Sempra Energy Reports Second-Quarter 2019 Earnings

SAN DIEGO, Aug. 2, 2019 /PRNewswire/ -- Sempra Energy (NYSE: SRE) today reported second-quarter 2019 earnings of $354 million, or $1.26 per diluted share, compared to second-quarter 2018 losses of $561 million, or $2.11 per diluted share. On an adjusted basis, the company's second-quarter 2019 earnings were $309 million, or $1.10 per diluted share, compared to $361 million, or $1.35 per diluted share, in the second quarter 2018.

"We're pleased with the financial and operational progress we've made so far this year," said Jeffrey W. Martin, chairman and CEO of Sempra Energy. "We've set a clear mission to be North America's premier energy infrastructure company and I am proud of the steps we've taken to capitalize on the once-in-a-generation opportunity created by the need to develop energy infrastructure that supports the trend toward cleaner energy and greater exports of North America's energy."

Sempra Energy's earnings for the first six months of 2019 were $795 million, or $2.85 per diluted share, compared with losses of $214 million, or $0.82 per diluted share, in the first six months of 2018. Adjusted earnings for the first six months of 2019 were $843 million, or $3.03 per diluted share, compared with $733 million, or $2.78 per diluted share, in the first six months of 2018.

These financial results reflect certain significant items, as described on an after-tax basis in the following table of GAAP earnings reconciled to adjusted earnings for the second quarter and first six months of 2019 and 2018.

OPERATING HIGHLIGHTS

San Diego Gas & Electric (SDG&E) recently elected to contribute approximately $452 million to a wildfire recovery fund that was created as a result of the efforts of Gov. Gavin Newsom and the California Legislature. The legislation helps to reduce SDG&E's exposure to wildfire risk by addressing issues related to catastrophic wildfires in the state of California, including greater clarity of cost recovery standards and requirements, additional wildfire mitigation, establishment of a wildfire recovery fund, a cap on liability, and the formation of the California Wildfire Safety Advisory Board.

SDG&E and Southern California Gas Co. expect a proposed decision in the coming weeks for their 2019 General Rate Case from the California Public Utilities Commission. A final decision is expected by year end.

Sempra Energy expects substantial completion of the first liquefaction train of the Cameron LNG export project in Hackberry, La., in the coming days, with commercial operations to begin in mid-August. This follows the first commissioning cargo of liquefied natural gas (LNG) from Train 1, which was announced in May.

Sempra Energy's LNG development projects are continuing to advance, including a heads of agreement (HOA) signed between Sempra LNG and Aramco Services Company in May. The HOA anticipates the negotiation and finalization of a definitive 20-year LNG sale-and-purchase agreement for 5 million tonnes per annum of LNG offtake from the Port Arthur LNG export project under development.

Sempra Energy continued to grow its transmission and distribution footprint in Texas through Oncor Electric Delivery Company LLC's acquisition of InfraREIT, Inc., and Sempra Energy's acquisition of an indirect 50% limited-partnership interest in Sharyland Utilities, L.L.C. These acquisitions were completed in May and funded with a portion of the proceeds from Sempra Energy's completed sales of its U.S. solar, wind and certain non-utility natural gas storage assets.

The sales process of Sempra Energy's equity interests in its South American businesses, including its 83.6% stake in Luz del Sur S.A.A. in Peru and 100% stake in Chilquinta Energía S.A. in Chile, continues to make good progress.

2019 EARNINGS GUIDANCE

Sempra Energy today affirmed its 2019 adjusted earnings-per-share guidance range of $5.70 to $6.30.

NON-GAAP FINANCIAL MEASURES

Non-GAAP financial measures include Sempra Energy's adjusted earnings and adjusted earnings per common share for both the second quarter and first six months of 2019 and 2018, and 2019 adjusted earnings-per-share guidance. See Table A for additional information regarding these non-GAAP financial measures.

INTERNET BROADCAST

Sempra Energy will broadcast a live discussion of its earnings results over the Internet today at 12 p.m. ET with senior management of the company. Access is available by logging onto the website at www.sempra.com. For those unable to log onto the live webcast, the teleconference will be available on replay a few hours after its conclusion by dialing (888) 203-1112 and entering passcode 7726556.

Sempra Energy's mission is to be North America's premier energy infrastructure company. With 2018 reported revenues of more than $11.6 billion, the San Diego- based company is the utility holding company with the largest U.S. customer base. The Sempra Energy companies' more than 20,000 employees are focused on delivering energy with purpose to approximately 40 million consumers worldwide. Sempra Energy has been consistently recognized for its leadership in diversity and inclusion, and social responsibility, and is a member of the S&P 500 Utilities Index and the Dow Jones Utility Index.

This press release contains statements that are not historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by words such as "believes," "expects," "anticipates," "plans," "estimates," "projects," "forecasts," "contemplates," "assumes," "depends," "should," "could," "would," "will," "confident," "may," "can," "potential," "possible," "proposed," "target," "pursue," "outlook," "maintain," or similar expressions or when we discuss  our guidance, strategy, plans, goals, vision, mission, opportunities, projections, initiatives, objectives or intentions. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Future results may differ materially from those expressed in the forward-looking statements.

