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OTHER FINANCIAL DATA
 6 Months Ended
Jun. 30, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Other Financial Data OTHER FINANCIAL DATAINVENTORIES
The components of inventories by segment are as follows:
INVENTORY BALANCES
(Dollars in millions)
 
Natural gas
 
 
Liquefied natural gas
 
 
Materials and supplies
 
 
Total
 
June 30, 2017
 
December 31, 2016
 
 
June 30, 2017
 
December 31, 2016
 
 
June 30,
2017
 
December 31, 2016
 
 
June 30,
2017
 
December 31, 2016
SDG&E
$
1

 
$
2

 
 
$
—

 
$
—

 
 
$
88

 
$
78

 
 
$
89

 
$
80

SoCalGas(1)
—

 
11

 
 
—

 
—

 
 
45

 
47

 
 
45

 
58

Sempra South American Utilities
—

 
—

 
 
—

 
—

 
 
33

 
27

 
 
33

 
27

Sempra Mexico
—

 
—

 
 
12

 
6

 
 
2

 
1

 
 
14

 
7

Sempra Renewables
—

 
—

 
 
—

 
—

 
 
4

 
4

 
 
4

 
4

Sempra LNG & Midstream
51

 
79

 
 
3

 
3

 
 
—

 
—

 
 
54

 
82

Sempra Energy Consolidated
$
52

 
$
92

 
 
$
15

 
$
9

 
 
$
172

 
$
157

 
 
$
239

 
$
258

(1)
At June 30, 2017 and December 31, 2016, SoCalGas’ natural gas inventory for core customers is net of an inventory loss related to the Aliso Canyon natural gas leak, which we discuss in Note 11.GREENHOUSE GAS ALLOWANCES
The Condensed Consolidated Balance Sheets include the following amounts associated with GHG allowances and obligations.
GHG ALLOWANCES AND OBLIGATIONS
(Dollars in millions)
 
 
 
 
 
 
 
 
 
 
 
 
Sempra Energy
Consolidated
 
SDG&E
 
SoCalGas
 
June 30,
2017
 
December 31,
2016
 
June 30,
2017
 
December 31,
2016
 
June 30,
2017
 
December 31,
2016
Assets:
 
 
 
 
 
 
 
 
 
 
 
Other current assets
$
40

 
$
40

 
$
16

 
$
16

 
$
24

 
$
24

Sundry
334

 
295

 
190

 
182

 
140

 
109

Total assets
$
374

 
$
335

 
$
206

 
$
198

 
$
164

 
$
133

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Other current liabilities
$
40

 
$
40

 
$
16

 
$
16

 
$
24

 
$
24

Deferred credits and other
202

 
171

 
88

 
72

 
111

 
96

Total liabilities
$
242

 
$
211

 
$
104

 
$
88

 
$
135

 
$
120

GOODWILLWe discuss goodwill in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report. The increase in goodwill from $2,364 million at December 31, 2016 to $2,379 million at June 30, 2017 is due to foreign currency translation at Sempra South American Utilities. We record the offset of this fluctuation in OCI.VARIABLE INTEREST ENTITIES
We consolidate a VIE if we are the primary beneficiary of the VIE. Our determination of whether we are the primary beneficiary is based on qualitative and quantitative analyses, which assess
▪
the purpose and design of the VIE;
▪
the nature of the VIE’s risks and the risks we absorb;
▪
the power to direct activities that most significantly impact the economic performance of the VIE; and
▪
the obligation to absorb losses or right to receive benefits that could be significant to the VIE.
SDG&E
SDG&E’s power procurement is subject to reliability requirements that may require SDG&E to enter into various power purchase arrangements which include variable interests. SDG&E evaluates the respective entities to determine if variable interests exist and, based on the qualitative and quantitative analyses described above, if SDG&E, and thereby Sempra Energy, is the primary beneficiary.
Tolling Agreements
SDG&E has agreements under which it purchases power generated by facilities for which it supplies all of the natural gas to fuel the power plant (i.e., tolling agreements). SDG&E’s obligation to absorb natural gas costs may be a significant variable interest. In addition, SDG&E has the power to direct the dispatch of electricity generated by these facilities. Based upon our analysis, the ability to direct the dispatch of electricity may have the most significant impact on the economic performance of the entity owning the generating facility because of the associated exposure to the cost of natural gas, which fuels the plants, and the value of electricity produced. To the extent that SDG&E (1) is obligated to purchase and provide fuel to operate the facility, (2) has the power to direct the dispatch, and (3) purchases all of the output from the facility for a substantial portion of the facility’s useful life, SDG&E may be the primary beneficiary of the entity owning the generating facility. SDG&E determines if it is the primary beneficiary in these cases based on a qualitative approach in which we consider the operational characteristics of the facility, including its expected power generation output relative to its capacity to generate and the financial structure of the entity, among other factors. If we determine that SDG&E is the primary beneficiary, SDG&E and Sempra Energy consolidate the entity that owns the facility as a VIE.
Otay Mesa VIE
SDG&E has an agreement to purchase power generated at OMEC, a 605-MW generating facility. In addition to tolling, the agreement provides SDG&E with the option to purchase OMEC at the end of the contract term in 2019, or upon earlier termination of the PPA, at a predetermined price subject to adjustments based on performance of the facility. If SDG&E does not exercise its option, under certain circumstances, it may be required to purchase the power plant for $280 million, which we refer to as the put option.
The facility owner, OMEC LLC, is a VIE, which we refer to as Otay Mesa VIE, of which SDG&E is the primary beneficiary. SDG&E has no OMEC LLC voting rights, holds no equity in OMEC LLC and does not operate OMEC. In addition to the risks absorbed under the tolling agreement, SDG&E absorbs separately through the put option a significant portion of the risk that the value of Otay Mesa VIE could decline. Accordingly, SDG&E and Sempra Energy consolidate Otay Mesa VIE. Otay Mesa VIE’s equity of $34 million at June 30, 2017 and $37 million at December 31, 2016 is included on the Condensed Consolidated Balance Sheets in Other Noncontrolling Interests for Sempra Energy and in Noncontrolling Interest for SDG&E.
OMEC LLC has a loan outstanding of $300 million at June 30, 2017, the proceeds of which were used for the construction of OMEC. The loan is with third party lenders and is collateralized by OMEC’s assets. SDG&E is not a party to the loan agreement and does not have any additional implicit or explicit financial responsibility to OMEC LLC. The loan fully matures in April 2019 and bears interest at rates varying with market rates. In addition, OMEC LLC has entered into interest rate swap agreements to moderate its exposure to interest rate changes. We provide additional information concerning the interest rate swaps in Note 7.
The Condensed Consolidated Statements of Operations of Sempra Energy and SDG&E include the following amounts associated with Otay Mesa VIE. The amounts are net of eliminations of transactions between SDG&E and Otay Mesa VIE. The captions in the table below correspond to SDG&E’s Condensed Consolidated Statements of Operations.
AMOUNTS ASSOCIATED WITH OTAY MESA VIE
 
