DERIVATIVE FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2025

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

We use derivative instruments primarily to manage exposures arising in the normal course of business. Our principal exposures are commodity market risk, benchmark interest rate risk and foreign exchange rate exposures. Our use of derivatives for these risks is integrated into the economic management of our anticipated revenues, anticipated expenses, assets and liabilities. Derivatives may be effective in mitigating these risks (1) that could lead to declines in anticipated revenues or increases in anticipated expenses, or (2) that could cause our asset values to fall or our liabilities to increase. Accordingly, our derivative activity summarized below generally represents an impact that is intended to offset associated revenues, expenses, assets or liabilities that are not included in the tables below.

In certain cases, we apply the normal purchase or sale exception to contracts that otherwise would have been accounted for as derivative instruments and have other commodity contracts that are not derivatives. These contracts are not recorded at fair value and are therefore excluded from the disclosures below.

In all other cases, we record derivatives at fair value on the Consolidated Balance Sheets. We may have derivatives that are (1) cash flow hedges, (2) fair value hedges, or (3) undesignated. Depending on the applicability of hedge accounting and the requirement to pass impacts through to customers for SDG&E and SoCalGas and other operations subject to regulatory accounting, the impact of derivative instruments may be offset in OCI (cash flow hedges), on the balance sheet (regulatory offsets), or recognized in earnings (fair value hedges and undesignated derivatives not subject to rate recovery). We classify cash flows from the (1) principal settlements of cross-currency swaps that hedge exposure related to Mexican peso-denominated debt and amounts related to terminations or early settlements of interest rate swaps as financing activities, (2) principal settlements of interest rate swaps associated with capitalized interest costs incurred to finance capital projects as investing activities, and (3) settlements of other derivative instruments as operating activities on the Consolidated Statements of Cash Flows.

HEDGE ACCOUNTING

We may designate a derivative as a cash flow hedging instrument if it effectively converts anticipated cash flows associated with revenues or expenses to a fixed dollar amount. We may utilize cash flow hedge accounting for derivative commodity instruments, foreign currency instruments and interest rate instruments. Designating cash flow hedges is dependent on the business context in which the instrument is being used, the effectiveness of the instrument in offsetting the risk of variability of future cash flows of a given revenue or expense item, and other criteria.

ENERGY DERIVATIVES

Our market risk is primarily related to natural gas and electricity price volatility and the specific physical locations where we transact. We use energy derivatives to manage these risks. The use of energy derivatives in our various businesses depends on the particular energy market, and the operating and regulatory environments applicable to the business, as follows:

▪SDG&E and SoCalGas use natural gas derivatives and SDG&E uses electricity derivatives, for the benefit of customers, with the objective of managing both price risk and basis risk, and stabilizing and lowering natural gas and electricity costs. These derivatives include fixed-price natural gas and electricity positions, options, and basis risk instruments, which are either exchange-traded or over-the-counter financial instruments, or bilateral physical transactions. This activity is governed by risk management and transacting activity plans limited by company policy and regulatory requirements. SDG&E’s risk management and transacting activity plans for electricity derivatives are also required to be filed with, and have been approved by, the CPUC. SoCalGas is also subject to certain regulatory requirements and thresholds related to natural gas procurement under the GCIM. Natural gas and electricity derivative activities are recorded as commodity costs that are offset by regulatory account balances and are recovered in rates. Net commodity cost impacts on the Consolidated Statements of Operations are reflected in Cost of Natural Gas or in Cost of Electric Fuel and Purchased Power.

▪SDG&E is allocated and may purchase CRRs, which are designed to reduce the regional electricity price volatility risk that may result from local transmission capacity constraints. Unrealized gains and losses do not impact earnings, as they are offset by regulatory account balances. Realized gains and losses associated with CRRs, which are recoverable in rates, are recorded in Cost of Electric Fuel and Purchased Power on the Consolidated Statements of Operations.

▪Sempra Infrastructure may use natural gas and electricity derivatives, as appropriate, in an effort to mitigate commodity price risk and optimize the earnings of its assets which support the following businesses: LNG, natural gas pipelines and storage, and power generation. Gains and losses associated with these undesignated derivatives are recognized in Revenues: Energy-Related Businesses on the Consolidated Statements of Operations.

