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COMMITMENTS AND CONTINGENCIES
 12 Months Ended
Dec. 31, 2022
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
We accrue losses for a legal proceeding when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. However, the uncertainties inherent in legal proceedings make it difficult to reasonably estimate the costs and effects of resolving these matters. Accordingly, actual costs incurred may differ materially from amounts accrued, may exceed, and in some cases have exceeded, applicable insurance coverage and could materially adversely affect our business, results of operations, financial condition, cash flows and/or prospects. Unless otherwise indicated, we are unable to reasonably estimate possible losses or a range of losses in excess of any amounts accrued.
At December 31, 2022, loss contingency accruals for legal matters, including associated legal fees and regulatory matters related to the Leak, that are probable and estimable were $281 million for Sempra, including $205 million for SoCalGas. Amounts for Sempra and SoCalGas include $130 million for matters related to the Leak, which we discuss below. We discuss our policy regarding accrual of legal fees in Note 1.
Sempra Infrastructure
Energía Costa Azul
We describe below certain land and customer disputes and permit challenges affecting our ECA Regas Facility. Certain of these land disputes involve land on which portions of the ECA LNG liquefaction facilities under construction and in development are expected to be situated or on which portions of the ECA Regas Facility that would be necessary for the operation of such ECA LNG liquefaction facilities are situated. One or more unfavorable final decisions on these disputes or challenges could materially adversely affect our existing natural gas regasification operations and proposed natural gas liquefaction projects at the site of the ECA Regas Facility and have a material adverse effect on Sempra’s business, results of operations, financial condition, cash flows and/or prospects.
Land Disputes – Unresolved. Sempra Infrastructure has been engaged in a long-running land dispute relating to property adjacent to its ECA Regas Facility that allegedly overlaps with land owned by the ECA Regas Facility (the facility, however, is not situated on the land that is the subject of this dispute), as follows:
▪A claimant to the adjacent property filed complaints in the federal Agrarian Court challenging the refusal of SEDATU in 2006 to issue title to him for the disputed property. In November 2013, the federal Agrarian Court ordered that SEDATU issue the requested title to the claimant and cause it to be registered. Both SEDATU and Sempra Infrastructure challenged the ruling due to lack of notification of the underlying process. In May 2019, a federal court in Mexico reversed the ruling and ordered a retrial, which is pending resolution.
▪In a separate proceeding, the claimant filed suit to reinitiate an administrative procedure at SEDATU to obtain the property title that was previously dismissed. In April 2021, the Agrarian Court ordered that the administrative procedure be restarted. The proceeding in the Agrarian Court has concluded; however, the administrative procedure at SEDATU may continue if SEDATU decides to reopen the matter.
In addition, a case involving an area of real property on which part of the ECA Regas Facility is situated is subject to a claim in the federal Agrarian Court, in which the plaintiff seeks to annul the property title for a portion of the land on which the ECA Regas Facility is situated and to obtain possession of a different parcel that allegedly overlaps with the site of the ECA Regas Facility. The proceeding, which seeks an order that SEDATU annul the ECA Regas Facility’s competing property title, was initiated in 2006 and, in July 2021, a decision was issued in favor of the ECA Regas Facility. The plaintiff appealed, and in February 2022, the appellate court confirmed the ruling in favor of the ECA Regas Facility and dismissed the appeal. The plaintiff filed a federal appeal against the appellate court ruling. A ruling from the Federal Collegiate Circuit Court is pending.
Land Disputes – Resolved. Three cases involving an area of real property on which part of the ECA Regas Facility is situated, each brought by a single plaintiff or her descendants, were filed against the facility. The disputed area, which is a parcel adjacent to the ECA Regas Facility that allegedly overlaps with land on which the ECA Regas Facility is situated and also adjacent to the parcel subject to the unresolved Agrarian Court proceeding described in the preceding paragraph, is subject to a claim in the federal Agrarian Court and two claims in Mexican civil courts. The ECA Regas Facility first bought the property from the federal government in 2003; however, to resolve an ownership controversy, in 2008, the ECA Regas Facility reached a financial settlement with the plaintiff to eliminate an adverse claim to its title. Nevertheless, the plaintiff sued in 2013 for the nullity of both titles. The Agrarian Court ruled in favor of the plaintiff in May 2021, nullifying the first property title. Sempra Infrastructure appealed the ruling in July 2021. In May 2022, Sempra Infrastructure won the appeal and the plaintiff’s claims were dismissed, thereby concluding the Agrarian Court proceeding. The ECA Regas Facility continues to hold the second property title to the land. The two civil court proceedings seek to invalidate the contract by which the ECA Regas Facility purchased for the second time the applicable parcel of land on which the ECA Regas Facility is situated on the grounds that the purchase price was allegedly unfair. In the first civil case, initiated in 2013, the court ruled in favor of the ECA Regas Facility, and the final decision was affirmed on a federal appeal, thereby concluding the first civil case. The descendants of the same plaintiff filed the second civil case in 2019, which was dismissed by the court. However, the dismissal was appealed. In April 2022, the ECA Regas Facility entered into a settlement agreement with the plaintiff, whereby the plaintiff has agreed to recognize the ECA Regas Facility as the sole owner of the property and waive any current or future rights over the property, or any other properties related
to the ECA Regas Facility. The settlement agreement has been approved by the court, thereby concluding the remaining civil case.
Environmental and Social Impact Permits – Unresolved. Several administrative challenges are pending before Mexico’s Secretariat of Environment and Natural Resources (the Mexican environmental protection agency) and Federal Tax and Administrative Courts, seeking revocation of the environmental impact authorization issued to the ECA Regas Facility in 2003. These cases generally allege that the conditions and mitigation measures in the environmental impact authorization are inadequate and challenge findings that the activities of the terminal are consistent with regional development guidelines.
In 2018 and 2021, three related claimants filed separate challenges in the federal district court in Ensenada, Baja California in relation to the environmental and social impact permits issued by each of ASEA and SENER to ECA LNG authorizing natural gas liquefaction activities at the ECA Regas Facility, as follows:
▪In the first case, the court issued a provisional injunction in September 2018. In December 2018, ASEA approved modifications to the environmental permit that facilitate the development of the proposed natural gas liquefaction facility in two phases. In May 2019, the court canceled the provisional injunction. The claimant appealed the court’s decision canceling the injunction but was not successful. The claimant’s underlying challenge to the permits remains pending.
