SEMPRA

We discuss herein SoCalGas’ 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 period in 2023.

SoCalGas 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 decrease in earnings of $25 million (16%) to $130 million were primarily due to:

▪$32 million lower 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

▪$4 million higher net interest expense

▪$21 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

▪$4 million higher net regulatory interest income

In the six months ended June 30, 2024 compared to the same period in 2023, the decrease in earnings of $26 million (5%) to $489 million were primarily due to:

▪$43 million lower 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

▪$11 million higher net interest expense

▪$30 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

▪$12 million higher AFUDC equity

▪$6 million higher net regulatory interest income

Natural Gas Revenues and Cost of Natural Gas

In the three months ended June 30, 2024 and 2023, SoCalGas’ average cost of natural gas per thousand cubic feet was $1.84 and $4.31, respectively. In the six months ended June 30, 2024 and 2023, SoCalGas’ average cost of natural gas per thousand cubic feet was $3.50 and $13.88, 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 June 30, 2024 compared to the same period in 2023, SoCalGas’ natural gas revenues decreased by $158 million (11%) to $1.3 billion primarily due to:

▪$170 million decrease in cost of natural gas sold, which we discuss below

▪$24 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) benefit

▪$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) benefit

▪$25 million higher revenues from incremental and balanced capital projects, including higher authorized cost of capital

▪$14 million higher CPUC-authorized revenues attributable to higher authorized cost of capital

▪$5 million higher revenues associated with refundable programs, which are fully offset in O&M

In the three months ended June 30, 2024 compared to the same period in 2023, SoCalGas’ cost of natural gas decreased by $170 million to $114 million primarily due to:

▪$154 million lower average natural gas prices

▪$16 million lower volumes driven by weather

In the six months ended June 30, 2024 compared to the same period in 2023, SoCalGas’ natural gas revenues decreased by $2.1 billion (41%) to $3.1 billion primarily due to:

▪$2.1 billion decrease in cost of natural gas sold, which we discuss below

▪$84 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) benefit

▪$44 million lower revenues from a $6 million credit in 2024 compared to $38 million cost in 2023 for the non-service components of net periodic benefit cost, which fully offsets in other income (expense), net

▪$26 million lower franchise fee revenues

▪$8 million lower revenues associated with refundable programs, which are fully offset in O&M

▪$37 million higher revenues from incremental and balanced capital projects, including higher authorized cost of capital

▪$33 million higher CPUC-authorized revenues attributable to higher authorized cost of capital

▪$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) benefit

In the six months ended June 30, 2024 compared to the same period in 2023, SoCalGas’ cost of natural gas decreased by $2.1 billion to $579 million primarily due to:

▪$1.7 billion lower average natural gas prices

▪$334 million lower volumes driven by weather

In the three months ended June 30, 2024 compared to the same period in 2023, SoCalGas’ O&M decreased by $8 million (1%) to $707 million due to:

▪$13 million lower non-refundable operating costs

▪$5 million higher expenses associated with refundable programs, which costs are recovered in revenue

In the six months ended June 30, 2024 compared to the same period in 2023, SoCalGas’ O&M decreased by $20 million (1%) to $1.3 billion due to:

▪$12 million lower non-refundable operating costs

▪$8 million lower expenses associated with refundable programs, which costs are recovered in revenue

Other Income (Expense), Net

In the three months ended June 30, 2024 compared to the same period in 2023, SoCalGas’ other income, net increased by $12 million to $13 million primarily due to:

▪$5 million higher net interest income on regulatory balancing accounts

In the six months ended June 30, 2024 compared to the same period in 2023, SoCalGas’ other income, net, was $60 million compared to other expense, net, of $7 million primarily due to:

▪$42 million increase from a $4 million credit in 2024 compared to $38 million cost in 2023 for the non-service components of net periodic benefit cost

▪$12 million higher AFUDC equity

▪$8 million higher net interest income on regulatory balancing accounts

In the three months and six months ended June 30, 2024 compared to the same periods in 2023, SoCalGas’ interest expense increased by $7 million (10%) to $78 million and $15 million (11%) to $155 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. 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 June 30, 2024 compared to the same period in 2023, SoCalGas had income tax expense in 2024 compared to an income tax benefit in 2023 primarily due to:

In the six months ended June 30, 2024 compared to the same period in 2023, SoCalGas’ income tax expense decreased by $20 million (27%) primarily due to: