# SEMPRA (SRE) FY 2023 MD&A Verbatim Item 7 Management's Discussion and Analysis from SEMPRA's 10-K for fiscal year 2023. SEC filing source: https://www.sec.gov/Archives/edgar/data/1032208/000103220824000007/sre-20231231.htm Accession: 0001032208-24-000007 Filing date: 2024-02-27 Report date: 2023-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/SRE/ All MD&A years: /company/SRE/mda/ Previous year: /company/SRE/mda/fy2022/ (FY 2022) Next year: /company/SRE/mda/fy2024/ (FY 2024) ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS [[GREPCENT_TABLE]] [["","Page"],["Overview","59"],["Results of Operations by Registrant","60"],["Sempra","60"],["SDG&E","74"],["SoCalGas","76"],["Capital Resources and Liquidity","78"],["Critical Accounting Estimates","95"],["New Accounting Standards","99"]] [[/GREPCENT_TABLE]] OVERVIEW This combined MD&A includes the operational and financial results of the following three Registrants: ▪Sempra is a California-based holding company with energy infrastructure investments in North America. Our businesses invest in, develop and operate energy infrastructure, and provide electric and gas services to customers. ▪SDG&E is a regulated public utility that provides electric service to San Diego and southern Orange counties and natural gas service to San Diego County. ▪SoCalGas is a regulated public natural gas distribution utility, serving customers throughout most of Southern California and part of central California. In the fourth quarter of 2023, Sempra realigned its reportable segments to reflect changes in how the CODM oversees our three platforms: Sempra California, Sempra Texas Utilities and Sempra Infrastructure. Our former SDG&E and SoCalGas reportable segments were combined into one operating and reportable segment, Sempra California, which is consistent with how the CODM assesses performance due to the similarities of their operations, including geographic location and regulatory framework in California. Sempra’s historical segment disclosures have been restated to conform with the current presentation, so that all discussions reflect the revised segment information of its three reportable segments: ▪Sempra California ▪Sempra Texas Utilities ▪Sempra Infrastructure SDG&E and SoCalGas each has one reportable segment. Our 2023 operational and financial results reflect our mission to be North America’s premier energy infrastructure company. Key events in 2023 include: ▪Sempra celebrated its 25th anniversary ▪Our company changed its legal name from Sempra Energy to Sempra ▪We completed the offering of 17,142,858 shares of Sempra’s common stock at a public offering price of $70.00 per share, pursuant to forward sale agreements ▪The CCM was triggered and approved for SDG&E and SoCalGas, which increases each company’s respective ROE by 70 bps effective January 1, 2024 ▪The CPUC authorized an increase to the Aliso Canyon natural gas storage facility’s capacity from 41.16 Bcf to 68.6 Bcf ▪Oncor received a final order from the PUCT on its comprehensive base rate review 2023 Form 10-K | 59 Table of Contents ▪Sempra Infrastructure reached a final investment decision and started construction on the PA LNG Phase 1 project and Port Arthur Pipeline Louisiana Connector and Louisiana Storage projects ▪SI Partners completed the sales of a 30% and 42% NCI in the PA LNG Phase 1 project to ConocoPhillips and KKR Denali, respectively ▪We invested $8.8 billion in capital expenditures and investments On August 2, 2023, Sempra’s board of directors declared a two-for-one split of Sempra’s common stock in the form of a 100% stock dividend for shareholders of record at the close of business on August 14, 2023. Sempra’s common stock began trading on a post-split basis effective August 22, 2023. Except as expressly noted, all share and per share information related to issued and outstanding common stock has been retroactively adjusted to reflect the stock split and is presented on a post-split basis herein. RESULTS OF OPERATIONS BY REGISTRANT Throughout the MD&A, our references to earnings represent earnings attributable to common shares. Variance amounts presented are the after-tax earnings impact (based on applicable statutory tax rates), unless otherwise noted, and before foreign currency and inflation effects and NCI, where applicable. We discuss herein Sempra’s results of operations and significant changes in earnings (losses), revenues and costs by segment, as well as Parent and other, for the year ended December 31, 2023 compared to the year ended December 31, 2022 and the year ended December 31, 2022 compared to the year ended December 31, 2021. We also discuss herein the impact of foreign currency and inflation rates on Sempra’s results of operations. RESULTS OF OPERATIONS [[GREPCENT_TABLE]] [["RESULTS OF OPERATIONS"],["(Dollars and shares in millions, except per share amounts)"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["EARNINGS (LOSSES) BY SEGMENT"],["(Dollars in millions)"],["","Years ended December 31,"],["","2023","","2022","","2021"],["Sempra:"],["Sempra California","$","1,747","","","$","1,514","","","$","392"],["Sempra Texas Utilities","694","","","736","","","616"],["Sempra Infrastructure","877","","","310","","","682"],["Parent and other(1)","(288)","","","(466)","","","(436)"],["Earnings attributable to common shares","$","3,030","","","$","2,094","","","$","1,254"]] [[/GREPCENT_TABLE]] (1)    Includes intercompany eliminations recorded in consolidation and certain corporate costs. 2023 Form 10-K | 60 Table of Contents Sempra California Sempra California’s earnings are comprised of SDG&E and SoCalGas. Because changes in SDG&E’s and SoCalGas’ cost of natural gas and/or electricity are recovered in rates, changes in these costs are offset in the changes in revenues and therefore do not impact earnings, other than potential impacts related to the GCIM for SoCalGas that we describe below. In addition to the changes in cost or market prices, natural gas or electric revenues recorded during a period are impacted by the difference between customer billings and recorded or CPUC-authorized amounts. These differences are required to be balanced over time, resulting in over- and undercollected regulatory balancing accounts. We discuss balancing accounts and their effects further in Note 4 of the Notes to Consolidated Financial Statements. In 2023 compared to 2022, the increase in earnings of $233 million (15%) was primarily due to: •$199 million charge in 2022 relating to litigation and regulatory matters pertaining to the Leak •$39 million higher net regulatory interest income •$37 million higher income tax benefits primarily from flow-through items, which includes $25 million related to income tax benefits in 2023 for previously unrecognized income tax benefits pertaining to gas repairs expenditures •$30 million higher CPUC base operating margin, net of operating expenses and $46 million from lower authorized cost of capital ▪$21 million higher electric transmission margin ▪$13 million higher regulatory awards approved by the CPUC ▪$10 million in penalties in 2022 related to energy efficiency and advocacy OSCs Offset by: ▪$90 million higher net interest expense ▪$16 million lower income tax benefit from the resolution of prior year income tax items In 2022 compared to 2021, the increase in earnings of $1.1 billion was primarily due to: ▪$949 million decrease in charges relating to litigation and regulatory matters pertaining to the Leak comprised of a $199 million charge in 2022 compared to $1,148 million in 2021 ▪$161 million higher CPUC base operating margin, net of operating expenses ▪$21 million lower net income tax expense primarily from flow-through items, net of lower associated regulatory revenues ▪$20 million higher income tax benefit from the resolution of prior year income tax items ▪$15 million higher net regulatory interest income ▪$14 million higher AFUDC equity Offset by: ▪$52 million higher net interest expense ▪$10 million in penalties in 2022 related to energy efficiency and advocacy OSCs Sempra Texas Utilities In 2023 compared to 2022, the decrease in earnings of $42 million (6%) was primarily due to lower equity earnings from Oncor Holdings driven by: ▪higher interest expense and depreciation expense attributable to invested capital ▪higher O&M ▪write-off of rate base disallowances in 2023 resulting from the PUCT’s final order in Oncor’s comprehensive base rate review Offset by: ▪higher revenues attributable to: ◦rate updates to reflect increases in invested capital ◦increases in transmission billing units ◦new base rates implemented in May 2023 ◦customer growth Offset by: ◦lower customer consumption primarily attributable to weather 2023 Form 10-K | 61 Table of Contents In 2022 compared to 2021, the increase in earnings of $120 million (19%) was primarily due to higher equity earnings from Oncor Holdings driven by: ▪higher revenues attributable to: ◦rate updates to reflect increases in invested capital ◦higher customer consumption attributable primarily to weather ◦customer growth Offset by: ▪higher depreciation expense and interest expense attributable to invested capital ▪higher O&M Sempra Infrastructure In 2023 compared to 2022, the increase in earnings of $567 million was primarily due to: ▪$1.1 billion from asset and supply optimization driven by unrealized gains in 2023 compared to unrealized losses in 2022 on commodity derivatives due to changes in natural gas prices ▪$112 million lower income tax expense in 2023 attributable to NCI’s share of higher U.S. partnerships’ pretax income ▪$99 million from the transportation business driven by higher equity earnings and revenues, including the cumulative impact of new tariffs going into effect in June 2023 for certain pipelines in Mexico Offset by: ▪$397 million decrease from $543 million earnings attributable to NCI in 2023 compared to $146 million earnings attributable to NCI in 2022 primarily due to an increase in SI Partners net income and from the sale of a 10% NCI in SI Partners to ADIA in June 2022 ▪$127 million unfavorable impact from foreign currency and inflation effects on our monetary positions in Mexico, comprised of a $346 million unfavorable impact in 2023 compared to a $219 million unfavorable impact in 2022 ▪$61 million lower net income tax benefit primarily from the remeasurement of certain deferred income taxes and outside basis differences in a JV investment ▪$58 million lower equity earnings from Cameron LNG JV driven by lower revenues from excess LNG and higher interest expense ▪$37 million higher O&M from a provision for expected credit losses on a customer’s past due receivable balance ▪$21 million from the LNG business driven by higher development costs and certain non-capitalized expenses from projects under construction ▪$19 million higher net interest expense due to $27 million net unrealized losses in 2023 compared to $27 million net unrealized gains in 2022 on a contingent interest rate swap related to the PA LNG Phase 1 project and higher interest rates and borrowings on committed lines of credit, offset by higher capitalization of interest expense on projects under construction In 2022 compared to 2021, the decrease in earnings of $372 million was primarily due to: ▪$431 million from asset and supply optimization driven by $283 million losses in 2022 compared to $148 million earnings in 2021 driven by higher unrealized losses on commodity derivatives due to changes in natural gas prices, offset by higher diversion fees ▪$169 million unfavorable impact from foreign currency and inflation effects on our monetary positions in Mexico, net of foreign currency derivative effects, comprised of a $216 million unfavorable impact in 2022 compared to a $47 million unfavorable impact in 2021 Offset by: ▪$79 million higher equity earnings from Cameron LNG JV primarily from higher revenues from excess LNG production and maintenance revenues ▪$50 million higher net income tax benefit primarily from the remeasurement of certain deferred income taxes and outside basis differences in JV investments ▪$50 million lower net interest expense, including $37 million in charges associated with hedge termination costs and a write-off of unamortized debt issuance costs from the early redemptions of debt in October 2021 and $27 million net unrealized gains in 2022 on a contingent interest rate swap related to the proposed PA LNG Phase 1 project ▪$42 million from the transportation business in Mexico driven by higher rates and higher equity earnings at IMG excluding unfavorable impact from foreign currency and inflation 2023 Form 10-K | 62 Table of Contents Parent and Other In 2023 compared to 2022, the decrease in losses of $178 million (38%) was primarily due to: ▪$120 million deferred income tax expense in 2022 associated with the change in our indefinite reinvestment assertion related to our foreign subsidiaries ▪$63 million from $13 million net investment gains in 2023 compared to $50 million net investment losses in 2022 on dedicated assets in support of our employee nonqualified benefit plan and deferred compensation plan ▪$40 million equity earnings in 2023 from our investment in RBS Sempra Commodities based on a legal settlement, which we discuss in Note 16 of the Notes to Consolidated Financial Statements ▪$23 million income tax benefit in 2023 from the remeasurement of certain deferred income taxes Offset by: ▪$68 million higher net interest expense ▪$41 million lower income tax benefit from changes to a valuation allowance against certain tax credit carryforwards In 2022 compared to 2021, the increase in losses of $30 million (7%) was primarily due to: ▪$120 million deferred income tax expense associated with the change in our indefinite reinvestment assertion related to our foreign subsidiaries ▪$79 million from $50 million net investment losses in 2022 compared to $29 million net investment gains in 2021 on dedicated assets in support of our employee nonqualified benefit plan and deferred compensation plan ▪$50 million equity earnings in 2021 related to our investment in RBS Sempra Commodities to settle pending VAT matters and related legal costs ▪$26 million gain on the sale of PXiSE in December 2021 Offset by: ▪$92 million in charges associated with make-whole premiums and a write-off of unamortized discount and debt issuance costs from the early redemptions of debt in December 2021 ▪$72 million net income tax expense related to the utilization of a deferred income tax asset upon completing the sale of a 20% NCI in SI Partners to KKR Pinnacle in October 2021 ▪$58 million decrease from $49 million income tax benefit in 2022 compared to $9 million income tax expense in 2021 from changes to a valuation allowance against certain tax credit carryforwards ▪$19 million lower preferred dividends due to the mandatory conversion of all series B preferred stock in July 2021 SIGNIFICANT CHANGES IN REVENUES AND COSTS The regulatory framework permits SoCalGas and SDG&E to recover certain program expenditures and other costs authorized by the CPUC (referred to as “refundable programs”). Utilities: Natural Gas Revenues and Cost of Natural Gas Our utilities revenues include natural gas revenues at Sempra California and Sempra Infrastructure, which includes Ecogas. Intercompany revenues are eliminated in Sempra’s Consolidated Statements of Operations. SoCalGas and SDG&E operate under a regulatory framework that permits the cost of natural gas purchased for customers (residential and small commercial and industrial customers, also referred to as core customers for SoCalGas) to be passed through to customers in rates substantially as incurred and without markup. The GCIM provides for SoCalGas to share in the savings and/or costs from buying natural gas for its core customers at prices below or above monthly market-based benchmarks. This mechanism permits full recovery of costs incurred when average purchase costs are within a price range around the benchmark price. Any higher costs incurred or savings realized outside this range are shared between SoCalGas and its core customers. We provide further discussion in Note 3 of the Notes to Consolidated Financial Statements. 2023 Form 10-K | 63 Table of Contents [[GREPCENT_TABLE]] [["UTILITIES: NATURAL GAS REVENUES AND COST OF NATURAL GAS"],["(Dollars in millions)"],["","Years ended December 31,"],["","2023","","2022","","2021"],["Sempra:"],["Natural gas revenues:"],["Sempra California","$","9,425","","","$","7,792","","","$","6,266"],["Sempra Infrastructure","87","","","89","","","81"],["Eliminations and adjustments","(17)","","","(13)","","","(14)"],["Total","$","9,495","","","$","7,868","","","$","6,333"],["Cost of natural gas(1):"],["Sempra California","$","3,747","","","$","2,562","","","$","1,578"],["Sempra Infrastructure","8","","","37","","","24"],["Eliminations and adjustments","(36)","","","4","","","(5)"],["Total","$","3,719","","","$","2,603","","","$","1,597"]] [[/GREPCENT_TABLE]] (1)    Excludes depreciation and amortization, which are presented separately on Sempra’s Consolidated Statements of Operations. In 2023 compared to 2022, Sempra’s natural gas revenue increased by $1.6 billion (21%) to $9.5 billion driven by Sempra California, which included: ▪$1.2 billion increase in cost of natural gas sold, which we discuss below ▪$414 million higher revenues associated with refundable programs, which are fully offset in O&M ▪$110 million higher CPUC-authorized revenues ▪$47 million higher revenues from incremental and balanced capital projects ▪$40 million higher non-service components of net periodic benefit cost, which fully offsets in other income, net ▪$23 million higher franchise fee revenues ▪$18 million higher regulatory awards approved by the CPUC Offset by: ▪$171 million lower regulatory revenues in 2023 from the election to change the tax accounting method under Revenue Procedure 2023-15, which are offset in income tax expense ▪$26 million lower regulatory revenues in 2023 from the recognition of previously unrecognized income tax benefits pertaining to gas repairs expenditures, which are offset in income tax expense In 2023 compared to 2022, Sempra’s cost of natural gas increased by $1.1 billion (43%) to $3.7 billion primarily due to a $1.2 billion increase at Sempra California, which included: ▪$1.1 billion higher average natural gas prices ▪$123 million higher volumes driven by weather In 2022 compared to 2021, Sempra’s natural gas revenues increased by $1.5 billion (24%) to $7.9 billion driven by Sempra California, which included: ▪$984 million increase in cost of natural gas sold, which we discuss below ▪$237 million higher revenues associated with refundable programs, which are fully offset in O&M ▪$156 million higher CPUC-authorized revenues ▪$100 million higher revenues from incremental and balanced capital projects ▪$35 million higher revenues associated with impacts resulting from changes in tax laws tracked in the income tax expense memorandum account In 2022 compared to 2021, Sempra’s cost of natural gas increased by $1.0 billion to $2.6 billion primarily due to a $984 million increase at Sempra California due to higher average natural gas prices. 