▪In the second case, the initial request for a provisional injunction was denied. That decision was reversed on appeal in January 2020, resulting in the issuance of a new injunction against the permits that were issued by ASEA and SENER. This injunction has uncertain application absent clarification by the court. The claimants petitioned the court to rule that construction of natural gas liquefaction facilities violated the injunction, and in February 2022, the court ruled in favor of the ECA Regas Facility, holding that the natural gas liquefaction activities did not violate the injunction. The claimants have appealed this ruling.
▪In the third case, a group of residents filed a complaint in June 2021 against various federal and state authorities alleging deficiencies in the public consultation process for the issuance of the permits. The request for an initial injunction was denied and the claimants have appealed, which is pending the appellate court’s ruling.
Customer Dispute – Resolved. In May 2020, the two third-party capacity customers at the ECA Regas Facility, Shell Mexico and Gazprom, asserted that a 2019 update of the general terms and conditions for service at the facility, as approved by the CRE, resulted in a breach of contract by Sempra Infrastructure and a force majeure event. In July 2020, Shell Mexico submitted a request for arbitration of the dispute, and Gazprom joined the proceeding, and a hearing was held in October 2021. The International Court of Arbitration issued a final, non-appealable decision in April 2022 in favor of Sempra Infrastructure dismissing all claims and confirming the contracts remain in force. In August 2022, the International Court of Arbitration issued an additional decision dismissing a request by Shell Mexico and Gazprom to consider additional arguments.
Citing the alleged breach, Shell Mexico stopped making payments under its LNG storage and regasification agreement. Due to nonpayment, Sempra Infrastructure drew against Shell Mexico’s letters of credit provided as payment security until they were fully exhausted in March 2022. In September 2022, Shell Mexico paid its invoices from March 2022 through August 2022, bringing its account to current, resumed paying invoices as they come due, and renewed its letters of credit. Although Gazprom had previously been making regular monthly payments under its LNG storage and regasification agreement, Sempra Infrastructure drew against and fully exhausted Gazprom’s letters of credit in April 2022 due to Gazprom’s non-renewal of such letters of credit as required under the agreement. Gazprom did not pay its invoices from March 2022 through July 2022, so funds drawn from the letters of credit were used to fully offset such nonpayment. In September 2022, Gazprom paid its August 2022 invoice, bringing its account to current, and resumed paying invoices as they come due. Subsequent invoices, if not paid by Gazprom, will be offset by funds drawn from the letters of credit. In November 2022, the German government nationalized the parent company of Gazprom, Gazprom Germania (rebranded as “Securing Energy for Europe”), to help stabilize Gazprom’s finances.
In addition to the arbitration proceeding, Shell Mexico also filed constitutional claims against the CRE’s approval of the general terms and conditions for service at the facility and against the issuance of the liquefaction permit. Shell Mexico’s request for an injunction against the general terms and conditions was denied, and the ruling was upheld on appeal. The request for an injunction against the liquefaction permit was denied, and the decision was vacated and remanded on appeal to the First District Court in Administrative Matters, which again denied the injunction. The case on the injunction request was then heard again by the appellate court and was denied, making the decision final.
Sonora Pipeline
Guaymas-El Oro Segment – Unresolved. Sempra Infrastructure’s Sonora natural gas pipeline consists of two segments, the Sasabe-Puerto Libertad-Guaymas segment and the Guaymas-El Oro segment. Each segment has its own service agreement with the CFE. In 2015, the Yaqui tribe, with the exception of some members living in the Bácum community, granted its consent and a right-of-way easement agreement for the construction of the Guaymas-El Oro segment of the Sonora natural gas pipeline that
crosses its territory. Representatives of the Bácum community filed a legal challenge in Mexican federal court demanding the right to withhold consent for the project, the stoppage of work in the Yaqui territory and damages. In 2016, the judge granted a suspension order that prohibited the construction of such segment through the Bácum community territory. Because the pipeline does not pass through the Bácum community, Sempra Infrastructure did not believe the 2016 suspension order prohibited construction in the remainder of the Yaqui territory. Construction of the Guaymas-El Oro segment was completed, and commercial operations began in May 2017.
Following the start of commercial operations of the Guaymas-El Oro segment, Sempra Infrastructure reported damage to the Guaymas-El Oro segment of the Sonora pipeline in the Yaqui territory that has made that section inoperable since August 2017 and, as a result, Sempra Infrastructure declared a force majeure event. In 2017, an appellate court ruled that the scope of the 2016 suspension order encompassed the wider Yaqui territory, which has prevented Sempra Infrastructure from making repairs to put the pipeline back in service. In July 2019, a federal district court ruled in favor of Sempra Infrastructure and held that the Yaqui tribe was properly consulted and that consent from the Yaqui tribe was properly received. Representatives of the Bácum community appealed this decision, causing the suspension order preventing Sempra Infrastructure from repairing the damage to the Guaymas-El Oro segment of the Sonora pipeline in the Yaqui territory to remain in place until the appeals process is exhausted. In December 2021, the court of appeals referred the matter to Mexico’s Supreme Court. In June 2022, the Supreme Court remanded the case back to the court of appeals for final resolution. The CFE asked the court of appeals to dismiss the Bácum community’s appeal based on the plan to re-route the portion of the pipeline that is in the Yaqui territory. In December 2022, the court of appeals reversed the federal district court’s ruling and ordered the district court to issue a new ruling that takes into account the planned re-routing of the pipeline.
Sempra Infrastructure exercised its rights under the contract, which included seeking force majeure payments for the two-year period such force majeure payments were required to be made, which ended in August 2019.