 
 
 
(Dollars in millions)
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
 
2017
 
2016
 
2017
 
2016
Operating expenses
 
 
 
 
 
 
 
Cost of electric fuel and purchased power
$
(21
)
 
$
(17
)
 
$
(39
)
 
$
(34
)
Operation and maintenance
5

 
15

 
9

 
19

Depreciation and amortization
7

 
10

 
14

 
17

Total operating expenses
(9
)
 
8

 
(16
)
 
2

Operating income (loss)
9

 
(8
)
 
16

 
(2
)
Interest expense
(5
)
 
(5
)
 
(10
)
 
(10
)
Income (loss) before income taxes/Net income (loss)
4

 
(13
)
 
6

 
(12
)
(Earnings) losses attributable to noncontrolling interest
(4
)
 
13

 
(6
)
 
12

Earnings attributable to common shares
$
—

 
$
—

 
$
—

 
$
—



SDG&E has determined that no contracts, other than the one relating to Otay Mesa VIE mentioned above, result in SDG&E being the primary beneficiary of a VIE at June 30, 2017. In addition to the tolling agreements described above, other variable interests involve various elements of fuel and power costs, and other components of cash flow expected to be paid to or received by our counterparties. In most of these cases, the expectation of variability is not substantial, and SDG&E generally does not have the power to direct activities that most significantly impact the economic performance of the other VIEs. In addition, SDG&E is not exposed to losses or gains as a result of these other VIEs, because all such variability would be recovered in rates. If our ongoing evaluation of these VIEs were to conclude that SDG&E becomes the primary beneficiary and consolidation by SDG&E becomes necessary, the effects could be significant to the financial position and liquidity of SDG&E and Sempra Energy. We provide additional information about PPAs with power plant facilities that are VIEs of which SDG&E is not the primary beneficiary in Note 11 below and in Note 15 of the Notes to Consolidated Financial Statements in the Annual Report.
We provide additional information regarding Otay Mesa VIE in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.
Sempra Renewables
Effective December 2016, certain of Sempra Renewables’ wind and solar power generation projects are held by limited liability companies whose members are Sempra Renewables and financial institutions. The financial institutions are noncontrolling tax equity investors to which earnings, tax attributes and cash flows are allocated in accordance with the respective limited liability company agreements. These entities are VIEs and Sempra Energy is the primary beneficiary, generally due to Sempra Energy’s power as the operator of the renewable energy projects to direct the activities that most significantly impact the economic performance of these VIEs.
As the primary beneficiary of these tax equity limited liability companies, we consolidate them. Sempra Energy’s Condensed Consolidated Balance Sheets included $912 million and $926 million of PP&E, net, and equity of $454 million and $468 million included in Other Noncontrolling Interests at June 30, 2017 and December 31, 2016, respectively, associated with these entities. Sempra Energy’s Condensed Consolidated Statements of Operations include the following amounts associated with the tax equity limited liability companies. The amounts are net of eliminations of transactions between Sempra Energy and these entities.
AMOUNTS ASSOCIATED WITH TAX EQUITY ARRANGEMENTS
 
 
(Dollars in millions)
 
 
 
 
Three months ended June 30, 2017
 
Six months ended June 30, 2017
REVENUES
 
 
 
Energy-related businesses
$
18

 
$
31

EXPENSES
 
 
 
Operation and maintenance
(7
)
 
(9
)
Depreciation and amortization
(8
)
 
(16
)
Income before income taxes
3

 
6

Income tax expense
(4
)
 
(6
)
Net loss
(1
)
 
—

Losses attributable to noncontrolling interests(1)
7

 
10

Earnings
$
6

 
$
10

 
 
 
 
 
(1)
Net income or loss attributable to the noncontrolling interests is computed using the HLBV method and is not based on ownership percentages.


We provide additional information regarding the tax equity limited liability companies in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.
Sempra LNG & Midstream
Sempra Energy’s equity method investment in Cameron LNG JV is considered to be a VIE principally due to contractual provisions that transfer certain risks to customers. Sempra Energy is not the primary beneficiary because we do not have the power to direct the most significant activities of Cameron LNG JV. We will continue to evaluate Cameron LNG JV for any changes that may impact our determination of the primary beneficiary. The carrying value of our investment in Cameron LNG JV, including amounts recognized in AOCI related to interest-rate cash flow hedges at Cameron LNG JV, was $977 million at June 30, 2017 and $997 million at December 31, 2016. Our maximum exposure to loss includes the carrying value of our investment and the guarantees discussed in Note 4 above and in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.
Other Variable Interest Entities
Sempra Energy’s other businesses also enter into arrangements which could include variable interests. We evaluate these arrangements and applicable entities based on the qualitative and quantitative analyses described above. Certain of these entities are service companies that are VIEs. As the primary beneficiary of these service companies, we consolidate them; however, their financial statements are not material to the financial statements of Sempra Energy. In all other cases, we have determined that these contracts are not variable interests in a VIE and therefore are not subject to the U.S. GAAP requirements concerning the consolidation of VIEs.PENSION AND OTHER POSTRETIREMENT BENEFITS
Net Periodic Benefit Cost
The following three tables provide the components of net periodic benefit cost:
NET PERIODIC BENEFIT COST – SEMPRA ENERGY CONSOLIDATED
(Dollars in millions)
 