2023 Form 10-K | 64 Table of Contents Utilities: Electric Revenues and Cost of Electric Fuel and Purchased Power Our utilities revenues include electric revenues at Sempra California, substantially all of which is at SDG&E. Intercompany revenues are eliminated in Sempra’s Consolidated Statements of Operations. SDG&E operates under a regulatory framework that permits it to recover the actual cost incurred to generate or procure electricity based on annual estimates of the cost of electricity supplied to customers. The differences in cost between estimates and actual are recovered or refunded in subsequent periods through rates. Utility cost of electric fuel and purchased power includes utility-owned generation, power purchased from third parties, and net power purchases and sales to/from the California ISO. [[GREPCENT_TABLE]] [["UTILITIES: ELECTRIC REVENUES AND COST OF ELECTRIC FUEL AND PURCHASED POWER"],["(Dollars in millions)"],["","Years ended December 31,"],["","2023","","2022","","2021"],["Sempra:"],["Electric revenues:"],["Sempra California","$","4,336","","","$","4,785","","","$","4,660"],["Eliminations and adjustments","(2)","","","(2)","","","(2)"],["Total","$","4,334","","","$","4,783","","","$","4,658"],["Cost of electric fuel and purchased power(1):"],["Sempra California","$","445","","","$","994","","","$","1,069"],["Eliminations and adjustments","(70)","","","(57)","","","(59)"],["Total","$","375","","","$","937","","","$","1,010"]] [[/GREPCENT_TABLE]] (1)    Excludes depreciation and amortization, which are presented separately on Sempra’s Consolidated Statements of Operations. In 2023 compared to 2022, Sempra’s electric revenues decreased by $449 million (9%) to $4.3 billion driven by Sempra California, which included: ▪$549 million lower cost of electric fuel and purchased power, which we discuss below ▪$197 million in 2023 from the recognition of investment tax credits from standalone energy storage projects, which are offset in income tax expense Offset by: ▪$97 million higher revenues from incremental and balanced capital projects ▪$92 million higher revenues associated with refundable programs, which are fully offset in O&M ▪$50 million higher revenues from transmission operations ▪$45 million higher CPUC-authorized revenues In 2023 compared to 2022, Sempra’s cost of electric fuel and purchased power decreased by $562 million to $375 million primarily due to a $549 million decrease at Sempra California, which included: ▪$396 million lower purchased power from the California ISO due to lower customer demand from departing load now served by CCAs and lower market prices ▪$170 million lower purchased power due to higher excess capacity sales to third parties ▪$157 million lower utility-owned generation costs ▪$65 million higher realized gains on derivative contracts for fixed-price natural gas, which are entered into to hedge the cost of electric fuel, and GHG allowances Offset by: ▪$259 million lower sales to the California ISO due to lower market prices 2023 Form 10-K | 65 Table of Contents In 2022 compared to 2021, Sempra’s electric revenues increased by $125 million (3%) to $4.8 billion driven by Sempra California, which included: ▪$70 million higher CPUC-authorized revenues ▪$68 million higher revenues associated with the wildfire mitigation plan at Sempra California ▪$35 million higher revenues associated with refundable programs, which are fully offset in O&M ▪$18 million higher revenues from transmission operations ▪$14 million higher revenues associated with lower income tax benefits from flow-through items Offset by: ▪$75 million lower cost of electric fuel and purchased power, which we discuss below In 2022 compared to 2021, Sempra’s cost of electric fuel and purchased power decreased by $73 million (7%) to $937 million primarily due to a $75 million decrease at Sempra California, which included: ▪$451 million higher sales to the California ISO due to higher market prices Offset by: ▪$191 million higher purchased power from the California ISO due to higher market prices, net of lower customer demand from departing load now served by CCAs ▪$185 million higher utility-owned generation costs Energy-Related Businesses: Revenues and Cost of Sales [[GREPCENT_TABLE]] [["ENERGY-RELATED BUSINESSES: REVENUES AND COST OF SALES"],["(Dollars in millions)"],["","Years ended December 31,"],["","2023","","2022","","2021"],["Sempra:"],["Revenues:"],["Sempra Infrastructure","$","2,984","","","$","1,830","","","$","1,916"],["Parent and other(1)","(93)","","","(42)","","","(50)"],["Total","$","2,891","","","$","1,788","","","$","1,866"],["Cost of sales(2):"],["Sempra Infrastructure","$","548","","","$","942","","","$","608"],["Parent and other(1)","\u2014","","","\u2014","","","3"],["Total","$","548","","","$","942","","","$","611"]] [[/GREPCENT_TABLE]] (1)    Includes eliminations of intercompany activity. (2)    Excludes depreciation and amortization, which are presented separately on Sempra’s Consolidated Statements of Operations. In 2023 compared to 2022, Sempra’s revenues from energy-related businesses increased by $1.1 billion to $2.9 billion primarily due to: ▪$1.2 billion increase in revenues from asset and supply optimization from contracts to sell natural gas and LNG to third parties, including: ◦$1.3 billion primarily driven by $710 million unrealized gains in 2023 compared to $660 million unrealized losses in 2022 on commodity derivatives offset by $223 million primarily from lower natural gas prices Offset by: ◦$71 million lower LNG sales ◦$33 million primarily from lower LNG diversion fees Offset by: ▪$102 million decrease in revenues from TdM mainly due to lower power prices In 2023 compared to 2022, the cost of sales for Sempra’s energy-related businesses decreased by $394 million (42%) to $548 million primarily due to lower natural gas and LNG purchases related to asset and supply optimization. 2023 Form 10-K | 66 Table of Contents In 2022 compared to 2021, Sempra’s revenues from energy-related businesses decreased by $78 million (4%) to $1.8 billion primarily due to: ▪$344 million decrease in revenues from asset and supply optimization from contracts to sell natural gas and LNG to third parties, including: ◦$498 million primarily driven by $639 million from higher unrealized losses on commodity derivatives offset by $148 million from higher natural gas prices and volumes Offset by: ◦$83 million higher diversion fees due to higher natural gas prices ◦$71 million higher LNG sales Offset by: ▪$143 million increase in revenues from TdM mainly due to higher power prices offset by lower volumes from scheduled major maintenance completed in March 2022, which resulted in increased plant reliability ▪$53 million higher transportation revenues driven by higher rates ▪$46 million higher revenues from the renewables business due to Border Solar and the second phase of ESJ being placed in service in March 2021 and January 2022, respectively, the acquisition of ESJ in March 2021 and higher transmission rates ▪$5 million higher revenues from the Veracruz and Mexico City terminals placed in service in March and July of 2021, respectively, offset by an $18 million selling profit on a sales-type lease relating to the commencement of a rail facility lease at the Veracruz terminal in the third quarter of 2021 and a remeasurement of an operating lease In 2022 compared to 2021, the cost of sales for Sempra’s energy-related businesses increased by $331 million to $942 million primarily due to: ▪$257 million driven by higher natural gas and LNG purchases related to asset and supply optimization ▪$65 million at TdM driven by higher natural gas prices offset by lower volumes from scheduled major maintenance completed in March 2022 Operation and Maintenance [[GREPCENT_TABLE]] [["OPERATION AND MAINTENANCE"],["(Dollars in millions)"],["","Year ended December 31,"],["","2023","","2022","","2021"],["Sempra:"],["Sempra California","$","4,591","","","$","4,012","","","$","3,707"],["Sempra Texas Utilities","5","","","6","","","6"],["Sempra Infrastructure","793","","","656","","","550"],["Parent and other(1)","70","","","72","","","78"],["Total","$","5,459","","","$","4,746","","","$","4,341"]] [[/GREPCENT_TABLE]] (1)    Includes eliminations of intercompany activity. In 2023 compared to 2022, Sempra’s O&M increased by $713 million (15%) to $5.5 billion primarily due to: ▪$579 million increase at Sempra California due to: ◦$506 million higher expenses associated with refundable programs, which costs incurred are recovered in revenue ◦$73 million higher non-refundable operating costs ▪$137 million increase at Sempra Infrastructure due to: ◦$52 million from a provision for expected credit losses on a customer’s past due receivable balance ◦$38 million higher development costs and certain non-capitalized expenses from projects under construction ◦$21 million higher purchased services ◦$12 million higher operating cost due to remeasurement of operating leases at the refined products terminals in 2022 2023 Form 10-K | 67 Table of Contents In 2022 compared to 2021, Sempra’s O&M increased by $405 million (9%) to $4.7 billion primarily due to: ▪$305 million increase at Sempra California due to: ◦$272 million higher expenses associated with refundable programs, which costs incurred are recovered in revenue ◦$33 million higher non-refundable operating costs ▪$106 million increase at Sempra Infrastructure due to: ◦$28 million at the transportation business due to maintenance on pipelines and new compressor stations and higher administrative costs ◦$28 million higher development costs and purchased services ◦$20 million from the renewables business primarily due to construction repairs and maintenance at Ventika ◦$19 million due to the start of commercial operations of the Veracruz and Mexico City terminals in March and July of 2021, respectively ◦$10 million higher operating costs at TdM from higher purchased materials and services due to scheduled major maintenance completed in March 2022 Offset by: ◦$16 million lower operating cost due to remeasurement of operating leases at the refined products terminals Aliso Canyon Litigation and Regulatory Matters In 2022 and 2021, Sempra California recorded charges of $259 million and $1,593 million, respectively, relating to litigation and regulatory matters pertaining to the Leak. We describe these charges in Note 16 of the Notes to Consolidated Financial Statements. Gain on Sale of Assets In 2021, Parent and other recognized a $36 million gain on the sale of PXiSE. Other Income, Net In 2023 compared to 2022, Sempra’s other income, net, increased by $107 million to $131 million primarily due to: ▪$70 million increase from $28 million net investment gains in 2023 compared to $42 million net investment losses in 2022 primarily on dedicated assets in support of our employee nonqualified benefit plan and deferred compensation plan at Parent and other ▪$53 million higher net interest income on regulatory balancing accounts at Sempra California primarily due to higher commercial paper rates ▪$19 million increase from $6 million gains in 2023 compared to $13 million losses in 2022 from impacts associated with interest rate and foreign exchange instruments and foreign currency transactions primarily at Sempra Infrastructure, including: ◦$15 million higher from $2 million gains in 2023 compared to $13 million losses in 2022 on other foreign currency transactional effects ◦$11 million foreign currency losses in 2022 on a Mexican peso-denominated loan to IMG, which is fully offset in equity earnings Offset by: ◦$6 million lower gains on cross-currency swaps as a result of fluctuation of the Mexican peso ▪$10 million in penalties in 2022 related to energy efficiency and advocacy OSCs at Sempra California Offset by: ▪$47 million higher non-service components of net periodic benefit cost, including $46 million at Sempra California 2023 Form 10-K | 68 Table of Contents In 2022 compared to 2021, Sempra’s other income, net, decreased by $34 million to $24 million primarily due to: ▪$92 million decrease due to $42 million net investment losses in 2022 compared to $50 million net investment gains in 2021 on dedicated assets in support of our employee nonqualified benefit plan and deferred compensation plan at Parent and other ▪$10 million in penalties at Sempra California in 2022 related to energy efficiency and advocacy OSCs Offset by: ▪$33 million lower losses from impacts associated with interest rate and foreign exchange instruments and foreign currency transactions primarily at Sempra Infrastructure, including: ◦$40 million lower from $12 million gains in 2022 compared to $28 million losses in 2021 on foreign currency derivatives and cross-currency swaps as a result of fluctuation of the Mexican peso ◦$12 million lower foreign currency losses on a Mexican peso-denominated loan to IMG, which is offset in equity earnings Offset by: ◦$18 million higher from $13 million losses in 2022 compared to $5 million gains in 2021 on other foreign currency transactional effects ▪$20 million higher net interest income on regulatory balancing accounts at Sempra California ▪$10 million higher AFUDC equity, including $14 million at Sempra California ▪$8 million lower non-service components of net periodic benefit cost We provide further details of the components of other income, net, in Note 1 of the Notes to Consolidated Financial Statements. Interest Expense In 2023 compared to 2022, Sempra’s interest expense increased by $255 million (24%) to $1.3 billion primarily due to: ▪$135 million at Sempra California primarily from higher debt balances from debt issuances and higher interest rates ▪$94 million at Parent and other from higher interest rates and borrowings on commercial paper and higher debt balances from debt issuances ▪$25 million at Sempra Infrastructure primarily due to: ◦$80 million higher from $33 million net unrealized losses and $14 million settlement in 2023 compared to $33 million net unrealized gains in 2022 on a contingent interest rate swap related to the PA LNG Phase 1 project that we discuss in Note 11 of the Notes to Consolidated Financial Statements ◦$44 million primarily from higher interest rates and borrowings on committed lines of credit Offset by: ◦$99 million lower interest expense due to higher capitalization of interest expense on projects under construction In 2022 compared to 2021, Sempra’s interest expense decreased by $144 million (12%) to $1.1 billion primarily due to: ▪$121 million at Parent and other primarily due to $126 million in charges associated with make-whole premiums and a write-off of unamortized discount and debt issuance costs from the early redemptions of debt in December 2021, offset by higher debt balances from debt issuances ▪$101 million at Sempra Infrastructure primarily due to: ◦$54 million in charges associated with hedge termination costs and a write-off of unamortized debt issuance costs from the early redemptions of debt in October 2021 ◦$33 million net unrealized gains in 2022 on a contingent interest rate swap related to the proposed PA LNG Phase 1 project Offset by: ▪$78 million at Sempra California primarily from higher debt balances from debt issuances 2023 Form 10-K | 69 Table of Contents Income Taxes [[GREPCENT_TABLE]] [["INCOME TAX EXPENSE AND EFFECTIVE INCOME TAX RATES"],["(Dollars in millions)"],["","Years ended December 31,"],["","2023","","2022","","2021"],["Sempra:"],["Income tax expense","$","490","","","$","556","","","$","99"],["Income before income taxes and equity earnings","$","2,627","","","$","1,343","","","$","219"],["Equity earnings, before income tax(1)","633","","","666","","","614"],["Pretax income","$","3,260","","","$","2,009","","","$","833"],["Effective income tax rate","15","%","","28","%","","12","%"]] [[/GREPCENT_TABLE]] (1)    We discuss how we recognize equity earnings in Note 6 of the Notes to Consolidated Financial Statements. We report as part of our pretax results the income or loss attributable to NCI. However, we do not record income taxes for a portion of this income or loss, as some of our entities with NCI are currently treated as partnerships for U.S. income tax purposes, and thus we are only liable for income taxes on the portion of the earnings that are allocated to us. Our pretax income, however, includes 100% of these entities. If our entities with NCI grow, and if we continue to invest in such entities, the impact on our ETR may become more significant. Under the IRA, in 2023, the scope of projects eligible for investment tax credits was expanded to include standalone energy storage projects. The IRA also provided an election that permits investment tax credits related to standalone energy storage projects to be returned to utility customers over a period that is shorter than the life of the applicable asset. Under this election, Sempra recorded an income tax benefit of $142 million for these investment tax credits, offset by a regulatory liability, which reduced Sempra’s ETR in 2023. In April 2023, the IRS issued Revenue Procedure 2023-15, which provides a safe harbor method of accounting for gas repairs expenditures. Sempra intends to elect this change in tax accounting method in its 2023 income tax return filing and has recorded an estimated income tax benefit of $131 million in 2023. Additionally, Sempra updated its assessment of prior years’ unrecognized income tax benefits and recorded an income tax benefit of $43 million in 2023 for previously unrecognized income tax benefits pertaining to gas repairs expenditures. Sempra recorded associated regulatory liabilities for the portion of these benefits that will be flowed through to customers in