In July 2019, the CFE filed a request for arbitration generally to nullify certain contract terms that provide for fixed capacity payments in instances of force majeure and made a demand for substantial damages in connection with the force majeure event. In September 2019, the arbitration process ended when Sempra Infrastructure and the CFE reached an agreement to restart natural gas transportation service in January 2020 as the new service start date, and to modify the tariff structure and extend the term of the contract by 10 years. Subsequently, Sempra Infrastructure and the CFE agreed to extend the service start date multiple times, most recently to May 31, 2023. Under the revised agreement, the CFE will resume making payments only when the damaged section of the Guaymas-El Oro segment of the Sonora pipeline is back in service. If the pipeline is not back in service or the parties do not agree on a new service start date by May 31, 2023, Sempra Infrastructure retains the right to terminate the contract and seek to recover its reasonable and documented costs and lost profits. Discussions with the CFE regarding the future of the pipeline are underway in accordance with a non-binding MOU announced in January 2022 that, among other matters, addresses efforts to restart service on the pipeline. In July 2022, Sempra Infrastructure and the CFE entered into a Shareholders’ Agreement that establishes a framework for a JV between the parties to work on restarting service on the pipeline, including the re-routing of a portion of the pipeline. This agreement is subject to a number of conditions to be satisfied before it becomes effective, including regulatory and corporate authorizations.
At December 31, 2022, Sempra Infrastructure had $420 million in PP&E, net, related to the Guaymas-El Oro segment of the Sonora pipeline, which could be subject to impairment if Sempra Infrastructure is unable to re-route a portion of the pipeline (which has not been agreed to by the parties, but is subject to negotiation pursuant to a non-binding MOU and a Shareholders’ Agreement, as described above) and resume operations or if Sempra Infrastructure terminates the contract and is unable to obtain recovery, which in each case could have a material adverse effect on Sempra’s business, results of operations, financial condition, cash flows and/or prospects.
Sasabe-Puerto Libertad-Guaymas Segment – Resolved. In June 2014, Sempra Infrastructure and a landowner agreed to enter into a voluntary right-of-way easement agreement for the construction and operation of a seven-mile section of the 314-mile Sasabe-Puerto Libertad-Guaymas segment of the Sonora natural gas pipeline on the landowner’s property. However, in 2015, the landowner filed a complaint demanding the easement agreement be nullified. In September 2021, a definitive and non-appealable judgment was issued declaring the easement agreement nullified and ordering the removal of the pipeline from the landowner’s property. The execution of the judgment was suspended as a result of an amparo lawsuit filed by the CFE as an interested third party that did not participate in the litigation. Sempra Infrastructure filed a special judicial action asking the civil court to acknowledge the existence of the easement and to determine the consideration the landowner should receive in exchange for the easement. In July 2022, Sempra Infrastructure and the landowner entered into a new easement agreement approved by the court for the seven-mile section on the landowner’s property, thus bringing this case to definitive conclusion.
Litigation Related to Regulatory and Other Actions by the Mexican Government – Unresolved
Amendments to Mexico’s Electricity Industry Law. In March 2021, the Mexican government published a decree with amendments to Mexico’s Electricity Industry Law that include some public policy changes, including establishing priority of dispatch for CFE plants over privately owned plants. According to the decree, these amendments were to become effective on March 10, 2021, and SENER, the CRE and Centro Nacional de Control de Energía (Mexico’s National Center for Energy Control) were to have 180 calendar days to modify, as necessary, all resolutions, policies, criteria, manuals and other regulations applicable to the power industry to conform with this decree. However, a Mexican court issued a suspension of the amendments on March 19, 2021. In April 2022, the Mexican Supreme Court resolved an action of unconstitutionality filed by a group of senators against the amended Electricity Industry Law, but the qualified majority of eight votes out of 11 as is required in matters involving constitutionality was not reached and the proceeding was dismissed, which means that the Mexican Supreme Court did not issue a binding precedent and the amended Electricity Industry Law remains in force. Sempra Infrastructure filed three lawsuits against the amendments to the Electricity Industry Law and, in each of them, Sempra Infrastructure obtained a favorable judgment in the lower courts, which has been appealed. If the proposed amendments are affirmed by the lower courts or by the Mexican Supreme Court (which in these cases would only require a simple majority vote), the CRE may be required to revoke self-supply permits granted under the former electricity law, which were grandfathered when the new Electricity Industry Law was enacted, under a legal standard that is ambiguous and not well defined under the law. If such self-supply permits granted under the former electricity law are revoked, it may result in increased costs for Sempra Infrastructure and its customers, may adversely affect our ability to develop new projects, may result in decreased revenues and cash flows, and may negatively impact our ability to recover the carrying values of our investments in Mexico, any of which could have a material adverse effect on Sempra’s business, results of operations, financial condition, cash flows and/or prospects.
Transmission Rates for Legacy Generation Facilities. In May 2020, the CRE approved an update to the transmission rates included in legacy renewable and cogeneration energy contracts based on the claim that the legacy transmission rates did not reflect fair and proportional costs for providing the applicable services and, therefore, created inequitable competitive conditions. Three of Sempra Infrastructure’s renewable energy facilities (Don Diego Solar, Border Solar and Ventika) are currently holders of contracts with such legacy rates, and under the terms of these contracts any increases in the transmission rates would be passed through directly to their customers. These renewable energy facilities sought and obtained injunctive relief but were required to guarantee the difference in tariffs. The three facilities obtained favorable resolutions from a lower court and the CRE appealed those decisions, which were definitively affirmed in favor of the Don Diego Solar, Border Solar and Ventika facilities, whereby the injunctions were made permanent, the regulations were declared unconstitutional, and the guarantee was determined to not be required. There are no further opportunities to appeal and therefore these resolutions are final.fftakers of Legacy Generation Permits. In October 2020, the CRE approved a resolution to amend the rules for the inclusion of new offtakers of legacy generation and self-supply permits (the Offtaker Resolution), which became effective immediately. The Offtaker Resolution prohibits self-supply permit holders from adding new offtakers that were not included in the original development or expansion plans, making modifications to the amount of energy allocated to the named offtakers, and including load centers that have entered into a supply arrangement under Mexico’s Electricity Industry Law. Don Diego Solar, Border Solar and Ventika are holders of self-supply permits, and the two solar facilities are currently affected by the Offtaker Resolution. In January 2022, Don Diego Solar and Border Solar obtained injunctive relief and a favorable resolution from a Mexican federal district court and the CRE appealed that decision. In December 2022, the court of appeals definitively resolved the case by confirming the federal district court’s judgment in favor of Don Diego Solar and Border Solar and there are no further opportunities to appeal and therefore this resolution is final.Amendments to Mexico’s Hydrocarbons Law. In May 2021, amendments to Mexico’s Hydrocarbons Law were published and became effective. The amendments grant SENER and the CRE additional powers to suspend and revoke permits related to the midstream and downstream sectors. Suspension of permits will be determined by SENER or the CRE when a danger to national security, energy security, or to the national economy is foreseen. Likewise, new grounds for the revocation of permits are in place if the permit holder (i) carries out its activity with illegally imported products; (ii) fails, on more than one occasion, to comply with the provisions applicable to quantity, quality and measurement of the products; or (iii) modifies the technical conditions of its infrastructure without authorization. Additionally, in the case of existing permits, authorities will revoke those permits that fail to comply with the minimum storage requirements established by SENER or fail to comply with requirements or violate provisions established by the amended Hydrocarbons Law. All the Sempra Infrastructure entities participating in the Mexico hydrocarbons sector filed lawsuits against the initiative to reform the Hydrocarbons Law. In 2021, district courts issued judgments that the amendments do not affect the interests of the companies at this time and, as a result, dismissed the amparo lawsuits, including the lawsuits filed by the Sempra Infrastructure entities. The Sempra Infrastructure entities have appealed these judgments. The Circuit Courts upheld the dismissal of the amparo lawsuits and there are no further opportunities to appeal, thereby concluding the amparo lawsuits.
