amounts presented on the balance sheet | 3 |  |  | 4 |  |  | (1) |  |  | — |
Additional cash collateral for commodity contracts subject to rate recovery | 24 |  |  | — |  |  | — |  |  | — |
Total(2) | $ | 27 |  |  | $ | 4 |  |  | $ | (1) |  |  | $ | — |
SoCalGas: |  |  |  |  |  |  |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Commodity contracts subject to rate recovery | $ | 1 |  |  | $ | — |  |  | $ | (41) |  |  | $ | (6) |
Associated offsetting commodity contracts | (1) |  |  | — |  |  | 1 |  |  | — |
Net amounts presented on the balance sheet | — |  |  | — |  |  | (40) |  |  | (6) |
Additional cash collateral for commodity contracts subject to rate recovery | 2 |  |  | — |  |  | — |  |  | — |
Total | $ | 2 |  |  | $ | — |  |  | $ | (40) |  |  | $ | (6) |
(1) Included in Other Current Assets for SDG&E and SoCalGas. (2) Normal purchase contracts previously measured at fair value are excluded.
DERIVATIVE INSTRUMENTS ON THE CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in millions)
| December 31, 2023
| Current assets: Fixed-price contracts and other derivatives(1) |  | Other long-term assets |  | Other current liabilities |  | Deferred credits and other
Sempra: |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |
Interest rate instruments | $ | 17 |  |  | $ | 70 |  |  | $ | — |  |  | $ | — |
Foreign exchange instruments | — |  |  | — |  |  | (9) |  |  | — |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Commodity contracts not subject to rate recovery | 173 |  |  | 52 |  |  | (170) |  |  | (56) |
Associated offsetting commodity contracts | (169) |  |  | (51) |  |  | 169 |  |  | 51 |
Commodity contracts subject to rate recovery | 10 |  |  | 8 |  |  | (228) |  |  | (9) |
Associated offsetting commodity contracts | (5) |  |  | (2) |  |  | 5 |  |  | 2 |
Associated offsetting cash collateral | — |  |  | — |  |  | 12 |  |  | 7 |
Net amounts presented on the balance sheet | 26 |  |  | 77 |  |  | (221) |  |  | (5) |
Additional cash collateral for commodity contracts not subject to rate recovery | 74 |  |  | — |  |  | — |  |  | — |
Additional cash collateral for commodity contracts subject to rate recovery | 22 |  |  | — |  |  | — |  |  | — |
Total(2) | $ | 122 |  |  | $ | 77 |  |  | $ | (221) |  |  | $ | (5) |
SDG&E: |  |  |  |  |  |  |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Commodity contracts subject to rate recovery | $ | 9 |  |  | $ | 8 |  |  | $ | (18) |  |  | $ | (9) |
Associated offsetting commodity contracts | (5) |  |  | (2) |  |  | 5 |  |  | 2 |
Associated offsetting cash collateral | — |  |  | — |  |  | 12 |  |  | 7 |
Net amounts presented on the balance sheet | 4 |  |  | 6 |  |  | (1) |  |  | — |
Additional cash collateral for commodity contracts subject to rate recovery | 21 |  |  | — |  |  | — |  |  | — |
Total(2) | $ | 25 |  |  | $ | 6 |  |  | $ | (1) |  |  | $ | — |
SoCalGas: |  |  |  |  |  |  |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Commodity contracts subject to rate recovery | $ | 1 |  |  | $ | — |  |  | $ | (210) |  |  | $ | — |
Net amounts presented on the balance sheet | 1 |  |  | — |  |  | (210) |  |  | — |
Additional cash collateral for commodity contracts subject to rate recovery | 1 |  |  | — |  |  | — |  |  | — |
Total | $ | 2 |  |  | $ | — |  |  | $ | (210) |  |  | $ | — |
(1) Included in Other Current Assets for SDG&E and SoCalGas. (2) Normal purchase contracts previously measured at fair value are excluded. The following table includes the effects of derivative instruments designated as hedges on the Condensed Consolidated Statements of Operations and in OCI and AOCI.