the future. In 2023 compared to 2022, Sempra’s income tax expense decreased by $66 million (12%) primarily due to: ▪$142 million income tax benefit in 2023 from the recognition of investment tax credits from standalone energy storage projects ▪$120 million deferred income tax expense in 2022 associated with the change in our indefinite reinvestment assertion related to our foreign subsidiaries ▪higher income tax benefits from flow-through items, including a $131 million benefit for the election to change the tax accounting method under Revenue Procedure 2023-15 ▪$112 million lower income tax expense in 2023 attributable to NCI’s share of higher U.S. partnerships’ pretax income ▪$43 million income tax benefit in 2023 from the recognition of previously unrecognized income tax benefits pertaining to gas repairs expenditures Offset by: ▪higher pretax income ▪$114 million from $283 million income tax expense in 2023 compared to $169 million income tax expense in 2022 from foreign currency and inflation effects on our monetary positions in Mexico ▪$60 million income tax benefit in 2022 associated with charges relating to litigation and regulatory matters pertaining to the Leak ▪$41 million lower income tax benefit from changes to a valuation allowance against certain tax credit carryforwards 2023 Form 10-K | 70 Table of Contents In 2022 compared to 2021, Sempra’s income tax expense increased by $457 million in 2022 compared to 2021 primarily due to: ▪$385 million from a $60 million income tax benefit in 2022 compared to $445 million income tax benefit in 2021 associated with charges relating to litigation and regulatory matters pertaining to the Leak ▪$165 million from $169 million income tax expense in 2022 compared to $4 million income tax expense in 2021 from foreign currency and inflation effects on our monetary positions in Mexico and associated derivatives ▪$120 million deferred income tax expense associated with the change in our indefinite reinvestment assertion related to our foreign subsidiaries ▪lower income tax benefits from flow-through items Offset by: ▪$72 million net income tax expense related to the utilization of a deferred income tax asset upon completing the sale of a 20% NCI in SI Partners to KKR in October 2021 ▪$58 million from a $49 million income tax benefit in 2022 compared to $9 million income tax expense in 2021 from changes to a valuation allowance against certain tax credit carryforwards ▪$28 million higher net income tax benefit in 2022 from the remeasurement of certain deferred income taxes ▪$22 million higher income tax benefit in 2022 from the resolution of prior year income tax items We discuss the impact of foreign currency exchange rates and inflation on income taxes below in “Impact of Foreign Currency and Inflation Rates on Results of Operations.” See Notes 1 and 8 of the Notes to Consolidated Financial Statements for further details about our accounting for income taxes and items subject to flow-through treatment. Equity Earnings In 2023 compared to 2022, Sempra’s equity earnings decreased by $17 million (1%) remaining at $1.5 billion primarily due to: ▪$73 million at Cameron LNG JV due to lower revenues from excess LNG and higher interest expense ▪$41 million at Oncor Holdings driven by: ◦higher interest expense and depreciation expense attributable to invested capital ◦higher O&M ◦write-off of rate base disallowances in 2023 resulting from the PUCT’s final order in Oncor’s comprehensive base rate review Offset by: ◦higher revenues attributable to: •rate updates to reflect increases in invested capital •increases in transmission billing units •new base rates implemented in May 2023 •customer growth Offset by: •lower customer consumption primarily attributable to weather ▪$28 million at IMG due to higher interest expense and foreign currency effects, including $11 million foreign currency gains in 2022 on IMG’s Mexican peso-denominated loans from its JV owners, which is fully offset in other income, net Offset by: ▪$85 million at TAG Norte due to higher revenues, including the cumulative impact of new tariffs going into effect in June 2023, offset by higher income tax expense ▪$40 million related to our investment in RBS Sempra Commodities based on a legal settlement 2023 Form 10-K | 71 Table of Contents In 2022 compared to 2021, Sempra’s equity earnings increased by $155 million (12%) to $1.5 billion primarily due to: ▪$118 million at Oncor Holdings due to: ◦higher revenues from rate updates to reflect increases in invested capital ◦higher customer consumption attributable primarily to weather and customer growth Offset by: ◦higher depreciation expense and interest expense attributable to invested capital ◦higher O&M ▪$100 million at Cameron LNG JV primarily due to excess LNG production and maintenance revenues Offset by: ▪$50 million in 2021 related to our investment in RBS Sempra Commodities to settle pending VAT matters and related legal costs ▪$15 million at IMG due to higher income tax expense and foreign currency effects, including $12 million lower foreign currency gains on IMG’s Mexican peso-denominated loans from its JV owners, which is fully offset in other income, net, offset by lower interest expense Earnings Attributable to Noncontrolling Interests In 2023 compared to 2022, Sempra’s earnings attributable to NCI increased by $397 million to $543 million primarily due to: ▪$310 million increase due to an increase in SI Partners’ net income ▪$87 million increase as a result of a decrease in our ownership interest in SI Partners and SI Partners subsidiaries In 2022 compared to 2021, Sempra’s earnings attributable to NCI increased by $1 million (1%) to $146 million primarily due to: ▪$120 million increase as a result of a decrease in our ownership interest in SI Partners offset by an increase in our ownership interest in IEnova Offset by: ▪$121 million decrease due to a decrease in SI Partners subsidiaries net income Preferred Dividends In 2022 compared to 2021, preferred dividends decreased by $19 million to $44 million due to the conversion of all series B preferred stock in July 2021. IMPACT OF FOREIGN CURRENCY AND INFLATION RATES ON RESULTS OF OPERATIONS Because our natural gas distribution utility in Mexico, Ecogas, uses its local currency as its functional currency, its revenues and expenses are translated into U.S. dollars at average exchange rates for the period for consolidation in Sempra’s results of operations. Foreign Currency Translation Any difference in average exchange rates used for the translation of income statement activity from year to year can cause a variance in Sempra’s comparative results of operations. The change in our earnings as a result of foreign currency translation rates was higher by $3 million in 2023 compared to 2022 and negligible in 2022 compared to 2021. Transactional Impacts Although the financial statements of most of our Mexican subsidiaries and JVs have the U.S. dollar as the functional currency, some transactions may be denominated in the local currency; such transactions are remeasured into U.S. dollars. This remeasurement creates transactional gains and losses that are included in other income, net, for our consolidated entities and in equity earnings for our JVs. We may utilize cross-currency swaps that 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. The impacts of these cross-currency swaps are offset in OCI and are reclassified from AOCI into earnings through other income, net, and interest expense as settlements occur. 2023 Form 10-K | 72 Table of Contents Certain of our Mexican pipelines (namely Los Ramones I and San Fernando at IEnova Pipelines and Los Ramones Norte at TAG Pipelines) generate revenue based on tariffs that are set by government agencies in Mexico, with contracts denominated in Mexican pesos that are indexed to the U.S. dollar, adjusted annually for inflation and fluctuation in the exchange rate. The resultant gains and losses from remeasuring the local currency amounts into U.S. dollars and the offsetting settlement of foreign currency forwards and swaps related to these contracts are included in revenues: energy-related businesses or equity earnings. Income statement activities at our foreign operations and their JVs are also impacted by transactional gains and losses, a summary of which is shown in the table below: [[GREPCENT_TABLE]] [["TRANSACTIONAL GAINS (LOSSES) FROM FOREIGN CURRENCY AND INFLATION EFFECTS"],["(Dollars in millions)"],["","Total reported amounts","","Transactional gains (losses) included in reported amounts"],["","Years ended December 31,"],["","2023","","2022","","2021","","2023","","2022","","2021"],["Sempra:"],["Other income, net","$","131","","","$","24","","","$","58","","","$","6","","","$","(13)","","","$","(46)"],["Income tax expense","(490)","","","(556)","","","(99)","","","(283)","","","(169)","","","(4)"],["Equity earnings","1,481","","","1,498","","","1,343","","","(68)","","","(36)","","","2"],["Net income","3,618","","","2,285","","","1,463","","","(345)","","","(218)","","","(48)"],["Earnings attributable to noncontrolling interests","(543)","","","(146)","","","(145)","","","110","","","54","","","4"],["Earnings attributable to common shares","3,030","","","2,094","","","1,254","","","(235)","","","(164)","","","(44)"]] [[/GREPCENT_TABLE]] Foreign Currency Exchange Rate and Inflation Impacts on Income Taxes and Related Hedging Activity Our Mexican subsidiaries have U.S. dollar-denominated cash balances, receivables, payables and debt (monetary assets and liabilities) that are affected by Mexican currency exchange rate movements for Mexican income tax purposes. They also have significant deferred income tax assets and liabilities denominated in the Mexican peso that 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. As a result, fluctuations in both the currency exchange rate for the Mexican peso against the U.S. dollar and Mexican inflation may expose us to fluctuations in income tax expense, other income, net, and equity earnings. We may use foreign currency derivatives as a means to help manage exposure to the currency exchange rate on our monetary assets and liabilities, and this derivative activity impacts other income, net. However, we generally do not hedge our deferred income tax assets and liabilities, which makes us susceptible to volatility in income tax expense caused by exchange rate fluctuations and inflation. 2023 Form 10-K | 73 Table of Contents We discuss herein SDG&E’s results of operations and significant changes in earnings, revenues and costs for the year ended December 31, 2023 compared to the year ended December 31, 2022. For a discussion of SDG&E’s results of operations and significant changes in earnings, revenues and costs for the year ended December 31, 2022 compared to the year ended December 31, 2021, refer to “Part II – Item 7. MD&A – Results of Operations” in our 2022 annual report on Form 10-K filed with the SEC on February 28, 2023. RESULTS OF OPERATIONS [[GREPCENT_TABLE]] [["RESULTS OF OPERATIONS"],["(Dollars in millions)"]] [[/GREPCENT_TABLE]] In 2023 compared to 2022, the increase in SDG&E’s earnings of $21 million (2%) was primarily due to: ▪$40 million higher CPUC base operating margin, net of operating expenses and $24 million from lower authorized cost of capital ▪$21 million higher electric transmission margin ▪$18 million higher net regulatory interest income Offset by: ▪$30 million higher net interest expense ▪$15 million lower income tax benefit from the resolution of prior year income tax items ▪$5 million Wildfire Fund accelerated amortization in 2023 SIGNIFICANT CHANGES IN REVENUES AND COSTS Electric Revenues and Cost of Electric Fuel and Purchased Power In 2023 compared to 2022, SDG&E’s electric revenues decreased by $446 million (9%) to $4.3 billion primarily due to: ▪$549 million lower cost of electric fuel and purchased power, which we discuss below ▪$197 million in 2023 from the recognition of investment tax credits from standalone energy storage projects, which are offset in income tax benefit (expense) Offset by: ▪$97 million higher revenues from incremental and balanced capital projects ▪$92 million higher revenues associated with refundable programs, which are fully offset in O&M ▪$50 million higher revenues from transmission operations ▪$45 million higher CPUC-authorized revenues 2023 Form 10-K | 74 Table of Contents In 2023 compared to 2022, SDG&E’s cost of electric fuel and purchased power decreased by $549 million to $445 million primarily due to: ▪$396 million lower purchased power from the California ISO due to lower customer demand from departing load now served by CCAs and lower market prices ▪$170 million lower purchased power due to higher excess capacity sales to third parties ▪$157 million lower utility-owned generation costs ▪$65 million higher realized gains on derivative contracts for fixed-price natural gas, which are entered into to hedge the cost of electric fuel, and GHG allowances Offset by: ▪$259 million lower sales to the California ISO due to lower market prices Natural Gas Revenues and Cost of Natural Gas SDG&E’s average cost of natural gas per thousand cubic feet was $11.05 in 2023 and $8.01 in 2022. The average cost of natural gas sold at SDG&E is impacted by market prices, as well as transportation, tariff and other charges. In 2023 compared to 2022, SDG&E’s natural gas revenues increased by $205 million (20%) to $1.2 billion primarily due to: ▪$169 million increase in cost of natural gas sold, which we discuss below ▪$32 million higher revenues from incremental and balanced capital projects ▪$29 million higher revenues associated with refundable programs, which are fully offset in O&M ▪$12 million higher CPUC-authorized revenues Offset by: ▪$44 million lower regulatory revenues in 2023 from the election to change the tax accounting method under Revenue Procedure 2023-15, which are offset in income tax benefit (expense) In 2023 compared to 2022, SDG&E’s cost of natural gas increased by $169 million (47%) to $532 million primarily due to: ▪$146 million higher average natural gas prices ▪$23 million higher volumes driven by weather Operation and Maintenance In 2023 compared to 2022, SDG&E’s O&M increased by $169 million (10%) to $1.8 billion primarily due to: ▪$121 million higher expenses associated with refundable programs, which costs incurred are recovered in revenue ▪$48 million higher non-refundable operating costs, including Wildfire Fund accelerated amortization in 2023 Other Income, Net In 2023 compared to 2022, SDG&E’s other income, net, increased by $5 million (5%) to $97 million primarily due to: ▪$24 million higher net interest income on regulatory balancing accounts due to higher commercial paper rates Offset by: ▪$8 million higher non-service components of net periodic benefit cost Interest Expense In 2023 compared to 2022, SDG&E’s interest expense increased by $48 million (11%) to $497 million primarily from higher debt balances from debt issuances and higher interest rates. Income Taxes [[GREPCENT_TABLE]] [["INCOME TAX (BENEFIT) EXPENSE AND EFFECTIVE INCOME TAX RATES"],["(Dollars in millions)"],["","Years ended December 31,"],["","2023","","2022","","2021"],["SDG&E:"],["Income tax (benefit) expense","$","(26)","","$","182","","$","201"],["Income before income taxes","$","910","","$","1,097","","","$","1,020"],["Effective income tax rate","(3)","%","","17","%","","20","%"]] [[/GREPCENT_TABLE]] 2023 Form 10-K | 75 Table of Contents SDG&E had an income tax benefit in 2023 compared to income tax expense in 2022 primarily due to lower pretax income and the following tax matters. Under the IRA, in 2023, the scope of projects eligible for investment tax credits was expanded to include standalone energy storage projects. The IRA also provided an election that permits investment tax credits related to standalone energy storage projects to be returned to utility customers over a period that is shorter than the life of the applicable asset. Under this election, SDG&E recorded an income tax benefit of $142 million for these investment tax credits, offset by a regulatory liability, which reduced SDG&E’s ETR in 2023. In April 2023, the IRS issued Revenue Procedure 2023-15, which provides a safe harbor method of accounting for gas repairs expenditures. SDG&E intends to elect this change in tax accounting method in Sempra’s consolidated 2023 income tax return filing and has recorded an estimated income tax benefit of $34 million in 2023. SDG&E recorded an associated regulatory liability for the portion of these benefits that will be flowed through to customers in the future. We discuss herein SoCalGas’ results of operations and significant changes in earnings, revenues and costs for the year ended December 31, 2023 compared to the year ended December 31, 2022. For a discussion of SoCalGas’ results of operations and significant changes in earnings, revenues and costs for the year ended December 31, 2022 compared to the year ended December 31, 2021, refer to “Part II – Item 7. MD&A – Results of Operations” in our 2022 annual report on Form 10-K filed with the SEC on February 28, 2023. RESULTS OF OPERATIONS [[GREPCENT_TABLE]] [["RESULTS OF OPERATIONS"],["(Dollars in millions)"]] [[/GREPCENT_TABLE]] In 2023 compared to 2022, the increase in SoCalGas’ earnings of $212 million (35%) was primarily due to: ▪$199 million charge in 2022 relating to litigation and regulatory matters pertaining to the Leak ▪$36 million higher income tax benefits primarily from flow-through items, which includes $25 million related to income tax benefits in 2023 for previously unrecognized income tax benefits pertaining to gas repairs expenditures ▪$21 million higher net regulatory interest income ▪$13 million higher regulatory awards approved by the CPUC ▪$10 million in penalties in 2022 related to energy efficiency and advocacy OSCs Offset by: ▪$60 million higher net interest expense ▪$8 million lower CPUC base operating margin, net of operating expenses and $22 million from lower authorized cost of capital 2023 Form 10-K | 76 Table of Contents SIGNIFICANT CHANGES IN REVENUES AND COSTS Natural Gas Revenues and Cost of Natural Gas SoCalGas’ average cost of natural gas per thousand cubic feet was $10.47 in 2023 and $7.48 in 2022. The average cost of natural gas sold at SoCalGas is impacted by market prices, as well as transportation and other charges. In 2023 compared to 