Other Litigation – Unresolved
RBS Sempra Commodities
Sempra holds an equity method investment in RBS Sempra Commodities, a limited liability partnership in the process of being liquidated. In 2015, liquidators filed a claim in the High Court of Justice against RBS (now NatWest Markets plc, our partner in the JV) and Mercuria Energy Europe Trading Limited (the Defendants) on behalf of 10 companies (the Liquidating Companies) that engaged in carbon credit trading via chains that included a company that traded directly with RBS SEE, a subsidiary of RBS Sempra Commodities. The claim alleges that the Defendants’ participation in the purchase and sale of carbon credits resulted in the Liquidating Companies’ carbon credit trading transactions creating a VAT liability they were unable to pay, and that the Defendants are liable to provide for equitable compensation due to dishonest assistance and compensation under the U.K. Insolvency Act of 1986. Trial on the matter was held in June and July of 2018. In March 2020, the High Court of Justice rendered its judgment mostly in favor of the Liquidating Companies and awarded damages of approximately £45 million (approximately $54 million in U.S. dollars at December 31, 2022), plus costs and interest. In October 2020, the High Court of Justice assessed costs and interest to be approximately £21 million (approximately $25 million in U.S. dollars at December 31, 2022) as of that date, with interest continuing to accrue. The Defendants appealed and, in May 2021, the Court of Appeal set aside the High Court of Justice’s decision and ordered a retrial. In July 2022, the Supreme Court of the U.K. denied the Liquidating Companies application for permission to appeal the Court of Appeal’s decision. No date has been scheduled for the retrial. J.P. Morgan Chase & Co., which acquired RBS SEE and later sold it to Mercuria Energy Group, Ltd., previously notified us that Mercuria Energy Group, Ltd. has sought indemnity for the claim, and J.P. Morgan Chase & Co. has in turn sought indemnity from Sempra and RBS.
We recorded $100 million in equity losses from our investment in RBS Sempra Commodities in Equity Earnings on Sempra’s Consolidated Statement of Operations in 2020, which represented an estimate of our obligations to settle pending VAT matters and related legal costs. In 2021, we reduced this estimate by $50 million based on a related settlement with HMRC on the First-Tier Tribunal case and revised assumptions on the High Court of Justice case.
Asbestos Claims Against EFH Subsidiaries
Certain EFH subsidiaries that we acquired as part of the merger of EFH with an indirect subsidiary of Sempra were defendants in personal injury lawsuits brought in state courts throughout the U.S. These cases alleged illness or death as a result of exposure to asbestos in power plants designed and/or built by companies whose assets were purchased by predecessor entities to the EFH subsidiaries, and generally assert claims for product defects, negligence, strict liability and wrongful death. They sought compensatory and punitive damages. As of February 21, 2023, two lawsuits are pending. Additionally, in connection with a December 2015 deadline in the EFH bankruptcy proceeding, approximately 28,000 proofs of claim were filed on behalf of persons who allege exposure to asbestos under similar circumstances and assert the right to file such lawsuits in the future. None of these claims or lawsuits were discharged in the EFH bankruptcy proceeding. The costs to defend or resolve these lawsuits or claims and the amount of damages that may be imposed or incurred could have a material adverse effect on Sempra’s results of operations, financial condition, cash flows and/or prospects.
Ordinary Course Litigation
We are also defendants in ordinary routine litigation incidental to our businesses, including personal injury, employment litigation, product liability, property damage and other claims. Juries have demonstrated an increasing willingness to grant large awards, including punitive damages, in these types of cases.
LEASES
A lease exists when a contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. We determine if an arrangement is or contains a lease at inception of the contract.
Some of our lease agreements contain nonlease components, which represent activities that transfer a separate good or service to the lessee. As the lessee for both operating and finance leases, we have elected to combine lease and nonlease components as a single lease component for real estate, fleet vehicles, power generating facilities and pipelines, whereby fixed or in-substance fixed payments allocable to the nonlease component are accounted for as part of the related lease liability and ROU asset. As the lessor, we have elected to combine lease and nonlease components as a single lease component for real estate and refined products
terminals if the timing and pattern of transfer of the lease and nonlease components are the same and the lease component would be classified as an operating lease if accounted for separately.
Lessee Accounting
We have operating and finance leases for real and personal property (including office space, land, fleet vehicles, machinery and equipment, warehouses and other operational facilities) and PPAs with renewable energy, energy storage and peaker plant facilities.
Some of our leases include options to extend the lease terms for up to 25 years, or to terminate the lease within one year. Our lease liabilities and ROU assets are based on lease terms that may include such options when it is reasonably certain that we will exercise the option.
Certain of our contracts are short-term leases, which have a lease term of 12 months or less at lease commencement. We do not recognize a lease liability or ROU asset arising from short-term leases for all existing classes of underlying assets. In such cases, we recognize short-term lease costs on a straight-line basis over the lease term. Our short-term lease costs for the period reasonably reflect our short-term lease commitments.