▪Sempra Infrastructure may use natural gas derivatives when supplying feed gas to its natural gas liquefaction facilities to support the production of LNG. Gains and losses from these undesignated derivatives are recognized in Revenues: Energy-Related Businesses or Energy-Related Businesses Cost of Sales on the Consolidated Statements of Operations.

▪From time to time, our various businesses, including SDG&E and SoCalGas, may use other derivatives to hedge exposures such as GHG allowances.

The following table summarizes net energy derivative volumes.

NET ENERGY DERIVATIVE VOLUMES
(Quantities in millions)
		December 31,
Commodity	Unit of measure	2025	2024
Sempra:
Natural gas(1)	MMBtu	336	637
Congestion revenue rights	MWh	18	27
SDG&E:
Natural gas	MMBtu	14	16
Congestion revenue rights	MWh	18	27
SoCalGas:
Natural gas	MMBtu	322	347

(1)    At December 31, 2025, excludes 1,016 related to the disposal group that is classified as held for sale.

INTEREST RATE DERIVATIVES

We are exposed to interest rates primarily as a result of our current and expected use of financing. SDG&E and SoCalGas, as well as Sempra and its other subsidiaries and equity method investees, periodically enter into interest rate derivative agreements intended to moderate our exposure to interest rates and to lower our overall costs of borrowing. In addition, we may utilize interest rate swaps, typically designated as cash flow hedges, to lock in interest rates on outstanding debt or in anticipation of future financings.

The following table presents the notional amounts of our interest rate derivatives, excluding those in our equity method investments.

INTEREST RATE DERIVATIVES
(Dollars in millions)
	December 31, 2024
	Notional amount		Maturities
Sempra:
Cash flow hedges(1)	$	271	2025-2034
Undesignated derivatives(2)(3)	3,189		2025-2048

(1)    At December 31, 2025, excludes a notional amount of $244 with maturities of 2026-2034 related to the disposal group that is classified as held for sale.

(2)    At December 31, 2025, excludes a notional amount of $3,189 with maturities of 2026-2048 related to the disposal group that is classified as held for sale. These undesignated derivatives accrued interest based on a notional amount of $2,286.

(3)    At December 31, 2024, undesignated derivatives accrued interest based on a notional amount of $1,598.

FOREIGN CURRENCY DERIVATIVES

From time to time, SI Partners and its equity method investees may use foreign currency derivatives to hedge exposures related to cash flows associated with revenues from contracts denominated in Mexican pesos that are indexed to the U.S. dollar. Oncor uses cross-currency swaps designated as fair value hedges intended to offset foreign currency exchange rate risk related to its Euro and Canadian dollar denominated debt.

In the first quarter of 2026, SI Partners entered into undesignated contingent foreign currency hedges that are designed to lock in the exchange rate associated with the anticipated after‑tax net proceeds from the planned sale of Ecogas. Settlement of the hedges is contingent on the completion of the planned sale of Ecogas in the second or third quarter of 2026.

We are also exposed to exchange rate movements at our Mexican subsidiaries and equity method investees, which have U.S. dollar-denominated cash balances, receivables, payables and debt (monetary assets and liabilities) that give rise to Mexican currency exchange rate movements for Mexican income tax purposes. They also have deferred income tax assets and liabilities denominated in the Mexican peso, which must be translated to U.S. dollars for financial reporting purposes. In addition, monetary assets and liabilities and certain nonmonetary assets and liabilities are adjusted for Mexican inflation for Mexican income tax purposes. We may utilize foreign currency derivatives as a means to help manage the risk of exposure to significant fluctuations in our income tax expense and equity earnings from these impacts; however, we generally do not hedge our deferred income tax assets and liabilities or for inflation.

The following table presents the notional amounts of our foreign currency derivatives, excluding those in our equity method investments.

FOREIGN CURRENCY DERIVATIVES
(Dollars in millions)
	December 31, 2024
	Notional amount		Maturities
Sempra:
Foreign currency derivatives(1)	$	162	2025-2026

(1)    At December 31, 2025, excludes a notional amount of $172 with maturities of 2026-2027 related to the disposal group that is classified as held for sale.

FINANCIAL STATEMENT PRESENTATION

The Consolidated Balance Sheets reflect the offsetting of net derivative positions and cash collateral with the same counterparty when a legal right of offset exists. The following tables provide the fair values of derivative instruments on the Consolidated Balance Sheets, including the amount of cash collateral receivables that were not offset because the cash collateral was in excess of liability positions. We discuss the fair value of derivative assets and liabilities in Note 11.

