SIGNIFICANT ACCOUNTING POLICIES AND OTHER FINANCIAL DATA

12 Months Ended

Dec. 31, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Significant Accounting Policies And Other Financial Data

SIGNIFICANT ACCOUNTING POLICIES AND OTHER FINANCIAL DATA

PRINCIPLES OF CONSOLIDATION

Sempra Energy

Sempra Energy’s Consolidated Financial Statements include the accounts of Sempra Energy, a California-based Fortune 500 energy-services holding company, and its consolidated subsidiaries and VIEs. Sempra Energy’s principal operating units are

▪ Sempra Utilities, which includes our SDG&E, SoCalGas and Sempra South American Utilities reportable segments; and

▪ Sempra Infrastructure, which includes our Sempra Mexico, Sempra Renewables and Sempra LNG & Midstream reportable segments.

We provide descriptions of each of our segments in Note 16.

We refer to SDG&E and SoCalGas collectively as the California Utilities, which do not include our South American utilities or the utilities in our Sempra Infrastructure operating unit. Sempra Global is the holding company for most of our subsidiaries that are not subject to California utility regulation. All references in these Notes to “Sempra Utilities,” “Sempra Infrastructure” and their respective reportable segments are not intended to refer to any legal entity with the same or similar name.

Our Sempra Mexico segment includes the operating companies of our subsidiary, IEnova, as well as certain holding companies and risk management activity. IEnova is a separate legal entity 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. IEnova’s financial results are reported in Mexico under International Financial Reporting Standards, as required by the Mexican Stock Exchange, where its shares are traded under the symbol IENOVA.

Sempra Energy uses the equity method to account for investments in companies over which we have the ability to exercise significant influence, but not control. We discuss our investments in unconsolidated entities in Notes 3, 4 and 10.

SDG&E

SDG&E’s Consolidated Financial Statements include its accounts and the accounts of a VIE of which SDG&E is the primary beneficiary, as we discuss below in “Variable Interest Entities.” SDG&E’s common stock is wholly owned by Enova, which is a wholly owned subsidiary of Sempra Energy.

SoCalGas

SoCalGas’ common stock is wholly owned by PE, which is a wholly owned subsidiary of Sempra Energy.

BASIS OF PRESENTATION

This is a combined report of Sempra Energy, SDG&E and SoCalGas. We provide separate information for SDG&E and SoCalGas as required. References in this report to “we,” “our” and “Sempra Energy Consolidated” are to Sempra Energy and its consolidated entities, unless otherwise indicated by the context. We have eliminated intercompany accounts and transactions within the consolidated financial statements of each reporting entity.

Throughout this report, we refer to the following as Consolidated Financial Statements and Notes to Consolidated Financial Statements when discussed together or collectively:

▪ the Consolidated Financial Statements and related Notes of Sempra Energy and its subsidiaries and VIEs;

▪ the Consolidated Financial Statements and related Notes of SDG&E and its VIE; and

▪ the Financial Statements and related Notes of SoCalGas.

Balance Sheet Reclassifications

We have made certain balance sheet reclassifications at December 31, 2016 to conform to the current year presentation. Line item captions for various types of regulatory assets and liabilities have been combined or separated into four new line items: current and noncurrent regulatory assets and current and noncurrent regulatory liabilities. The details of regulatory assets and liabilities are provided in Note 14. Additionally, greenhouse gas allowances have been separated from other current assets and sundry assets and greenhouse gas obligations have been separated from other current liabilities and deferred credits and other into four new line items: current and noncurrent greenhouse gas allowances and current and noncurrent greenhouse gas obligations. These reclassifications and related disclosures had no effect on our financial position as of December 31, 2016 and are intended to provide additional clarity into the financial position of Sempra Energy, SDG&E and SoCalGas. The following tables summarize the balance sheet line items affected by these reclassifications:

SEMPRA ENERGY CONSOLIDATED – BALANCE SHEET RECLASSIFICATIONS AT DECEMBER 31, 2016
(Dollars in millions)
	As previously presented		As currently presented
Current assets:
Regulatory assets	$	—	$	348
Greenhouse gas allowances	—		40
Regulatory balancing accounts – undercollected	259		—
Other	271		142
Other assets:
Greenhouse gas allowances	—		295
Sundry	815		520
Current liabilities:
Regulatory liabilities	—		122
Greenhouse gas obligations	—		40
Regulatory balancing accounts – overcollected	122		—
Other	557		517
Deferred credits and other liabilities:
Regulatory liabilities	—		2,876
Greenhouse gas obligations	—		171
Regulatory liabilities arising from removal obligations	2,697		—
Deferred credits and other	1,523		1,173

SDG&E – BALANCE SHEET RECLASSIFICATIONS AT DECEMBER 31, 2016
(Dollars in millions)
	As previously presented		As currently presented
Current assets:
Regulatory assets	$	81	$	340
Greenhouse gas allowances	—		16
Regulatory balancing accounts – net undercollected	259		—
Other	19		3
Other assets:
Regulatory assets	—		2,012
Greenhouse gas allowances	—		182
Deferred taxes recoverable in rates	1,014		—
Other regulatory assets	998		—
Sundry	358		176
Current liabilities:
Greenhouse gas obligations	—		16
Other	82		66
Deferred credits and other liabilities:
Regulatory liabilities	—		1,725
Greenhouse gas obligations	—		72
Regulatory liabilities arising from removal obligations	1,725		—
Deferred credits and other	421		349

SOCALGAS – BALANCE SHEET RECLASSIFICATIONS AT DECEMBER 31, 2016
(Dollars in millions)
	As previously presented		As currently presented
Current assets:
Greenhouse gas allowances	$	—	$	24
Other	63		39
Other assets:
Regulatory assets	—		1,331
Greenhouse gas allowances	—		109
Regulatory assets arising from pension obligations	742		—
Other regulatory assets	589		—
Sundry	399		290
Current liabilities:
Regulatory liabilities	—		122
Greenhouse gas obligations	—		24
Regulatory balancing accounts – net overcollected	122		—
Other	195		171
Deferred credits and other liabilities:
Regulatory liabilities	—		1,151
Greenhouse gas obligations	—		96
Regulatory liabilities arising from removal obligations	972		—
Deferred credits and other	521		246

Use of Estimates in the Preparation of the Financial Statements

We have prepared our Consolidated Financial Statements in conformity with U.S. GAAP. This requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, including the disclosure of contingent assets and liabilities at the date of the financial statements. Although we believe the estimates and assumptions are reasonable, actual amounts ultimately may differ significantly from those estimates.

Subsequent Events

We evaluated events and transactions that occurred after December 31, 2017 through the date the financial statements were issued, and in the opinion of management, the accompanying statements reflect all adjustments and disclosures necessary for a fair presentation. See Note 18 for a discussion of certain financing transactions that were completed in January 2018.

EFFECTS OF REGULATION

The California Utilities’ accounting policies and financial statements reflect the application of U.S. GAAP provisions governing rate-regulated operations and the policies of the CPUC and the FERC. Under these provisions, a regulated utility records regulatory assets, which are generally costs that would otherwise be charged to expense, if it is probable that, through the ratemaking process, the utility will recover those assets from customers. To the extent that recovery is no longer probable, the related regulatory assets are written off. Regulatory liabilities generally represent amounts collected from customers in advance of the actual expenditure by the utility. If the actual expenditures are less than amounts previously collected from ratepayers, the excess would be refunded to customers, generally by reducing future rates. Regulatory liabilities may also arise from other transactions such as unrealized gains on fixed price contracts and other derivatives or certain deferred income tax benefits that are passed through to customers in future rates. In addition, the California Utilities record regulatory liabilities when the CPUC or the FERC requires a refund to be made to customers or has required that a gain or other transaction of net allowable costs be given to customers over future periods.

Determining probability of recovery of regulatory assets requires significant judgment by management and may include, but is not limited to, consideration of:

▪ the nature of the event giving rise to the assessment;

▪ existing statutes and regulatory code;

▪ legal precedents;

▪ regulatory principles and analogous regulatory actions;

▪ testimony presented in regulatory hearings;

▪ regulatory orders;

▪ a commission-authorized mechanism established for the accumulation of costs;

▪ status of applications for rehearings or state court appeals;

▪ specific approval from a commission; and

▪ historical experience.

Sempra Mexico’s natural gas distribution utility, Ecogas, also applies U.S. GAAP for rate-regulated utilities to its operations, including the same evaluation of probability of recovery of regulatory assets described above.

We provide information concerning regulatory assets and liabilities in Notes 13 and 14.

Sempra South American Utilities has controlling interests in two electric distribution utilities in South America, Chilquinta Energía in Chile and Luz del Sur in Peru, and their subsidiaries. Revenues 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. Because the tariffs are based on a model and are intended to cover the costs of the model company, but are not based on the costs of the specific utility and may not result in full cost recovery, these utilities do not meet the requirements necessary for, and therefore do not apply, regulatory accounting treatment under U.S. GAAP.