Pension benefits
 
Other postretirement benefits
 
Three months ended June 30,
 
2017
 
2016
 
2017
 
2016
Service cost
$
29

 
$
27

 
$
5

 
$
6

Interest cost
37

 
40

 
11

 
11

Expected return on assets
(40
)
 
(41
)
 
(17
)
 
(18
)
Amortization of:
 
 
 
 
 
 
 
Prior service cost
2

 
3

 
—

 
—

Actuarial loss
8

 
7

 
—

 
—

Regulatory adjustment
(29
)
 
(28
)
 
2

 
2

Total net periodic benefit cost
$
7

 
$
8

 
$
1

 
$
1

 
 
 
 
 
 
 
 
 
Six months ended June 30,
 
2017
 
2016
 
2017
 
2016
Service cost
$
57

 
$
55

 
$
11

 
$
11

Interest cost
74

 
80

 
20

 
22

Expected return on assets
(80
)
 
(83
)
 
(33
)
 
(35
)
Amortization of:
 
 
 
 
 
 
 
Prior service cost
5

 
6

 
—

 
—

Actuarial loss (gain)
16

 
13

 
(1
)
 
—

Regulatory adjustment
(41
)
 
(56
)
 
4

 
4

Total net periodic benefit cost
$
31

 
$
15

 
$
1

 
$
2

NET PERIODIC BENEFIT COST – SDG&E
(Dollars in millions)
 
Pension benefits
 
Other postretirement benefits
 
Three months ended June 30,
 
2017
 
2016
 
2017
 
2016
Service cost
$
7

 
$
8

 
$
2

 
$
1

Interest cost
10

 
11

 
2

 
2

Expected return on assets
(13
)
 
(13
)
 
(4
)
 
(2
)
Amortization of:
 
 
 
 
 
 
 
Prior service cost
1

 
1

 
1

 
1

Actuarial loss (gain)
2

 
2

 
—

 
(1
)
Regulatory adjustment
(7
)
 
(8
)
 
(1
)
 
(1
)
Total net periodic benefit cost
$
—

 
$
1

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
Six months ended June 30,
 
2017
 
2016
 
2017
 
2016
Service cost
$
15

 
$
15

 
$
3

 
$
2

Interest cost
19

 
21

 
4

 
4

Expected return on assets
(24
)
 
(25
)
 
(7
)
 
(5
)
Amortization of:

 
 
 

 
 
Prior service cost
1

 
1

 
2

 
2

Actuarial loss (gain)
4

 
5

 
—

 
(1
)
Regulatory adjustment
(14
)
 
(15
)
 
(2
)
 
(2
)
Total net periodic benefit cost
$
1

 
$
2

 
$
—

 
$
—

NET PERIODIC BENEFIT COST – SOCALGAS
(Dollars in millions)
 
Pension benefits
 
Other postretirement benefits
 
Three months ended June 30,
 
2017
 
2016
 
2017
 
2016
Service cost
$
18

 
$
18

 
$
3

 
$
3

Interest cost
24

 
25

 
8

 
9

Expected return on assets
(25
)
 
(27
)
 
(13
)
 
(14
)
Amortization of:
 
 
 
 
 
 
 
Prior service cost (credit)
2

 
2

 
—

 
(1
)
Actuarial loss (gain)
4

 
2

 
(1
)
 
—

Regulatory adjustment
(22
)
 
(20
)
 
3

 
3

Total net periodic benefit cost
$
1

 
$
—

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
Six months ended June 30,
 
2017
 
2016
 
2017
 
2016
Service cost
$
36

 
$
35

 
$
7

 
$
7

Interest cost
48

 
50

 
15

 
17

Expected return on assets
(51
)
 
(52
)
 
(26
)
 
(28
)
Amortization of:
 
 
 
 

 
 
Prior service cost (credit)
4

 
4

 
(1
)
 
(2
)
Actuarial loss (gain)
8

 
5

 
(1
)
 
—

Regulatory adjustment
(27
)
 
(41
)
 
6

 
6

Total net periodic benefit cost
$
18

 
$
1

 
$
—

 
$
—


Benefit Plan Contributions
The following table shows our year-to-date contributions to pension and other postretirement benefit plans and the amounts we expect to contribute in 2017:
BENEFIT PLAN CONTRIBUTIONS
(Dollars in millions)
 
 
Sempra Energy
Consolidated
 
SDG&E
 
SoCalGas
Contributions through June 30, 2017:
 
 
 
 
 
 
Pension plans
 
$
28

 
$
2

 
$
17

Other postretirement benefit plans
 
1

 
—

 
—

Total expected contributions in 2017:
 
 
 
 
 
 
Pension plans
 
$
174

 
$
32

 
$
90

Other postretirement benefit plans
 
8

 
4

 
1

RABBI TRUSTIn support of its Supplemental Executive Retirement, Cash Balance Restoration and Deferred Compensation Plans, Sempra Energy maintains dedicated assets, including a Rabbi Trust and investments in life insurance contracts, which totaled $427 million and $430 million at June 30, 2017 and December 31, 2016, respectively.EARNINGS PER SHARE
The following table provides EPS computations for the three months and six months ended June 30, 2017 and 2016. Basic EPS is calculated by dividing earnings attributable to common stock by the weighted-average number of common shares outstanding for the period. Diluted EPS includes the potential dilution of common stock equivalent shares that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
EARNINGS PER SHARE COMPUTATIONS
 
