SOUTHERN CALIFORNIA GAS CO

We discuss herein SoCalGas’ results of operations and significant changes in earnings, revenues and costs for the three months ended March 31, 2024 compared to the same period in 2023.

SoCalGas recorded CPUC-authorized revenues in the three months ended March 31, 2024 based on 2023 levels authorized under the 2019 GRC because a final decision in the 2024 GRC remains pending.

RESULTS OF OPERATIONS

(Dollars in millions)

In the three months ended March 31, 2024 compared to the same period in 2023, the decrease in earnings of $1 million to $359 million were primarily due to:

▪$11 million lower income tax benefits primarily from flow-through items

▪$7 million higher net interest expense

▪$9 million higher CPUC base operating margin, net of higher operating expenses in 2023, including higher authorized cost of capital. SoCalGas recorded CPUC-authorized revenues based on 2023 authorized levels

▪$7 million higher AFUDC equity

Natural Gas Revenues and Cost of Natural Gas

In the three months ended March 31, 2024 and 2023, SoCalGas’ average cost of natural gas per thousand cubic feet was $4.50 and $19.00, respectively. The average cost of natural gas sold at SoCalGas is impacted by market prices, as well as transportation and other charges.

In the three months ended March 31, 2024 compared to the same period in 2023, SoCalGas’ natural gas revenues decreased by $2.0 billion to $1.8 billion primarily due to:

▪$1.9 billion decrease in cost of natural gas sold, which we discuss below

▪$60 million lower regulatory revenues in 2024 from adopting a change in tax accounting method for gas repairs expenditures, which are offset in income tax expense

▪$40 million lower revenues from a $22 million credit in 2024 compared to $18 million cost in 2023 for the non-service components of net periodic benefit cost, which fully offsets in other income (expense), net

▪$25 million lower franchise fee revenues

▪$13 million lower revenues associated with refundable programs, which are fully offset in O&M

▪$19 million higher CPUC-authorized revenues attributable to higher authorized cost of capital

▪$12 million higher revenues from incremental and balanced capital projects, including higher authorized cost of capital

In the three months ended March 31, 2024 compared to the same period in 2023, SoCalGas’ cost of natural gas decreased by $1.9 billion to $465 million primarily due to:

▪$1.5 billion lower average natural gas prices

▪$386 million lower volumes driven by weather

In the three months ended March 31, 2024 compared to the same period in 2023, SoCalGas’ O&M decreased by $12 million (2%) to $613 million primarily due to lower expenses associated with refundable programs, which costs are recovered in revenue.

Other Income (Expense), Net

In the three months ended March 31, 2024 compared to the same period in 2023, SoCalGas’ other income, net, was $47 million compared to other expense, net, of $8 million primarily due to:

▪$40 million increase from a $21 million credit in 2024 compared to $19 million cost in 2023 for the non-service components of net periodic benefit cost

▪$7 million higher AFUDC equity

In the three months ended March 31, 2024 compared to the same period in 2023, SoCalGas’ interest expense increased by $8 million (12%) to $77 million primarily from higher debt balances from debt issuances.

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 applied this methodology in the calculation of its 2024 forecasted ETR.

SoCalGas records regulatory liabilities for benefits that will be flowed through to customers in the future.

In the three months ended March 31, 2024 compared to the same period in 2023, SoCalGas’ income tax expense decreased by $51 million primarily due to higher income tax benefits from flow-through items, including an income tax benefit in 2024 from adopting a change in tax accounting method for gas repairs expenditures, and lower pretax income.