HEDGE IMPACTS
(Dollars in millions)
| Pretax (loss) gain recognized in OCI |  |  |  | Pretax gain (loss) reclassified from AOCI into earnings
| Three months ended September 30, |  |  |  | Three months ended September 30,
| 2024 |  | 2023 |  | Location |  | 2024 |  | 2023
Sempra: |  |  |  |  |  |  |  |  |
Cash flow hedges: |  |  |  |  |  |  |  |  |
Interest rate instruments | $ | (203) |  |  | $ | 320 |  |  | Interest expense |  | $ | 3 |  |  | $ | (1) |
Interest rate instruments | (33) |  |  | 32 |  |  | Equity earnings(1) |  | 5 |  |  | 12 |
Foreign exchange instruments | 2 |  |  | 8 |  |  | Other income, net |  | 1 |  |  | 1 |
Foreign exchange instruments | 2 |  |  | 7 |  |  | Equity earnings(1) |  | 1 |  |  | 1 |
Fair value hedges: |  |  |  |  |  |  |  |  |
Foreign exchange instruments | (3) |  |  | — |  |  | Equity earnings(1) |  | — |  |  | — |
Total | $ | (235) |  |  | $ | 367 |  |  |  |  | $ | 10 |  |  | $ | 13 |
| Nine months ended September 30, |  |  |  | Nine months ended September 30,
| 2024 |  | 2023 |  | Location |  | 2024 |  | 2023
Sempra: |  |  |  |  |  |  |  |  |
Cash flow hedges: |  |  |  |  |  |  |  |  |
Interest rate instruments | $ | 5 |  |  | $ | 337 |  |  | Interest expense |  | $ | 9 |  |  | $ | (1) |
Interest rate instruments | (8) |  |  | 56 |  |  | Equity earnings(1) |  | 20 |  |  | 33 |
Foreign exchange instruments | 14 |  |  | — |  |  | Revenues: Energy- related businesses |  | 5 |  |  | — |
|  |  |  |  | Other income, net |  | 2 |  |  | (1) |
Foreign exchange instruments | 12 |  |  | 1 |  |  | Equity earnings(1) |  | 5 |  |  | (1) |
Interest rate and foreign exchange instruments | — |  |  | 7 |  |  | Interest expense |  | — |  |  | 1 |
|  |  |  |  | Other income, net |  | — |  |  | 6 |
Fair value hedges: |  |  |  |  |  |  |  |  |
Foreign exchange instruments | (10) |  |  | — |  |  | Equity earnings(1) |  | — |  |  | — |
Total | $ | 13 |  |  | $ | 401 |  |  |  |  | $ | 41 |  |  | $ | 37 |
SoCalGas: |  |  |  |  |  |  |  |  |
Cash flow hedges: |  |  |  |  |  |  |  |  |
Interest rate instruments | $ | — |  |  | $ | — |  |  | Interest expense |  | $ | (1) |  |  | $ | (1) |
(1) Equity earnings at Oncor Holdings and our foreign equity method investees are recognized after tax. For Sempra, we expect that net gains before NCI of $31 million, which are net of income tax expense, that are currently recorded in AOCI (with net gains of $11 million attributable to NCI) 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. At September 30, 2024, t he maximum length of time over which Sempra is hedging its exposure to the variability in future cash flows for forecasted transactions, excluding those forecasted transactions related to the payment of variable interest on existing financial instruments, is approximately 1.5 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 September 30, |  | Nine months ended September 30,
| Location | 2024 |  | 2023 |  | 2024 |  | 2023
Sempra: |  |  |  |  |  |  |  |
Commodity contracts not subject to rate recovery | Revenues: Energy-related businesses | $ | 98 |  |  | $ | 83 |  |  | $ | 218 |  |  | $ | 785 |
Commodity contracts subject to rate recovery | Cost of natural gas | (16) |  |  | (125) |  |  | (43) |  |  | (172) |
Commodity contracts subject to rate recovery | Cost of electric fuel and purchased power | (10) |  |  | 23 |  |  | (29) |  |  | 5 |
Interest rate instrument | Interest expense | — |  |  | — |  |  | — |  |  | (47) |
Total |  | $ | 72 |  |  | $ | (19) |  |  | $ | 146 |  |  | $ | 571 |
SDG&E: |  |  |  |  |  |  |  |
Commodity contracts subject to rate recovery | Cost of electric fuel and purchased power | $ | (10) |  |  | $ | 23 |  |  | $ | (29) |  |  | $ | 5 |
SoCalGas: |  |  |  |  |  |  |  |
Commodity contracts subject to rate recovery | Cost of natural gas | $ | (16) |  |  | $ | (125) |  |  | $ | (43) |  |  | $ | (172) |
CREDIT RISK RELATED CONTINGENT FEATURES For Sempra, 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, the total fair value of this group of derivative instruments in a liability position at September 30, 2024 and December 31, 2023 was $114 million and $215 million, respectively. For SoCalGas, the total fair value of this group of derivative instruments in a liability position at September 30, 2024 and December 31, 2023 was $46 million and $210 million, respectively. SDG&E did not have this group of derivative instruments in a liability position at September 30, 2024 or December 31, 2023. At September 30, 2024, if the credit ratings of Sempra or SoCalGas were reduced below investment grade, $114 million and $46 million, respectively, of additional assets could be required to be posted as collateral for these derivative contracts. For Sempra, 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://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/815/tableOfContent + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration