EX-13 30 ex131.htm EXHIBIT 13.1 Sempra Energy/SDG&E/SoCalGas 12/31/2015 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
 
Business Strategy
9
Key Events and Issues in 2015
9
Results of Operations
 
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
39
Capital Resources and Liquidity
 
Overview
39
Cash Flows from Operating Activities
44
Cash Flows from Investing Activities
46
Cash Flows from Financing Activities
52
Credit Ratings
59
Factors Influencing Future Performance
 
California Utilities
60
Sempra International
66
Sempra U.S. Gas & Power
68
Other Sempra Energy Matters
73
Litigation
73
Market Risk
73
Critical Accounting Policies and Estimates, and Key Noncash Performance Indicators
77
Information Regarding Forward-Looking Statements
84
Common Stock Data
 
86
Performance Graph – Comparative Total Shareholder Returns
 
87
Five-Year Summaries
 
88
Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
91
Management’s Report on Internal Control over Financial Reporting
91
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
 
92
Reports of Independent Registered Public Accounting Firm
 
93
Consolidated Financial Statements
 
Sempra Energy
99
San Diego Gas & Electric Company
106
Southern California Gas Company
113
Notes to Consolidated Financial Statements
 
119
Glossary
 
250
 
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 2013 through 2015
 
§  
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 also in conjunction with “Risk Factors” contained in our 2015 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 operating units are our California Utilities, which are San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company (SoCalGas), 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 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
 
We provide here descriptions of each of the segments in our California Utilities, Sempra International and Sempra U.S. Gas & Power businesses for operations relating to 2015, 2014 and 2013 earnings. We provide additional information regarding regulatory matters and development projects at the California Utilities in “Factors Influencing Future Performance” below and in Notes 13 and 14 of the Notes to Consolidated Financial Statements. We provide additional information regarding development projects at each of Sempra International and Sempra U.S. Gas & Power segments in “Factors Influencing Future Performance” below.
 

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 3.6 million (1.4 million meters)
 
§ Provides natural gas to a population of 3.3 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 21.6 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. SDG&E’s electric energy is purchased from others or generated from its own electric generation facilities, which 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 and transports electricity and natural gas for others.
 
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 (PPA) with Otay Mesa VIE.
 
SDG&E has a 20-percent ownership interest in San Onofre Nuclear Generating Station (SONGS), a 2,150-megawatt (MW) nuclear generating facility near San Clemente, California, that is in the process of being decommissioned by Southern California Edison Company (Edison), the majority owner of SONGS. Due to operating issues, SONGS was taken offline in 2012, and in June 2013, Edison made the decision to permanently retire the facility. We discuss the decommissioning of SONGS in Note 13 of the Notes to Consolidated Financial Statements.
 
 
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 21.6 million.
 
SoCalGas provides natural gas storage services for core, noncore and non-end-use customers. The California Utilities’ core customers are allocated a portion of SoCalGas’ storage capacity. SoCalGas offers the remaining storage capacity for sale to others, including SDG&E for its non-core customer requirements, through an open bid process. The storage service program provides opportunities for these customers to purchase and store natural gas when natural gas costs are low, usually during the summer, thereby reducing purchases when natural gas costs are expected to be higher. The program allows customers to better manage their natural gas procurement and transportation needs. SoCalGas owns four natural gas storage facilities. The facilities have a combined working gas capacity of 137 billion cubic feet (Bcf) and have over 200 injection, withdrawal and observation wells. The Aliso Canyon storage facility represents 63 percent of SoCalGas’ owned natural gas storage capacity. We discuss recent matters concerning the Aliso Canyon facility further in “Key Events and Issues in 2015” and “Factors Influencing Future Performance” below and in Note 15 of the Notes to Consolidated Financial Statements.
 
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.
 

 
SEMPRA INTERNATIONAL
   
 
MARKET
GEOGRAPHIC REGION
SEMPRA SOUTH AMERICAN UTILITIES
Develops, owns and operates, or holds interests in electric transmission, distribution and generation infrastructure
§ Provides electricity to a population of approximately 2 million (approximately 672,000 meters) in Chile and approximately 4.9 million consumers (approximately 1,053,000 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 South American Utilities
 
Chilquinta Energía S.A. (Chilquinta Energía), a wholly owned subsidiary of Sempra South American Utilities, is an electric distribution utility serving a population of approximately 2 million through approximately 672,000 meters in the cities of Valparaiso and Viña del Mar in central Chile. In November 2015, Chilquinta Energía’s joint venture, Eletrans S.A., completed construction of a 220-kilovolt (kV) transmission line in Chile. The project will earn a return in U.S. dollars, indexed to the Consumer Price Index for 20 years and a regulated return thereafter.
 
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 4.9 million consumers through approximately 1,053,000 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. Luz del Sur also owns Santa Teresa, a 100-MW hydroelectric power plant in Peru that began commercial operations in September 2015 and supplies electricity for Luz del Sur’s customers. Luz del Sur sells excess electricity generated from the Santa Teresa plant into the spot market.
 
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, through its subsidiary IEnova, 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 5,624 million cubic feet (MMcf) per day in 2015.
 
IEnova and PEMEX are 50-50 partners in the joint venture Gasoductos de Chihuahua (GdC). GdC develops and operates energy infrastructure in Mexico through three natural gas pipelines, an ethane pipeline, and a liquid petroleum gas pipeline and associated storage terminal.
 
In December 2012, through its GdC joint venture, IEnova executed an ethane transportation services agreement with PEMEX to construct and operate an approximately 140-mile pipeline to transport ethane from Tabasco, Mexico to Veracruz, Mexico. The pipeline was completed in phases during 2015. PEMEX has fully contracted the capacity under a 21-year contract denominated in U.S. dollars.
 
In January 2013, PEMEX announced that the first phase of the Los Ramones pipeline project was assigned to and would be developed by the GdC joint venture. The project is a 72-mile natural gas pipeline with two compression stations, from the northern portion of the state of Tamaulipas bordering the United States to Los Ramones in the Mexican state of Nuevo León. The capacity is fully contracted under a 25-year transportation services agreement with PEMEX denominated in Mexican pesos, with a contract rate based on the U.S. dollar investment, adjusted annually for inflation and fluctuation of the exchange rate. The pipeline began operations at the end of 2014, and construction and testing of the two compression stations was completed in December 2015.
 
In July 2015, IEnova entered into an agreement to purchase PEMEX’s 50-percent interest in GdC, which upon closing would increase its interest from 50 percent to 100 percent. As we discuss in Note 3 of the Notes to Consolidated Financial Statements, the parties are in the process of restructuring the transaction in response to issues raised in the review of the transaction by Mexico’s antitrust commission. Any restructured transaction remains subject to satisfactory completion of the Mexican antitrust review and may require further approvals from other Mexican authorities.
 