2022, SoCalGas’ natural gas revenues increased by $1.4 billion (21%) to $8.3 billion primarily due to: ▪$1.0 billion increase in cost of natural gas sold, which we discuss below ▪$385 million higher revenues associated with refundable programs, which are fully offset in O&M ▪$98 million higher CPUC-authorized revenues ▪$38 million higher non-service components of net periodic benefit cost, which fully offsets in other expense, net ▪$19 million higher franchise fee revenues ▪$18 million higher regulatory awards approved by the CPUC Offset by: ▪$127 million lower regulatory revenues in 2023 from the election to change the tax accounting method under Revenue Procedure 2023-15, which are offset in income tax benefit (expense) ▪$26 million lower regulatory revenues in 2023 from the recognition of previously unrecognized income tax benefits pertaining to gas repairs expenditures, which are offset in income tax benefit (expense) In 2023 compared to 2022, SoCalGas’ cost of natural gas increased by $1.0 billion (46%) to $3.3 billion primarily due to: ▪$931 million higher average natural gas prices ▪$100 million higher volumes driven by weather Operation and Maintenance In 2023 compared to 2022, SoCalGas’ O&M increased by $419 million (17%) to $2.8 billion primarily due to: ▪$385 million higher expenses associated with refundable programs, which costs incurred are recovered in revenue ▪$34 million higher non-refundable operating costs Aliso Canyon Litigation and Regulatory Matters In 2022, SoCalGas recorded charges of $259 million relating to litigation and regulatory matters pertaining to the Leak. Other Expense, Net In 2023 compared to 2022, SoCalGas’ other expense, net, decreased by $4 million to $4 million primarily due to: ▪$29 million higher net interest income on regulatory balancing accounts primarily due to higher commercial paper rates ▪$10 million in penalties in 2022 related to energy efficiency and advocacy OSCs Offset by: ▪$38 million higher non-service components of net periodic benefit cost Interest Expense In 2023 compared to 2022, SoCalGas’ interest expense increased by $87 million (44%) to $285 million primarily from higher debt balances from debt issuances and higher interest rates. Income Taxes [[GREPCENT_TABLE]] [["INCOME TAX (BENEFIT) EXPENSE AND EFFECTIVE INCOME TAX RATES"],["(Dollars in millions)"],["","Years ended December 31,"],["","2023","","2022","","2021"],["SoCalGas:"],["Income tax (benefit) expense","$","(5)","","","$","138","","","$","(310)"],["Income (loss) before income taxes","$","807","","","$","738","","","$","(736)"],["Effective income tax rate","(1)","%","","19","%","","42","%"]] [[/GREPCENT_TABLE]] 2023 Form 10-K | 77 Table of Contents In April 2023, the IRS issued Revenue Procedure 2023-15, which provides a safe harbor method of accounting for gas repairs expenditures. SoCalGas intends to elect this change in tax accounting method in Sempra’s consolidated 2023 income tax return filing and has recorded an estimated income tax benefit of $97 million in 2023. Additionally, SoCalGas updated its assessment of prior years’ unrecognized income tax benefits and recorded an income tax benefit of $43 million in 2023 for previously unrecognized income tax benefits pertaining to gas repairs expenditures. SoCalGas recorded associated regulatory liabilities for the portion of these benefits that will be flowed through to customers in the future. SoCalGas’ had an income tax benefit in 2023 compared to income tax expense in 2022 primarily due to: ▪higher income tax benefits from flow-through items, including $97 million income tax benefit for the election to change the tax accounting method under Revenue Procedure 2023-15 ▪$43 million income tax benefit in 2023 from the recognition of previously unrecognized income tax benefits pertaining to gas repairs expenditures ▪lower pretax income in 2023 compared to 2022 (before charges in 2022 relating to litigation and regulatory matters pertaining to the Leak) Offset by: ▪$60 million income tax benefit in 2022 associated with charges relating to litigation and regulatory matters pertaining to the Leak CAPITAL RESOURCES AND LIQUIDITY OVERVIEW Sempra Liquidity We expect to meet our cash requirements through cash flows from operations, unrestricted cash and cash equivalents, borrowings under or supported by our credit facilities, other incurrences of debt which may include issuing debt securities and obtaining term loans, and other financing transactions which may include issuing equity securities, distributions from our equity method investments, project financing and funding from NCI owners. We believe that these cash flow sources, combined with available funds, will be adequate to fund our operations in both the short-term and long-term, including to: ▪finance capital expenditures ▪repay debt ▪fund dividends ▪fund contractual and other obligations and otherwise meet liquidity requirements ▪fund capital contribution requirements ▪fund new business or asset acquisitions or start-ups Sempra, SDG&E and SoCalGas currently have reasonable access to the money markets and capital markets and are not currently constrained in their ability to borrow or otherwise raise money at market rates from commercial banks, under existing revolving credit facilities, through public offerings of debt or equity securities, or through private placements of debt supported by our revolving credit facilities in the case of commercial paper. However, our ability to access these markets or obtain credit from commercial banks outside of our committed revolving credit facilities could become materially constrained if economic conditions worsen or disruptions to or volatility in these markets increase. Debt funding has become less attractive due to the recent rise in both short-term and long-term interest rates. In addition, our financing activities and actions by credit rating agencies, as well as many other factors, could negatively affect the availability and cost of both short-term and long-term debt and equity financing. Also, cash flows from operations may be impacted by the timing of commencement and completion of, and potentially cost overruns for, large projects and other material events, such as the settlement of material litigation. If cash flows from operations were to be significantly reduced or we were unable to borrow or obtain other financing under acceptable terms, we would likely first reduce or postpone discretionary capital expenditures (not related to safety/reliability) and investments in new businesses. We monitor our ability to finance the needs of our operating, investing and financing activities in a manner consistent with our goal to maintain our investment-grade credit ratings. 2023 Form 10-K | 78 Table of Contents Common Stock Offering and Forward Sale Agreements As we discuss in Note 14 of the Notes to Consolidated Financial Statements, our offering of Sempra common stock completed in November 2023 provided initial net proceeds of $144 million upon the underwriters’ partial exercise of their over-allotment option to purchase additional shares of our common stock. We did not initially receive any proceeds from the sale of our common stock pursuant to the forward sale agreements entered into in connection with the offering. The forward sale agreements permit us to elect, subject to certain conditions, physical settlement, cash settlement or net share settlement for all or a portion of our obligations under the agreements. We expect to settle the forward sale agreements entirely by delivery of shares of our common stock under physical settlement in exchange for cash proceeds in one or more settlements no later than December 31, 2024, which is the final settlement date under the agreements. As of February 27, 2024, at the initial forward sale price of $68.845 per share, we expect that the net proceeds from full physical settlement of the forward sale agreements would be approximately $1.2 billion (net of underwriting discounts, but before deducting equity issuance costs, and subject to certain adjustments pursuant to the forward sale agreements). If we were to elect cash settlement or net share settlement instead of physical settlement, the amount of cash proceeds we receive upon settlement would be less, perhaps substantially, or we may not receive any cash proceeds or we may deliver cash (in an amount that could be significant) or shares of our common stock to the forward purchasers under the forward sale agreements. We used the initial net proceeds from this offering, and we expect to use any net proceeds from the sale of shares of our common stock pursuant to the forward sale agreements, to fund working capital and for other general corporate purposes, including to partly finance our long-term capital plan and to repay commercial paper and potentially other indebtedness. Available Funds Our committed lines of credit provide liquidity and support commercial paper. Sempra, SDG&E and SoCalGas each have five-year credit agreements expiring in 2028 and Sempra Infrastructure has four committed lines of credit expiring on various dates from 2025 through 2030, and an uncommitted revolving credit facility expiring in 2024. [[GREPCENT_TABLE]] [["AVAILABLE FUNDS AT DECEMBER 31, 2023"],["(Dollars in millions)"],["","Sempra","","SDG&E","","SoCalGas"],["Unrestricted cash and cash equivalents(1)","$","236","","","$","50","","","$","2"],["Available unused credit(2)","7,731","","","1,500","","","253"]] [[/GREPCENT_TABLE]] (1)    Amounts at Sempra include $124 held in non-U.S. jurisdictions. We discuss repatriation in Note 8 of the Notes to Consolidated Financial Statements. (2)    Available unused credit is the total available on committed and uncommitted lines of credit that we discuss in Note 7 of the Notes to Consolidated Financial Statements. Because our commercial paper programs are supported by these lines, we reflect the amount of commercial paper outstanding and any letters of credit outstanding as a reduction to the available unused credit. Short-Term Borrowings We use short-term debt primarily to meet liquidity requirements, fund shareholder dividends, and temporarily finance capital expenditures, acquisitions or start-ups. SDG&E and SoCalGas use short-term debt primarily to meet working capital needs or to help fund event-specific costs. Commercial paper and lines of credit were our primary sources of short-term debt funding in 2023. We discuss our short-term debt activities in Note 7 of the Notes to Consolidated Financial Statements and below in “Sources and Uses of Cash.” The following table shows selected statistics for our commercial paper borrowings. [[GREPCENT_TABLE]] [["COMMERCIAL PAPER STATISTICS"],["(Dollars in millions)"],["","Sempra","","SDG&E","","SoCalGas"],["","December 31,"],["","2023","2022","","2023","2022","","2023","2022"],["Amount outstanding at period end","$","1,313","","$","759","","","$","\u2014","","$","205","","","$","947","","$","100"],["Weighted-average interest rate at period end","5.48","%","4.75","%","","\u2014","%","4.79","%","","5.44","%","4.41","%"],["Daily weighted-average outstanding balance","$","1,329","","$","905","","","$","48","","$","59","","","$","301","","$","145"],["Daily weighted-average yield","5.02","%","1.58","%","","1.00","%","0.28","%","","4.24","%","1.16","%"],["Maximum daily amount outstanding","$","2,119","","$","2,364","","","$","408","","$","401","","","$","982","","$","607"]] [[/GREPCENT_TABLE]] 2023 Form 10-K | 79 Table of Contents Long-Term Debt Activities Significant issuances of and payments on long-term debt in 2023 included the following: [[GREPCENT_TABLE]] [["LONG-TERM DEBT ISSUANCES AND PAYMENTS"],["(Dollars in millions)"],["Issuances:","","Amount at issuance","","Maturity"],["Sempra 5.40% senior unsecured notes","","$","550","","","2026"],["Sempra 5.50% senior unsecured notes","","700","","","2033"],["SDG&E 5.35% first mortgage bonds","","800","","","2053"],["SDG&E 4.95% green first mortgage bonds","","600","","","2028"],["SoCalGas 5.20% first mortgage bonds","","500","","","2033"],["SoCalGas 5.75% first mortgage bonds","","500","","","2053"],["Sempra Infrastructure variable rate notes (ECA LNG Phase 1 project)","","257","","2025"],["Sempra Infrastructure variable rate notes (PA LNG Phase 1 project)","","258","","2030"],["Payments:","","Payments","","Maturity"],["SDG&E 3.60% first mortgage bonds","","$","450","","","2023"],["SoCalGas senior unsecured variable rate notes","","300","","","2023"],["Sempra Infrastructure 6.3% notes (4.124% after cross-currency swap)","","208","","","2023"]] [[/GREPCENT_TABLE]] At December 31, 2023, Sempra expects to make interest payments on long-term debt totaling $19.4 billion, of which $1.2 billion is expected to be paid in 2024 and $18.2 billion is expected to be paid in subsequent years through 2079. At December 31, 2023, SDG&E expects to make interest payments on long-term debt totaling $6.0 billion, of which $340 million is expected to be paid in 2024 and $5.7 billion is expected to be paid in subsequent years through 2053. At December 31, 2023, SoCalGas expects to make interest payments on long-term debt totaling $4.7 billion, of which $278 million is expected to be paid in 2024 and $4.5 billion is expected to be paid in subsequent years through 2053. We calculate expected interest payments using the stated interest rate for fixed-rate obligations, including floating-to-fixed interest rate swaps. We calculate expected interest payments for variable-rate obligations based on forecasted rates in effect at December 31, 2023. We discuss our long-term debt activities, including the use of proceeds on long-term debt issuances, and maturities in Note 7 of the Notes to Consolidated Financial Statements. Credit Ratings The credit ratings of Sempra, SDG&E and SoCalGas remained at investment grade levels in 2023. [[GREPCENT_TABLE]] [["CREDIT RATINGS AT DECEMBER 31, 2023"],["","Sempra","","SDG&E","","SoCalGas"],["Moody\u2019s","Baa2 with a stable outlook","","A3 with a stable outlook","","A2 with a stable outlook"],["S&P","BBB+ with a stable outlook","","BBB+ with a stable outlook","","A with a negative outlook"],["Fitch","BBB+ with a stable outlook","","BBB+ with a stable outlook","","A with a stable outlook"]] [[/GREPCENT_TABLE]] A downgrade of Sempra’s or any of its subsidiaries’ credit ratings or rating outlooks may, depending on the severity, result in the imposition of financial or other burdensome covenants or a requirement for collateral to be posted in the case of certain financing arrangements and may materially and adversely affect the market prices of their equity and debt securities, the rates at which borrowings are made and commercial paper is issued, and the various fees on their outstanding credit facilities. This could make it more costly for Sempra, SDG&E, SoCalGas and Sempra’s other subsidiaries to issue debt securities, to borrow under credit facilities and to raise certain other types of financing. We provide additional information about our credit ratings at Sempra, SDG&E and SoCalGas in “Part I – Item 1A. Risk Factors.” Sempra has agreed that, if the credit rating of Oncor’s senior secured debt by any of the Rating Agencies falls below BBB (or the equivalent), Oncor will suspend dividends and other distributions (except for contractual tax payments), unless otherwise allowed by the PUCT. Oncor’s senior secured debt was rated A2, A+ and A at Moody’s, S&P and Fitch, respectively, at December 31, 2023. 2023 Form 10-K | 80 Table of Contents Sempra, SDG&E and SoCalGas have committed lines of credit to provide liquidity and to support commercial paper. Borrowings under these facilities bear interest at benchmark rates plus a margin that varies with market index rates and each borrower’s credit rating. Each facility also requires a commitment fee on available unused credit that may be impacted by each borrower’s credit rating. For example, assuming a one-notch downgrade: ▪If Sempra were to experience a ratings downgrade from its current level, the rate at which borrowings bear interest would increase by 25 bps. The commitment fee on available unused credit would also increase 5 bps. ▪If SDG&E were to experience a ratings downgrade from its current level, the rate at which borrowings bear interest would increase by 12.5 bps. The commitment fee on available unused credit would also increase 5 bps. ▪If SoCalGas were to experience a ratings downgrade from its current level, the rate at which borrowings bear interest would increase by 12.5 bps. The commitment fee on available unused credit would also increase 2.5 bps. Sempra’s, SDG&E’s and SoCalGas’ credit ratings also may affect their respective credit limits related to derivative instruments, as we discuss in Note 11 of the Notes to Consolidated Financial Statements. Loans to/from Affiliates At December 31, 2023, Sempra had $312 million in loans due to unconsolidated affiliates. Postretirement Benefits Sempra, SDG&E and SoCalGas have significant investments in several trusts to provide for future payments of pensions and PBOP. The trusts’ ability to make ongoing required benefit payments has not been materially adversely affected by changes in asset values, which are dependent on market fluctuations, contributions and withdrawals. However, changes in asset values or other factors in future periods (such as changes to discount rates, assumed rates of return, mortality tables and regulations) may impact funding requirements for pension and PBOP plans. Additionally, contributions to our plans are based on our funding policy, which generally limits payments from exceeding plan assets of 110% of the projected benefit obligation, which are subject to maximum income tax deduction limitations. Sempra, SDG&E and SoCalGas expect to contribute $265 million, $37 million and $174 million, respectively, to pension and PBOP plans in 2024 and $1.8 billion, $564 million and $983 million, respectively, in the nine years thereafter. At SDG&E and SoCalGas, funding requirements are generally recoverable in rates. We discuss our employee benefit plans and our expected contributions to those plans in Note 9 of the Notes to Consolidated Financial Statements. Inflation Reduction Act of 2022 The IRA was signed into law in August 2022. The IRA includes tax credits and other incentives for energy and climate initiatives and introduces a 15% corporate alternative minimum tax on adjusted financial statement income for tax years beginning after December 31, 2022. We do not currently expect the IRA to have a material adverse impact on Sempra’s, SDG&E’s or SoCalGas’ results of operations, financial condition and/or cash flows. We will continue to assess the impacts of the IRA on Sempra, SDG&E and SoCalGas as the U.S. Department of the Treasury and the IRS issue guidance on tax implementation, and the EPA and DOE issue guidance on energy and climate initiatives. Minimum Tax Directive The Organization for Economic Cooperation and Development has introduced a framework to implement a global minimum corporate tax of 15%, referred to as the “minimum tax directive.” Many aspects of the minimum tax directive will become effective beginning in 2024. While it is uncertain whether the U.S. will enact legislation to adopt the minimum tax directive, other countries are in the process of introducing and enacting legislation to implement the minimum tax directive. We do not currently expect the minimum tax directive to have a material effect on Sempra’s, SDG&E’s or SoCalGas’ results of operations, financial condition and/or cash flows. Sempra California SDG&E’s and SoCalGas’ operations have historically provided relatively stable earnings and liquidity. Their future performance and liquidity will depend primarily on the ratemaking and regulatory process, environmental regulations, economic conditions, actions by legislatures, litigation and the changing energy marketplace, as well as other matters described in this report. SDG&E and SoCalGas expect that the available unused funds from their credit facilities described above, which also supports their commercial paper programs, cash flows from operations, and other incurrences of debt including issuing debt securities and obtaining term loans will continue to be adequate to fund their respective current operations and planned capital expenditures. SDG&E and SoCalGas manage their capital structures and pay dividends when appropriate and as approved by their respective boards of directors. 