SEMPRA

We discuss herein Sempra’s results of operations and significant changes in earnings, revenues and costs by segment, as well as Parent and other, for the year ended December 31, 2024 compared to the year ended December 31, 2023. For a discussion of our 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, refer to “Part II – Item 7. MD&A – Results of Operations” in our 2023 annual report on Form 10-K filed with the SEC on February 27, 2024. We also discuss herein the impact of foreign currency and inflation rates on Sempra’s results of operations.

RESULTS OF OPERATIONS

(Dollars and shares in millions, except per share amounts)

Sempra California’s earnings are comprised of SDG&E and SoCalGas. Because changes in SDG&E’s and SoCalGas’ cost of natural gas and/or electricity are recovered in rates, changes in these costs are offset in the changes in revenues and therefore do not impact earnings, other than potential impacts related to the GCIM for SoCalGas that we describe below. In addition to the changes in cost or market prices, natural gas or electric revenues recorded during a period are impacted by the difference between customer billings and recorded or CPUC-authorized amounts. These differences are required to be balanced over time, resulting in over- and undercollected regulatory balancing accounts. We discuss balancing accounts and their effects further in Note 4 of the Notes to Consolidated Financial Statements.

In 2024 compared to 2023, the increase in earnings of $99 million (6%) to $1.8 billion was primarily due to:

▪$217 million higher income tax benefits primarily from flow-through items, including higher gas repairs tax benefits, offset by $25 million related to income tax benefits in 2023 from previously unrecognized income tax benefits pertaining to gas repairs expenditures

▪$12 million higher electric transmission margin

▪$12 million higher AFUDC equity

▪$11 million higher net regulatory interest income

▪$9 million higher CPUC base operating margin authorized for 2024, net of operating expenses, including higher authorized cost of capital

▪$89 million charge in 2024 for amounts relating to the FERC order finding that the TO5 adder refund provision has been triggered, requiring SDG&E to refund customers the California ISO adder retroactively from June 1, 2019, which we discuss in Note 4 of the Notes to Consolidated Financial Statements

▪$60 million higher net interest expense

▪$15 million impairment from disallowed capital costs in the 2024 GRC FD

In 2024 compared to 2023, the increase in earnings of $87 million (13%) to $781 million was primarily due to higher equity earnings from Oncor Holdings driven by:

▪overall higher revenues primarily attributable to:

◦rate updates to reflect increases in invested capital

◦updates to transmission billing units

◦customer growth

◦base rates implemented in May 2023

◦lower customer consumption primarily attributable to weather

▪write-off of rate base disallowances in 2023 resulting from the PUCT’s final order in Oncor’s comprehensive base rate review

▪higher interest expense and depreciation expense attributable to increases in invested capital

▪higher O&M

In 2024 compared to 2023, the increase in earnings of $34 million (4%) to $911 million was primarily due to:

▪$499 million favorable impact from foreign currency and inflation effects on our monetary positions in Mexico, comprised of a $263 million favorable impact in 2024 compared to a $236 million unfavorable impact in 2023

▪$61 million favorable impact from $19 million net interest income in 2024 compared to $42 million net interest expense in 2023 primarily due to higher capitalization of interest expense in 2024 from projects under construction

▪$47 million favorable impact in interest expense from $30 million unrealized gains in 2024 compared to $17 million unrealized losses in 2023 on interest rate swaps related to the PA LNG Phase 1 project

▪$21 million favorable impact from $20 million income tax benefit in 2024 compared to $1 million income tax expense in 2023 primarily from outside basis differences and remeasurement of deferred taxes

▪$463 million from asset and supply optimization driven by unrealized losses in 2024 compared to unrealized gains in 2023 on commodity derivatives due to changes in natural gas prices and lower LNG diversion fees

▪$79 million from the transportation business driven by lower equity earnings and revenues, including the cumulative impact of new tariffs going into effect in June 2023 for certain pipelines in Mexico and a customer’s early termination of firm transportation agreements in 2023

▪$15 million from the renewables business driven by lower volumes from wind power generation assets