Certain of our leases contain escalation clauses requiring annual increases in rent ranging from 2% to 7% or based on the Consumer Price Index. The rentals payable under these leases may increase by a fixed amount each year or by a percentage of a base year. Variable lease payments that are based on an index or rate are included in the initial measurement of our lease liability and ROU asset based on the index or rate at lease commencement and are not remeasured because of changes to the index or rate. Rather, changes to the index or rate are treated as variable lease payments and recognized in the period in which the obligation for those payments is incurred.
Similarly, PPAs for the purchase of renewable energy at SDG&E require lease payments based on a stated rate per MWh produced by the facilities, and we are required to purchase substantially all the output from the facilities. SDG&E is required to pay additional amounts for capacity charges and actual purchases of energy that exceed the minimum energy commitments. Under these contracts, we do not recognize a lease liability or ROU asset for leases for which there are no fixed lease payments. Rather, these variable lease payments are recognized separately as variable lease costs. SDG&E estimates these variable lease payments to be $297 million in each of 2023 and 2024, $296 million in 2025, $290 million in 2026, $289 million in 2027 and $2,496 million thereafter.
As of the lease commencement date, we recognize a lease liability for our obligation to make future lease payments, which we initially measure at present value using our incremental borrowing rate at the date of lease commencement, unless the rate implicit in the lease is readily determinable. We determine our incremental borrowing rate based on the rate of interest that we would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. We also record a corresponding ROU asset, initially equal to the lease liability and adjusted for lease payments made at or before lease commencement, lease incentives, and any initial direct costs. We test ROU assets for recoverability whenever events or changes in circumstances have occurred that may affect the recoverability or the estimated useful lives of the ROU assets.
For our operating leases, our non-regulated entities recognize a single lease cost on a straight-line basis over the lease term in operating expenses. SDG&E and SoCalGas recognize this single lease cost on a basis that is consistent with the recovery of such costs in accordance with U.S. GAAP governing rate-regulated operations.
For our finance leases, the interest expense on the lease liability and amortization of the ROU asset are accounted for separately. Our non-regulated entities use the effective interest rate method to account for the imputed interest on the lease liability and amortize the ROU asset on a straight-line basis over the lease term. SDG&E and SoCalGas recognize amortization of the ROU asset on a basis that is consistent with the recovery of such costs in accordance with U.S. GAAP governing rate-regulated operations.
Our leases do not contain any material residual value guarantees, restrictions or covenants.
Classification of ROU assets and lease liabilities and the weighted-average remaining lease term and discount rate associated with operating and finance leases are summarized in the table below.
LESSEE INFORMATION ON THE CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
SempraSDG&ESoCalGas
December 31,
202220212022202120222021
ROU assets:
Operating leases:
ROU assets$655 $594 $281 $185 $42 $57 
Finance leases:
PP&E1,529 1,473 1,395 1,381 133 92 
Accumulated depreciation(186)(138)(140)(107)(46)(31)
PP&E, net1,343 1,335 1,255 1,274 87 61 
Total ROU assets$1,998 $1,929 $1,536 $1,459 $129 $118 
Lease liabilities:
Operating leases:
Other current liabilities
$53 $49 $32 $26 $11 $15 
Deferred credits and other
528 470 249 159 29 41 
581 519 281 185 40 56 
Finance leases:
Current portion of long-term debt and finance leases
57 43 39 32 18 11 
Long-term debt and finance leases
1,286 1,292 1,217 1,242 69 50 
1,343 1,335 1,256 1,274 87 61 
Total lease liabilities$1,924 $1,854 $1,537 $1,459 $127 $117 
Weighted-average remaining lease term (in years):
Operating leases
1414111144
Finance leases
1617171767
Weighted-average discount rate:
Operating leases6.21 %5.45 %4.06 %3.22 %1.80 %1.98 %
Finance leases
14.04 %14.25 %14.35 %14.48 %4.14 %2.91 %
The components of lease costs were as follows:
LESSEE INFORMATION ON THE CONSOLIDATED STATEMENTS OF OPERATIONS(1)
(Dollars in millions)
SempraSDG&ESoCalGas
Years ended December 31,
202220212020202220212020202220212020
Operating lease costs$83 $89 $92 $45 $32 $31 $18 $20 $24 
Finance lease costs:
Amortization of ROU assets(2)
48 39 35 33 27 23 15 12 12 
Interest on lease liabilities
184 186 188 181 184 186 2 2 2 
Total finance lease costs
232 225 223 214 211 209 17 14 14 
Short-term lease costs(3)
3 7 7 2 1 3 — — — 
Variable lease costs(3)
411 432 477 399 422 467 11 10 10 
Total lease costs
$729 $753 $799 $660 $666 $710 $46 $44 $48 
(1)    Includes costs capitalized in PP&E.
(2)    Included in O&M, except for $25 at Sempra, $24 at SDG&E and $1 at SoCalGas in 2022, $22 at Sempra, $21 at SDG&E and $1 at SoCalGas in 2021, and $18 at Sempra and SDG&E in 2020, which is included in Depreciation and Amortization Expense.
(3)    Short-term leases with variable lease costs are recorded and presented as variable lease costs.

Cash paid for amounts included in the measurement of lease liabilities and supplemental noncash information were as follows:
LESSEE INFORMATION ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
SempraSDG&ESoCalGas
Years ended December 31,
202220212020202220212020202220212020
Operating activities:
Cash paid for operating leases
$88 $78 $79 $45 $32 $31 $18 $20 $24 
Cash paid for finance leases
169 171 173 166 169 171 2 2 2 
Financing activities:
Cash paid for finance leases
48 39 35 33 27 23 15 12 12 
Increase (decrease) in operating lease obligations for ROU assets
142 116 20 134 112 (1)1 1 1 
Increase in finance lease obligations for investment in PP&E57 43 77 16 24 30 41 19 47 
The table below presents the maturity analysis of our lease liabilities and reconciliation to the present value of lease liabilities:
LESSEE MATURITY ANALYSIS OF LIABILITIES
(Dollars in millions)
December 31, 2022
SempraSDG&ESoCalGas
Operating leases(1)
Finance leases(2)
Operating leases(1)
Finance leases(2)
Operating leasesFinance leases
2023$74 $222 $34 $201 $13 $21 
202480 212 40 195 11 17 
202570 206 33 190 10 16 
202667 204 32 190 8 14 
202755 202 30 189 — 13 
Thereafter558 2,111 177 2,094 — 17 
Total undiscounted lease payments
904 3,157 346 3,059 42 98 
Less: imputed interest(323)(1,814)(65)(1,803)(2)(11)
Total lease liabilities
581 1,343 281 1,256 40 87 
Less: current lease liabilities(53)(57)(32)(39)(11)(18)
Long-term lease liabilities
$528 $1,286 $249 $1,217 $29 $69 
(1)    Includes $12 in each of 2023 through 2027 and $94 thereafter related to purchased-power contracts.