2023 Form 10-K | 81 Table of Contents The impact and duration of suspending collections processes during the COVID-19 pandemic, the implementation of customer assistance programs, and higher 2023 winter season customer billings, have resulted in certain SDG&E and SoCalGas customers exhibiting slower payment and higher levels of nonpayment than has been the case historically. This in turn has resulted in an increase in provisions for expected credit losses in the year ended December 31, 2023 for both companies, even as collections processes resume and past due payments potentially begin increasing. SDG&E and SoCalGas have regulatory mechanisms to recover credit losses and thus record changes in the allowances for credit losses related to Accounts Receivable – Trade that are probable of recovery in regulatory accounts. Although SDG&E and SoCalGas have regulatory mechanisms to recover credit losses, delay in payments by customers impact the timing of cash flows. As we discuss in Note 4 of the Notes to Consolidated Financial Statements, changes in regulatory balancing accounts for significant costs at SDG&E and SoCalGas, particularly a change between over- and undercollected status, may have a significant impact on cash flows. These changes generally represent the difference between when costs are incurred and when they are ultimately recovered or refunded in rates through billings to customers. SDG&E Wildfire Fund The carrying value of SDG&E’s Wildfire Fund asset totaled $297 million at December 31, 2023. We describe the Wildfire Legislation and SDG&E’s commitment to make annual shareholder contributions to the Wildfire Fund through 2028 in Note 1 of the Notes to Consolidated Financial Statements. SDG&E is exposed to the risk that the participating California electric IOUs may incur third-party wildfire costs for which they will seek recovery from the Wildfire Fund with respect to wildfires that have occurred since enactment of the Wildfire Legislation in July 2019. In such a situation, SDG&E may recognize a reduction of its Wildfire Fund asset and record accelerated amortization against earnings when available coverage is reduced due to recoverable claims from any of the participating IOUs, as was the case in 2023 after PG&E indicated that it will seek reimbursement from the Wildfire Fund for losses associated with the Dixie Fire, which burned from July 2021 through October 2021 and was reported to be the largest single wildfire (measured by acres burned) in California history. If any California electric IOU’s equipment is determined to be a cause of a fire, it could have a material adverse effect on SDG&E’s and Sempra’s financial condition and results of operations up to the carrying value of our Wildfire Fund asset, with additional potential material exposure if SDG&E’s equipment is determined to be a cause of a fire. In addition, the Wildfire Fund could be completely exhausted due to fires in the other California electric IOUs’ service territories, by fires in SDG&E’s service territory or by a combination thereof. In the event that the Wildfire Fund is materially diminished, exhausted or terminated, SDG&E will lose the protection afforded by the Wildfire Fund, and as a consequence, a fire in SDG&E’s service territory could have a material adverse effect on SDG&E’s and Sempra’s results of operations, financial condition, cash flows and/or prospects. Wildfire Mitigation Cost Recovery Mechanism In October 2023, SDG&E submitted a separate request to the CPUC in its 2024 GRC describing $2.2 billion in costs to implement its wildfire mitigation plans from 2019 through 2022, and seeking review and recovery of the incremental wildfire mitigation plan costs incurred during that period, totaling $1.5 billion. SDG&E expects to receive a proposed decision on this request in late 2024. In February 2024, the CPUC approved an interim cost recovery mechanism that would permit SDG&E to recover in rates $194 million of its wildfire mitigation plan regulatory account balance in 2024 and, if a recovery mechanism is not in place by January 1, 2025, an additional $96 million in 2025. Such recovery of SDG&E’s wildfire mitigation plan regulatory account balance will be subject to reasonableness review. SDG&E also expects to submit a separate request for review and recovery of its 2023 wildfire mitigation plan costs in late 2024. SONGS Decommissioning SDG&E has significant investments in the SONGS NDT to provide for future payments of nuclear decommissioning. The NDT’s ability to make ongoing required payments has not been materially or adversely affected by changes in asset values, which are dependent on market fluctuations, contributions and withdrawals. However, asset values could be materially and adversely affected by future activity in the equity and fixed income markets, and changes in the estimated decommissioning costs, or in the assumptions and judgments made by management underlying these estimates, could cause revisions to the estimated total cost 2023 Form 10-K | 82 Table of Contents associated with retiring the assets. Funding requirements are generally recoverable in rates. We discuss SDG&E’s NDT and its expected SONGS decommissioning payments in Note 15 of the Notes to Consolidated Financial Statements. Off-Balance Sheet Arrangements SDG&E has entered into PPAs and tolling agreements that are variable interests in unconsolidated entities. We discuss variable interests in Note 1 of the Notes to Consolidated Financial Statements. SoCalGas Aliso Canyon Natural Gas Storage Facility Gas Leak From October 23, 2015 through February 11, 2016, SoCalGas experienced the Leak, which we discuss in Note 16 of the Notes to Consolidated Financial Statements and in “Part I – Item 1A. Risk Factors.” Accounting and Other Impacts. At December 31, 2023, $31 million is accrued in Reserve for Aliso Canyon Costs and $2 million is accrued in Deferred Credits and Other on SoCalGas’ and Sempra’s Consolidated Balance Sheets. These accruals do not include any amounts in excess of what has been reasonably estimated to resolve certain matters that we describe in “Legal Proceedings – SoCalGas – Aliso Canyon Natural Gas Storage Facility Gas Leak – Litigation” in Note 16 of the Notes to Consolidated Financial Statements, nor any amounts that may be necessary to resolve threatened litigation, other potential litigation or other costs. We are not able to reasonably estimate the possible loss or a range of possible losses in excess of the amounts accrued, which could be significant and could have a material adverse effect on SoCalGas’ and Sempra’s results of operations, financial condition, cash flows and/or prospects. Natural Gas Storage Operations and Reliability. Natural gas withdrawn from storage is important to help maintain service reliability during peak demand periods, including consumer heating needs in the winter and peak electric generation needs in the summer. The Aliso Canyon natural gas storage facility is the largest SoCalGas storage facility and an important component of SoCalGas’ delivery system. In February 2017, the CPUC opened proceeding SB 380 OII to determine the feasibility of minimizing or eliminating the use of the Aliso Canyon natural gas storage facility while still maintaining energy and electric reliability for the region, including analyzing alternative means for meeting or avoiding the demand for the facility’s services if it were eliminated. At December 31, 2023, the Aliso Canyon natural gas storage facility had a net book value of $1.0 billion. If the Aliso Canyon natural gas storage facility were to be permanently closed or if future cash flows from its operation were otherwise insufficient to recover its carrying value, we may record an impairment of the facility, which could be material, incur materially higher than expected operating costs and/or be required to make material additional capital expenditures (any or all of which may not be recoverable in rates), and natural gas reliability and electric generation could be jeopardized. Franchise Agreement SoCalGas’ Los Angeles County franchise initially expired in June 2023 and the subsequent extension expired in December 2023. SoCalGas is in the process of negotiating a new agreement with Los Angeles County. SoCalGas is operating and expects to continue to operate under the terms and provisions of the expired franchise until a new agreement is reached and does not anticipate disruption of service to customers in unincorporated Los Angeles County while negotiations continue. Sempra Texas Utilities Oncor relies on external financing as a significant source of liquidity for its capital requirements. In the event that Oncor fails to meet its capital requirements, access sufficient capital, or raise capital on favorable terms to finance its ongoing needs, we may elect to make additional capital contributions to Oncor (as our commitments to the PUCT prohibit us from making loans to Oncor), which could be substantial and reduce the cash available to us for other purposes, increase our indebtedness and ultimately materially adversely affect our results of operations, financial condition, cash flows and/or prospects. Oncor’s ability to make distributions may be limited by factors such as its credit ratings, regulatory capital requirements, increases in its capital plan, debt-to-equity ratio approved by the PUCT and other restrictions and considerations. In addition, Oncor will not make distributions if a majority of Oncor’s independent directors or any minority member director determines it is in the best interests of Oncor to retain such amounts to meet expected future requirements. 2023 Form 10-K | 83 Table of Contents Rates and Cost Recovery The PUCT issued a final order in Oncor’s most recent comprehensive base rate proceeding in April 2023, and rates implementing that order went into effect on May 1, 2023. In June 2023, the PUCT issued an order on rehearing in response to the motions for rehearing filed by Oncor and certain intervenor parties in the proceeding. The order on rehearing made certain technical and typographical corrections to the final order but otherwise affirmed the material provisions of the final order and did not require modification of the rates that went into effect on May 1, 2023. In September 2023, Oncor filed an appeal in Travis County District Court seeking judicial review of certain rate base disallowances and related expense effects of those disallowances in the PUCT’s order on rehearing. On February 22, 2024, the court dismissed the appeal for lack of jurisdiction. Oncor is evaluating whether to appeal that ruling. Off-Balance Sheet Arrangement Our investment in Oncor Holdings is a variable interest in an unconsolidated entity. We discuss variable interests in Note 1 of the Notes to Consolidated Financial Statements. Sempra Infrastructure Sempra Infrastructure expects to fund capital expenditures, investments and operations in part with available funds, including existing credit facilities, and cash flows from operations of the Sempra Infrastructure businesses. We expect Sempra Infrastructure will require additional funding for the development and expansion of its portfolio of projects, which may be financed through a combination of funding from the parent and NCI owners, bank financing, issuances of debt, project financing, partnering in JVs and asset sales. At December 31, 2023, Sempra, KKR Pinnacle and ADIA directly or indirectly own a 70%, 20%, and 10% interest, respectively, in SI Partners, and KKR Denali, an affiliate of ConocoPhillips and TotalEnergies SE each own a 60%, 30% and 16.6% interest, respectively, in three separate SI Partners subsidiaries. In 2023 and 2022, Sempra Infrastructure distributed $730 million and $237 million, respectively, to its NCI owners, and NCI owners contributed $1,770 million and $31 million, respectively, to Sempra Infrastructure. Sempra Infrastructure is in various stages of development or construction on natural gas liquefaction projects, pipeline and terminal projects, and renewable generation and sequestration projects, which we describe below. The successful development and/or construction of these projects is subject to numerous risks and uncertainties. With respect to projects in development, these risks and uncertainties include, as applicable depending on the project, any failure to: ▪secure binding customer commitments ▪identify suitable project and equity partners ▪obtain sufficient financing ▪reach agreement with project partners or other applicable parties to proceed ▪obtain, modify, and/or maintain permits and regulatory approvals, including LNG export applications to non-FTA countries in light of the current Administration’s temporary pause of such approvals while the DOE reviews the economic and environmental analyses it uses to evaluate such applications ▪negotiate, complete and maintain suitable commercial agreements, which may include EPC, tolling, equity acquisition, governance, LNG sales, gas supply and transportation contracts ▪reach a positive final investment decision With respect to projects under construction, these risks and uncertainties include, in addition to the risks described above as applicable to each project, construction delays and cost overruns. An unfavorable outcome with respect to any of these factors could have a material adverse effect on (i) the development and construction of the applicable project, including a potential impairment of all or a substantial portion of the capital costs invested in the project to date, which could be material, and (ii) for any project that has reached a positive final investment decision, Sempra’s results of operations, financial condition, cash flows and/or prospects. For a further discussion of these risks, see “Part I – Item 1A. Risk Factors.” The descriptions below discuss several HOAs, MOUs and other non-binding development agreements with respect to Sempra Infrastructure’s various development projects. These arrangements do not commit any party to enter into definitive agreements or otherwise participate in the applicable project, and the ultimate participation by the parties remains subject to negotiation and finalization of definitive agreements, among other factors. 