▪$14 million from lower revenues in 2024 offset by higher O&M in 2023 from a provision for expected credit losses on a customer’s past due receivable balance

Parent and Other

In 2024 compared to 2023, the increase in losses of $433 million to $721 million was primarily due to:

▪$330 million income tax expense in 2024 from changes to a valuation allowance against foreign tax credits that were carried forward from the implementation of the Tax Cuts and Jobs Act of 2017

▪$32 million from higher net interest expense

▪$24 million decrease in equity earnings related to our investment in RBS Sempra Commodities LLP due to $16 million in 2024 from the substantial dissolution of the partnership and $40 million in 2023 related to a legal settlement, which we discuss in Notes 5 and 15 of the Notes to Consolidated Financial Statements

▪$23 million income tax benefit in 2023 from the remeasurement of certain deferred income taxes

▪$5 million related to settlement charges from our non-qualified pension plan in 2024

The regulatory framework permits SDG&E and SoCalGas to recover certain program expenditures and other costs authorized by the CPUC (referred to as “refundable programs”).

Utilities: Natural Gas Revenues and Cost of Natural Gas

Our utilities revenues include natural gas revenues at Sempra California and Sempra Infrastructure, which includes Ecogas. Intercompany revenues are eliminated in Sempra’s Consolidated Statements of Operations.

SDG&E and SoCalGas operate under a regulatory framework that permits the cost of natural gas purchased for core customers to be passed through to customers in rates substantially as incurred and without markup. The GCIM provides for SoCalGas to share in the savings and/or costs from buying natural gas for its core customers at prices below or above monthly market-based benchmarks. This mechanism permits full recovery of costs incurred when average purchase costs are within a price range around the benchmark price. Any higher costs incurred or savings realized outside this range are shared between SoCalGas and its core customers. We provide further discussion in Note 3 of the Notes to Consolidated Financial Statements.

(1)Excludes depreciation and amortization, which are presented separately on Sempra’s Consolidated Statements of Operations.

In 2024 compared to 2023, Sempra’s natural gas revenues decreased by $2.4 billion (25%) to $7.1 billion driven by Sempra California, which included:

▪$2.6 billion decrease in cost of natural gas sold, which we discuss below

▪$268 million lower revenues from incremental and balanced capital projects that are now in CPUC-authorized revenues as a result of the 2024 GRC FD, offset by higher authorized cost of capital

▪$79 million lower revenues associated with refundable programs, which are fully offset in O&M

▪$31 million lower franchise fee revenues

▪$7 million lower regulatory awards approved by the CPUC

▪$372 million higher CPUC-authorized revenues in 2024, including certain incremental and balanced capital projects that are now in CPUC-authorized revenues as a result of the 2024 GRC FD and higher authorized cost of capital

▪$310 million higher regulatory revenues primarily from the release of a tax regulatory liability for gas repairs expenditures as a result of the 2024 GRC FD

▪$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

In 2024 compared to 2023, Sempra’s cost of natural gas decreased by $2.6 billion to $1.1 billion driven by Sempra California, which included:

▪$2.4 billion lower average natural gas prices

▪$239 million lower volumes driven by weather

Utilities: Electric Revenues and Cost of Electric Fuel and Purchased Power

Our utilities revenues include electric revenues at Sempra California, substantially all of which is at SDG&E. Intercompany revenues are eliminated in Sempra’s Consolidated Statements of Operations.

SDG&E operates under a regulatory framework that permits it to recover the actual cost incurred to generate or procure electricity based on annual estimates of the cost of electricity supplied to customers. The differences in cost between estimates and actual are recovered or refunded in subsequent periods through rates.

Utility cost of electric fuel and purchased power includes utility-owned generation, power purchased from third parties, and net power purchases and sales to/from the California ISO.

(1)Excludes depreciation and amortization, which are presented separately on Sempra’s Consolidated Statements of Operations.