LNG. Sempra Mexico’s Energía Costa Azul LNG terminal in Baja California, Mexico is capable of processing 1 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 113,000 meters (serving more than 400,000 consumers) and sales volume of approximately 69 MMcf per day in 2015.
 

Power Business
 
Natural Gas-Fired Generation. Sempra Mexico’s Termoeléctrica de Mexicali, a 625-MW natural gas-fired power plant, is located in Mexicali, Baja California, Mexico. It has an Energy Management Agreement (EMA) 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. In February 2016, management approved a plan to market and sell Termoeléctrica de Mexicali, as we discuss in “Factors Influencing Future Performance” below and Note 18 of the Notes to Consolidated Financial Statements.
 
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. SDG&E has a 20-year contract for up to 155 MW of renewable power supplied from the first phase of the project, which became operational in June 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
 
 
§ Natural gas
 
§ Liquefied natural gas
 
§ Wholesale electricity
 
 
§ U.S.A.
 
 
 
 

 
 
Sempra Renewables
 
The following table provides information about the Sempra Renewables wind and solar energy generation facilities that were operational as of December 31, 2015. The generating capacity of these facilities is fully contracted under long-term PPAs 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 pays wind producers a flat rate for generating 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 is under construction before the end of 2019 will earn a full decade of PTCs at phased-out rates beginning with construction starting in 2017 through 2019. The 78-MW Black Oak Getty Wind project currently under construction at Sempra Renewables is not subject to PTC phase-out. For each of the years ended December 31, 2015, 2014 and 2013, PTCs represented a large portion of our wind farm earnings, often exceeding earnings from operations.
 

 
SEMPRA RENEWABLES OPERATING FACILITIES
Capacity in Megawatts at December 31, 2015
Name
Generating capacity
 
PPA term in years
            First in
        service(1)
 
Location
Wholly owned facility:
           
Copper Mountain Solar 1
58
 
20
2008
 
Boulder City, Nevada
             
Jointly owned facilities(2):
           
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
75
 
25
2012
 
Boulder City, Nevada
Copper Mountain Solar 3
                125
 
20
2014
 
Boulder City, Nevada
Mesquite Solar 1
75
 
20
2011
 
Arlington, Arizona
             Total solar 330           
             
             Total MW in operation 968           
 
(1)
(2)
If placed in service in phases, indicates the year the first phase went into service.
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.
   
 
 
Copper Mountain Solar 2 is divided into two phases totaling 150 MW. The 92-MW first phase was placed in service in November 2012 and the 58-MW second phase was placed in service in April 2015. 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 the Copper Mountain Solar 2 and Mesquite Solar 1 facilities to Consolidated Edison Development (Con Edison Development).
 
Copper Mountain Solar 3 achieved full commercial operation in April 2015 and totals 250 MW, including 184 MW placed in service in 2014. In March 2014, Sempra Renewables completed the sale of a 50-percent equity interest in Copper Mountain Solar 3 to Con Edison 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.
 
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 Con Edison Development.
 
We discuss the equity sales and purchase of these facilities and related matters further in Notes 3 and 4 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. Sempra Natural Gas has an agreement through November 2019 with Rockies Express for 0.2 Bcf per day of capacity on REX, which has a total west-to-east 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 have not been sufficient to offset all of our capacity payments to Rockies Express.
 
In April 2014, prior to the launching of an open season, Rockies Express had secured binding financial commitments with four shippers totaling 1.2 Bcf per day of capacity for east-to-west transportation services for a term of 20 years originating at or near Clarington, Ohio. Rockies Express placed this capacity into service on August 1, 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 lateral’s capability was further expanded to 0.6 Bcf per day of capacity in January 2015. The lateral is fully contracted through September 2021.
 
We discuss our investment in Rockies Express in Note 4 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 85,000 meters (serving more than 200,000 consumers), and Willmut Gas delivers natural gas through approximately 19,000 meters (serving over 50,000 consumers).
 
LNG. The Cameron LNG, LLC 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, subject to the termination agreement discussed below. 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 three project partners provided their respective final investment decision with regard to the Cameron LNG Holdings, LLC (Cameron LNG JV) 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, LLC is no longer wholly owned, and Sempra Natural Gas accounts for its investment in the 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 JV has 20-year liquefaction and regasification tolling capacity agreements in place with ENGIE S.A. (formerly 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 JV’s 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 Sempra Mexico’s Termoeléctrica de Mexicali power plant, described above, and prior to April 2015, to fuel its Mesquite Power natural gas-fired power plant. Sempra Natural Gas sold the first 625-MW block of the Mesquite Power plant in February 2013 and the remaining 625-MW block, together with a related power sales contract, in April 2015.
 
Related to its Mesquite Power plant, Sempra Natural Gas had power sale transactions with various counterparties intended to hedge its generation capacity. Sempra Natural Gas sold certain quantities of expected future generation output under long-term contracts. The remaining output of the Mesquite Power plant prior to the sale in April 2015 was available to be sold into energy markets on a day-ahead basis, as is the output of Sempra Mexico’s Termoeléctrica de Mexicali power plant.
 
Sempra Natural Gas has an EMA 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 California Department of Conservation’s Division of Oil, Gas, and Geothermal Resources (DOGGR) regulates the operations of SoCalGas’ natural gas storage facilities.
 
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 Energy Regulatory Commission (Comisión Reguladora de Energía, or 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 objective is to increase shareholder value by developing and operating long-term-contracted energy infrastructure assets and regulated utilities in a safe and reliable manner.
 
The key components of our strategy include the following three disciplined growth platforms:
 
§  
U.S. utilities
 
§  
South American utilities and Mexican midstream, including LNG
 
§  
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 2015
 
Below are key events and issues, including major project updates, that affected our business in 2015; some of these may continue to affect our future results. Each event/issue includes the page number you may reference for additional details.
 
 
Key Events and Issues:
 
§  
California Utilities:
 
□  
In October 2015, SoCalGas discovered a leak at one of its natural gas injection and withdrawal wells at its Aliso Canyon natural gas storage facility located in the northern part of the San Fernando Valley in Los Angeles County, resulting in numerous complaints filed against SoCalGas and Sempra Energy, governmental investigations, and an order being issued by the Governor of California proclaiming a state of emergency to exist in Los Angeles County. On February 18, 2016, DOGGR confirmed that the leaking well had been permanently sealed and taken out of service (page 228).
 
□  
In September 2015, the California Utilities filed settlement agreements with the CPUC that resolve all material matters related to their 2016 General Rate Case (2016 GRC) proceeding, except for the revenue requirement implications of certain income tax benefits associated with flow-through repair allowance deductions (page 216).
 
□  
In September 2015, the California Utilities filed an application with the CPUC seeking authority to recover the full cost of the Pipeline Safety & Reliability Project, which involves construction of an approximately 47-mile, 36-inch natural gas transmission pipeline with an estimated cost of $600 million (page 224).
 
