EX-13 15 ex_13.htm EXHIBIT 13.1 Sempra Energy/SDG&E/SoCalGas 12/31/2014 Ex. 13
SEMPRA ENERGY FINANCIAL REPORT
TABLE OF CONTENTS
 
   
 
Page
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Our Business
2
Executive Summary
9
Business Strategy
9
Key Events and Issues in 2014
10
Results of Operations
12
Overall Results of Operations of Sempra Energy and Factors Affecting the Results
12
Segment Results
15
Changes in Revenues, Costs and Earnings
21
Book Value Per Share
40
Capital Resources and Liquidity
40
Overview
40
Cash Flows from Operating Activities
44
Cash Flows from Investing Activities
47
Cash Flows from Financing Activities
52
Credit Ratings
59
Factors Influencing Future Performance
59
California Utilities
59
Sempra International
62
Sempra U.S. Gas & Power
64
Other Sempra Energy Matters
69
Litigation
69
Market Risk
69
Critical Accounting Policies and Estimates, and Key Noncash Performance Indicators
73
Information Regarding Forward-Looking Statements
80
Common Stock Data
82
Performance Graph – Comparative Total Shareholder Returns
83
Five-Year Summaries
84
Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
87
Management’s Report on Internal Control over Financial Reporting
87
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
88
Reports of Independent Registered Public Accounting Firm
89
Consolidated Financial Statements
 
Sempra Energy
95
San Diego Gas & Electric Company
102
Southern California Gas Company
109
Notes to Consolidated Financial Statements
115
Glossary
240
 
This Financial Report is a combined report for the following separate companies (each a separate Securities and Exchange Commission registrant):
   
Sempra Energy
San Diego Gas & Electric Company
Southern California Gas Company
 
 
 
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
We provide below:
 
§  
A description of our business
 
§  
An executive summary
 
§  
A discussion and analysis of our operating results for 2012 through 2014
 
§  
Information about our capital resources and liquidity
 
§  
Major factors expected to influence our future operating results
 
§  
A discussion of market risk affecting our businesses
 
§  
A table of accounting policies that we consider critical to our financial condition and results of operations
 
You should read Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements included in this Annual Report, and in “Risk Factors” contained in our 2014 Annual Report on Form 10-K.
 

 
OUR BUSINESS
 

Sempra Energy is a Fortune 500 energy-services holding company whose operating units invest in, develop and operate energy infrastructure, and provide gas and electricity services to their customers in North and South America. Our operations are divided principally between our California Utilities, which are San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company (SoCalGas), and Sempra International and Sempra U.S. Gas & Power. SDG&E and SoCalGas are separate, reportable segments. Sempra International includes two reportable segments – Sempra South American Utilities and Sempra Mexico. Sempra U.S. Gas & Power also includes two reportable segments – Sempra Renewables and Sempra Natural Gas. (See Figure 1.)
 
 
 
 

 

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Figure 1: Sempra Energy’s Operating Units and Reportable Segments

This report includes information for the following separate registrants:
 
§  
Sempra Energy and its consolidated entities
 
§  
SDG&E
 
§  
SoCalGas
 
References to “we,” “our” and “Sempra Energy Consolidated” are to Sempra Energy and its consolidated entities, collectively, unless otherwise indicated by its context. All references to “Sempra International” and “Sempra U.S. Gas & Power,” and to their respective principal segments, are not intended to refer to any legal entity with the same or similar name.
 
In the first quarter of 2013, a Sempra Energy subsidiary, Infraestructura Energética Nova, S.A.B. de C.V. (IEnova), completed a private offering in the U.S. and outside of Mexico and concurrent public offering in Mexico of common stock. IEnova is a separate legal entity, formerly known as Sempra México, S.A. de C.V., comprised primarily of Sempra Energy’s operations in Mexico. IEnova is included within our Sempra Mexico reportable segment, but is not the same in its entirety as the reportable segment. In addition to the IEnova operating companies, the Sempra Mexico segment includes, among other things, certain holding companies and risk management activity. Also, IEnova’s financial results are reported in Mexico under International Financial Reporting Standards (IFRS), as required by the Mexican Stock Exchange (La Bolsa Mexicana de Valores, S.A.B. de C.V., or BMV) where the shares are traded under the symbol IENOVA. We discuss the offerings and IEnova further in Note 1 of the Notes to Consolidated Financial Statements.
 
Below are summary descriptions of our operating units and their reportable segments.
 
 
SEMPRA ENERGY OPERATING UNITS AND REPORTABLE SEGMENTS
 

CALIFORNIA UTILITIES
   
 
MARKET
SERVICE TERRITORY
SAN DIEGO GAS & ELECTRIC COMPANY (SDG&E)
A regulated public utility; infrastructure supports electric generation, transmission and distribution, and natural gas distribution
§ Provides electricity to a population of 3.5 million (1.4 million meters)
 
§ Provides natural gas to a population of 3.2 million (0.9 million meters)
 
Serves the county of San Diego, California and an adjacent portion of southern Orange County covering 4,100 square miles
SOUTHERN CALIFORNIA GAS COMPANY (SOCALGAS)
A regulated public utility; infrastructure supports natural gas distribution, transmission and storage
§ Residential, commercial, industrial, utility electric generation and wholesale customers
 
§ Covers a population of 21.4 million (5.9 million meters)
 
Southern California and portions of central California (excluding San Diego County, the city of Long Beach and the desert area of San Bernardino County) covering 20,000 square miles

 
We refer to SDG&E and SoCalGas collectively as the California Utilities, which do not include the utilities in our Sempra International or Sempra U.S. Gas & Power operating units described below.
 
 
SDG&E
 
SDG&E delivers electricity through 1.4 million meters in San Diego County and an adjacent portion of southern Orange County, California, covering a population of 3.5 million. SDG&E’s electric energy is purchased from others or generated from its own electric generation facilities and, prior to the second quarter of 2012, its 20-percent interest in the San Onofre Nuclear Generating Station (SONGS). Due to operating issues, SONGS was taken offline in the first quarter of 2012, and in June 2013, Southern California Edison Company (Edison), the majority owner and operator of SONGS, made the decision to permanently retire the facility. We discuss the SONGS retirement and related issues in Note 13 of the Notes to Consolidated Financial Statements. SDG&E’s electric generation facilities include Palomar Energy Center, Miramar Energy Center, Desert Star Energy Center and Cuyamaca Peak Energy Plant. SDG&E also delivers natural gas through 0.9 million meters in San Diego County, covering a population of 3.2 million, and transports electricity and natural gas for others. SDG&E’s service territory encompasses 4,100 square miles.
 
Sempra Energy indirectly owns all of the common stock of SDG&E. SDG&E had publicly held preferred stock that was redeemed in October 2013. We discuss the redemption in Note 11 of the Notes to Consolidated Financial Statements.
 
SDG&E’s financial statements include a variable interest entity (VIE), Otay Mesa Energy Center LLC (Otay Mesa VIE), of which SDG&E is the primary beneficiary. As we discuss in Note 1 of the Notes to Consolidated Financial Statements under “Variable Interest Entities,” SDG&E has a long-term power purchase agreement with Otay Mesa VIE.
 

 
SoCalGas
 
SoCalGas is the nation’s largest natural gas distribution utility. It owns and operates a natural gas distribution, transmission and storage system that supplies natural gas throughout its approximately 20,000 square miles of service territory. Its service territory extends from San Luis Obispo, California in the north to the Mexican border in the south, excluding San Diego County, the city of Long Beach and the desert area of San Bernardino County. SoCalGas provides natural gas service to residential, commercial, industrial, utility electric generation and wholesale customers through 5.9 million meters, covering a population of 21.4 million.
 
Sempra Energy indirectly owns all of the common stock of SoCalGas. SoCalGas has publicly held preferred stock. The preferred stock has liquidation preferences totaling $22 million and represents less than 1% of the ordinary voting power of SoCalGas shares.
 
We provide here descriptions of our Sempra International and Sempra U.S. Gas & Power businesses, primarily operations relating to 2014, 2013 and 2012 earnings. We provide additional information regarding development projects at each of their segments in “Factors Influencing Future Performance” below.
 
 
SEMPRA INTERNATIONAL
   
 
MARKET
GEOGRAPHIC REGION
SEMPRA SOUTH AMERICAN UTILITIES
Infrastructure supports electric transmission and distribution
§ Provides electricity to approximately 2.4 million consumers (approximately 657,000 meters) in Chile and approximately 4.8 million consumers (approximately 1,029,000 meters) in Peru
 
§ Chile
 
§ Peru
 
SEMPRA MEXICO
Develops, owns and operates, or holds interests in:
§ natural gas transmission pipelines and propane and ethane systems
 
§ a natural gas distribution utility
 
§ electric generation facilities, including wind
 
§ a terminal for the import of liquefied natural gas (LNG)
 
§ marketing operations for the purchase of LNG and the purchase and sale of natural gas
 
§ Natural gas
 
§ Wholesale electricity
 
§ Liquefied natural gas
 
§ Mexico
 

 
 
Sempra International
 
Sempra South American Utilities
 
Sempra South American Utilities operates electric transmission and distribution utilities in Chile and Peru, and until June 2013, owned interests in utilities in Argentina. We discuss the sale of the two Argentine natural gas utility holding companies in Note 4 of the Notes to Consolidated Financial Statements.
 
Chilquinta Energía, a wholly owned subsidiary of Sempra South American Utilities, is an electric distribution utility serving approximately 2.4 million consumers through approximately 657,000 meters in the cities of Valparaiso and Viña del Mar in central Chile.
 
Sempra South American Utilities owns 83.6 percent of Luz del Sur S.A.A. (Luz del Sur), an electric distribution utility that serves approximately 4.8 million consumers through approximately 1,029,000 meters in the southern zone of metropolitan Lima, Peru, and delivers approximately one-third of all power used in the country. The remaining shares of Luz del Sur are held by institutional investors and the general public.
 
Sempra South American Utilities also owns interests in Tecnored S.A. (Tecnored) in Chile and Tecsur S.A. (Tecsur) in Peru, two energy-services companies that provide electric construction and infrastructure services to Chilquinta Energía and Luz del Sur, as well as third parties. Tecnored also sells electricity to non-regulated customers.
 
Sempra Mexico
 
Gas Business
 
Pipelines. Sempra Mexico develops, owns and operates natural gas transmission pipelines and propane and ethane systems in Mexico. These facilities are contracted under long-term, U.S. dollar-based agreements with Petróleos Mexicanos (or PEMEX, the Mexican state-owned oil company), the Federal Electricity Commission (Comisión Federal de Electricidad, or CFE), Shell México Gas Natural (Shell), Gazprom Marketing & Trading Mexico (Gazprom) and other similar counterparties. Its natural gas pipeline systems had a contracted capacity for up to 5,340 million cubic feet (MMcf) per day in 2014.
 
Sempra Mexico also owns a 50-percent interest in Gasoductos de Chihuahua, a joint venture with PEMEX that develops and operates an ethane pipeline and several natural gas pipelines and propane systems in Mexico.
 
Pipeline projects currently under construction by Sempra Mexico that are both regulated by the Comisión Reguladora de Energía (or CRE, the Energy Regulatory Commission) and meet the regulatory accounting requirements of accounting principles generally accepted in the United States of America (U.S. GAAP) record the impact of allowance for funds used during construction (AFUDC) related to equity. Beginning in the fourth quarter of 2013, Sempra Mexico began recording AFUDC equity for its Sonora natural gas pipeline project. Sempra Mexico’s joint venture with PEMEX also began recording AFUDC equity for its Los Ramones I Pipeline project in the fourth quarter of 2013.
 
LNG. Sempra Mexico’s Energía Costa Azul LNG terminal in Baja California, Mexico is capable of processing 1 billion cubic feet (Bcf) of natural gas per day. The Energía Costa Azul facility generates revenue under capacity services agreements with Shell and Gazprom, expiring in 2028, that permit them, together, to use one-half of the terminal’s capacity.
 
In connection with Sempra Natural Gas’ LNG purchase agreement with Tangguh PSC Contractors (Tangguh PSC), which we discuss below, Sempra Mexico purchases from Sempra Natural Gas the LNG delivered to Energía Costa Azul by Tangguh PSC. Sempra Mexico uses the natural gas produced from this LNG to supply a contract through 2022 for the sale of an average of approximately 150 MMcf per day of natural gas to Mexico’s national electric company, the CFE, at prices that are based on the Southern California border index. If LNG volumes received from Tangguh PSC are not sufficient to satisfy the commitment to the CFE, Sempra Mexico may purchase natural gas from Sempra Natural Gas’ natural gas marketing operations.
 
Natural Gas Distribution. Sempra Mexico’s natural gas distribution utility, Ecogas México, S. de R.L. de C.V. (Ecogas), operates in three separate areas in Mexico, and had approximately 106,000 meters (serving more than 400,000 consumers) and sales volume of 65 MMcf per day in 2014.
 
Power Business
 
Natural Gas-Fired Generation. Sempra Mexico’s Termoeléctrica de Mexicali, a 625-megawatt (MW) natural gas-fired power plant, is located in Mexicali, Baja California, Mexico. In January 2013, Sempra Mexico’s Termoeléctrica de Mexicali entered into an Energy Management Agreement (EMA), effective January 1, 2012, with our Sempra Natural Gas segment for energy marketing, scheduling and other related services to support its sales of generated power into the California electricity market. Under the EMA, Termoeléctrica de Mexicali pays fees to Sempra Natural Gas for these revenue-generating services. Termoeléctrica de Mexicali also purchases fuel from Sempra Natural Gas. Sempra Mexico records revenue for the sale of power generated by Termoeléctrica de Mexicali, and records cost of sales for the purchases of natural gas and energy management services provided by Sempra Natural Gas.
 
Wind Power Generation. The Energía Sierra Juárez wind generation project in Baja California is designed to provide up to 1,200 MW of capacity if fully developed. In April 2011, SDG&E entered into a 20-year contract for up to 155 MW of renewable power supplied from the first phase of the project, which we expect to be operational in the first half of 2015. In July 2014, Sempra Mexico completed the sale of a 50-percent interest in the first phase of the project to a wholly owned subsidiary of InterGen N.V. We discuss the equity sale further in Note 3 of the Notes to Consolidated Financial Statements.
 


SEMPRA U.S. GAS & POWER
   
 
MARKET
GEOGRAPHIC REGION
SEMPRA RENEWABLES
Develops, owns, operates, or holds interests in renewable energy generation projects
§ Wholesale electricity
 
§ U.S.A.
 
SEMPRA NATURAL GAS
Develops, owns and operates, or holds interests in:
§ natural gas pipelines and storage facilities
 
§ natural gas distribution utilities
 
§ a terminal in the U.S. for the import and export of LNG and sale of natural gas
 
§ marketing operations
 
§ a natural gas-fired electric generation asset (currently held for sale)
 
§ Wholesale electricity
 
§ Natural gas
 
§ Liquefied natural gas
 
§ U.S.A.
 

 
 
Sempra U.S. Gas & Power
 
Sempra Renewables
 
The following table provides information about the Sempra Renewables wind and solar energy generation facilities that were operational as of December 31, 2014. The generating capacity of these facilities is fully contracted under long-term power purchase agreements (PPA) for the periods indicated in the table.
 
The majority of Sempra Renewables’ wind farm assets also earn production tax credits (PTC) based on the number of megawatt hours of electricity they generate. A PTC is a federal subsidy that effectively pays wind producers a flat rate for making clean energy and enables wind producers like Sempra Renewables to pass on the benefit to its customers. Because PTCs last for ten years after project completion, any wind turbine that was under construction before the end of 2014 will still earn a full decade of PTCs. For each of the years ended December 31, 2014, 2013 and 2012, PTCs represented a large portion of our wind farm earnings, often exceeding earnings from operations.
 