In 2024 compared to 2023, Sempra’s electric revenues decreased by $38 million (1%) remaining at $4.3 billion driven by Sempra California, which included:

▪$176 million lower revenues associated with refundable programs, which are fully offset in O&M

▪$137 million lower cost of electric fuel and purchased power, which we discuss below

▪$94 million charge in 2024 for amounts relating to the FERC order finding that the TO5 adder refund provision has been triggered, requiring SDG&E to refund customers the California ISO adder retroactively from June 1, 2019

▪$18 million lower revenues from a $5 million credit in 2024 compared to a $13 million cost in 2023 for the non-service components of net periodic benefit cost, which fully offsets in other income, net

▪$9 million lower franchise fee revenues

▪$178 million lower ITCs from standalone energy storage projects, which are offset in income tax expense

▪$110 million higher CPUC-authorized revenues in 2024, including certain incremental and balanced capital projects that are now in CPUC-authorized revenues as a result of the 2024 GRC FD and higher authorized cost of capital

▪$82 million higher revenues from incremental and balanced capital projects, including higher authorized cost of capital, offset by certain projects that are now in CPUC-authorized revenues as a result of the 2024 GRC FD

▪$42 million higher revenues from transmission operations

In 2024 compared to 2023, Sempra’s cost of electric fuel and purchased power decreased by $130 million (35%) to $245 million driven by Sempra California, which included:

▪$276 million lower purchased power primarily due to change in excess capacity sales

▪$242 million lower purchased power from the California ISO due to lower market prices

▪$105 million lower utility-owned generation costs

▪$331 million lower sales to the California ISO due to lower market prices

▪$129 million from realized losses in 2024 compared to realized gains in 2023 on derivative contracts for fixed-price natural gas, which are entered into to hedge the cost of electric fuel

Energy-Related Businesses: Revenues and Cost of Sales

(1)Includes eliminations of intercompany activity.

(2) Excludes depreciation and amortization, which are presented separately on Sempra’s Consolidated Statements of Operations.

In 2024 compared to 2023, Sempra’s revenues from energy-related businesses decreased by $1.1 billion (40%) to $1.7 billion primarily due to:

▪$1.0 billion from asset and supply optimization from contracts to sell natural gas and LNG to third parties, including:

◦$896 million primarily driven by $51 million unrealized losses in 2024 compared to $710 million unrealized gains in 2023 on commodity derivatives and $177 million primarily from lower natural gas prices offset by higher volumes

◦$115 million primarily from lower diversion fees due to lower natural gas prices

▪$55 million lower pipeline transportation revenues primarily from a customer’s early termination of firm transportation agreements in the first quarter of 2023 and lower rates

▪$45 million lower transportation revenues

▪$45 million from TdM mainly due to $78 million from lower power prices offset by $26 million from higher volumes

▪$25 million from lower volumes from wind power generation assets

In 2024 compared to 2023, Sempra’s cost of sales from energy-related businesses decreased by $168 million (31%) to $380 million primarily due to:

▪$99 million at TdM driven by $111 million from lower natural gas prices offset by $11 million from higher volumes

▪$69 million driven by lower natural gas purchases related to asset and supply optimization

(1) Includes eliminations of intercompany activity.

In 2024 compared to 2023, Sempra’s O&M decreased by $122 million (2%) to $5.3 billion primarily due to:

▪$193 million decrease at Sempra California due to:

◦$255 million lower expenses associated with refundable programs, which costs are recovered in revenue

◦$45 million higher non-refundable operating costs

◦$20 million impairment from disallowed capital costs in the 2024 GRC FD

▪$65 million increase at Sempra Infrastructure due to:

◦$33 million higher development costs and certain non-capitalized expenses from projects under construction

◦$18 million higher purchased services

◦$6 million from a provision for expected credit losses on a customer’s past due receivable balance

Other Income, Net

In 2024 compared to 2023, Sempra’s other income, net, increased by $5 million (4%) to $136 million primarily due to:

▪$17 million higher AFUDC equity, including $12 million at Sempra California

▪$15 million higher net interest income on regulatory balancing accounts at Sempra California