DERIVATIVE INSTRUMENTS ON THE CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
	December 31, 2025
	Current assets						Current liabilities
	Other current assets		Assets held for sale		Other long-term assets		Other current liabilities		Liabilities held for sale		Deferred credits and other
Sempra:
Derivatives designated as hedging instruments:
Interest rate instruments			$	25					$	—
Foreign exchange instruments			—						(8)
Derivatives not designated as hedging instruments:
Interest rate instruments			242						—
Commodity contracts not subject to rate recovery			9						(66)
Associated offsetting commodity contracts			(5)						5
Commodity contracts subject to rate recovery	$	25			$	11	$	(134)			$	(10)
Associated offsetting commodity contracts	(4)				(2)		4				2
Associated offsetting cash collateral	—				—		68				4
Net amounts presented on the balance sheet	21		271		9		(62)		(69)		(4)
Additional cash collateral for commodity contracts not subject to rate recovery			38						—
Additional cash collateral for commodity contracts subject to rate recovery	23				—		—				—
Total	$	44	$	309	$	9	$	(62)	$	(69)	$	(4)
SDG&E:
Derivatives not designated as hedging instruments:
Commodity contracts subject to rate recovery	$	4			$	8	$	(12)			$	(5)
Associated offsetting commodity contracts	—				(1)		—				1
Associated offsetting cash collateral	—				—		12				4
Net amounts presented on the balance sheet	4				7		—				—
Additional cash collateral for commodity contracts subject to rate recovery	13				—		—				—
Total	$	17			$	7	$	—			$	—
SoCalGas:
Derivatives not designated as hedging instruments:
Commodity contracts subject to rate recovery	$	21			$	3	$	(122)			$	(5)
Associated offsetting commodity contracts	(4)				(1)		4				1
Associated offsetting cash collateral	—				—		56				—
Net amounts presented on the balance sheet	17				2		(62)				(4)
Additional cash collateral for commodity contracts subject to rate recovery	10				—		—				—
Total	$	27			$	2	$	(62)			$	(4)

DERIVATIVE INSTRUMENTS ON THE CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in millions)
	December 31, 2024
	Other current assets		Other long-term assets		Other current liabilities		Deferred credits and other
Sempra:
Derivatives designated as hedging instruments:
Interest rate instruments	$	7	$	28	$	—	$	—
Foreign exchange instruments	4		1		—		—
Derivatives not designated as hedging instruments:
Interest rate instruments	12		246		—		—
Commodity contracts not subject to rate recovery	16		23		(21)		(43)
Associated offsetting commodity contracts	(15)		(23)		15		23
Commodity contracts subject to rate recovery	7		4		(55)		(10)
Associated offsetting commodity contracts	(5)		(2)		5		2
Associated offsetting cash collateral	—		—		10		4
Net amounts presented on the balance sheet	26		277		(46)		(24)
Additional cash collateral for commodity contracts not subject to rate recovery	40		—		—		—
Additional cash collateral for commodity contracts subject to rate recovery	25		—		—		—
Total(1)	$	91	$	277	$	(46)	$	(24)
SDG&E:
Derivatives not designated as hedging instruments:
Commodity contracts subject to rate recovery	$	4	$	4	$	(13)	$	(6)
Associated offsetting commodity contracts	(2)		(2)		2		2
Associated offsetting cash collateral	—		—		10		4
Net amounts presented on the balance sheet	2		2		(1)		—
Additional cash collateral for commodity contracts subject to rate recovery	21		—		—		—
Total(1)	$	23	$	2	$	(1)	$	—
SoCalGas:
Derivatives not designated as hedging instruments:
Commodity contracts subject to rate recovery	$	3	$	—	$	(42)	$	(4)
Associated offsetting commodity contracts	(3)		—		3		—
Net amounts presented on the balance sheet	—		—		(39)		(4)
Additional cash collateral for commodity contracts subject to rate recovery	4		—		—		—
Total	$	4	$	—	$	(39)	$	(4)

(1)    Normal purchase contracts previously measured at fair value are excluded.

The following table includes the effects of derivative instruments designated as hedges on the Consolidated Statements of Operations and in OCI and AOCI.