 
SEMPRA RENEWABLES OPERATING FACILITIES
Capacity in Megawatts (MW) at December 31, 2014
Name
Generating capacity
 
PPA term in years
First in service
 
Location
Wholly owned facility:
           
Copper Mountain Solar 1
58
 
20
2008
 
Boulder City, Nevada
             
Jointly owned facilities(1):
           
Auwahi Wind
11
 
20
2012
 
Maui, Hawaii
Broken Bow 2 Wind
38
 
25
2014
 
Custer County, Nebraska
Cedar Creek 2 Wind
125
 
25
2011
 
New Raymer, Colorado
Flat Ridge 2 Wind
235
 
20 and 25
2012
 
Wichita, Kansas
Fowler Ridge 2 Wind
100
 
20
2009
 
Benton County, Indiana
Mehoopany Wind
71
 
20
2012
 
Wyoming County, Pennsylvania
 
Total wind
580
         
             
California solar partnership
55
 
25
2013
 
Tulare and Kings Counties, California
Copper Mountain Solar 2
46
 
25
2012
 
Boulder City, Nevada
Copper Mountain Solar 3
92
(2)
20
2014
 
Boulder City, Nevada
Mesquite Solar 1
75
 
20
2011
 
Arlington, Arizona
 
Total solar
  268          
               
 
Total MW in operation
  906          
(1)
Sempra Renewables has a 50-percent interest in each of these facilities and accounts for them as equity method investments. The generating capacity represents Sempra Renewables’ share only.
(2)
Total expected generating capacity for Copper Mountain Solar 3 is 250 MW, of which 125 MW is Sempra Renewables’ share. The capacity noted in the above table represents Sempra Renewables’ share of capacity that went into service in 2014; remaining capacity is expected to be in service in 2015.

 
The 92-MW first phase of Copper Mountain Solar 2 was placed in service in November 2012, and the 150-MW Mesquite Solar 1 facility went fully into service in December 2012. In the third quarter of 2013, Sempra Renewables sold 50-percent equity interests in these facilities to Consolidated Edison Development (ConEdison Development).
 
Construction started on Copper Mountain Solar 3 in March 2013, which will total 250 MW when completed. Copper Mountain Solar 3 will be placed in service as each of the ten blocks of solar panels is installed and is planned to be entirely in service in 2015. In 2014, 184 MW was placed in service. The cities of Los Angeles and Burbank have contracted for all of the solar power at Copper Mountain Solar 3 for 20 years. In March 2014, we completed the sale of 50 percent of our equity in Copper Mountain Solar 3 to ConEdison Development.
 
In May 2014, Sempra Renewables acquired a 50-percent ownership interest in four, fully operating solar facilities in California, or the California solar partnership, as we discuss in Note 4 of the Notes to Consolidated Financial Statements.
 
In October 2014, the 75-MW Broken Bow 2 Wind project achieved commercial operation and, in November 2014, Sempra Renewables sold a 50-percent equity interest in Broken Bow 2 Wind to ConEdison Development.
 
We discuss the equity sales of these facilities and related matters further in Notes 3 through 5 of the Notes to Consolidated Financial Statements. We discuss capacity under development in “Factors Influencing Future Performance” below.
 
Sempra Natural Gas
 
Transportation and Storage. Sempra Natural Gas owns and operates, or holds interests in, natural gas underground storage and related pipeline facilities in Alabama, Louisiana and Mississippi. Sempra Natural Gas provides natural gas marketing, trading and risk management services through the utilization and optimization of contracted natural gas supply, transportation and storage capacity, as well as optimizing its assets in the short-term services market.
 
Sempra Natural Gas, Tallgrass Energy Partners, L.P. (Tallgrass) and Phillips 66 jointly own, through Rockies Express Pipeline LLC (Rockies Express), the Rockies Express pipeline (REX) that links the Rocky Mountain region to the upper Midwest and the eastern United States. Our ownership interest in the pipeline is 25 percent. Tallgrass purchased its 50-percent equity interest in Rockies Express from Kinder Morgan Energy Partners, L.P. (Kinder Morgan or KMP) in November 2012. Sempra Natural Gas has an agreement through November 2019 with Rockies Express for 200 MMcf per day of capacity on REX, which has a total capacity of 1.8 Bcf per day. Sempra Natural Gas has entered and continues to enter into new capacity release arrangements with other third parties, but these agreements may not be sufficient to offset all of our capacity payments to Rockies Express.
 
In 2012, we recorded a noncash impairment charge of $239 million after-tax to write down our investment in the partnership that operates REX. We discuss our investment in Rockies Express and the related impairment in Notes 4 and 10 of the Notes to Consolidated Financial Statements.
 
Distribution. Our Sempra Natural Gas segment owns and operates Mobile Gas Service Corporation (Mobile Gas) and Willmut Gas Company (Willmut Gas), regulated natural gas distribution utilities in southwest Alabama and in Mississippi, respectively. Mobile Gas delivers natural gas through approximately 86,000 meters (serving more than 200,000 consumers), and Willmut Gas delivers natural gas through approximately 19,000 meters (serving over 50,000 consumers). Sempra Natural Gas acquired Willmut Gas in May 2012, as we discuss in Note 3 of the Notes to Consolidated Financial Statements.
 
LNG. The Cameron LNG, LLC (Cameron LNG) regasification terminal in Hackberry, Louisiana, 100-percent owned by Sempra Natural Gas until October 1, 2014, is capable of processing 1.5 Bcf of natural gas per day. The terminal generates revenue under a terminal services agreement for approximately 3.75 Bcf of natural gas storage and associated send-out rights of approximately 600 MMcf of natural gas per day through 2029. The agreement allows the customer to pay capacity reservation and usage fees to use the facilities to receive, store and regasify the customer’s LNG. Sempra Natural Gas also may enter into short-term supply agreements to purchase LNG to be received, stored and regasified at the terminal for sale to other parties.
 
In August 2014, Sempra Energy and its project partners provided their respective final investment decision with regard to the Cameron LNG Holdings, LLC (Cameron LNG Holdings) joint venture for the development, construction and operation of a natural gas liquefaction export facility at the Cameron LNG terminal. Beginning from the October 1, 2014 joint venture effective date, Cameron LNG is no longer wholly owned, and Sempra Natural Gas accounts for its investment in the new joint venture under the equity method.
 
The liquefaction facility, on which construction began in the second half of 2014, will utilize Cameron LNG’s existing facilities, including two marine berths, three LNG storage tanks, and vaporization capability of 1.5 Bcf per day. The joint venture has authorization to export LNG to both Free Trade Agreement (FTA) countries and to countries that do not have an FTA with the United States. Cameron LNG Holdings has 20-year liquefaction and regasification tolling capacity agreements in place with GDF SUEZ S.A. and affiliates of Mitsubishi Corporation and Mitsui & Co., Ltd., that subscribe the full nameplate capacity of the facility. We discuss activities related to the Cameron LNG export project further in “Factors Influencing Future Performance” below and in Notes 3 and 4 of the Notes to Consolidated Financial Statements.
 
There is a termination agreement in place related to the terminal services agreement discussed above that will result in the termination of the agreement at the point during construction of the new liquefaction facilities where piping tie-ins to the existing regasification terminal become necessary. Based on the full notice to proceed that was issued to Cameron LNG Holdings’ engineering, procurement and construction (EPC) contractor in October 2014, we expect this termination date to occur during the first half of 2017.
 
Sempra Natural Gas has an LNG purchase agreement with Tangguh PSC for the supply of the equivalent of 500 MMcf of natural gas per day from Tangguh PSC’s Indonesian liquefaction facility with delivery to Sempra Mexico’s Energía Costa Azul receipt terminal at a price based on the Southern California border index for natural gas. Sempra Natural Gas may also record revenues from non-delivery of cargoes under the provisions of the contract with Tangguh PSC that allow for deliveries to be diverted to other global markets in exchange for cash differential payments.
 
Generation. Sempra Natural Gas sells electricity under short-term and long-term contracts and into the spot market and other competitive markets. While it may also purchase electricity in the open market to satisfy its contractual obligations, Sempra Natural Gas generally purchases natural gas to fuel its Mesquite Power natural gas-fired power plant, described below, and Sempra Mexico’s Termoeléctrica de Mexicali power plant, described above. The Mesquite Power plant is a 1,250-MW facility located in Arlington, Arizona. In February 2013, Sempra Natural Gas sold one 625-MW block of Mesquite Power to the Salt River Project Agricultural Improvement and Power District for $371 million.
 
In June 2011, Sempra Natural Gas entered into a 25-year contract with various members of Southwest Public Power Resources Group (SPPR Group), an association of 40 not-for-profit utilities in Arizona and southern Nevada, for 240 MW of electricity from the Mesquite Power plant. This contract was amended in early 2013 to increase the capacity to 271 MW. Under the terms of the agreement, Sempra Natural Gas contracted to provide 21 participating SPPR Group members with firm, day-ahead dispatchable power delivered to the Palo Verde hub beginning in January 2015.
 
In January 2014, management approved a plan to sell the remaining 625-MW block of the Mesquite Power plant. In October 2014, Sempra Natural Gas entered into a definitive agreement to sell the remaining block and assign the related SPPR Group contract to the buyer. We anticipate the sale will close in the first half of 2015, subject to obtaining third-party consents for the assignment of the SPPR Group contract to the buyer. We discuss the plan to sell the second 625-MW block of Mesquite Power in Note 3 of the Notes to Consolidated Financial Statements.
 
Sempra Natural Gas also has various power sale transactions intended to hedge its generation capacity. Through 2014, Sempra Natural Gas sold its power to various counterparties. Sempra Natural Gas has sold certain quantities of expected future generation output under long-term contracts. The remaining output of our natural gas-fired generation facilities, including that of Sempra Mexico’s Termoeléctrica de Mexicali power plant, is available to be sold into energy markets on a day-to-day basis.
 
In January 2013, Sempra Natural Gas entered into an EMA, effective January 1, 2012, with Sempra Mexico to provide energy marketing, scheduling and other related services to Sempra Mexico’s Termoeléctrica de Mexicali power plant to support its sales of generated power into the California electricity market. We discuss the EMA in “Sempra Mexico – Power Business – Natural Gas-Fired Generation” above.
 
 
REGULATION OF OUR UTILITIES
 
SDG&E and SoCalGas are regulated by federal, state and local governmental agencies. The primary regulatory agency is the California Public Utilities Commission (CPUC). The CPUC regulates the California Utilities’ rates and operations in California, except for SDG&E’s electric transmission operations. The Federal Energy Regulatory Commission (FERC) regulates SDG&E’s electric transmission operations. The FERC also regulates interstate transportation of natural gas and various related matters.
 
The Nuclear Regulatory Commission (NRC) regulates SONGS, in which SDG&E owns a 20-percent interest. Municipalities and other local authorities may influence decisions affecting the location of utility assets, including natural gas pipelines and electric lines. Some of Sempra Energy’s other operating units are also regulated by the FERC, various state commissions and local governmental entities, and similar authorities in countries other than the United States.
 
Our South American utilities are regulated by federal and local governmental agencies. The National Energy Commission (Comisión Nacional de Energía, or CNE) regulates Chilquinta Energía in Chile. The Energy and Mining Investment Supervisory Body (Organismo Supervisor de la Inversión en Energía y Minería, or OSINERGMIN) of the National Electricity Office under the Ministry of Energy and Mines regulates Luz del Sur in Peru.  
 
Ecogas, our natural gas distribution utility in northern Mexico, is subject to regulation by the CRE and by the labor and environmental agencies of city, state and federal governments in Mexico.
 
Mobile Gas, our natural gas distribution utility serving southwest Alabama, is regulated by the Alabama Public Service Commission. Willmut Gas, our natural gas distribution utility serving customers in Hattiesburg, Mississippi, is regulated by the Mississippi Public Service Commission.
 

 

EXECUTIVE SUMMARY
 

 
BUSINESS STRATEGY
 
Our focus is to increase shareholder value and meet ever evolving customer needs by sustaining the financial strength, operational flexibility and skilled workforce needed to operate a safe, stable and successful portfolio of integrated energy businesses.
 
The key components of our strategy include the following three disciplined growth platforms:
 
§  
U.S. utilities
 
§  
South American utilities and Mexican midstream
 
§  
U.S. natural gas midstream, including LNG, and renewables
 
Operating within these areas, we are focused on generating stable, predictable earnings and cash flows by investing in assets that are primarily regulated or contracted long-term. We have a robust capital program over the next several years and will take a disciplined approach to deploying this capital to areas that fit our strategy and are designed to create shareholder value. By doing so, our goal is to deliver long-term growth that is in excess of what you find in the utility space but with a risk profile in line with our utility peers.
 
 
KEY EVENTS AND ISSUES IN 2014
 
Below are key events and issues that affected our business in 2014; some of these may continue to affect our future results. Each event/issue includes the page number you may reference for additional details.
 
 
Major Project Updates:
 
§  
Sempra Natural Gas’ Joint Venture Formation for Cameron LNG liquefaction project:
 
□  
In September 2014, the U.S. Department of Energy (DOE) granted Cameron LNG final authorization to export domestically produced LNG from its Cameron liquefaction project to countries with which the United States does not have agreements for free trade in natural gas (Non-Free Trade Agreement) (page 67).
 
□  
Between April and July 2014, Cameron LNG received orders from the FERC authorizing the siting, construction and operation of the three-train liquefaction facility, as well as authorization for Cameron Interstate Pipeline’s 21-mile, 42-inch natural gas pipeline expansion, new compressor station and ancillary equipment that will provide natural gas transportation to the Cameron LNG facility (page 68).
 
□  
In August 2014, Sempra Natural Gas and its project partners provided their respective final investment decision for the investment in the joint venture (page 68).
 
□  
Also in August 2014, Sempra Energy and the project partners executed project financing documents, and Sempra Energy entered into completion guarantees related to the financing agreements (page 68).
 
□  
On October 1, 2014, Cameron LNG Holdings, the joint venture partnership among Sempra Energy and three project partners, became effective, and Sempra Natural Gas contributed Cameron LNG to the joint venture (page 68).
 
□  
Later in October 2014, the joint venture issued full notice to proceed to the EPC contractor (page 68).
 
§  
Sempra South American Utilities:
 
□  
In October 2014, Luz del Sur received regulatory approval for a $150 million transmission investment plan that includes the development and operation of four substations and their related transmission lines in Lima (page 63).
 
§  
Sempra Mexico’s IEnova subsidiary:
 
□  
In July 2014, IEnova completed the sale of a 50-percent equity interest in the first phase of the Energía Sierra Juárez wind project to a wholly owned subsidiary of InterGen N.V. (page 64).
 
□  
Also in July 2014, IEnova’s joint venture with PEMEX and affiliates of PEMEX issued the full notice to proceed with construction of Los Ramones Norte, a natural gas pipeline of approximately 275 miles and two compression stations (page 64).
 
□  
In October 2014, IEnova completed construction of a section of the Sonora pipeline, a 500-mile natural gas pipeline network in northern Mexico (page 63).
 
□  
In December 2014, IEnova’s joint venture with PEMEX completed the 70-mile first phase of the Los Ramones natural gas pipeline (Los Ramones I) (page 63).
 
□  
In December 2014, IEnova was awarded a contract for the development, construction and operation of the approximately 127-mile, 42-inch Ojinaga pipeline, with an estimated cost of $300 million (page 64).
 
§  
Sempra Renewables:
 
□  
In March 2014, Sempra Renewables formed a joint venture with ConEdison Development by selling a 50-percent interest in its 250-MW Copper Mountain Solar 3 solar power facility. A total of 184 MW was placed in service in 2014 (page 7).
 
□  
In May 2014, Sempra Renewables became a 50-percent partner with ConEdison Development in four solar facilities in California (page 149).
 
□  
In July 2014, Sempra Renewables signed a 20-year power sale agreement with Southern California Edison for all of the solar power from the 94-MW Copper Mountain Solar 4 facility beginning in 2020 (page 65).
 
□  
In November 2014, Sempra Renewables sold a 50-percent equity interest to ConEdison Development in the 75-MW Broken Bow 2 Wind project, which went into commercial operation in October 2014 (page 145).
 

 
Other Key Events and Issues:
 
§  
California Utilities:
 
□  
In March 2014, the California Independent System Operator (ISO) selected SDG&E to construct the Sycamore-Peñasquitos 230-kilovolt (kV) transmission project, which will provide a 16.7-mile transmission connection between SDG&E’s Sycamore Canyon and Peñasquitos substations (page 219).
 
□  
In May 2014, the FERC approved a multi-party settlement regarding SDG&E’s Electric Transmission Formula Rate filing, establishing among other things, a 10.05 percent rate of return on SDG&E’s electric transmission rate base investment through 2018 (page 219).
 
□  
In June 2014, the CPUC issued a final decision on SDG&E’s and SoCalGas’ Pipeline Safety Enhancement Plan (PSEP), authorizing the proposed decision-making framework and balancing accounts for cost recovery, subject to reasonableness review (page 216).
 