2023 Form 10-K | 84 Table of Contents LNG Cameron LNG Phase 2 Project. Cameron LNG JV is developing a proposed expansion project that would add one liquefaction train with an expected maximum production capacity of approximately 6.75 Mtpa and would increase the production capacity of the existing three trains at the Cameron LNG Phase 1 facility by up to approximately 1 Mtpa through debottlenecking activities. The Cameron LNG JV site can accommodate additional trains beyond the proposed Cameron LNG Phase 2 project. Cameron LNG JV previously received major permits and FTA and non-FTA approvals associated with the potential expansion that included up to two additional liquefaction trains and up to two additional full containment LNG storage tanks. The non-FTA approval for the proposed Cameron LNG Phase 2 project includes, among other things, a May 2026 deadline to commence commercial exports, for which we expect to request an extension. In March 2023, the FERC approved Cameron LNG JV’s request to amend the permits to allow the use of electric drives, instead of gas turbine drives, which would reduce GHG emissions. The amendment also allows the design to be changed from a two-train gas turbine expansion to a one-train electric drive expansion along with other design enhancements that, together, we expect would result in a more cost-effective and efficient facility, while also reducing GHG emissions. Sempra Infrastructure and the other Cameron LNG JV members, namely affiliates of TotalEnergies SE, Mitsui & Co., Ltd. and Japan LNG Investment, LLC, a company jointly owned by Mitsubishi Corporation and Nippon Yusen Kabushiki Kaisha, have entered into a non-binding HOA for the potential development of the Cameron LNG Phase 2 project. The non-binding HOA provides a commercial framework for the proposed project, including the contemplated allocation to SI Partners of 50.2% of the fourth train production capacity and 25% of the debottlenecking capacity from the project under tolling agreements. The non-binding HOA contemplates the remaining capacity to be allocated equally to the existing Cameron LNG Phase 1 facility customers. Sempra Infrastructure plans to sell the LNG corresponding to its allocated capacity from the proposed Cameron LNG Phase 2 project under long-term SPAs prior to making a final investment decision. In July 2023, following completion of front-end engineering design contracts with two parties, Cameron LNG JV informed Bechtel that it had been selected to perform additional value engineering work on the proposed Cameron LNG Phase 2 project. After completion of the value engineering work, in January 2024, Cameron LNG JV terminated further work under the applicable agreement with Bechtel. Cameron LNG JV is preparing to re-bid the EPC work for the proposed Cameron LNG Phase 2 project to help optimize the project’s costs and schedule. We expect this work will continue through the end of 2024 and to be in a position to make a final investment decision in the first half of 2025 and complete all related financing and permitting activities necessary to align our authorizations with the proposed schedule for the project. In December 2023, Entergy Louisiana, LLC, a subsidiary of Entergy Corporation, and Cameron LNG JV signed a new electricity service agreement (and related ancillary agreements) for the supply to Cameron LNG JV of up to 950 MW of renewable power from new renewable resources in Louisiana. The agreement is subject to approval by the Louisiana Public Service Commission and existing project lenders. Expansion of the Cameron LNG Phase 1 facility beyond the first three trains is subject to certain restrictions and conditions under the JV project financing agreements, including among others, scope restrictions on expansion of the project unless appropriate prior consent is obtained from the existing project lenders. Under the Cameron LNG JV equity agreements, the expansion of the project requires the unanimous consent of all the members, including with respect to the equity investment obligation of each member. ECA LNG Phase 1 Project. ECA LNG Phase 1 is constructing a one-train natural gas liquefaction facility at the site of Sempra Infrastructure’s existing ECA Regas Facility with a nameplate capacity of 3.25 Mtpa and an initial offtake capacity of 2.5 Mtpa. We do not expect the construction or operation of the ECA LNG Phase 1 project to disrupt operations at the ECA Regas Facility. SI Partners owns an 83.4% interest in ECA LNG Phase 1, and an affiliate of TotalEnergies SE owns the remaining 16.6% interest. At December 31, 2023, Sempra holds an indirect interest in the ECA LNG Phase 1 project of 58.4%. We received authorizations from the DOE to export U.S.-produced natural gas to Mexico and to re-export LNG to non-FTA countries from the ECA LNG Phase 1 project. ECA LNG Phase 1 has definitive 20-year SPAs with an affiliate of TotalEnergies SE for approximately 1.7 Mtpa of LNG and with Mitsui & Co., Ltd. for approximately 0.8 Mtpa of LNG. We have an EPC contract with TP Oil & Gas Mexico, S. De R.L. De C.V., an affiliate of Technip Energies N.V., to construct the ECA LNG Phase 1 project. We estimate the total price of the EPC contract to be approximately $1.5 billion, with capital expenditures approximating $2 billion including capitalized interest at the project level and project contingency. The actual cost of the EPC contract and the actual amount of these capital expenditures may differ substantially from our estimates. We expect the ECA LNG Phase 1 project to commence commercial operations in the summer of 2025. 2023 Form 10-K | 85 Table of Contents ECA LNG Phase 1 has a five-year loan agreement with a syndicate of seven external lenders that matures in December 2025 for an aggregate principal amount of up to $1.3 billion, of which $832 million was outstanding at December 31, 2023. Proceeds from the loan are being used to finance the cost of construction of the ECA LNG Phase 1 project. With respect to the ECA LNG Phase 1 and Phase 2 projects, recent and proposed changes to the law in Mexico and the unfavorable resolution of land disputes and permit challenges, in each case that we discuss in Note 16 of the Notes to Consolidated Financial Statements, could have a material adverse effect on the development and construction of these projects. ECA LNG Phase 2 Project. Sempra Infrastructure is developing a second, large-scale natural gas liquefaction project at the site of its existing ECA Regas Facility. We expect the proposed ECA LNG Phase 2 project to be comprised of two trains and one LNG storage tank and produce approximately 12 Mtpa of export capacity. We expect that construction of the proposed ECA LNG Phase 2 project would conflict with the current operations at the ECA Regas Facility, which currently has long-term regasification contracts for 100% of the regasification facility’s capacity through 2028. This makes the decisions on whether, when and how to pursue the proposed ECA LNG Phase 2 project dependent in part on whether the investment in a large-scale liquefaction facility would, over the long term, be more beneficial financially than continuing to supply regasification services under our existing contracts. We received authorizations from the DOE to export U.S.-produced natural gas to Mexico and to re-export LNG to non-FTA countries from the proposed ECA LNG Phase 2 project. We have non-binding MOUs and/or HOAs with Mitsui & Co., Ltd., an affiliate of TotalEnergies SE, and ConocoPhillips that provide a framework for their potential offtake of LNG from the proposed ECA LNG Phase 2 project and potential acquisition of an equity interest in ECA LNG Phase 2. PA LNG Phase 1 Project. Since making a positive final investment decision in March 2023, Sempra Infrastructure is constructing a natural gas liquefaction project on a greenfield site that it owns in the vicinity of Port Arthur, Texas, located along the Sabine-Neches waterway. The PA LNG Phase 1 project will consist of two liquefaction trains, two LNG storage tanks, a marine berth and associated loading facilities and related infrastructure necessary to provide liquefaction services with a nameplate capacity of approximately 13 Mtpa and an initial offtake capacity of approximately 10.5 Mtpa. Sempra Infrastructure has received authorizations from the DOE that permit the LNG to be produced from the PA LNG Phase 1 project to be exported to all current and future FTA and non-FTA countries. In April 2019, the FERC approved the siting, construction and operation of the PA LNG Phase 1 project. In June 2023, Port Arthur LNG requested authorization from the FERC to increase its work force and implement a 24-hours-per-day construction schedule to further enhance construction efficiency while reducing temporal impacts to the community and environment in the vicinity of the project. If approved, the authorization would provide the EPC contractor with more optionality to meet or exceed the project’s construction schedule, subject to the timing of FERC approval. The FERC has published a schedule that anticipates the issuance of an environmental assessment for the project in March 2024. The PA LNG Phase 1 project holds two Clean Air Act, Prevention of Significant Deterioration permits issued by the TCEQ, which we refer to as the “2016 Permit” and the “2022 Permit.” The 2022 Permit also governs emissions for the proposed PA LNG Phase 2 project. In November 2023, a panel of the U.S. Court of Appeals for the Fifth Circuit issued a decision to vacate and remand the 2022 Permit to the TCEQ for additional explanation of the agency’s permit decision. In February 2024, the court withdrew its opinion pending a determination by the Supreme Court of Texas as to the proper standard to be applied by the TCEQ. The 2022 Permit remains effective during the Supreme Court’s review. The 2016 Permit was not the subject of, and is unaffected by, the court’s decision. Construction of the PA LNG Phase 1 project is proceeding uninterrupted under existing permits, and we do not currently anticipate material impacts to the PA LNG Phase 1 project cost, schedule or expected commercial operations at this stage. Sempra Infrastructure has definitive SPAs for LNG offtake from the PA LNG Phase 1 project with: ▪an affiliate of ConocoPhillips for a 20-year term for 5 Mtpa of LNG, as well as a natural gas supply management agreement whereby an affiliate of ConocoPhillips will manage the feed gas supply requirements for the PA LNG Phase 1 project. ▪RWE Supply & Trading GmbH, a subsidiary of RWE AG, for a 15-year term for 2.25 Mtpa of LNG. ▪INEOS for a 20-year term for approximately 1.4 Mtpa of LNG. ▪ORLEN for a 20-year term for approximately 1 Mtpa of LNG. ▪ENGIE S.A. for a 15-year term for approximately 0.875 Mtpa of LNG. We have an EPC contract with Bechtel to construct the PA LNG Phase 1 project. In March 2023, we issued a final notice to proceed under the EPC contract, which has an estimated price of approximately $10.7 billion. We estimate the capital 2023 Form 10-K | 86 Table of Contents expenditures for the PA LNG Phase 1 project will be approximately $13 billion including capitalized interest at the project level and project contingency. The actual cost of the EPC contract and the actual amount of these capital expenditures may differ substantially from our estimates. We expect the first and second trains of the PA LNG Phase 1 project to commence commercial operations in 2027 and 2028, respectively. In March 2023, an indirect subsidiary of SI Partners completed the sale of an indirect 30% interest in another SI Partners subsidiary (resulting in an indirect 30% NCI in the PA LNG Phase 1 project) to an affiliate of ConocoPhillips for aggregate cash consideration of $254 million. We used the proceeds from this sale for capital expenditures and other general corporate purposes. In connection with this sale, both SI Partners and ConocoPhillips provided guarantees relating to their respective affiliate’s commitment to make its pro rata equity share of capital contributions to fund 110% of the development budget of the PA LNG Phase 1 project, in an aggregate amount of up to $9.0 billion. SI Partners’ guarantee covers 70% of this amount plus enforcement costs of its guarantee. In September 2023, an indirect subsidiary of SI Partners completed the sale of an indirect 60% interest in another SI Partners subsidiary (resulting in an indirect 42% NCI in the PA LNG Phase 1 project) to KKR Denali for aggregate cash consideration of $976 million. We used the proceeds from this sale for capital expenditures and other general corporate purposes. At December 31, 2023, SI Partners holds a 28% indirect interest and Sempra holds a 19.6% indirect interest in the PA LNG Phase 1 project. In March 2023, Port Arthur LNG entered into a seven-year term loan facility agreement with a syndicate of lenders for an aggregate principal amount of approximately $6.8 billion and an initial working capital facility agreement for up to $200 million. The facilities mature in March 2030. Proceeds from the loans will be used to finance the cost of construction of the PA LNG Phase 1 project. At December 31, 2023, $258 million of borrowings were outstanding under the term loan facility agreement. PA LNG Phase 2 Project. Sempra Infrastructure is developing a second phase of the Port Arthur natural gas liquefaction project that we expect will be a similar size to the PA LNG Phase 1 project. We are progressing the development of the proposed PA LNG Phase 2 project, while continuing to evaluate overall opportunities to develop the entirety of the Port Arthur site as well as potential design changes that could reduce GHG emissions, including a facility design utilizing renewable power sourcing and other technological solutions. In September 2023, the FERC approved the siting, construction and operation of the proposed PA LNG Phase 2 project, including the potential addition of up to two liquefaction trains. In February 2020, Sempra Infrastructure filed an application with the DOE to permit LNG produced from the proposed PA LNG Phase 2 project to be exported to all current and future FTA and non-FTA countries. We do not expect the DOE to act on this application until after the conclusion of the temporary pause on the DOE’s LNG export approvals that we describe above. As we discuss above, a U.S. federal court previously issued and subsequently withdrew a decision that would have vacated and remanded the 2022 Permit authorizing emissions from the PA LNG Phase 1 and Phase 2 projects to the TCEQ for additional explanation of the agency’s permit decision. The U.S. Court of Appeals for the Fifth Circuit has referred the case to the Supreme Court of Texas to resolve the question of the appropriate standard to be applied by the TCEQ. The 2022 Permit remains effective pending the Supreme Court’s review. Sempra Infrastructure has entered into a non-binding HOA for the negotiation and potential finalization of a definitive SPA with INEOS for approximately 0.2 Mtpa of LNG offtake from the proposed PA LNG Phase 2 project. Vista Pacifico LNG Liquefaction Project. Sempra Infrastructure is developing the Vista Pacifico LNG project, a mid-scale natural gas liquefaction export facility proposed to be located in the vicinity of the Port of Topolobampo in Sinaloa, Mexico, under a non-binding development agreement with the CFE that contemplates the negotiation of definitive agreements, including a natural gas supply agreement. The proposed LNG export terminal would be supplied with U.S. natural gas and would use excess natural gas and pipeline capacity on existing pipelines in Mexico with the intent of helping to meet growing demand for natural gas and LNG in the Mexican and Pacific markets. Sempra Infrastructure received authorization from the DOE to permit the export of U.S.-produced natural gas to Mexico and for LNG produced from the proposed Vista Pacifico LNG facility to be re-exported to all current and future FTA countries and non-FTA countries. In March 2022, TotalEnergies SE and Sempra Infrastructure entered into a non-binding MOU that contemplates TotalEnergies SE potentially contracting approximately one-third of the long-term export production of the proposed Vista Pacifico LNG project and potentially participating as a minority partner in the project. 2023 Form 10-K | 87 Table of Contents Asset and Supply Optimization. As we discuss in “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk,” Sempra Infrastructure enters into hedging transactions to help mitigate commodity price risk and optimize the value of its LNG, natural gas pipelines and storage, and power-generating assets. Some of these derivatives that we use as economic hedges do not meet the requirements for hedge accounting, or hedge accounting is not elected, and as a result, the changes in fair value of these derivatives are recorded in earnings. Consequently, significant changes in commodity prices have in the past and could in the future result in earnings volatility, which may be material, as the economic offset of these derivatives may not be recorded at fair value. Off-Balance Sheet Arrangements. Our investment in Cameron LNG JV is a variable interest in an unconsolidated entity. We discuss variable interests in Note 1 of the Notes to Consolidated Financial Statements. In June 2021, Sempra provided a promissory note, which constitutes a guarantee, for the benefit of Cameron LNG JV with a maximum exposure to loss of $165 million. The guarantee will terminate upon full repayment of Cameron LNG JV’s debt, scheduled to occur in 2039, or replenishment of the amount withdrawn by Sempra Infrastructure from the SDSRA. We discuss this guarantee in Note 6 of the Notes to Consolidated Financial Statements. In July 2020, Sempra entered into a Support Agreement, which contains a guarantee and represents a variable interest, for the benefit of CFIN with a maximum exposure to loss of $979 million. The guarantee will terminate upon full repayment of the guaranteed debt by 2039, including repayment following an event in which the guaranteed debt is put to Sempra. We discuss this guarantee in Notes 1, 6 and 12 of the Notes to Consolidated Financial Statements. Energy Networks Sonora Pipeline. Sempra Infrastructure’s Sonora natural gas pipeline consists of two segments, the Sasabe-Puerto Libertad-Guaymas segment and the Guaymas-El Oro segment. Each segment has its own service agreement with the CFE. Following the start of commercial operations of the Guaymas-El Oro segment, Sempra Infrastructure reported damage to the pipeline in the Yaqui territory that has made that section inoperable since August 2017. Legal challenges raised by some members of the Yaqui tribe living in the Bácum community, which we discuss in Note 16 of the Notes to Consolidated Financial Statements, have prevented Sempra Infrastructure from making repairs to put the pipeline back in service. Such legal challenges were definitively resolved in March 2023 based on the agreement by the CFE and Sempra Infrastructure to re-route the portion of the pipeline that is in the Yaqui territory. In September 2019, Sempra Infrastructure and the CFE reached an agreement to modify the tariff structure and extend the term of the contract by 10 years. Under the revised agreement, the CFE will resume making payments only when the damaged section of the Guaymas-El Oro segment of the Sonora pipeline is back in service. Sempra Infrastructure and the CFE have agreed to an amendment to their transportation services agreement and to proceed with re-routing a portion of the pipeline, whereby the CFE would pay for the re-routing with a new tariff. This amendment will terminate if certain conditions are not met, and Sempra Infrastructure retains the right to terminate the transportation services agreement and seek to recover its reasonable and documented costs and lost profit. Sempra Infrastructure continues to acquire and pursue the necessary rights-of-way and permits for the re-routed portion of the pipeline. At December 31, 2023, Sempra Infrastructure had $411 million in PP&E, net, related to the Guaymas-El Oro segment of the Sonora pipeline, which could be subject to impairment if Sempra Infrastructure is unable to re-route a portion of the pipeline and resume operations or if Sempra Infrastructure terminates the contract and is unable to obtain recovery, which in each case could have a material adverse effect on Sempra’s business, results of operations, financial condition, cash flows and/or prospects. Refined Products Terminals. In May 2022, Sempra