HEDGE IMPACTS
(Dollars in millions)
	Pretax (loss) gain  recognized in OCI							Pretax gain (loss) reclassified from AOCI into earnings
	Years ended December 31,							Years ended December 31,
	2025		2024		2023		Location	2025		2024		2023
Sempra:
Cash flow hedges:
Interest rate instruments	$	(2)	$	36	$	45	Interest expense	$	7	$	11	$	(1)
Interest rate instruments	(29)		21		20		Equity earnings(1)	10		23		48
Foreign exchange instruments	(13)		14		(2)		Revenues: Energy- related businesses	(3)		5		(1)
							Other income, net	(2)		2		(2)
Foreign exchange instruments	(13)		12		(3)		Equity earnings(1)	(5)		6		(2)
Interest rate and foreign exchange instruments	—		—		7		Interest expense	—		—		1
							Other income, net	—		—		6
Fair value hedges:
Foreign exchange instruments	(27)		2		—		Equity earnings(1)	—		—		—
Total	$	(84)	$	85	$	67		$	7	$	47	$	49
SoCalGas:
Cash flow hedges:
Interest rate instruments	$	—	$	—	$	—	Interest expense	$	(1)	$	(1)	$	(1)

(1)    Equity earnings at Oncor Holdings and our foreign equity method investees are recognized after tax.

For Sempra, we expect that net losses before NCI of $2 million, which are net of income tax benefit and include amounts related to the disposal group that is classified as held for sale, that are currently recorded in AOCI (with net gains of $1 million attributable to NCI) related to cash flow hedges will be reclassified into earnings during the next 12 months as the hedged items affect earnings. SoCalGas expects that $1 million of losses, net of income tax benefit, that are currently recorded in AOCI related to cash flow hedges will be reclassified into earnings during the next 12 months as the hedged items affect earnings. Actual amounts ultimately reclassified into earnings depend on the interest rates and foreign currency rates in effect when derivative contracts mature.

At December 31, 2025, the maximum length of time over which Sempra is hedging its exposure to the variability in future cash flows for forecasted transactions, excluding those forecasted transactions related to the payment of variable interest on existing financial instruments, is approximately one year.

The following table summarizes the effects of derivative instruments not designated as hedging instruments on the Consolidated Statements of Operations.

UNDESIGNATED DERIVATIVE IMPACTS
(Dollars in millions)
		Pretax (loss) gain on derivatives recognized in earnings
		Years ended December 31,
	Location	2025		2024		2023
Sempra:
Commodity contracts not subject to rate recovery	Revenues: Energy-related businesses	$	(6)	$	223	$	919
Commodity contracts not subject to rate recovery	Energy-related business cost of sales	(1)		—		—
Commodity contracts subject to rate recovery	Cost of natural gas	(149)		(56)		(288)
Commodity contracts subject to rate recovery	Cost of electric fuel and purchased power	(14)		(41)		15
Interest rate instruments	Interest expense	—		243		(47)
Total		$	(170)	$	369	$	599
SDG&E:
Commodity contracts subject to rate recovery	Cost of electric fuel and purchased power	$	(14)	$	(41)	$	15
SoCalGas:
Commodity contracts subject to rate recovery	Cost of natural gas	$	(149)	$	(56)	$	(288)

CREDIT RISK RELATED CONTINGENT FEATURES

For Sempra, SDG&E and SoCalGas, certain of our derivative instruments contain credit limits which vary depending on our credit ratings. Generally, these provisions, if applicable, may reduce our credit limit if a specified credit rating agency reduces our ratings. In certain cases, if our credit ratings were to fall below investment grade, the counterparty to these derivative liability instruments could request immediate payment or demand immediate and ongoing full collateralization.

For Sempra, the total fair value of this group of derivative instruments in a liability position at December 31, 2025 and 2024 is $190 million and $122 million, respectively. For SDG&E, the total fair value of this group of derivative instruments in a liability position is negligible at both December 31, 2025 and 2024. For SoCalGas, the total fair value of this group of derivative instruments in a liability position at December 31, 2025 and 2024 is $47 million and $42 million, respectively. At December 31, 2025, if the credit ratings of Sempra or SoCalGas were reduced below investment grade, $189 million and $47 million, respectively, of additional assets could be required to be posted as collateral for these derivative contracts.

For Sempra, SDG&E and SoCalGas, some of our derivative contracts contain a provision that would permit the counterparty, in certain circumstances, to request adequate assurance of our performance under the contracts. Such additional assurance, if needed, is not material and is not included in the amounts above.