□  
In November 2014, the CPUC issued a final decision approving a settlement agreement, among SDG&E and other settling parties, to the SONGS Order Instituting Investigation (OII) into the SONGS Outage (SONGS OII) (page 209).
 
□  
In November 2014, the California Utilities filed their 2016 General Rate Case (GRC) applications, which included proposed revenue requirement increases of $133 million and $256 million for SDG&E and SoCalGas, respectively, over their 2015 revenue requirements (page 214).
 
□  
In December 2014, the CPUC approved a one-year extension until April 2016 for SDG&E and SoCalGas to file their next Cost of Capital application, maintaining both companies’ current authorized rates of return and capital structure through December 2016 (page 215).
 
§  
Sempra South American Utilities:
 
□  
In December 2014, we purchased additional Luz del Sur shares for $74 million, bringing our ownership to 83.6 percent (page 43).
 
§  
Sempra U.S. Gas & Power:
 
□  
In April 2014, Rockies Express secured binding financial commitments totaling 1.2 Bcf per day of capacity for a 20-year term for east-to-west transportation services originating at or near Clarington, Ohio, expected to be in service by mid-2015. In June 2014, Rockies Express finished constructing the Seneca Lateral, an initial 0.25 Bcf per day capacity project that connects natural gas production sources in Ohio to REX. The Seneca Lateral capacity was increased to 0.6 Bcf per day in January 2015 (page 66).
 
□  
In October 2014, Sempra Natural Gas entered into a definitive agreement to sell the remaining 625-MW block of the Mesquite Power plant, subject to receipt of required third-party consents. The sale is expected to close in the first half of 2015 (page 66).
 


 

RESULTS OF OPERATIONS
 

We discuss the following in Results of Operations:
 
§  
Overall results of our operations and factors affecting those results
 
§  
Our segment results
 
§  
Significant changes in revenues, costs and earnings between periods
 
 
OVERALL RESULTS OF OPERATIONS OF SEMPRA ENERGY AND FACTORS AFFECTING THE RESULTS
 
The graphs below show our overall operations from 2010 to 2014.
 

OVERALL OPERATIONS OF SEMPRA ENERGY FROM 2010 TO 2014
(Dollars and shares in millions, except per share amounts)

[a008.gif]


[a004.gif]



In 2014, our earnings increased by $160 million (16%) to $1.2 billion and our diluted earnings per share increased by $0.62 per share (15%) to $4.63 per share. The net increases in our earnings and diluted earnings per share were primarily impacted by the following increases (decreases), by segment:
 
SDG&E
 
§  
$119 million charge in 2013 for loss from plant closure associated with SDG&E’s investment in SONGS, compared to a $(21) million charge in 2014 to adjust the total loss from plant closure, as we discuss in Note 13 of the Notes to Consolidated Financial Statements
 
§  
$24 million higher CPUC base operating margin authorized for 2014 in the 2012 GRC and lower non-refundable operating costs
 
§  
$15 million favorable resolution of prior years’ income tax items in 2014 compared to a $2 million unfavorable resolution in 2013
 
§  
$(52) million favorable impact on 2013 earnings from the retroactive application for 2012 of the final decision in the 2012 GRC
 
SoCalGas
 
§  
$24 million higher CPUC base operating margin authorized for 2014 in the 2012 GRC, net of higher non-refundable operating costs
 
§  
$(30) million higher income tax expense primarily due to lower favorable resolution of prior years’ income tax items in 2014, higher reversal through book depreciation of previously recognized tax benefits for a certain portion of utility fixed assets and lower deductions for self-developed software expenditures
 
§  
$(25) million favorable impact on 2013 earnings from the retroactive application for 2012 of the final decision in the 2012 GRC
 
Sempra South American Utilities
 
§  
$18 million income tax benefit related to Peru’s recent tax reform, offset by $(6) million income tax expense related to Chilean tax reform
 
Sempra Mexico
 
§  
$30 million favorable impact due to the effects on tax-related balances from foreign currency and inflation
 
§  
$24 million higher AFUDC in 2014 related to equity associated with construction of the natural gas pipeline in Sonora
 
§  
$14 million gain from the sale of a 50-percent equity interest in the first phase of the Energía Sierra Juárez project in 2014
 
§  
$13 million income tax expense in 2013 due to Mexican tax reform
 
§  
$(21) million impact of higher earnings attributable to noncontrolling interests at IEnova ($47 million in 2014 compared to $26 million in 2013)
 
Sempra Renewables
 
§  
$24 million gains in 2014 from the sale of 50-percent equity interests in Copper Mountain Solar 3 and Broken Bow 2 Wind
 
§  
$19 million higher deferred income tax benefits, including the benefits from projects placed in service in 2014 and a $5 million reduction of benefits in 2013 as a result of U.S. Treasury grant sequestration
 
§  
$(24) million gains in 2013 from the sale of 50-percent equity interests in Mesquite Solar 1 and Copper Mountain Solar 2
 
Sempra Natural Gas
 
§  
$25 million tax benefit due to the release in 2014 of a Louisiana valuation allowance against a deferred tax asset associated with Cameron LNG developments
 
§  
$(44) million gain in 2013 on the sale of one 625-MW block of Sempra Natural Gas’ 1,250-MW Mesquite Power natural gas-fired power plant
 
Parent and Other
 
§  
$63 million income tax expense in 2013 resulting from a corporate reorganization in connection with the IEnova stock offerings
 
§  
$(38) million income tax expense in 2014 for repatriation of current year foreign earnings
 
In 2013 compared to 2012, our earnings increased by $142 million (17%) to $1.0 billion and our diluted earnings per share increased by $0.53 per share (15%) to $4.01 per share. The net increases in our earnings and diluted earnings per share were primarily impacted by the following increases (decreases), by segment:
 
SDG&E
 
§  
$61 million higher earnings from CPUC base operations and electric transmission, including Sunrise Powerlink
 
§  
$52 million favorable impact on 2013 earnings from the retroactive impact for 2012 of the 2012 GRC, for which a final decision by the CPUC was issued in the second quarter of 2013
 
§  
$(119) million charge for loss from plant closure associated with SDG&E’s investment in the SONGS nuclear facility
 
§  
$(54) million from an income tax benefit recorded in 2012 related to a change in the income tax treatment of certain repairs expenditures, the lower rate of return authorized in our CPUC cost of capital proceeding and higher interest expense
 
SoCalGas
 
§  
$51 million higher operating margin and newly recovered costs as a result of the 2012 GRC
 
§  
$25 million favorable impact on 2013 earnings from the retroactive impact for 2012 of the 2012 GRC
 
Sempra Mexico
 
§  
$(26) million decrease in Sempra Mexico’s earnings for earnings attributable to noncontrolling interests at IEnova following its March 2013 offerings of 18.9 percent of its common stock
 
Sempra Renewables
 
§  
$24 million gains from the sale of 50-percent equity interests in Mesquite Solar 1 and Copper Mountain Solar 2 in 2013
 
§  
$(50) million lower deferred income tax benefits, including $5 million decrease from U.S. Treasury grant sequestration in 2013, as a result of wind and solar generating assets placed in service in 2012
 
Sempra Natural Gas
 
§  
$239 million in noncash impairment charges in 2012 to write down our investment in Rockies Express, partially offset by a $25 million income tax make-whole payment received in 2012 from Kinder Morgan
 
§  
$44 million gain on the sale of one 625-MW block of Sempra Natural Gas’ 1,250-MW Mesquite Power natural gas-fired power plant in the first quarter of 2013
 
§  
$41 million higher earnings from LNG operations, primarily due to lower of cost or market adjustments in 2012 associated with the timing of cargoes, the impact of higher natural gas prices on marketing operations and lower costs resulting from commercial arrangements entered into with affiliates
 
Parent and Other
 
§  
$(63) million income tax expense in 2013 resulting from a corporate reorganization in connection with the IEnova stock offerings
 
§  
$(54) million income tax benefit in 2012 primarily associated with our decision to hold life insurance contracts kept in support of certain benefit plans to term
 
Diluted earnings per share for 2013 compared to 2012 were also impacted by an increase in the number of shares outstanding (decrease of $0.05 per share).
 
The following table shows our earnings (losses) by segment, which we discuss below in “Segment Results.”
 

SEMPRA ENERGY EARNINGS (LOSSES) BY SEGMENT 2012-2014
(Dollars in millions)
   
Years ended December 31,
   
2014
2013
2012
California Utilities:
                       
    SDG&E(1)
$
507
44
%
$
404
41
%
$
484
56
%
    SoCalGas(2)
 
332
29
   
364
37
   
289
34
 
Sempra International:
                       
    Sempra South American Utilities
 
172
15
   
153
15
   
164
19
 
    Sempra Mexico
 
192
16
   
122
12
   
157
18
 
Sempra U.S. Gas & Power:
                       
    Sempra Renewables
 
81
7
   
62
6
   
61
7
 
    Sempra Natural Gas
 
50
4
   
64
6
   
(241)
(28)
 
Parent and other(3)
 
(173)
(15)
   
(168)
(17)
   
(55)
(6)
 
Earnings
$
1,161
100
%
$
1,001
100
%
$
859
100
%
(1)
For 2013, amount is after preferred dividends and call premium on preferred stock. For 2012, amount is after preferred dividends.
(2)
After preferred dividends.
(3)
Includes after-tax interest expense ($144 million in each of 2014 and 2013 and $150 million in 2012), intercompany eliminations recorded in consolidation and certain corporate costs.
 
 
SEGMENT RESULTS
 
The following section is a discussion of earnings (losses) by Sempra Energy segment, as presented in the table above. Variance amounts are the after-tax earnings impact (based on applicable statutory tax rates), unless otherwise noted.
 

 
EARNINGS BY SEGMENT – CALIFORNIA UTILITIES
(Dollars in millions)

[a010.gif]


 
SDG&E
 
Our SDG&E segment recorded earnings of:
 
§  
$507 million in 2014
 
§  
$404 million in 2013 ($411 million before preferred dividends and call premium)
 
§  
$484 million in 2012 ($489 million before preferred dividends)
 
The increase in earnings of $103 million (25%) in 2014 was primarily due to:
 
§  
$119 million charge in 2013 for loss from plant closure associated with SDG&E’s investment in SONGS, compared to a $21 million charge in 2014 to adjust the total loss from plant closure, as we discuss in Note 13 of the Notes to Consolidated Financial Statements;
 
§  
$24 million higher CPUC base operating margin authorized for 2014 in the 2012 GRC and lower non-refundable operating costs;
 
§  
$15 million favorable resolution of prior years’ income tax items in 2014 compared to a $2 million unfavorable resolution in 2013; and
 
§  
$3 million lower legal costs in 2014; offset by
 
§  
$52 million favorable impact on 2013 earnings from the retroactive application for 2012 of the final decision in the 2012 GRC; and
 
§  
$7 million lower earnings from electric transmission operations primarily due to lower FERC-authorized return on equity.
 
The decrease of $80 million (17%) in 2013 compared to 2012 was primarily due to:
 
§  
$119 million charge for loss from plant closure associated with SDG&E’s investment in SONGS;
 
§  
$22 million income tax benefit recorded in the third quarter of 2012 for full-year 2011 from the change in the income tax treatment of certain repairs expenditures, as we discuss below in “Income Taxes;”
 
§  
$20 million lower CPUC-authorized rate of return established in the CPUC cost of capital proceeding effective as of January 1, 2013;
 
§  
$12 million higher interest expense;
 
§  
$11 million loss of revenue from SONGS due to the early closure of the plant; and
 
§  
$6 million for the recovery from the DOE in 2012 of incremental costs incurred in prior years for the long-term storage of spent nuclear fuel; offset by
 
§  
$52 million favorable impact on 2013 earnings from the retroactive application for 2012 of the final decision in the 2012 GRC;
 
§  
$38 million higher CPUC base operating margin as a result of the final 2012 GRC decision, net of operating costs; and
 
§  
$23 million higher electric transmission margin.
 
 
SoCalGas
 
Our SoCalGas segment recorded earnings of:
 
§  
$332 million in 2014 ($333 million before preferred dividends)
 
§  
$364 million in 2013 ($365 million before preferred dividends)
 
§  
$289 million in 2012 ($290 million before preferred dividends)
 
The decrease in earnings of $32 million (9%) in 2014 was primarily due to:
 
§  
$25 million favorable impact on 2013 earnings from the retroactive application for 2012 of the final decision in the 2012 GRC;
 
§  
$15 million lower favorable resolution of prior years’ income tax items in 2014;
 
§  
$15 million increase in income tax expense primarily due to higher reversal through book depreciation of previously recognized tax benefits for a certain portion of utility fixed assets, and from lower deductions for self-developed software expenditures;
 
§  
$5 million write-off in 2014 of certain costs incurred associated with the PSEP that were disallowed for recovery in the final PSEP decision (as we discuss in Note 14 of the Notes to Consolidated Financial Statements); and
 
§  
$4 million insurance recovery in 2013 of previously expensed costs; offset by
 
§  
$24 million higher CPUC base operating margin authorized for 2014 in the 2012 GRC, net of higher non-refundable operating costs; and
 
§  
$9 million from an increase in AFUDC related to equity.
 
The increase of $75 million (26%) in 2013 compared to 2012 was primarily due to:
 
§  
$36 million higher CPUC base operating margin as a result of the final 2012 GRC decision and lower non-refundable operating costs;
 
§  
$25 million favorable impact on 2013 earnings from the retroactive application for 2012 of the final decision in the 2012 GRC;
 
§  
$20 million higher favorable resolution of prior years’ income tax issues in 2013; and
 
§  
$15 million due to costs associated with the Transmission Integrity Management Program (TIMP) being expensed in 2012 now being fully recovered (balanced) in revenues pursuant to the 2012 GRC; offset by
 
§  
$14 million lower CPUC-authorized rate of return established in the CPUC cost of capital proceeding effective as of January 1, 2013.
 

EARNINGS BY SEGMENT – SEMPRA INTERNATIONAL
(Dollars in millions)

[a011.gif]



 
Sempra South American Utilities
 
Our Sempra South American Utilities segment recorded earnings of:
 
§  
$172 million in 2014
 
§  
$153 million in 2013
 
§  
$164 million in 2012
 
The increase in earnings of $19 million (12%) in 2014 was primarily due to:
 
§  
$18 million income tax benefit related to Peru’s recent tax reform, offset by $6 million income tax expense related to Chilean tax reform as we discuss below under “Income Taxes – Tax Reform;”
 
§  
$12 million higher earnings associated with the relocation of electrical infrastructure projects;
 
§  
$11 million equity losses in 2013 related to the sale of our investments in two Argentine natural gas utility holding companies; and
 
§  
$10 million higher earnings from operations mainly due to an increase in volume, primarily from customer growth; offset by
 
§  
$16 million lower earnings from foreign currency effects;
 
§  
$33 million earnings attributable to noncontrolling interests in 2014 compared to $28 million in 2013; and
 
§  
$5 million higher interest expense mainly in Chile related to the inflationary effect on local bonds.
 
The decrease in earnings of $11 million (7%) in 2013 compared to 2012 was primarily due to:
 
§  
$11 million equity losses related to our investments in two Argentine natural gas utility holding companies that were sold in 2013; and
 
§  
$4 million equity losses from our joint venture in Chile in 2013 resulting from a forward exchange contract to manage foreign currency exchange rate risk; offset by
 
§  
$4 million lower income tax expense from an unfavorable resolution of prior years’ tax matters in 2012.
 
 
Sempra Mexico
 
Sempra Mexico recorded earnings of:
 
§  
$192 million in 2014
 
§  
$122 million in 2013
 
§  
$157 million in 2012
 
 
The increase in earnings of $70 million (57%) in 2014 was primarily due to:
 
§  
$30 million favorable impact ($29 million benefit in 2014 and $1 million expense in 2013) primarily due to the effects on tax-related balances from foreign currency and inflation;
 
§  
$24 million higher earnings from operations mainly due to prior year’s scheduled major maintenance and improved results at our Mexicali power plant, and start of operations of a section of the Sonora pipeline;
 
§  
$24 million higher AFUDC in 2014 related to equity associated with construction of the natural gas pipeline in Sonora;
 
§  
$14 million gain from the sale of a 50-percent equity interest in the first phase of the Energía Sierra Juárez wind project in July 2014; and
 
§  
$13 million income tax expense in 2013 due to Mexican tax reform; offset by
 
§  
$47 million earnings attributable to noncontrolling interests at IEnova in 2014 compared to $26 million in 2013; and
 
§  
$15 million unfavorable translation effect primarily on Peso-denominated receivables.
 
