SRE Sempra

RISK FACTORS

The exchange offer involves risk. You should consider carefully the risks described below before you decide whether or not to tender your IEnova ordinary shares in the exchange offer.

Risks Related to the Exchange Offer

The completion of the exchange offer is subject to certain conditions and if these conditions are not satisfied or waived prior to the expiration time, the exchange offer will not be completed.

The completion of the exchange offer is subject to a number of conditions, including that IEnova ordinary shares validly tendered in the exchange offer and not validly withdrawn prior to any then scheduled expiration date, together with all of the IEnova ordinary shares directly or indirectly owned by Sempra, represent no less than 95% of the IEnova ordinary shares, determined on the basis of all outstanding ordinary shares and on a fully diluted basis; the registration statement of which this prospectus forms a part shall have been declared effective by the SEC, the CNBV and the Mexican Stock Exchange shall have approved the registration and listing of Sempra’s common stock and authorized the exchange offer and the disclosure in the related documents filed with the CNBV, the NYSE shall have approved the supplemental listing of the Sempra common stock to be issued in the exchange offer, and all other governmental approvals and authorizations required in connection with the exchange offer shall have been obtained and shall have not been revoked or amended, modified or supplemented in any way that, in Sempra’s sole judgment, could reasonably be expected to materially impede or interfere with, delay, postpone or materially and adversely affect the completion of the exchange offer; the absence of any governmental, judicial, legislative or regulatory developments that would, in Sempra’s sole judgment, adversely impact the ability to consummate the exchange offer; the absence of any material adverse change (or any condition, event or development involving a prospective change) in the business, properties, assets, liabilities, capitalization, shareholders’ equity, condition (financial or otherwise), operations, licenses, franchises, permits, permit applications, results of operations, cash flows or prospects of Sempra or IEnova or any of their respective affiliates; and the satisfaction of other customary conditions as described in this prospectus under “The Exchange Offer—Conditions, Extension, Amendment and Termination of the Exchange Offer.” There is no assurance that all of the conditions to the exchange offer will be satisfied, or that they will be satisfied in the time frame currently expected. If these conditions are not satisfied or waived prior to the expiration time, the exchange offer will not be completed.

Because the final Exchange Ratio will be fixed, the value of the shares of Sempra common stock you will receive as a result of the exchange offer will fluctuate.

If you tender your IEnova ordinary shares pursuant to the exchange offer you will receive 0.0313 Sempra shares of common stock per IEnova ordinary share, subject to approval of the Exchange Ratio by Sempra’s board of directors or a duly authorized committee thereof. The final Exchange Ratio will be fixed and will not be adjusted to reflect any changes in the market prices of any of the securities of either company. The value of shares of Sempra common stock will change from the date of this prospectus through the expiration date, and holders that validly tender their IEnova ordinary shares will not be able to withdraw from the exchange offer except under the limited circumstances described in this prospectus. As a result, you will receive a fixed number of Sempra’s common stock in connection with the exchange offer, and changes in the market prices of these securities will affect the value of what you will receive.

The market prices of Sempra’s common stock and IEnova’s ordinary shares will fluctuate before the completion of the exchange offer and this will affect the value represented by the final Exchange Ratio both in terms of the IEnova ordinary shares tendered by you or on your behalf and what you will receive in exchange.

The market prices of Sempra’s common stock and IEnova ordinary shares are subject to general price fluctuations in the market for publicly traded equity securities and have experienced significant volatility in the

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past. Market price variations in these securities could result from actual or investors’ perceptions of changes in the businesses, financial condition, results of operations or prospects of Sempra or IEnova prior to and/or following the exchange offer, regulatory considerations, legal proceedings, exchange rates, actions by third parties, general energy industry, market and economic conditions and other factors that may not necessarily reflect the underlying fundamentals or prospects of either company or are beyond the control of Sempra or IEnova.

As of the date of this prospectus, IEnova’s board of directors has not made any recommendation with respect to the exchange offer.

IEnova is a Mexican public stock corporation and Mexican law governs the duties and obligations of IEnova’s board of directors, a majority of the members of which are appointed by Sempra. As of the date of this prospectus, IEnova’s board of directors has not made any recommendation to its shareholders in connection with the exchange offer.

Under Mexican law, however, no later than ten Mexican business days after the commencement of the exchange offer, IEnova’s board of directors is required to prepare and disclose (i) an opinion on the final Exchange Ratio of the exchange offer from a financial point of view, (ii) any conflicts of interests which each of the board members may have, and (iii) if each board member will tender his or her IEnova ordinary shares as part of the exchange offer. There is no assurance that IEnova’s board of directors will disclose this information within the prescribed time frame or that its opinion will be that the final Exchange Ratio is fair from a financial point of view.

Sempra is the controlling shareholder of IEnova and may have actual or potential conflicts of interest with respect to the exchange offer.

Sempra is the controlling shareholder of IEnova and may have actual and potential conflicts of interest with IEnova’s public investors because it currently has the power to elect a majority of the members of IEnova’s board of directors.

The rights of the holders of Sempra’s common stock are different than the current rights of holders of IEnova ordinary shares.

The rights of holders of IEnova ordinary shares are governed by Mexican law and IEnova’s bylaws. If your IEnova ordinary shares are acquired in the exchange offer, you will receive shares of Sempra common stock. The rights of a holder of Sempra’s common stock will be governed by applicable U.S. federal and California state laws, which are different than the rights of a holder of IEnova ordinary shares.

Some of the main differences between the rights of holders of IEnova ordinary shares and Sempra’s common stock are: (a) IEnova’s and Sempra’s bylaws differ as to the required quorums for certain corporate matters to be voted on at shareholders meetings, as well as to the required voting majorities for them to be approved; (b) under the Mexican Securities Law, IEnova shareholders owning shares with voting rights, even limited or restricted, for each 10% stake in IEnova’s capital stock held by them, individually or jointly, shall be entitled to: (i) appoint and revoke a member of the board of directors at an ordinary shareholders’ meeting (such appointment may only be revoked by other shareholders when the appointment of all other directors is revoked, in which case, the individuals substituted may not be so appointed during a period of 12 months immediately following the relevant revocation date), (ii) require the chairman of the board of directors or of the audit committee (comité de auditoria y prácticas societarias) to call an ordinary shareholders’ meeting at any time and (iii) request a one-time postponement, for three calendar days and without the need for a new call, of the vote on any matter in respect of which they are not sufficiently informed, while under Sempra’s bylaws, Sempra shareholders, (y) have the right to nominate directors for election at the annual meeting, provided proper and timely written notice is given and the other relevant conditions and requirements under the bylaws are satisfied,

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and eligible shareholders, who own and have owned, continuously for at least three years as of the date of the shareholder notice, a number of shares that represents at least 3% of the outstanding shares entitled to vote in the election of directors as of the date of the shareholder notice, have the right to make director nominations through Sempra’s proxy materials, provided proper and timely written notice is given and the other relevant conditions and requirements under the bylaws are satisfied, and (z) one or more shareholders owning not less than one-tenth of the voting power are entitled to call a special meeting of shareholders, provided proper and timely written notice is given and the other relevant conditions and requirements under the bylaws are satisfied; and (c) pursuant to IEnova’s bylaws, any person seeking to acquire 10% or more of IEnova’s outstanding shares will need to obtain prior written approval from IEnova’s board of directors and if any such acquisition is made without such approval, then the voting rights of such shares may be deemed void, while Sempra’s articles of incorporation and bylaws include anti-takeover provisions that, among other things, (i) authorize the board of directors to cause the issuance of preferred stock in one or more series, to fix the number of shares constituting that series and to establish the rights, preferences, privileges and restrictions of that series, (ii) require that any action to be taken by Sempra’s shareholders must be taken either at a duly called annual or special meeting of shareholders, or by the unanimous written consent of all shareholders and (iii) provide that shareholders holding not less than one-tenth of the voting power of Sempra’s capital stock are entitled to call a special meeting of shareholders, provided proper and timely written notice is given and the other relevant conditions and requirements under the bylaws are satisfied.

For more information, see “Legal Information—Comparison of Shareholder Rights.”

You will need to consider the tax consequences of the exchange offer and of holding Sempra shares of common stock.

A U.S. Holder that exchanges IEnova ordinary shares for Sempra common stock pursuant to the exchange offer will generally recognize gain or loss equal to the difference between (a) the sum of the fair market value of the Sempra common stock received and (b) the holder’s aggregate adjusted tax basis of the IEnova ordinary shares exchanged therefor in a fully taxable transaction. If we pay distributions in cash or other property (other than certain distributions of our stock or rights to acquire our stock) to U.S. Holders, such distributions, including the amount of any taxes withheld, generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. If we pay distributions of cash or property on the Sempra common stock to non-U.S. holders, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits and such dividends generally will be subject to withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty.

The receipt of Sempra shares of common stock in exchange for IEnova ordinary shares pursuant to the exchange offer will be treated as a taxable disposition for Mexican tax purposes. Generally, Mexican-tax resident legal entities, Mexican-tax resident individuals and non-Mexican-tax residents whose IEnova ordinary shares are exchanged for Sempra shares of common stock in the transaction will recognize gain or loss on the exchange and may be subject to Mexican income tax under any of the particular tax regimes applicable to such types of investors. Gain or loss will generally be equal to the difference between (i) the value of the Sempra shares of common stock received and (ii) the holder’s adjusted basis in the IEnova ordinary shares exchanged.

The tax consequences of the transaction and of holding Sempra shares of common stock are discussed in more detail in “The Exchange Offer—Material Tax Consequences.”

If the exchange offer is completed, Sempra will directly or indirectly own substantially all of the IEnova ordinary shares.

If the exchange offer is completed, Sempra will directly or indirectly own substantially all of the IEnova ordinary shares and thus, subject to applicable legal requirements, will be able to take actions that could affect

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your rights as a holder of IEnova ordinary shares if you do not participate in the exchange offer, including amending IEnova’s bylaws, without the consent of any other holder of IEnova ordinary shares. Sempra is currently examining whether any additional changes to IEnova’s bylaws would be appropriate and there is no assurance that Sempra will not cause IEnova’s bylaws to be amended in a manner that would adversely affect the rights of holders of IEnova ordinary shares that do not participate in the exchange offer described herein.

In addition, if the exchange offer is completed, so long as it meets the requirements under applicable law and regulations, Sempra intends to submit an application to the CNBV to cancel the registration of the IEnova ordinary shares in the RNV, and to request to delist the IEnova ordinary shares from the Mexican Stock Exchange, in which case IEnova will no longer be a publicly-held company subject to the Mexican Securities Law. As a non-publicly listed entity, IEnova would not be required by applicable Mexican law to grant the same minority rights as those currently afforded as a “sociedad anónima bursátil,” which could limit the remaining minority shareholders’ ability to influence the result of any issues subject to approval at the general shareholders’ meetings of IEnova, including the appointment of the members of the board of directors, the acquisition or transfer of relevant assets, the issuance of shares and other securities, and payment of dividends consisting in shares representing the capital stock of IEnova, among others. Under Mexican law, minority shareholders of non-publicly traded companies have limited minority rights.

If the exchange offer is completed, the liquidity and market value of any IEnova ordinary shares not acquired by Sempra could be materially adversely affected.

The acquisition of IEnova ordinary shares by Sempra pursuant to the exchange offer will reduce the number of holders of IEnova ordinary shares and the number IEnova ordinary shares that might otherwise trade publicly and, depending on the number of IEnova ordinary shares acquired by Sempra pursuant to the exchange offer, could materially adversely affect the liquidity and market value of any remaining IEnova ordinary shares held by the public.

After consummation of the exchange offer, so long as it meets the requirements under applicable law and regulations, including the affirmative vote of no less than 95% of the IEnova ordinary shares at an extraordinary shareholders’ meeting, Sempra intends to submit an application to the CNBV to cancel the registration of the IEnova ordinary shares in the RNV, and to request to delist the IEnova ordinary shares from the Mexican Stock Exchange, in which case IEnova will no longer be a publicly-held company subject to the Mexican Securities Law. In addition, even if the requirements to submit such an application for cancellation and delisting are not satisfied, depending upon the number of IEnova ordinary shares acquired pursuant to the exchange offer, any remaining IEnova ordinary shares that are not acquired may no longer meet the standards for continued registration on the RNV or listing on the Mexican Stock Exchange and deregistration and delisting the IEnova ordinary shares may be required. In the event of any such cancellation and delisting, (a) the CNBV may determine to cancel the registration of the IEnova ordinary shares in the RNV and eliminate them from the list of securities authorized to be listed on the Mexican Stock Exchange, and (b) Sempra may be required by the CNBV to make an additional offer for IEnova ordinary shares. The consideration offered by Sempra as part of any such additional offer under applicable Mexican law would be the greater of the trading price of the IEnova ordinary shares (which shall be determined by the average weighted price by volume of the IEnova ordinary shares during the last 30 days in which such shares were traded prior to the launching of a tender offer, and during a period of time not exceeding six months; in the event that the number of days that the IEnova ordinary shares were traded during such period is less than 30 days, then the days in which the IEnova ordinary shares were actually traded will be taken into account; in the event that the IEnova ordinary shares were not traded in such period, the book value of the IEnova ordinary shares will be taken in consideration) (the “Trading Price”) and the book value of the IEnova ordinary shares, in accordance with the last quarterly report filed with the CNBV and the Mexican Stock Exchange before the launching of the exchange offer (the “Book Value”). Sempra may be able to offer a different price in any such additional offer, subject to prior approval from the CNBV, based upon, among other factors, IEnova’s financial condition and prospects at the time and after approval of such price by IEnova’s board of directors, taking into consideration the opinion of its Corporate Practices Committee in accordance with Mexican law. Any such consideration may be different, and could be materially less, than that offered in the

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exchange offer. In such scenario, the Mexican Securities Law provides that the CNBV may determine the deregistration and delisting of IEnova, if the interests of minority shareholders and the market in general have been adequately protected. Any such deregistration and delisting could materially adversely affect the liquidity of the IEnova ordinary shares.

If the delisting occurs, the amount of publicly available information concerning IEnova and its operations would be reduced and the liquidity of and markets for the remaining IEnova ordinary shares would be adversely affected. While the IEnova ordinary shares might trade in over-the-counter markets, such markets may not develop and, even if they do, the extent of the public market and the availability of market quotations for these securities are likely to be significantly reduced and would depend upon the number and/or the aggregate market value of, and the interest of securities firms in maintaining a market for, these IEnova ordinary shares.

As a result of the foregoing, you should not assume that the IEnova ordinary shares will continue to be listed on the Mexican Stock Exchange, or that there will be a liquid and/or active trading market or a continuation of current price levels for such securities after completion of the exchange offer.

Risks Related to Sempra

If you decide to participate in the exchange offer, you will become a holder of Sempra shares of common stock instead of your IEnova ordinary shares, in which case the following risks related to Sempra and the risks described below under “—Risks Related to All Sempra Businesses,” “—Risks Related to the California Utilities,” “—Risks Related to Our Interest in Oncor,” and “—Risks Related to Our Businesses Other Than the California Utilities and Our Interest in Oncor” would apply to you. These risk factors could materially adversely affect our actual results and cause such results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. We may also be materially harmed by risks and uncertainties not currently known to us or that we currently deem to be immaterial. If any of these risks occurs, our businesses, cash flows, results of operations, financial condition and/or prospects could be materially adversely affected, and the trading prices of our securities and those of our subsidiaries could substantially decline. These risk factors should be read in conjunction with the other information concerning our company set forth in or incorporated by reference in this prospectus, including, among other things, the information set forth in the Consolidated Financial Statements and Notes to Consolidated Financial Statements of Sempra and its consolidated subsidiaries and variable interest entities, as of December 31, 2019 and 2018, and for each of the three years in the period ended on December 31, 2019, audited by Deloitte & Touche LLP and included in our Annual Report (the “audited consolidated financial statements”) and in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in our Annual Report and Quarterly Reports.

Operational and Structural Risks

Sempra’s cash flows, ability to pay dividends and ability to meet its debt obligations largely depend on the performance of its subsidiaries and entities that are accounted for as equity method investments, such as Oncor Holdings and Cameron LNG JV.

We are a holding company and substantially all our assets, which include equity method investments such as Oncor Holdings and Cameron LNG JV, are owned by our subsidiaries or entities we do not control. Our ability to pay dividends and to meet our debt and other obligations significantly depends on cash flows from our subsidiaries and equity method investments. Cash flows from our subsidiaries and equity method investments depend on their ability to successfully execute their business strategies and generate cash flows in excess of their own expenditures, common and preferred stock dividends (if any), and debt and other obligations. In addition, the entities accounted for as equity method investments, which we do not control, and our subsidiaries are all separate and distinct legal entities that are not obligated to pay dividends or make loans or distributions to us and could be precluded from paying any such dividends or making any such loans or distributions under certain circumstances, including, among other things, as a result of legislation, regulation, court order or contractual restrictions or in times of financial distress. The inability to access capital from our subsidiaries and entities accounted for as equity method investments could have a material adverse effect on our cash flows, financial condition and/or prospects.