 
 
 
 
 
 
(Dollars in millions, except per share amounts; shares in thousands)
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
 
2017
 
2016(1)
 
2017
 
2016(1)
Numerator:
 
 
 
 
 
 
 
Earnings/Income attributable to common shares
$
259

 
$
16

 
$
700

 
$
369

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted-average common shares outstanding for basic EPS(2)
251,447

 
250,096

 
251,290

 
249,915

Dilutive effect of stock options, RSAs and RSUs(3)
1,375

 
1,940

 
1,319

 
1,860

Weighted-average common shares outstanding for diluted EPS
252,822

 
252,036

 
252,609

 
251,775

 
 
 
 
 
 
 
 
EPS:
 
 
 
 
 
 
 
Basic
$
1.03

 
$
0.06

 
$
2.79

 
$
1.48

Diluted
1.03

 
0.06

 
2.77

 
1.47

(1)
As adjusted for the adoption of ASU 2016-09 as of January 1, 2016, as we discuss in Note 2.
(2)
Includes 608 and 568 average fully vested RSUs held in our Deferred Compensation Plan for the three months ended June 30, 2017 and 2016, respectively, and 604 and 562 for the six months ended June 30, 2017 and 2016, respectively. These fully vested RSUs are included in weighted-average common shares outstanding for basic EPS because there are no conditions under which the corresponding shares will not be issued.
(3)
Due to market fluctuations of both Sempra Energy stock and the comparative indices used to determine the vesting percentage of our total shareholder return performance-based RSUs, which we discuss in Note 8 of the Notes to Consolidated Financial Statements in the Annual Report, dilutive RSUs may vary widely from period-to-period.

The potentially dilutive impact from stock options, RSAs and RSUs is calculated under the treasury stock method. Under this method, proceeds based on the exercise price and unearned compensation are assumed to be used to repurchase shares on the open market at the average market price for the period, reducing the number of potential new shares to be issued and sometimes causing an antidilutive effect. The computation of diluted EPS for the three months ended June 30, 2017 and 2016 excludes 3,010 and 1,010 potentially dilutive shares, respectively, because to include them would be antidilutive for the period. The computation of diluted EPS
for the six months ended June 30, 2017 and 2016 excludes 3,010 and 2,408 such potentially dilutive shares, respectively. However, these shares could potentially dilute basic EPS in the future.
Pursuant to our Sempra Energy share-based compensation plans, Sempra Energy’s Board of Directors granted 424,760 performance-based RSUs and 93,619 service-based RSUs during the six months ended June 30, 2017, primarily in January. During the six months ended June 30, 2017, IEnova granted 1,034,086 RSUs from the IEnova 2013 Long-Term Incentive Plan, under which awards are cash settled at vesting based on the price of IEnova common stock.
We discuss share-based compensation plans and related awards further in Note 8 of the Notes to Consolidated Financial Statements in the Annual Report.CAPITALIZED FINANCING COSTS
Capitalized financing costs include capitalized interest costs and AFUDC related to both debt and equity financing of construction projects. We capitalize interest costs incurred to finance capital projects and interest on equity method investments that have not commenced planned principal operations.
Interest capitalized and AFUDC are as follows:
CAPITALIZED FINANCING COSTS
 
 
 
 
(Dollars in millions)
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
 
2017
 
2016
 
2017
 
2016
Sempra Energy Consolidated
$
62

 
$
58

 
$
144

 
$
110

SDG&E
21

 
17

 
41

 
32

SoCalGas
15

 
14

 
30

 
27

COMPREHENSIVE INCOME
The following tables present the changes in AOCI by component and amounts reclassified out of AOCI to net income, excluding amounts attributable to noncontrolling interests:
CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT(1)
(Dollars in millions)
 
Foreign
currency
translation
adjustments
 
Financial
instruments
 
Pension and other
postretirement
benefits
 
Total
accumulated other
comprehensive
income (loss)
 
Three months ended June 30, 2017 and 2016
Sempra Energy Consolidated:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of March 31, 2017
$
(481
)
 
$
(121
)
 
$
(94
)
 
$
(696
)
OCI before reclassifications
3

 
(26
)
 
—

 
(23
)
Amounts reclassified from AOCI
—

 
—

 
1

 
1

Net OCI
3

 
(26
)
 
1

 
(22
)
Balance as of June 30, 2017
$
(478
)
 
$
(147
)
 
$
(93
)
 
$
(718
)
 
 
 
 
 
.
 
 
Balance as of March 31, 2016
$
(514
)
 
$
(221
)
 
$
(86
)
 
$
(821
)
OCI before reclassifications
11

 
(48
)
 
—

 
(37
)
Amounts reclassified from AOCI
—

 
5

 
1

 
6

Net OCI
11

 
(43
)
 
1

 
(31
)
Balance as of June 30, 2016
$
(503
)
 
$
(264
)
 
$
(85
)
 
$
(852
)
SDG&E:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of March 31, 2017 and June 30, 2017
 
 
 
 
$
(8
)
 
$
(8
)
 
 
 
 
 
 
 
 
Balance as of March 31, 2016 and June 30, 2016
 
 
 
 
$
(8
)
 
$
(8
)
SoCalGas:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of March 31, 2017
 
 
$
(13
)
 
$
(9
)
 
$
(22
)
Amounts reclassified from AOCI
 
 
—

 
1

 
1

Net OCI
 
 
—

 
1

 
1

Balance as of June 30, 2017
 
 
$
(13
)
 
$
(8
)
 
$
(21
)
 
 
 
 
 
 
 
 
Balance as of March 31, 2016 and June 30, 2016
 
 
$
(14
)
 
$
(5
)
 
$
(19
)
(1)
All amounts are net of income tax, if subject to tax, and exclude noncontrolling interests.