□  
In September 2015, SDG&E filed an application with the CPUC requesting to recover an estimated $379 million in costs related to the October 2007 wildfires in rates over a six- to ten-year period (page 222).
 
□  
In July 2015, the CPUC adopted a revised Administrative Law Judge (ALJ)-proposed decision that establishes comprehensive reform for residential electric rate design. In addition, the CPUC adopted a successor net energy metering, or NEM, tariff in January 2016 (page 63).
 
□  
In October 2015, the SONGS co-owners (Edison, SDG&E and the City of Riverside) reached an agreement with Nuclear Electric Insurance Limited (NEIL) to resolve all of SONGS’ insurance claims arising out of the failures of the replacement steam generators. SDG&E’s share is approximately $80 million, of which $75 million was allocated to ratepayers (page 214).
 
□  
In November 2015, the CPUC approved a one-year extension until April 2017 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 2017 (page 217).
 
§  
Sempra Mexico:
 
□  
In July 2015, Sempra Mexico’s subsidiary, IEnova, entered into an agreement to purchase PEMEX’s 50-percent interest in GdC, which upon closing would increase its interest from 50 percent to 100 percent. As we discuss in Note 3 of the Notes to Consolidated Financial Statements, the parties are in the process of restructuring the transaction in response to issues raised in the review of the transaction by Mexico’s antitrust commission. Any restructured transaction remains subject to satisfactory completion of the Mexican antitrust review and may require further approvals from other Mexican authorities (page 150).
 
§  
Sempra Natural Gas:
 
□  
In February 2015, Rockies Express received FERC approval for a project that had previously secured binding financial commitments with four shippers totaling 1.2 Bcf per day of capacity for east-to-west transportation services for a term of 20 years originating at or near Clarington, Ohio. This capacity went into service in August 2015 (page 7).
 
□  
In March 2015, Rockies Express requested FERC approval of the Zone 3 Capacity Enhancement Project, an expansion of REX’s east-to-west capability of 0.8 Bcf per day that has an estimated cost of $530 million (page 70).
 
□  
In April 2015, Sempra Natural Gas sold the remaining 625-MW block of the Mesquite Power plant, together with a related power sales contract, for net cash proceeds of $347 million (page 151).
 
 
Major Project Updates:
 
§  
Sempra Natural Gas’ Cameron liquefaction projects:
 
□  
In February 2015, Cameron LNG JV filed the U.S. Department of Energy (DOE) FTA application and the pre-filing application at FERC for two additional liquefaction trains and one additional full containment LNG storage tank at the Cameron LNG liquefaction facility, and in May 2015, filed the corresponding DOE Non-FTA permit application. The DOE FTA approval was received in July 2015 and the FERC application was submitted in September 2015 and formally noticed in October 2015. The Cameron LNG liquefaction project, comprised of Cameron LNG JV’s existing facilities and three liquefaction trains, is currently under construction and is expected to achieve commercial operation of all three trains in 2018, and have the first year of full operations in 2019 (page 71).
 
□  
In April 2015, Cameron LNG JV filed with the DOE for authorization to match the total export volumes allowed to be exported to Non-FTA countries with the volumes under the FERC permit for FTA countries for the current three-train liquefaction construction project (page 71).
 
§  
Sempra Energy’s other LNG liquefaction development projects:
 
□  
In February 2015, Sempra Natural Gas, IEnova, and a subsidiary of PEMEX entered into a Memorandum of Understanding (MOU) to collaborate in the development of a potential natural gas liquefaction project at IEnova’s existing regasification terminal at Energía Costa Azul (page 68).
 
□  
In March 2015, Sempra Natural Gas submitted requests to the FERC to initiate the pre-filing review for the proposed Port Arthur LNG natural gas liquefaction and export facility in Port Arthur, Texas, and the proposed Port Arthur pipeline project (page 72).
 
□  
In March and June 2015, Sempra Natural Gas filed permit applications with the DOE for authorization to export the LNG produced from the proposed Port Arthur LNG facility to all current and future FTA and Non-FTA countries, respectively. The DOE FTA approval was received in August 2015 (page 72).
 
□  
In June 2015, Sempra Natural Gas entered into a non-binding MOU with an affiliate of Woodside Petroleum Ltd. (Woodside) to commence discussions and assessments for the potential development of the proposed Port Arthur LNG liquefaction project. In February 2016, Sempra Natural Gas and Woodside entered into a project development agreement for the joint development of the proposed Port Arthur LNG liquefaction project (page 72).
 
§  
Sempra Mexico:
 
□  
In June 2015, the 155-MW first phase of Sempra Mexico’s Energía Sierra Juárez wind generation project began commercial operations (page 68).
 
□  
In July 2015, Sempra Mexico entered into the San Isidro - Samalayuca pipeline (San Isidro pipeline) natural gas transportation services agreement with the CFE for a 25-year term, denominated in U.S. dollars. Sempra Mexico will be responsible for the development, construction and operation of the approximately 14-mile pipeline, with an estimated cost of $110 million (page 68).
 
□  
In August 2015, Sempra Mexico completed construction of the final section of the first segment of the Sonora pipeline, a 500-mile natural gas pipeline network in northern Mexico (page 67).
 
□  
In December 2015, Sempra Mexico, through its joint venture with PEMEX, completed construction of the 140-mile pipeline to transport ethane from Tabasco, Mexico to Veracruz, Mexico (page 5).
 
□  
In December 2015, Sempra Mexico, through its joint venture with PEMEX, completed construction and testing of the two compression stations related to the 72-mile Los Ramones I pipeline to transport natural gas from Frontera, Tamaulipas to Ramones, Nuevo León, in Mexico. The pipeline started operations in December 2014 (page 5).
 
§  
Sempra South American Utilities:
 
□  
In September 2015, Luz del Sur began commercial operation of Santa Teresa, a 100-MW hydroelectric power plant in Peru’s Cusco region (page 5).
 
□  
In November 2015, Chilquinta Energía’s joint venture, Eletrans S.A., completed construction of a 220-kV transmission line in Chile (page 67).
 
§  
Sempra Renewables:
 
□  
In March 2015, Sempra Renewables acquired a 100-percent interest in the Black Oak Getty Wind project, a 78-MW wind farm under development in Stearns County, Minnesota (page 150).
 
□  
In March 2015, the CPUC approved Sempra Renewables’ 20-year power sale agreement with Edison for all of the solar power from the 94-MW Copper Mountain Solar 4 facility beginning in 2020 (page 69).
 
□  
In April 2015, the 58-MW second phase of Sempra Renewables’ Copper Mountain Solar 2 facility was placed in service (page 7).
 
□  
In April 2015, Sempra Renewables’ 250-MW Copper Mountain Solar 3 facility achieved full commercial operation (page 69).
 