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Sempra’s rights to the assets of its subsidiaries are structurally subordinated to the claims of that subsidiary’s creditors, including trade creditors. In addition, to the extent Sempra is a creditor of any subsidiary, its rights as a creditor would be effectively subordinated to any security interest in the assets of that subsidiary and any indebtedness of the subsidiary senior to that held by Sempra.

Sempra has substantial investments in and obligations arising from businesses that it does not control or manage or in which it shares control.

We have and make investments in entities that we do not control or manage or in which we share control, which include Sempra’s direct or indirect interest in Oncor, Cameron LNG JV and RBS Sempra Commodities LLP (“RBS Sempra Commodities”); SDG&E’s interest in San Onofre Nuclear Generating Station (“SONGS”); and IEnova’s direct or indirect interest in the Sur de Texas-Tuxpan natural gas marine pipeline in Mexico, among others. In some cases, we engage in other arrangements with or for these entities that could expose us to risks in addition to our investment. For example, Sempra has provided guarantees in support of financing agreements related to Cameron LNG JV, Sempra is subject to certain indemnities with respect to RBS Sempra Commodities, and Sempra Mexico has provided loans to joint ventures (“JVs”) in which it has investments. We discuss the guarantees in Note 6, indemnities in Note 16, and affiliate loans in Note 1 of the audited consolidated financial statements.

Where we share control with other equity owners, any disagreements among the owners of these businesses with respect to material issues, including strategy, financial, operational or transactional matters, could have a material adverse effect on the ability of that business to move forward with key initiatives or projects or take other actions, and could also negatively affect the long-term relationships among the business owners and the ability of the entity to function efficiently and effectively. Any such circumstance could materially adversely affect our business, financial condition, cash flows, result of operations and/or prospects.

With respect to ventures and other businesses over which we do not exercise control, we could be responsible for significant liabilities or losses related to these businesses. For example, to date we have recorded equity losses from our investment in RBS Sempra Commodities, which represents an estimate of our obligations to settle outstanding tax matters and related legal costs, and we could be subject to further losses upon final resolution of these matters. In addition to other risks inherent in these businesses, if their management were to fail to perform adequately, the other investors in the businesses were unable or otherwise failed to perform their obligations to provide capital and credit support for these businesses, business decisions were made with which we do not agree or other factors were to result in liabilities or losses at these entities, it could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects. We discuss our investments further in Notes 5, 6 and 16 of the audited consolidated financial statements.

Our business could be negatively affected as a result of actions of activist shareholders.

Activist shareholders may, from time to time, engage in proxy solicitations, advance shareholder proposals, or otherwise attempt to effect changes and assert influence on our board of directors and management. In taking these steps, activist shareholders could seek to acquire significant amounts of our capital stock, which could threaten our ability to use some or all our net operating loss carryforwards if any such attempt were to result in our corporation undergoing an “ownership change” under applicable tax rules. Responding to activist shareholders would require us to incur significant legal and advisory fees, proxy solicitation expenses (in the case of a proxy contest) and administrative and associated costs and require significant time and attention by our board of directors and management, diverting their attention from the pursuit of our business strategy.

Any perceived uncertainties as to our future direction and control, our ability to execute on our strategy, or the composition of our board of directors or senior management team arising from a proxy contest or increased ownership or other interest in our company from activist shareholders could lead to the perception of a change in the direction of our business or instability, which could be exploited by our competitors and/or other activist

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shareholders, result in the loss of business opportunities, and make it more difficult to pursue our strategic initiatives or attract and retain qualified personnel and business partners, any of which could have a material adverse effect on our business, operating results and/or prospects. Further, any such actions could cause significant fluctuations in the trading prices of our common stock, preferred stock and debt securities based on temporary or speculative market perceptions or other factors that may not reflect the underlying fundamentals and prospects of our business.

Financial and Capital Stock-Related Risks

Impairment of our long-lived assets, intangible assets or goodwill would negatively impact our consolidated results of operations and net worth.

As of September 30, 2020, we had $205 million of intangible assets and $1,602 million of goodwill, which represented approximately 0.3% and 2.4%, respectively, of the total assets on our Consolidated Balance Sheet, primarily related to entities in our Sempra Mexico segment. We perform recovery testing of our recorded asset values when market conditions indicate that such values may not be recoverable. Goodwill is not amortized, but we test it for impairment annually on October 1 or whenever events or changes in circumstances necessitate an evaluation, which could result in our recording a goodwill impairment loss. We discuss our impairment testing of long-lived assets and goodwill and the factors considered in such testing in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report and in Note 1 of the audited consolidated financial statements. An impairment loss could materially adversely affect our results of operations for the period in which such charge is recorded.

The Tax Cuts and Jobs Act of 2017 may materially adversely affect our financial condition, results of operations and/or cash flows, as well as the value of investments in our common stock, preferred stock and debt securities.

The Tax Cuts and Jobs Act of 2017 (the “TCJA”) significantly changed the IRC, including taxation of U.S. corporations, by, among other things:

While the U.S Department of the Treasury has issued final regulations for various sections of the IRC, certain aspects of the legislation are still subject to interpretation and will require implementing regulations by the U.S. Department of the Treasury, as well as state tax authorities, which could mitigate or increase adverse impacts. In addition, the regulatory treatment of the impacts of this legislation may be subject to the discretion of the U.S. Federal Energy Regulatory Commission (the “FERC”) and state public utility commissions. Moreover, the future status of the TCJA is uncertain because the incoming U.S. Administration could seek to modify or reverse some or all of this legislation. Any such circumstance could materially adversely affect our business, financial condition, cash flows, or results of operations.

We discuss the effects of the TCJA further in Note 8 of the audited consolidated financial statements and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.

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The economic interest, voting rights and market value of our outstanding common and preferred stock may be adversely affected by any additional equity securities we may issue and, with respect to our common stock, by our outstanding preferred stock.

As of September 30, 2020, we had 23,900,000 shares of preferred stock outstanding, 17,250,000 of which constitute our 6% mandatory convertible preferred stock, series A (“series A preferred stock”) and are scheduled to convert into shares of our common stock on January 15, 2021, 5,750,000 of which constitute our 6.75% mandatory convertible preferred stock, series B (“series B preferred stock”) and are scheduled to convert into shares of our common stock on July 15, 2021, and the remaining 900,000 of which constitute our 4.875% fixed-rate reset cumulative redeemable perpetual preferred stock, series C (“series C preferred stock”) and are not convertible. We may seek to raise capital by issuing additional shares of common or preferred stock, which, together with the conversion of the series A preferred stock and series B preferred stock into our common stock, may materially dilute the voting rights and economic interests of holders of our outstanding common and preferred stock and materially adversely affect the trading price of our common and preferred stock.

Dividend requirements associated with our preferred stock subject us to certain risks.

Any future payments of cash dividends, and the amount of any cash dividends we pay, on our series A preferred stock, series B preferred stock and series C preferred stock will depend on, among other things, our financial condition, capital requirements and results of operations, the ability of our subsidiaries and equity method investees to distribute cash to us, and other factors that our board of directors may consider relevant. Any failure to pay scheduled dividends on our preferred stock when due would have a material adverse impact on the market price of our preferred stock, our common stock and our debt securities and would prohibit us, under the terms of our preferred stock, from paying cash dividends on or repurchasing shares of our common stock (subject to limited exceptions) until such time as we have paid all accumulated and unpaid dividends on the preferred stock.

The terms of the series A preferred stock, series B preferred stock and series C preferred stock generally provide that if dividends on any shares of the preferred stock have not been declared and paid or have been declared but not paid for six or more quarterly dividend periods for the series A preferred stock and series B preferred stock and three or more semi-annual dividend periods for the series C preferred stock, whether or not for consecutive dividend periods, the holders of the preferred stock, voting together as a single class, will be entitled to elect a total of two additional members of our board of directors, subject to certain terms and limitations.

Risks Related to All Sempra Businesses

Operational Risks

Our businesses face risks related to the COVID-19 pandemic.

The COVID-19 pandemic is currently materially impacting communities, supply chains and markets around the world. The U.S. economy is experiencing a significant slowdown and claims for unemployment have increased to historic levels. To date, the COVID-19 pandemic has not had a material impact on our results of operations. However, we are conducting business with substantial modifications to employee travel, employee work locations, and virtualization or cancellation of certain business activities, among other modifications. If these or other similar measures were to increase or continue for an extended period, we could experience employee absenteeism, decreased efficiency and productivity by our workforce and other similar impacts that could jeopardize our ability to sustain operations and satisfy compliance requirements and could result in higher operating costs. We also have observed other companies, including our current and prospective counterparties, customers and partners, as well as many governments, including our regulators and other governing bodies that affect our businesses, taking precautionary, preemptive and responsive actions to address the effects of the COVID-19 pandemic, and they may take further actions that alter their normal operations. These actions by third

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parties could materially impact our operations, results, liquidity and ability to pursue capital projects and strategic initiatives. For example, the CPUC has required that all energy companies under its jurisdiction take action to implement several emergency customer protection measures to support California customers. The measures currently apply to all residential and small business customers affected by the COVID-19 pandemic and include suspending service disconnections due to nonpayment, waiving late payment fees, and offering flexible payment plans for customers experiencing difficulty paying their electric or gas bills. These actions have resulted in a reduction in payments received from our customers and an increase in uncollectible accounts, which could become material, and any inability to recover these costs could have a material adverse effect on the cash flows, financial condition and results of operations for Sempra, SDG&E and SoCalGas. As another example, our final investment decision on Phase 1 of the proposed ECA LNG Holdings B.V. (“ECA LNG JV”) natural gas liquefaction project, which was made in the fourth quarter of 2020, was delayed due in part to the closure of non-essential activities in Mexico in response to the COVID-19 pandemic, which hindered our ability to obtain an export permit from the Mexican government that was necessary for the project to proceed. If this or other projects under development are further delayed due to continuing or worsening conditions caused by the COVID-19 pandemic or other related factors, the performance and prospects of our LNG export business could be materially adversely affected.

In addition, the economic slowdown caused by the COVID-19 pandemic and the current uncertainty in the global oil and gas markets, or a combination of these factors, have contributed to the delay of our projected final investment decision on our proposed Port Arthur LNG liquefaction export project from 2020 to 2021. These conditions, as well as potential disruptions of construction and development activity if our project counterparties implement or are required to implement stay-at-home or limited workforce measures in response to the pandemic, could result in substantial further delays of our LNG and other projects currently under development.

Although Sempra, SDG&E and SoCalGas are not currently constrained in their ability to borrow money at reasonable rates, these circumstances could change if the COVID-19 pandemic worsens or continues for an extended period and adversely affects conditions in the capital markets, which could have a material negative effect on our liquidity, results of operations, strategic initiatives and prospects. To date, the COVID-19 pandemic has resulted in a slowdown of certain of our capital spending, which could worsen if conditions deteriorate or fail to improve in the near term and which could have a material adverse effect on Sempra’s, SDG&E’s and SoCalGas’ results of operations and prospects.

We will continue to actively monitor the effects of the COVID-19 pandemic and may take further actions that alter our business operations as may be required by federal, state or local authorities, or that we determine are in the best interests of our employees, customers, partners and suppliers. However, we cannot at this time predict the extent to which the COVID-19 pandemic will further impact our liquidity, financial condition, results of operations and prospects.

Severe weather conditions, natural disasters, pandemics, accidents, equipment failures, explosions or acts of terrorism could materially adversely affect our businesses, financial condition, results of operations, cash flows and/or prospects.

Like other capital intensive businesses, our facilities and infrastructure may be damaged by severe weather conditions and natural disasters such as fires, earthquakes, tornadoes, hurricanes, other storms, tsunamis, heat waves, rising sea levels, floods, mudslides, drought, solar events and electromagnetic events; pandemics; accidents; equipment failures; explosions; or acts of terrorism, vandalism, war or criminality. Because we are in the business of using, storing, transporting and disposing of highly flammable and explosive materials, as well as radioactive materials, and operating highly energized equipment, the risks such incidents may pose to our facilities and infrastructure, as well as the risks to the surrounding communities for which we could be held responsible, are substantially greater than the risks such incidents may pose to a typical business. The facilities and infrastructure that we own or in which we have interests that may be subject to such incidents include, among others:

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Such incidents could result in severe business disruptions; prolonged power outages; property damage, injuries or loss of life for which our businesses could be liable; significant decreases in revenues and earnings; and/or other significant additional costs to us, including as a result of higher maintenance costs or restoration expenses, amounts to compensate third parties, and regulatory fines, penalties and disallowances. For our regulated utilities, these liabilities or increased costs may not be recoverable in rates. Such incidents that do not directly affect our facilities may impact our business partners, supply chains and transportation, which could negatively impact construction projects and our ability to provide natural gas and electricity to our customers. Moreover, weather-related incidents have become more prevalent, unpredictable and severe as a result of climate change or other factors, and we are currently in the midst of a severe global pandemic, any of which could have a greater impact on our businesses than is currently anticipated and, for our regulated utilities, rates may not be adequately or timely adjusted to reflect any such increased impact. Any such incident could have a material adverse effect on our businesses, financial condition, results of operations, cash flows and/or prospects.

Depending on the nature and location of the facilities and infrastructure affected, any such incident also could cause catastrophic fires; natural gas, natural gas odorant, propane or ethane leaks; releases of other greenhouse gas (“GHG”); radioactive releases; explosions, spills or other significant damage to natural resources or property belonging to third parties; or personal injuries, health impacts or fatalities, or could present a nuisance to impacted communities. Any of these consequences could lead to significant claims against us. In some cases, we may be liable for damages even though we are not at fault, such as in cases in which the doctrine of inverse condemnation applies. We discuss how the application of this doctrine in California imposes strict liability on an electric utility whose equipment is determined to be a cause of a fire (meaning the utility may be found liable regardless of fault) below under “—Risks Related to the California Utilities—Operational Risks.” Insurance coverage may significantly increase in cost or become prohibitively expensive, may be disputed by the insurers, or may become unavailable for certain of these risks or at sufficient levels, and any insurance proceeds we receive may be insufficient to cover our losses or liabilities due to the existence of limitations, exclusions, high deductibles, failure to comply with procedural requirements, and other factors, which could materially adversely affect our businesses, financial condition, results of operations, cash flows and/or prospects, as well as the trading prices of our common stock, preferred stock and debt securities.

The operation of our facilities depends on good labor relations with our employees.

Several of our businesses have entered into and have in place collective bargaining agreements with different labor unions. Our collective bargaining agreements are generally negotiated on a company-by-company basis. Any failure to reach an agreement on new labor contracts or to negotiate these labor contracts might result in strikes, boycotts or other labor disruptions. Labor disruptions, strikes or significant negotiated wage and benefit increases, whether due to union activities, employee turnover or otherwise, could have a material adverse effect on our businesses, results of operations and/or cash flows.

In addition to general information risks and cyber risks that all large corporations face (e.g. malware, general cyber- or phishing-attacks by outsiders, malicious intent by insiders and inadvertent disclosure of sensitive information), we face evolving cybersecurity risks associated with protecting sensitive and confidential customer and employee information, smart grid infrastructure, and natural gas pipeline and storage infrastructure.

In the ordinary course of business, Sempra and its subsidiaries collect and retain sensitive information, including personal identification information about customers and employees, customer energy usage and other

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information, and our operations rely on complex, interconnected networks of generation, transmission, distribution, storage, control, and communication technologies and systems. Existing business technologies and the deployment of new business technologies represent a large-scale opportunity for attacks on or other failures to protect our information systems and confidential information, as well as on the integrity of the energy grid and our natural gas infrastructure. In particular, various private and public entities have noted that cyber- and other attacks targeting utility systems and other energy infrastructures are increasing in sophistication, magnitude, and frequency. Additionally, the California Utilities are increasingly required to disclose large amounts of data (including customer energy usage and personal information regarding customers) to support changes to California’s electricity market related to grid modernization and customer choice, increasing the risks of inadvertent disclosure or other unauthorized access of sensitive information. Further, the virtualization of many business activities as a result of the COVID-19 pandemic increases cyber risk, and there generally has been an associated increase in targeted cyber-attacks. Moreover, all of our businesses operating in California are subject to enhanced state privacy laws that have recently taken effect, which require companies that collect information on California residents to, among other things, make new disclosures to consumers about their data collection, use and sharing practices, allow consumers to opt out of certain data sharing with third parties and provide a new cause of action for breaches of certain highly sensitive categories of personal information resulting from a failure to reasonably secure them, and other states in which we do business could adopt similar laws in the future.