The decrease of $35 million (22%) in 2013 compared to 2012 was primarily due to:
 
§  
$26 million decrease in Sempra Mexico’s earnings for earnings attributable to noncontrolling interests at IEnova following its stock offerings in March 2013;
 
§  
$13 million increase in deferred income tax liability due to Mexico income tax law enacted in the fourth quarter of 2013 and effective January 1, 2014, as we discuss below in “Income Taxes;”
 
§  
$10 million lower earnings mainly due to administrative expenses related to the new IEnova public company structure, scheduled plant maintenance at our Mexicali power plant in 2013, and the net impact of changes in affiliate agreements;
 
§  
$7 million negative translation effect primarily on Peso-denominated tax receivables; and
 
§  
$6 million higher interest expense, including interest associated with the IEnova debt offering in February 2013; offset by
 
§  
$19 million AFUDC related to equity associated with construction of the natural gas pipeline in Sonora; and
 
§  
$7 million lower income tax expense, including the favorable impact of Mexican currency inflation and translation adjustments in 2013 compared to 2012.
 


EARNINGS (LOSSES) BY SEGMENT – SEMPRA U.S. GAS & POWER
(Dollars in millions)

[a012.gif]

 
 
 
Sempra Renewables
 
Sempra Renewables recorded earnings of:
 
§  
$81 million in 2014
 
§  
$62 million in 2013
 
§  
$61 million in 2012
 
The increase in earnings of $19 million (31%) in 2014 was primarily due to:
 
§  
$24 million gains in 2014 from the sale of 50-percent equity interests in Copper Mountain Solar 3 and Broken Bow 2 Wind; and
 
§  
$19 million higher deferred income tax benefits, including the benefits of projects placed in service in 2014 and a $5 million reduction of benefits in 2013 as a result of U.S. Treasury grant sequestration; offset by
 
§  
$24 million gains in 2013 from the sale of 50-percent equity interests in Mesquite Solar 1 and Copper Mountain Solar 2.
 
The increase in earnings of $1 million (2%) in 2013 compared to 2012 was primarily due to:
 
§  
$24 million gains in 2013 from the sale of 50-percent equity interests in Mesquite Solar 1 and Copper Mountain Solar 2;
 
§  
$16 million higher earnings attributable to our wind assets; and
 
§  
$13 million higher earnings from our solar assets, including $6 million from interest rate hedges; offset by
 
§  
$50 million lower deferred income tax benefits, including $5 million decrease from U.S. Treasury grant sequestration in 2013, as a result of solar and wind generating assets placed in service in 2012.
 
 
Sempra Natural Gas
 
Sempra Natural Gas recorded earnings (losses) of:
 
§  
$50 million in 2014
 
§  
$64 million in 2013
 
§  
$(241) million in 2012
 
The decrease in earnings of $14 million (22%) in 2014 was primarily due to:
 
§  
$44 million gain in 2013 on the sale of a 625-MW block of its Mesquite Power plant, net of related expenses; and
 
§  
$15 million lower results from gas storage operations and natural gas marketing activities; offset by
 
§  
$25 million tax benefit due to the release in 2014 of a Louisiana valuation allowance against a deferred tax asset associated with Cameron LNG developments;
 
§  
$10 million lower operating costs at the Mesquite Power plant, primarily depreciation due to the classification of the remaining 625-MW block as an asset held for sale; and
 
§  
$9 million higher net intercompany interest income.
 
The change in 2013 compared to 2012 was primarily due to:
 
§  
$239 million write-down of our investment in Rockies Express in 2012;
 
§  
$44 million gain in 2013 on the sale of a 625-MW block of the Mesquite Power plant, net of related expenses;
 
§  
$41 million higher earnings from LNG operations, primarily due to lower of cost or market adjustments in 2012 associated with the timing of cargoes, the impact of higher natural gas prices on marketing operations and lower costs resulting from commercial arrangements entered into with affiliates;
 
§  
$11 million lower interest expense and operating costs at the Mesquite Power plant due to the sale of one block of the plant in the first quarter of 2013; and
 
§  
$10 million improved results at our marketing and storage operations primarily driven by sales of natural gas in 2013; offset by
 
§  
a $25 million payment received from Kinder Morgan in 2012 due to tax impacts related to the sale of their interest in Rockies Express; and
 
§  
$12 million lower earnings due to capacity release contracts related to Rockies Express that expired in 2013.
 
 
Parent and Other
 
Losses for Parent and Other were
 
§  
$173 million in 2014
 
§  
$168 million in 2013
 
§  
$55 million in 2012
 
The increase in losses of $5 million (3%) in 2014 was primarily due to:
 
§  
$38 million income tax expense in 2014 from the repatriation of current year foreign earnings;
 
§  
$9 million lower investment net gains on dedicated assets in support of our executive retirement and deferred compensation plans;
 
§  
$9 million higher net interest expense; and
 
§  
$8 million lower income tax benefits in 2014, excluding income tax items discussed separately; offset by
 
§  
$63 million income tax expense in 2013 resulting from a corporate reorganization in connection with the IEnova stock offerings.
 
The increase in losses of $113 million in 2013 compared to 2012 was primarily due to:
 
§  
$63 million income tax expense resulting from a corporate reorganization in connection with the IEnova stock offerings;
 
§  
$54 million income tax benefit in 2012 primarily associated with our decision to hold life insurance contracts kept in support of certain benefit plans to term, as we discuss below in “Income Taxes;” and
 
§  
$42 million higher net interest expense primarily due to lower intercompany interest income from a debt restructuring at Sempra Natural Gas and increased borrowings from Sempra Renewables; offset by
 
§  
$42 million higher income tax benefits, excluding income tax items discussed above, primarily due to higher favorable resolution of prior years’ income tax issues and the timing of a change in tax law. We discuss this law, the American Taxpayer Relief Act of 2012, in “Income Taxes” below.
 
 
CHANGES IN REVENUES, COSTS AND EARNINGS
 
This section contains a discussion of the differences between periods in the specific line items of the Consolidated Statements of Operations for Sempra Energy, SDG&E and SoCalGas.
 
 
Utilities Revenues
 
Our utilities revenues include
 
Natural gas revenues at:
 
§  
SDG&E
 
§  
SoCalGas
 
§  
Sempra Mexico’s Ecogas México, S. de R.L. de C.V. (Ecogas)
 
§  
Sempra Natural Gas’ Mobile Gas Service Corporation (Mobile Gas) and Willmut Gas Company (Willmut Gas)
 
Electric revenues at:
 
§  
SDG&E
 
§  
Sempra South American Utilities’ Chilquinta Energía and Luz del Sur
 
Intercompany revenues included in the separate revenues of each utility are eliminated in the Sempra Energy Consolidated Statements of Operations.
 
 
The California Utilities
 
The current regulatory framework for SoCalGas and SDG&E permits the cost of natural gas purchased for core customers (primarily residential and small commercial and industrial customers) to be passed through to customers in rates substantially as incurred. However, SoCalGas’ gas cost incentive mechanism provides SoCalGas the opportunity 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 the core customers and SoCalGas. We provide further discussion in Notes 1 and 14 of the Notes to Consolidated Financial Statements.
 
The regulatory framework also permits SDG&E 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 in the next year through rates.
 
The table below summarizes revenues and cost of sales for our utilities, net of intercompany activity:
 

UTILITIES REVENUES AND COST OF SALES 2012-2014
(Dollars in millions)
   
Years ended December 31,
   
2014
2013
2012
Electric revenues:
           
SDG&E
$
3,785
$
3,537
$
3,226
Sempra South American Utilities
 
1,434
 
1,383
 
1,349
Eliminations and adjustments
 
(10)
 
(9)
 
(7)
 
Total
 
5,209
 
4,911
 
4,568
Natural gas revenues:
           
SoCalGas
 
3,855
 
3,736
 
3,282
SDG&E
 
544
 
529
 
468
Sempra Mexico
 
109
 
97
 
75
Sempra Natural Gas
 
113
 
109
 
96
Eliminations and adjustments
 
(72)
 
(73)
 
(48)
 
Total
 
4,549
 
4,398
 
3,873
  Total utilities revenues
$
9,758
$
9,309
$
8,441
Cost of electric fuel and purchased power:
           
SDG&E
$
1,309
$
1,019
$
892
Sempra South American Utilities
 
972
 
913
 
868
 
Total
$
2,281
$
1,932
$
1,760
Cost of natural gas:
           
SoCalGas
$
1,449
$
1,362
$
1,074
SDG&E
 
208
 
204
 
151
Sempra Mexico
 
74
 
63
 
45
Sempra Natural Gas
 
44
 
35
 
25
Eliminations and adjustments
 
(17)
 
(18)
 
(5)
 
Total
$
1,758
$
1,646
$
1,290

 
Sempra Energy Consolidated
 
Electric Revenues
 
Our electric revenues increased by $298 million (6%) to $5.2 billion in 2014 primarily due to:
 
§  
$248 million increase at SDG&E, including:
 
□  
$290 million increase in cost of electric fuel and purchased power, which we discuss below,
 
□  
$39 million increase in authorized revenues from 2014 attrition, and
 
□  
$32 million higher authorized revenues from electric transmission, offset by
 
□  
$61 million favorable impact on 2013 revenues from the retroactive application of the 2012 GRC decision for the period from January 2012 through December 2012, and
 
□  
$47 million lower recovery of costs associated with CPUC-authorized refundable programs, which revenues are fully offset in operation and maintenance expenses; and
 
§  
$51 million increase at our South American utilities primarily due to higher rates and volumes at both Luz del Sur and Chilquinta Energía, offset by foreign currency exchange rate effects.
 
In 2013 compared to 2012, our electric revenues increased by $343 million (8%) to $4.9 billion primarily due to:
 
§  
$311 million increase at SDG&E, including:
 
□  
$140 million higher authorized revenues from electric transmission,
 
□  
$127 million increase in cost of electric fuel and purchased power, which we discuss below,
 
□  
$94 million higher authorized revenue from implementation of the 2012 GRC decision and 2013 attrition. Due to the delay in the issuance of the 2012 GRC decision by the CPUC, 2012 authorized revenue was essentially unchanged from the 2011 authorized revenue, and
 
□  
$61 million increase due to the retroactive application in 2013 of the 2012 GRC decision for the period from January 2012 through December 2012, offset by
 
□  
$40 million lower recovery of costs associated with CPUC-authorized refundable programs, which revenues are fully offset in operation and maintenance expenses,
 
□  
$33 million loss of revenue from SONGS due to the early closure of the plant, and
 
□  
$30 million lower CPUC-authorized rate of return established in the CPUC cost of capital proceeding effective as of January 1, 2013; and
 
§  
$34 million increase at our South American utilities primarily due to higher volumes, net of foreign currency exchange rate effects.
 
Our utilities’ cost of electric fuel and purchased power increased by $349 million (18%) to $2.3 billion in 2014 primarily due to:
 
§  
$290 million increase at SDG&E, which we discuss below; and
 
§  
$59 million increase at our South American utilities driven primarily by higher rates and volumes at both Luz del Sur and Chilquinta Energía, offset by foreign currency exchange rate effects.
 
Our utilities’ cost of electric fuel and purchased power increased by $172 million (10%) to $1.9 billion in 2013 compared to 2012 primarily due to:
 
§  
$127 million increase in SDG&E’s cost of electric fuel and purchased power primarily due to the incremental cost and purchases of renewable energy, and increased cost of other purchased power primarily due to higher power prices, slightly offset by lower demand driven by an overall cooler summer in 2013 compared to 2012; and
 
§  
$45 million increase at our South American utilities driven primarily by higher volumes and higher costs of purchased power, net of foreign currency exchange rate effects.
 
We discuss the changes in electric revenues and the cost of electric fuel and purchased power for SDG&E in more detail below.
 
Natural Gas Revenues
 
In 2014, Sempra Energy’s natural gas revenues increased by $151 million (3%) to $4.5 billion, and the cost of natural gas increased by $112 million (7%) to $1.8 billion. The increase in natural gas revenues included
 
§  
increases in cost of natural gas sold at both SoCalGas and SDG&E, as we discuss below;
 
§  
increases of $52 million and $8 million at SoCalGas and SDG&E, respectively, in authorized revenues from 2014 attrition; and
 
§  
$30 million higher revenues from the advanced metering infrastructure project at SoCalGas; offset by
 
§  
$30 million favorable impact on the California Utilities’ 2013 revenues from the retroactive application of the 2012 GRC decision, recorded in the second quarter of 2013, for the period from January 2012 through December 2012; and
 
§  
$18 million lower recovery of costs at SoCalGas associated with CPUC-authorized refundable programs, which revenues are fully offset in operation and maintenance expenses.
 
In 2013 compared to 2012, Sempra Energy’s natural gas revenues increased by $525 million (14%) to $4.4 billion, and the cost of natural gas increased by $356 million (28%) to $1.6 billion. The increase in natural gas revenues included
 
§  
an increase in cost of natural gas sold at both SoCalGas and SDG&E, as we discuss below;
 
§  
increases of $64 million and $20 million at SoCalGas and SDG&E, respectively, primarily due to higher authorized revenues from implementation of the 2012 GRC decision and 2013 attrition. Due to the delay in the issuance of the 2012 GRC decision by the CPUC, 2012 authorized revenue was essentially unchanged from the 2011 authorized revenue;
 
§  
higher recovery of costs at SoCalGas associated with CPUC-authorized refundable programs, which revenues are fully offset in operation and maintenance expenses; and
 
§  
$30 million increase due to the retroactive application in 2013 of the 2012 GRC decision for the period from January 2012 through December 2012.
 
We discuss the changes in revenues and cost of natural gas individually for SDG&E and SoCalGas below.
 
 
SDG&E: Electric Revenues and Cost of Electric Fuel and Purchased Power
 
The table below shows electric revenues for SDG&E. Because the cost of electricity is substantially recovered in rates, changes in the cost are reflected in the changes in revenues. In addition to the change in cost, electric revenues recorded during a period are impacted by customer billing cycles causing a difference between customer billings and recorded or authorized costs. 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 1 of the Notes to Consolidated Financial Statements.
 

SDG&E
ELECTRIC DISTRIBUTION AND TRANSMISSION 2012-2014
(Volumes in millions of kilowatt-hours, dollars in millions)
   
Years ended December 31,
   
2014
2013
2012
Customer class
Volumes
Revenue
Volumes
Revenue
Volumes
Revenue
Residential
7,338
$
1,370
7,392
$
1,283
7,587
$
1,242
Commercial
6,974
 
1,418
6,722
 
1,080
6,902
 
1,017
Industrial
2,067
 
342
1,962
 
257
2,042
 
249
Direct access(1)
3,648
 
205
3,593
 
151
3,399
 
148
Street and highway lighting
88
 
15
87
 
12
95
 
13
   
20,115
 
3,350
19,756
 
2,783
20,025
 
2,669
CAISO shared transmission revenue - net(2)
   
162
   
268
   
64
Other revenues
   
205
   
172
   
134
Balancing accounts
   
68
   
314
   
359
    Total(3)
 
$
3,785
 
$
3,537
 
$
3,226
(1)
The Direct Access (DA) program, which offered all customers the option to purchase their electric commodity services from a third-party Energy Service Provider (ESP) instead of continuing to receive these services from SDG&E, was implemented in 1998 and suspended in 2001. In 2009, Senate Bill 695 required the CPUC to develop a process and rules for a limited re-opening of DA to be phased in over a period of time. In 2010, the CPUC adopted the process and rules for the limited re-opening of DA for non-residential customers under a 4-year phase-in schedule. The 2013 tranche of non-residential customers switching to DA resulted in higher volumes in 2013. The increase in revenues from the higher volumes was offset by lower tariffs in 2013 compared to 2012. The phase-in program ended in 2013. Tariffs in 2014 increased from 2013.
(2)
California Independent System Operator (CAISO). CAISO shared transmission revenue changes in 2014 are primarily due to timing differences between billed amounts and recorded or authorized costs, which are offset by corresponding changes in balancing accounts. Shared transmission revenue increased in 2013 compared to 2012 due to the Sunrise Powerlink transmission line being placed in service in June 2012.
(3)
Includes sales to affiliates of $10 million in 2014, $9 million in 2013 and $7 million in 2012.