Certain business activities at IEnova are regulated by the CRE and meet the regulatory accounting requirements of U.S. GAAP. Pipeline projects currently under construction by IEnova that meet the regulatory accounting requirements of U.S. GAAP record the impact of AFUDC related to equity. We discuss AFUDC below in “Property, Plant and Equipment.”

Sempra LNG & Midstream owned Mobile Gas in southwest Alabama and Willmut Gas in Mississippi until they were sold in September 2016, as we discuss in Note 3. Mobile Gas and Willmut Gas also prepared their financial statements in accordance with the provisions of U.S. GAAP governing rate-regulated operations.

We discuss revenue recognition at our utilities in “Revenues” below.

FAIR VALUE MEASUREMENTS

We measure certain assets and liabilities at fair value on a recurring basis, primarily nuclear decommissioning and benefit plan trust assets and derivatives. We also measure certain assets at fair value on a non-recurring basis in certain circumstances. These assets can include goodwill, intangible assets, equity method investments and other long-lived assets.

“Fair value” is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

A fair value measurement reflects the assumptions market participants would use in pricing an asset or liability based on the best available information. These assumptions include the risk inherent in a particular valuation technique (such as a pricing model) and the risks inherent in the inputs to the model. Also, we consider an issuer’s credit standing when measuring its liabilities at fair value.

We establish a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:

Level 1 – Pricing inputs are quoted prices available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Our Level 1 financial instruments primarily consist of listed equities, U.S. government treasury securities, primarily in the NDT and benefit plan trusts, and exchange-traded derivatives.

Level 2– Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including:

▪ quoted forward prices for commodities

▪ time value

▪ current market and contractual prices for the underlying instruments

▪ volatility factors

▪ other relevant economic measures

Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Our financial instruments in this category include listed equities, domestic corporate bonds, municipal bonds and other foreign bonds, primarily in the NDT and benefit plan trusts, and non-exchange-traded derivatives such as interest rate instruments and over-the-counter forwards and options.

Level 3– Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value from the perspective of a market participant. Our Level 3 financial instruments consist of CRRs and fixed-price electricity positions at SDG&E.

CASH AND CASH EQUIVALENTS

Cash equivalents are highly liquid investments with original maturities of three months or less at the date of purchase.

RESTRICTED CASH

Restricted cash at Sempra Energy was $76 million at both December 31, 2017 and 2016, and includes:

▪ for SDG&E, $17 million and $12 million at December 31, 2017 and 2016, respectively, representing funds held by a trustee for Otay Mesa VIE to pay certain operating costs.

▪ for Sempra Mexico, $56 million and $61 million at December 31, 2017 and 2016, respectively, primarily denominated in Mexican pesos, representing funds to pay for rights-of-way, license fees, permits, topographic surveys and other costs pursuant to trust and debt agreements related to pipeline projects.

▪ for Sempra Renewables, $3 million at both December 31, 2017 and 2016, primarily representing funds held in accordance with debt agreements at our wholly owned solar project.

▪ for Sempra South American Utilities, negligible amounts at both December 31, 2017 and 2016.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the Consolidated Balance Sheets to the sum of such amounts reported on the Consolidated Statements of Cash Flows.

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH
(Dollars in millions)
	At December 31,
	2017		2016
Sempra Energy Consolidated:
Cash and cash equivalents	$	288	$	349
Restricted cash, current	62		66
Restricted cash, noncurrent	14		10
Total cash, cash equivalents and restricted cash on the Consolidated Statements of Cash Flows	$	364	$	425
SDG&E:
Cash and cash equivalents	$	12	$	8
Restricted cash, current	6		11
Restricted cash, noncurrent	11		1
Total cash, cash equivalents and restricted cash on the Consolidated Statements of Cash Flows	$	29	$	20

COLLECTION ALLOWANCES

We record allowances for the collection of trade and other accounts and notes receivable, which include allowances for doubtful customer accounts and for other receivables. We show the changes in these allowances in the table below:

COLLECTION ALLOWANCES
(Dollars in millions)
	Years ended December 31,
	2017		2016		2015
Sempra Energy Consolidated:
Allowances for collection of receivables at January 1	$	35	$	32	$	34

Provisions for uncollectible accounts	16			23			20
Write-offs of uncollectible accounts	(18		)	(20		)	(22		)
Allowances for collection of receivables at December 31	$	33		$	35		$	32
SDG&E:
Allowances for collection of receivables at January 1	$	8		$	9		$	7
Provisions for uncollectible accounts	8			6			7
Write-offs of uncollectible accounts	(7		)	(7		)	(5		)
Allowances for collection of receivables at December 31	$	9		$	8		$	9
SoCalGas:
Allowances for collection of receivables at January 1	$	21		$	17		$	17
Provisions for uncollectible accounts	4			14			11
Write-offs of uncollectible accounts	(9		)	(10		)	(11		)
Allowances for collection of receivables at December 31	$	16		$	21		$	17

We evaluate accounts receivable collectability using a combination of factors, including past due status based on contractual terms, trends in write-offs, the age of the receivable, counterparty creditworthiness, economic conditions and specific events, such as bankruptcies. Adjustments to collection allowances are made when necessary based on the results of analysis, the aging of receivables, and historical and industry trends.

We write off accounts receivable in the period in which we deem the receivable to be uncollectible. We record recoveries of accounts receivable previously written off when it is known that they will be received.

INVENTORIES

The California Utilities value natural gas inventory using the LIFO method. As inventories are sold, differences between the LIFO valuation and the estimated replacement cost are reflected in customer rates. These differences are generally temporary, but may become permanent if the natural gas inventory withdrawn from storage during the year is not replaced by year end. At December 31, 2016, SoCalGas recognized a permanent LIFO liquidation of $33 million. The California Utilities generally value materials and supplies at the lower of average cost or net realizable value.

Sempra South American Utilities, Sempra Mexico, Sempra Renewables and Sempra LNG & Midstream value natural gas inventory and materials and supplies at the lower of average cost or net realizable value. Sempra Mexico and Sempra LNG & Midstream value LNG inventory using the first-in first-out method.

The components of inventories by segment are as follows:

INVENTORY BALANCES AT DECEMBER 31
(Dollars in millions)
	Natural gas				LNG				Materials and supplies				Total
	2017		2016		2017		2016		2017		2016		2017		2016
SDG&E	$	4	$	2	$	—	$	—	$	101	$	78	$	105	$	80
SoCalGas(1)	75		11		—		—		49		47		124		58
Sempra South American Utilities	—		—		—		—		30		27		30		27
Sempra Mexico	—		—		7		6		2		1		9		7
Sempra Renewables	—		—		—		—		5		4		5		4
Sempra LNG & Midstream	30		79		4		3		—		—		34		82
Sempra Energy Consolidated	$	109	$	92	$	11	$	9	$	187	$	157	$	307	$	258

⁽¹⁾ At December 31, 2016, SoCalGas’ natural gas inventory for core customers is net of an inventory loss related to the Aliso Canyon natural gas storage facility leak, which we discuss in Note 15.

INCOME TAXES

Income tax expense includes current and deferred income taxes. We record deferred income taxes for temporary differences between the book and the tax basis of assets and liabilities. ITCs from prior years are amortized to income by the California Utilities over the estimated service lives of the properties as required by the CPUC. At our other businesses, we reduce the book basis of the related asset by the amount of ITCs earned. At Sempra Renewables, PTCs are recognized in income tax expense as earned.

Under the regulatory accounting treatment required for flow-through temporary differences, as discussed in Note 6, the California Utilities and Sempra Mexico recognize

▪ regulatory assets to offset deferred tax liabilities if it is probable that the amounts will be recovered from customers; and

▪ regulatory liabilities to offset deferred tax assets if it is probable that the amounts will be returned to customers.

When there are uncertainties related to potential income tax benefits, in order to qualify for recognition, the position we take has to have at least a more likely than not chance of being sustained (based on the position’s technical merits) upon challenge by the respective authorities. The term “more likely than not” means a likelihood of more than 50 percent. Otherwise, we may not recognize any of the potential tax benefit associated with the position. We recognize a benefit for a tax position that meets the more likely than not criterion at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon its effective resolution.

Unrecognized tax benefits involve management’s judgment regarding the likelihood of the benefit being sustained. The final resolution of uncertain tax positions could result in adjustments to recorded amounts and may affect our ETR.

On December 22, 2017, the TCJA was signed into law. As a result, all cumulative undistributed earnings from non-U.S. subsidiaries were deemed repatriated and subjected to a one-time U.S. federal deemed repatriation tax. To the extent we intend to repatriate cash into the U.S., incremental U.S. state and non-U.S. withholding taxes are accrued. We currently do not record deferred income taxes for other basis differences between financial statement and income tax investment amounts in non-U.S. subsidiaries to the extent the related cumulative undistributed earnings are indefinitely reinvested.