(2)     Substantially all amounts are related to purchased-power contracts.
Leases That Have Not Yet Commenced
SDG&E has entered into two energy storage tolling agreements, of which SDG&E expects one will commence in the first quarter of 2023 and one will commence in the third quarter of 2023. SDG&E expects the future minimum lease payments to be $12 million in 2023, $15 million in each of 2024 through 2027 and $78 million thereafter until expiration in 2033.
SoCalGas has entered into a fleet vehicle agreement, under which SoCalGas expects leases will commence in the first quarter of 2023 through the fourth quarter of 2023. SoCalGas expects the future minimum lease payments to be $1 million in 2023, $2 million in each of 2024 through 2027 and $9 million thereafter until expiration in 2031.
Lessor Accounting
Sempra Infrastructure is a lessor for certain of its natural gas and ethane pipelines, compressor stations, LPG storage facilities, a rail facility and refined products terminals, which we account for as operating or sales-type leases. These leases expire at various dates from 2026 through 2042.
Over the lease term, we monitor the underlying assets in operating leases for impairment, and we evaluate the net investment in sales-type leases for expected credit losses. Sempra Infrastructure expects to continue to derive value from the underlying assets associated with its pipelines following the end of their respective lease terms based on the expected remaining useful life, expected market conditions and plans to re-market and re-contract the underlying assets.
Generally, we recognize operating lease income on a straight-line basis over the lease term, and sales-type lease income based on the effective interest method over the lease term. Certain of our leases contain rate adjustments or are based on foreign currency exchange rates that may result in lease payments received that vary in amount from one period to the next. In addition to minimum fixed payments, our refined products terminals receive variable lease payments for barrels delivered that exceed minimum delivery requirements.
In July 2021, a rail facility agreement commenced, which Sempra Infrastructure is accounting for as a sales-type lease. The rail facility is being used by the lessee to transport refined products out of the Veracruz terminal. The lessee has the right to direct the use of the rail facility and will obtain substantially all of the economic benefits of the rail facility. At lease commencement, Sempra Infrastructure derecognized the $44 million carrying value of the rail facility from PP&E and recognized a net investment in sales-type lease asset of $62 million and a selling profit of $18 million. The agreement expires in 2041 and will automatically renew for successive five-year terms unless written notice is provided by Sempra Infrastructure or the lessee. Fixed lease payments are payable in the first five years of the agreement, which the lessee is required to pay even in the event of lease termination.
LESSOR INFORMATION – SEMPRA
(Dollars in millions)
December 31,
20222021
Assets subject to operating leases:
Property, plant and equipment:
Pipelines and storage$1,026 $1,018 
Refined products terminals 611 405 
Other76 76 
Total1,713 1,499 
Accumulated depreciation(330)(276)
Property, plant and equipment, net
$1,383 $1,223 
December 31, 2022
Maturity analysis of lease payments:Operating leasesSales-type leases
2023$300 $16 
2024300 17 
2025300 17 
2026300 9 
2027300 — 
Thereafter3,091 — 
Total undiscounted cash flows
$4,591 59 
Present value of lease payments (recognized as lease receivable)(1)
50 
Difference between undiscounted cash flows and discounted cash flows
$9 
(1)     Includes $10 in Other Current Assets and $40 in Other Long-Term Assets on the Consolidated Balance Sheet.

LESSOR INFORMATION ON THE CONSOLIDATED STATEMENTS OF OPERATIONS – SEMPRA
(Dollars in millions)
Years ended December 31,
202220212020
Sales-type leases:
Income recognized at lease commencement$— $18 $1 
Interest income8 4 1 
Total revenues from sales-type leases(1)
$8 $22 $2 
Operating leases:
Fixed lease payments$290 $256 $195 
Variable lease payments10 10 1 
Total revenues from operating leases(1)
$300 $266 $196 
Depreciation expense$54 $48 $39 
(1)     Included in Revenues: Energy-Related Businesses on the Consolidated Statements of Operations.
CONTRACTUAL COMMITMENTS
Natural Gas Contracts
SoCalGas has responsibility for procuring natural gas for both SDG&E’s and SoCalGas’ core customers in a combined portfolio. SoCalGas buys natural gas under short-term and long-term contracts for this portfolio from various producing regions in the southwestern U.S., U.S. Rockies and Canada.
SoCalGas transports natural gas primarily under long-term firm interstate pipeline capacity agreements that provide for annual reservation charges, which are recovered in rates. SoCalGas has commitments with interstate pipeline companies for firm pipeline capacity under contracts that expire at various dates through 2032.
Sempra Infrastructure has various capacity agreements for natural gas storage and transportation that expire at various dates through 2059. Transportation costs on these agreements vary based on pipeline capacity.
Payments on our natural gas contracts could exceed the minimum commitment based on portfolio needs. At December 31, 2022, the future minimum payments under existing natural gas contracts and natural gas storage and transportation contracts are as follows:
FUTURE MINIMUM PAYMENTS
(Dollars in millions)
SempraSoCalGas
 Storage and
transportation
Natural gas(1)
Total(1)
TransportationNatural gasTotal
2023$202 $139 $341 $132 $4 $136 
2024184 49 233 114 22 136 
2025144 31 175 77 21 98 
2026141 — 141 75 — 75 
2027138 — 138 72 — 72 
Thereafter795 — 795 240 — 240 
Total minimum payments$1,604 $219 $1,823 $710 $47 $757 
(1)    Excludes amounts related to the LNG purchase agreement that we discuss below.
