SEMPRA

We discuss herein SDG&E’s results of operations and significant changes in earnings, revenues and costs for the three months (Q2) and six months (YTD) ended June 30, 2024 compared to the same periods in 2023.

SDG&E recorded CPUC-authorized base revenues in the three months and six months ended June 30, 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 June 30, 2024 compared to the same period in 2023, the increase in earnings of $2 million (1%) to $186 million was primarily due to:

▪$8 million higher electric transmission margin

▪$5 million higher CPUC base operating margin, net of operating expenses, including higher authorized cost of capital. SDG&E recorded CPUC-authorized revenues based on 2023 authorized levels

▪$7 million higher net interest expense

▪$5 million lower income tax benefits primarily from flow-through items

In the six months ended June 30, 2024 compared to the same period in 2023, the decrease in earnings of $33 million (7%) to $409 million was primarily due to:

▪$16 million lower CPUC base operating margin, net of operating expenses, offset by higher authorized cost of capital. SDG&E recorded CPUC-authorized revenues based on 2023 authorized levels

▪$15 million higher net interest expense

▪$8 million lower income tax benefits primarily from flow-through items

▪$7 million lower AFUDC equity

▪$12 million higher electric transmission margin

Electric Revenues and Cost of Electric Fuel and Purchased Power

In the three months ended June 30, 2024 compared to the same period in 2023, SDG&E’s electric revenues increased by $91 million (9%) to $1.1 billion primarily due to:

▪$68 million higher cost of electric fuel and purchased power, which we discuss below

▪$43 million higher revenues from incremental and balanced capital projects, including higher authorized cost of capital

▪$30 million lower ITCs from standalone energy storage projects, which are offset in income tax expense

▪$18 million higher revenues from transmission operations

▪$35 million lower revenues associated with refundable programs, which are fully offset in O&M

▪$5 million lower CPUC-authorized revenues offset by higher authorized cost of capital

In the three months ended June 30, 2024 compared to the same period in 2023, SDG&E’s cost of electric fuel and purchased power increased by $68 million to $175 million primarily due to:

▪$120 million lower sales to the California ISO due to lower market prices

▪$37 million higher purchased power primarily due to change in excess capacity sales

▪$85 million lower purchased power from the California ISO due to lower market prices

In the six months ended June 30, 2024 compared to the same period in 2023, SDG&E’s electric revenues increased by $120 million (6%) to $2.2 billion primarily due to:

▪$88 million lower ITCs from standalone energy storage projects, which are offset in income tax expense

▪$66 million higher revenues from incremental and balanced capital projects, including higher authorized cost of capital

▪$40 million higher cost of electric fuel and purchased power, which we discuss below

▪$30 million higher revenues from transmission operations

▪$5 million higher CPUC-authorized revenues attributable to higher authorized cost of capital

▪$65 million lower revenues associated with refundable programs, which are fully offset in O&M

▪$12 million lower revenues from a $6 million credit in 2024 compared to $6 million cost in 2023 for the non-service components of net periodic benefit cost, which fully offsets in other income, net

▪$8 million lower franchise fee revenues

In the six months ended June 30, 2024 compared to the same period in 2023, SDG&E’s cost of electric fuel and purchased power increased by $40 million (17%) to $282 million primarily due to:

▪$214 million lower sales to the California ISO due to lower market prices

▪$77 million realized gains in 2023 on derivative contracts for fixed-price natural gas, which are entered into to hedge the cost of electric fuel

▪$185 million lower purchased power from the California ISO due to lower market prices

▪$65 million lower utility-owned generation costs

Natural Gas Revenues and Cost of Natural Gas

In the three months ended June 30, 2024 and 2023, SDG&E’s average cost of natural gas per thousand cubic feet was $3.53 and $3.69, respectively. In the six months ended June 30, 2024 and 2023, SDG&E’s average cost of natural gas per thousand cubic feet was $5.08 and $13.38, respectively. The average cost of natural gas sold at SDG&E is impacted by market prices, as well as transportation, tariff and other charges.

In the three months ended June 30, 2024 compared to the same period in 2023, SDG&E’s natural gas revenues increased by $2 million (1%) to $206 million primarily due to:

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

▪$9 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

In the six months ended June 30, 2024 compared to the same period in 2023, SDG&E’s natural gas revenues decreased by $301 million (36%) to $525 million primarily due to:

▪$278 million decrease in cost of natural gas sold, which we discuss below

▪$25 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

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

In the six months ended June 30, 2024 compared to the same period in 2023, SDG&E’s cost of natural gas decreased by $278 million to $139 million primarily due to:

▪$227 million lower average natural gas prices

▪$51 million lower volumes driven by weather

In the three months ended June 30, 2024 compared to the same period in 2023, SDG&E’s O&M decreased by $51 million (11%) to $423 million due to:

▪$33 million lower expenses associated with refundable programs, which costs are recovered in revenue

▪$18 million lower non-refundable operating costs

In the six months ended June 30, 2024 compared to the same period in 2023, SDG&E’s O&M decreased by $67 million (7%) to $834 million due to lower expenses associated with refundable programs, which costs are recovered in revenue.

Other Income, Net

In the six months ended June 30, 2024 compared to the same period in 2023, SDG&E’s other income, net, increased by $6 million (12%) to $56 million primarily due to:

▪$16 million increase from a $7 million credit in 2024 compared to $9 million cost in 2023 for the non-service components of net periodic benefit cost

▪$7 million lower AFUDC equity

In the three months and six months ended June 30, 2024 compared to the same periods in 2023, SDG&E’s interest expense increased by $8 million (7%) to $131 million and $18 million (7%) to $259 million, respectively, 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. SDG&E 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.

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

In the three months and six months ended June 30, 2024 compared to the same periods in 2023, SDG&E’s income tax expense increased by $30 million and $63 million, respectively, primarily due to:

▪higher pretax income