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT(1)
(Dollars in millions)
 
Foreign
currency
translation
adjustments
 
Financial
instruments
 
Pension and other
postretirement
benefits
 
Total
accumulated other
comprehensive
income (loss)
 
Six months ended June 30, 2017 and 2016
Sempra Energy Consolidated:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2016
$
(527
)
 
$
(125
)
 
$
(96
)
 
$
(748
)
OCI before reclassifications
49

 
(28
)
 
—

 
21

Amounts reclassified from AOCI
—

 
6

 
3

 
9

Net OCI
49

 
(22
)
 
3

 
30

Balance as of June 30, 2017
$
(478
)
 
$
(147
)
 
$
(93
)
 
$
(718
)
 
 
 
 
 
.
 
 
Balance as of December 31, 2015
$
(582
)
 
$
(137
)
 
$
(87
)
 
$
(806
)
OCI before reclassifications
79

 
(130
)
 
—

 
(51
)
Amounts reclassified from AOCI
—

 
3

 
2

 
5

Net OCI
79

 
(127
)
 
2

 
(46
)
Balance as of June 30, 2016
$
(503
)
 
$
(264
)
 
$
(85
)
 
$
(852
)
SDG&E:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2016 and June 30, 2017
 
 
 
 
$
(8
)
 
$
(8
)
 
 
 
 
 
 
 
 
Balance as of December 31, 2015 and June 30, 2016
 
 
 
 
$
(8
)
 
$
(8
)
SoCalGas:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2016
 
 
$
(13
)
 
$
(9
)
 
$
(22
)
Amounts reclassified from AOCI
 
 
—

 
1

 
1

Net OCI
 
 
—

 
1

 
1

Balance as of June 30, 2017
 
 
$
(13
)
 
$
(8
)
 
$
(21
)
 
 
 
 
 
 
 
 
Balance as of December 31, 2015 and June 30, 2016
 
 
$
(14
)
 
$
(5
)
 
$
(19
)
(1)
All amounts are net of income tax, if subject to tax, and exclude noncontrolling interests.
RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
Details about accumulated other
comprehensive income (loss) components
Amounts reclassified
from accumulated other
comprehensive income (loss)
 
Affected line item on Condensed
Consolidated Statements of Operations
 
Three months ended June 30,
 
 
 
2017
 
2016
 
 
Sempra Energy Consolidated:
 
 
 
 
 
Financial instruments:
 
 
 
 
 
Interest rate and foreign exchange instruments
$
(1
)
 
$
3

 
Interest Expense
Interest rate instruments
2

 
2

 
Equity Earnings (Losses), Before Income Tax
Interest rate and foreign exchange instruments
3

 
5

 
Equity Earnings (Losses), Net of Income Tax
Foreign exchange instruments
(1
)
 
—

 
Revenues: Energy-Related Businesses
Total before income tax
3

 
10

 
 
 
(1
)
 
(1
)
 
Income Tax (Expense) Benefit
Net of income tax
2

 
9

 
 
 
(2
)
 
(4
)
 
Losses (Earnings) Attributable to Noncontrolling Interests
 
$
—

 
$
5

 
 
Pension and other postretirement benefits:
 
 
 
 
 
Amortization of actuarial loss
$
2

 
$
2

 
See note (1) below
 
(1
)
 
(1
)
 
Income Tax (Expense) Benefit
Net of income tax
$
1

 
$
1

 
 
 
 
 
 
 
 
Total reclassifications for the period, net of tax
$
1

 
$
6

 
 
SDG&E:
 
 
 
 
 
Financial instruments:
 
 
 
 
 
Interest rate instruments
$
3

 
$
3

 
Interest Expense
 
(3
)
 
(3
)
 
(Earnings) Losses Attributable to Noncontrolling Interest
Total reclassifications for the period
$
—

 
$
—

 
 
SoCalGas:
 

 
 

 
 
Pension and other postretirement benefits:
 

 
 

 
 
Amortization of actuarial loss
$
1

 
$
—

 
See note (1) below
Total reclassifications for the period, net of tax
$
1

 
$
—

 
 

(1)
Amounts are included in the computation of net periodic benefit cost (see “Pension and Other Postretirement Benefits” above).

RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
Details about accumulated other
comprehensive income (loss) components
Amounts reclassified
from accumulated other
comprehensive income (loss)
 
Affected line item on Condensed
Consolidated Statements of Operations
 
Six months ended June 30,
 
 
 
2017
 
2016
 
 
Sempra Energy Consolidated:
 
 
 
 
 
Financial instruments:
 
 
 
 
 
Interest rate and foreign exchange instruments
$
(4
)
 
$
7

 
Interest Expense
Interest rate instruments
4

 
5

 
Equity Earnings (Losses), Before Income Tax
Interest rate and foreign exchange instruments
5

 
6

 
Equity Earnings (Losses), Net of Income Tax
Foreign exchange instruments
1

 
—

 
Revenues: Energy-Related Businesses
Commodity contracts not subject to rate recovery
9

 
(7
)
 
Revenues: Energy-Related Businesses
Total before income tax
15

 
11

 
 
 
(5
)
 
(1
)
 
Income Tax (Expense) Benefit
Net of income tax
10

 
10

 
 
 
(4
)
 
(7
)
 
Losses (Earnings) Attributable to Noncontrolling Interests
 
$
6

 
$
3

 
 
Pension and other postretirement benefits:
 
 
 
 
 
Amortization of actuarial loss
$
5

 
$
4

 
See note (1) below
 
(2
)
 
(2
)
 
Income Tax (Expense) Benefit
Net of income tax
$
3

 
$
2

 
 
 
 
 
 
 
 
Total reclassifications for the period, net of tax
$
9

 
$
5

 
 
SDG&E:
 
 
 
 
 
Financial instruments:
 
 
 
 
 
Interest rate instruments
$
6

 
$
6

 
Interest Expense
 
(6
)
 
(6
)
 