Addressing cyber risks is the subject of significant ongoing activities across Sempra’s businesses, including investing in risk management and information security measures to try to protect our systems and information. The cost and operational consequences of implementing, maintaining and enhancing system protection measures are significant, and they could materially increase to address increasingly intense, complex and sophisticated cyber risks. Despite our efforts, our businesses are not fully insulated from cyber-attacks or system disruptions. In addition, we often rely on third-party vendors to deploy new business technologies and maintain, modify and update our systems, including systems that manage sensitive information, and these third parties could fail to establish adequate risk management and information security measures with respect to these systems. Any attack on our information systems, the integrity of the energy grid, our pipelines and distribution and storage infrastructure or one of our facilities, or unauthorized access, damage or improper disclosure of confidential customer or employee information or other sensitive data, could result in energy delivery service failures, financial and reputational loss, violations of privacy laws, fines or penalties, customer dissatisfaction and litigation, any of which could in turn have a material adverse effect on our businesses, cash flows, financial condition, results of operations and/or prospects. Although Sempra currently maintains cyber liability insurance, this insurance is limited in scope and subject to exceptions, conditions and coverage limitations and may not cover any or even a substantial portion of the costs associated with the consequences of any compromise of our information systems or confidential information, and there is no guarantee that the insurance we currently maintain will continue to be available at rates that we believe are commercially reasonable.

Further, as seen with recent cyber-attacks around the world, the goal of a cyber-attack may be primarily to inflict large-scale harm on a company and the places where it operates. Any such cyber-attack could cause widespread destruction of or disruption to our operating, financial and administrative systems that could materially adversely affect our business operations and the integrity of the power grid, our pipelines and distribution and storage infrastructure or one of our related facilities, negatively impact our ability to produce accurate and timely financial statements or comply with ongoing disclosure obligations or other regulatory requirements, and/or release confidential information about our company and our customers, employees and other constituents, any of which could lead to sanctions or negatively affect the general perception of our business in the financial markets and which could have a material adverse effect on our businesses, cash flows, financial condition, results of operations and/or prospects.

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Financial Risks

The substantial debt service obligations of Sempra, SDG&E and SoCalGas from their respective consolidated indebtedness could have a material adverse effect on our results of operations, cash flows, financial condition and/or prospects, and with respect to Sempra, could require additional equity securities issuances.

The substantial debt service obligations of Sempra, SDG&E and SoCalGas from their respective consolidated indebtedness could have a material adverse effect on our results of operations, cash flows, financial condition and/or prospects by, among other things:

Sempra is committed to maintaining its credit ratings at investment grade. To maintain these credit ratings, we may reduce the amount of our outstanding indebtedness with the proceeds from the issuance of additional shares of common or preferred stock. Additional equity issuances may dilute the voting rights and economic interests of existing holders of Sempra’s common and preferred stock. There is no assurance that, should we elect to do so, we would be able to issue additional shares of Sempra’s common or preferred stock with terms that we consider acceptable or at all or reduce the amount of our outstanding indebtedness to a level that allows us to maintain our investment grade credit ratings, which may have a material adverse effect on Sempra’s cash flows, financial condition, results of operations and/or prospects.

The availability and cost of debt or equity financing could be adversely affected by conditions in the financial markets and economic conditions generally, as well as other factors, and any such negative effects could materially adversely affect us.

Our businesses are capital intensive and we rely on long-term debt to fund a significant portion of our capital expenditures and repay outstanding debt, and on short-term borrowings to fund a significant portion of day-to-day business operations. Sempra may also seek to raise capital by issuing additional equity.

Limitations on the availability of credit, increases in interest rates or credit spreads or other negative effects on the terms of any debt or equity financing we may pursue could materially adversely affect our businesses, cash flows, results of operations, financial condition and/or prospects, as well as our ability to meet contractual and other commitments. In difficult market environments, we may find it necessary to fund our operations and capital expenditures at a higher cost or we may be unable to raise as much funding as we need to support new or ongoing business activities. This could cause us to reduce non-safety related capital expenditures and could increase our cost of servicing debt, both of which could significantly reduce our short-term and long-term profitability.

Other factors can affect the availability and cost of capital for our businesses in addition to the terms of debt and equity financing, including, among others:

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We are subject to additional risks due to uncertainty relating to the calculation of LIBOR and its scheduled discontinuance.

Certain of our financial and commercial agreements, including variable rate indebtedness and credit facilities, as well as interest rate derivatives, incorporate the London Interbank Offered Rate (“LIBOR”) as a benchmark for establishing certain rates. The Financial Conduct Authority in the United Kingdom, which regulates LIBOR, has emphasized the need for market participants to transition away from LIBOR before the end of 2021. Based on this and other similar announcements, it appears highly likely that LIBOR will be discontinued, modified or replaced with a different benchmark rate after 2021. This could cause LIBOR to perform differently than it has performed historically pending any discontinuance or modification and after any modification. In addition, although the Secured Overnight Financing Rate (“SOFR”) has been identified as a likely replacement benchmark rate, a number of other alternatives to LIBOR also have been proposed or are being developed and it is not certain which, if any, will be adopted. Any of these alternatives may result in interest payments that are higher than expected or that do not otherwise correlate over time with the payments that would have been made on such indebtedness if the applicable LIBOR rate was available in its current form. For example, SOFR is a relatively new market index and as the related market continues to develop, the performance and characteristics of this potential alternative rate could materially deviate from those of LIBOR in its current form. Changes to or the discontinuance of LIBOR, any further uncertainty regarding the implementation of such changes or discontinuance, and uncertainties regarding potential alternative benchmark rates and their performance and characteristics, could have a material adverse effect on the value and cost of our variable rate indebtedness and/or borrowings, the effectiveness of our cash flow hedges and the cost of doing business under our commercial agreements that incorporate LIBOR, and could require us to seek to amend the terms of the relevant indebtedness or agreements, which may be on terms materially worse than existing terms. The occurrence of any of these risks could have a material adverse effect on our financial condition, cash flows and/or results of operations.

Certain credit rating agencies may downgrade our credit ratings or place those ratings on negative outlook.

Credit rating agencies routinely evaluate Sempra and the California Utilities, and their ratings are based on a number of factors, including the increased risk of wildfires in California; perceived supportiveness of the regulatory environment affecting utility operations, including delays and difficulties in obtaining recovery, or the denial of recovery, for wildfire-related costs; the deterioration of or uncertainty in the political or regulatory environment for local natural gas distribution companies operating in California; ability to generate cash flows; level of indebtedness; overall financial strength, including credit metrics; specific transactions or events, such as share repurchases; diversification beyond the regulated utility business (in the case of Sempra); and the status of certain capital projects, as well as other factors beyond our control, such as the state of the economy and our industry generally. Downgrades and factors causing downgrades of one or both of the California Utilities can have a material impact on Sempra’s credit ratings. Downgrades, as well as the factors causing such downgrades, of Sempra’s credit ratings can also have a material impact on the credit ratings of the California Utilities.

While the current Moody’s Investors Service, Inc. (“Moody’s”), Standard & Poor’s Global Ratings (“S&P”) and Fitch Ratings, Inc. (collectively, the “Rating Agencies”) issuer credit ratings for Sempra, SDG&E and

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SoCalGas are investment grade, some of these ratings have experienced downgrades or have been moved to negative outlook in 2020 and there is no assurance that these credit ratings will not be further downgraded. In that regard, S&P has Sempra, SDG&E and SoCalGas on negative outlook, and these negative outlooks could result in downgrades, or other negative credit rating actions could occur, at any time. We discuss these credit ratings further in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources and Liquidity” in our Annual Report and Quarterly Reports.

For Sempra, the Rating Agencies have noted that the following events, among other things, could lead to negative ratings actions:

In addition, Moody’s has indicated that Sempra’s $500 million share repurchase effected in July and August of 2020 and new $2.0 billion share repurchase program announced in August 2020 are credit negative.

For SDG&E, the Rating Agencies have noted that the following events, among other things, could lead to negative ratings actions:

For SoCalGas, the Rating Agencies have noted that the following events, among other things, could lead to negative ratings actions:

A downgrade of Sempra’s or either of the California Utilities’ credit ratings or ratings outlooks, as well as the reasons for such downgrades, may materially and adversely affect the market prices of our equity and debt securities, the interest rates at which borrowings are made and debt securities and commercial paper are issued, and the various fees on credit facilities. This could make it significantly more costly for Sempra, SDG&E, SoCalGas and Sempra’s other subsidiaries to borrow money, to issue equity or debt securities and commercial paper and to raise other types of capital and/or complete additional financings, any of which could materially and adversely affect our ability to pay the principal of and interest on our debt securities and meet our other debt obligations and contractual commitments, and our cash flows, results of operations and/or financial condition.

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We cannot and do not attempt to fully hedge our assets or contract positions against changes in commodity prices, and for those contract positions that are hedged, our hedging procedures may not mitigate our risk as planned.

To reduce financial exposure related to commodity price fluctuations, we may enter into contracts to hedge our known or anticipated purchase and sale commitments, inventories of natural gas and LNG, natural gas storage and pipeline capacity and electric generation capacity. As part of this strategy, we may use forward contracts, physical purchase and sales contracts, futures, financial swaps, and options. We do not hedge the entire exposure to market price volatility of our assets or our contract positions, and the extent of the coverage to these exposures varies over time. To the extent we have unhedged positions, or if our hedging strategies do not work as planned, fluctuating commodity prices could have a material adverse effect on our results of operations, cash flows and/or financial condition. Certain of the contracts we may use for hedging purposes are subject to fair value accounting, which may result in gains or losses in earnings for those contracts. In certain cases, these gains or losses may not reflect the associated losses or gains of the underlying position being hedged.

Risk management procedures may not prevent or mitigate losses.

Although we have in place risk management and control systems to quantify and manage risk, these systems may not prevent material losses. Risk management procedures may not always be followed as intended or may not work as planned. In addition, daily value-at-risk and loss limits are primarily based on historic price movements. If prices significantly or persistently deviate from historic prices, the limits may not protect us from significant losses. As a result of these and other factors, there is no assurance that our risk management procedures and systems will prevent or mitigate losses that could materially adversely affect our results of operations, cash flows and/or financial condition.

Market performance or changes in other assumptions could require significant unplanned contributions to pension and other postretirement benefit plans.

Sempra, SDG&E and SoCalGas provide defined benefit pension plans and other postretirement benefits to eligible employees and retirees. A decline in the market value of plan assets may increase the funding requirements for these plans. In addition, the cost of providing pension and other postretirement benefits is affected by other factors, including the assumed rate of return on plan assets, mortality tables, employee demographics, discount rates used in determining future benefit obligations, rates of increase in health care costs, levels of assumed interest rates and future governmental regulation. An adverse change in any of these factors could cause a material increase in our funding obligations which could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects.

Legal and Regulatory Risks

Our businesses are subject to complex governmental regulations and tax and accounting requirements and may be materially adversely affected by these regulations or requirements or any changes to them.

The electric power and natural gas industries are subject to complex governmental regulations, and our businesses are also subject to complex accounting and tax requirements. The regulations and requirements that affect us may, from time to time, undergo significant changes on the federal, state, local and foreign levels, including in response to economic or political conditions. Compliance with these regulations and requirements, including in the event of changes to these regulations and requirements or how they are implemented or interpreted, could materially and adversely affect how we conduct our business and increase our operating costs. New tax legislation, regulations or interpretations in the United States and other countries in which we operate or do business could materially adversely affect our tax expense and/or tax balances, and changes in tax policies could materially adversely impact our business. Any failure to comply with these regulations and requirements could subject us to significant fines and penalties, including criminal penalties in some cases, and result in the temporary or permanent shutdown of certain facilities and operations. The occurrence of any of these risks could have a material adverse effect on our businesses, cash flows, financial condition, results of operations and/or prospects.

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Our operations are subject to rules relating to transactions among the California Utilities and other Sempra businesses. These rules are commonly referred to as “affiliate rules,” which primarily impact commodity and commodity-related transactions. These businesses could be materially adversely affected by changes in these rules or to their interpretations, or by additional CPUC or FERC rules that further restrict our ability to sell natural gas or electricity to, or to trade with, the California Utilities and with each other. Affiliate rules also restrict these businesses from entering into any such transactions with the California Utilities. Any such restrictions on or approval requirements for transactions among affiliates could materially adversely affect the LNG facilities, natural gas pipelines, electric generation facilities, or other operations of our subsidiaries, which could have a material adverse effect on our businesses, cash flows, financial condition, results of operations and/or prospects.

Our businesses require numerous permits, licenses, franchises, and other approvals and agreements from various federal, state, local and foreign governmental agencies, and the failure to obtain or maintain any of them could materially adversely affect our businesses, cash flows, financial condition, results of operations and/or prospects.

Our businesses and operations require numerous permits, licenses, rights-of-way, franchise agreements, certificates and other approvals and agreements from federal, state, local and foreign governmental agencies. These approvals may not be granted in a timely manner or at all or may be modified, rescinded or fail to be extended by one or more of the governmental agencies and authorities that oversee our businesses or as a result of litigation. For example, SoCalGas’ franchise agreements with the City of Los Angeles and Los Angeles County are due to expire in December 2021 and June 2023, respectively, and SDG&E’s franchise agreement with the City of San Diego was scheduled to expire in January 2021. SDG&E participated in the City’s competitive bid process for the franchises, which the City subsequently cancelled. In December 2020, the City of San Diego and SDG&E agreed to extend the natural gas and electric franchises to June 1, 2021. The additional time allows newly elected City officials to seek public input and additional information necessary to renew and conclude the process to execute new franchise agreements. Successfully obtaining, maintaining or renewing any or all of these approvals could result in higher costs or the imposition of conditions or restrictions on the manner in which we operate our businesses. Furthermore, our permits require compliance by us and may require compliance by our underlying customers. Failure by us or our customers to comply with permit, license, right-of-way or franchise requirements could result in these approvals and agreements being modified, suspended or rescinded and could subject us to significant fines and penalties. If one or more of these approvals or agreements were to be suspended, rescinded or otherwise terminated, including due to expiration, or be modified in a manner that makes our continued operation of the applicable business prohibitively expensive or otherwise undesirable or impossible, we may be required to temporarily or permanently cease certain of our operations, sell the associated assets or remove them from service, construct new assets intended to bypass the impacted area, or any combination of the foregoing, in which case we may lose a significant portion of our rate base or other revenue generating assets, our prospects may be materially adversely affected and we may incur significant impairment charges or other costs that may not be recoverable. The occurrence of any of these events could materially adversely affect our businesses financial condition, results of operations, cash flows and/or prospects.

We may invest significant amounts of money in major capital projects prior to receiving regulatory approval. If there is a delay in obtaining required regulatory approvals; if any regulatory approval is conditioned on major changes or other requirements that increase costs or impose restrictions on our existing or planned operations; if we fail to obtain or maintain required approvals or to comply with them or other applicable laws or regulations; if we are involved in litigation that adversely impacts any required approvals or rights to the applicable property; or if management decides not to proceed with a project, we may be unable to recover any or all amounts invested in that project. Any such occurrence could cause our operations and prospects to materially decline and our costs to materially increase, result in material impairments, and otherwise materially adversely affect our businesses, financial condition, results of operations, cash flows and/or prospects.

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Our businesses have significant environmental compliance costs, and future environmental compliance costs could have a material adverse effect on our cash flows and/or results of operations.

Our businesses are subject to extensive federal, state, local and foreign statutes, rules and regulations relating to environmental protection, including air quality, water quality and usage, wastewater discharge, solid waste management, hazardous waste disposal and remediation, conservation of natural resources, wetlands and wildlife, renewable energy resources, climate change and GHG emissions, among others. To comply with these legal requirements, we must spend significant amounts on environmental monitoring, pollution control equipment, mitigation costs and emissions fees, and these amounts could increase as a result of various factors that we may not control, including if these legal requirements change, permits are not issued, renewed or amended as anticipated, energy demands increase or our mix of energy supplies changes. Our regulated utilities may be materially adversely affected if these additional costs are not recoverable in rates. In addition, we may be ultimately responsible for all on-site liabilities associated with the environmental condition of our projects and properties, in each case regardless of when the liabilities arose and whether they are known or unknown, which exposes us to risks arising from contamination at our former or existing facilities or with respect to off-site waste disposal sites that have been used in our operations. In the case of our regulated utilities, some of these costs may not be recoverable in rates. Our facilities, including those of our JVs, are subject to laws and regulations that have been the subject of increased enforcement activity with respect to power generation facilities. Failure to comply with applicable environmental laws and regulations may subject our businesses to substantial penalties and fines, including criminal penalties in some cases, and/or significant curtailments of our operations, which could materially adversely affect our cash flows and/or results of operations.