We provide additional information about income taxes in Note 6.

GREENHOUSE GAS ALLOWANCES AND OBLIGATIONS

The California Utilities, Sempra Mexico and Sempra LNG & Midstream are required by California AB 32 to acquire GHG allowances for every metric ton of carbon dioxide equivalent emitted into the atmosphere during electric generation and natural gas transportation. At the California Utilities, many GHG allowances are allocated to us on behalf of our customers at no cost. We record purchased and allocated GHG allowances at the lower of weighted-average cost or market. We measure the compliance obligation, which is based on emissions, at the carrying value of allowances held plus the fair value of additional allowances necessary to satisfy the obligation. The California Utilities balance costs and revenues associated with the GHG program through regulatory balancing accounts. Sempra Mexico and Sempra LNG & Midstream record the cost of GHG obligations in cost of sales. We remove the assets and liabilities from the balance sheets as the allowances are surrendered.

RENEWABLE ENERGY CERTIFICATES

RECs are energy rights established by governmental agencies for the environmental and social promotion of renewable electricity generation. A REC, and its associated attributes and benefits, can be sold separately from the underlying physical electricity associated with a renewable-based generation source in certain markets.

Retail sellers of electricity obtain RECs through renewable energy PPAs, internal generation or separate purchases in the market to comply with the RPS established by the governmental agencies. RECs provide documentation for the generation of a unit of renewable energy that is used to verify compliance with the RPS. The cost of RECs at SDG&E is recorded in Cost of Electric Fuel and Purchased Power, which is recoverable in rates, on the Consolidated Statements of Operations.

PROPERTY, PLANT AND EQUIPMENT

PP&E primarily represents the buildings, equipment and other facilities used by the Sempra Utilities to provide natural gas and electric utility services, and by the Sempra Infrastructure businesses in their operations, including construction work in progress at these operating units. PP&E also includes lease improvements and other equipment at Parent and Other, as well as property acquired under a build-to-suit lease, which we discuss further in Note 15.

Our plant costs include

▪ labor

▪ materials and contract services

▪ expenditures for replacement parts incurred during a major maintenance outage of a generating plant

In addition, the cost of utility plant at our rate-regulated businesses and PP&E under regulated projects that meet the regulatory accounting requirements of U.S. GAAP at Sempra Mexico and Sempra LNG & Midstream includes AFUDC. We discuss AFUDC below. The cost of other PP&E includes capitalized interest.

Maintenance costs are expensed as incurred. The cost of most retired depreciable utility plant assets less salvage value is charged to accumulated depreciation.

We discuss assets collateralized as security for certain indebtedness in Note 5.

PROPERTY, PLANT AND EQUIPMENT BY MAJOR FUNCTIONAL CATEGORY
(Dollars in millions)
	PP&E at December 31,				Depreciation rates for years ended December 31,
	2017		2016		2017		2016			2015
SDG&E:
Natural gas operations	$	2,186	$	1,897	2.40	%	2.40	%		2.52	%
Electric distribution	6,975		6,497		3.92		3.86			3.79
Electric transmission(1)	5,626		5,152		2.71		2.66			2.62
Electric generation(2)	2,435		1,932		4.05		4.00			3.89
Other electric(3)	1,114		1,059		5.54		5.66			5.73
Construction work in progress(1)	1,451		1,307		NA		NA			NA
Total SDG&E	19,787		17,844
SoCalGas:
Natural gas operations(4)	15,759		14,428		3.63		3.64			3.83
Other non-utility	32		34		5.28		6.55			3.95
Construction work in progress	981		882		NA		NA			NA
Total SoCalGas	16,772		15,344
					Estimated				Weighted-average
Other operating units and parent(5):					useful lives				useful life
Land and land rights	416		381		22 to 55 years(6)				33
Machinery and equipment:
Utility electric distribution operations	1,751		1,519		12 to 60 years				52
Generating plants	2,242		1,874		2 to 100 years				31
LNG terminals	1,133		1,129		43 years				43
Pipelines and storage	4,408		3,242		3 to 55 years				43
Other	269		235		1 to 50 years				13
Construction work in progress	691		1,488		NA				NA
Other(7)	639		568		1 to 80 years				33
	11,549		10,436
Total Sempra Energy Consolidated	$	48,108	$	43,624

⁽¹⁾  At December 31, 2017, includes $440 million in electric transmission assets and $29 million in construction work in progress related to SDG&E’s 92-percent interest in the Southwest Powerlink transmission line, jointly owned by SDG&E with other utilities. SDG&E, and each of the other owners, holds its undivided interest as a tenant in common in the property. Each owner is responsible for its share of the project and participates in decisions concerning operations and capital expenditures. SDG&E’s share of operating expenses is included in Sempra Energy’s and SDG&E’s Consolidated Statements of Operations.

⁽²⁾  Includes capital lease assets of $757 million and $258 million at December 31, 2017 and 2016, respectively.

⁽³⁾  Includes capital lease assets of $22 million and $21 million at December 31, 2017 and 2016, respectively.

⁽⁴⁾  Includes capital lease assets of $34 million and $32 million at December 31, 2017 and 2016, respectively.

⁽⁵⁾  Includes $145 million and $128 million at December 31, 2017 and 2016, respectively, of utility plant, primarily pipelines and other distribution assets, at Ecogas.

⁽⁶⁾  Estimated useful lives are for land rights.

⁽⁷⁾  Includes capital lease assets of $136 million at both December 31, 2017 and 2016, related to a build-to-suit lease.

Depreciation expense is computed using the straight-line method over the asset’s estimated original composite useful life, the CPUC-prescribed period for the California Utilities, or the remaining term of the site leases, whichever is shortest.

Depreciation expense on our Consolidated Statements of Operations is as follows:

DEPRECIATION EXPENSE
(Dollars in millions)
	Years ended December 31,
	2017		2016		2015
Sempra Energy Consolidated	$	1,422	$	1,236	$	1,178
SDG&E	621		583		544
SoCalGas	514		474		459

Accumulated depreciation on our Consolidated Balance Sheets is as follows:

ACCUMULATED DEPRECIATION
(Dollars in millions)
	December 31,
	2017		2016
SDG&E:
Accumulated depreciation:
Electric(1)	$	4,193	$	3,873
Natural gas	756		721
Total SDG&E	4,949		4,594
SoCalGas:
Accumulated depreciation of natural gas utility plant in service(2)	5,352		5,079
Accumulated depreciation – other non-utility	14		13
Total SoCalGas	5,366		5,092
Other operating units and parent and other:
Accumulated depreciation – other(3)	972		755
Accumulated depreciation of utility electric distribution operations	318		252
	1,290		1,007
Total Sempra Energy Consolidated	$	11,605	$	10,693

⁽¹⁾  Includes accumulated depreciation for capital lease assets of $47 million and $39 million at December 31, 2017 and 2016, respectively. Includes $241 million at December 31, 2017 related to SDG&E’s 92-percent interest in the Southwest Powerlink transmission line, jointly owned by SDG&E and other utilities.

⁽²⁾  Includes accumulated depreciation for capital lease assets of $33 million and $31 million at December 31, 2017 and 2016, respectively.

⁽³⁾  Includes $39 million and $33 million at December 31, 2017 and 2016, respectively, of accumulated depreciation for utility plant at Ecogas.

The California Utilities finance their construction projects with debt and equity funds. The CPUC and the FERC allow the recovery of the cost of these funds by the capitalization of AFUDC, calculated using rates authorized by the CPUC and the FERC, as a cost component of PP&E. The California Utilities earn a return on the capitalized AFUDC after the utility property is placed in service and recover the AFUDC from their customers over the expected useful lives of the assets.

Pipeline projects currently under construction by Sempra Mexico and Sempra LNG & Midstream that are both subject to certain regulation and meet U.S. GAAP regulatory accounting requirements record the impact of AFUDC.

We capitalize interest costs incurred to finance capital projects. We also capitalize 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)
	Years ended December 31,
	2017		2016		2015
Sempra Energy Consolidated	$	256	$	236	$	201
SDG&E	85		62		51
SoCalGas	60		55		49

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

Goodwill is the excess of the purchase price over the fair value of the identifiable net assets of acquired companies measured at the time of acquisition. Goodwill is not amortized, but we test it for impairment annually on October 1 or whenever events or changes in circumstances necessitate an evaluation. If the carrying value of the reporting unit, including goodwill, exceeds its fair value, and the book value of goodwill is greater than its fair value on the test date, we record a goodwill impairment loss.