(Earnings) Losses Attributable to Noncontrolling Interest
Total reclassifications for the period
$
—

 
$
—

 
 
SoCalGas:
 

 
 

 
 
Pension and other postretirement benefits:
 

 
 

 
 
Amortization of actuarial loss
$
1

 
$
—

 
See note (1) below
Total reclassifications for the period, net of tax
$
1

 
$
—

 
 
(1)
Amounts are included in the computation of net periodic benefit cost (see “Pension and Other Postretirement Benefits” above).SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS
The following tables provide reconciliations of changes in Sempra Energy’s, SDG&E’s and SoCalGas’ shareholders’ equity and noncontrolling interests for the six months ended June 30, 2017 and 2016.
SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS – SEMPRA ENERGY CONSOLIDATED
(Dollars in millions)
 
Sempra Energy
shareholders’
equity(1)
 
Non-
controlling
interests(2)
 
Total
equity(1)
Balance at December 31, 2016
$
12,951

 
$
2,290

 
$
15,241

Comprehensive income
731

 
8

 
739

Preferred dividends of subsidiary
(1
)
 
—

 
(1
)
Share-based compensation expense
23

 
—

 
23

Common stock dividends declared
(413
)
 
—

 
(413
)
Issuances of common stock
55

 
—

 
55

Repurchases of common stock
(14
)
 
—

 
(14
)
Equity contributed by noncontrolling interest
—

 
1

 
1

Distributions to noncontrolling interests
—

 
(26
)
 
(26
)
Balance at June 30, 2017
$
13,332

 
$
2,273

 
$
15,605

Balance at December 31, 2015
$
11,809

 
$
770

 
$
12,579

Cumulative-effect adjustment from change in accounting principle
107

 
—

 
107

Comprehensive income
324

 
22

 
346

Preferred dividends of subsidiary
(1
)
 
—

 
(1
)
Share-based compensation expense
24

 
—

 
24

Common stock dividends declared
(377
)
 
—

 
(377
)
Issuances of common stock
56

 
—

 
56

Repurchases of common stock
(54
)
 
—

 
(54
)
Equity contributed by noncontrolling interest
—

 
1

 
1

Distributions to noncontrolling interests
—

 
(11
)
 
(11
)
Balance at June 30, 2016
$
11,888

 
$
782

 
$
12,670

(1)
Amounts for the six months ended June 30, 2016 reflect the adoption of ASU 2016-09 as of January 1, 2016, as we discuss in Note 2.
(2)
Noncontrolling interests include the preferred stock of SoCalGas and other noncontrolling interests as listed in the table below under “Other Noncontrolling Interests.”
SHAREHOLDER’S EQUITY AND NONCONTROLLING INTEREST – SDG&E
(Dollars in millions)
 
SDG&E
shareholder’s
equity(1)
 
Non-
controlling
interest
 
Total
equity(1)
Balance at December 31, 2016
$
5,641

 
$
37

 
$
5,678

Comprehensive income
304

 
10

 
314

Common stock dividends declared
(175
)
 
—

 
(175
)
Equity contributed by noncontrolling interest
—

 
1

 
1

Distributions to noncontrolling interest
—

 
(14
)
 
(14
)
Balance at June 30, 2017
$
5,770

 
$
34

 
$
5,804

Balance at December 31, 2015
$
5,223

 
$
53

 
$
5,276

Cumulative-effect adjustment from change in accounting principle
23

 
—

 
23

Comprehensive income (loss)
236

 
(13
)
 
223

Common stock dividends declared
(175
)
 
—

 
(175
)
Distributions to noncontrolling interest
—

 
(3
)
 
(3
)
Balance at June 30, 2016
$
5,307

 
$
37

 
$
5,344

(1)
Amounts for the six months ended June 30, 2016 reflect the adoption of ASU 2016-09 as of January 1, 2016, as we discuss in Note 2.

SHAREHOLDERS’ EQUITY – SOCALGAS
(Dollars in millions)
 
Total
equity(1)
Balance at December 31, 2016
$
3,510

Comprehensive income
263

Preferred stock dividends declared
(1
)
Balance at June 30, 2017
$
3,772

Balance at December 31, 2015
$
3,149

Cumulative-effect adjustment from change in accounting principle
15

Comprehensive income
199

Preferred stock dividends declared
(1
)
Balance at June 30, 2016
$
3,362


(1)
Amounts for the six months ended June 30, 2016 reflect the adoption of ASU 2016-09 as of January 1, 2016, as we discuss in Note 2.

Ownership interests that are held by owners other than Sempra Energy and SDG&E in subsidiaries or entities consolidated by them are accounted for and reported as noncontrolling interests. As a result, noncontrolling interests are reported as a separate component of equity on the Condensed Consolidated Balance Sheets. Earnings or losses attributable to noncontrolling interests are separately identified on the Condensed Consolidated Statements of Operations, and comprehensive income or loss attributable to noncontrolling interests is separately identified on the Condensed Consolidated Statements of Comprehensive Income (Loss).
Preferred Stock
The preferred stock at SoCalGas is presented at Sempra Energy as a noncontrolling interest. Sempra Energy records charges against income related to noncontrolling interests for preferred stock dividends declared by SoCalGas. We provide additional information regarding preferred stock in Note 11 of the Notes to Consolidated Financial Statements in the Annual Report.
Other Noncontrolling Interests
At June 30, 2017 and December 31, 2016, we reported the following noncontrolling ownership interests held by others (not including preferred shareholders) recorded in Other Noncontrolling Interests in Total Equity on Sempra Energy’s Condensed Consolidated Balance Sheets:
OTHER NONCONTROLLING INTERESTS
(Dollars in millions)
 
 
 
Percent ownership held by noncontrolling interests
 
 Equity held by
noncontrolling interests
 
June 30,
2017
 
December 31,
2016
 
June 30,
2017
 
December 31,
2016
SDG&E:
 