Increasing international, national, regional and state-level environmental concerns as well as related new or proposed legislation and regulation may have material negative effects on our operations, operating costs and the scope and economics of proposed expansions or other capital expenditures, which could have a material adverse effect on our results of operations, cash flows and/or prospects. In particular, existing and potential state, national and international legislation and regulation relating to the control and reduction of GHG emissions may materially limit operations or otherwise materially adversely affect us. For example, California Senate Bill (“SB”) 100 requires each California electric utility, including SDG&E, to procure 50% of its annual electric energy requirements from renewable energy sources by 2026, and 60% by 2030. SB 100 also creates the policy of meeting all of California’s retail electricity supply with a mix of Renewables Portfolio Standard-eligible and zero-carbon resources by 2045. The law also includes stipulations that this policy not increase carbon emissions elsewhere in the western grid and not allow resource shuffling, and requires that the CPUC, the California Energy Commission, the California Air Resources Board (“CARB”) and other state agencies incorporate this policy into all relevant planning. In addition to signing SB 100 into law, the then-Governor of California also signed an executive order establishing a new statewide goal to achieve carbon neutrality as soon as possible, and no later than 2045, and achieve and maintain net negative emissions thereafter. The executive order calls on CARB to address this goal in future scoping plans, which affect several major sectors of California’s economy, including transportation, agriculture, development, industrial and others. California recently issued new climate initiatives in line with this statewide goal, including two executive orders requiring sales of all passenger vehicles to be zero-emission by 2035. Our California Utilities and any of our other businesses impacted by similar future laws and regulations may be materially adversely affected if these additional costs are not recoverable in rates or, with respect to our non-regulated utility businesses, if such costs are not able to be passed through to customers. Even if such costs are recoverable, the effects of existing and proposed GHG emission reduction standards may cause rates or other costs to customers to increase to levels that substantially reduce customer demand and growth, which may have a material adverse effect on the cash flows, performance, businesses and/or prospects of the California Utilities and any of our other affected businesses. SDG&E, as well as any of our other businesses affected by similar mandates in the future, may also be subject to significant penalties and fines if certain mandated renewable energy goals are not met.

In addition, existing and future laws, orders and regulations regarding mercury, nitrogen and sulfur oxides, particulates, methane or other emissions, or interpretations or revisions to these laws, orders and regulations,

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could result in requirements for additional monitoring, pollution monitoring and control equipment, safety practices, other operational changes to satisfy new mandates or emission fees, taxes or penalties, any of which could materially adversely affect our results of operations, financial condition and/or cash flows.

Our businesses, results of operations, financial condition and/or cash flows may be materially adversely affected by the outcome of litigation or other proceedings in which we are involved.

Sempra and its subsidiaries are defendants in a number of lawsuits, binding arbitrations and regulatory proceedings, including in connection with the Aliso Canyon natural gas storage facility natural gas leak that we discuss in further detail below under “—Risks Related to the California Utilities—Legal and Regulatory Risks.” We discuss material pending proceedings in Note 16 of the Notes to audited consolidated financial statements. We have spent, and continue to spend, substantial amounts of money, time and employee and management focus defending these lawsuits and proceedings and on related investigations and regulatory proceedings. The uncertainties inherent in lawsuits, arbitrations and other legal proceedings make it difficult to estimate with any degree of certainty the timing, costs and effects of resolving these matters. In addition, juries have demonstrated a willingness to grant large awards, including punitive damages, in personal injury, product liability, property damage and other claims. Accordingly, actual costs incurred may differ materially from insured or reserved amounts and may not be recoverable, in whole or in part, by insurance or in rates from our customers. Any of the foregoing could cause significant reputational damage and materially adversely affect our businesses, results of operations, financial condition and/or cash flows.

Risks Related to the California Utilities

Operational Risks

The California Utilities are subject to risks arising from the operation, maintenance and upgrade of their natural gas and electricity infrastructure and information technology systems, which, if they materialize, could materially and adversely affect Sempra’s and the California Utilities’ financial results.

The California Utilities own and operate electric transmission and distribution facilities and natural gas transmission, distribution and storage facilities, which are, in many cases, interconnected and/or managed by information technology systems. Even though the California Utilities undertake substantial capital investment projects to construct, replace, maintain, improve and upgrade these facilities and systems, there is a risk of, among other things, potential breakdown or failure of equipment or processes due to aging infrastructure and information technology systems, human error in operations or maintenance, shortages of or delays in obtaining equipment, material and labor, operational restrictions resulting from environmental requirements and governmental interventions, and performance below expected levels, and these risks could be amplified while capital investment projects are in process. Because our transmission facilities are interconnected with those of third parties, the operation of our facilities could also be adversely affected by events occurring on the systems of such third parties, some of which may be unanticipated or uncontrollable by us.

Additional risks associated with the ability of the California Utilities to safely and reliably operate, maintain, improve and upgrade their facilities and systems, many of which are beyond the California Utilities’ control, include, among others:

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The occurrence of any of these events could affect demand for natural gas or electricity, cause unplanned outages, damage the California Utilities’ assets and/or operations, damage the assets and/or operations of third parties on which the California Utilities rely, damage property owned by customers or others, and cause personal injury or death. Any such events could materially adversely affect Sempra’s and one or both of the California Utilities’ financial condition, cash flows and/or results of operations.

Wildfires in California pose a significant risk to the California Utilities’ (particularly SDG&E’s) and Sempra’s business, financial condition, results of operations and/or cash flows.

Potential for Increased and More Severe Wildfires

In 2020, California experienced some of the largest wildfires (measured by acres burned) in its history. Frequent and more severe drought conditions, inconsistent and extreme swings in precipitation, changes in vegetation caused by these precipitation swings or other factors, unseasonably warm temperatures, very low humidity and stronger winds have increased the duration of the wildfire season and the intensity and prevalence of wildfires in California, including in SDG&E’s and SoCalGas’ service territories, and have made these wildfires increasingly difficult to predict and contain. Changing weather patterns, including as a result of climate change, could cause these conditions to become even more extreme and unpredictable. These wildfires could place third-party property and the California Utilities’ electric and natural gas infrastructure in jeopardy and reduce the availability of hydroelectric generators, and these wildfires and the associated weather conditions could result in temporary power shortages in SDG&E’s and SoCalGas’ service territories. In addition, the State of California has been subject to housing shortages such that certain local land use policies and forestry management practices have been relaxed to allow for the construction and development of residential and commercial projects in high-risk fire areas that may not have the infrastructure or contingency plans necessary to address wildfire risks, which could lead to increased third-party claims and greater losses for which SDG&E or SoCalGas may be liable. We discuss the effects wildfires or other natural disasters could have on our businesses, including the ways in which they could materially adversely affect the California Utilities’ and Sempra’s business, financial condition, results of operations and/or cash flows, in this risk factor below and above under “—Risks Related to All Sempra Businesses—Operational Risks.”

The Wildfire Legislation

In July 2019, the Governor of California signed the Wildfire Legislation into law, which addresses certain important issues related to catastrophic wildfires in the State of California and their impact on electric IOUs (investor-owned gas distribution utilities such as SoCalGas are not covered by this legislation). The issues addressed include wildfire mitigation, cost recovery standards and requirements, a wildfire fund, a cap on liability, safety certifications, and the establishment of a wildfire safety board. The Wildfire Legislation did not change the doctrine of inverse condemnation, which imposes strict liability (meaning that liability is imposed regardless of fault) on a utility whose equipment, such as its electric distribution and transmission lines, is determined to be a cause of a fire. In such an event, the utility would be responsible for the costs of damages, including potential business interruption losses, as well as interest and attorneys’ fees, even if the utility has not been found negligent. The doctrine of inverse condemnation also is not exclusive of other theories of liability, including if the utility were found negligent, in which case additional liabilities, such as fire suppression, clean-up and evacuation costs, medical expenses, and personal injury, punitive and other damages, could be imposed. The Wildfire Legislation established a revised legal standard for the recovery of wildfire costs (Revised Prudent Manager Standard) and established the Wildfire Fund designed to provide liquidity to participating

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California electric IOUs to pay wildfire-related claims against a participating IOU in the event that the governmental agency responsible for determining causation determines such IOU’s equipment caused the ignition of a wildfire, primary insurance coverage is exceeded and certain other conditions are satisfied. However, the standards prescribed by the Wildfire Legislation may not be effectively implemented or applied consistently by the State of California or the Wildfire Fund could be completely exhausted due to fires in other California IOUs’ service territories, by fires in SDG&E’s service territory or by a combination thereof, which could impact our ability to timely access capital necessary to address, in whole or in part, inverse condemnation and other liabilities. Although SDG&E was not aware of any claims made against the Wildfire Fund by any participating IOU as of January 7, 2021, there is no assurance that one or more participating IOUs will not submit claims against the Wildfire Fund in connection with any past or future wildfires. As a result, we are unable to predict whether the Wildfire Legislation will be effectively implemented or consistently applied or its impact on SDG&E’s ability to recover certain costs and expenses in the event that SDG&E’s equipment is determined to be a cause of a fire, and specifically in the context of the application of inverse condemnation. If a major fire is determined to be caused by SDG&E’s equipment, or if a major fire is determined to be caused by another California electric IOU and the Wildfire Fund is depleted as a result, Sempra’s and SDG&E’s business, financial condition, results of operations and/or cash flows could be materially adversely affected.

Cost Recovery Through Insurance or Rates

We have experienced increased costs and difficulties in obtaining insurance coverage for wildfires that could be caused by the California Utilities’ operations, particularly SDG&E’s operations, and these conditions could continue or worsen. As a result of the strict liability standard applied to electric IOU-caused wildfires in California, substantial recent losses recorded by insurance companies, and the risk of an increase in the number and size of wildfires, insurance for wildfire liabilities may not be available or may be available only at rates that are prohibitively expensive. In addition, the insurance that has been obtained for wildfire liabilities and the insurance for these liabilities that may be available in the future, if any, may not be sufficient to cover all losses that we may incur, or it may not be available in sufficient amounts to meet the $1 billion of primary insurance required by the Wildfire Legislation. Uninsured losses may not be recoverable in customer rates and increases in the cost of insurance may be challenged when we seek cost recovery through the regulatory process. We are unable to predict whether we would be allowed to recover in rates or from the Wildfire Fund the costs of any uninsured losses. A loss which is not fully insured, sufficiently covered by the Wildfire Fund and/or cannot be recovered in customer rates, such as the CPUC decision denying SDG&E’s recovery of costs related to wildfires in its service territory in 2007, could materially adversely affect Sempra’s and one or both of the California Utilities’ financial condition, cash flows and/or results of operations.

Wildfire Mitigation Efforts

Although we spend significant resources on measures designed to mitigate wildfire risks, there is no assurance that these measures will be successful or effective in reducing our wildfire-related losses or that their costs will be fully recoverable in rates. The California Utilities are required by applicable California law to submit annual wildfire mitigation plans for approval by the Wildfire Safety Division of the CPUC and could be subject to increased risks if these plans are not approved in a timely manner and fines or penalties for any failure to comply with the approved plans. One of our wildfire mitigation tools is to de-energize certain of our facilities when weather conditions become extreme and there is elevated wildfire ignition risk, in an effort to help mitigate this safety risk to the public. Such “public safety power shutoffs” have been subject to significant scrutiny by various stakeholders, including customers, regulators and law makers, that could lead to legislation or rulemaking that increases the risk of penalties and liability for damages associated with these events. Such costs may not be recoverable in rates. Unrecoverable costs, adverse legislation or rulemaking, scrutiny by key stakeholders or other negative effects associated with wildfire mitigation efforts could materially adversely affect Sempra’s and SDG&E’s financial condition, cash flows and/or results of operations.

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The electricity industry is undergoing significant change, including increased deployment of distributed energy resources, technological advancements, and political and regulatory developments.

Electric utilities in California are experiencing increasing deployment of distributed energy resources, such as solar generation, energy storage, energy efficiency and demand response technologies, and California’s environmental policy objectives are accelerating the pace and scope of these industry changes. This growth of distributed energy resources will require modernization of the electric distribution grid to, among other things, accommodate increasing two-way flows of electricity and increase the grid’s capacity to interconnect distributed energy resources. Moreover, enabling California’s clean energy goals will require sustained investments in grid modernization, renewable integration projects, energy efficiency programs, energy storage options and electric vehicle infrastructure. The CPUC is conducting proceedings to: evaluate various projects and pilots; implement changes to the planning and operation of the electric distribution grid in order to prepare for higher penetration of distributed energy resources; consider future grid modernization and grid reinforcement investments; evaluate if traditional grid investments can be deferred by distributed energy resources; determine what, if any, compensation would be feasible and appropriate; and clarify the role of the electric distribution grid operator. These proceedings and the broader changes in California’s electricity industry could result in new regulations, policies and/or operational changes that could materially adversely affect SDG&E’s and Sempra’s businesses, cash flows, financial condition, results of operations and/or prospects.

SDG&E provides bundled electric procurement service through various resources that are typically procured on a long-term basis. While SDG&E currently provides such procurement service for most of its customer load, customers do have the ability to receive procurement service from a load serving entity other than SDG&E, through programs such as DA and CCA. DA is currently limited by a cap based on gigawatt hours, and CCA is only available if a customer’s local jurisdiction (city) offers such a program. Several local jurisdictions, including the City and County of San Diego and other municipalities, have implemented, are implementing or are considering implementing a CCA, which could result in SDG&E providing procurement service for less than half of its current customer load as early as 2021. When customers are served by another load serving entity, SDG&E no longer procures electricity for this departing load and the associated costs of the utility’s procured resources could then be borne by SDG&E’s remaining bundled procurement customers. Existing state law requires that customers opting to have a CCA procure their electricity must absorb the cost of above-market electricity procurement commitments already made by SDG&E on their behalf. If adequate mechanisms are not implemented to ensure compliance with state law or if state law changes, remaining bundled customers of SDG&E could potentially experience large increases in rates for commodity costs under commitments made on behalf of CCA customers prior to their departure or, if all such costs are not recoverable in rates, SDG&E could experience material increases in its unrecoverable commodity costs. If legislative, regulatory or legal action were taken that has the effect of preventing or delaying recovery of these procurement costs or if mechanisms are not in place to ensure compliance with state law, the unrecovered costs could have a material adverse effect on SDG&E’s and Sempra’s cash flows, financial condition and/or results of operations.

Natural gas and natural gas storage have increasingly been the subject of political and public scrutiny, including a desire by some to further limit or eliminate reliance on natural gas as an energy source.

Certain California legislators and stakeholder, advocacy and activist groups have expressed a desire to further limit or eliminate reliance on natural gas as an energy source by advocating increased use of renewable electricity and electrification in lieu of the use of natural gas. Certain California state agencies have recently proposed public policies that would prohibit or restrict the use and consumption of natural gas, for example in new buildings and appliances, and certain local city governments have passed ordinances restricting use of natural gas connections in newly constructed buildings. These proposals and ordinances and any other similar regulatory action could have the effect of reducing natural gas use over time. In addition, CARB, California’s primary regulator for GHG emission reduction programs, has published plans for reducing GHG emissions in line with California’s climate goals that include proposals to reduce natural gas demand, including more aggressive energy efficiency programs to reduce natural gas end use, increased renewable generation in the electric sector reducing noncore gas load, and replacement of natural gas appliances with electric appliances.

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CARB’s plans also propose that some conventional natural gas be displaced with above-market renewable natural gas, which could result in increased costs that may not be fully recoverable in rates, and CARB is currently considering updates to its GHG reduction plans, which are due to be finalized in 2022, that could further reduce natural gas demand. The CPUC has initiated an Order Instituting a Rulemaking (“OIR”) to update gas reliability standards, determine the regulatory changes necessary to improve coordination between natural gas utilities and natural gas-fired electric generators, and implement a long-term planning strategy to manage the state’s transition away from natural gas-fueled technologies to meet California’s decarbonization goals. The OIR will be conducted in two phases, the first of which is addressing reliability standards and coordination between natural gas utilities and natural gas-fired electric generators, and the second of which will implement a long-term planning strategy. A reduction or the elimination of natural gas as an energy source in California could lead to certain of SoCalGas’ and SDG&E’s gas assets no longer meeting CPUC standards to recover costs and earn an associated rate of return, thus potentially causing our substantial investment in the value of these gas assets to be depreciated on an accelerated basis or become stranded, and could otherwise have a material adverse effect on SoCalGas’, SDG&E’s and Sempra’s cash flows, financial condition and/or results of operations.

SDG&E may incur substantial costs and liabilities as a result of its partial ownership of a nuclear facility that is being decommissioned.

SDG&E has a 20% ownership interest in SONGS, formerly a 2,150-megawatt (“MW”) nuclear generating facility near San Clemente, California, that is in the process of being decommissioned by Southern California Edison Company, a subsidiary of Edison International (“Edison”), the majority owner of SONGS. SDG&E, and each of the other owners, is responsible for financing its share of expenses and capital expenditures, including decommissioning activities. Although the facility is being decommissioned, SDG&E’s ownership interest in SONGS continues to subject it to the risks of owning a partial interest in a nuclear generation facility, which include, among other things:

In addition, SDG&E maintains nuclear decommissioning trusts (“NDTs”) for providing funds to decommission SONGS. Trust assets have been generally invested in equity and debt securities, which are subject to significant market fluctuations. A decline in the market value of trust assets, an adverse change in the law regarding funding requirements for decommissioning trusts, or changes in assumptions or forecasts related to decommissioning dates, technology and the cost of labor, materials and equipment could increase the funding requirements for these trusts, which costs in each case may not be fully recoverable in rates. Furthermore, CPUC approval is required in order to make withdrawals from these trusts. CPUC approval for certain expenditures may be denied altogether if the CPUC determines that the expenditures are unreasonable. In addition, decommissioning may be materially more expensive than we currently anticipate and therefore decommissioning costs may exceed the amounts in the trust funds. Rate recovery for overruns would require CPUC approval, which may not occur.