SDG&E’s electric revenues increased by $248 million (7%) to $3.8 billion in 2014 primarily due to:
 
§  
$290 million increase in cost of electric fuel and purchased power, including:
 
□  
an increase in purchased power primarily due to the incremental purchase of renewable energy at higher prices, offset by
 
□  
a decrease in cost of electric fuel primarily due to planned outages at SDG&E-owned generation facilities;
 
§  
$39 million increase in authorized revenues from 2014 attrition; and
 
§  
$32 million higher authorized revenues from electric transmission; offset by
 
§  
$61 million favorable impact on 2013 revenues from the retroactive application of the 2012 GRC decision for the period from January 2012 through December 2012; and
 
§  
$47 million lower recovery of costs associated with CPUC-authorized refundable programs, which revenues are fully offset in operation and maintenance expenses.
 
In 2013 compared to 2012, electric revenues increased by $311 million (10%) to $3.5 billion at SDG&E, primarily due to:
 
§  
$140 million higher authorized revenues from electric transmission including:
 
□  
$80 million from placing the Sunrise Powerlink transmission line in service in June 2012, and
 
□  
$60 million from increased investment in other transmission assets;
 
§  
$127 million increase in cost of electric fuel and purchased power primarily due to the incremental cost and purchases of renewable energy, and increased cost of other purchased power primarily due to higher power prices, slightly offset by lower demand driven by an overall cooler summer in 2013 compared to 2012;
 
§  
$94 million higher authorized revenue from implementation of the 2012 GRC decision and 2013 attrition. Due to the delay in the issuance of the 2012 GRC decision by the CPUC, SDG&E’s 2012 authorized revenue was essentially unchanged from the 2011 authorized revenue; and
 
§  
$61 million increase due to the retroactive application in 2013 of the 2012 GRC decision for the period from January 2012 through December 2012; offset by
 
§  
$40 million lower recovery of costs associated with CPUC-authorized refundable programs, which revenues are fully offset in operation and maintenance expenses;
 
§  
$33 million loss of revenue from SONGS due to the early closure of the plant; and
 
§  
$30 million lower CPUC-authorized rate of return established in the CPUC cost of capital proceeding effective as of January 1, 2013.
 
We do not include in the Consolidated Statements of Operations the commodity costs (and the revenues to recover those costs) associated with long-term contracts in 2013 and 2012 that were allocated to SDG&E by the California Department of Water Resources (DWR). However, we do include the associated volumes and distribution revenues in the table above. The related operating agreement with the DWR expired at the end of 2013.
 
 
SDG&E and SoCalGas: Natural Gas Revenues and Cost of Natural Gas
 
The following tables show natural gas revenues for SDG&E and SoCalGas. Because the cost of natural gas is recovered in rates, changes in the cost are reflected in the changes in revenues. In addition to the change in market prices, natural gas revenues recorded during a period are impacted by the difference between customer billings and recorded or CPUC-authorized costs.  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 1 of the Notes to Consolidated Financial Statements.
 

SDG&E
NATURAL GAS SALES AND TRANSPORTATION 2012-2014
(Volumes in billion cubic feet, dollars in millions)
 
Natural Gas Sales
Transportation
Total
Customer class
Volumes
Revenue
Volumes
Revenue
Volumes
Revenue
2014:
                 
    Residential
25
$
304
$
2
25
$
306
    Commercial and industrial
14
 
106
8
 
10
22
 
116
    Electric generation plants(1)
 
26
 
2
26
 
2
 
39
$
410
34
$
14
73
 
424
    Other revenues
               
40
    Balancing accounts
               
80
        Total(2)
             
$
544
2013:
                 
    Residential
31
$
323
$
1
31
$
324
    Commercial and industrial
15
 
98
9
 
13
24
 
111
    Electric generation plants
 
25
 
15
25
 
15
 
46
$
421
34
$
29
80
 
450
    Other revenues
               
42
    Balancing accounts
               
37
        Total(2)
             
$
529
2012:
                 
    Residential
30
$
266
$
1
30
$
267
    Commercial and industrial
15
 
76
8
 
11
23
 
87
    Electric generation plants
 
37
 
15
37
 
15
 
45
$
342
45
$
27
90
 
369
    Other revenues
               
40
    Balancing accounts
               
59
        Total(2)
             
$
468
(1)   Lower electric generation plants revenue in 2014 compared to 2013 is due to refunds of previous overcollections to adjust forecasted rates to actual.
(2)   Includes sales to affiliates of $3 million in both 2014 and 2013 and $2 million in 2012.


In 2014, SDG&E’s natural gas revenues increased by $15 million (3%) to $544 million, and the cost of natural gas increased by $4 million (2%) to $208 million. The increase in revenues was primarily due to:
 
§  
higher cost of natural gas sold, offset by lower volumes, as we discuss below; and
 
§  
$8 million increase in authorized revenues from 2014 attrition; offset by
 
§  
$5 million favorable impact from the retroactive application of the 2012 GRC decision, recorded in the second quarter of 2013, for the period from January 2012 through December 2012.
 
In 2013 compared to 2012, SDG&E’s natural gas revenues increased by $61 million (13%) to $529 million, and the cost of natural gas increased by $53 million (35%) to $204 million. The increase in revenues was primarily due to:
 
§  
higher cost of natural gas sold, as we discuss below;
 
§  
$20 million higher authorized revenue from implementation of the 2012 GRC decision and 2013 attrition. Due to the delay in the issuance of the 2012 GRC decision by the CPUC, SDG&E’s 2012 authorized revenue was essentially unchanged from the 2011 authorized revenue; and
 
§  
$5 million increase from the retroactive application in 2013 of the 2012 GRC decision for the period from January 2012 through December 2012; offset by
 
§  
$5 million lower recovery of costs associated with CPUC-authorized refundable programs, which revenues are fully offset in operation and maintenance expenses.
 
SDG&E’s average cost of natural gas was $5.44 per thousand cubic feet (Mcf) for 2014, $4.49 per Mcf for 2013 and $3.62 per Mcf for 2012. In 2014, the 21-percent increase of $0.95 per Mcf resulted in higher revenues and cost of $36 million compared to 2013. The increase in the cost of natural gas sold was offset by lower demand for natural gas primarily from a warmer winter in 2014 compared to the same period in 2013, which resulted in lower revenues and cost of $32 million.
 
In 2013, the 24-percent increase of $0.87 per Mcf resulted in higher revenues and cost of $40 million compared to 2012.
 
SOCALGAS
NATURAL GAS SALES AND TRANSPORTATION 2012-2014
(Volumes in billion cubic feet, dollars in millions)
 
Natural Gas Sales
Transportation
Total
Customer class
Volumes
Revenue
Volumes
Revenue
Volumes
Revenue
2014:
                 
    Residential
195
$
2,170
3
$
16
198
$
2,186
    Commercial and industrial
92
 
743
293
 
260
385
 
1,003
    Electric generation plants
 
211
 
42
211
 
42
    Wholesale
 
150
 
24
150
 
24
 
287
$
2,913
657
$
342
944
 
3,255
    Other revenues
               
103
    Balancing accounts
               
497
        Total(1)
             
$
3,855
2013:
                 
    Residential
234
$
2,204
2
$
8
236
$
2,212
    Commercial and industrial
100
 
691
293
 
242
393
 
933
    Electric generation plants
 
200
 
44
200
 
44
    Wholesale
 
170
 
27
170
 
27
 
334
$
2,895
665
$
321
999
 
3,216
    Other revenues
               
101
    Balancing accounts
               
419
        Total(1)
             
$
3,736
2012:
                 
    Residential
234
$
1,963
2
$
8
236
$
1,971
    Commercial and industrial
101
 
608
283
 
240
384
 
848
    Electric generation plants
 
231
 
39
231
 
39
    Wholesale
 
175
 
24
175
 
24
 
335
$
2,571
691
$
311
1,026
 
2,882
    Other revenues
               
91
    Balancing accounts
               
309
        Total(1)
             
$
3,282
(1)    Includes sales to affiliates of $69 million in 2014, $70 million in 2013 and $46 million in 2012.

In 2014, SoCalGas’ natural gas revenues increased by $119 million (3%) to $3.9 billion, and the cost of natural gas increased by $87 million (6%) to $1.4 billion. The revenue increase included
 
§  
an increase in the market price of natural gas purchased, offset by lower volumes, as we discuss below;
 
§  
$52 million increase in authorized revenues from 2014 attrition; and
 
§  
$30 million higher revenues from the advanced metering infrastructure project; offset by
 
§  
$25 million favorable impact from the retroactive application of the 2012 GRC decision, recorded in the second quarter of 2013, for the period from January 2012 through December 2012; and
 
§  
$18 million lower recovery of costs associated with CPUC-authorized refundable programs, which revenues are fully offset in operation and maintenance expenses.
 
In 2013 compared to 2012, SoCalGas’ natural gas revenues increased by $454 million (14%) to $3.7 billion, and the cost of natural gas increased by $288 million (27%) to $1.4 billion. The revenue increase included
 
§  
an increase in cost of natural gas sold from higher natural gas prices, as we discuss below;
 
§  
$76 million higher recovery of costs associated with CPUC-authorized refundable programs, which revenues are fully offset in operation and maintenance expenses;
 
§  
$64 million increase primarily due to higher authorized revenue from implementation of the 2012 GRC decision and 2013 attrition. Due to the delay in the issuance of the 2012 GRC decision by the CPUC, SoCalGas’ 2012 authorized revenue was essentially unchanged from the 2011 authorized revenue; and
 
§  
$25 million increase due to the retroactive application in 2013 of the 2012 GRC decision for the period from January 2012 through December 2012.
 
SoCalGas’ average cost of natural gas was $5.06 per Mcf for 2014, $4.08 per Mcf for 2013 and $3.21 per Mcf for 2012. In 2014, the 24-percent increase of $0.98 per Mcf resulted in higher revenues and cost of $280 million compared to 2013. The increase in the average cost of natural gas sold was offset by lower demand for natural gas primarily from a warmer winter in 2014 compared to the same period in 2013, which resulted in lower revenues and cost of $193 million.
 
In 2013, the 27-percent increase of $0.87 per Mcf resulted in higher revenues and cost of $291 million compared to 2012.
 
 
Other Utilities: Revenues and Cost of Sales
 
Revenues generated by Chilquinta Energía and Luz del Sur are based on tariffs that are set by government agencies in their respective countries based on an efficient model distribution company defined by those agencies. The basis for the tariffs do not meet the requirement necessary for treatment under applicable U.S. GAAP for regulatory accounting. We discuss revenue recognition further for Chilquinta Energía and Luz del Sur in Note 1 of the Notes to Consolidated Financial Statements.
 
Operations of Mobile Gas, Willmut Gas and Ecogas qualify for regulatory accounting treatment under applicable U.S. GAAP, similar to the California Utilities.
 
The table below summarizes natural gas and electric revenue for our utilities outside of California:
 

OTHER UTILITIES
NATURAL GAS AND ELECTRIC REVENUES 2012-2014
(Dollars in millions)
   
Years ended December 31,
   
2014
2013
2012
   
Volumes
Revenue
Volumes
Revenue
Volumes
Revenue
Natural Gas Sales (billion cubic feet):
                 
Sempra Mexico - Ecogas
24
$
109
24
$
97
23
$
75
Sempra Natural Gas:
                 
    Mobile Gas
38
 
89
40
 
88
43
 
86
    Willmut Gas(1)
3
 
24
3
 
21
1
 
10
    Total
65
$
222
67
$
206
67
$
171
                     
Electric Sales (million kilowatt hours):
                 
Sempra South American Utilities:
                 
    Luz del Sur
7,287
$
854
6,984
$
785
6,668
$
759
    Chilquinta Energía
2,944
 
530
2,856
 
537
2,698
 
533
   
10,231
 
1,384
9,840
 
1,322
9,366
 
1,292
Other service revenues
   
50
   
61
   
57
    Total
 
$
1,434
 
$
1,383
 
$
1,349
(1)
We acquired Willmut Gas in May 2012.
   


 
Energy-Related Businesses: Revenues and Cost of Sales
 

The table below shows revenues and cost of sales for our energy-related businesses.
 


ENERGY-RELATED BUSINESSES: REVENUES AND COST OF SALES 2012-2014
(Dollars in millions)
   
Years ended December 31,
   
2014
2013
2012
REVENUES
                       
    Sempra South American Utilities
$
100
8
%
$
112
9
%
$
92
8
%
    Sempra Mexico
 
709
55
   
578
46
   
530
44
 
    Sempra Renewables
 
35
3
   
82
7
   
68
6
 
    Sempra Natural Gas
 
866
68
   
799
64
   
835
69
 
    Intersegment revenues, adjustments
                       
      and eliminations(1)
 
(433)
(34)
   
(323)
(26)
   
(319)
(27)
 
        Total revenues
$
1,277
100
%
$
1,248
100
%
$
1,206
100
%
COST OF SALES(2)
                       
    Sempra South American Utilities
$
11
2
%
$
%
$
%
    Sempra Mexico
 
350
63
   
253
58
   
197
41
 
    Sempra Renewables
 
   
3
1
   
3
 
    Sempra Natural Gas
 
617
112
   
497
114
   
581
121
 
    Adjustments and eliminations(1)
 
(426)
(77)
   
(318)
(73)
   
(300)
(62)
 
        Total cost of natural gas, electric fuel
                       
            and purchased power
$
552
100
%
$
435
100
%
$
481
100
%
                           
    Sempra South American Utilities
$
68
42
%
$
84
47
%
$
66
41
%
    Sempra Mexico
 
14
8
   
10
6
   
21
13
 
    Sempra Natural Gas
 
89
55
   
91
51
   
90
57
 
    Adjustments and eliminations(1)
 
(8)
(5)
   
(7)
(4)
   
(18)
(11)
 
        Total other cost of sales
$
163
100
%
$
178
100
%
$
159
100
%
(1)
Includes eliminations of intercompany activity.
(2)
Excludes depreciation and amortization, which are shown separately on the Consolidated Statements of Operations.

Revenues from our energy-related businesses increased by $29 million (2%) to $1.3 billion in 2014. The increase included
 
§  
$131 million higher revenues at Sempra Mexico primarily due to higher natural gas and power prices and volumes, and higher transportation revenues from the start of operations of a section of the Sonora natural gas pipeline; and
 
§  
$67 million increase at Sempra Natural Gas mainly from the favorable impact of higher natural gas prices and volumes in 2014 from its LNG marketing operations, offset by lower revenues from its natural gas marketing activities; offset by
 
§  
$110 million higher intercompany eliminations primarily associated with sales between Sempra Natural Gas and Sempra Mexico; and
 
§  
$47 million lower revenues at Sempra Renewables mainly due to the deconsolidation of Mesquite Solar 1 and Copper Mountain Solar 2 in 2013.
 
In 2013 compared to 2012, revenues from our energy-related businesses increased by $42 million (3%) to $1.2 billion in 2013. The increase included
 
§  
$48 million increase at Sempra Mexico primarily due to higher natural gas and power prices, partially offset by the net impact of changes in affiliate agreements;
 
§  
$20 million increase at Sempra South American Utilities primarily due to higher electric construction service and energy distribution revenues at Tecnored; and
 
§  
$14 million increase at Sempra Renewables mainly from revenues generated by our solar assets placed in service during 2012; offset by
 
§  
$36 million decrease at Sempra Natural Gas primarily due to lower power production at Mesquite Power, a portion of which was due to the sale of one 625-MW block of the natural gas-fired power plant, and expiring capacity release contracts related to Rockies Express, offset by higher physical gas sales at natural gas marketing and storage operations, and the impact of higher natural gas prices on LNG marketing operations.
 
The cost of natural gas, electric fuel and purchased power for our energy-related businesses increased by $117 million (27%) to $552 million in 2014 primarily due to:
 
§  
$120 million increase at Sempra Natural Gas primarily due to higher natural gas costs and volumes; and
 
§  
$97 million increase at Sempra Mexico primarily due to higher natural gas costs and volumes; offset by
 
§  
$108 million higher intercompany eliminations of costs primarily associated with sales between Sempra Natural Gas and Sempra Mexico.
 