For our annual goodwill impairment testing, under current U.S. GAAP guidance we have the option to first make a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before applying the two-step, quantitative goodwill impairment test. If we elect to perform the qualitative assessment, we evaluate relevant events and circumstances, including but not limited to, macroeconomic conditions, industry and market considerations, cost factors, changes in key personnel and the overall financial performance of the reporting unit. If, after assessing these qualitative factors, we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we perform the two-step goodwill impairment test. When we perform the two-step, quantitative goodwill impairment test, we exercise judgment to develop estimates of the fair value of the reporting unit and the corresponding goodwill. Our fair value estimates are developed from the perspective of a knowledgeable market participant. We consider observable transactions in the marketplace for similar investments, if available, as well as an income-based approach such as discounted cash flow analysis. A discounted cash flow analysis may be based directly on anticipated future revenues and expenses and may be performed based on free cash flows generated within the reporting unit. Critical assumptions that affect our estimates of fair value may include

▪ consideration of market transactions

▪ future cash flows

▪ the appropriate risk-adjusted discount rate

▪ country risk

▪ entity risk

Changes in the carrying amount of goodwill on the Sempra Energy Consolidated Balance Sheets are as follows:

GOODWILL
(Dollars in millions)
	Sempra South American Utilities		Sempra Mexico			Sempra LNG & Midstream			Total
Balance at December 31, 2015	$	722	$	25		$	72		$	819
Acquisition of businesses	—		1,590			—			1,590
Sale of business	—		—			(72		)	(72		)
Foreign currency translation(1)	27		—			—			27
Balance at December 31, 2016	749		1,615			—			2,364
Acquisition of business – measurement period adjustment	—		(13		)	—			(13		)
Foreign currency translation(1)	46		—			—			46
Balance at December 31, 2017	$	795	$	1,602		$	—		$	2,397

⁽¹⁾  We record the offset of this fluctuation to Other Comprehensive Income (Loss).

In 2016, Sempra Mexico recorded goodwill of $1,590 million in connection with the acquisitions of IEnova Pipelines and Ventika. In 2017, Sempra Mexico recorded a reduction to goodwill of $13 million for a measurement period adjustment in connection with the acquisition of Ventika. Also in 2016, Sempra LNG & Midstream reduced goodwill by $72 million in connection with the sale of EnergySouth. We discuss these acquisitions and the divestiture in Note 3.

Other Intangible Assets

Other Intangible Assets included on the Sempra Energy Consolidated Balance Sheets are as follows:

OTHER INTANGIBLE ASSETS
(Dollars in millions)
	Amortization period (years)	December 31,
		2017		2016
Development rights	50	$	322	$	322
Renewable energy transmission and consumption permit	19	154		154

Storage rights	46	138			138
O&M agreement	23	66			—
Other	10 years to indefinite	18			18
		698			632
Less accumulated amortization:
Development rights		(60		)	(53		)
Renewable energy transmission and consumption permit		(8		)	—
Storage rights		(28		)	(25		)
Other		(6		)	(6		)
		(102		)	(84		)
		$	596		$	548

Other Intangible Assets primarily includes

▪ storage and development rights related to the Bay Gas and Mississippi Hub natural gas storage facilities.

▪ a renewable energy transmission and consumption permit previously granted by the CRE that was acquired in connection with the acquisition of the Ventika wind power generation facilities.

▪ a favorable O&M agreement acquired in connection with the acquisition of DEN, which we discuss in Note 3.

Amortization expense for intangible assets in 2017, 2016 and 2015 was $18 million, $11 million and $10 million, respectively. We estimate the amortization expense for the next five years to be $21 million per year.

LONG-LIVED ASSETS

We test long-lived assets for recoverability whenever events or changes in circumstances have occurred that may affect the recoverability or the estimated useful lives of long-lived assets. Long-lived assets include intangible assets subject to amortization, but do not include investments in unconsolidated subsidiaries. Events or changes in circumstances that indicate that the carrying amount of a long-lived asset may not be recoverable may include

▪ significant decreases in the market price of an asset

▪ a significant adverse change in the extent or manner in which we use an asset or in its physical condition

▪ a significant adverse change in legal or regulatory factors or in the business climate that could affect the value of an asset

▪ a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection of continuing losses associated with the use of a long-lived asset

▪ a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life

A long-lived asset may be impaired when the estimated future undiscounted cash flows are less than the carrying amount of the asset. If that comparison indicates that the asset’s carrying value may not be recoverable, the impairment is measured based on the difference between the carrying amount and the fair value of the asset. This evaluation is performed at the lowest level for which separately identifiable cash flows exist.

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 upon 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 the 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 PPAs 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 April 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 $28 million at December 31, 2017 and $37 million at December 31, 2016 is included on the Consolidated Balance Sheets in Other Noncontrolling Interests for Sempra Energy and in Noncontrolling Interest for SDG&E.

OMEC LLC has a loan outstanding of $295 million at December 31, 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 9.

The Consolidated Financial Statements 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 tables below correspond to SDG&E’s Consolidated Balance Sheets and Consolidated Statements of Operations.

AMOUNTS ASSOCIATED WITH OTAY MESA VIE
(Dollars in millions)
	December 31,
	2017		2016
Cash and cash equivalents	$	4	$	6
Restricted cash	6		11
Inventories	4		3
Other	1		2
Total current assets	15		22
Restricted cash	11		1
Property, plant and equipment, net	321		354
Total assets	$	347	$	377
Current portion of long-term debt	$	10	$	10
Fixed-price contracts and other derivatives	10		13
Other	5		5
Total current liabilities	25		28
Long-term debt	284		293
Fixed-price contracts and other derivatives	3		12
Deferred credits and other	7		7
Noncontrolling interest	28		37
Total liabilities and equity	$	347	$	377

	Years ended December 31,
	2017			2016			2015
Operating expenses
Cost of electric fuel and purchased power	$	(79	)	$	(79	)	$	(83	)
Operation and maintenance	17			29			19
Depreciation and amortization	28			35			26
Total operating expenses	(34		)	(15		)	(38		)
Operating income	34			15			38
Other income	2			—			—
Interest expense	(22		)	(20		)	(19		)
Income (loss) before income taxes/Net Income (loss)	14			(5		)	19
(Earnings) losses attributable to noncontrolling interest	(14		)	5			(19		)
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 December 31, 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 flows 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 15.

Sempra Renewables

In the fourth quarters of 2017 and 2016, certain of Sempra Renewables’ wind and solar power generation projects became 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.

The Consolidated Financial Statements of Sempra Energy include the following amounts associated with these entities.

AMOUNTS ASSOCIATED WITH TAX EQUITY ARRANGEMENTS
(Dollars in millions)
	December 31,
	2017		2016
Cash and cash equivalents	$	23	$	88
Accounts receivable – trade, net	5		3
Inventories	1		—
Other	1		—
Total current assets	30		91
Sundry	2		—
Property, plant and equipment, net	1,412		926
Total assets	1,444		1,017
Accounts payable	42		68
Other	1		7
Total current liabilities	43		75
Asset retirement obligations	40		27
Deferred income taxes	10		—
Deferred credits and other	1		—
Total deferred credits and other liabilities	94		102
Other noncontrolling interests	631		468
Net assets less other noncontrolling interests	$	719	$	447

	Years ended December 31,
	2017			2016
REVENUES
Energy-related businesses	$	61		$	2
EXPENSES
Operation and maintenance	(9		)	(1		)
Depreciation and amortization	(32		)	—
Income before income taxes	20			1
Income tax expense	(4		)	—
Net income	16			1
Losses attributable to noncontrolling interests(1)	23			4
Earnings	$	39		$	5

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

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$997 million at both December 31, 2017 and 2016. Our maximum exposure to loss includes the carrying value of our investment and guarantees we have provided. We discuss our investment in the Cameron LNG JV, including related guarantees, in Note 4.

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 upon the qualitative and quantitative analyses described above. Certain of these entities are service or project companies that are VIEs. As the primary beneficiary of these 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.

ASSET RETIREMENT OBLIGATIONS

For tangible long-lived assets, we record asset retirement obligations for the present value of liabilities of future costs expected to be incurred when assets are retired from service, if the retirement process is legally required and if a reasonable estimate of fair value can be made. We also record a liability if a legal obligation to perform an asset retirement exists and can be reasonably estimated, but performance is conditional upon a future event. We record the estimated retirement cost over the life of the related asset by depreciating the asset retirement cost (measured as the present value of the obligation at the time the asset is placed into service), and accreting the obligation until the liability is settled. Our rate-regulated entities, including the California Utilities, record regulatory assets or liabilities as a result of the timing difference between the recognition of costs in accordance with U.S. GAAP and costs recovered through the rate-making process.