Infrastructure substantially completed construction of a terminal for the receipt, storage, and delivery of refined products in Topolobampo, at which time commissioning activities commenced. We expect the Topolobampo terminal will commence commercial operations in the second quarter of 2024. Sempra Infrastructure is also developing terminals for the receipt, storage, and delivery of refined products in the vicinity of Manzanillo and Ensenada. Port Arthur Pipeline Louisiana Connector. Sempra Infrastructure has made a positive final investment decision on and begun procurement and engineering activities and rights-of-way acquisition related to the construction of the Port Arthur Pipeline Louisiana Connector, a 72-mile pipeline connecting the PA LNG Phase 1 project to Gillis, Louisiana. In April 2019, the FERC approved the siting, construction and operation of the Port Arthur Pipeline Louisiana Connector, which will be used to supply feed gas to the PA LNG Phase 1 project. In July 2023, Sempra Infrastructure filed a limited amendment application with the FERC to implement construction process enhancements and minor modifications to several discrete sections of the Port Arthur Pipeline Louisiana Connector. These modifications are intended to decrease environmental impacts, accommodate landowner 2023 Form 10-K | 88 Table of Contents routing requests and enhance construction procedures. In February 2024, the FERC issued an environmental assessment for the project. We expect the Port Arthur Pipeline Louisiana Connector to be ready for service ahead of the PA LNG Phase 1 project’s gas requirements. We estimate the capital expenditures for the project will be approximately $1 billion, including capitalized interest at the project level and project contingency. The actual amount of these capital expenditures may differ substantially from our estimates. Louisiana Storage. Sempra Infrastructure has made a positive final investment decision on and begun procurement and engineering activities related to the construction of Louisiana Storage, a 12.5-Bcf salt dome natural gas storage facility to support the PA LNG Phase 1 project. The construction includes an 11-mile pipeline that will connect to the Port Arthur Pipeline Louisiana Connector. In September 2022, the FERC approved the development of the project. We expect Louisiana Storage to be ready for service in time to support the needs of the PA LNG Phase 1 project. We estimate the capital expenditures for the project will be approximately $300 million, including capitalized interest at the project level and project contingency. The actual amount of these capital expenditures may differ substantially from our estimates. Low Carbon Solutions Cimarrón Wind. Sempra Infrastructure is developing the Cimarrón Wind project, an approximately 300-MW wind generation facility in Baja California, Mexico. In October 2022, Sempra Infrastructure entered into a 20-year PPA, as amended, with Silicon Valley Power for the long-term supply of renewable energy to the City of Santa Clara, California, which is subject to Sempra Infrastructure reaching a final investment decision. Cimarrón Wind would utilize Sempra Infrastructure’s existing cross-border high voltage transmission line to interconnect and deliver clean energy to the East County substation in San Diego County. We expect to make a final investment decision in the first half of 2024. Hackberry Carbon Sequestration Project. Sempra Infrastructure is developing the potential Hackberry Carbon Sequestration project near Hackberry, Louisiana. This proposed project under development is designed to permanently sequester carbon dioxide from the Cameron LNG Phase 1 facility and the proposed Cameron LNG Phase 2 project. In 2021, Sempra Infrastructure filed an application with the EPA for a Class VI carbon injection well to advance this project. Sempra Infrastructure, TotalEnergies SE, Mitsui & Co., Ltd. and Mitsubishi Corporation have entered into a Participation Agreement for the development of the proposed Hackberry Carbon Sequestration project. The Participation Agreement contemplates that the combined Cameron LNG Phase 1 facility and proposed Cameron LNG Phase 2 project would potentially serve as the anchor source for the capture and sequestration of carbon dioxide by the proposed project. It also provides the basis for the parties to acquire an equity interest by entering into a JV with Sempra Infrastructure for the Hackberry Carbon Sequestration project. In May 2023, Sempra Infrastructure and Cameron LNG JV entered into a non-binding HOA, which sets forth a framework for further development of the Hackberry Carbon Sequestration project. Legal and Regulatory Matters See Note 16 of the Notes to Consolidated Financial Statements and “Part I – Item 1A. Risk Factors” for discussions of the following legal and regulatory matters affecting our operations in Mexico: Energía Costa Azul ▪Land Disputes ▪Environmental and Social Impact Permits One or more unfavorable final decisions on these land disputes or environmental and social impact permit challenges could materially adversely affect our existing natural gas regasification operations and proposed natural gas liquefaction projects at the site of the ECA Regas Facility and have a material adverse effect on Sempra’s business, results of operations, financial condition, cash flows and/or prospects. Regulatory and Other Actions by the Mexican Government ▪Amendments to Mexico’s Hydrocarbons Law ▪Amendments to Mexico’s Electricity Industry Law Sempra Infrastructure and other parties affected by these amendments to Mexican law have challenged them by filing amparo and other claims, some of which remain pending. An unfavorable decision on one or more of these amparo or other challenges, the impact of the amendments that have become effective (due to unsuccessful amparo challenges or otherwise), or the possibility of future reforms to the energy industry through additional amendments to Mexican laws, regulations or rules (including through amendments to the constitution) may impact our ability to operate our facilities at existing levels or at all, may result in increased costs for Sempra Infrastructure and its customers, may adversely affect our ability to develop new projects, may result in 2023 Form 10-K | 89 Table of Contents decreased revenues and cash flows, and may negatively impact our ability to recover the carrying values of our investments in Mexico, any of which may have a material adverse effect on Sempra’s business, results of operations, financial condition, cash flows and/or prospects. SOURCES AND USES OF CASH We discuss herein our sources and uses of cash for the year ended December 31, 2023 compared to the year ended December 31, 2022. For a discussion of our sources and uses of cash for the year ended December 31, 2022 compared to the year ended December 31, 2021, refer to “Part II – Item 7. MD&A – Sources and Uses of Cash” in our 2022 annual report on Form 10-K filed with the SEC on February 28, 2023. The following tables include only significant changes in cash flow activities for each of our Registrants. [[GREPCENT_TABLE]] [["CASH FLOWS FROM OPERATING ACTIVITIES"],["(Dollars in millions)"],["Years ended December 31,","Sempra","SDG&E","","SoCalGas"],["2023","","$","6,218","","","$","1,936","","","$","1,389"],["2022","","1,142","","","1,729","","","(454)"],["Change","","$","5,076","","","$","207","","","$","1,843"],["Change in net margin posted","","$","2,526"],["Lower net decrease in Reserve for Aliso Canyon Costs, current and noncurrent, due to $2,010 lower payments offset by $259 lower accruals","","1,751","","","","","$","1,751"],["Change in accounts receivable","","1,144","","","$","(50)","","","719"],["Change in income taxes receivable/payable, net","","171","","","(245)","","","(31)"],["Higher net income, adjusted for noncash items included in earnings","","161","","","244","","","380"],["Change in deferred revenue","","109"],["Change in regulatory accounts, current and noncurrent","","73","","","404","","","(330)"],["Change in inventories","","(63)","","","","","(132)"],["Lower increase in collateral held in lieu of a customer\u2019s letters of credit","","(76)"],["Proceeds received in 2022 from insurance receivable for Aliso Canyon costs","","(360)","","","","","(360)"],["Change in accounts payable","","(700)","","","(122)","","","(370)"],["Change in amounts due to/from unconsolidated affiliates","","","","(100)","","","85"],["Other","","340","","","76","","","131"],["","","$","5,076","","","$","207","","","$","1,843"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["CASH FLOWS FROM INVESTING ACTIVITIES"],["(Dollars in millions)"],["Years ended December 31,","Sempra","SDG&E","","SoCalGas"],["2023","","$","(8,716)","","","$","(2,472)","","","$","(2,020)"],["2022","","(5,039)","","","(2,412)","","","(1,993)"],["Change","","$","(3,677)","","","$","(60)","","","$","(27)"],["Increase in capital expenditures","","$","(3,040)","","","$","(67)","","","$","(27)"],["Repayment in 2022 of note receivable from IMG","","(626)"],["Other","","(11)","","","7"],["","","$","(3,677)","","","$","(60)","","","$","(27)"]] [[/GREPCENT_TABLE]] 2023 Form 10-K | 90 Table of Contents [[GREPCENT_TABLE]] [["CASH FLOWS FROM FINANCING ACTIVITIES"],["(Dollars in millions)"],["Years ended December 31,","Sempra","SDG&E","","SoCalGas"],["2023","","$","2,419","","","$","579","","","$","612"],["2022","","3,779","","","665","","","2,431"],["Change","","$","(1,360)","","","$","(86)","","","$","(1,819)"],["Lower issuances of short-term debt with maturities greater than 90 days","","$","(1,657)","","","","","$","(800)"],["(Higher) lower payments for commercial paper and other short-term debt with maturities greater than 90 days","","(1,058)","","","$","375","","","(800)"],["Higher payments on long-term debt and finance leases","","(726)","","","(440)","","","(305)"],["Lower issuances of long-term debt","","(658)","","","","","(298)"],["Lower proceeds from sales of NCI, net","","(513)"],["Higher distributions to NCI","","(493)"],["Settlement of cross-currency swaps","","(99)"],["Higher common dividends paid","","(53)","","","","","(100)"],["Higher issuances of common stock","","141"],["Lower repurchases of common stock","","446"],["Higher contributions from NCI","","1,539"],["Change in borrowings and repayments of short-term debt, net","","1,818","","","","","1,131"],["Equity contribution from Sempra in 2022","","","","","","(650)"],["Other","","(47)","","","(21)","","","3"],["","","$","(1,360)","","","$","(86)","","","$","(1,819)"]] [[/GREPCENT_TABLE]] Expenditures for PP&E We invest the majority of our capital expenditures in Sempra California, primarily for transmission and distribution improvements, including pipeline and wildfire safety. The following table summarizes by segment capital expenditures for the last three years. [[GREPCENT_TABLE]] [["EXPENDITURES FOR PP&E"],["(Dollars in millions)"],["","Years ended December 31,"],["","2023","","2022","","2021"],["Sempra California(1)","$","4,560","","","$","4,466","","","$","4,204"],["Sempra Infrastructure","3,832","","","884","","","802"],["Parent and other","5","","","7","","","9"],["Total","$","8,397","","","$","5,357","","","$","5,015"]] [[/GREPCENT_TABLE]] (1)    Includes expenditures for PP&E of $2,540, $2,473, and $2,220 at SDG&E and $2,020, $1,993, and $1,984 at SoCalGas for 2023, 2022, and 2021, respectively. Expenditures for Investments and Acquisitions The following table summarizes by segment our investments in entities that we account for under the equity method, as well as asset acquisitions. [[GREPCENT_TABLE]] [["EXPENDITURES FOR INVESTMENTS AND ACQUISITIONS"],["(Dollars in millions)"],["","Years ended December 31,"],["","2023","","2022","","2021"],["Sempra Texas Utilities","$","367","","","$","346","","","$","566"],["Sempra Infrastructure","15","","","30","","","67"],["Total","$","382","","","$","376","","","$","633"]] [[/GREPCENT_TABLE]] 2023 Form 10-K | 91 Table of Contents Future Capital Expenditures and Investments The amounts and timing of capital expenditures and certain investments are generally subject to approvals by various regulatory and other governmental and environmental bodies, including the CPUC, the FERC and the PUCT, and various other factors described in this MD&A and in “Part I – Item 1A. Risk Factors.” In 2024, we expect to make capital expenditures and investments of approximately $9.2 billion, as summarized by segment in the following table. [[GREPCENT_TABLE]] [["FUTURE CAPITAL EXPENDITURES AND INVESTMENTS"],["(Dollars in millions)"],["","Year ending December 31, 2024"],["Sempra California(1)","$","4,778"],["Sempra Texas Utilities","774"],["Sempra Infrastructure","3,641"],["Parent and other","2"],["Total","$","9,195"]] [[/GREPCENT_TABLE]] (1)    Includes future capital expenditures of $2,498 and $2,280 at SDG&E and SoCalGas, respectively. We expect the majority of our capital expenditures and investments in 2024 will relate to transmission and distribution improvements at our regulated public utilities and construction of the PA LNG Phase 1 project, ECA LNG Phase 1 project and natural gas pipelines at Sempra Infrastructure. From 2024 through 2028, and subject to the factors described below, which could cause these estimates to vary substantially, Sempra expects to make aggregate capital expenditures and investments of approximately $40.4 billion, as follows: $24.1 billion at Sempra California (which includes $12.5 billion at SDG&E and $11.6 billion at SoCalGas), $3.4 billion at Sempra Texas Utilities, and $12.9 billion at Sempra Infrastructure. Capital expenditure amounts include capitalized interest and AFUDC related to debt. When (i) including Sempra’s proportionate ownership interest in expected capital expenditures at unconsolidated equity method investees while excluding Sempra’s expected capital contributions to those unconsolidated equity method investees and (ii) excluding NCI’s proportionate ownership interest in expected capital expenditures at Sempra and at unconsolidated equity method investees, we expect capital expenditures from 2024 through 2028 to total $48 billion. Periodically, we review our construction, investment and financing programs and revise them in response to changes in regulation, economic conditions, competition, customer growth, inflation, customer rates, the cost and availability of capital, and safety and environmental requirements. Our level of capital expenditures and investments in the next few years may vary substantially and will depend on, among other things, the cost and availability of financing, regulatory approvals, changes in tax law and business opportunities providing desirable rates of return. See “Part I – Item 1A. Risk Factors” for a discussion of these and other factors that could affect future levels of our capital expenditures and investments. We intend to finance our capital expenditures in a manner that will maintain our investment-grade credit ratings and capital structure, but there is no guarantee that we will be able to do so. Weighted-Average Rate Base Rate base is the value of assets on which SDG&E and SoCalGas are permitted to earn a specified rate of return in accordance with rules set by regulatory agencies, including the CPUC and the FERC (for SDG&E), which is calculated using a 13-month average in accordance with CPUC methodology as adopted in rate-setting proceedings. The following table summarizes the weighted-average rate base for SDG&E and SoCalGas for the last three years. [[GREPCENT_TABLE]] [["WEIGHTED-AVERAGE RATE BASE"],["(Dollars in millions)"],["","2023","","2022","","2021"],["SDG&E","$","15,220","","","$","13,780","","","$","12,527"],["SoCalGas","11,671","","","10,494","","","9,371"]] [[/GREPCENT_TABLE]] The increase in weighted-average rate base reflects the significant capital investments that SDG&E and SoCalGas have made in transmission and distribution safety and reliability. We expect the weighted-average rate base to continue to increase in 2024 based on our expected capital investments. 2023 Form 10-K | 92 Table of Contents Capital Stock Transactions Sempra Cash provided by issuances of common and preferred stock was: ▪$145 million in 2023  ▪$4 million in 2022 ▪$5 million in 2021 Cash used for repurchases of common stock was: ▪$32 million in 2023  ▪$478 million in 2022 ▪$339 million in 2021 We discuss the issuance and repurchases of common stock in Note 14 of the Notes to Consolidated Financial Statements. Dividends Sempra Sempra paid cash dividends of: ▪$1,483 million for common stock and $44 million for preferred stock in 2023 ▪$1,430 million for common stock and $44 million for preferred stock in 2022 ▪$1,331 million for common stock and $99 million for preferred stock in 2021 [[GREPCENT_TABLE]] [["DIVIDENDS PER SHARE ON SEMPRA COMMON STOCK"],["(As approved by our board of directors)"]] [[/GREPCENT_TABLE]] On February 26, 2024, our board of directors declared a dividend of $0.62 per share on our common stock and a dividend of $24.375 per share on our series C preferred stock, both payable on April 15, 2024. 