The cost of natural gas, electric fuel and purchased power for our energy-related businesses decreased by $46 million (10%) to $435 million in 2013 compared to 2012 primarily due to:
 
§  
$84 million decrease at Sempra Natural Gas primarily due to lower natural gas costs as a result of lower power production at Mesquite Power, as discussed above, and a decrease at its LNG operations primarily due to lower natural gas sales and lower costs resulting from commercial arrangements entered into with affiliates; offset by
 
§  
$56 million increase at Sempra Mexico primarily due to higher natural gas prices and costs associated with greenhouse gas allowances.
 
In 2013 compared to 2012, other cost of sales from our energy-related businesses increased by $19 million (12%) to $178 million primarily due to costs associated with higher service revenues at Tecnored and Tecsur, including those related to electric construction and generation projects.
 
 
Operation and Maintenance
 
In the table below, we provide a breakdown of our operation and maintenance expenses by segment.
 

OPERATION AND MAINTENANCE 2012-2014
(Dollars in millions)
   
Years ended December 31,
   
2014
2013
2012
California Utilities:
                       
    SDG&E
$
1,076
37
%
$
1,157
39
%
$
1,154
39
%
    SoCalGas
 
1,321
45
   
1,324
44
   
1,304
44
 
Sempra International:
                       
    Sempra South American Utilities
 
173
6
   
170
6
   
177
6
 
    Sempra Mexico
 
121
4
   
124
4
   
94
3
 
Sempra U.S. Gas & Power:
                       
    Sempra Renewables
 
50
2
   
46
1
   
34
1
 
    Sempra Natural Gas
 
181
6
   
167
6
   
168
6
 
Parent and other(1)
 
13
   
7
   
25
1
 
Total operation and maintenance
$
2,935
100
%
$
2,995
100
%
$
2,956
100
%
(1)
Includes intercompany eliminations recorded in consolidation.

Sempra Energy Consolidated
 
Our operation and maintenance expenses decreased by $60 million (2%) to $2.9 billion in 2014 primarily due to:
 
§  
$81 million decrease at SDG&E, which we discuss below; and
 
§  
$3 million decrease at SoCalGas, which we discuss below; offset by
 
§  
$14 million increase at Sempra Natural Gas primarily due to higher operating expenses at its LNG operations.
 
While our operation and maintenance expenses remained approximately the same at $3.0 billion in 2013 compared to 2012, it included the following activities:
 
§  
$30 million higher expenses at Sempra Mexico mainly due to higher administrative expenses from the new IEnova public company structure and scheduled plant maintenance at the Mexicali power plant in 2013;
 
§  
$20 million increase at SoCalGas, which we discuss below; and
 
§  
$12 million increase at Sempra Renewables primarily due to higher corporate allocations, land lease costs for Copper Mountain Solar 3, and operating expenses of Copper Mountain Solar 2 and Mesquite Solar 1 prior to the projects’ deconsolidation in the third quarter of 2013; offset by
 
§  
$18 million decrease at Parent and Other mainly due to higher eliminations of intersegment operating costs.
 
SDG&E
 
SDG&E’s operation and maintenance expenses decreased by $81 million (7%) to $1.1 billion in 2014 primarily due to:
 
§  
$44 million lower expenses associated with CPUC-authorized refundable programs, including $61 million due to lower operation and maintenance expenses at SONGS, for which all costs incurred are fully recovered in revenue (refundable program expenses);
 
§  
$23 million lower operation and maintenance costs, including labor, contract services and administrative and support costs (non-refundable operating costs); and
 
§  
$8 million lower legal costs.
 
SDG&E’s operation and maintenance expenses remained approximately the same at $1.2 billion in 2013 compared to 2012 and included the following activities:
 
§  
$36 million higher non-refundable operating costs, including:
 
□  
$10 million recovery from the DOE in 2012 of incremental costs incurred in prior years for the long-term storage of spent nuclear fuel, and
 
□  
$4 million increase in liability insurance premiums for wildfire coverage in 2013;
 
§  
$7 million higher legal costs; and
 
§  
$5 million higher operation and maintenance expenses at Otay Mesa VIE; offset by
 
§  
$45 million lower refundable program expenses.
 
SoCalGas
 
Operation and maintenance expenses at SoCalGas decreased in 2014 by $3 million, remaining at $1.3 billion, primarily due to:
 
§  
$18 million lower expenses associated with CPUC-authorized refundable programs for which all costs incurred are fully recovered in revenue (refundable program expenses); offset by
 
§  
$9 million higher operation and maintenance costs, including labor, contract services and administrative and support costs (non-refundable operating costs); and
 
§  
$7 million insurance recovery in 2013 of previously expensed costs.
 
SoCalGas’ operation and maintenance expenses increased by $20 million (2%) to $1.3 billion in 2013 compared to 2012 primarily due to:
 
§  
$76 million higher refundable program expenses; offset by
 
§  
$49 million lower non-refundable operating costs; and
 
§  
$7 million insurance recovery in 2013 of previously expensed costs.
 
 
Depreciation and Amortization
 
Sempra Energy Consolidated
 
Our depreciation and amortization expense was
 
§  
$1,156 million in 2014
 
§  
$1,113 million in 2013
 
§  
$1,090 million in 2012
 
The increase of $43 million (4%) in 2014 was primarily due to:
 
§  
$33 million higher depreciation and amortization at SoCalGas from higher utility plant base;
 
§  
$18 million net increase in depreciation and amortization at SDG&E mainly from higher utility plant base, offset by lower depreciation from the retirement of SONGS; and
 
§  
lower depreciation and amortization in 2013 of $18 million at SDG&E and $15 million at SoCalGas due to the retroactive application to the period of January 1 to December 2012 of the extension of the useful lives of depreciable assets as adopted in the 2012 GRC; offset by
 
§  
$16 million lower depreciation at Sempra Renewables mainly related to the deconsolidation of Mesquite Solar 1 and Copper Mountain Solar 2 in 2013; and
 
§  
$20 million lower depreciation expense at Sempra Natural Gas largely due to the classification of the second block of the Mesquite Power plant as an asset held for sale in January 2014.
 
The increase of $23 million (2%) in 2013 compared to 2012 included
 
§  
$36 million higher depreciation and amortization at SoCalGas from higher utility plant base; and
 
§  
$22 million net increase in depreciation and amortization at SDG&E mainly from Sunrise Powerlink going into service in June 2012 and higher amortization of legacy meters, offset by lower depreciation from the retirement of SONGS; offset by
 
§  
lower depreciation and amortization of $18 million at SDG&E and $15 million at SoCalGas due to the retroactive application to the period of January 1 to December 2012 of the extension of the useful lives of depreciable assets as adopted in the 2012 GRC; and
 
§  
$12 million lower depreciation expense at Sempra Natural Gas largely due to the sale of one block of the Mesquite Power plant in February 2013.
 
 
Plant Closure Loss
 
SDG&E has a 20-percent ownership interest in SONGS, a nuclear generating facility near San Clemente, California. SONGS’ Units 2 and 3 were shut down in early 2012 due to steam generator issues and, in June 2013, Edison, the majority owner and operator of SONGS, made the decision to permanently retire these two units. In the second quarter of 2013, SDG&E recorded a pretax charge of $200 million ($119 million after-tax), which represents the portion of SDG&E’s investment in SONGS and associated costs that management estimated may not be recovered in rates based on prior CPUC precedent. In 2014, SDG&E recorded a $6 million charge ($4 million after-tax, not including a $17 million charge to reduce certain tax regulatory assets that we discuss in “Income Taxes” below) to adjust the total loss from plant closure (in addition to the amount recorded in 2013), based on a settlement agreement (approved by the CPUC in November 2014) to the SONGS OII into the SONGS Outage. We discuss SONGS further in Notes 13 and 15 of the Notes to Consolidated Financial Statements.
 
 
Gain on Sale of Equity Interests and Assets
 
Gain on sale of equity interests and assets in 2013 included the $74 million gain ($44 million after-tax) from the sale of one 625-MW block of the Mesquite Power natural gas-fired power plant.
 
Also included in this line item are gains on the sale of 50-percent equity interests in 2014 and 2013 as follows:
 
2014:
 
§  
$27 million ($16 million after-tax) for Copper Mountain Solar 3
 
§  
$19 million ($14 million after-tax) for the first phase of the Energía Sierra Juárez Wind project
 
§  
$14 million ($8 million after-tax) for the Broken Bow 2 Wind project
 
2013:
 
§  
$36 million ($22 million after-tax) for Mesquite Solar 1
 
§  
$4 million ($2 million after-tax) for Copper Mountain Solar 2
 
 
Equity Earnings (Losses), Before Income Tax
 
Equity earnings (losses) from our equity method investments were
 
§  
$81 million in 2014
 
§  
$31 million in 2013
 
§  
$(319) million in 2012
 

The increase in equity earnings in 2014 was primarily due to:
 
§  
$20 million equity earnings in 2014 compared to $12 million equity losses in 2013 from investments at Sempra Renewables, including Mesquite Solar 1, the California solar partnership, Fowler Ridge 2 Wind and Copper Mountain Solar 2; and
 
§  
$13 million higher equity earnings from Rockies Express.
 
Equity losses in 2012 included a write-down of our investment in Rockies Express of $400 million, offset by a $41 million make-whole income tax provision payment received from our previous joint venture partner, Kinder Morgan.
 
We provide further details about equity method investments in Note 4 and the impairment of our investment in Rockies Express in Note 10 of the Notes to Consolidated Financial Statements.
 
 
Other Income, Net
 
Sempra Energy Consolidated
 
Other income, net, was
 
§  
$137 million in 2014
 
§  
$140 million in 2013
 
§  
$172 million in 2012
 
Other income, net, includes equity-related AFUDC at the California Utilities and regulated entities at Sempra Mexico and Sempra Natural Gas; interest on regulatory balancing accounts; gains and losses from our investments and interest rate swaps; foreign currency gains and losses; electrical infrastructure relocation income in Peru; and other, sundry amounts. The investment activity is on dedicated assets in support of certain executive benefit plans, as we discuss in Note 7 of the Notes to Consolidated Financial Statements.
 
Other income, net, decreased by $3 million (2%) to $137 million in 2014 and included the following activity:
 
§  
$15 million losses on interest rate and foreign exchange instruments in 2014 compared to $17 million gains in 2013;
 
§  
$12 million higher foreign currency losses, primarily at Sempra Mexico; and
 
§  
$12 million lower investment gains on dedicated assets in support of our executive retirement and deferred compensation plans; offset by
 
§  
$31 million increase in equity-related AFUDC, including:
 
□  
$24 million increase at Sempra Mexico related to construction of the Sonora natural gas pipeline, and
 
□  
$9 million increase at SoCalGas; and
 
§  
$17 million higher income from relocation of electrical infrastructure in Peru.
 
In 2013 compared to 2012, other income, net, decreased by $32 million (19%) to $140 million primarily due to:
 
§  
$21 million decrease in equity-related AFUDC, including:
 
□  
$32 million decrease at SDG&E primarily due to completion of construction on the Sunrise Powerlink project in June 2012, and
 
□  
$8 million decrease at SoCalGas, offset by
 
□  
$19 million increase at Sempra Mexico related to construction of the Sonora natural gas pipeline; and
 
§  
$9 million foreign currency gains in 2012.
 
We provide further details of the components of other income, net, in Note 1 of the Notes to Consolidated Financial Statements.
 
 
Interest Expense
 
The table below shows the interest expense for Sempra Energy Consolidated, SDG&E and SoCalGas.
 

INTEREST EXPENSE 2012-2014
(Dollars in millions)
 
Years ended December 31,
 
2014
2013
2012
Sempra Energy Consolidated
$
554
$
559
$
493
SDG&E
 
202
 
197
 
173
SoCalGas
 
69
 
69
 
68

Sempra Energy Consolidated
 
In 2013 compared to 2012, our interest expense increased primarily due to:
 
§  
$46 million decrease in capitalized interest mainly due to projects placed in service, including: SDG&E’s Sunrise Powerlink, which was placed in service in June 2012; Sempra Renewables’ wind and solar projects, which went online in the fourth quarter of 2012; and additional capacity at Sempra Natural Gas’ Mississippi Hub, LLC (Mississippi Hub) facility, which went online in September 2012; and
 
§  
$20 million net increase in interest expense primarily related to long-term debt issuances, including:
 
□  
the IEnova debt offering in February 2013,
 
□  
long-term debt issuances in 2012 and 2013 and remarketing of industrial development bonds in 2012 from floating to fixed rates at SDG&E,
 
□  
long-term debt issuances of $1.6 billion in March and September 2012 and November 2013 at Parent and Other, offset by lower interest expense associated with the maturity of $650 million of notes in February and November 2013, and
 
□  
project financing of selected projects at Sempra Renewables.
 
SDG&E
 
In 2013 compared to 2012, SDG&E’s interest expense increased by $24 million (14%) primarily due to lower AFUDC debt as a result of the Sunrise Powerlink project going into service in June 2012, the issuances of long-term debt in 2012 and 2013 and the remarketing of industrial development bonds from floating to fixed rates in 2012.
 
 
Income Taxes
 
The table below shows the income tax expense and effective income tax rates for Sempra Energy, SDG&E and SoCalGas.
 

INCOME TAX EXPENSE AND EFFECTIVE INCOME TAX RATES 2012-2014
(Dollars in millions)
 
Years ended December 31,
     
2014
 
2013
 
2012
     
Income
 
Effective
   
Income
 
Effective
   
Income
 
Effective
 
     
tax
 
income
   
tax
 
income
   
tax
 
income
 
     
expense
 
tax rate
   
expense
 
tax rate
   
expense
 
tax rate
 
Sempra Energy Consolidated
$
300
 
20
%
$
366
 
26
%
$
59
 
6
%
SDG&E
 
270
 
34
   
191
 
31
   
190
 
27
 
SoCalGas
 
139
 
29
   
116
 
24
   
79
 
21
 
   


Sempra Energy Consolidated
 
Sempra Energy’s income tax expense decreased in 2014 due to a lower effective income tax rate, offset by higher pretax income. The lower effective income tax rate was primarily due to:
 
§  
$63 million income tax expense recorded in the first quarter of 2013 resulting from a corporate reorganization in connection with the IEnova stock offerings. We discuss the stock offerings further in Note 1 of the Notes to Consolidated Financial Statements;
 
§  
higher income tax benefit in 2014 from foreign currency translation and inflation adjustments;
 
§  
a $25 million tax benefit due to the release in 2014 of a Louisiana valuation allowance against a deferred tax asset associated with Cameron LNG developments; and
 
§  
higher deferred income tax benefits related to renewable energy projects; offset by
 
§  
a $38 million U.S. tax on the repatriation of a portion of current year earnings from certain non-U.S. subsidiaries in Mexico and Peru; and
 
§  
a $17 million charge to reduce certain tax regulatory assets attributed to SDG&E’s investment in SONGS pursuant to a settlement agreement to resolve the SONGS OII that we discuss in Note 13 of the Notes to Consolidated Financial Statements.
 
Sempra Energy’s income tax expense increased in 2013 compared to 2012 due to higher pretax income and a higher effective income tax rate. The higher effective income tax rate was primarily due to:
 
§  
$63 million income tax expense recorded in the first quarter of 2013 resulting from a corporate reorganization in connection with the IEnova stock offerings;
 
§  
a $62 million income tax benefit recorded in 2012 for life insurance contracts, of which $54 million was primarily associated with our decision in the second quarter of 2012 to hold life insurance contracts kept in support of certain benefit plans to term. Previously, we took the position that we might cash in or sell these contracts before maturity, which required that we record deferred income taxes on unrealized gains on investments held within the insurance contracts;
 
§  
lower deferred income tax benefits related to renewable energy projects;
 
§  
lower income tax benefit in 2013 relating to certain repairs expenditures that are capitalized for financial statement purposes, including $22 million income tax benefit recorded in 2012 for 2011 resulting from a favorable change made in the third quarter of 2012, as we discuss below;
 
§  
lower favorable impact of exclusions from taxable income of the equity portion of AFUDC; and
 
§  
lower deductions for self-developed software expenditures; offset by
 
§  
a lower unfavorable impact on our effective tax rate in 2013 from the reversal through book depreciation of previously recognized tax benefits for a certain portion of utility fixed assets; and
 
§  
favorable adjustments to prior years’ income tax items in 2013, primarily at SoCalGas.
 