We have recorded asset retirement obligations related to various assets, including:

SDG&E and SoCalGas

▪ fuel and storage tanks

▪ natural gas transmission systems

▪ natural gas distribution systems

▪ hazardous waste storage facilities

▪ asbestos-containing construction materials

SDG&E

▪ decommissioning of nuclear power facilities

▪ electric distribution and transmission systems

▪ energy storage systems

▪ site restoration of a former power plant

▪ power generation plant (natural gas)

SoCalGas

▪ underground natural gas storage facilities and wells

Sempra South American Utilities

▪ electric distribution and transmission systems

Sempra Mexico

▪ power generation plant (natural gas) (classified as held for sale at December 31, 2017)

▪ natural gas distribution and transportation systems

▪ LNG terminal

▪ LPG terminal

▪ wind farm

Sempra Renewables

▪ certain power generation plants (solar and wind)

Sempra LNG & Midstream

▪ natural gas transportation systems

▪ underground natural gas storage facilities

The changes in asset retirement obligations are as follows:

CHANGES IN ASSET RETIREMENT OBLIGATIONS
(Dollars in millions)
	Sempra Energy Consolidated						SDG&E						SoCalGas
	2017			2016			2017			2016			2017			2016
Balance as of January 1(1)	$	2,553		$	2,255		$	830		$	828		$	1,659		$	1,383
Accretion expense	109			101			39			38			66			61
Liabilities incurred and acquired	34			35			17			—			—			—
Deconsolidation and reclassification(2)	—			(16		)	—			—			—			—
Payments	(63		)	(47		)	(61		)	(46		)	(2		)	—
Revisions(3)	244			225			14			10			230			215
Balance at December 31(1)	$	2,877		$	2,553		$	839		$	830		$	1,953		$	1,659

⁽¹⁾  Current portions of the obligations for Sempra Energy Consolidated and SoCalGas are included in Other Current Liabilities on the Consolidated Balance Sheets.

⁽²⁾  Deconsolidated $12 million due to the September 2016 sale of EnergySouth and reclassified $4 million to Liabilities Held for Sale, as we discuss in Note 3.

⁽³⁾  In 2017, revised estimates were primarily related to underground natural gas storage facilities and wells at SoCalGas. In 2016, revised estimates were related to changes in the cost of removal rates primarily for natural gas assets based on updated cost studies approved in the 2016 GRC FD.

CONTINGENCIES

We accrue losses for the estimated impacts of various conditions, situations or circumstances involving uncertain outcomes. For loss contingencies, we accrue the loss if an event has occurred on or before the balance sheet date and:

▪ information available through the date we file our financial statements indicates it is probable that a loss has been incurred, given the likelihood of uncertain future events; and

▪ the amount of the loss can be reasonably estimated.

We do not accrue contingencies that might result in gains. We continuously assess contingencies for litigation claims, environmental remediation and other events.

LEGAL FEES

Legal fees that are associated with a past event for which a liability has been recorded are accrued when it is probable that fees also will be incurred and amounts are estimable.

COMPREHENSIVE INCOME

Comprehensive income includes all changes in the equity of a business enterprise (except those resulting from investments by owners and distributions to owners), including:

▪ foreign currency translation adjustments

▪ certain hedging activities

▪ changes in unamortized net actuarial gain or loss and prior service cost related to pension and other postretirement benefits plans

▪ unrealized gains or losses on available-for-sale securities

The Consolidated Statements of Comprehensive Income (Loss) show the changes in the components of OCI, including the amounts attributable to noncontrolling interests. 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, for the years ended December 31:

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)
Sempra Energy Consolidated:
Balance as of December 31, 2014	$	(322	)		$	(90	)	$	(85	)	$	(497	)
OCI before reclassifications	(260		)		(57		)	(10		)	(327		)
Amounts reclassified from AOCI	—				10			8			18
Net OCI	(260		)		(47		)	(2		)	(309		)
Balance as of December 31, 2015	(582		)		(137		)	(87		)	(806		)
OCI before reclassifications	42				(7		)	(15		)	20
Amounts reclassified from AOCI(2)	13				19			6			38
Net OCI	55				12			(9		)	58
Balance as of December 31, 2016	(527		)		(125		)	(96		)	(748		)
OCI before reclassifications	107				(4		)	—			103
Amounts reclassified from AOCI	—				7			12			19
Net OCI	107				3			12			122
Balance as of December 31, 2017	$	(420	)		$	(122	)	$	(84	)	$	(626	)
SDG&E:
Balance as of December 31, 2014								$	(12	)	$	(12	)
OCI before reclassifications								3			3
Amounts reclassified from AOCI								1			1
Net OCI								4			4
Balance as of December 31, 2015								(8		)	(8		)
OCI before reclassifications								(1		)	(1		)
Amounts reclassified from AOCI								1			1
Net OCI								—			—
Balance as of December 31, 2016								(8		)	(8		)
OCI before reclassifications								(1		)	(1		)
Amounts reclassified from AOCI								1			1
Net OCI								—			—
Balance as of December 31, 2017								$	(8	)	$	(8	)
SoCalGas:
Balance as of December 31, 2014					$	(14	)	$	(4	)	$	(18	)
OCI before reclassifications					—			(1		)	(1		)
Net OCI					—			(1		)	(1		)
Balance as of December 31, 2015					(14		)	(5		)	(19		)
OCI before reclassifications					—			(4		)	(4		)
Amounts reclassified from AOCI					1			—			1
Net OCI					1			(4		)	(3		)
Balance as of December 31, 2016					(13		)	(9		)	(22		)
Amounts reclassified from AOCI					—			1			1
Net OCI					—			1			1
Balance as of December 31, 2017					$	(13	)	$	(8	)	$	(21	)

⁽¹⁾  All amounts are net of income tax, if subject to tax, and exclude noncontrolling interests.

⁽²⁾  Total AOCI includes $20 million associated with the October 2016 sale of noncontrolling interests, discussed below in “Sale of Noncontrolling Interests – Sempra Mexico – Follow-On Offerings,” which does not impact the Consolidated Statement of Comprehensive Income.

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 Consolidated Statements of Operations
	Years ended December 31,
	2017			2016			2015
Sempra Energy Consolidated:
Financial instruments:
Interest rate and foreign exchange instruments(1)	$	(4	)	$	17		$	18		Interest Expense
Interest rate instruments	8			10			12			Equity Earnings, Before Income Tax
Interest rate and foreign exchange instruments	—			7			—			Remeasurement of Equity Method Investment
Interest rate and foreign exchange instruments	12			5			13			Equity Earnings, Net of Income Tax
Foreign exchange instruments	(2		)	—			—			Revenues: Energy-Related Businesses
Commodity contracts not subject to rate recovery	9			(6		)	(14		)	Revenues: Energy-Related Businesses
Total before income tax	23			33			29
	(6		)	(6		)	(4		)	Income Tax Expense
Net of income tax	17			27			25
	(10		)	(15		)	(15		)	Earnings Attributable to Noncontrolling Interests
	$	7		$	12		$	10
Pension and other postretirement benefits:
Amortization of actuarial loss(2)	$	18		$	10		$	14
Amortization of prior service cost(2)	1			1			—
Total before income tax	19			11			14
	(7		)	(5		)	(6		)	Income Tax Expense
Net of income tax	$	12		$	6		$	8
Total reclassifications for the period, net of tax	$	19		$	18		$	18
SDG&E:
Financial instruments:
Interest rate instruments(1)	$	13		$	12		$	12		Interest Expense
	(13		)	(12		)	(12		)	(Earnings) Losses Attributable to Noncontrolling Interest
	$	—		$	—		$	—
Pension and other postretirement benefits:
Amortization of actuarial loss(2)	$	1		$	1		$	1
Total reclassifications for the period, net of tax	$	1		$	1		$	1
SoCalGas:
Financial instruments:
Interest rate instruments	$	—		$	1		$	1		Interest Expense
	—			—			(1		)	Income Tax Expense
Net of income tax	$	—		$	1		$	—
Pension and other postretirement benefits:
Amortization of prior service cost(2)	$	1		$	—		$	—
Total reclassifications for the period, net of tax	$	1		$	1		$	—

⁽¹⁾  Amounts include Otay Mesa VIE. All of SDG&E’s interest rate derivative activity relates to Otay Mesa VIE.

⁽²⁾  Amounts are included in the computation of net periodic benefit cost (see “Net Periodic Benefit Cost” in Note 7).

NONCONTROLLING INTERESTS

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. Noncontrolling interests are reported as a separate component of equity on the Consolidated Balance Sheets. Earnings/losses attributable to the noncontrolling interests are separately identified on the Consolidated Statements of Operations, and net income/loss and comprehensive income/loss attributable to noncontrolling interests are separately identified on the Consolidated Statements of Comprehensive Income (Loss) and Consolidated Statements of Changes in Equity.