Factors, among others, that could cause our actual results and future actions to differ materially from those described in any forward-looking statements include risks and uncertainties relating to: the greater degree and prevalence of wildfires in California in recent years and the risk that we may be found liable for damages regardless of fault, such as where inverse condemnation applies, and risk that we may not be able to recover any such costs in rates from customers in California or otherwise, including due to insufficient amounts in the wildfire fund; actions and the timing of actions, including decisions, investigations, new regulations and issuances of permits and other authorizations and renewal of franchises by the Comisión Federal de Electricidad (CFE), California Public Utilities Commission, U.S. Department of Energy, California Department of Conservation's Division of Oil, Gas, and Geothermal Resources, Los Angeles County Department of Public Health, U.S. Environmental Protection Agency, Federal Energy Regulatory Commission, Pipeline and Hazardous Materials Safety Administration, Public Utility Commission of Texas, states, cities and counties, and other regulatory and governmental bodies in the U.S. and other countries in which we operate; the success of business development efforts, construction projects, and major acquisitions, divestitures and internal structural changes, including risks in (i) obtaining or maintaining authorizations; (ii) completing construction projects on schedule and budget; (iii) obtaining the consent of partners; (iv) counterparties' ability to fulfill contractual commitments; (v) winning competitively bid infrastructure projects; (vi) the ability to complete contemplated acquisitions and/or divestitures and the disruptions caused by such efforts; and (vii) the ability to realize anticipated benefits from any of these efforts once completed; the resolution of civil and criminal litigation, regulatory investigations and proceedings, and arbitrations; actions by credit rating agencies to downgrade our credit ratings or those of our subsidiaries or to place those ratings on negative outlook and our ability to borrow at favorable interest rates; deviations from regulatory precedent or practice that result in a reallocation of benefits or burdens among shareholders and ratepayers; denial of approvals of proposed settlements; delays in, or denial of, regulatory agency authorizations to recover costs in rates from customers or regulatory agency approval for projects required to enhance safety and reliability; and moves to reduce or eliminate reliance on natural gas; the availability of electric power and natural gas and natural gas storage capacity, including disruptions caused by failures in the transmission grid, limitations on the withdrawal or injection of natural gas from or into storage facilities, and equipment failures; expropriation of assets, the failure to honor the terms of contracts by foreign governments and state-owned entities such as the CFE, and other property disputes; risks posed by actions of third parties who control the operations of our investments; weather conditions, natural disasters, accidents, equipment failures, computer system outages, explosions, terrorist attacks and other events that disrupt our operations, damage our facilities and systems, cause the release of harmful materials, cause fires and subject us to third-party liability for property damage or personal injuries, fines and penalties, some of which may not be covered by insurance (including costs in excess of applicable policy limits), may be disputed by insurers or may otherwise not be recoverable through regulatory mechanisms or may impact our ability to obtain satisfactory levels of affordable insurance; cybersecurity threats to the energy grid, storage and pipeline infrastructure, the information and systems used to operate our businesses, and the confidentiality of our proprietary information and the personal information of our customers and employees; actions of activist shareholders, which could impact the market price of our securities and disrupt our operations as a result of, among other things, requiring significant time by management and our board of directors; changes in capital markets, energy markets and economic conditions, including the availability of credit; volatility in currency exchange, interest and inflation rates and commodity prices and our ability to effectively hedge the risk of such volatility; the impact of federal or state tax reform and our ability to mitigate adverse impacts; changes in foreign and domestic trade policies and laws, including border tariffs and revisions to or replacement of international trade agreements, such as the North American Free Trade Agreement, that may increase our costs or impair our ability to resolve trade disputes; the impact at San Diego Gas & Electric Company on competitive customer rates and reliability of electric transmission and distribution systems due to the growth in distributed and local power generation and from possible departing retail load resulting from customers transferring to Direct Access and Community Choice Aggregation or other forms of distributed and local power generation and the potential risk of nonrecovery for stranded assets and contractual obligations; Oncor Electric Delivery Company LLC's (Oncor) ability to eliminate or reduce its quarterly dividends due to regulatory capital requirements and other regulatory and governance commitments, including the determination by a majority of Oncor's independent directors or a minority member director to retain such amounts to meet future requirements; and other uncertainties, some of which may be difficult to predict and are beyond our control.

These risks and uncertainties are further discussed in the reports that Sempra Energy has filed with the U.S. Securities and Exchange Commission (SEC). These reports are available through the EDGAR system free-of-charge on the SEC's website, www.sec.gov. Investors should not rely unduly on any forward-looking statements. These forward-looking statements speak only as of the date hereof, and the company undertakes no obligation to update or revise these forecasts or projections or other forward-looking statements, whether as a result of new information, future events or otherwise.