We use the deferral method of accounting for investment tax credits (ITC). For certain wind and solar generating assets being placed into service during 2012, we elected to seek cash grants rather than ITC for which the projects also qualify. Accordingly, cash grant accounting was applied. Grant accounting for cash grants is very similar to the deferral method of accounting for ITC, the primary difference being the recording of a cash grant receivable instead of an income tax receivable. We discuss our accounting for ITC and cash grants further in Note 6 of the Notes to Consolidated Financial Statements.
 
The results for Sempra Energy Consolidated and SDG&E include Otay Mesa VIE, which is consolidated, and therefore, Sempra Energy Consolidated’s and SDG&E’s effective income tax rates are impacted by the VIE’s stand-alone effective income tax rate, as we discuss in Note 1 of the Notes to Consolidated Financial Statements. For 2014, 2013 and 2012, the impacts on the Sempra Energy Consolidated and SDG&E effective income tax rates shown above were not material.
 
We report as part of our pretax results the income or loss attributable to noncontrolling interests. However, we do not record income taxes for a portion of this income or loss, as some of our entities with noncontrolling interests are currently treated as partnerships for income tax purposes and thus we are only liable for income taxes on the portion of the earnings that are allocated to us. As our entities with noncontrolling interests grow, and as we may continue to invest in such entities, the impact on our effective income tax rate may become more significant.
 
In 2015, we anticipate that Sempra Energy Consolidated’s effective income tax rate will be approximately 29 percent compared to 20 percent in 2014. This increase is primarily due to a forecasted increase in pretax book income and because we are not currently anticipating similar significant events as incurred in 2014.
 
In the years 2016 through 2019, we anticipate that Sempra Energy Consolidated’s effective income tax rate will range from 30 percent to 33 percent primarily due to forecasted increases in pretax book income in jurisdictions with higher tax rates, primarily from anticipated commencement of operations at the Cameron LNG Holdings joint venture.
 
SDG&E
 
SDG&E’s income tax expense increased in 2014 due to a higher effective tax rate and higher pretax income. Pretax income in 2013 included a $200 million loss from the early closure of SONGS, offset by the favorable impact of the retroactive application of the 2012 GRC in 2013. The higher effective tax rate was primarily due to:
 
§  
the $17 million charge to reduce certain tax regulatory assets attributed to SDG&E’s investment in SONGS discussed above; offset by
 
§  
higher favorable adjustments to prior years’ income tax items in 2014.
 
SDG&E’s income tax expense increased in 2013 compared to 2012 due to a higher effective tax rate, offset by lower pretax income. The higher effective tax rate was primarily due to:
 
§  
$22 million income tax benefit recorded in 2012 for 2011 resulting from a favorable change made in the third quarter of 2012 in the income tax treatment of certain repairs expenditures that are capitalized for book purposes; and
 
§  
lower favorable impact of exclusions from taxable income of the equity portion of AFUDC.
 
In 2015, we anticipate that SDG&E’s effective income tax rate will be approximately 37 percent compared to 34 percent in 2014.  This increase is primarily due to a forecasted increase in pretax book income without a proportional increase in the forecasted flow-through deductions. Flow-through deductions are subject to review by the CPUC and, at the CPUC’s discretion, the flow-through benefits of these items could be changed, which could have a material adverse impact on Sempra Energy’s and SDG&E’s earnings, financial condition and cash flow.
 
In the years 2016 through 2019, we anticipate that SDG&E’s effective income tax rate will range from 37 percent to 38 percent.
 
SoCalGas
 
SoCalGas’ income tax expense increased in 2014 due to a higher effective tax rate, offset by slightly lower pretax income. The higher effective tax rate was primarily due to:
 
§  
$15 million lower favorable adjustments to prior years’ income tax items in 2014;
 
§  
higher unfavorable impact on our effective tax rate in 2014 from the reversal through book depreciation of previously recognized tax benefits for a certain portion of utility fixed assets; and
 
§  
lower deductions for self-developed software expenditures.
 
SoCalGas’ income tax expense increased in 2013 compared to 2012 due to higher pretax income and a higher effective tax rate. The higher effective tax rate was primarily due to:
 
§  
lower income tax benefit in 2013 relating to certain repairs expenditures for gas assets that are capitalized for financial statement purposes; and
 
§  
lower deductions for self-developed software expenditures; offset by
 
§  
higher favorable adjustments to prior years’ income tax items in 2013.
 
In 2015, we anticipate that SoCalGas’ effective income tax rate will be approximately 31 percent compared to 29 percent in 2014. This increase is primarily due to a forecasted increase in pretax book income without a proportional increase in the forecasted flow-through deductions. Flow-through deductions are subject to review by the CPUC and, at the CPUC’s discretion, the flow-through benefits of these items could be changed, which could have a material adverse impact on Sempra Energy’s and SoCalGas’ earnings, financial condition and cash flow.
 
In the years 2016 through 2019, we anticipate that SoCalGas’ effective income tax rate will range from 31 percent to 33 percent, primarily due to forecasted increases in pretax book income without a proportional increase in the forecasted flow-through deductions.
 
The following items are subject to flow-through treatment at the California Utilities:
 
§  
repairs expenditures related to a certain portion of utility plant assets
 
§  
the equity portion of AFUDC
 
§  
a portion of the cost of removal of utility plant assets
 
§  
self-developed software expenditures
 
§  
depreciation on a certain portion of utility plant assets
 
The AFUDC related to equity recorded for regulated construction projects at Sempra Mexico and Sempra Natural Gas has similar flow-through treatment.
 
Tax Reform
 
Peru. On December 31, 2014, the Peruvian government passed a tax reform law, effective on January 1, 2015. Among other changes, the new law imposes a gradual decrease in the corporate income tax rate from 30 percent in 2014 to 26 percent in 2019 and beyond, as well as a gradual increase in the dividend withholding tax rate from 4.1 percent in 2014 to 9.3 percent in 2019 and beyond.  To reflect the impact of the decrease to the Peruvian corporate income tax rate, we remeasured our Peruvian deferred tax balances, resulting in an additional $18 million of deferred tax benefit that was recorded in the fourth quarter of 2014. There is no immediate impact of the increase to the Peruvian dividend withholding tax rate, because the withholding tax will be accrued at the shareholder level when Peruvian earnings are actually distributed.
 
Chile. The 2014 Chilean Tax Reform Bill (Tax Reform Bill) became effective on September 29, 2014. Taxpayers have an option of being taxed under two approaches. For the approach that we intend to select, the corporate income tax rates will increase gradually, between 2014 and 2017, from 21 percent to 27 percent. To reflect the impact of the change in tax law, we remeasured our Chilean deferred tax balances, which resulted in an additional $6 million of deferred tax expense that was recorded in the third quarter of 2014. The Tax Reform Bill also imposes a tax on earnings distributed to non-Chilean shareholders. However, since Sempra Energy intends to indefinitely reinvest the cumulative Chilean earnings, there is no impact from the Tax Reform Bill’s shareholder level income tax.
 
Mexico. In December 2013, the Mexican Congress passed tax reform legislation with the following impacts on Sempra Energy and our Sempra Mexico segment:
 
§  
Higher Corporate Tax Rate: The new corporate income tax rate is 30 percent for 2014 and future years. In 2013, we recorded $13 million additional income tax expense related to the revaluation of deferred tax liabilities.
 
§  
Tax Consolidation: The consolidation rules under the previous income tax law were replaced with new rules under which tax benefits are recaptured in three years instead of five years. However, as a result of the IEnova corporate reorganization, we were required to make a prepayment of approximately $81 million against future income tax liability in 2014. Of the $81 million, $23 million was utilized in 2014. The remaining prepayment expires between 2016 and 2022. We currently believe that we will fully utilize the $58 million remaining prepayment before it expires.
 
§  
10-Percent Dividends Tax: A new “corporate” tax on dividends is payable by the Mexican entity that distributes the dividend to its foreign shareholder, which increased Mexico’s income tax rate to an effective 37 percent. Under the law, this tax is reduced or offset in accordance with bilateral tax treaties. The dividends from our Mexican entities to Sempra Energy will be to a country which has a bilateral tax treaty with Mexico that we expect will fully offset the tax. Accordingly, we do not expect this rule to have a material financial impact.
 
United States. In December 2014, the Tax Increase Prevention Act of 2014 (2014 Tax Act) was signed into law. The 2014 Tax Act included a one-year retroactive extension of certain business income tax provisions that had expired at the end of 2013, including 50 percent bonus depreciation and the research credit. The effects of these changes in the tax law have resulted in a tax benefit for the research credit. The impact of bonus depreciation is discussed below.
 
In January 2013, the American Taxpayer Relief Act of 2012 (2012 Tax Act) was signed into law. The 2012 Tax Act included retroactive extensions from January 1, 2012 through December 31, 2013 of certain business income tax provisions that had expired at the end of 2011, including the look-through rule. The look-through rule allows, under certain situations, for certain non-operating income (e.g., dividend income, royalty income, interest income, rental income, etc.), of a greater than 50-percent owned non-U.S. subsidiary, to not be taxed under U.S. federal income tax law. The retroactive application of the look-through rule to 2012 resulted in a $6 million income tax benefit. However, as the 2012 Tax Act was not signed into law as of December 31, 2012, the extension of the look-through rule has been treated as a 2013 event, and the related income tax benefit for 2012 was recorded in the first quarter of 2013. The 2012 Tax Act also extended the 50 percent bonus depreciation for qualified property placed in service before January 1, 2014, the impact of which we discuss below.
 
In December 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Act) was signed into law. The 2010 Tax Act included the extension of bonus depreciation for U.S. federal income tax purposes for years 2010 through 2012 and an increase in the rate of bonus depreciation from 50 percent to 100 percent. This increased rate only applies to certain investments made after September 8, 2010 through December 31, 2012. Self-constructed property, where the construction period exceeds one year, construction started between December 31, 2007 and January 1, 2013, and the property is placed in service by December 31, 2013, qualified for bonus depreciation in 2013 at either the original or increased rate.
 
Due to the extension of bonus depreciation, Sempra Energy generated a U.S. federal net operating loss (NOL) in 2011, 2012, 2013 and 2014. We currently project that the total NOL will not be fully utilized until approximately 2019. Because of the carryforward of NOL and U.S. federal income tax credits discussed below, Sempra Energy made no U.S. federal income tax payments in 2014 and expects no such payments in years 2015 through 2019. Because bonus depreciation only creates a temporary difference between Sempra Energy’s U.S. federal income tax return and its U.S. GAAP financial statements, it does not impact Sempra Energy’s effective income tax rate. We expect larger U.S. federal income tax payments in the future as these temporary differences reverse.
 
SDG&E and SoCalGas both generated a large U.S. federal NOL in 2011 and 2012 primarily due to bonus depreciation. SDG&E and SoCalGas expect these NOL carryforwards, on a stand-alone basis, to be fully utilized in 2015. Because bonus depreciation only creates a temporary difference between SDG&E’s and SoCalGas’ U.S. federal income tax returns and U.S. GAAP financial statements, it does not impact SDG&E’s and SoCalGas’ effective income tax rates. We expect larger U.S. federal income tax payments in the future as these temporary differences reverse.
 
Bonus depreciation, in addition to impacting Sempra Energy’s and SDG&E’s U.S. federal income tax payments, will also have a temporary impact on their ability to utilize their U.S. federal income tax credits, which primarily are investment tax credits and production tax credits generated by current and future renewable energy investments. However, based on current projections, Sempra Energy and SDG&E do not expect, based on more-likely-than-not criteria required under U.S. GAAP, any of these income tax credits to expire prior to the end of their 20-year carryforward period, as allowed under current U.S. federal income tax law. Bonus depreciation increases the deferred income tax liability component of SDG&E’s and SoCalGas’ rate base, which reduces rate base.
 
We had planned to begin repatriating a portion of earnings beginning in 2013 from certain of our non-U.S. subsidiaries in Mexico and Peru. Due to the income tax expense resulting from a corporate reorganization in connection with the IEnova stock offerings that we discuss in Note 1 of the Notes to Consolidated Financial Statements, we made a distribution in 2013 of approximately $200 million from our non-U.S. subsidiaries. This distribution was from previously taxed income and was not subject to additional U.S. federal income tax. We revised our plan in 2013 to begin repatriating a portion of earnings in 2014.
 
Currently, all repatriated earnings from January 1, 2014 forward (reduced for previously taxed income) are subject to U.S. income tax (with credits for foreign income taxes), and repatriation from Peru is subject to local country withholding tax. We made distributions of $288 million from our non-U.S. subsidiaries in 2014.  Approximately $100 million of this distribution was from previously taxed income and will not be subject to additional U.S. federal income tax. We intend to continue to indefinitely reinvest our cumulative undistributed non-U.S. earnings through December 31, 2014.  Therefore, we do not intend to use these cumulative undistributed earnings as a source of funding for U.S. operations.
 
Foreign Currency Exchange Rate and Inflation Impact on Income Taxes and Related Economic Hedging Activity
 
Our Mexican subsidiaries have U.S. dollar denominated cash balances, receivables and payables (monetary assets and liabilities) that give rise to Mexican currency exchange rate movements for Mexican income tax purposes. They also have deferred income tax assets and liabilities that are denominated in the Mexican peso, which must be translated to U.S. dollars for financial reporting purposes. In addition, monetary assets and liabilities are adjusted for Mexican inflation for Mexican income tax purposes.
 
The fluctuations in both the currency exchange rate for the Mexican peso against the U.S. dollar, with regard to Mexican monetary assets and liabilities, and Mexican inflation are subject to Mexican income tax and thus may expose us to fluctuations in our income tax expense. The income tax expense of Sempra Mexico is impacted by these factors. From time to time, we may utilize short-term foreign currency derivatives at our subsidiaries and at the consolidated level as a means to manage these exposures.
 
The income tax expense of our South American subsidiaries is similarly impacted by the factors we discuss above. Such impact was not material in 2014, 2013 or 2012.
 

For Sempra Energy Consolidated, the impacts at Sempra Mexico in 2012-2014 related to the factors described above are as follows:
 

MEXICAN CURRENCY IMPACT ON INCOME TAXES AND RELATED ECONOMIC HEDGING ACTIVITY
(Dollars in millions)
   
Years ended December 31,
   
2014
2013
2012
Income tax benefit (expense) on currency exchange
           
 
rate movement of monetary assets and liabilities
$
22
$
(6)
$
(6)
Translation of non-U.S. deferred income tax balances
 
15
 
1
 
(2)
Income tax expense on inflation
 
(3)
 
 
(2)
 
Total impact included in Income Tax Benefit (Expense)
 
34
 
(5)
 
(10)
After-tax (losses) gains on Mexican peso exchange rate
           
 
instruments (included in Other Income, Net)
 
(17)
 
4
 
6
Net impact on Sempra Energy Consolidated
           
 
Statements of Operations
$
17
$
(1)
$
(4)

 
Equity Earnings, Net of Income Tax
 
Sempra Energy Consolidated
 
Equity earnings of unconsolidated subsidiaries, net of income tax, which are all from Sempra South American Utilities’ and Sempra Mexico’s equity method investments, were
 
§  
$38 million in 2014
 
§  
$24 million in 2013
 
§  
$36 million in 2012
 
The increase in 2014 was primarily due to $11 million equity losses in 2013 related to our investments in two Argentine natural gas utility holding companies, as we discuss in Note 4 of the Notes to Consolidated Financial Statements.
 
The decrease in 2013 compared to 2012 was primarily due to:
 
§  
$11 million equity losses related to our investments in two Argentine natural gas utility holding companies, including $7 million noncash impairment charge in the first quarter of 2013 and $4 million loss from the sale of the investments in the second quarter of 2013, as we discuss in Note 4 of the Notes to Consolidated Financial Statements; and
 
§  
$4 million of equity losses in 2013 from our Eletrans S.A. and Eletrans II S.A. (collectively, Eletrans) joint ventures in Chile resulting from a forward exchange contract to manage foreign currency exchange rate risk; offset by
 
§  
$3 million higher earnings in 2013 from Sempra Mexico’s joint-venture interest in pipeline assets.
 
Earnings Attributable to Noncontrolling Interests
 
Sempra Energy Consolidated
 
Earnings attributable to noncontrolling interests were $100 million for 2014 compared to $79 million for the same period in 2013. The net change of $21 million included
 
§  
$21 million increase in earnings attributable to noncontrolling interests of IEnova in 2014; and
 
§  
$5 million increase in earnings attributable to noncontrolling interests at Sempra South American Utilities; offset by
 
§  
$4 million decrease in earnings attributable to noncontrolling interest at Otay Mesa VIE in 2014.
 