Sale of Noncontrolling Interests

Sempra Mexico – Follow-On Offerings

On October 13, 2016, IEnova priced a private follow-on offering of its common stock (which trades under the symbol IENOVA on the Mexican Stock Exchange) in the U.S. and outside of Mexico (the International Offering) and a concurrent public common stock offering in Mexico (the Mexican Offering) at 80.00 Mexican pesos per share. The initial purchasers in the International Offering and the underwriters in the Mexican Offering were granted a 30-day option to purchase additional common shares at the global offering price, less the underwriting discount, to cover overallotments. These options were exercised on October 17, 2016. Sempra Energy also participated in the Mexican Offering by purchasing 83,125,000 shares of common stock for approximately $351 million. After the offerings, including the issuance of shares pursuant to the exercise of the overallotment options, the aggregate shares of common stock sold in the offerings totaled 380,000,000.

The net proceeds of the offerings were approximately $1.57 billion in U.S. dollars or 29.86 billion Mexican pesos. IEnova used the net proceeds of the offerings to repay debt financing, including the $1.15 billion bridge loan from Sempra Global that was used to finance the IEnova Pipelines acquisition, $100 million in loans from its parent and $250 million of borrowings under its revolving credit facility. Additionally, $50 million of net proceeds was used to partially fund the Ventika acquisition. Remaining proceeds were used to fund capital expenditures and for general corporate purposes. We discuss these acquisitions in Note 3.

All U.S. dollar equivalents presented here are based on an exchange rate of 18.96 Mexican pesos to 1.00 U.S. dollar as of October 13, 2016, the pricing date for the offerings. Net proceeds are after reduction for underwriting discounts and commissions and offering expenses. Upon completion of the offerings on October 19, 2016 (including the issuance of shares pursuant to the exercise of the overallotment options), Sempra Energy’s beneficial ownership of IEnova decreased from approximately 81.1 percent to 66.4 percent, which did not result in a change in control. When there are changes in noncontrolling interests of a subsidiary that do not result in a change of control, any difference between carrying value and fair value related to the change in ownership is recorded as an adjustment to shareholders’ equity. As a result of the offerings, we recorded an increase in Sempra Energy’s shareholders’ equity of $281 million, net of $351 million for our participation in the Mexican Offering, and a $948 million increase in Other Noncontrolling Interests for the sale of IEnova shares to third parties.

The International Offering was exempt from registration under the U.S. Securities Act of 1933, as amended (the Securities Act), and shares in the International Offering were offered and sold only to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to persons outside of the U.S., in accordance with Regulation S under the Securities Act. The shares were not registered under the Securities Act or any state securities laws, and may not be offered or sold in the U.S. absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable securities laws.

Sempra Renewables – Tax Equity Arrangements

In the fourth quarter of 2017, Sempra Renewables entered into membership interest purchase agreements with financial institutions to form two separate tax equity limited liability companies: one that includes a Sempra Renewables’ portfolio of four solar power generation projects located in Fresno County, California and one for a wind power generation project located in Huron County, Michigan. For the solar power generation projects, Sempra Renewables received $104 million, net of offering costs, in tax equity funding for three of the four phases in the fourth quarter of 2017. Additional funding for the fourth phase of the tax equity arrangement is subject to conditions precedent that we expect to occur in the first half of 2018. Under the purchase agreement for the wind power generation project, Sempra Renewables received cash proceeds of $92 million, net of offering costs, and the formation of the tax equity arrangement occurred in December 2017.

In December 2016, Sempra Renewables closed a transaction with a financial institution to form a portfolio tax equity limited liability company that includes three Sempra Renewables solar power generation projects. Also in December 2016, Sempra Renewables closed another transaction with two financial institutions to form a tax equity limited liability company involving a Sempra Renewables wind power generation project. Sempra Renewables received cash proceeds of $474 million, net of offering costs, for the sale of noncontrolling interests relating to these transactions.

Sempra Renewables consolidates these entities and after the funding dates, reports noncontrolling interests representing the financial institutions’ respective membership interests in the tax equity arrangements.

The financial institutions are noncontrolling, tax equity investors that are allocated earnings, tax attributes and cash flows in accordance with the respective limited liability company agreements. Sempra Renewables has determined that these tax equity arrangements represent substantive profit-sharing arrangements. Sempra Renewables has further determined that the appropriate method for attributing income and loss to the noncontrolling interests each period is a balance sheet approach referred to as the HLBV method. Under the HLBV method, the amounts of income and loss attributable to the noncontrolling interests in Sempra Energy’s Consolidated Statements of Operations reflect changes in the amounts the members would hypothetically receive at each balance sheet date under the liquidation provisions of the respective limited liability company agreements, assuming the net assets of these entities were liquidated at recorded amounts, after taking into account any capital transactions, such as contributions or distributions, between the entities and the members.

Preferred Stock

The preferred stock at SoCalGas is presented at Sempra Energy as a noncontrolling interest at December 31, 2017 and 2016. Sempra Energy records charges against income related to noncontrolling interests for preferred stock dividends declared by SoCalGas. We provide additional information regarding SoCalGas’ preferred stock in Note 11.

Other Noncontrolling Interests

At December 31, 2017 and 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 Consolidated Balance Sheets:

OTHER NONCONTROLLING INTERESTS
(Dollars in millions)
	Percent ownership held by others				Equity held by noncontrolling interests
	December 31,				December 31,
	2017		2016		2017		2016
SDG&E:
Otay Mesa VIE	100	%	100	%	$	28	$	37
Sempra South American Utilities:
Chilquinta Energía subsidiaries(1)	22.9 - 43.4		23.1 - 43.4		24		22
Luz del Sur	16.4		16.4		189		173
Tecsur	9.8		9.8		4		4
Sempra Mexico:
IEnova(2)	33.6		33.6		1,532		1,524
Sempra Renewables:
Tax equity arrangements – wind(3)	NA		NA		181		92
Tax equity arrangements – solar(3)	NA		NA		450		376
Sempra LNG & Midstream:
Bay Gas	9.1		9.1		28		27
Liberty Gas Storage, LLC	23.3		23.3		14		14
Southern Gas Transmission Company(4)	—		49.0		—		1
Total Sempra Energy					$	2,450	$	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⁾  IEnova has a subsidiary with a 10-percent noncontrolling interest held by others. The equity held by noncontrolling interests is negligible at December 31, 2017 and 2016.

⁽³⁾  Net income or loss attributable to the noncontrolling interests is computed using the HLBV method and is not based on ownership percentages.

⁽⁴⁾  We sold our assets in Southern Gas Transmission Company in August 2017.

REVENUES

California Utilities

Our California Utilities generate revenues primarily from deliveries to their customers of electricity by SDG&E and natural gas by both SoCalGas and SDG&E and from related services. We record these revenues following the accrual method and recognize them upon delivery and performance. As described below, recorded revenues include those authorized by the CPUC to support our operations (“decoupled revenue”), as well as commodity costs that are passed through to core gas customers and electric customers:

▪ Decoupled revenue – The regulatory framework permits the California Utilities to recover authorized revenue based on estimated annual demand forecasts approved in regular proceedings before the CPUC. Any difference between actual demand and the annual demand approved in the proceedings is recovered or refunded in authorized revenue in a subsequent period. This design, commonly known as “decoupling,” is intended to minimize any impact on earnings due to variability in volumetric demand for electricity and natural gas.

▪ Commodity costs – The regulatory framework authorizes the California Utilities to recover the actual cost of natural gas procured and delivered to their core customers in rates substantially as incurred. Actual electricity procurement costs are recovered as power is delivered, or to the extent actual amounts vary from forecasts, generally recovered or refunded within a subsequent period. The California Utilities may also record revenue from CPUC-approved incentive awards, some of which require approval by the CPUC prior to being recognized. SDG&E bids and self-schedules its generation into the CAISO energy market on a day-ahead and real-time basis and self-schedules power to serve the demand of its customers. Generally, SDG&E is a net purchaser of power. The CAISO settles SDG&E costs and revenues on an hourly and real-time net basis.

Sempra South American Utilities

Our electric distribution utilities in South America, Chilquinta Energía and Luz del Sur, serve primarily regulated customers, and their revenues are based on tariffs that are set by the CNE in Chile and the OSINERGMIN in Peru.  

The tariffs charged are based on an efficient model distribution company defined by Chilean law in the case of Chilquinta Energía, and OSINERGMIN in the case of Luz del Sur. The tariffs include O&M, an internal rate of return on the new replacement value of depreciable assets, charges for the use of transmission systems, and a component for the value added by the distributor. Tariffs are designed to provide for a pass-through to customers of transmission and energy charges, recovery of reasonable operating and administrative costs, incentives to reduce costs and make needed capital investments and a regulated rate of return on the distributor’s regulated asset base.

