SOUTHERN CALIFORNIA GAS CO

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

(Dollars and shares in millions, except per share amounts)

(1) Includes intercompany eliminations recorded in consolidation and certain corporate costs.

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

▪$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

▪$52 million higher net interest expense

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

▪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

◦lower customer consumption primarily attributable to weather

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

▪higher depreciation expense and interest expense attributable to invested capital

▪higher O&M

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

▪$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

▪$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

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

▪$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

▪$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

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.

(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

▪$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.

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.

(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

▪$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

▪$259 million lower sales to the California ISO due to lower market prices

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

▪$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

▪$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

(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

◦$71 million lower LNG sales

◦$33 million primarily from lower LNG diversion fees

▪$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.

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

◦$83 million higher diversion fees due to higher natural gas prices

◦$71 million higher LNG sales

▪$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

(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

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

◦$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

◦$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

▪$47 million higher non-service components of net periodic benefit cost, including $46 million at Sempra California

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

▪$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

◦$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.

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

◦$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

▪$78 million at Sempra California primarily from higher debt balances from debt issuances

(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

▪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

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

▪$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

◦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

•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

▪$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

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

◦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

▪$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

▪$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.

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:

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.