SEMPRA

We discuss herein SoCalGas’ results of operations and significant changes in (losses) earnings, revenues and costs for the three months (Q3) and nine months (YTD) ended September 30, 2024 compared to the same period in 2023.

SoCalGas recorded CPUC-authorized base revenues in the three months and nine months ended September 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 September 30, 2024 compared to the same period in 2023, SoCalGas’ losses were $14 million compared to earnings of $16 million primarily due to:

▪$14 million lower income tax benefits primarily from flow-through items

▪$13 million lower CPUC base operating margin, net of operating expenses, offset by higher authorized cost of capital. SoCalGas recorded CPUC-authorized revenues based on 2023 authorized levels

▪$9 million higher net interest expense

▪$3 million higher net regulatory interest income

In the nine months ended September 30, 2024 compared to the same period in 2023, the decrease in earnings of $56 million (11%) to $475 million were primarily due to:

▪$57 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

▪$21 million regulatory awards approved by the CPUC in 2023

▪$20 million higher net interest expense

▪$17 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

▪$16 million higher AFUDC equity

▪$9 million higher net regulatory interest income

Natural Gas Revenues and Cost of Natural Gas

In the three months ended September 30, 2024 and 2023, SoCalGas’ average cost of natural gas per thousand cubic feet was $1.82 and $4.84, respectively. In the nine months ended September 30, 2024 and 2023, SoCalGas’ average cost of natural gas per thousand cubic feet was $3.14 and $12.10, 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 September 30, 2024 compared to the same period in 2023, SoCalGas’ natural gas revenues decreased by $259 million (20%) to $1.1 billion primarily due to:

▪$142 million decrease in cost of natural gas sold, which we discuss below

▪$88 million lower revenues associated with refundable programs, which are fully offset in O&M

▪$51 million lower regulatory revenues in 2024 from adopting a change in tax accounting method for gas repairs expenditures, which are offset in income tax benefit (expense)

▪$17 million higher revenues from incremental and balanced capital projects, including higher authorized cost of capital

▪$14 million higher CPUC-authorized revenues, including higher authorized cost of capital

In the three months ended September 30, 2024 compared to the same period in 2023, SoCalGas’ cost of natural gas decreased by $142 million to $82 million primarily due to lower average natural gas prices.

In the nine months ended September 30, 2024 compared to the same period in 2023, SoCalGas’ natural gas revenues decreased by $2.4 billion (37%) to $4.2 billion primarily due to:

▪$2.2 billion decrease in cost of natural gas sold, which we discuss below

▪$135 million lower regulatory revenues in 2024 from adopting a change in tax accounting method for gas repairs expenditures, which are offset in income tax benefit (expense)

▪$96 million lower revenues associated with refundable programs, which are fully offset in O&M

▪$48 million lower revenues from lower non-service components of net periodic benefit cost, which fully offsets in other income (expense), net

▪$29 million regulatory awards approved by the CPUC in 2023

▪$26 million lower franchise fee revenues

▪$55 million higher CPUC-authorized revenues, including higher authorized cost of capital

▪$54 million higher revenues from incremental and balanced capital projects, including 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 benefit (expense)

In the nine months ended September 30, 2024 compared to the same period in 2023, SoCalGas’ cost of natural gas decreased by $2.2 billion to $661 million primarily due to:

▪$1.9 billion lower average natural gas prices

▪$307 million lower volumes driven by weather

In the three months ended September 30, 2024 compared to the same period in 2023, SoCalGas’ O&M decreased by $55 million (8%) to $678 million due to:

▪$88 million lower expenses associated with refundable programs, which costs are recovered in revenue

▪$33 million higher non-refundable operating costs

In the nine months ended September 30, 2024 compared to the same period in 2023, SoCalGas’ O&M decreased by $75 million (4%) remaining at $2.0 billion due to:

▪$96 million lower expenses associated with refundable programs, which costs are recovered in revenue

▪$21 million higher non-refundable operating costs

Other Income (Expense), Net

In the three months ended September 30, 2024 compared to the same period in 2023, SoCalGas’ other income, net, was $13 million compared to other expense, net, of $2 million primarily due to:

▪$6 million lower non-service components of net periodic benefit cost

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

In the nine months ended September 30, 2024 compared to the same period in 2023, SoCalGas’ other income, net, was $73 million compared to other expense, net, of $9 million primarily due to:

▪$48 million lower non-service components of net periodic benefit cost

▪$16 million higher AFUDC equity

▪$13 million higher net interest income on regulatory balancing accounts

In the three months and nine months ended September 30, 2024 compared to the same periods in 2023, SoCalGas’ interest expense increased by $12 million (17%) to $82 million and $27 million (13%) to $237 million, respectively, 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 elected 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 September 30, 2024 compared to the same period in 2023, SoCalGas’ income tax benefit increased by $47 million primarily due to $40 million higher income tax benefit from the resolution of prior year income tax items.

In the nine months ended September 30, 2024 compared to the same period in 2023, SoCalGas’ income tax expense decreased by $67 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

▪$40 million higher income tax benefit from the resolution of prior year income tax items

▪lower pretax income

▪$43 million income tax benefit in 2023 from the recognition of previously unrecognized income tax benefits pertaining to gas repairs expenditures