The occurrence of any of these events could result in a substantial reduction in our expected recovery and have a material adverse effect on SDG&E’s and Sempra’s businesses, cash flows, financial condition, results of operations and/or prospects.

We discuss SONGS further in Note 15 of the audited consolidated financial statements.

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Legal and Regulatory Risks

The California Utilities are subject to extensive regulation by state, federal and local legislative and regulatory authorities, which may materially adversely affect us.

Rates and Other Capital-Related Matters

The CPUC regulates the California Utilities’ rates, except for SDG&E’s electric transmission rates which are regulated by the FERC. The CPUC also regulates, among other matters, the California Utilities’:

The CPUC periodically approves the California Utilities’ rates based on authorized capital expenditures, operating costs, including income taxes, and an authorized rate of return on investments, as well as settlements with third parties, while incorporating a risk-based decision-making framework. The outcome of ratemaking proceedings can be affected by various factors, many of which are not in our control, including, among others, the level of opposition by intervening parties; potential rate impacts; increasing levels of regulatory review; changes in the political, regulatory, or legislative environments; and the opinions of applicable regulators, consumer and other stakeholder organizations and customers about the California Utilities’ ability to provide safe, reliable, and affordable electric and gas services. These ratemaking proceedings include decisions about major programs in which SoCalGas and SDG&E make significant investments under an approved CPUC framework, but which investments remain subject to a CPUC reasonableness review that could result in the disallowance of a portion of the incurred costs. The California Utilities also may be required to incur costs and make investments to comply with legislative and regulatory requirements and initiatives, such as those relating to the development of a state-wide electric vehicle charging infrastructure, the deployment of distributed energy resources, implementation of demand response and customer energy efficiency programs, energy storage and renewable energy targets, and underground gas storage, among others. The California Utilities’ ability to recover these costs and investments depends in part on the final form of the legislative or regulatory requirements and the ratemaking mechanisms associated with them, and could also be impacted by the timing and process of the ratemaking mechanism, in which there is a potentially significant time lag between when costs are incurred and when those costs are recovered in customers’ rates and there could be potentially material differences between the forecasted or authorized costs embedded in rates (which are set on a prospective basis) and the amount of actual costs incurred. The cash flows, results of operations, financial condition and/or prospects of Sempra Energy and each of the California Utilities may be materially adversely affected by their rates, which can be impacted by, among other things:

In addition, changes in key benchmark interest rates may trigger automatic adjustment mechanisms that determine the California Utilities’ authorized rates of return. Specifically, the cost of capital adjustment

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mechanism (“CCM”) considers changes in interest rates based on the applicable 12-month average Moody’s utility bond index. If triggered, the CCM could automatically update the California Utilities’ authorized cost of debt based on actual costs and authorized return on equity up or down by one-half of the change in the applicable 12-month average Moody’s utility bond index. A trigger of the CCM could materially adversely affect the results of operations and cash flows of Sempra and the California Utilities beginning in 2022. We discuss the CCM further under “California Utilities—CPUC Cost of Capital” in Note 4 of the audited consolidated financial statements.

The FERC regulates electric transmission rates, the transmission and wholesale sales of electricity in interstate commerce, transmission access, the rates of return on investments in electric transmission assets, and other similar matters involving SDG&E. These ratemaking mechanisms are subject to many risks similar to those described above regarding the CPUC.

CPUC Authority Over Operational Matters

The CPUC has regulatory authority related to utility operations, safety standards and practices, affiliate relationships and other matters, including citation programs concerning both gas and electric matters ranging from safety activity, disconnection and billing practices, resource adequacy and environmental matters. Many of these standards and programs are becoming more and more stringent and imposing increasingly severe penalties. For example, SDG&E and SoCalGas are subject to a safety enforcement program developed by the CPUC pursuant to SB 291 that includes procedures for monitoring, data tracking and analysis, and investigations, and delegates citation authority to CPUC staff under the direction of the CPUC Executive Director. The CPUC staff has authority to issue citations up to an administrative limit of $8 million per citation under this program, and penalties issued by the CPUC under the program can exceed this administrative limit, having exceeded $1.5 billion in one instance for an unrelated third party. The CPUC conducts various reviews and audits of the matters under its authority and compliance with CPUC regulations and could determine to launch investigations or open proceedings at any time on any issue it deems appropriate, the results of which could lead to citations, disallowances, fines and penalties. Any such citations, disallowances, fines or penalties for noncompliance with any CPUC regulations, programs or standards, as well as any corrective or mitigation actions required to become in compliance if not sufficiently funded in customer rates, could have a material adverse effect on Sempra’s and the California Utilities’ results of operations, financial condition, cash flows and/or prospects. We discuss various CPUC proceedings relating to the California Utilities’ rates, costs, incentive mechanisms and performance-based regulation in Notes 4, 15 and 16 of the audited consolidated financial statements.

Influence of Other Organizations and Potential Regulatory Changes

The California Utilities and Sempra may be materially adversely affected by revisions or reinterpretations of existing or new legislation, regulations, decisions, orders or interpretations of the CPUC, the FERC or other regulatory bodies, any of which could change how the California Utilities operate, affect their ability to recover various costs through rates or adjustment mechanisms, or require them to incur substantial additional expenses.

The California Utilities are also affected by the activities of organizations such as the Public Advocates Office, The Utility Reform Network, Utility Consumers’ Action Network, Sierra Club and other stakeholder, advocacy and activist groups. To the extent that any of these groups are successful in directly or indirectly influencing the California Utilities’ operations, this could have a material adverse effect on the California Utilities’ and Sempra’s businesses, cash flows, results of operations, financial condition and/or prospects.

SoCalGas has incurred and may continue to incur significant costs, expenses and other liabilities related to the natural gas leak at its Aliso Canyon natural gas storage facility, a substantial portion of which may not be recoverable through insurance or may exceed insurance coverage.

From October 23, 2015 through February 11, 2016, SoCalGas experienced a natural gas leak from one of the injection-and-withdrawal wells, SS25, at its Aliso Canyon natural gas storage facility in Los Angeles County

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(the “Leak”). As described in “Legal Proceedings—SoCalGas—Aliso Canyon Natural Gas Storage Facility Gas Leak—Civil and Criminal Litigation” and “—Regulatory Proceedings” in Note 16 of the audited consolidated financial statements, numerous lawsuits, investigations and regulatory proceedings have been initiated in response to the Leak, resulting in significant costs.

Civil and Criminal Litigation

As of November 2, 2020, 394 lawsuits, including approximately 36,000 plaintiffs, are pending against SoCalGas related to the Leak, some of which have also named Sempra. All these cases, other than a matter brought by the Los Angeles County District Attorney and the federal securities class action discussed below, are coordinated before a single court in the Los Angeles County Superior Court (“LA Superior Court”) for pretrial management. The initial trial previously scheduled for June 2020 for a small number of randomly selected individual plaintiffs was postponed, with a new trial date to be determined by the court. For a more detailed description of the civil and criminal lawsuits brought against us, see Note 16 of the audited consolidated financial statements.

Four shareholder derivative actions are also pending alleging breach of fiduciary duties against certain officers and certain directors of Sempra and/or SoCalGas. A federal securities class action alleging violation of the federal securities laws also was filed against Sempra and certain of its officers, which the plaintiffs have appealed following dismissal by the court.

A misdemeanor criminal complaint was filed by the Los Angeles County District Attorney’s office, as to which SoCalGas entered a settlement that was approved by the LA Superior Court but is subject to appeal by certain residents.

Additional litigation, including by public entities, and criminal complaints may be filed against us related to the Leak or our responses thereto.

The costs of defending against or settling or otherwise resolving the civil and criminal lawsuits, and any compensatory, statutory or punitive damages, restitution, and civil, administrative and criminal fines, penalties and other costs, if awarded or imposed, as well as the costs of mitigating the actual natural gas released, could be significant. We discuss these risks further above under “—Risks Related to All Sempra Businesses—Legal and Regulatory Risks” and in this risk factor below under “Insurance and Estimated Costs.”

Governmental Investigations, Orders and Additional Regulation

In January 2016, California Geologic Energy Management Division (“CalGEM”) and the CPUC selected Blade Energy Partners (“Blade”) to conduct, under their supervision, an independent analysis of the technical root cause of the Leak, to be funded by SoCalGas. The root cause analysis was released in May 2019 and did not identify any instances of non-compliance by SoCalGas and concluded that SoCalGas’ compliance activities conducted prior to the Leak did not find indications of a casing integrity issue, but also opined that there were measures, though not required by gas storage regulations at the time, that could have been taken to aid in the early identification of corrosion and that, in Blade’s opinion, would have prevented or mitigated the Leak.

In June 2019, the CPUC opened an Order Instituting Investigation (“OII”) to consider penalties against SoCalGas for the Leak. The first phase will consider whether SoCalGas violated applicable laws, CPUC orders or decisions, rules or requirements, whether SoCalGas engaged in unreasonable and/or imprudent practices with respect to its operation and maintenance of the Aliso Canyon natural gas storage facility or its related record-keeping practices, whether SoCalGas cooperated sufficiently with the Safety Enforcement Division (“SED”) and Blade during the pre-formal investigation, and whether any of the mitigation proposed by Blade should be implemented to the extent not already done. In November 2019, SED, based largely on the Blade report, alleged a total of 330 violations, asserting that SoCalGas violated California Public Utilities Code Section 451 and failed

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to cooperate in the investigation and to keep proper records. We expect hearings in the first phase of the OII to begin in the first quarter of 2021. The second phase will consider whether SoCalGas should be sanctioned for the Leak and what damages, fines or other penalties or sanctions, if any, should be imposed for any violations, unreasonable or imprudent practices, or failure to sufficiently cooperate with the SED as determined by the CPUC in the first phase. In addition, the second phase will determine the amounts of various costs incurred by SoCalGas and other parties in connection with the Leak and the ratemaking treatment or other disposition of such costs, which could result in little or no recovery of such costs by SoCalGas. SoCalGas is engaged in settlement discussions in connection with this proceeding.

Higher operating costs and additional capital expenditures incurred by SoCalGas as a result of these investigations or new laws, orders, rules and regulations arising out of this incident or our responses thereto could be significant and may not be recoverable through insurance or in customer rates. In addition, any of these investigations could result in findings of violations of laws, orders, rules or regulations as well as fines and penalties, any of which could cause significant reputational damage. The occurrence of any of these risks could materially adversely affect SoCalGas’ and Sempra’s cash flows, financial condition and/or results of operations.

Natural Gas Storage Operations and Reliability

Natural gas withdrawn from storage is important for service reliability during peak demand periods, including peak electric generation needs in the summer and heating needs in the winter. The Aliso Canyon natural gas storage facility is the largest SoCalGas storage facility and an important element of SoCalGas’ delivery system. As a result of the Leak, SoCalGas suspended injection of natural gas into the Aliso Canyon natural gas storage facility beginning in October 2015 and, following a comprehensive safety review and authorization by CalGEM and the CPUC’s Executive Director, resumed limited injection operations in July 2017. In February 2017, the CPUC opened a proceeding pursuant to SB 380 to determine the feasibility of minimizing or eliminating the use of the Aliso Canyon natural gas storage facility while still maintaining energy and electric reliability for the region. The CPUC is scheduled to issue its report on these matters by March 31, 2021, with another phase of the proceeding, in which alternative means will be considered for meeting or avoiding the demand for the facility’s services if it were eliminated, to follow.

If the Aliso Canyon natural gas storage facility were to be permanently closed, or if future cash flows from its operation were otherwise insufficient to recover its carrying value, it could result in an impairment of the facility and significantly higher than expected operating costs and/or additional capital expenditures, and natural gas reliability and electric generation could be jeopardized. At September 30, 2020, the Aliso Canyon natural gas storage facility had a net book value of $788 million. Any significant impairment of this asset, or higher operating costs and additional capital expenditures incurred by SoCalGas that may not be recoverable in customer rates, could have a material adverse effect on SoCalGas’ and Sempra’s results of operations, financial condition and/or cash flows.

Insurance and Estimated Costs

At September 30, 2020, SoCalGas estimates certain costs related to the Leak are $1,440 million (the cost estimate), which includes the $1,279 million of costs recovered or probable of recovery from insurance. This cost estimate may increase significantly as more information becomes available. A substantial portion of the cost estimate has been paid, and $268 million is accrued as Reserve for Aliso Canyon Costs and $7 million is accrued in Deferred Credits and Other as of September 30, 2020 on SoCalGas’ and Sempra’s Condensed Consolidated Balance Sheets.

The actions against us related to the Leak as described in this risk factor above under “—Civil and Criminal Litigation” seek compensatory, statutory and punitive damages, restitution, and civil, administrative and criminal fines, penalties and other costs. In addition, we could be subject to damages, fines, or other penalties or sanctions as a result of the investigations and other matters described in this risk factor above under “Governmental

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Investigations, Orders and Additional Regulation.” Except for the amounts paid or estimated to settle certain actions, as described in this risk factor above under “Civil and Criminal Litigation,” the cost estimate does not include all litigation, regulatory proceedings or regulatory costs to the extent it is not possible to predict at this time the outcome of these actions or reasonably estimate the costs to defend or resolve the actions or the amount of damages, restitution, or civil, administrative or criminal fines, sanctions, penalties or other costs or remedies that may be imposed or incurred. The cost estimate also does not include certain other costs incurred by Sempra associated with defending against shareholder derivative lawsuits and other potential costs that we currently do not anticipate incurring or that we cannot reasonably estimate. These costs not included in the cost estimate could be significant and could have a material adverse effect on SoCalGas’ and Sempra’s cash flows, financial condition and results of operations.

We have received insurance payments for many of the costs included in the cost estimate, and we intend to pursue the full extent of our insurance coverage for all other costs we have incurred or may incur. Other than directors’ and officers’ liability insurance, we have exhausted all of our insurance in this matter, except as to certain defense costs we may incur in the future, including those related to the shareholder derivative lawsuits. We continue to pursue other sources of insurance coverage for costs related to this matter, but we may not be successful in obtaining additional insurance recovery for any of these costs. If we are not able to secure additional insurance recovery for all or a substantial portion of these costs, if any costs we have recorded as an insurance receivable are not collected, if there are delays in receiving insurance recoveries, or if the insurance recoveries are subject to income taxes while the associated costs are not tax deductible, such amounts, which could be significant, could have a material adverse effect on SoCalGas’ and Sempra’s cash flows, financial condition and results of operations.

Additional Information

We discuss Aliso Canyon natural gas storage facility matters further in Note 16 of the audited consolidated financial statements.

The failure by the CPUC to adequately reform SDG&E’s rate structure, including the implementation of charges independent of consumption volume and measures to reduce net energy metering rate subsidies, could have a material adverse effect on SDG&E’s and Sempra’s business, cash flows, financial condition, results of operations and/or prospects.

The net energy metering (“NEM”) program is an electric billing tariff mechanism designed to promote the installation of on-site renewable generation (primarily solar installations) for residential and business customers. Under NEM, qualifying customer-generators receive a full retail rate for the energy they generate that is fed to the utility’s power grid. This occurs during times when the customer’s generation exceeds their own energy usage. Under this structure, NEM customers do not pay their proportionate share of the cost of maintaining and operating the electric transmission and distribution system, subject to certain exceptions, while they still receive electricity from the system when their self-generation is inadequate to meet their electricity needs. The unpaid NEM costs are subsidized by customers not participating in NEM. Accordingly, as more electric-use customers and higher electric-use residential customers switch to NEM and self-generate energy, the burden on the remaining customers increases, which in turn encourages more self-generation, further increasing rate pressure on existing non-NEM customers.

The current electric residential rate structure in California is primarily based on consumption volume, which places a higher rate burden on customers with higher electric use while subsidizing lower use customers. In July 2015, the CPUC adopted a decision that provided a framework for rates that could be more transparent, fair and sustainable. The framework provides for a minimum monthly bill, fewer rate tiers and a gradual reduction in the differences between the tiered rates, and directs the utilities to pursue expanded time-of-use rates. Most elements of the framework were implemented in 2020 and should result in some relief for higher-use customers and a rate

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structure that better aligns rates with actual costs to serve customers. The decision also established a process for electric utilities to seek implementation of a fixed charge for residential customers, subject to certain conditions; however, in March 2020, the CPUC adopted a decision rejecting electric utilities’ requests to establish a fixed residential charge, citing concerns about the potential for customer backlash. The decision allows the utilities to renew their requests for a fixed charge at a later date if such proposals include an adequate customer outreach and communications plan. In August 2020, the CPUC initiated a rulemaking to further develop a successor to the existing NEM tariff. A decision establishing a successor tariff is expected to be issued in the fourth quarter of 2021, with implementation of the successor tariff by January 2022. Depending on the structure and functionality of such a successor tariff, which is uncertain, the current risks associated with the existing NEM tariff could continue or increase.