▪$8 million higher net investment gains on dedicated assets in support of our employee nonqualified benefit plan and deferred compensation plan at Parent and other

▪$5 million lower non-service components of net periodic benefit cost, including $17 million at Sempra California

▪$26 million charge in 2024, comprised of $7 million of AFUDC equity and $19 million of net regulatory interest, relating to the FERC order finding that the TO5 adder refund provision has been triggered, requiring SDG&E to refund customers the California ISO adder retroactively from June 1, 2019

▪$20 million decrease from $14 million losses in 2024 compared to $6 million gains in 2023 from impacts associated with interest rate and foreign exchange instruments and foreign currency transactions primarily at Sempra Infrastructure, including:

◦$18 million lower from $16 million losses in 2024 compared to $2 million gains in 2023 on other foreign currency transactional effects

◦$6 million gains in 2023 on cross-currency swaps as a result of fluctuation of the Mexican peso

We provide further details of the components of other income, net, in Note 1 of the Notes to Consolidated Financial Statements.

In 2024 compared to 2023, Sempra’s interest expense decreased by $260 million (20%) to $1.0 billion primarily due to:

▪$372 million at Sempra Infrastructure from:

◦$288 million favorable impact in interest expense from interest rate swaps related to the PA LNG Phase 1 project comprised of:

•$245 million from $212 million unrealized gains in 2024 compared to $33 million unrealized losses in 2023

•$43 million from a $29 million settlement in 2024 from the termination of interest rate swaps compared to $14 million settlement losses in 2023 on a contingent interest rate swap

◦$56 million lower interest expense due to higher capitalization of interest expense on projects under construction

▪$66 million at Sempra California from higher debt balances from debt issuances

▪$46 million at Parent and other from higher debt balances from debt issuances, offset by capitalization of interest expense in 2024 on projects under construction at Sempra Infrastructure

(1) We discuss how we recognize equity earnings in Note 5 of the Notes to Consolidated Financial Statements.

We report as part of our pretax results the income or loss attributable to NCI. However, we do not record income taxes for a portion of this income or loss, as some of our entities with NCI are currently treated as partnerships for U.S. income tax purposes, and thus we are only liable for income taxes on the portion of the earnings that are allocated to us. Our pretax income, however, includes 100% of these entities. If our entities with NCI grow, and if we continue to invest in such entities, the impact on our ETR may become more significant.

In April 2023, the IRS issued Revenue Procedure 2023-15, which provides a safe harbor method of accounting for gas repairs expenditures. Sempra elected this change in tax accounting method in its consolidated 2023 income tax return filing.

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

In 2024 compared to 2023, Sempra’s income tax expense decreased by $271 million primarily due to:

▪$619 million from $336 million income tax benefit in 2024 compared to $283 million income tax expense in 2023 from foreign currency and inflation effects on our monetary positions in Mexico

▪lower pretax income

▪$30 million income tax benefit in 2024 from an outside basis difference in a domestic partnership investment

▪$26 million higher income tax benefit from the resolution of prior year income tax items

▪higher income tax benefits from flow-through items, including higher gas repairs tax benefits, offset by $43 million income tax benefit in 2023 from the recognition of previously unrecognized income tax benefits pertaining to gas repairs expenditures

▪$330 million income tax expense in 2024 from changes to a valuation allowance against foreign tax credits that were carried forward from the implementation of the Tax Cuts and Jobs Act of 2017

▪lower income tax benefit in 2024 from lower ITCs from standalone energy storage projects under the IRA

We discuss the impact of foreign currency exchange rates and inflation on income taxes below in “Impact of Foreign Currency and Inflation Rates on Results of Operations.” See Notes 1 and 7 of the Notes to Consolidated Financial Statements for further details about our accounting for income taxes and items subject to flow-through treatment.