□  
In June 2015, Sempra Renewables signed a 20-year power sale agreement with Edison, approved by the CPUC in December 2015, for 100 MW of solar power from the second phase of Mesquite Solar (Mesquite Solar 2) (page 69).
 
□  
In July 2015, Sempra Renewables signed a 25-year power sale agreement with the Western Area Power Administration on behalf of the U.S. Department of the Navy for 150 MW of solar power from the third phase of Mesquite Solar (Mesquite Solar 3) (page 69).
 


 

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 results of operations information for our overall operations from 2011 to 2015.
 

OVERALL OPERATIONS OF SEMPRA ENERGY FROM 2011 TO 2015
(Dollars and shares in millions, except per share amounts)

[a008.gif]


[a004.gif]


 

In 2015, our earnings increased by $188 million (16%) to $1.3 billion and our diluted earnings per share increased by $0.74 per share (16%) to $5.37 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
 
§  
$40 million higher earnings from CPUC base operations and from electric transmission
 
§  
$15 million reduction to the loss from plant closure in 2015 primarily based on CPUC approval of a compliance filing related to SDG&E’s authorized recovery of its investment in SONGS compared to a $21 million increase to the loss in 2014, as we discuss in Note 13 of the Notes to Consolidated Financial Statements
 
SoCalGas
 
§  
$34 million higher earnings primarily due to a lower effective tax rate, including $11 million earnings impact from higher favorable resolution of prior years’ income tax items in 2015
 
§  
$31 million higher earnings from CPUC base operating margin authorized for 2015
 
§  
$11 million of earnings from a retroactive increase, approved by the CPUC in 2015, in authorized General Rate Case (GRC) revenue requirement for years 2012 through 2014 due to increased rate base, as we discuss in “SoCalGas Matters – Increase to CPUC-Authorized Annual Revenue Requirement” in Note 14 of the Notes to Consolidated Financial Statements
 
Sempra South American Utilities
 
§  
$21 million higher earnings from operations, mainly in Peru, due to an increase in volumes and rates, which rates include foreign currency adjustments
 
§  
$7 million business interruption proceeds for the Santa Teresa hydroelectric power plant, which was expected to begin commercial operation in September 2014, but did not commence operation until September 2015 due to construction delays
 
§  
$(20) million lower earnings from foreign currency effects
 
Sempra Mexico
 
§  
$37 million higher pipeline earnings, primarily due to the start of operations of certain pipelines in the fourth quarter of 2014
 
§  
$31 million favorable variance due to effects from foreign currency and inflation, including amounts in earnings from our joint ventures
 
§  
$(5) million losses in 2015 from operations at our Mexicali power plant compared to $(13) million earnings for the same period in 2014, primarily due to lower capacity revenues and lower volumes
 
§  
$(14) million gain in 2014 from the sale of a 50-percent equity interest in the first phase of the Energía Sierra Juárez project
 
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
 
Sempra Natural Gas
 
§  
$36 million gain on the April 2015 sale of the remaining 625-MW block of the 1,250-MW Mesquite Power natural gas-fired power plant, and a related power sale contract
 
§  
$11 million higher equity earnings at Rockies Express due to additional capacity placed in service in 2015
 
§  
$(29) million lower results from LNG marketing operations, primarily driven by the effect of lower natural gas prices
 
§  
$(25) million tax benefit in 2014 due to the release of Louisiana state valuation allowance against a deferred tax asset associated with Cameron LNG developments
 
Parent and Other
 
§  
$39 million higher income tax benefits, including $18 million lower U.S. income tax expense in 2015 as a result of lower planned repatriation of current year earnings from certain non-U.S. subsidiaries, as we discuss below under “Changes in Revenues, Costs and Earnings – Income Taxes”
 
§  
$(11) million lower investment gains in 2015 on dedicated assets in support of our executive retirement and deferred compensation plans, net of the decrease in deferred compensation liability associated with the investments
 
In 2014 compared to 2013, 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 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, which was approved by the CPUC in May 2013 and effective retroactive to January 1, 2012
 
SoCalGas
 
§  
$24 million higher CPUC base operating margin authorized for 2014, 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 Peruvian 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 state valuation allowance against a deferred tax asset associated with Cameron LNG developments
 
§  
$(44) million gain in 2013 on the sale of the first 625-MW block of the Mesquite 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
 

The following table shows our earnings (losses) by segment, which we discuss below in “Segment Results.”
 

SEMPRA ENERGY EARNINGS (LOSSES) BY SEGMENT
(Dollars in millions)
 
Years ended December 31,
 
2015
2014
2013
California Utilities:
                                     
    SDG&E(1)
  $ 587       43 %   $ 507       44 %   $ 404       41  
%
    SoCalGas(2)
    419       31       332       29       364       37    
Sempra International:
                                                 
    Sempra South American Utilities
    175       13       172       15       153       15    
    Sempra Mexico
    213       16       192       16       122       12    
Sempra U.S. Gas & Power:
                                                 
    Sempra Renewables
    63       5       81       7       62       6    
    Sempra Natural Gas
    44       3       50       4       64       6    
Parent and other(3)
    (152 )     (11 )     (173 )     (15 )     (168 )     (17 )  
Earnings
  $ 1,349       100 %   $ 1,161       100 %   $ 1,001       100  
%
 
(1)
For 2013, amount is after preferred dividends and call premium on preferred stock.
(2)
After preferred dividends.
(3)
Includes after-tax interest expense ($157 million in 2015 and $144 million in each of 2014 and 2013), 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 well as Parent and other, 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)

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SDG&E
 
Our SDG&E segment recorded earnings of:
 
§  
$587 million in 2015
 
§  
$507 million in 2014
 
§  
$404 million in 2013 ($411 million before preferred dividends and call premium)
 
The increase in earnings of $80 million (16%) in 2015 was primarily due to:
 
§  
$15 million reduction to the loss from plant closure in 2015 primarily based on the CPUC approval of a compliance filing related to SDG&E’s authorized recovery of its investment in SONGS compared to a $21 million charge in 2014 to adjust the total loss from plant closure;
 
§  
$26 million higher earnings from electric transmission operations primarily due to higher rate base;
 
§  
$14 million higher CPUC base operating margin authorized for 2015, and lower non-refundable operating costs;
 
§  
$7 million lower generation major maintenance costs; and
 
§  
$7 million higher favorable resolution of prior years’ income tax items; offset by
 
§  
$7 million higher earnings in 2014 associated with SDG&E’s annual FERC formulaic rate adjustment.
 
The increase of $103 million (25%) in 2014 compared to 2013 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;
 
§  
$24 million higher CPUC base operating margin authorized for 2014 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 litigation expense 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.
 