Total payments under natural gas contracts and natural gas storage and transportation contracts as well as payments to meet additional portfolio needs at Sempra and SoCalGas were as follows:
PAYMENTS UNDER NATURAL GAS CONTRACTS
(Dollars in millions)
 Years ended December 31,
 202220212020
Sempra $2,536 $1,691 $989 
SoCalGas2,492 1,590 935 
LNG Purchase Agreement
Sempra Infrastructure has an SPA for the supply of LNG to the ECA Regas Facility. The commitment amount is calculated using a predetermined formula based on estimated forward prices of the index applicable from 2023 to 2029. Although this agreement specifies a number of cargoes to be delivered, under its terms, the supplier may divert certain cargoes, which would reduce amounts paid under the agreement by Sempra Infrastructure.
At December 31, 2022, the following LNG commitment amounts are based on the assumption that all LNG cargoes, less those already confirmed to be diverted as of February 21, 2023, under the agreement are delivered:
LNG COMMITMENT AMOUNTS
(Dollars in millions)
Sempra:
2023$1,068 
2024797 
2025802 
2026796 
2027787 
Thereafter1,307 
Total$5,557 

Actual LNG purchases were approximately $108 million in 2022, $27 million in 2021 and $16 million in 2020 due to the supplier electing to divert cargoes as allowed by the agreement.
Purchased-Power Contracts

Payments on SDG&E’s purchased-power contracts could exceed the minimum commitments based on energy needs. These purchased-power contracts expire on various dates through 2042. At December 31, 2022, the future minimum payments under long-term purchased-power contracts for Sempra and SDG&E are as follows:
FUTURE MINIMUM PAYMENTS – PURCHASED-POWER CONTRACTS(1)
(Dollars in millions)
2023$175 
2024150 
202595 
202691 
202773 
Thereafter578 
Total minimum payments$1,162 
(1)    Excludes purchase agreements accounted for as operating leases and finance leases.

Payments on these contracts represent capacity charges and minimum energy and transmission purchases that exceed the minimum commitment. SDG&E is required to pay additional amounts for actual purchases of energy that exceed the minimum energy commitments. SDG&E estimates these variable payments to be $77 million in each of 2023 through 2027 and $564 million thereafter. Total payments under purchased-power contracts for Sempra and SDG&E were $484 million in 2022, $495 million in 2021 and $534 million in 2020.
Construction and Development Projects
Sempra has various capital projects in progress in the U.S. and Mexico. Our total contractual commitments at December 31, 2022 under these projects are approximately $241 million, requiring future payments of $87 million in 2023, $24 million in 2024, $20 million in 2025, $20 million in 2026, $19 million in 2027 and $71 million thereafter. The following is a summary by segment of contractual commitments and contingencies related to such projects.
SDG&E
At December 31, 2022, SDG&E has commitments to make future payments of $33 million for construction projects that include:
▪$25 million related to spent fuel management at SONGS; and
▪$8 million for infrastructure improvements for electric transmission and distribution systems.
SDG&E expects future payments under these contractual commitments to be $10 million in 2023, $1 million in each of 2024 through 2026, $2 million in 2027 and $18 million thereafter.
SoCalGas
At December 31, 2022, SoCalGas has commitments to make future payments of $12 million for an information technology software project. SoCalGas expects future payments under this contractual commitment to be $4 million in each of 2023 and 2024 and $2 million in each of 2025 and 2026.
Sempra Infrastructure
At December 31, 2022, Sempra Infrastructure has commitments to make future payments of $196 million for construction and development projects that include:
▪$16 million for refined products terminals;
▪$174 million for natural gas pipelines and ongoing maintenance services; and
▪$6 million for renewables and other projects.
Sempra Infrastructure expects future payments under these contractual commitments to be $73 million in 2023, $19 million in 2024, $17 million in each of 2025 through 2027 and $53 million thereafter.
OTHER COMMITMENTS
SDG&E
We discuss nuclear insurance and nuclear fuel disposal related to SONGS in Note 15.
Fire Mitigation Fund
In connection with the completion of the Sunrise Powerlink project in 2012, the CPUC required that SDG&E establish a fire mitigation fund to minimize the risk of fire as well as reduce the potential wildfire impact on residences and structures near the Sunrise Powerlink. The future payments for these contractual commitments, for which a liability has been recorded, are expected to be $4 million per year in 2023 through 2027 and $271 million thereafter, subject to escalation of 2% per year, ending in 2069. At December 31, 2022, the present value of these future payments of $123 million has been recorded as a regulatory asset as the amounts represent a cost that we expect will be recovered from customers in the future.
Franchise Agreements
In July 2021, SDG&E’s natural gas and electric franchise agreements for the City of San Diego went into effect. These franchise agreements provide SDG&E the opportunity to serve the City of San Diego for a period of 20 years, consisting of 10-year agreements that will automatically renew for an additional 10 years unless the City Council voids the automatic renewals with a supermajority vote. At December 31, 2022, SDG&E has commitments to make future principal and interest payments as consideration for the franchise agreements of $14 million in 2023, $15 million in each of 2024 and 2025, $4 million in 2026, $2 million in 2027 and $50 million thereafter. The consideration paid will not be recovered from customers and will be amortized over 20 years.
In 2021, two lawsuits were filed in the California Superior Court challenging various aspects of the natural gas and electric franchise agreements granted by the City of San Diego to SDG&E. Both lawsuits ultimately sought to void the franchise agreements. In one of the cases, judgment was granted in favor of SDG&E and the City of San Diego. A final ruling is pending on the second case.
SoCalGas
In May 2022, SoCalGas’ new gas franchise agreement with the City of Los Angeles (City of LA) went into effect. This franchise agreement provides SoCalGas a gas system franchise to install, retain, operate and maintain its gas system within the City of LA for 21 years, consisting of a 13-year term that will automatically renew for an additional eight years unless the City of LA exercises its option to terminate the renewal term. At December 31, 2022, SoCalGas has one remaining future payment obligation of $11 million to be paid within 30 days of commencement of the eight-year renewal term in 2035 (if the renewal term is not terminated by the City of LA). This future payment obligation would not be recovered from customers and would be amortized over eight years.