Sempra Infrastructure

Our natural gas utilities outside of California apply U.S. GAAP for revenue recognition consistent with the California Utilities, namely Ecogas, our natural gas utility in Mexico, and Mobile Gas and Willmut Gas, our natural gas utilities in Alabama and Mississippi, respectively, that were sold in September 2016.

The table below shows the total utilities revenues in Sempra Energy’s Consolidated Statements of Operations for each of the last three years. The revenues include amounts for services rendered but unbilled (approximately one-half month’s deliveries) at the end of each year.

TOTAL UTILITIES REVENUES AT SEMPRA ENERGY CONSOLIDATED(1)
(Dollars in millions)
	Years ended December 31,
	2017		2016		2015
Electric revenues	$	5,415	$	5,211	$	5,158
Natural gas revenues	4,361		4,050		4,096
Total	$	9,776	$	9,261	$	9,254

⁽¹⁾  Excludes intercompany revenues.

We provide additional information about our utility revenue recognition in “Effects of Regulation” above.

Energy-Related Businesses

Sempra South American Utilities

Sempra South American Utilities generates revenues from energy-services companies that provide electric construction services and recognizes these revenues when services are provided in accordance with contractual agreements. The energy-services company in Chile also generates revenue from selling electricity to non-regulated customers.

Sempra Mexico

Sempra Mexico recognizes revenues from:

▪ pipeline transportation and storage of natural gas, LPG and ethane as capacity is provided. Certain of the revenues recognized from pipelines are under contracts that are accounted for as operating leases;

▪ sale of natural gas as deliveries are made;

▪ an LNG regasification terminal that generates revenues from reservation and usage fees under terminal capacity agreements and nitrogen injection service agreements as capacity is provided;

▪ wind power generation facilities that generate revenues from selling electricity as the power is delivered at the interconnection point; and

▪ TdM, a natural gas-fired power plant that generates revenues from selling electricity and/or capacity to the CAISO and to governmental, public utility and wholesale power marketing entities as the power is delivered at the interconnection point. At December 31, 2017, TdM is classified as held for sale, as we discuss in Note 3.

Sempra Mexico reports revenue net of VAT in Mexico. Sempra Mexico’s revenues also include net realized gains and losses on settlements of energy derivatives and net unrealized gains and losses from the change in fair values of energy derivatives.

Sempra Renewables

For consolidated entities, Sempra Renewables generates revenues from the sale of solar and wind power and related green attributes pursuant to PPAs, and recognizes these revenues when the power is delivered. It also generates revenues for managing certain of its solar and wind project joint ventures. Approximately half of the revenues generated from assets under PPAs are accounted for as operating leases.

Sempra LNG & Midstream

Sempra LNG & Midstream records revenues from contractual counterparty obligations for non-delivery of LNG cargoes, as well as revenues from the sale of LNG and natural gas as deliveries are made to counterparties. Sempra LNG & Midstream also recognizes revenues from natural gas storage and transportation operations for services provided in accordance with contractual agreements. Sempra LNG & Midstream revenues also include net realized gains and losses on settlements of energy derivatives and net unrealized gains and losses from the change in fair values of energy derivatives. Prior to April 2015, Sempra LNG & Midstream generated revenues from selling electricity and/or capacity from its Mesquite Power plant (see Note 3) to the CAISO and to governmental, public utility and wholesale power marketing entities. Sempra LNG & Midstream recognized these revenues as the electricity was delivered and capacity was provided.

OTHER COST OF SALES

Other Cost of Sales primarily includes

▪ pipeline capacity costs, including the permanent release of pipeline capacity in 2016 and the associated recoveries in 2017, at Sempra LNG & Midstream;

▪ pipeline transportation and natural gas marketing costs at Sempra LNG & Midstream;

▪ electric construction services costs at Sempra South American Utilities’ energy-services companies; and

▪ energy management service fees and costs associated with construction performed for and invoiced to third parties at Sempra Mexico.

OPERATION AND MAINTENANCE EXPENSES

Operation and Maintenance includes O&M and general and administrative costs, consisting primarily of personnel costs, purchased materials and services, litigation expense and rent.

FOREIGN CURRENCY TRANSLATION

Our operations in South America and our natural gas distribution utility in Mexico use their local currency as their functional currency. The assets and liabilities of their foreign operations are translated into U.S. dollars at current exchange rates at the end of the reporting period, and revenues and expenses are translated at average exchange rates for the year. The resulting noncash translation adjustments do not enter into the calculation of earnings or retained earnings, but are reflected in OCI and in AOCI.

Cash flows of these consolidated foreign subsidiaries are translated into U.S. dollars using average exchange rates for the period. We report the effect of exchange rate changes on cash balances held in foreign currencies in “Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash” on the Sempra Energy Consolidated Statements of Cash Flows.

Currency transaction losses in a currency other than the entity’s functional currency were $35 million, $1 million and $7 million for the years ended December 31, 2017, 2016 and 2015, respectively, and are included in Other Income, Net, on the Sempra Energy Consolidated Statements of Operations.

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)
	December 31,
	2017			2016
Sempra Energy Consolidated:
Total due from various unconsolidated affiliates – current	$	37		$	26
Sempra South American Utilities(1):
Eletrans – 4% Note(2)	$	103		$	96
Other related party receivables	1			1
Sempra Mexico(1):
IMG – Note due March 15, 2022(3)	487			—
DEN – Notes due November 14, 2018(4)	—			90
Energía Sierra Juárez – Note(5)	7			14
Total due from unconsolidated affiliates – noncurrent	$	598		$	201
Total due to various unconsolidated affiliates – current	$	(7	)	$	(11	)
Sempra Mexico(1):
Total due to unconsolidated affiliates – noncurrent – TAG – Note due December 20, 2021(6)	$	(35	)	$	—
SDG&E:
Sempra Energy(7)	$	—		$	3
Various affiliates	—			1
Total due from unconsolidated affiliates – current	$	—		$	4
Sempra Energy	$	(30	)	$	—
SoCalGas	(4		)	(8		)
Various affiliates	(6		)	(7		)
Total due to unconsolidated affiliates – current	$	(40	)	$	(15	)
Income taxes due from Sempra Energy(8)	$	27		$	159
SoCalGas:
Total due from unconsolidated affiliates – current – SDG&E	$	4		$	8
Total due to unconsolidated affiliates – current – Sempra Energy	$	(35	)	$	(28	)
Income taxes due from Sempra Energy(8)	$	10		$	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, comprising joint ventures of Chilquinta Energía.

⁽³⁾  Mexican peso-denominated revolving line of credit for up to$14.0 billionMexican pesos or approximately$718 millionU.S. dollar-equivalent, at a variable interest rate based on the 91-day Interbank Equilibrium Interest Rate plus220bps (9.87 percentatDecember 31, 2017), to finance construction of the natural gas marine pipeline.

⁽⁴⁾  Four U.S. dollar-denominated loans, at a variable interest rate based on the 30-day LIBOR plus 450 bps (5.27 percent at December 31, 2016), to finance the Los Ramones Norte pipeline project. In November 2017, IEnova acquired the remaining 50-percent interest in DEN and DEN became a wholly owned, consolidated subsidiary of IEnova.

⁽⁵⁾  U.S. dollar-denominated loan, at a variable interest rate based on the 30-day LIBOR plus 637.5 bps (7.94 percent at December 31, 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⁾  U.S. dollar-denominated loan, at a variable interest rate based on 6-month LIBOR plus 290 bps (4.74 percent at December 31, 2017).

⁽⁷⁾  At December 31, 2016, net receivable included outstanding advances to Sempra Energy of $31 million at an interest rate of 0.68 percent.

⁽⁸⁾  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.    

Revenues and cost of sales from unconsolidated affiliates are as follows:

REVENUES AND COST OF SALES FROM UNCONSOLIDATED AFFILIATES
(Dollars in millions)
	Years ended December 31,
	2017		2016		2015
Revenues:
Sempra Energy Consolidated	$	43	$	25	$	26
SDG&E	8		7		10
SoCalGas	74		76		75
Cost of Sales:
Sempra Energy Consolidated	$	47	$	72	$	107
SDG&E	71		64		49

California Utilities

Sempra Energy, SDG&E and SoCalGas provide certain services to each other and are charged an allocable share of the cost of such services. Also, from time-to-time, SDG&E and SoCalGas may make short-term advances of surplus cash to Sempra Energy at interest rates based on the federal funds rate plus a margin of 13 to 20 bps, depending on the loan balance.

SoCalGas provides natural gas transportation and storage services for SDG&E and charges SDG&E for such services monthly. SoCalGas records revenues and SDG&E records a corresponding amount to cost of sales.

SDG&E and SoCalGas charge one another, as well as other Sempra Energy affiliates, for shared asset depreciation. SoCalGas and SDG&E record revenues and the affiliates record corresponding amounts to O&M.