 
SoCalGas
 
Our SoCalGas segment recorded earnings of:
 
§  
$419 million in 2015 ($420 million before preferred dividends)
 
§  
$332 million in 2014 ($333 million before preferred dividends)
 
§  
$364 million in 2013 ($365 million before preferred dividends)
 
The increase in earnings of $87 million (26%) in 2015 was primarily due to:
 
§  
$34 million higher earnings primarily due to a lower effective tax rate, including $11 million earnings impact from higher favorable resolution of prior years’ income tax items in 2015;
 
§  
$31 million higher CPUC base operating margin authorized for 2015, and lower non-refundable operating costs;
 
§  
$11 million of earnings from a retroactive increase, approved by the CPUC in 2015, in authorized GRC revenue requirement for years 2012 through 2014 due to increased rate base;
 
§  
$10 million from an increase in AFUDC related to equity; and
 
§  
$8 million higher regulatory awards; offset by
 
§  
$8 million higher interest expense.
 

The decrease in earnings of $32 million (9%) in 2014 compared to 2013 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 Pipeline Safety Enhancement Plan (PSEP) that were disallowed for recovery in the final PSEP decision; and
 
§  
$4 million insurance recovery in 2013 of previously expensed costs; offset by
 
§  
$24 million higher CPUC base operating margin authorized for 2014, net of higher non-refundable operating costs; and
 
§  
$9 million from an increase in AFUDC related to equity.
 
 
EARNINGS BY SEGMENT – SEMPRA INTERNATIONAL
(Dollars in millions)

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Sempra South American Utilities
 
Our Sempra South American Utilities segment recorded earnings of:
 
§  
$175 million in 2015
 
§  
$172 million in 2014
 
§  
$153 million in 2013
 
Because our operations in South America use their local currency as their functional currency, revenues and expenses are translated into U.S. dollars at average exchange rates for the year for consolidation in Sempra Energy Consolidated’s results of operations. The year-to-year variances discussed below are as adjusted for the difference in foreign currency translation rates between years.
 
The increase in earnings of $3 million (2%) in 2015 was primarily due to:
 
§  
$21 million higher earnings from operations, mainly in Peru, due to an increase in volumes and rates, which rates include foreign currency adjustments;
 
§  
$7 million business interruption proceeds for the Santa Teresa hydroelectric power plant, which was expected to begin commercial operation in September 2014, but did not commence operation until September 2015 due to construction delays;
 
§  
$4 million higher earnings from early termination fees from commercial power contracts;
 
§  
$4 million decrease in earnings attributable to noncontrolling interests in 2015; and
 
§  
$3 million lower net interest expense, mainly in Chile, related to inflationary effect on local bonds; offset by
 
§  
$20 million lower earnings from foreign currency effects;
 
§  
$9 million higher income tax expense, including $18 million income tax benefit in 2014 related to Peruvian tax reform, offset by $6 million income tax expense in 2014 related to Chilean tax reform, as we discuss below in “Results of Operations – Changes in Revenues, Costs and Earnings – Income Taxes;” and
 
§  
$8 million lower earnings associated with the relocation of electrical infrastructure.
 
The increase in earnings of $19 million (12%) in 2014 compared to 2013 was primarily due to:
 
§  
$18 million income tax benefit related to Peruvian tax reform, offset by $6 million income tax expense related to Chilean tax reform;
 
§  
$12 million higher earnings associated with the relocation of electrical infrastructure;
 
§  
$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;
 
§  
$5 million increase in earnings attributable to noncontrolling interests in 2014; and
 
§  
$5 million higher interest expense mainly in Chile related to the inflationary effect on local bonds.
 
 
Sempra Mexico
 
Sempra Mexico recorded earnings of:
 
§  
$213 million in 2015
 
§  
$192 million in 2014
 
§  
$122 million in 2013
 
The increase in earnings of $21 million (11%) in 2015 was primarily due to:
 
§  
$37 million higher pipeline earnings, primarily due to the start of operations of certain pipelines in the fourth quarter of 2014; and
 
§  
$31 million favorable variance due to effects from foreign currency and inflation, including amounts in earnings from our joint ventures; offset by
 
§  
$5 million losses in 2015 from operations at our Mexicali power plant compared to $13 million earnings for the same period in 2014, primarily due to lower capacity revenues and lower volumes;
 
§  
$14 million gain in 2014 from the sale of a 50-percent equity interest in the first phase of the Energía Sierra Juárez project;
 
§  
$10 million unfavorable impact from income taxes ($5 million expense in 2015 compared to $5 million benefit in 2014); and
 
§  
$6 million increase in earnings attributable to noncontrolling interests at IEnova.
 
 
The increase in earnings of $70 million (57%) in 2014 compared to 2013 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 2014; and
 
§  
$13 million income tax expense in 2013 due to Mexican tax reform; offset by
 
§  
$21 million higher earnings attributable to noncontrolling interests at IEnova in 2014; and
 
§  
$15 million unfavorable translation effect primarily on Peso-denominated receivables.
 


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

[a012.gif]


 
 
Sempra Renewables
 
Sempra Renewables recorded earnings of:
 
§  
$63 million in 2015
 
§  
$81 million in 2014
 
§  
$62 million in 2013
 
The decrease in earnings of $18 million (22%) in 2015 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; offset by
 
§  
$5 million gain in 2015 from the sale of the Rosamond Solar development project, as we discuss in Note 3 of the Notes to Consolidated Financial Statements; and
 
§  
$4 million higher earnings from increased solar capacity, offset by lower earnings from decreased production at wind projects.
 
The increase in earnings of $19 million (31%) in 2014 compared to 2013 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.
 
 
Sempra Natural Gas
 
Sempra Natural Gas recorded earnings of:
 
§  
$44 million in 2015
 
§  
$50 million in 2014
 
§  
$64 million in 2013
 
The decrease in earnings of $6 million (12%) in 2015 was primarily due to:
 
§  
$29 million lower results from LNG marketing operations, primarily driven by the effect of lower natural gas prices;
 
§  
$25 million tax benefit in 2014 due to the release of Louisiana state valuation allowance against a deferred tax asset associated with Cameron LNG developments; and
 
§  
$10 million development expense associated with the potential expansion of our LNG business; offset by
 
§  
$36 million gain in 2015 on the sale of the remaining 625-MW block of the Mesquite Power plant and a related power sale contract, net of related expenses;
 
§  
$11 million higher equity earnings from Rockies Express due to additional capacity placed in service in 2015; and
 
§  
$9 million lower net losses from the Mesquite Power plant due to the sale of the remaining block in April 2015.
 
The decrease in earnings of $14 million (22%) in 2014 compared to 2013 was primarily due to:
 
§  
$44 million gain in 2013 on the sale of the first 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 state 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.
 