Sempra Infrastructure
Additional consideration for a 2006 comprehensive legal settlement with California to resolve the Continental Forge litigation included an agreement that, for a period of 18 years beginning in 2011, Sempra Infrastructure would sell to SDG&E and SoCalGas, subject to annual CPUC approval, up to 500 MMcf per day of regasified LNG from Sempra Infrastructure’s ECA Regas Facility that is not delivered or sold in Mexico at the price indexed to the California border minus $0.02 per MMBtu. There are no specified minimums required, and to date, Sempra Infrastructure has not been required to deliver any natural gas pursuant to this agreement.
ENVIRONMENTAL ISSUES
Our operations are subject to federal, state and local environmental laws. We also are subject to regulations related to hazardous wastes, air and water quality, land use, solid waste disposal and the protection of wildlife. These laws and regulations require that we investigate and correct the effects of the release or disposal of materials at sites associated with our past and our present operations. These sites include those at which we have been identified as a PRP under the federal Superfund laws and similar state laws.
In addition, we are required to obtain numerous governmental permits, licenses and other approvals to construct facilities and operate our businesses. The related costs of environmental monitoring, pollution control equipment, cleanup costs, and emissions fees are significant. Increasing national and international concerns regarding global warming and mercury, carbon dioxide, nitrogen oxide and sulfur dioxide emissions could result in requirements for additional pollution control equipment or significant
emissions fees or taxes that could adversely affect Sempra Infrastructure. SDG&E’s and SoCalGas’ costs to operate their facilities in compliance with these laws and regulations generally have been recovered in customer rates.
We disclose any proceeding under environmental laws to which a government authority is a party when the potential monetary sanctions, exclusive of interest and costs, exceed the lesser of $1 million or 1% of current assets, which was $59 million for Sempra, $16 million for SDG&E and $21 million for SoCalGas at December 31, 2022.
We discuss environmental matters related to the natural gas leak at SoCalGas’ Aliso Canyon natural gas storage facility above in “Legal Proceedings – SoCalGas – Aliso Canyon Natural Gas Storage Facility Gas Leak.”
Other Environmental Issues
We generally capitalize the significant costs we incur to mitigate or prevent future environmental contamination or extend the life, increase the capacity, or improve the safety or efficiency of property used in current operations. The following table shows our capital expenditures (including construction work in progress) in order to comply with environmental laws and regulations:
CAPITAL EXPENDITURES FOR ENVIRONMENTAL ISSUES
(Dollars in millions)
 Years ended December 31,
 202220212020
Sempra$87 $95 $76 
SDG&E31 32 39 
SoCalGas56 63 37 
We have not identified any significant environmental issues outside the U.S.
At SDG&E and SoCalGas, costs that relate to current operations or an existing condition caused by past operations are generally recorded as a regulatory asset due to the probability that these costs will be recovered in rates.
The environmental issues currently facing us, except for those related to the Leak as we discuss above or resolved during the last three years, include (1) investigation and remediation of SDG&E’s and SoCalGas’ manufactured-gas sites, (2) cleanup of third-party waste-disposal sites used by SDG&E and SoCalGas at which we have been identified as a PRP and (3) mitigation of damage to the marine environment caused by the cooling-water discharge from SONGS.
The table below shows the status at December 31, 2022 of SDG&E’s and SoCalGas’ manufactured-gas sites and the third-party waste-disposal sites for which we have been identified as a PRP:
STATUS OF ENVIRONMENTAL SITES
 
# Sites
complete(1)
# Sites
in process
SDG&E:  
Manufactured-gas sites3 — 
Third-party waste-disposal sites2 1 
SoCalGas:
Manufactured-gas sites39 3 
Third-party waste-disposal sites5 2 
(1)    There may be ongoing compliance obligations for completed sites, such as regular inspections, adherence to land use covenants and water quality monitoring.

We record environmental liabilities when our liability is probable and the costs can be reasonably estimated. In many cases, however, investigations are not yet at a stage where we can determine whether we are liable or, if the liability is probable, to reasonably estimate the amount or range of amounts of the costs. Estimates of our liability are further subject to uncertainties such as the nature and extent of site contamination, evolving cleanup standards and imprecise engineering evaluations. We review our accruals periodically and, as investigations and cleanups proceed, we make adjustments as necessary.
The following table shows our accrued liabilities for environmental matters at December 31, 2022. Of the total liability, $14 million at SoCalGas is recorded on a discounted basis, with a weighted-average discount rate of 0.4%.
ACCRUED LIABILITIES FOR ENVIRONMENTAL MATTERS
(Dollars in millions)
 Manufactured-
gas sites
Waste
disposal
sites (PRP)(1)
Other
hazardous
waste sites
Total(2)
SDG&E(3)
$— $5 $11 $16 
SoCalGas(4)
38 3 1 42 
Other— 1 — 1 
Total Sempra(3)(4)
$38 $9 $12 $59 
(1)    Sites for which we have been identified as a PRP.
(2)    Includes $5, $1 and $4 classified as current liabilities and $54, $15 and $38 classified as noncurrent liabilities on Sempra’s, SDG&E’s and SoCalGas’ Consolidated Balance Sheets, respectively.
(3)    Does not include SDG&E’s liability for SONGS marine environment mitigation.
(4)    Does not include SoCalGas’ liability for environmental matters for the Leak. We discuss matters related to the Leak above in “Legal Proceedings – SoCalGas – Aliso Canyon Natural Gas Storage Facility Gas Leak.”

We expect future payments related to our environmental liabilities on an undiscounted basis to be $5 million in 2023, $11 million in 2024, $10 million in 2025, $1 million in 2026, $17 million in 2027 and $15 million thereafter.
In connection with the issuance of operating permits, SDG&E and the other owners of SONGS previously reached an agreement with the California Coastal Commission to mitigate the damage to the marine environment caused by the cooling-water discharge from SONGS during its operation. SONGS’ early retirement, described in Note 15, does not reduce SDG&E’s mitigation obligation. SDG&E’s share of the estimated mitigation costs is $144 million, of which $54 million has been incurred through December 31, 2022 and $90 million is accrued for remaining costs through 2059, which is recoverable in rates and included in noncurrent Regulatory Assets on Sempra’s and SDG&E’s Consolidated Balance Sheets.