The natural gas supply for SDG&E’s and SoCalGas’ core natural gas customers is purchased by SoCalGas as a combined procurement portfolio managed by SoCalGas. Core customers are primarily residential and small commercial and industrial customers. This core gas procurement function is considered a shared service; therefore, revenues and costs related to SDG&E are presented net in SoCalGas’ Statements of Operations.

SDG&E has a 20-year contract for up to 155 MW of renewable power supplied from the Energía Sierra Juárez wind power generation facility. Energía Sierra Juárez is a 50-percent owned and unconsolidated joint venture of Sempra Mexico that commenced operations in June 2015.

Sempra Mexico

Sempra Mexico, through its wholly owned subsidiaries, DEN and IEnova Pipelines, provides operating and maintenance services to TAG, and also provides personnel under an administrative services arrangement.

Sempra Renewables

Sempra Renewables, through its wholly owned subsidiary, Sempra Renewables Services, Inc. (formerly known as Sempra Global Services, Inc.), provides project administration and operating and maintenance services to certain of its renewable energy unconsolidated joint ventures.

Sempra LNG & Midstream

Sempra LNG & Midstream provides project administration and operating and maintenance services to Cameron LNG JV, and also provides personnel under an administrative services arrangement.

Sempra LNG & Midstream has an agreement with Rockies Express for capacity on REX. In the second quarter of 2016, Sempra LNG & Midstream permanently released certain pipeline capacity with Rockies Express and others, as we discuss in Note 15.

Guarantees

Sempra Energy has provided guarantees to certain of its joint ventures as we discuss in Note 4.

RESTRICTED NET ASSETS

Sempra Energy Consolidated

As we discuss below, the California Utilities have restrictions on the amount of funds that can be transferred to Sempra Energy by dividend, advance or loan as a result of conditions imposed by various regulators. Additionally, certain other Sempra Energy subsidiaries are subject to various financial and other covenants and other restrictions contained in debt and credit agreements (described in Note 5) and in other agreements that limit the amount of funds that can be transferred to Sempra Energy. At December 31, 2017, Sempra Energy was in compliance with all covenants related to its debt agreements.

At December 31, 2017, the amount of restricted net assets of consolidated entities of Sempra Energy, including the California Utilities discussed below, that may not be distributed to Sempra Energy in the form of a loan or dividend is $8.6 billion. Additionally, the amount of restricted net assets of our unconsolidated entities is $7.4 billion. Although the restrictions cap the amount of funding that the various operating subsidiaries can provide to Sempra Energy, we do not believe these restrictions will have a significant impact on our ability to access cash to pay dividends and fund operating needs.

As we discuss in Note 4, $89 million of Sempra Energy’s consolidated retained earnings balance represents undistributed earnings of equity method investments at December 31, 2017.

Sempra Utilities

The CPUC’s regulation of the California Utilities’ capital structures limits the amounts available for dividends and loans to Sempra Energy. At December 31, 2017, Sempra Energy could have received combined loans and dividends of approximately $469 million, funded by long-term debt issuance, from SDG&E and approximately $736 million from SoCalGas.

The payment and amount of future dividends by SDG&E and SoCalGas are at the discretion of their respective boards of directors. The following restrictions limit the amount of retained earnings that may be paid as common stock dividends or loaned to Sempra Energy from either utility:

▪ The CPUC requires that SDG&E’s and SoCalGas’ common equity ratios be no lower than one percentage point below the CPUC-authorized percentage of each entity’s authorized capital structure. The authorized percentage at December 31, 2017 is 52 percent at both SDG&E and SoCalGas.

▪ The FERC requires SDG&E to maintain a common equity ratio of 30 percent or above.

▪ The California Utilities have a combined revolving credit line that requires each utility to maintain a ratio of consolidated indebtedness to consolidated capitalization (as defined in the agreement) of no more than 65 percent, as we discuss in Note 5.

Based on these restrictions, at December 31, 2017, SDG&E’s restricted net assets were $5.1 billion and SoCalGas’ restricted net assets were $3.2 billion, which could not be transferred to Sempra Energy.

At Sempra South American Utilities, Peru requires domestic corporations to maintain minimum legal reserves as a percentage of capital stock, resulting in restricted net assets of $35 million at Luz del Sur at December 31, 2017.

Sempra Infrastructure

Significant restrictions of Sempra Infrastructure subsidiaries include

▪ Mexico requires domestic corporations to maintain minimum legal reserves as a percentage of capital stock, resulting in restricted net assets of $198 million at Sempra Energy’s consolidated Mexican subsidiaries at December 31, 2017.

▪ Wholly owned IEnova Pipelines has a long-term debt agreement that requires it to maintain a reserve account to pay the projects’ debt. Under this restriction, net assets totaling $19 million are restricted at December 31, 2017.

▪ Wholly owned Ventika has long-term debt agreements that require it to maintain reserve accounts to pay the projects’ debt. The debt agreements may limit the project companies’ ability to incur liens, incur additional indebtedness, make investments, pay cash dividends and undertake certain additional actions. Under these restrictions, net assets totaling $34 million are restricted at December 31, 2017.

▪ Energía Sierra Juárez, a 50-percent owned and unconsolidated joint venture of Sempra Mexico, has long-term debt agreements that require the establishment and funding of project and reserve accounts to which the proceeds of loans, letter of credit borrowings, project revenues and other amounts are deposited and applied in accordance with the debt agreements. The long-term debt agreements also limit the joint venture’s ability to incur liens, incur additional indebtedness, make acquisitions and undertake certain actions. Under these restrictions, net assets totaling $9 million are restricted at December 31, 2017.

▪ TAG, a 50-percent owned and unconsolidated joint venture of Sempra Mexico, has a long-term debt agreement that requires it to maintain a reserve account to pay projects’ debt. Under these restrictions, net assets totaling $82 million are restricted at December 31, 2017.

▪ Wholly owned Copper Mountain Solar 1 has a long-term debt agreement that requires the establishment and funding of project accounts to which the proceeds of loans, project revenues and other amounts are deposited and applied in accordance with the debt agreement. This long-term debt agreement also limits the solar project’s ability to incur liens, incur additional indebtedness, make acquisitions and undertake certain actions, while also requiring maintenance of certain debt ratios. Under these restrictions, net assets totaling $8 million are restricted at December 31, 2017.

▪ Tax equity limited liability companies at Sempra Renewables are required to maintain completion reserve depository accounts to be used to pay for trailing construction costs that become due subsequent to the tax equity transaction closing. At December 31, 2017, as a result of these requirements, there were total restricted net assets at these tax equity limited liability companies of approximately $19 million.

▪ 50- and 25-percent owned and unconsolidated joint ventures at Sempra Renewables have debt agreements that require each joint venture to maintain reserve accounts in order to pay the projects’ debt service and O&M requirements. We discuss Sempra Energy guarantees associated with these requirements in Note 4. At December 31, 2017, as a result of these requirements, there were total restricted net assets at these joint ventures of approximately $265 million.

▪ Sempra LNG & Midstream has an equity method investment in Cameron LNG JV, which has debt agreements that require the establishment and funding of project accounts to which the proceeds of loans, project revenues and other amounts are deposited and applied in accordance with the debt agreements. The debt agreements require the joint venture to maintain reserve accounts in order to pay the project debt service, and also contain restrictions related to the payment of dividends and other distributions to the members of the joint venture. We discuss Sempra Energy guarantees associated with Cameron LNG JV’s debt agreements in Note 4. Under these restrictions, net assets of Cameron LNG JV of approximately $7.0 billion are restricted at December 31, 2017.

OTHER INCOME, NET

Other Income, Net on the Consolidated Statements of Operations consists of the following:

OTHER INCOME, NET
(Dollars in millions)
	Years ended December 31,
	2017			2016			2015
Sempra Energy Consolidated:
Allowance for equity funds used during construction	$	168		$	116		$	107
Investment gains(1)	56			23			3
Gains (losses) on interest rate and foreign exchange instruments, net	47			(32		)	(4		)
Foreign currency transaction losses(2)	(35		)	(1		)	(7		)
Sale of other investments	3			5			11
Electrical infrastructure relocation income	3			10			7
Interest on regulatory balancing accounts, net	3			4			3
Sundry, net	9			7			6
Total	$	254		$	132		$	126
SDG&E:
Allowance for equity funds used during construction	$	63		$	46		$	37
Interest on regulatory balancing accounts, net	3			3			3
Sundry, net	—			1			(4		)
Total	$	66		$	50		$	36
SoCalGas:
Allowance for equity funds used during construction	$	44		$	40		$	36
Interest on regulatory balancing accounts, net	—			1			—
Sundry, net	(8		)	(9		)	(6		)
Total	$	36		$	32		$	30

⁽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 Consolidated Statements of Operations.

⁽²⁾  Includes$35 millionloss from translation of Mexican peso-denominated loan to IMG JV to U.S. dollars.