INVESTMENTS IN UNCONSOLIDATED ENTITIES

3 Months Ended

Mar. 31, 2019

INVESTMENTS IN UNCONSOLIDATED ENTITIES

We generally account for investments under the equity method when we have significant influence over, but do not have control of, these entities. Equity earnings and losses, both before and net of income tax, are combined and presented as Equity Earnings (Losses) on the Condensed Consolidated Statements of Operations. See Note 1 for information on how equity earnings and losses before income taxes are factored into the calculations of our pretax income or loss and ETR.

Our equity method investments include various domestic and foreign entities. Our foreign equity method investees are corporations whose operations are generally taxable on a stand alone basis in the countries in which they operate, and we recognize our equity in such income or loss net of investee income tax.

Oncor is a domestic partnership for U.S. federal income tax purposes and is not included in the consolidated income tax return of Sempra Energy. Rather, only our equity earnings from our investment in Oncor Holdings (a disregarded entity for tax purposes) are included in our consolidated income tax return. A tax sharing agreement with TTI, Oncor Holdings and Oncor provides for the calculation of an income tax liability substantially as if Oncor Holdings and Oncor were taxed as corporations, and requires tax payments determined on that basis. While partnerships are not subject to income taxes, in consideration of the tax sharing agreement and Oncor being subject to the provisions of U.S. GAAP governing rate-regulated operations, Oncor recognizes amounts determined under cost-based regulatory rate-setting processes (with such costs including income taxes), as if it were taxed as a corporation. As a result, since Oncor Holdings consolidates Oncor, we recognize equity earnings from our investment in Oncor Holdings net of its recorded income tax.

We provide additional information concerning our equity method investments in Note 5 above and in Notes 5 and 6 of the Notes to Consolidated Financial Statements in the Annual Report.

SEMPRA TEXAS UTILITY

We account for our 100-percent ownership interest in Oncor Holdings as an equity method investment. Due to the ring-fencing measures, governance mechanisms, and commitments in effect following the Merger, we do not have the power to direct the significant activities of Oncor Holdings and Oncor. See Note 6 of the Notes to Consolidated Financial Statements in the Annual Report for additional information related to the restrictions on our ability to direct the significant activities of Oncor Holdings and Oncor.

In each of the first quarter of 2019 and the second quarter of 2019 through May 7, 2019, Sempra Energy contributed $56 million to Oncor, and Oncor Holdings distributed to Sempra Energy $54 million in dividends and $3 million in tax sharing payments.

We provide summarized income statement information for Oncor Holdings in the following table.



SUMMARIZED FINANCIAL INFORMATION – ONCOR HOLDINGS
(Dollars in millions)
	Three months ended March 31, 2019			March 9 - March 31, 2018
Operating revenues	$	1,016		$	236
Operating expense	(775		)	(185		)
Income from operations	241			51
Interest expense	(86		)	(22		)
Income tax expense	(23		)	(7		)
Net income	114			19
Noncontrolling interest held by TTI	(23		)	(4		)
Earnings attributable to Sempra Energy⁽¹⁾	91			15


⁽¹⁾	Earnings at Oncor Holdings differ from earnings at the Sempra Texas Utility segment due to amortization of a tax sharing liability associated with a tax sharing arrangement and basis differences in AOCI.

SEMPRA MEXICO

Sempra Mexico invested cash of $25 million in the IMG JV in the three months ended March 31, 2018.

SEMPRA RENEWABLES

As we discuss in Note 5, in February 2019, Sempra Renewables entered into an agreement to sell its remaining wind assets and investments. At March 31, 2019, the wind investments had a carrying value of $290 million and were included in Other

Investments on Sempra Energy’s Condensed Consolidated Balance Sheets. We completed the sale in April 2019, as we discuss in Note 5.

SEMPRA LNG

Sempra LNG capitalized $13 million and $11 million of interest in the three months ended March 31, 2019 and 2018, respectively, related to its investment in Cameron LNG JV, which has not commenced planned principal operations. In the three months ended March 31, 2019 and 2018, Sempra LNG invested cash of $25 million and $29 million, respectively, in this unconsolidated JV.

GUARANTEES

At March 31, 2019, we had outstanding guarantees aggregating a maximum of $4.2 billion with an aggregate carrying value of $10 million. We discuss these guarantees in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report.