 
Parent and Other
 
Losses for Parent and Other were
 
§  
$152 million in 2015
 
§  
$173 million in 2014
 
§  
$168 million in 2013
 
The decrease in losses of $21 million (12%) in 2015 was primarily due to:
 
§  
$39 million higher income tax benefits, including
 
□  
$18 million lower U.S. income tax expense in 2015 as a result of lower planned repatriation of current year earnings from certain non-U.S. subsidiaries,
 
□  
$14 million of income tax benefits in 2015 associated with the resolution of prior years’ income tax items, and
 
□  
$5 million higher income tax benefits from a decrease in state valuation allowances; offset by
 
§  
$11 million lower investment gains in 2015 on dedicated assets in support of our executive retirement and deferred compensation plans, net of the decrease in deferred compensation liability associated with the investments.
 
 The increase in losses of $5 million (3%) in 2014 compared to 2013 was primarily due to:
 
§  
$38 million income tax expense in 2014 from the repatriation of current year foreign earnings;
 
§  
$9 million lower investment gains on dedicated assets in support of our executive retirement and deferred compensation plans, net of the decrease in deferred compensation liability associated with the investments;
 
§  
$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.
 


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
 
§  
Sempra Natural Gas’ Mobile Gas and 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 subsequent periods through rates.
 
The table below summarizes revenues and cost of sales for our utilities, net of intercompany activity:
 
 
UTILITIES REVENUES AND COST OF SALES
 
(Dollars in millions)
 
   
Years ended December 31,
 
   
2015
   
2014
   
2013
 
Electric revenues:
                 
SDG&E
  $ 3,719     $ 3,785     $ 3,537  
Sempra South American Utilities
    1,447       1,434       1,383  
Eliminations and adjustments
    (8 )     (10 )     (9 )
Total
    5,158       5,209       4,911  
Natural gas revenues:
                       
SoCalGas
    3,489       3,855       3,736  
SDG&E
    500       544       529  
Sempra Mexico
    81       109       97  
Sempra Natural Gas
    103       113       109  
Eliminations and adjustments
    (77 )     (72 )     (73 )
Total
    4,096       4,549       4,398  
  Total utilities revenues
  $ 9,254     $ 9,758     $ 9,309  
Cost of electric fuel and purchased power:
                       
SDG&E
  $ 1,151     $ 1,309     $ 1,019  
Sempra South American Utilities
    985       972       913  
Total
  $ 2,136     $ 2,281     $ 1,932  
Cost of natural gas:
                       
SoCalGas
  $ 921     $ 1,449     $ 1,362  
SDG&E
    153       208       204  
Sempra Mexico
    49       74       63  
Sempra Natural Gas
    31       44       35  
Eliminations and adjustments
    (20 )     (17 )     (18 )
Total
  $ 1,134     $ 1,758     $ 1,646  

Sempra Energy Consolidated
 
Electric Revenues
 
Our electric revenues decreased by $51 million (1%), remaining at $5.2 billion in 2015 primarily due to:
 
§  
$66 million decrease at SDG&E, including:
 
□  
$158 million lower cost of electric fuel and purchased power, which we discuss below, and
 
□  
$57 million lower recovery of costs associated with CPUC-authorized refundable programs, which revenues are fully offset in operation and maintenance expenses, offset by
 
□  
$88 million higher revenues from CPUC-authorized 2015 attrition and, starting in 2015, authorized revenues for the recovery of the SONGS regulatory assets pursuant to an amended settlement agreement approved by the CPUC in 2014, which we discuss below in “Depreciation and Amortization” and in Note 13 of the Notes to Consolidated Financial Statements, and
 
□  
$52 million higher authorized revenues from electric transmission; offset by
 
§  
$13 million increase at Sempra South American Utilities, including:
 
□  
higher rates and volumes at Luz del Sur, offset by foreign currency effects, and
 
□  
$9 million business interruption proceeds in 2015, offset by
 
□  
foreign currency effects at Chilquinta Energía, offset by higher rates and volumes, and
 
□  
lower revenues and volumes associated with the transfer of certain non-regulated customers from Chilquinta Energía to Tecnored, an energy-services subsidiary of Sempra South American Utilities. Our energy-service companies are part of our energy-related businesses, which revenues are discussed below in “Energy-Related Businesses: Revenues and Cost of Sales.”
 
In 2014 compared to 2013, our electric revenues increased by $298 million (6%) to $5.2 billion 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 Sempra 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.
 
Our utilities’ cost of electric fuel and purchased power decreased by $145 million (6%) to $2.1 billion in 2015 primarily due to:
 
§  
$158 million decrease at SDG&E, which we discuss below; offset by
 
§  
$13 million increase at Sempra 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 $349 million (18%) to $2.3 billion in 2014 compared to 2013 primarily due to:
 
§  
$290 million increase at SDG&E, which we discuss below; and
 
§  
$59 million increase at Sempra 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.
 
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 2015, Sempra Energy’s natural gas revenues decreased by $453 million (10%) to $4.1 billion, and the cost of natural gas decreased by $624 million (35%) to $1.1 billion. The decrease in natural gas revenues included
 
§  
decreases in cost of natural gas sold at both SoCalGas and SDG&E, as we discuss below; and
 
§  
$28 million lower revenues at Sempra Mexico primarily due to foreign currency effects and lower natural gas prices at Ecogas; offset by
 
§  
$65 million higher revenues from CPUC-authorized 2015 attrition at the California Utilities;
 
§  
$45 million higher recovery of costs at SoCalGas associated with CPUC-authorized refundable programs, which revenues are fully offset in operation and maintenance expenses;
 
§  
$19 million increase at SoCalGas from a retroactive increase, approved by the CPUC in 2015, in authorized GRC revenue requirement for years 2012 through 2014 due to increased rate base; and
 
§  
$13 million higher regulatory awards at SoCalGas.
 
In 2014 compared to 2013, 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 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.
 
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
 
(Volumes in millions of kilowatt-hours, dollars in millions)
 
   
Years ended December 31,
 
   
2015
   
2014
   
2013
 
Customer class
 
Volumes
 
Revenue
   
Volumes
 
Revenue
   
Volumes
 
Revenue
 
Residential
    7,143     $ 1,486       7,338     $ 1,370       7,392     $ 1,283  
Commercial
    6,877       1,508       6,974       1,418       6,722       1,080  
Industrial
    2,161       380       2,067       342       1,962       257  
Direct access(1)
    3,652       230       3,648       205       3,593       151  
Street and highway lighting
    83       15       88       15       87       12  
      19,916       3,619       20,115       3,350       19,756       2,783  
CAISO shared transmission revenue - net(2)
            292               162               268  
Other revenues
            213               205               172  
Balancing accounts
            (405 )             68               314  
    Total(3)
          $ 3,719             $ 3,785             $ 3,537  
     
 
(1)
Tariffs for the Direct Access program, which offers all customers the option to purchase their electric commodity services from a third-party Energy Service Provider instead of continuing to receive these services from SDG&E, increased in both 2015 and 2014.
 
(2)
California Independent System Operator (CAISO). CAISO shared transmission revenue changes are primarily due to timing differences offset by corresponding changes in balancing accounts.
 