SDG&E believes the establishment of a charge independent of consumption volume for residential customers is critical to help ensure rates are distributed among all customers that rely on the electric transmission and distribution system, including those participating in the NEM program. In addition, distributed energy resources and energy efficiency initiatives could generally reduce delivered volumes, increasing the importance of a fixed charge. The absence of a charge independent of consumption volume coupled with the continuing increase of solar installation and other forms of self-generation could adversely impact electricity rates and the reliability of the electric transmission and distribution system, which could subject SDG&E to higher levels of customer dissatisfaction, increased likelihood of noncompliance with CPUC or other safety or operational standards, and increased risks attendant to any such noncompliance as we discuss above under “—Risks Related to the California Utilities—Legal and Regulatory Risks,” and also could increase SDG&E’s costs, including power procurement costs, operating or capital costs, and increase the likelihood of disallowance of recovery for these costs.

If the CPUC fails to adequately reform SDG&E’s rate structure to better achieve reasonable, cost-based electric rates that are competitive with alternative sources of power and adequate to maintain the reliability of the electric transmission and distribution system, such failure could have a material adverse effect on SDG&E’s and Sempra’s business, cash flows, financial condition, results of operations and/or prospects.

Risks Related to Our Interest in Oncor

Certain ring-fencing measures, governance mechanisms and commitments limit our ability to influence the management and policies of Oncor.

Various “ring-fencing” measures are in place to enhance Oncor’s separateness from its owners and to mitigate the risk that Oncor would be negatively impacted in the event of a bankruptcy or other adverse financial developments affecting its owners. This ring-fence creates both legal and financial separation between Oncor Holdings, Oncor and their subsidiaries, on the one hand, and Sempra and its affiliates and subsidiaries, on the other hand.

In accordance with the ring-fencing measures, governance mechanisms and commitments we made in connection with the merger of Energy Future Holdings Corp. (“EFH”) with an indirect subsidiary of Sempra, with EFH continuing as the surviving company and as an indirect, wholly owned subsidiary of Sempra (the “Merger”), we and Oncor are subject to various restrictions, including, among others:

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As a result, we do not control Oncor Holdings or Oncor, and we have limited ability to direct the management, policies and operations of Oncor Holdings and Oncor, including the deployment or disposition of their assets, declarations of dividends, strategic planning and other important corporate issues and actions. We have limited representation on the Oncor Holdings and Oncor boards of directors, which are each controlled by independent directors. Moreover, all directors of Oncor, including those directors we have appointed, have considerable autonomy and, as described in our commitments, have a duty to act in the best interest of Oncor consistent with the approved ring-fence and Delaware law, which may in certain cases be contrary to our best interests or be in opposition to our preferred strategic direction for Oncor. To the extent that the directors approve or Oncor otherwise pursues actions that are not in our interests, the financial condition, results of operations, cash flows and/or prospects of Sempra may be materially adversely affected.

If Oncor fails to respond to changes in the electric utility industry, including changes in regulation, its results of operations and/or financial condition could be adversely affected, and this could materially adversely affect us.

Oncor operates in the electric utility sector and is regulated by U.S., Texas and regional and local authorities. As a result, it is subject to many of the same or similar risks as our California Utilities as we describe above under “Risks Related to the California Utilities.” For example, Oncor has been and will continue to be affected by legislative and regulatory requirements. The costs and burdens associated with complying with these requirements and adjusting Oncor’s business and operations in response to legislative and regulatory developments, and any fines or penalties that could result from any noncompliance, may have a material adverse effect on Oncor. Moreover, potential legislative, regulatory or other market or industry changes may jeopardize the predictability of utility earnings generally. If Oncor does not successfully respond to these changes, it could suffer a deterioration in its results of operations, financial condition, cash flows and/or prospects, which could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.

Oncor’s operations are capital intensive and it could have liquidity needs that necessitate additional investments in Oncor.

Oncor’s business is capital intensive, and it relies on external financing as a significant source of liquidity for its capital requirements. In the past, Oncor has financed a substantial portion of its cash needs from operations

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and with proceeds from indebtedness, but these sources of capital may not be adequate in the future. Our commitments to the PUCT prohibit us from making loans to Oncor. As a result, if Oncor fails to meet its capital requirements or if Oncor is unable to access sufficient capital to finance its ongoing needs, we may elect to make additional capital contributions to Oncor. Any such investments could be substantial and would reduce the cash available to us for other purposes, could increase our indebtedness and could ultimately materially adversely affect our results of operations, cash flows, financial condition and/or prospects.

Sempra could incur substantial tax liabilities if EFH’s 2016 spin-off of Vistra from EFH is deemed to be taxable.

As part of its ongoing bankruptcy proceedings, in 2016, EFH distributed all the outstanding shares of common stock of its subsidiary Vistra Energy Corp. (formerly TCEH Corp. and referred to herein as “Vistra”) to certain creditors of TCEH LLC (the “spin-off”), and Vistra became an independent, publicly traded company. Vistra’s spin-off from EFH was intended to qualify for partially tax-free treatment to EFH and its shareholders under Sections 368(a)(1)(G), 355 and 356 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) (collectively referred to as the “Intended Tax Treatment”). In connection with and as a condition to the spin-off, EFH received a private letter ruling from the U.S. Internal Revenue Service (the “IRS”) regarding certain issues relating to the Intended Tax Treatment of the spin-off, as well as tax opinions from counsel to EFH and Vistra regarding certain aspects of the spin-off not covered by the private letter ruling.

In connection with the signing and closing of the Merger, EFH sought and received a supplemental private letter ruling from the IRS and Sempra and EFH received tax opinions from their respective counsels that generally provide that the Merger will not affect the conclusions reached in, respectively, the IRS private letter ruling and tax opinions issued with respect to the spin-off described above. Similar to the IRS private letter ruling and opinions issued with respect to the spin-off, the supplemental private letter ruling is generally binding on the IRS and any opinions issued with respect to the Merger are based on factual representations and assumptions, as well as certain undertakings, made by Sempra and EFH, now Sempra Texas Holdings Corp. and a subsidiary of Sempra. If such representations and assumptions are untrue or incomplete, any such undertakings are not complied with, or the facts upon which the IRS supplemental private letter ruling or tax opinions (which will not impact the IRS position on the transactions) are based are different from the actual facts relating to the Merger, the tax opinions and/or supplemental private letter ruling may not be valid and as a result, could be challenged by the IRS. Even though Sempra Texas Holdings Corp. would have administrative appeal rights if the IRS were to invalidate its private letter ruling and/or supplemental private letter ruling, including the right to challenge any adverse IRS position in court, any such appeal would be subject to significant uncertainties and could fail. If it is ultimately determined that the Merger caused the spin-off not to qualify for the Intended Tax Treatment, Sempra, through its ownership of Sempra Texas Holdings Corp., could incur substantial tax liabilities, which would materially reduce and potentially eliminate the value associated with our indirect investment in Oncor and could have a material adverse effect on the results of operations, financial condition and/or prospects of Sempra and on the market value of our common stock, preferred stock and debt securities.

Risks Related to Our Businesses Other Than the California Utilities and Our Interest in Oncor

Operational Risks

Project development activities may not be successful and projects under construction may not commence operation as scheduled, be completed within budget or operate at expected levels, which could have a material adverse effect on our businesses, financial condition, cash flows, results of operations and/or prospects.

All Energy Infrastructure Projects

We are involved in a number of energy infrastructure projects, including natural gas liquefaction facilities (including our interest in Cameron LNG JV’s Phase 1 project, which operates a three-train liquefaction facility that reached full commercial operations in August 2020, and our evaluation of four other potential LNG export development opportunities discussed further below); marine and inland ethane and liquid fuels and LPG

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terminals and storage; natural gas, propane and ethane pipelines and distribution and storage facilities; electric generation, transmission and distribution infrastructure; and other projects. The acquisition, development, construction and expansion of these projects involve numerous risks.

We may be required to spend significant sums for preliminary engineering, permitting, fuel supply, resource exploration, infrastructure development, legal and other expenses before we can determine whether a project is feasible, economically attractive, or capable of being built. If the project is not completed, we may have to impair or write off amounts that we have invested in project development and never receive any return on these preliminary investments.

Success in developing a project is contingent upon, among other things:

Any failures with respect to the above factors or other factors material to any particular project could involve significant additional costs to us and otherwise materially adversely affect the successful completion of a project. If we are unable to complete a development project, if we experience substantial delays, or if construction, financing or other project costs exceed our estimated budgets and we are required to make additional capital contributions, our businesses, financial condition, cash flows, results of operations and/or prospects could be materially adversely affected.

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The operation of existing facilities, such as Cameron LNG JV’s Phase 1 facility, and any future projects we are able to complete involves many risks, including, among others, the potential for unforeseen design flaws, engineering challenges, equipment failures or the breakdown for other reasons of liquefaction, regasification and storage facilities, electric generation, transmission and distribution infrastructure or other equipment or processes; labor disputes; fuel interruption; environmental contamination; and operating performance below expected levels. In addition, weather-related incidents and other natural disasters, pandemics, cyber- or other attacks by third parties and other similar events can disrupt liquefaction, generation, regasification, storage, transmission and distribution systems and have other impacts that we discuss above under “—Risks Related to All Sempra Businesses—Operational Risks.” The occurrence of any of these events could lead to our facilities being idle for an extended period of time or our facilities operating below expected capacity levels, which may result in lost revenues or increased expenses, including higher maintenance costs and penalties. Any such occurrence could materially adversely affect our businesses, financial condition, cash flows, results of operations and/or prospects.

LNG Export Projects

In addition to the risks described above that are applicable to all our energy infrastructure projects, we are exposed to additional risks in connection with our LNG export projects, including Cameron LNG JV’s Phase 1 project and our potential development of four additional LNG export facilities. Sempra LNG is in discussions with the co-owners of Cameron LNG JV regarding the potential expansion of the facility in Phase 2 to include up to two additional liquefaction trains, is developing a proposed natural gas liquefaction export project near Port Arthur, Texas, and, through a JV agreement with IEnova, is developing a proposed natural gas liquefaction export project at IEnova’s existing Energía Costa Azul, S. de R.L. de C.V. regasification (“ECA LNG Regasification”) facility in Baja California, Mexico to be developed in two phases (a mid-scale project referred to as ECA LNG JV Phase 1 and a large-scale project referred to as ECA LNG JV Phase 2). These four projects are at various stages of development, and we have only reached a final investment decision with respect to one of them, ECA LNG JV Phase 1, which occurred in the fourth quarter of 2020. We discuss each of our LNG export projects further in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources and Liquidity—Sempra LNG” in our Annual Report and Quarterly Reports.

Each of these projects faces numerous risks and must overcome significant hurdles. Our ability to reach a final investment decision for each project and, if such a decision is reached and a project is completed, the overall success of the project are dependent on global energy markets, including natural gas and oil supply, demand and pricing. For example, uncertainty in energy and financial markets and volatility of oil prices in 2020 contributed to the delay of our expected timing for reaching a final investment decision in our proposed Port Arthur, Texas project from 2020 to 2021, and such delay could be extended or we could experience similar delays with respect to our other projects if conditions continue for an extended period or worsen. In general, a shift in the supply of natural gas could depress LNG prices and the cost advantages of exporting LNG from the United States. In addition, global oil prices and their associated current and forward projections could reduce the demand for natural gas in some sectors and cause a corresponding reduction in projected global demand for LNG. Such a reduction in natural gas demand could also occur from higher penetration of alternative fuels in new power generation, or as a result of calls by some to limit or eliminate reliance on natural gas as an energy source globally. Any of these developments could result in increased competition developing projects in an environment of declining LNG demand, and could negatively affect the performance and prospects of any of our projects that are or become operational. Moreover, if and as our development projects become operational, such projects could become competitive against each other, which would harm the overall success of our LNG export strategy. At certain moderate levels, oil prices could also make LNG projects in other parts of the world more feasible and competitive with LNG projects in North America, thus increasing supply and competition for the available LNG demand. A decline in natural gas prices outside the United States (which in many foreign countries are based on the price of crude oil) may also materially adversely affect the relative pricing advantage that has existed in recent years in favor of domestic natural gas (based on Henry Hub pricing), which could further decrease demand for domestic LNG and increase competition among LNG project developers.

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There are a number of potential new LNG projects in addition to ours that are under construction or in the process of development by various project developers in North America, and given the projected global demand for LNG and the inherent risks of these projects, the vast majority of these projects likely will not be completed. Our proposed projects may face distinct disadvantages relative to some of the other projects under construction or in development. For example:

In connection with certain of these LNG export development opportunities, we have entered into or may enter into Heads of Agreements, Interim Project Participation Agreements, Memorandums of Understanding and/or similar arrangements, all of which are or will be nonbinding and do not or will not obligate any of the parties to execute any definitive agreements or participate in any such opportunities. Any decisions by Sempra or our potential counterparties to proceed with a final investment decision or binding agreements with respect to the potential development (or expansion) of our proposed liquefaction export projects will require, among other things, obtaining binding customer commitments to purchase LNG, completion of project assessments and achieving other necessary internal and external approvals of each party. In addition, all our proposed LNG export projects are subject to a number of risks and uncertainties, including, among others, the receipt of a number of permits and approvals; finding suitable additional partners and customers; obtaining financing and incentives;

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negotiating and completing suitable commercial agreements, including equity acquisition and governance agreements, natural gas supply and transportation agreements, LNG sale and purchase agreements and construction contracts (including new EPC contracts for certain projects and potential renegotiation of existing EPC contracts in the event of failures to meet specified deadlines to move forward with certain projects); and, except for ECA LNG JV Phase 1, reaching a final investment decision.

There is no assurance that our contemplated LNG export facilities will be completed in accordance with estimated timelines and budgets or at all, and our inability to complete one or more of these facilities or significant delays or cost overruns could have a material adverse effect on our future cash flows, results of operations, financial condition and/or prospects, including the recoverability of all or a substantial portion of the capital costs invested in these projects to date.

Financing Arrangements

We may become involved in various financing arrangements with respect to any of our energy infrastructure projects, some of which could expose us to additional risks. For example, Sempra has provided guarantees for its share of Cameron LNG JV’s financing obligations related to its Phase 1 facility for a maximum amount of up to $4.0 billion, which terminate upon Cameron LNG JV achieving “financial completion” of the initial three-train liquefaction project, including all three trains achieving commercial operation and meeting certain operational performance tests. Although we anticipate financial completion will be achieved and the guarantees will be terminated approximately nine months after all three trains achieved commercial operation, certain weather-related events in August and September of 2020 and any further similar or other events that prevent Cameron LNG JV from completing the required operational performance tests could delay this expected timing, and any failure to achieve financial completion by September 30, 2021 would result in an event of default under Cameron LNG JV’s financing agreements and a potential demand on Sempra’s guarantees. Sempra also has provided a separate guarantee with a maximum exposure to loss of $979 million under a support agreement, dated July 28, 2020, between Sempra and Sumitomo Mitsui Banking Corporation (the “Support Agreement”) in connection with a separate financing arrangement intended to return equity to the Cameron LNG JV project owners. This guarantee terminates upon full repayment of the guaranteed debt by 2039, and the holders of the guarantee are permitted to put the $753 million of guaranteed debt to Sempra on an annual basis and upon the occurrence of certain specified events, including if the guaranteed debt is not paid in accordance with its terms, and may determine to transfer some or all of the guaranteed debt to Sempra at certain specified times. The financing agreements related to these guarantees contain events of default customary for such financings, and the occurrence of any such default could result in a demand on these guarantees. If we are required to pay some or all of the amounts under these guarantees (or, with respect to the guarantee under the Support Agreement, the guaranteed debt becomes a direct financial obligation as a result of any put or call), any such payments could have a material adverse effect on our business, results of operations, cash flows, financial condition and/or prospects.

Domestic and international hydraulic fracturing operations are subject to political, economic and other uncertainties that could increase the costs of doing business, impose additional operating restrictions or delays, and adversely affect production of LNG and reduce or eliminate LNG export opportunities and demand.

