SOUTHERN CALIFORNIA GAS CO

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

(Dollars in millions)

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

▪$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

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

▪$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

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

▪$38 million higher non-service components of net periodic benefit cost

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.

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)

▪$60 million income tax benefit in 2022 associated with charges relating to litigation and regulatory matters pertaining to the Leak