(3)
Includes sales to affiliates of $8 million in 2015, $10 million in 2014 and $9 million in 2013.
 

 
 
SDG&E’s electric revenues decreased by $66 million (2%) to $3.7 billion in 2015 primarily due to:
 
§  
$158 million lower cost of electric fuel and purchased power, including:
 
□  
a decrease in cost of purchased power due to declining natural gas prices, and
 
□  
a decrease in consumption due to energy efficiency initiatives, including an increase in rooftop solar installations, offset by
 
□  
an increase from the incremental purchase of renewable energy at higher prices; and
 
§  
$57 million lower recovery of costs associated with CPUC-authorized refundable programs, which revenues are fully offset in operation and maintenance expenses; offset by
 
§  
$88 million higher revenues from CPUC-authorized 2015 attrition and, starting in 2015, authorized revenues for the recovery of the SONGS regulatory assets pursuant to an amended settlement agreement approved by the CPUC in 2014, which we discuss below in “Depreciation and Amortization” and in Note 13 of the Notes to Consolidated Financial Statements; and
 
§  
$52 million higher authorized revenues from electric transmission.
 
In 2014 compared to 2013, electric revenues increased by $248 million (7%) to $3.8 billion at SDG&E, 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.
 
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 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 tables below 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
 
(Volumes in billion cubic feet, dollars in millions)
 
   
Natural gas sales
   
Transportation
   
Total
 
Customer class
 
Volumes
   
Revenue
   
Volumes
   
Revenue
   
Volumes
   
Revenue
 
2015:
                                   
    Residential
    24     $ 295           $ 2       24     $ 297  
    Commercial and industrial
    14       96       8       14       22       110  
    Electric generation plants(1)
                27       1       27       1  
      38     $ 391       35     $ 17       73       408  
    Other revenues
                                            40  
    Balancing accounts
                                            52  
        Total(2)
                                          $ 500  
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  
     
 
(1)
Lower electric generation plants revenue in 2015 and 2014 compared to 2013 is due to refunds of previous overcollections to adjust forecasted rates to actual.
 
(2)
Includes sales to affiliates of $2 million in 2015 and $3 million in each of 2014 and 2013.
 

 
 
In 2015, SDG&E’s natural gas revenues decreased by $44 million (8%) to $500 million, and the cost of natural gas decreased by $55 million (26%) to $153 million. The decrease in revenues was primarily due to:
 
§  
lower cost of natural gas sold, as we discuss below; offset by
 
§  
$8 million increase in revenues from CPUC-authorized 2015 attrition.
 

In 2014 compared to 2013, 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 for the period from January 2012 through December 2012.
 
SDG&E’s average cost of natural gas was $4.05 per thousand cubic feet (Mcf) for 2015, $5.44 per Mcf for 2014 and $4.49 per Mcf for 2013. In 2015, the 26-percent decrease of $1.39 per Mcf resulted in lower revenues and cost of $52 million compared to 2014.
 
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.
 
 
SOCALGAS
 
NATURAL GAS SALES AND TRANSPORTATION
 
(Volumes in billion cubic feet, dollars in millions)
 
   
Natural gas sales
   
Transportation
   
Total
 
Customer class
 
Volumes
   
Revenue
   
Volumes
   
Revenue
   
Volumes
   
Revenue
 
2015:
                                   
    Residential
    198     $ 2,037       3     $ 15       201     $ 2,052  
    Commercial and industrial
    93       622       282       271       375       893  
    Electric generation plants
                193       41       193       41  
    Wholesale
                156       27       156       27  
      291     $ 2,659       634     $ 354       925       3,013  
    Other revenues
                                            181  
    Balancing accounts
                                            295  
        Total(1)
                                          $ 3,489  
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  
     
 
(1)
Includes sales to affiliates of $75 million in 2015, $69 million in 2014 and $70 million in 2013.
 

 
 
In 2015, SoCalGas’ natural gas revenues decreased by $366 million (9%) to $3.5 billion, and the cost of natural gas decreased by $528 million (36%) to $921 million. The revenue decrease included
 
§  
the decrease in the cost of natural gas sold, as we discuss below; offset by
 
§  
$57 million higher revenues from CPUC-authorized 2015 attrition;
 
§  
$45 million higher recovery of costs associated with CPUC-authorized refundable programs, which revenues are fully offset in operation and maintenance expenses;
 
§  
$19 million increase from a retroactive increase, approved by the CPUC in 2015, in authorized GRC revenue requirement for years 2012 through 2014 due to increased rate base; and
 
§  
$13 million higher regulatory awards.
 
In 2014 compared to 2013, 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 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.
 
SoCalGas’ average cost of natural gas was $3.18 per Mcf for 2015, $5.06 per Mcf for 2014 and $4.08 per Mcf for 2013. In 2015, the 37-percent decrease of $1.88 per Mcf resulted in lower revenues and cost of $543 million compared to 2014. The decrease in the cost of natural gas sold was offset by higher sales volumes, which resulted in higher revenues and cost of $15 million. The higher sales volumes were mainly driven by cooler weather in 2015 compared to the same period in 2014.
 
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 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.
 
 
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 bases for the tariffs do not meet the requirements necessary for regulatory accounting treatment under applicable U.S. GAAP. 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
 
(Dollars in millions)
 
   
Years ended December 31,
 
   
2015
   
2014
   
2013
 
   
Volumes
   
Revenue
   
Volumes
   
Revenue
   
Volumes
   
Revenue
 
Natural Gas Sales (billion cubic feet):
                                   
Sempra Mexico – Ecogas
    25     $ 81       24     $ 109       24     $ 97  
Sempra Natural Gas:
                                               
    Mobile Gas (including transportation)
    47       85       38       89       40       88  
    Willmut Gas
    3       18       3       24       3       21  
    Total
    75     $ 184       65     $ 222       67     $ 206  
                                                 
Electric Sales (million kilowatt hours):
                                               
Sempra South American Utilities:
                                               
    Luz del Sur
    7,549     $ 885       7,287     $ 854       6,984     $ 785  
    Chilquinta Energía
    2,887       504       2,944       530       2,856       537  
      10,436       1,389       10,231       1,384       9,840       1,322  
Other service revenues
            58               50               61  
    Total
          $ 1,447             $ 1,434             $ 1,383  
   


 
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
 
(Dollars in millions)
 
   
Years ended December 31,
 
   
2015
   
2014
   
2013
 
REVENUES
                                   
    Sempra South American Utilities
  $ 97       10 %   $ 100       8 %   $ 112       9 %
    Sempra Mexico
    588       60       709       55       578       46  
    Sempra Renewables
    36       4       35       3       82       7  
    Sempra Natural Gas
    550       56       866       68       799       64  
    Intersegment revenues, eliminations
                                               
      and adjustments(1)
    (294 )     (30 )     (433 )     (34 )     (323 )     (26 )
        Total revenues
  $ 977       100 %   $ 1,277       100 %   $ 1,248       100 %
COST OF SALES(2)
                                               