Sempra South American Utilities, Sempra North American Infrastructure, Sempra LNG, Sempra Renewables, Sempra Mexico, Sempra Texas Utilities, Oncor Electric Delivery Company LLC (Oncor) and Infraestructura Energética Nova, S.A.B. de C.V. (IEnova) are not the same companies as the California utilities, San Diego Gas & Electric Company (SDG&E) or Southern California Gas Company (SoCalGas), and Sempra South American Utilities, Sempra North American Infrastructure, Sempra LNG, Sempra Renewables, Sempra Mexico, Sempra Texas Utilities, Oncor and IEnova are not regulated by the California Public Utilities Commission.

SEMPRA ENERGY
Table A (Continued)

RECONCILIATION OF SEMPRA ENERGY ADJUSTED EARNINGS TO SEMPRA ENERGY GAAP EARNINGS (LOSSES) (Unaudited)

Sempra Energy Adjusted Earnings and Adjusted Earnings Per Common Share (Adjusted EPS) exclude items (after the effects of income taxes and, if applicable, noncontrolling interests) in 2019 and 2018 as follows:

Three months ended June 30, 2019:

• $45 million gain on the sale of certain Sempra Renewables assets

Three months ended June 30, 2018:

• $(755) million impairment of certain non-utility natural gas storage assets in the southeast U.S. at Sempra LNG
• $(145) million other-than-temporary impairment of certain U.S. wind equity method investments at Sempra Renewables
• $(22) million impacts associated with Aliso Canyon litigation at Southern California Gas Company (SoCalGas)

Six months ended June 30, 2019:

• $45 million gain on the sale of certain Sempra Renewables assets

Associated with holding the South American businesses for sale:

• $(103) million income tax expense from outside basis differences in our South American businesses primarily related to the change in our indefinite reinvestment assertion from our decision in January 2019 to hold these businesses for sale
• $10 million income tax benefit from a reduction in a valuation allowance against certain net operating loss (NOL) carryforwards as a result of our decision to sell our South American businesses

Six months ended June 30, 2018:

• $(755) million impairment of certain non-utility natural gas storage assets at Sempra LNG
• $(145) million other-than-temporary impairment of certain U.S. wind equity method investments at Sempra Renewables
• $(22) million impacts associated with Aliso Canyon litigation at SoCalGas
• $(25) million income tax expense to adjust Tax Cuts and Jobs Act of 2017 (TCJA) provisional amounts

Sempra Energy Adjusted Earnings and Adjusted EPS are non-GAAP financial measures (GAAP represents accounting principles generally accepted in the United States of America). Because of the significance and/or nature of the excluded items, management believes that these non-GAAP financial measures provide a meaningful comparison of the performance of business operations to prior and future periods. Non-GAAP financial measures are supplementary information that should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP. The table below reconciles for historical periods these non-GAAP financial measures to Sempra Energy GAAP Earnings (Losses) and GAAP EPS, which we consider to be the most directly comparable financial measures calculated in accordance with GAAP.

SEMPRA ENERGY
Table A (Continued)

SEMPRA ENERGY 2019 ADJUSTED EPS GUIDANCE RANGE (Unaudited)

Sempra Energy 2019 Adjusted EPS Guidance Range of $5.70 to $6.30 excludes:

• $103 million income tax expense from outside basis differences in our South American businesses primarily related to the change in our indefinite reinvestment assertion from our decision in January 2019 to hold these businesses for sale.
• $10 million income tax benefit from a reduction in a valuation allowance against certain NOL carryforwards as a result of our decision to sell our South American businesses.
• $45 million after-tax gain related to the April 2019 sale of the remaining U.S. renewables assets and investments to American Electric Power Company, Inc.
• any potential charge from San Diego Gas & Electric Company's (SDG&E) $322.5 million initial contribution in September 2019 and annual contributions of $12.9 million in each of the next 10 years to the California wildfire fund pursuant to the wildfire legislation that was recently signed into law. We are evaluating the accounting and tax treatment of the initial and annual contributions.
• any potential gain from the planned sale of our South American businesses. Because the sale process for the planned divestiture of our South American businesses initiated in January 2019 is ongoing, the terms and structure of any potential sale transaction(s) are unknown, including the terms that would impact the final income tax expense resulting from the expected change in our assertion regarding indefinite reinvestment of foreign undistributed earnings, including timing and amounts of repatriation of such earnings.

Sempra Energy 2019 Adjusted EPS Guidance is a non-GAAP financial measure. Because of the significance and nature of the excluded items, management believes that this non-GAAP financial measure provides a meaningful comparison of the performance of business operations to prior and future periods. Sempra Energy 2019 Adjusted EPS Guidance should not be considered an alternative to GAAP EPS Guidance. Non-GAAP financial measures are supplementary information that should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP. Due to the uncertainty surrounding the accounting and tax treatment of SDG&E's contributions to the California wildfire fund and the terms and structure of any potential transaction(s) associated with the planned sale of our South American businesses, 2019 GAAP EPS Guidance, the most directly comparable financial measure calculated in accordance with GAAP, is inestimable.