 
 
 
 
 
 
Otay Mesa VIE
100
%
100
%
$
34

 
$
37

Sempra South American Utilities:
 
 
 
 
 
 
 
Chilquinta Energía subsidiaries(1)
22.9 – 43.4
 
23.1 – 43.4
 
22

 
22

Luz del Sur
16.4
 
16.4
 
184

 
173

Tecsur S.A.
9.8
 
9.8
 
3

 
4

Sempra Mexico:
 
 
 
 
 
 
 
IEnova
33.6
 
33.6
 
1,514

 
1,524

Sempra Renewables:
 
 
 
 
 
 
 
Tax equity arrangement – wind(2)
NA
 
 NA
 
91

 
92

Tax equity arrangement – solar(2)
NA
 
NA
 
363

 
376

Sempra LNG & Midstream:
 
 
 
 
 
 
 
Bay Gas
9.1
 
9.1
 
28

 
27

Liberty Gas Storage, LLC
23.3
 
23.3
 
13

 
14

Southern Gas Transmission Company
49.0
 
49.0
 
1

 
1

Total Sempra Energy
 
 
 
 
$
2,253

 
$
2,270

(1)
Chilquinta Energía has four subsidiaries with noncontrolling interests held by others. Percentage range reflects the highest and lowest ownership percentages among these subsidiaries.
(2)
Net income or loss attributable to the noncontrolling interests is computed using the HLBV method and is not based on ownership percentages, as we discuss in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.TRANSACTIONS WITH AFFILIATES
Amounts due from and to unconsolidated affiliates at Sempra Energy Consolidated, SDG&E and SoCalGas are as follows:
AMOUNTS DUE FROM (TO) UNCONSOLIDATED AFFILIATES
(Dollars in millions)
 
June 30, 2017
 
December 31, 2016
Sempra Energy Consolidated:
 
 
 
Total due from various unconsolidated affiliates – current
$
26

 
$
26

 
 
 
 
Sempra South American Utilities(1):
 
 
 
Eletrans – 4% Note(2)
$
90

 
$
96

Other related party receivables
1

 
1

Sempra Mexico(1):
 
 
 
IMG – Note due March 15, 2022(3)
177

 
—

Affiliate of joint venture with Ductos y Energéticos del Norte – Notes due
November 14, 2018(4)
92

 
90

Energía Sierra Juárez – Note(5)
13

 
14

Total due from unconsolidated affiliates – noncurrent
$
373

 
$
201

 
 
 
 
Total due to various unconsolidated affiliates – current
$
(11
)
 
$
(11
)
SDG&E:
 
 
 
Sempra Energy(6)
$
—

 
$
3

SoCalGas
1

 
—

Various affiliates
1

 
1

Total due from various unconsolidated affiliates – current
$
2

 
$
4

 
 
 
 
Sempra Energy
$
(18
)
 
$
—

SoCalGas
—

 
(8
)
Various affiliates
(8
)
 
(7
)
Total due to various unconsolidated affiliates – current
$
(26
)
 
$
(15
)
 
 
 
 
Income taxes due from Sempra Energy(7)
$
132

 
$
159

SoCalGas:
 
 
 
Sempra Energy(8)
$
55

 
$
—

SDG&E
—

 
8

Various affiliates
1

 
—

Total due from unconsolidated affiliates – current
$
56

 
$
8

 
 
 
 
Sempra Energy
$
—

 
$
(28
)
SDG&E
(1
)
 
—

Total due to unconsolidated affiliates – current
$
(1
)
 
$
(28
)
 
 
 
 
Income taxes due from Sempra Energy(7)
$
6

 
$
5

(1)
Amounts include principal balances plus accumulated interest outstanding.
(2)
U.S. dollar-denominated loan, at a fixed interest rate with no stated maturity date, to provide project financing for the construction of transmission lines at Eletrans, which includes, collectively, joint ventures of Chilquinta Energía.
(3)
Mexican peso-denominated revolving line of credit for up to $9.0 billion Mexican pesos or approximately $500 million U.S. dollar-equivalent, at a variable interest rate based on the 91-day Interbank Equilibrium Interest Rate plus 220 basis points (9.60 percent at June 30, 2017), to finance construction of the natural gas marine pipeline.
(4)
Four U.S. dollar-denominated loans, at variable interest rates based on the 30-day LIBOR plus 450 basis points (5.72 percent at June 30, 2017), to finance the Los Ramones Norte pipeline.
(5)
U.S. dollar-denominated loan, at a variable interest rate based on the 30-day LIBOR plus 637.5 basis points (7.60 percent at June 30, 2017) with no stated maturity date, to finance the first phase of the Energía Sierra Juárez wind project, which is a joint venture of IEnova.
(6)
At December 31, 2016, net receivable included outstanding advances to Sempra Energy of $31 million at an interest rate of 0.68 percent.
(7)
SDG&E and SoCalGas are included in the consolidated income tax return of Sempra Energy and are allocated income tax expense from Sempra Energy in an amount equal to that which would result from each company having always filed a separate return.
(8)
At June 30, 2017, net receivable included outstanding advances to Sempra Energy of $84 million at an interest rate of 1.23 percent.