Domestic and international hydraulic fracturing operations face political and economic risks and other uncertainties. Several states have adopted or are considering adopting regulations to impose more stringent permitting, public disclosure and well construction requirements on hydraulic fracturing operations. In addition to state laws, some local municipalities have adopted or are considering adopting land use restrictions, such as city ordinances, that may restrict the performance of or prohibit well drilling in general and/or hydraulic fracturing in particular. We cannot predict whether additional federal, state, local or international laws or regulations applicable to hydraulic fracturing will be enacted in the future and, if so, what actions any such laws or regulations would require or prohibit. The incoming U.S. Administration may have a negative view of

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hydraulic fracturing practices, which could increase the risk of regulation negatively affecting these operations. If additional levels of regulation or permitting requirements were imposed on hydraulic fracturing operations, natural gas prices in North America could rise, which in turn could materially adversely affect the relative pricing advantage that has existed in recent years in favor of domestic natural gas (based on Henry Hub pricing) and impact the supply of natural gas to Cameron LNG JV’s Phase 1 project and our other LNG export projects currently in development. Increased regulation or difficulty in permitting of hydraulic fracturing, and any corresponding increase in domestic natural gas prices, could materially adversely affect demand for LNG exports and our ability to develop commercially viable LNG export facilities beyond Cameron LNG JV’s Phase 1 facility currently in operation.

When our businesses enter into fixed-price long-term contracts to provide services or commodities, they are exposed to inflationary pressures such as rising commodity prices and interest rate risks.

Sempra Mexico and Sempra LNG generally endeavor to secure long-term contracts with customers for services and commodities in an effort to optimize the use of their facilities, reduce volatility in earnings and support the construction of new infrastructure. However, if these contracts are at fixed prices, the profitability of the contract may be materially adversely affected by inflationary pressures, including rising operational costs, costs of labor, materials, equipment and commodities, rising interest rates that affect financing costs and changes in applicable exchange rates. We may try to mitigate these risks by, among other things, using variable pricing tied to market indices, anticipating an escalation in costs when bidding on projects, providing for cost escalation, providing for direct pass-through of operating costs or entering into hedges. However, these measures, if implemented, may not fully offset any increases in operating expenses and/or financing costs caused by inflationary pressures, and using these measures could introduce additional risks. The failure to fully or substantially offset these increases could have a material adverse effect on our financial condition, cash flows and/or results of operations.

Increased competition could materially adversely affect us.

The markets in which we operate are characterized by numerous strong and capable competitors, many of whom have extensive and diversified development and/or operating experience (including both domestically and internationally) and financial resources similar to or greater than ours. Further, in recent years, the natural gas pipeline, storage and LNG market segments have been characterized by strong and increasing competition both with respect to winning new development projects and acquiring existing assets. In Mexico, despite the commissioning of many new energy infrastructure projects by the CFE and other governmental agencies, competition for recent pipeline projects has been intense with numerous bidders competing aggressively for these projects. In addition, Sempra Mexico’s natural gas distribution business faces increased competition now that its former exclusivity period with respect to its distribution zones has expired and other distributors are legally permitted to build and operate natural gas distribution systems and compete to attract customers in the locations where it operates. There is no assurance that we will be successful in bidding for new development opportunities in the United States or Mexico. These competitive factors could have a material adverse effect on our business, results of operations, cash flows and/or prospects.

We may not be able to enter into, maintain, extend or replace expiring long-term supply and sales agreements or long-term firm capacity agreements for our projects.

The ECA LNG Regasification facility has long-term capacity agreements with a limited number of counterparties. Under these agreements, customers pay capacity reservation and usage fees to receive, store and regasify the customers’ LNG. We also may enter into short-term and/or long-term supply agreements to purchase LNG to be received, stored and regasified for sale to other parties. The long-term supply agreements are intended to reduce our exposure to changes in natural gas prices through corresponding natural gas sales agreements or by tying LNG supply prices to prevailing natural gas market price indices. However, the long-term nature of these agreements also exposes us to risks, including increased credit risks that we discuss below under “—Risks

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Related to Our Businesses Other Than the California Utilities and Our Interest in Oncor—Operational Risks.” In addition, in 2020, the two third-party capacity customers at the ECA LNG Regasification facility, Shell México Gas Natural, S. de R.L. de C.V. (“Shell Mexico”) and Gazprom Marketing & Trading México S. de R.L. de C.V. (“Gazprom”), asserted a breach of contract by IEnova and a force majeure event, seeking to terminate these capacity agreements and to recover damages. One of these two customers has stopped making payments under its long-term capacity agreement, has submitted a request for arbitration of the dispute and has filed a constitutional challenge related to the dispute, and although the other customer is presently making regular payments under its agreement, it has joined the arbitration proceedings related to the dispute. In addition, one of these customers has commenced legal proceedings in Mexican court seeking modification or rescission of certain material permits for the ECA LNG Regasification facility and Phase 1 of our proposed ECA LNG JV liquefaction export projects. An unfavorable decision with respect to all or any part of these challenges and proceedings, or the potential for an extended dispute, could lead to significant legal and other costs and could materially adversely affect our relationships with these long-term customers and the reliability of revenues from the ECA LNG Regasification facility and Phase 1 of our proposed ECA LNG JV liquefaction export projects. Any such event could have a material adverse effect on our financial condition, results of operations, cash flows and/or prospects.

For certain of our proposed liquefaction export projects, definitive sale and purchase agreements have been secured for some or, in the case of Phase 1 of our proposed ECA LNG JV liquefaction export projects, substantially all of the anticipated nameplate capacity of the applicable facility. These agreements contain conditions of effectiveness, including, for example, our final investment decision for the applicable project within agreed timelines. If these conditions are not satisfied or if these agreements cease to be effective for other reasons, we could be subject to significant competition in securing replacement customers for these projects and we may not be able to do so under favorable terms, in a timely manner or at all. Moreover, most of the anticipated capacity for these proposed projects is not currently subject to definitive customer agreements, and we may not be able to identify suitable customers or negotiate satisfactory sale and purchase agreements for all or any portion of this anticipated capacity in a timely manner or at all. Any such outcome could jeopardize our ability to develop these projects and receive an acceptable return on our investments in the projects, which could materially adversely affect our financial condition, results of operations, cash flows and/or prospects.

Sempra Mexico’s and Sempra LNG’s ability to enter into or replace existing long-term firm capacity agreements for their natural gas pipeline operations are dependent on demand for and supply of LNG and/or natural gas from their transportation customers, which may include our LNG export facilities. A significant sustained decrease in demand for and supply of LNG and/or natural gas from such customers could have a material adverse effect on our businesses, results of operations, cash flows and/or prospects.

The electric generation and wholesale power sales industries are highly competitive. As more plants are built, supplies of energy and related products exceed demand and competitive pressures increase, wholesale electricity prices may decline or become more volatile. Without the benefit of long-term power sales agreements, our revenues may be subject to increased price volatility, and we may be unable to sell the power that Sempra Mexico’s facilities are capable of producing or to sell it at favorable prices, which could materially adversely affect our results of operations, cash flows and/or prospects.

Our businesses depend on the performance of counterparties, including with respect to long-term supply, sales and capacity agreements, and any failure by these parties to perform could result in substantial expenses and business disruptions and exposure to commodity price risk and volatility, any of which could materially adversely affect our businesses, financial condition, cash flows, results of operations and/or prospects.

Our businesses and the businesses we invest in depend on business partners, customers, suppliers and other counterparties who owe money or commodities as a result of market transactions or other long-term agreements or arrangements to perform their obligations in accordance with such agreements or arrangements. Should they fail to perform, we may be required to enter into alternative arrangements or to honor the underlying commitment at then-current market prices. In such an event, we may incur additional losses to the extent of amounts already

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paid to such counterparties. Any efforts to enforce the terms of these agreements or arrangements through legal or other available means could involve significant time and costs and would be unpredictable and susceptible to failure. In addition, many such agreements and arrangements, including the relationships with the applicable counterparties, are important for the conduct and growth of our businesses. Further, we often extend credit to counterparties and customers and, although we perform significant credit analyses prior to extending credit, we may not be able to collect amounts owed to us. The failure of any of our counterparties to perform in accordance with their agreements or arrangements with us could materially adversely affect our businesses, results of operations, cash flows, financial condition and/or prospects.

Our long-term supply, sales and firm capacity contracts increase our credit risk if our counterparties fail to perform or become unable to meet their contractual obligations. For example, if the counterparties, customers or suppliers to one or more of the key agreements for the ECA LNG Regasification facility were to fail to perform or become unable to meet their contractual obligations on a timely basis, it could have a material adverse effect on our results of operations, cash flows and/or prospects. In addition, for Cameron LNG JV’s Phase 1 project, Cameron LNG JV has 20-year liquefaction and regasification tolling capacity agreements in place with affiliates of TOTAL SE, Mitsubishi Corporation and Mitsui & Co., Ltd. that collectively subscribe for the full nameplate capacity of the facility. If the counterparties to these tolling agreements were to fail to perform or become unable to meet their contractual obligations to Cameron LNG JV on a timely basis, it could have a material adverse effect on our results of operations, cash flows and/or prospects.

Certain past assertions made by the CFE and Mexican government, coupled with past arbitration requests and other statements and actions by the CFE, raise serious concerns over whether the terms of Sempra Mexico’s gas pipeline contracts will be honored or disputed in arbitration. The failure by the CFE or other customers to honor the terms of Sempra Mexico’s gas pipeline contracts and the inability to enter into gas pipeline contracts in the future could have a material adverse effect on Sempra’s cash flows, financial condition, results of operations and/or prospects.

Sempra Mexico’s and Sempra LNG’s obligations and those of their suppliers for LNG are contractually subject to suspension or termination for “force majeure” events, which generally are beyond the control of the parties, and substantial limitations of remedies for other failures to perform, including limitations on damages to amounts that could be substantially less than those necessary to provide full recovery of costs for any breach of the agreements, which in each case could have a material adverse effect on our results of operations, cash flows, financial condition and/or prospects.

Sempra Mexico and Sempra LNG engage in JVs or invest in companies in which other equity partners may have or share with us control over the applicable project or investment. We discuss the risks related to these arrangements above under “—Risks Related to Our Businesses Other Than the California Utilities and Our Interest in Oncor—Operational Risks.”

We rely on transportation assets and services, much of which we do not own or control, to deliver natural gas and electricity.

We depend on electric transmission lines, natural gas pipelines and other transportation facilities and services owned and operated by third parties to, among other things:

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Sempra Mexico and Sempra LNG also depend on natural gas pipelines to interconnect with the ultimate source or customers of the commodities they are transporting, and also on specialized ships to transport LNG. Sempra Mexico’s subsidiaries also rely on transmission lines to sell electricity to their customers. If transportation is disrupted, or if capacity is inadequate, we may be unable to sell and deliver our commodities, electricity and other services to some or all of our customers. As a result, we may be responsible for damages incurred by our customers, such as the additional cost of acquiring alternative electricity, natural gas, LNG or LPG supplies at then-current spot market rates, or we could lose customers that may be difficult to replace in competitive market conditions, any of which could have a material adverse effect on our businesses, financial condition, cash flows, results of operations and/or prospects.

Foreign Operations Risks

Our international businesses and operations expose us to legal, tax, economic, geopolitical, management oversight, foreign currency and inflation risks and challenges.

Overview

In Mexico, we own or have interests in natural gas distribution and transportation assets, LPG storage and transportation facilities, ethane transportation assets, electricity generation facilities, LNG facilities and ethane and liquid fuels marine and inland terminals. We also do business with companies based in foreign markets, including particularly our LNG export operations. Developing infrastructure projects, owning energy assets, operating businesses and contracting with companies in foreign jurisdictions subjects us to significant and complex management, security, political, legal, economic and financial risks that vary by country, many of which may differ from and potentially be greater than those associated with our wholly domestic businesses, including, among others:

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Mexican Government Influence on Economic and Energy Matters

The Mexican government has exercised, and continues to exercise, significant influence over the Mexican economy and energy landscape. Mexican governmental actions concerning the economy, energy policy or certain governmental agencies, including the CFE, could have a significant impact on Mexican private sector entities in general and on IEnova’s operations in particular. For example, the CFE and the Mexican government took certain actions in 2019 that raised serious concerns over whether the terms of Sempra Mexico’s gas pipeline contracts would be honored or disputed in arbitration. IEnova and other affected natural gas pipeline developers joined the CFE and the President of Mexico’s representatives in negotiations and were able to resolve the dispute, but we cannot predict whether similar disputes may arise and/or whether such disputes will be resolved on favorable terms to us, if at all. In addition, in 2020, certain Mexican governmental agencies issued orders and regulations that would reduce or limit the renewable energy sector’s participation in the country’s energy market. Although many of these measures have been stayed temporarily as a result of legal complaints filed with applicable Mexican courts, an unfavorable final decision on these complaints, or the potential for an extended dispute, could impact our ability to successfully complete construction of our solar facilities in Mexico, or to complete them in a timely manner and within expected budgets, may impact our ability to operate our wind and solar facilities already in service in Mexico at existing levels or at all, and may adversely affect our ability to develop new renewable energy projects in Mexico. Moreover, electricity prices in Mexico are currently subsidized by the Mexican federal government, which could place certain of IEnova’s renewable energy projects at a competitive disadvantage. We also cannot predict the impact that the political landscape, including multiparty rule and civil disobedience, will have on the Mexican economy and our business in Mexico. Such circumstances may materially adversely affect our cash flows, financial condition, results of operations and/or prospects in Mexico, which could have a material adverse effect on Sempra’s consolidated financial statements. We discuss these matters further in Note 16 of the audited consolidated financial statements.

Foreign Currency and Inflation

We have significant foreign operations in Mexico, which pose material foreign currency and inflation risks. Exchange and inflation rates with respect to the Mexican peso and fluctuations in those rates may have an impact on our revenue, costs or cash flows from our international operations, which could materially adversely affect our financial condition, results of operations and/or cash flows. Our Mexican subsidiary, IEnova, has U.S. dollar-denominated monetary assets and liabilities that give rise to Mexican currency exchange rate movements for Mexican income tax purposes. It also has significant deferred income tax assets and liabilities, which are denominated in the Mexican peso and 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 attempt to hedge material cross-currency transactions and earnings exposure through various means, including financial instruments and short-term investments, but these hedges may not successfully achieve our objectives of mitigating earnings volatility that would otherwise occur due to exchange rate fluctuations. Because we do not hedge our net investments in foreign countries, we are susceptible to volatility in other comprehensive income (loss) caused by exchange rate fluctuations whose functional currencies are not the U.S. dollar. Moreover, Mexico has experienced periods of high inflation and exchange rate instability in the past, and severe devaluation of the Mexican peso could result in governmental intervention to institute restrictive exchange control policies, as has occurred before in Mexico and other Latin American countries. We discuss our foreign currency exposure at our Mexican subsidiaries in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Reports and Quarterly Reports.

U.S. Foreign Policy, including Trade and Related Matters

In addition, all our international business activities are sensitive to geo-political uncertainties and related factors, including U.S. foreign policy and the current U.S. position with respect to trade relations and related matters. The current U.S. Administration made substantial changes to or withdrew from trade agreements that

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affect our operations. For example, the USMCA, which replaced the North American Free Trade Agreement in effect among the United States, Mexico and Canada prior to the USMCA (“NAFTA”) as the principal trade agreement between the United States, Mexico and Canada, went into force in July 2020, and its long-term impact on our operations uncertain. With the incoming U.S. Administration taking power in January 2021, the status of U.S. trade policy and U.S. involvement in international trade agreements going forward remains to be determined and could drastically shift in a manner that increases or mitigates adverse effects on our businesses. The current U.S. Administration also implemented changes to U.S. immigration policy and other policies that impact trade, including increasing tariffs, and the incoming U.S. Administration could reverse many of these changes or take other material action with respect to these matters. Such policy changes or other actions could adversely affect imports and exports between Mexico and the United States and negatively impact the U.S., Mexican and other economies and the companies with whom we conduct business, which could materially adversely affect our business, financial condition, results of operations, cash flows and/or prospects.

Financial Risks

Our businesses are exposed to market risks, including fluctuations in commodity prices, and our businesses, financial condition, results of operations, cash flows and/or prospects may be materially adversely affected by these risks.

We buy energy-related commodities from time to time for LNG facilities or power plants to satisfy contractual obligations with customers. The regional and other markets in which we purchase these commodities are competitive and can be subject to significant pricing volatility. Our revenues, results of operations and/or cash flows could be materially adversely affected if the prevailing market prices for natural gas, LNG, electricity or other commodities that we buy change in a direction or manner not anticipated and for which we have not provided adequately through purchase or sale commitments or other hedging transactions. Unanticipated changes in market prices for energy-related commodities can result from multiple factors, such as adverse weather conditions, change in supply and demand, availability of competitively priced alternative energy sources, commodity production levels and storage capacity, energy and environmental regulations and legislation, and economic and financial market conditions, among other things.

Legal and Regulatory Risks

Our businesses are subject to various legal actions challenging our property rights and permits, and our properties in Mexico could be subject to expropriation by the Mexican government.