2023 Form 10-K | 93 Table of Contents All declarations of dividends on our common stock and preferred stock are made at the discretion of the board of directors. While we view dividends as an integral component of shareholder return, the amount of future dividends will depend on earnings, cash flows, financial and legal requirements, and other relevant factors at that time. As a result, Sempra’s dividends on common stock and preferred stock declared on a historical basis may not be indicative of future declarations. SDG&E In 2023, 2022 and 2021, SDG&E paid common stock dividends to Enova and Enova paid corresponding dividends to Sempra of $100 million, $100 million and $300 million, respectively. SDG&E’s dividends on common stock declared on an annual historical basis may not be indicative of future declarations and could be impacted over the next few years in order for SDG&E to maintain its authorized capital structure while managing its capital investment program. Enova, a wholly owned subsidiary of Sempra, owns all of SDG&E’s outstanding common stock. Accordingly, dividends paid by SDG&E to Enova and dividends paid by Enova to Sempra are eliminated in Sempra’s consolidated financial statements. SoCalGas In 2023 and 2021, SoCalGas paid common stock dividends to PE and PE paid corresponding dividends to Sempra of $100 million and $75 million, respectively. SoCalGas did not declare or pay common stock dividends in 2022. SoCalGas’ dividends on common stock declared on an annual historical basis may not be indicative of future declarations and could be impacted over the next few years in order for SoCalGas to maintain its authorized capital structure. PE, a wholly owned subsidiary of Sempra, owns all of SoCalGas’ outstanding common stock. Accordingly, dividends paid by SoCalGas to PE and dividends paid by PE to Sempra are eliminated in Sempra’s consolidated financial statements. Dividend Restrictions The board of directors for each of Sempra, SDG&E and SoCalGas has the discretion to determine whether to declare and, if declared, the amount of any dividends by each such entity. The CPUC’s regulation of SDG&E’s and SoCalGas’ capital structures limits the amounts that are available for loans and dividends to Sempra. At December 31, 2023, based on these regulations, Sempra could have received combined loans and dividends of approximately $442 million from SDG&E and $330 million from SoCalGas. In addition, the terms of Sempra’s series C preferred stock limit Sempra’s ability to declare dividends on its common stock under certain circumstances. We provide additional information about dividend restrictions in “Restricted Net Assets” in Note 1 of the Notes to Consolidated Financial Statements and in Note 13 of the Notes to Consolidated Financial Statements. Book Value Per Common Share Sempra’s book value per common share on the last day of each of the last three fiscal years was as follows: ▪$44.00 in 2023 ▪$41.72 in 2022 ▪$39.59 in 2021 The increase in 2023 was primarily due to comprehensive income exceeding dividends. In 2022, the increase was primarily due to comprehensive income exceeding dividends and a fair value that was higher than carrying value related to the change in ownership, which did not result in a change of control, from the sale of NCI in SI Partners to ADIA. Capitalization Our debt-to-capitalization ratio, which is calculated as total debt as a percentage of total debt and equity, was as follows: [[GREPCENT_TABLE]] [["TOTAL CAPITALIZATION AND DEBT-TO-CAPITALIZATION RATIOS"],["(Dollars in millions)"],["","Total capitalization","","Debt-to-capitalization ratio"],["","December 31,"],["","2023","","2022","","2023","","2022"],["Sempra","$","64,730","","","$","58,175","","","48","%","","50","%"],["SDG&E","19,796","","","18,258","","","50","","","50"],["SoCalGas","15,167","","","13,696","","","51","","","51"]] [[/GREPCENT_TABLE]] 2023 Form 10-K | 94 Table of Contents Significant changes in 2023 that affected capitalization included the following: ▪Sempra: increase in long-term debt, offset by a decrease in short-term debt; and increase in equity primarily from comprehensive income exceeding dividends, sales of and contributions from NCI, offset by distributions to NCI. ▪SDG&E: increase in long-term debt, offset by a decrease in short-term debt and increase in equity from comprehensive income exceeding dividends. ▪SoCalGas: increase in debt and an increase in equity from comprehensive income exceeding dividends. CRITICAL ACCOUNTING ESTIMATES Management views certain accounting estimates as critical because their application is the most relevant, judgmental and/or material to our financial position and results of operations, and/or because they require the use of material judgments and estimates. We discuss critical accounting estimates that are material to our financial statements with the Audit Committee of Sempra’s board of directors. CONTINGENCIES Sempra, SDG&E, SoCalGas We accrue losses for the estimated impacts of various conditions, situations or circumstances involving uncertain outcomes. For loss contingencies, we accrue the loss if an event has occurred on or before the balance sheet date and if:  ▪information available through the date we file our financial statements indicates it is probable that a loss has been incurred, given the likelihood of uncertain future events  ▪the amount of the loss or a range of possible losses can be reasonably estimated We do not accrue contingencies that might result in gains. We continuously assess contingencies for litigation claims, environmental remediation and other events.  Actual amounts realized upon settlement of contingencies may be different than amounts recorded and disclosed and may affect our results of operations, financial condition and cash flows. Details of our issues in this area are discussed in Note 16 of the Notes to Consolidated Financial Statements. REGULATORY ACCOUNTING Sempra, SDG&E, SoCalGas As regulated entities, SDG&E’s and SoCalGas’ customer rates, as set and monitored by regulators, are designed to recover the cost of providing service and to provide the opportunity to realize their authorized rates of return on their investments. SDG&E and SoCalGas assess probabilities of future rate recovery associated with regulatory account balances at the end of each reporting period and whenever new and/or unusual events occur, such as: ▪changes in the regulatory and political environment or the utility’s competitive position ▪issuance of a regulatory commission order ▪passage of new legislation To the extent that circumstances associated with regulatory balances change, the regulatory balances are evaluated and adjusted if appropriate. Significant management judgment is required to evaluate the anticipated recovery of regulatory assets and plant investments, the recognition of incentives and revenues subject to refund, as well as the existence and amount of regulatory liabilities. Adverse regulatory or legislative actions could materially impact the amounts of our regulatory assets and liabilities and could materially adversely impact our results of operations and financial condition. Specifically, if future recovery of costs ceases to be probable, all or part of the associated regulatory assets and/or plant investments would need to be written off against current period earnings, or adverse regulatory or legislative actions could give rise to material new or higher regulatory liabilities. We discuss details of SDG&E’s and SoCalGas’ regulatory assets and liabilities and additional factors that management considers when assessing probabilities associated with regulatory balances in Notes 1, 4, 15 and 16 of the Notes to Consolidated Financial Statements. 2023 Form 10-K | 95 Table of Contents INCOME TAXES Sempra, SDG&E, SoCalGas Our income tax expense and related balance sheet amounts involve significant management judgments and estimates. Amounts of deferred income tax assets and liabilities, as well as current and noncurrent accruals, involve judgments and estimates of the timing and probability of recognition of income and deductions by taxing authorities. When we evaluate the anticipated resolution of income tax issues, we consider: ▪ past resolutions of the same issue or similar issues ▪ the status of any income tax examination in progress ▪ positions taken by taxing authorities with other taxpayers with similar issues The likelihood of deferred income tax recovery is based on analyses of the deferred income tax assets and our expectation of future taxable income, based on our strategic planning. Should a change in facts or circumstances lead to a change in judgment about the ultimate realizability of a deferred tax asset, we would record or adjust the related valuation allowance in the period that the change in facts and circumstances occurs, along with a corresponding increase or decrease in the provision for income taxes. Actual income taxes could vary from estimated amounts because of: ▪ future impacts of various items, including changes in tax laws, regulations, interpretations and rulings ▪ our financial condition in future periods ▪ the resolution of various income tax issues between us and taxing and regulatory authorities Unrecognized tax benefits involve management’s judgment regarding the likelihood of the benefit being sustained. The final resolution of uncertain tax positions could result in adjustments to recorded amounts and may affect our results of operations, financial condition and cash flows. We discuss these matters and additional information related to accounting for income taxes, including uncertainty in income taxes, in Note 8 of the Notes to Consolidated Financial Statements. DERIVATIVES AND HEDGE ACCOUNTING Sempra We use interest rate swaps, designated as cash flow hedges, in part, to hedge interest payments related to our forecasted refinancing of the existing PA LNG Phase 1 project construction term loan facility with fixed-rate debt. The future fixed-rate debt issuances underlying these cash flow hedge relationships are largely dependent on the market demand and liquidity in the debt market. At December 31, 2023, we believe the forecasted issuances of fixed-rate debt in the related cash flow hedge relationships are probable. However, unexpected changes in market conditions in future periods could impact our ability to issue such fixed-rate debt, or the timing of such an issuance. If our assumptions regarding the nature and timing of forecasted fixed-rate debt issuances were to be inaccurate, we could be required to cease the application of hedge accounting to the related interest rate swaps, which could materially impact our results of operations. We provide details of our derivative instruments in Note 11 of the Notes to Consolidated Financial Statements. PENSION AND PBOP PLANS Sempra, SDG&E, SoCalGas To measure our pension and PBOP obligations, costs and liabilities, we rely on several assumptions. We consider current market conditions, including interest rates, in making these assumptions. We review these assumptions annually and update when appropriate.  The critical assumptions used to develop the required estimates include the following key factors:  ▪discount rates ▪expected return on plan assets ▪health care cost trend rates ▪interest crediting rate on cash balance accounts ▪mortality rate 2023 Form 10-K | 96 Table of Contents ▪rate of compensation increases ▪termination and retirement rates ▪utilization of postretirement welfare benefits ▪payout elections (lump sum or annuity) ▪lump sum interest rates The actuarial assumptions we use may differ materially from actual results due to:  ▪return on plan assets ▪changing market and economic conditions ▪higher or lower withdrawal rates ▪longer or shorter participant life spans ▪more or fewer lump sum versus annuity payout elections made by plan participants ▪higher or lower retirement rates Changes in the estimated costs or timing of pension and PBOP, or the assumptions and judgments used by management underlying these estimates (primarily the discount rate and assumed rate of return on plan assets), as well as changes in the circumstances associated with rate recovery, could have a material effect on the recorded expenses and liabilities. The following tables summarize the impact to our projected benefit obligation for pension and accumulated benefit obligation for PBOP at December 31, 2023, and 2023 net periodic benefit costs, in each case if the discount rate or assumed rate of return on plan assets were changed by 100 bps. [[GREPCENT_TABLE]] [["IMPACT DUE TO INCREASE/DECREASE IN DISCOUNT RATE"],["(Dollars in millions)"],["","Sempra","","SDG&E","","SoCalGas"],["","Increase","Decrease","","Increase","Decrease","","Increase","Decrease"],["Pension:"],["(Decrease) increase to projected benefit obligation,net","$","(235)","","$","298","","","$","(31)","","$","39","","","$","(191)","","$","244"],["(Decrease) increase to net periodic benefit cost","(7)","","3","","","3","","\u2014","","","(11)","","3"],["PBOP:"],["(Decrease) increase to accumulated benefitobligation, net","(74)","","92","","","(14)","","18","","","(58)","","72"],["(Decrease) increase to net periodic benefit cost","(5)","","6","","","(1)","","1","","","(4)","","5"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["IMPACT DUE TO INCREASE/DECREASE IN RETURN ON PLAN ASSETS"],["(Dollars in millions)"],["","Sempra","","SDG&E","","SoCalGas"],["","Increase","Decrease","","Increase","Decrease","","Increase","Decrease"],["Pension:"],["(Decrease) increase to net periodic benefit cost","$","(26)","","$","26","","","$","(6)","","$","6","","","$","(18)","","$","18"],["PBOP:"],["(Decrease) increase to net periodic benefit cost","(12)","","12","","","(1)","","1","","","(11)","","11"]] [[/GREPCENT_TABLE]] For SDG&E and SoCalGas plans, the effects of the assumptions on earnings are expected to be recovered in rates and therefore are offset in regulatory accounts. We provide details of our pension and PBOP plans in Note 9 of the Notes to Consolidated Financial Statements. SONGS ASSET RETIREMENT OBLIGATIONS Sempra, SDG&E SDG&E’s legal AROs related to the decommissioning of SONGS are estimated based on a site-specific study performed no less than every three years. The estimate of the obligations includes: ▪ estimated decommissioning costs, including labor, equipment, material and other disposal costs ▪ inflation adjustment applied to estimated cash flows ▪ discount rate based on a credit-adjusted risk-free rate 2023 Form 10-K | 97 Table of Contents ▪ actual decommissioning costs, progress to date and expected duration of decommissioning activities SDG&E’s nuclear decommissioning expenses are subject to rate recovery and, therefore, rate-making accounting treatment is applied to SDG&E’s nuclear decommissioning activities. SDG&E recognizes a regulatory asset, or liability, to the extent that its SONGS ARO exceeds, or is less than, the amount collected from customers and the amount earned in SDG&E’s NDT. SDG&E’s ARO related to the decommissioning of SONGS was $504 million as of December 31, 2023, based on the decommissioning cost study prepared in 2020. Changes in the estimated costs, execution strategy or timing of decommissioning, or in the assumptions and judgments by management underlying these estimates, could cause material revisions to the estimated total cost to decommission this facility, which could have a material effect on the recorded liability. The following table illustrates the increase to SDG&E’s and Sempra’s ARO liability if the cost escalation rate was adjusted while leaving all other assumptions constant: [[GREPCENT_TABLE]] [["INCREASE TO ARO AND REGULATORY ASSET"],["(Dollars in millions)"],["","December 31, 2023"],["Uniform increase in escalation percentage of 1 percentage point","$","65"]] [[/GREPCENT_TABLE]] The increase in the ARO liability driven by an increase in the cost escalation rate would result in a decrease in the regulatory liability for recoveries in excess of ARO liabilities. We provide additional detail in Note 15 of the Notes to Consolidated Financial Statements. IMPAIRMENT TESTING OF LONG-LIVED ASSETS Sempra Whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable, we consider if the estimated future undiscounted cash flows are less than the carrying amount of the asset. If so, we estimate the fair value of the asset to determine the extent to which carrying value exceeds fair value. For such an estimate, we may consider data from multiple valuation methods, including data from market participants. We exercise judgment to estimate the future cash flows and the useful life of a long-lived asset and to determine our intent to use the asset. Our intent to use or dispose of a long-lived asset is subject to re-evaluation and can change over time. If such an impairment test is required, the fair value of a long-lived asset can vary if differing estimates and assumptions are used in the valuation techniques applied as indicated by changing market or other conditions. Critical assumptions that affect our estimates of fair value may include: ▪consideration of market transactions ▪future cash flows ▪the appropriate risk-adjusted discount rate, including the impacts of country risk and entity risk We discuss impairment of long-lived assets in Note 1 of the Notes to Consolidated Financial Statements. IMPAIRMENT TESTING OF GOODWILL Sempra When determining if goodwill is impaired, the fair value of the reporting unit can vary if differing estimates and assumptions are used in the valuation techniques applied as indicated by changing market or other conditions. As a result, recognizing a goodwill impairment may or may not be required. When we perform a quantitative goodwill impairment test, we exercise judgment to develop estimates of the fair value of the reporting unit and compare that to its carrying value. Our fair value estimates are developed from the perspective of a knowledgeable market participant. We consider observable transactions in the marketplace for similar investments, if available, as well as an income-based approach such as a discounted cash flow analysis. A discounted cash flow analysis may be based directly on anticipated future revenues and expenses and may be performed based on free cash flows generated within the reporting unit. Critical assumptions that affect our estimates of fair value may include: ▪consideration of market transactions ▪future cash flows ▪projected revenue and expense growth rates ▪the appropriate risk-adjusted discount rate, including the impacts of country risk and entity risk 2023 Form 10-K | 98 Table of Contents In 2022, we performed a quantitative goodwill impairment test and determined that the estimated fair values of our reporting units in Mexico to which goodwill was allocated were substantially above their respective carrying values as of October 1, our goodwill impairment testing date. Upon performing a qualitative analysis as of October 1, 2023, we determined that it was not more likely than not that the fair value of such reporting units was less than their respective carrying values. Our goodwill impairment test is determined based on assumptions existing as of that point in time. Changes in the business (such as loss of future cash flows from customer disputes, renegotiation of customer contracts or the macroeconomic environment, including rising interest rates) may result in us having to perform an interim goodwill impairment test, which could result in an impairment of our goodwill. NEW ACCOUNTING STANDARDS We discuss the recent accounting pronouncements that have had or may have a significant effect on our financial statements and/or disclosures in Note 2 of the Notes to Consolidated Financial Statements.