Equity Earnings

In 2024 compared to 2023, Sempra’s equity earnings increased by $128 million (9%) to $1.6 billion primarily due to:

▪$96 million at IMG due to income tax benefit in 2024 compared to an income tax expense in 2023 primarily from foreign currency and inflation effects

▪$86 million at Oncor Holdings driven by:

◦overall higher revenues primarily attributable to:

•rate updates to reflect increases in invested capital

•updates to transmission billing units

•customer growth

•base rates implemented in May 2023

•lower customer consumption primarily attributable to weather

◦write-off of rate base disallowances in 2023 resulting from the PUCT’s final order in Oncor’s comprehensive base rate review

◦higher interest expense and depreciation expense attributable to increases in invested capital

◦higher O&M

▪$24 million at TAG Norte primarily from the cumulative impact of new tariffs going into effect in June 2023 offset by lower income tax expense primarily from foreign currency and inflation effects

▪$21 million related to our investment in RBS Sempra Commodities LLP due to $19 million in 2024 from the substantial dissolution of the partnership and $40 million in 2023 related to a legal settlement

Earnings Attributable to Noncontrolling Interests

In 2024 compared to 2023, Sempra’s earnings attributable to NCI increased by $95 million (17%) to $638 million primarily due to an increase in SI Partners’ net income.

IMPACT OF FOREIGN CURRENCY AND INFLATION RATES ON RESULTS OF OPERATIONS

Because our natural gas distribution utility in Mexico, Ecogas, uses its local currency as its functional currency, its revenues and expenses are translated into U.S. dollars at average exchange rates for the period for consolidation in Sempra’s results of operations.

Foreign Currency Translation

Any difference in average exchange rates used for the translation of income statement activity from year to year can cause a variance in Sempra’s comparative results of operations. In 2024 compared to 2023, the change in our earnings as a result of foreign currency translation rates was negligible.

Transactional Impacts

Although the financial statements of most of our Mexican subsidiaries and JVs have the U.S. dollar as the functional currency, some transactions may be denominated in the local currency; such transactions are remeasured into U.S. dollars. This remeasurement creates transactional gains and losses that are included in other income, net, for our consolidated entities and in equity earnings for our JVs.

We may utilize cross-currency swaps that exchange our Mexican peso-denominated principal and interest payments into the U.S. dollar and swap Mexican fixed interest rates for U.S. fixed interest rates. The impacts of these cross-currency swaps are offset in OCI and are reclassified from AOCI into earnings through other income, net, and interest expense as settlements occur.

Certain of our Mexican pipelines (namely Los Ramones I and San Fernando at IEnova Pipelines and Los Ramones Norte at TAG Pipelines) generate revenue based on tariffs that are set by government agencies in Mexico, with contracts denominated in Mexican pesos that are indexed to the U.S. dollar, adjusted annually for inflation and fluctuation in the exchange rate. The resultant gains and losses from remeasuring the local currency amounts into U.S. dollars and the offsetting settlement of foreign currency forwards and swaps related to these contracts are included in revenues: energy-related businesses or equity earnings.

Income statement activities at our foreign operations and their JVs are also impacted by transactional gains and losses, a summary of which is shown in the table below:

Foreign Currency Exchange Rate and Inflation Impacts on Income Taxes and Related Hedging Activity

Our Mexican subsidiaries have U.S. dollar-denominated cash balances, receivables, payables and debt (monetary assets and liabilities) that are affected by Mexican currency exchange rate movements for Mexican income tax purposes. They also have significant deferred income tax assets and liabilities denominated in the Mexican peso that must be translated to U.S. dollars for financial reporting purposes. In addition, monetary assets and liabilities and certain nonmonetary assets and liabilities are adjusted for Mexican inflation for Mexican income tax purposes. As a result, fluctuations in both the currency exchange rate for the Mexican peso against the U.S. dollar and Mexican inflation may expose us to fluctuations in income tax expense, other income, net, and equity earnings. We may use foreign currency derivatives as a means to help manage exposure to the currency exchange rate on our monetary assets and liabilities, and this derivative activity impacts other income, net. However, we generally do not hedge our deferred income tax assets and liabilities, which makes us susceptible to volatility in income tax expense caused by exchange rate fluctuations and inflation.