    Sempra South American Utilities
  $ 22       7 %   $ 11       2 %   $       %
    Sempra Mexico
    221       66       350       63       253       58  
    Sempra Renewables
                            3       1  
    Sempra Natural Gas
    375       112       617       112       497       114  
    Eliminations and adjustments(1)
    (283 )     (85 )     (426 )     (77 )     (318 )     (73 )
        Total cost of natural gas, electric fuel
                                               
            and purchased power
  $ 335       100 %   $ 552       100 %   $ 435       100 %
                                                 
    Sempra South American Utilities
  $ 64       43 %   $ 68       42 %   $ 84       47 %
    Sempra Mexico
    15       10       14       8       10       6  
    Sempra Natural Gas
    79       54       89       55       91       51  
    Eliminations and adjustments(1)
    (10 )     (7 )     (8 )     (5 )     (7 )     (4 )
        Total other cost of sales
  $ 148       100 %   $ 163       100 %   $ 178       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 decreased by $300 million (23%) to $977 million in 2015. The decrease included
 
§  
$316 million decrease at Sempra Natural Gas mainly from lower natural gas prices and volumes and lower power revenues due to the sale of the remaining block of Mesquite Power and a related power sale contract in April 2015, as well as from the deconsolidation of Cameron LNG, LLC as of October 1, 2014; and
 
§  
$121 million lower revenues at Sempra Mexico primarily due to lower natural gas prices and volumes in its gas business and lower power prices and volumes and capacity revenues in its power business, offset by higher transportation revenues from a section of the Sonora natural gas pipeline that commenced operations in the fourth quarter of 2014; offset by
 
§  
$139 million primarily from lower intercompany eliminations associated with sales between Sempra Natural Gas and Sempra Mexico.
 
At Sempra South American Utilities, revenues decreased by $3 million in 2015 primarily due to foreign currency effects, offset by higher revenues associated with the transfer of certain non-regulated customers from Chilquinta Energía. Those revenues were included in “Electric Revenues” in prior years.
 
In 2014 compared to 2013, revenues from our energy-related businesses increased by $29 million (2%) to $1.3 billion. 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.
 
The cost of natural gas, electric fuel and purchased power for our energy-related businesses decreased by $217 million (39%) to $335 million in 2015 primarily due to:
 
§  
$242 million decrease at Sempra Natural Gas primarily due to lower natural gas costs and volumes and lower electric fuel costs due to the sale of the remaining block of Mesquite Power in April 2015; and
 
§  
$129 million decrease at Sempra Mexico primarily due to lower natural gas costs and volumes; offset by
 
§  
$143 million primarily from lower intercompany eliminations of costs 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 increased by $117 million (27%) to $552 million in 2014 compared to 2013 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.
 

 
Operation and Maintenance
 
In the table below, we provide a breakdown of our operation and maintenance expenses by segment.
 

OPERATION AND MAINTENANCE
(Dollars in millions)
   
Years ended December 31,
   
2015
   
2014
   
2013
California Utilities:
                                     
    SDG&E
  $ 1,017       35 %   $ 1,076       37 %   $ 1,157       39  
%
    SoCalGas
    1,370       47       1,321       45       1,324       44    
Sempra International:
                                                 
    Sempra South American Utilities
    160       6       173       6       170       6    
    Sempra Mexico
    126       4       121       4       124       4    
Sempra U.S. Gas & Power:
                                                 
    Sempra Renewables
    50       2       50       2       46       1    
    Sempra Natural Gas
    177       6       181       6       167       6    
Parent and other(1)
    (5 )           13             7          
Total operation and maintenance
  $ 2,895       100 %   $ 2,935       100 %   $ 2,995       100  
%
   
 
(1)
Includes intercompany eliminations recorded in consolidation.

 
Sempra Energy Consolidated
 
Our operation and maintenance expenses decreased by $40 million (1%), remaining at $2.9 billion in 2015 primarily due to:
 
§  
$59 million decrease at SDG&E, which we discuss below; and
 
§  
$18 million decrease at Parent and Other primarily due to lower employee benefit and deferred compensation costs; offset by
 
§  
$49 million increase at SoCalGas, which we discuss below.
 
Our operation and maintenance expenses decreased by $60 million (2%) to $2.9 billion in 2014 compared to 2013 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.
 
SDG&E
 
SDG&E’s operation and maintenance expenses decreased by $59 million (5%) to $1.0 billion in 2015 primarily due to:
 
§  
$53 million lower expenses associated with CPUC-authorized refundable programs, for which all costs incurred are fully recovered in revenue (refundable program expenses); and
 
§  
$8 million lower non-refundable operating costs, including $11 million lower major maintenance costs at its electric generating facilities, as well as labor, contract services and administrative and support costs.
 
SDG&E’s operation and maintenance expenses decreased by $81 million (7%) to $1.1 billion in 2014 compared to 2013 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 non-refundable operating costs, including labor, contract services and administrative and support costs; and
 
§  
$8 million lower litigation expense.
 
SoCalGas
 
Operation and maintenance expenses at SoCalGas increased in 2015 by $49 million (4%) to $1.4 billion, primarily due to $45 million higher expenses associated with CPUC-authorized refundable programs for which all costs incurred are fully recovered in revenue (refundable program expenses).
 
SoCalGas’ operation and maintenance expenses decreased by $3 million, remaining at $1.3 billion in 2014 compared to 2013 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 non-refundable operating costs, including labor, contract services and administrative and support costs; and
 
§  
$7 million insurance recovery in 2013 of previously expensed costs.
 
 
Depreciation and Amortization
 
Sempra Energy Consolidated
 
Our depreciation and amortization expense was
 
§  
$1,250 million in 2015
 
§  
$1,156 million in 2014
 
§  
$1,113 million in 2013
 
The increase of $94 million (8%) in 2015 was primarily due to:
 
§  
$74 million higher depreciation and amortization at SDG&E mainly from $42 million from the start of amortization of SONGS regulatory assets and from higher utility plant base. As we discuss in Note 13 of the Notes to Consolidated Financial Statements, based on an amended settlement agreement approved by the CPUC in 2014, SDG&E is authorized to recover in rates its remaining investment in SONGS, including base plant and construction work in progress; and
 
§  
$30 million higher depreciation at SoCalGas from higher utility plant base; offset by
 
§  
$12 million lower depreciation expense at Sempra Natural Gas primarily due to the deconsolidation of Cameron LNG, LLC as of October 1, 2014.
 
The increase of $43 million (4%) in 2014 compared to 2013 was primarily due to:
 
§  
$33 million higher depreciation at SoCalGas from higher utility plant base;
 
§  
$18 million net increase in depreciation at SDG&E mainly from higher utility plant base, offset by lower depreciation from the retirement of SONGS; and
 
§  
lower depreciation 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.