Earnings attributable to noncontrolling interests were $79 million for 2013 compared to $55 million for the same period in 2012. The net change of $24 million included
 
§  
$26 million earnings attributable to noncontrolling interests of IEnova in 2013; offset by
 
§  
$2 million lower earnings attributable to noncontrolling interest at Otay Mesa VIE in 2013.
 

SDG&E
 
Earnings attributable to noncontrolling interest at Otay Mesa VIE decreased by $4 million (17%) to $20 million in 2014.
 
In 2013 compared to 2012, earnings attributable to noncontrolling interest at Otay Mesa VIE decreased by $2 million (8%) to $24 million.
 
 
Earnings
 
We summarize variations in overall earnings in “Overall Results of Operations of Sempra Energy and Factors Affecting the Results” above. We discuss variations in earnings (losses) by segment above in “Segment Results.”
 
 
TRANSACTIONS WITH AFFILIATES
 
We provide information about our related party transactions in Note 1 of the Notes to Consolidated Financial Statements.
 
 
BOOK VALUE PER SHARE
 
Sempra Energy’s book value per share on the last day of each year was
 
§  
$45.98 in 2014
 
§  
$45.03 in 2013
 
§  
$42.43 in 2012
 
The increases in 2014 and 2013 were primarily the result of comprehensive income exceeding dividends. In 2013, the increase was also attributable to the IEnova public offerings.
 

 

CAPITAL RESOURCES AND LIQUIDITY
 

 
OVERVIEW
 
We expect our cash flows from operations to fund a substantial portion of our capital expenditures and dividends. In addition, we may meet our cash requirements through the issuance of securities, including short-term and long-term debt securities, distributions from our equity method investments, and project financing.
 
Sempra Energy Consolidated cash and cash equivalents decreased $334 million in 2014 to $570 million. Cash flows from operations were $2.2 billion. Significant investing and financing activity affecting capital resources, liquidity and cash flows in 2014 was
 
§  
$148 million cash proceeds from Sempra Renewables’ sale of 50-percent equity interests in Copper Mountain Solar 3 ($66 million) and Broken Bow 2 Wind ($58 million) and Sempra Mexico’s sale of a 50-percent equity interest in the first phase of the Energía Sierra Juárez wind generation project ($24 million)
 
§  
$(121) million cash paid to acquire a 50-percent equity interest in four California solar projects
 
§  
long-term debt issuances of $3.3 billion, including $500 million at Sempra Energy, $100 million at SDG&E, $750 million at SoCalGas, and $1.8 billion issuances of credit facility borrowings with maturities greater than 90 days at Sempra Energy, Sempra South American Utilities and Sempra Mexico
 
§  
$(2) billion of long-term debt retirements and paydowns, including debt retirements of $800 million at Sempra Energy and $250 million at SoCalGas, and $948 million paydown of credit facility borrowings with maturities greater than 90 days at Sempra Energy and Sempra South American Utilities
 
§  
$(3.1) billion in expenditures for property, plant and equipment, including $1.1 billion at each of SDG&E and SoCalGas
 
§  
$(598) million common dividends paid
 
§  
$(167) million in net advances to unconsolidated affiliates
 
We discuss these events in more detail later in this section.
 
Our lines of credit provide liquidity and support commercial paper. As we discuss in Note 5 of the Notes to Consolidated Financial Statements, Sempra Energy, Sempra Global (the holding company for our subsidiaries not subject to California utility regulation) and the California Utilities each have five-year revolving credit facilities, expiring in 2017. At Sempra Energy and the California Utilities, the agreements are syndicated broadly among 24 different lenders and at Sempra Global, among 25 different lenders. No single lender has greater than a 7-percent share in any agreement. The table below shows the amount of available funds at year-end 2014 on these three credit facilities:
 
AVAILABLE FUNDS AT DECEMBER 31, 2014
(Dollars in millions)
   
Sempra Energy
   
   
Consolidated
SDG&E
SoCalGas
Unrestricted cash and cash equivalents(1)
$
570
$
8
$
85
Available unused credit(2)
 
2,469
 
312
 
481
(1)
Amounts at Sempra Energy Consolidated include $469 million held in non-U.S. jurisdictions that are unavailable to fund U.S. operations unless repatriated, as we discuss below.
(2)
Available credit is the total available on Sempra Energy's, Sempra Global's and the California Utilities' credit facilities that we discuss in Note 5 of the Notes to Consolidated Financial Statements. Borrowings on the shared line of credit at SDG&E and SoCalGas are limited to $658 million for each utility and a combined total of $877 million. SDG&E's and SoCalGas' available funds reflect commercial paper outstanding of $346 million and $50 million, respectively, supported by the line. SoCalGas' availability reflects the impact of SDG&E's use as of December 31, 2014 of the combined credit available on the line. Some of Sempra Energy's subsidiaries, primarily our foreign operations, have additional general purpose credit facilities, aggregating $865 million at December 31, 2014. Available unused credit on these lines totaled $536 million at December 31, 2014.
 
Sempra Energy Consolidated
 
We believe that these available funds and cash flows from operations, distributions from equity method investments and securities issuances, and project financing and partnering in joint ventures, combined with current cash and cash equivalents balances, will be adequate to fund operations, including to:
 
§  
finance capital expenditures
 
§  
meet liquidity requirements
 
§  
fund shareholder dividends
 
§  
fund new business acquisitions or start-ups
 
§  
repay maturing long-term debt
 
Sempra Energy and the California Utilities have ready access to the long-term debt markets and are not currently constrained in their ability to borrow at reasonable rates. However, changing economic conditions could affect the availability and cost of both short-term and long-term financing. Also, cash flows from operations may be impacted by the timing of completion of large projects at Sempra International and Sempra U.S. Gas & Power. If cash flows from operations were to be significantly reduced or we were unable to borrow under acceptable terms, we would likely first reduce or postpone discretionary capital expenditures (not related to safety) and investments in new businesses. If these measures were necessary, they would primarily impact certain of our Sempra International and Sempra U.S. Gas & Power businesses before we would reduce funds necessary for the ongoing needs of our utilities. We continuously monitor our ability to finance the needs of our operating, investing and financing activities in a manner consistent with our intention to maintain strong, investment-grade credit ratings and capital structure.
 
At December 31, 2014 and 2013, our cash and cash equivalents held in non-U.S. jurisdictions that were unavailable to fund U.S. operations unless repatriated were $469 million and $814 million, respectively. As we discuss in “Results of Operations – Changes in Revenues, Costs and Earnings – Income Taxes” above, we made distributions of approximately $288 million and $200 million in 2014 and 2013, respectively, from our non-U.S. subsidiaries. Approximately $100 million of the 2014 distribution, and all of the 2013 distribution, was from previously taxed income and will not be subject to additional U.S. federal income tax. We intend to continue to indefinitely reinvest our cumulative undistributed non-U.S. earnings through December 31, 2014. Therefore, we do not intend to use these cumulative undistributed earnings as a source of funding for U.S. operations.
 
We have significant investments in several trusts to provide for future payments of pensions and other postretirement benefits, and nuclear decommissioning. Changes in asset values, which are dependent on the activity in the equity and fixed income markets, have not affected the trust funds’ abilities to make required payments. However, changes in asset values may, along with a number of other factors such as changes to discount rates, assumed rates of returns, mortality tables, and regulations, impact funding requirements for pension and other postretirement benefit plans and SDG&E’s nuclear decommissioning trusts. At the California Utilities, funding requirements are generally recoverable in rates.
 
On February 20, 2015, our board of directors approved an increase to Sempra Energy’s quarterly common stock dividend to $0.70 per share ($2.80 annually), an increase of $0.04 per share ($0.16 annually) from $0.66 per share ($2.64 annually) authorized in February 2014. Declarations of dividends on our common stock are made at the discretion of the board. While we view dividends as an integral component of shareholder return, the amount of future dividends will depend upon earnings, cash flows, financial and legal requirements, and other relevant factors at that time.
 
On February 21, 2014, our board of directors approved an increase to Sempra Energy’s quarterly common stock dividend to $0.66 per share ($2.64 annually), an increase of $0.03 per share ($0.12 annually) from $0.63 per share ($2.52 annually) authorized in February 2013. We provide further information regarding dividends and dividend restrictions in “Dividends” below and under “Restricted Net Assets” in Note 1 of the Notes to Consolidated Financial Statements.
 
 
Short-Term Borrowings
 
Our short-term debt is primarily used to meet liquidity requirements, fund shareholder dividends, temporarily finance capital expenditures, and fund new business acquisitions or start-ups. Our corporate short-term, unsecured promissory notes, or commercial paper, were our primary sources of short-term debt funding in 2014. At our California Utilities, short-term debt is used to meet working capital needs and temporarily finance capital expenditures.
 
The following table shows selected statistics for our commercial paper borrowings for 2014:
 

COMMERCIAL PAPER STATISTICS
               
(Dollars in millions)
               
 
Sempra Energy Consolidated
 
SDG&E
 
SoCalGas
Amount outstanding at December 31, 2014
$
1,564
 
$
246
 
$
50
Weighted average interest rate at December 31, 2014
 
0.59%
   
0.27%
   
0.25%
                   
Maximum month-end amount outstanding during 2014(1)
$
1,935
 
$
246
 
$
129
                   
Monthly weighted average amount outstanding during 2014
$
1,264
 
$
56
 
$
24
Monthly weighted average interest rate during 2014
 
0.59%
   
0.16%
   
0.17%
(1)
The largest amount outstanding at the end of the last day of any month during the year.

Significant cash flows impacting commercial paper levels at Sempra Energy during 2014 included
 
§  
debt retirements ($800 million);
 
§  
common stock dividend payments ($598 million) by Sempra Energy;
 
§  
acquisition of a 50-percent equity interest in four California solar projects ($121 million); and
 
§  
interest payments on debt (approximately $200 million); offset by
 
§  
long-term debt issuance at Sempra Energy ($500 million);
 
§  
repatriated funds received from non-U.S. subsidiaries ($288 million);
 
§  
common stock dividends received from SDG&E ($200 million) and SoCalGas ($100 million);
 
§  
cash proceeds from the sale of 50-percent equity interests in Broken Bow 2 Wind ($58 million) and Copper Mountain Solar 3 ($66 million); and
 
§  
cash proceeds from a construction loan related to Copper Mountain Solar 3 ($84 million, net of financing costs).
 
 
California Utilities
 
SDG&E and SoCalGas expect that available funds, cash flows from operations and debt issuances will continue to be adequate to meet their working capital and capital expenditure requirements.
 
SoCalGas declared and paid common stock dividends of $100 million in 2014, $50 million in 2013 and $250 million in 2012. As a result of the increase in SoCalGas’ capital investment programs over the next few years, and an increase in SoCalGas’ authorized common equity weighting effective January 1, 2013 as approved by the CPUC in the most recent cost of capital proceeding, SoCalGas’ dividends on common stock declared on an annual historical basis may not be indicative of future declarations, or may be temporarily suspended over the next few years to maintain SoCalGas’ authorized capital structure during the periods of high capital investments.
 
SDG&E declared and paid common stock dividends of $200 million in 2014. As a result of SDG&E’s large capital investment program over the past few years, SDG&E did not pay common dividends to Sempra Energy in 2013 or 2012. However, due to the completion of construction of the Sunrise Powerlink transmission power line in June 2012, SDG&E has resumed the declaration and payment of common stock dividends in 2014.
 
In October 2013, SDG&E redeemed all of its outstanding preferred stock for $83 million (including call premium and accrued dividends), which we discuss further in Note 11 of the Notes to Consolidated Financial Statements.
 
SDG&E uses the Energy Resource Recovery Account (ERRA) balancing account to record the net of its actual cost incurred for electric fuel and purchased power and the amount billed to customers in rates. Primarily as a result of delays in the CPUC issuing final decisions on SDG&E’s ERRA-related filings, as of December 31, 2014, SDG&E’s ERRA balance is undercollected by $280 million. In February 2014, the CPUC issued a decision granting SDG&E authority to increase rates to recover an ERRA Trigger revenue requirement of $221 million, which rate increase was effective on April 1, 2014 and will continue through December 31, 2015. In May 2014, the CPUC issued a final decision approving SDG&E’s proposed 2014 ERRA revenue requirement of $1.23 billion, an increase of $242 million, which rate increase was effective on August 1, 2014. With these rate changes, and assuming that actual energy resource costs incurred approximate what was assumed in the approved 2014 ERRA revenue requirement, management expects the undercollected balance in ERRA to decrease between now and the end of 2015. We discuss the ERRA Trigger and the status of the ERRA filings further in Note 14 of the Notes to Consolidated Financial Statements and provide information on how the increasing undercollected balance in ERRA has impacted SDG&E in our discussion of “Cash Flows From Operating Activities” below.
 
 
Sempra South American Utilities
 
We expect projects at Chilquinta Energía and Luz del Sur to be funded by available funds, funds internally generated by those businesses and by external borrowings. In 2014, we purchased additional shares in Luz del Sur for $74 million, increasing our ownership from 79.8 percent to 83.6 percent. Also, as of December 31, 2014, Chilquinta Energía has loaned $40 million to an affiliate to finance development projects. We discuss these transactions in Note 1 of the Notes to Consolidated Financial Statements.
 
 
Sempra Mexico
 
We expect projects in Mexico to be funded through a combination of available funds, funds internally generated by the Mexico businesses, securities issuances, project financing and partnering in joint ventures. In June and August 2014, IEnova entered into two three-year term, corporate revolving credit facility agreements providing $200 million and $100 million, respectively, to finance working capital and for general corporate purposes. In 2014, IEnova drew down $145 million from the first facility and $51 million from the second facility. In June 2014, IEnova also entered into a $240 million loan to finance the construction of the first phase of Energía Sierra Juárez, as we discuss in Note 5 of the Notes to Consolidated Financial Statements. The loan agreement provides for a $31.7 million letter of credit facility. IEnova also entered into a separate, Peso-denominated credit facility for up to $35 million U.S. dollar equivalent to fund the value added tax of the project. In June 2014, Sempra Mexico drew down $82 million from the loan.
 
In July 2014, Sempra Mexico sold a 50-percent equity interest in the first phase of Energía Sierra Juárez to a wholly owned subsidiary of InterGen N.V. for cash proceeds of $24 million, net of $2 million cash sold. Sempra Mexico’s interest in Energía Sierra Juárez is now accounted for under the equity method, and the $82 million of long-term debt was deconsolidated at the time of sale, as we discuss in Notes 3 and 4 of the Notes to Consolidated Financial Statements.
 
In 2014, Sempra Mexico loaned $123 million to affiliates of its joint venture with PEMEX to finance projects, as we discuss in Note 1 of the Notes to Consolidated Financial Statements.
 
 
Sempra Renewables
 
We expect Sempra Renewables to require funds for the development of and investment in electric renewable energy projects. Projects at Sempra Renewables may be financed through a combination of operating cash flow, project financing, funds from the parent, partnering in joint ventures, and other forms of equity sales. The Sempra Renewables projects have planned in-service dates through 2016. In March 2014, Sempra Renewables entered into a $356 million construction loan facility related to Copper Mountain Solar 3. Copper Mountain Solar 3 made an initial draw-down on the loan of $97 million. Later in March 2014, Sempra Renewables sold a 50-percent equity interest in Copper Mountain Solar 3 to ConEdison Development. Sempra Renewables’ interest in Copper Mountain Solar 3 is now accounted for under the equity method and its long-term debt was deconsolidated upon the sale. Sempra Renewables received $66 million in net cash from the sale. In May 2014, Sempra Renewables invested $121 million (as adjusted for financial position at closing) to become a 50-percent partner with ConEdison Development in four solar projects in California (the California solar partnership). In October 2014, Sempra Renewables received $72 million in proceeds from a private notes offering related to Broken Bow 2 Wind. In November 2014, Sempra Renewables sold a 50-percent equity interest in Broken Bow 2 Wind to ConEdison Development. Sempra Renewables’ interest in Broken Bow 2 Wind is now accounted for under the equity method, and its long-term debt was deconsolidated upon the sale. Sempra Renewables received $58 million in cash from the sale. We discuss these financings and transactions in Notes 3 and 5 of the Notes to Consolidated Financial Statements.