Revenues and cost of sales from unconsolidated affiliates are as follows:
REVENUES AND COST OF SALES FROM UNCONSOLIDATED AFFILIATES
 
 
 
 
(Dollars in millions)
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
Sempra Energy Consolidated
$
8

 
$
5

 
$
15

 
$
10

SDG&E
2

 
—

 
4

 
3

SoCalGas
17

 
18

 
35

 
35

Cost of Sales:
 
 
 
 
 
 
 
Sempra Energy Consolidated
$
14

 
$
20

 
$
28

 
$
50

SDG&E
19

 
16

 
39

 
30


Guarantees
Sempra Energy has provided guarantees to certain of its solar and wind farm joint ventures, entered into guarantees related to the financing of the Cameron LNG JV project and has provided guarantees to IMG, as we discuss in Note 4 above and in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.OTHER INCOME, NET
Other Income, Net on the Condensed Consolidated Statements of Operations consists of the following:
OTHER INCOME, NET
 
 
 
 
 
 
(Dollars in millions)
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
 
2017
 
2016
 
2017
 
2016
Sempra Energy Consolidated:
 
 
 
 
 
 
 
Allowance for equity funds used during construction
$
40

 
$
30

 
$
112

 
$
57

Investment gains(1)
14

 
10

 
30

 
20

Gains (losses) on interest rate and foreign exchange instruments, net
31

 
(15
)
 
94

 
(12
)
Foreign currency transaction gains (losses)
7

 
(5
)
 
17

 
(7
)
Electrical infrastructure relocation income(2)
—

 
2

 
—

 
3

Regulatory interest, net(3)
—

 
1

 
2

 
3

Sundry, net
(1
)
 
—

 
5

 
8

Total
$
91

 
$
23

 
$
260

 
$
72

SDG&E:
 
 
 
 
 
 
 
Allowance for equity funds used during construction
$
16

 
$
13

 
$
31

 
$
24

Regulatory interest, net(3)
—

 
1

 
2

 
3

Sundry, net
(1
)
 
(1
)
 
—

 
—

Total
$
15

 
$
13

 
$
33

 
$
27

SoCalGas:
 
 
 
 
 
 
 
Allowance for equity funds used during construction
$
11

 
$
10

 
$
22

 
$
20

Sundry, net
(2
)
 
(4
)
 
(2
)
 
(4
)
Total
$
9

 
$
6

 
$
20

 
$
16

(1)
Represents investment gains on dedicated assets in support of our executive retirement and deferred compensation plans. These amounts are partially offset by corresponding changes in compensation expense related to the plans, recorded in Operation and Maintenance on the Condensed Consolidated Statements of Operations.
(2)
Income at Luz del Sur associated with the relocation of electrical infrastructure.
(3)
Interest on regulatory balancing accounts.INCOME TAXES
INCOME TAX EXPENSE AND EFFECTIVE INCOME TAX RATES
(Dollars in millions)
 
Income tax
expense
 
Effective
income tax rate
 
Income tax
(benefit) expense
 
Effective
income tax rate
 
Three months ended June 30,
 
2017
 
2016
Sempra Energy Consolidated
$
167

 
40
%
 
$
(106
)
 
95
%
SDG&E
54

 
26

 
48

 
36

SoCalGas
19

 
24

 
(29
)
 
100

 
 
 
 
 
 
 
 
 
Six months ended June 30,
 
2017
 
2016(1)
Sempra Energy Consolidated
$
462

 
39
%
 
$
2

 
1
%
SDG&E
144

 
32

 
113

 
34

SoCalGas
117

 
31

 
54

 
21


(1)
Reflects the adoption of ASU 2016-09 as of January 1, 2016, as we discuss in Note 2.

Sempra Energy, SDG&E and SoCalGas record income taxes for interim periods utilizing a forecasted effective tax rate anticipated for the full year, as required by U.S. GAAP. The income tax effect of items that can be reliably forecasted is factored into the forecasted effective tax rate, and the impact is recognized proportionately over the year. Items that cannot be reliably forecasted (e.g., foreign currency translation and inflation adjustments, remeasurement of deferred tax asset valuation allowances, income tax expense or benefit associated with the gain or loss on sale or impairment of a book investment, resolution of prior years’ income tax items, and certain impacts of regulatory matters) are recorded in the interim period in which they actually occur, which can result in variability in the effective income tax rate.
For SDG&E and SoCalGas, the CPUC requires flow-through rate-making treatment for the current income tax benefit or expense arising from certain property-related and other temporary differences between the treatment for financial reporting and income tax, which will reverse over time. Under the regulatory accounting treatment required for these flow-through temporary differences, deferred income tax assets and liabilities are not recorded to deferred income tax expense, but rather to a regulatory asset or liability, which impacts the current effective income tax rate. As a result, changes in the relative size of these items compared to pretax income, from period to period, can cause variations in the effective income tax rate. The following items are subject to flow-through treatment:
▪
repairs expenditures related to a certain portion of utility plant assets
▪
the equity portion of AFUDC
▪
a portion of the cost of removal of utility plant assets
▪
utility self-developed software expenditures
▪
depreciation on a certain portion of utility plant assets
▪
state income taxes
The AFUDC related to equity recorded for regulated construction projects at Sempra Mexico has similar flow-through treatment.
As we discuss in Note 10 below and in Notes 6 and 14 of the Notes to Consolidated Financial Statements in the Annual Report, the 2016 GRC FD issued by the CPUC in June 2016 required SDG&E and SoCalGas to each establish a two-way income tax expense memorandum account to track certain revenue variances resulting from certain differences between the income tax expense forecasted in the GRC and the income tax expense incurred from 2016 through 2018. The tracking accounts will remain open, and the balance in the accounts will be reviewed in subsequent GRC proceedings, until the CPUC decides to close them. We expect that certain amounts recorded in the tracking accounts may give rise to regulatory assets or liabilities.
In the three months and six months ended June 30, 2017, we recorded $52 million ($34 million after noncontrolling interests) and $149 million ($99 million after noncontrolling interests), respectively, of income tax expense from the transactional effects of foreign currency and inflation as a result of significant appreciation of the Mexican peso. Such effects were partially mitigated by net gains of $32 million ($19 million after-tax) and $97 million ($58 million after-tax), respectively, recorded in Other Income, Net, on the Condensed Consolidated Statements of Operations, from foreign currency derivatives that are hedging Sempra Mexico parent’s exposure to movements in the Mexican peso from its controlling interest in IEnova.
We provide additional information about our accounting for income taxes in Notes 1 and 6 of the Notes to Consolidated Financial Statements in the Annual Report.