We are engaged in disputes regarding our title to the property in Mexico where our ECA LNG Regasification facility is situated and our proposed ECA LNG JV liquefaction export projects are expected to be situated, as we discuss in Note 16 of the audited consolidated financial statements. In addition, we may have or seek to obtain long-term leases or rights-of-way from governmental agencies or other third parties to operate our energy infrastructure located on land we do not own for a specific period of time. If we are unable to defend and retain title to the properties we own on which our current and proposed facilities are located, or if we are unable to obtain or retain rights to construct and operate our existing or proposed facilities on the properties we do not own on reasonable financial and other terms, we could lose our rights to occupy and use these properties and the related facilities, which could delay or derail proposed projects, increase our development costs, and result in breaches of one or more permits or contracts related to the affected facilities that could lead to legal costs, fines or penalties. In addition, disputes regarding any of these properties could make project financing and finding or maintaining suitable partners and customers difficult and could hinder or halt our ability to construct and, if completed, operate the affected facilities or proposed projects. For example, two adjacent landowners claiming ownership of the land in Mexico where our ECA LNG Regasification facility is situated and our proposed ECA LNG JV liquefaction export projects are expected to be situated have filed an administrative proceeding with the Municipality of Ensenada against the construction permit for ECA LNG JV’s proposed liquefaction export projects, and the construction permit has been suspended pending resolution. This means that, even though we have reached a final investment decision with respect to this project, we cannot commence material construction until this matter is resolved. If we are unable to occupy and use the properties and related facilities on which our existing or proposed infrastructure projects are located, it could have a material adverse effect on our businesses, financial condition, results of operations, cash flows and/or prospects.

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In addition, IEnova’s business and assets in energy generation, storage, transportation and distribution may be considered by the Mexican government to be a public service or essential for the provision of a public service, in which case these assets and the related business could be subject to expropriation or nationalization, loss of concessions, renegotiation or annulment of existing contracts, and other similar risks. Any such occurrence could materially adversely affect our businesses, financial condition, results of operations, cash flows and/or prospects.

Risks Related to IEnova

If you decide not to participate in the exchange offer, you will continue to hold your IEnova ordinary shares, in which case the following risks related to IEnova and its business would continue to directly apply to you.

Operational Risks

IEnova may not be successful in obtaining new energy infrastructure projects.

The market for new energy infrastructure projects in Mexico is highly competitive. IEnova competes with Mexican and foreign companies for most of the new energy infrastructure projects in Mexico. IEnova may also face increased competition for key personnel. IEnova may compete for energy infrastructure projects in new sectors where they have not previously operated, they may not be able to fully realize the benefit of these new opportunities as they may lack experience or familiarity in these areas. In addition, there are a number of potential new liquefaction projects under construction or in the process of being developed by various project developers in North America, including IEnova’s indirect controlling shareholder’s contemplated new projects, and given the projected demand for LNG, the vast majority of these projects likely will not be completed. Furthermore, IEnova may not be able to obtain additional permits from the DOE, the Energy Regulatory Commission in Mexico (Comisión Reguladora de Energĺa) (“CRE”), the Mexican Safety, Energy and Environment Agency (Agencia de Seguridad, Energía y Ambiente), the Ministry of Environment and Natural Resources of Mexico (Secretarĺa del Medio Ambiente y Recursos Naturales) (“SEMARNAT”) or the Mexican Secretary of Energy (Secretarĺa de Energĺa) (“SENER”) or a favorable opinion from Mexico’s Competition Commission (Comisió Federal de Competencia Econóica) (“COFECE”), which may be required for new energy infrastructure projects. The inability to successfully obtain new energy infrastructure projects may adversely affect IEnova’s ability to grow its business, which could have a material adverse effect on IEnova’s business, financial condition, results of operations, cash flows, outlook and/or the market price of its securities.

The continuity of IEnova’s business could be affected by measures implemented by the governments of Mexico and other countries to prevent the spread of contagious diseases, including COVID-19, among the population.

During 2020, there has been an outbreak of COVID-19, which has spread to various jurisdictions, including locations where IEnova does business (Mexico). Although restrictions all over the world, including in Mexico, are being gradually eased, the full extent of the outbreak, related business and travel restrictions and changes in behavior intended to reduce its spread are uncertain as of the date of this prospectus as this continues to evolve globally.

IEnova is one of the first companies without governmental investment to enter the energy infrastructure business in Mexico. During the last 24 years, IEnova has increased its presence as a leader in private investment in the Mexican Energy Sector (including through new development projects, organic growth, acquisitions and by diversifying its type of assets and customer base) and it is recognized as one of the largest sector companies in the country.

The energy sector is a sector of essential economic interest in Mexico and the world. COVID-19 has not stopped the activity of the energy sector, although the demand for electricity, natural gas, gasoline and other fuels

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could decline. The extent of such decline and its duration will depend on how the pandemic evolves. Activity in the energy sector cannot be stopped: electricity, natural gas, gasoline and other fuels must continue to reach consumers. It is not expected that IEnova’s operation will stop providing energy services for these reasons.

Many of IEnova’s agreements are under “take or pay contracts.” However, IEnova will continue evaluating recoverability and collection considering the effect in the supply chain. It is possible that certain customers may experience delay in payments and others may temporarily stop operations.

The full extent to which the COVID-19 pandemic may impact IEnova’s results of operations or liquidity is uncertain. Given the speed and frequency of the developments with respect to this pandemic, which are in constant evolution, IEnova continues evaluating the magnitude of the effects in its business, operations, liquidity, results of operations or financial condition. The board of directors and the management work continuously to minimize the negative impact of the COVID-19 pandemic, through crisis planning, effective communication, and cooperation.

Legal and Regulatory Risks

IEnova operates in a highly regulated environment, and its profitability depends on its ability to comply with a number of laws and regulations on a timely and efficient basis.

IEnova operates under the laws and regulations of various federal, state and local governmental entities in Mexico and are required to obtain and maintain various permits, licenses and governmental approvals for IEnova’s activities. In some cases, the prices that IEnova charges for its services are limited by regulated rates set by governmental authorities. These regulations and permits may limit IEnova’s operating flexibility, which could have a material adverse effect on its business, financial condition, results of operations, cash flows, outlook and/or the market price of IEnova’s securities. For example, in order to obtain the favorable opinion of COFECE in connection with a permit required for the operation of the Rosarito pipelines system, IEnova was required to agree to divest the Mexicali components of the Ecogas México, S. de R.L. de C.V. (“Ecogas”) natural gas distribution system. IEnova has been subject to this obligation since 2000 and has made good faith efforts to comply with the obligation to divest the Mexicali gas distribution system; however, various economic situations have made it difficult to divest Mexicali’s distribution assets, which has been disclosed to COFECE.

With respect to the regulated rates that IEnova charges to its customers, the CRE resets these rates periodically in accordance with applicable regulations, and the rates set by the CRE may have a material adverse effect on IEnova’s business, financial condition, results of operations, cash flows, outlook and/or the market price of its securities. In addition, in order to undertake new energy infrastructure projects in Mexico, IEnova may require additional permits from SEMARNAT, the Mexican National Agency for Industrial Protection and the Protection of the Environment (Agencia Nacional de Seguridad Industrial y de Protección al Medio Ambiente del Sector Hidrocarburos), the CRE and SENER, as well as the favorable opinion of the Mexican Antitrust Commission, and various factors, including a change in the CRE’s energy policy, could result in IEnova’s inability to obtain such permits.

IEnova cannot predict the future course of changes in laws and regulations that cover its activities or the effect that this changing regulatory environment will have on its business and projects development. In addition, due to the complex, overlapping federal, state and local regulatory regimes in which it operates, IEnova may from time to time discover that it is lacking, or non-compliant with, one or more of its permits. If there is a delay in obtaining any required regulatory approval or permit to conduct IEnova’s operations, or if it fails to obtain or maintain any required approval or permit, IEnova may not be able to operate and build its energy infrastructure projects, or IEnova may be forced to incur additional costs, which in turn could have a material adverse effect on its business, financial condition, results of operations, cash flows, outlook and/or the market price of its securities.

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Regulatory policies, including the electricity price subsidy policy, of the Mexican federal government could materially adversely affect IEnova’s wind and solar power generation business.

On April 29, 2020, Mexico’s National Energy Control Center (Centro Nacional de Control de Energía) (“CENACE”) issued the Accord to Ensure the Efficiency, Quality, Reliability, Continuity and Safety of the National Electric Grid, due to the recognition of the SARS-CoV2 virus (COVID-19) pandemic (Acuerdo para garantizar la Eficiencia, Calidad, Confiabilidad, Continuidad y seguridad del Sistema Eléctrico Nacional, con motivo del reconocimiento de la epidemia de enfermedad por el virus SARS-CoV2 (COVID-19)) (the “CENACE Accord”), purporting to safeguard Mexico’s national power grid from interruptions that may be caused by renewable energy projects. The main provision of the CENACE Accord suspends all legally mandated pre-operative testing that would be needed for new renewable energy projects to commence operations and prevents such projects from connecting to the national power grid until further notice. IEnova’s renewable energy projects affected by the order filed for legal protection through amparo claims (suits to seek constitutional protection), and in June 2020, IEnova received injunctive relief until the claims are resolved by the courts.

Additionally, on May 15, 2020, SENER published the Policy of Reliability, Safety, Continuity and Quality in the National Electrical System (Acuerdo por el que se emite la Política de Confiabilidad, Seguridad, Continuidad y Calidad en el Sistema Eléctrico Nacional) (the “SENER Policy”), to establish guidelines purporting to guarantee the security and reliability of the national grid’s electricity supply by reducing the negative impacts that it claims are caused by intermittent energy, such as renewable energy resources. IEnova’s renewable energy projects, including those in construction and in service, filed amparo claims against the SENER Policy and received injunctive relief in July 2020 until the claims are resolved by the courts. In addition, in June 2020, COFECE filed a complaint with Mexico’s Supreme Court against the SENER Policy. COFECE’s complaint was upheld by the court and, pending the court’s final ruling, the decision suspends the resolution indefinitely.

Finally, on May 28, 2020, CRE approved an update to the transmission rates included in legacy renewables and cogeneration energy contracts, based on the claim that the legacy transmission rates did not reflect fair and proportional costs for providing the applicable services and, therefore, created unfair competitive conditions. Three of IEnova’s renewables’ facilities (Don Diego Solar and Border Solar, solar power generation facilities, and Ventika (as defined herein), two adjacent wind power generation facilities) are currently holders of contracts with such legacy rates, and any increases in the transmission rates would be passed through directly to their customers. IEnova’s renewable energy facilities obtained injunctive relief (suspension definitiva) against the CRE’s resolution regarding transmission rates on July 17, 2020, but such renewable projects are required to guarantee the difference in tariffs until the claims are resolved by the courts.

IEnova and other companies affected by these new orders and regulations have challenged the orders and regulations by filing amparo claims, and by state governments and COFECE through the filing of constitutional challenges, some of which have been granted injunctive relief. The court-ordered injunctions provide relief until Mexico’s Federal District Court ultimately resolves the amparo claims or, with respect to the SENER Policy, until Mexico’s Supreme Court issues its final ruling on COFECE’s complaint, the timing of which is uncertain. An unfavorable final decision on these amparo challenges, or the potential for an extended dispute, could impact IEnova’s ability to successfully complete construction of its solar facilities, or to complete them in a timely manner and within expected budgets, may impact its ability to operate its wind and solar facilities already in service at existing levels or at all, may result in increases in costs for IEnova and its customers, and may adversely affect its ability to develop new projects, any of which may have a material adverse effect on its business, financial condition, results of operations, cash flows, prospects and/or its ability to meet any of its financial obligations.

Currently, electricity prices are subsidized by the Mexican federal government. These electricity subsidies could place certain of IEnova’s renewable energy projects at a competitive disadvantage. If the electricity price subsidy policy of the Mexican federal government continues and IEnova is not able to provide electricity at prices that are competitive to those available to its customers who do not rely on pre-fixed fees and to potential customers through its competitors, the profitability of these assets could be materially adversely affected, which

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in turn could have a material adverse effect on IEnova’s business, financial condition, results of operations, cash flows, prospects and/or its ability to meet any of its financial obligations.

On October 7, 2020, CRE approved a resolution to amend the rules for the inclusion of new offtakers of legacy generation and self-supply permits (the “Offtaker Resolution”), which became effective immediately. The Offtaker Resolution prohibits self-supply permit holders from adding new offtakers that were not included in the original development or expansion plans, making modifications to the amount of energy allocated to the named offtakers, and including load centers that have entered into a supply arrangement under Mexico’s Electricity Industry Law. Three of IEnova’s renewables’ facilities (Don Diego Solar and Border Solar, solar power generation facilities, and Ventika (as defined herein), two adjacent wind power generation facilities) are holders of legacy self-supply permits and are impacted by the Offtaker Resolution. The Offtaker Resolution may limit IEnova’s ability to incorporate in its permits current or future offtakers, which could have a material adverse effect on its business, financial condition, results of operations, cash flows, outlook and/or the market price of IEnova’s securities. Additionally, if IEnova is not able to obtain legal protection for its facilities affected by the Offtaker Resolution, IEnova expects it would sell capacity affected by the Offtaker Resolution into the spot market, which, depending on prices in the spot market, could also have a material adverse effect on its business, financial condition, results of operations, cash flows, outlook and/or the market price of IEnova’s securities.

New and unanticipated tax reforms may be approved.

Mexican tax legislation is frequently amended, and therefore there is no guarantee that the current legal framework will not be amended in a way that might adversely affect IEnova’s business, financial condition, results of operations, cash flows, outlook and/or the market price of its securities.

The introduction of class action lawsuits into the Mexican legal system could have an adverse effect on IEnova’s operations.

Since 2011, Mexico adopted a legal system that allows for the commencement of class action lawsuits on matters relating to the consumption of goods and services and the environment. This could give rise to the commencement of class action lawsuits against IEnova by its customers or other market participants. Because the relevant laws have not yet been the subject of extensive judicial interpretation or enforcement, IEnova cannot predict the outcome of any class action lawsuit brought against IEnova under such laws, including the extent to which IEnova may be found liable and the effect thereof on IEnova’s business, financial condition, results of operations, cash flows, outlook and/or the market price of its securities.

Political and Economic Risks

Adverse economic, political and social conditions in Mexico may adversely affect the business, financial condition or results of operations of IEnova.

IEnova conducts all of its operations in Mexico and its potential for growth is centered in Mexico; its business is therefore significantly dependent upon the performance of the Mexican economy. Mexico has experienced economic crises in the past, caused by internal and external factors, characterized by, among other things, exchange rate instability (including large devaluations), high inflation, high domestic interest rates, economic contraction, a reduction of international capital flows, a reduction of liquidity in the banking sector and high unemployment rates. As a result, such conditions, as well as the general condition of the Mexican economy, over which neither Sempra nor IEnova have any control, could have a material adverse effect on IEnova’s business, financial condition, results of operations, cash flows, prospects and/or its ability to meet any of its financial obligations.

According to the International Monetary Fund, Mexico’s gross domestic product changed in percentage terms, in constant prices using 2013 as the base, by 2.0%, 2.0%, (0.1)% respectively, in 2017, 2018 and 2019.

On April 17, 2020, Moody’s downgraded the credit rating for Mexico’s sovereign debt from A3 to Baa1, with a negative outlook. On August 26, 2020, the Mexican National Institute on Statistics and Geography

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(Instituto Nacional de Estadística y Geografía) reported that Mexico’s gross domestic product fell a record 18.9% for the second quarter of 2020 compared to the same period of 2019. The COVID-19 pandemic has disrupted and may continue to disrupt economic activity, which may intensify the slowdown in the Mexican economy. If recessionary conditions continue, if inflation or interest rates increase significantly, or if Mexico’s sovereign debt credit rating is further downgraded, IEnova’s business, financial condition, results of operations, cash flows, prospects and/or its ability to meet any of its financial obligations could be materially adversely affected.

The Mexican government does not currently restrict the ability of Mexican companies or individuals to convert Mexican pesos into U.S. dollars (except for certain restrictions related to cash transactions involving a U.S. dollar payment to a Mexican bank) or other currencies and Mexico has not had a fixed exchange rate policy since 1982. The Mexican peso has been subject to significant devaluations against the U.S. dollar in the past and may be subject to significant fluctuations in the future. Severe devaluation of the Mexican peso may result in governmental intervention to institute restrictive exchange control policies, as has occurred before in Mexico and other Latin American countries. Accordingly, fluctuations in the value of the Mexican peso against other currencies, particularly the U.S. dollar, may have a material adverse effect on IEnova’s business, financial condition, results of operations, cash flows, prospects and/or its ability to meet any of its financial obligations.

Developments in other countries could adversely affect the Mexican economy, and IEnova’s business, financial condition or results of operations, and the market value of its securities.

The Mexican economy is, to varying degrees, affected by economic and market conditions in other countries. Although economic conditions in other countries may differ from economic conditions in Mexico, investors’ reactions to adverse developments in other countries may have an adverse effect on the market value of securities of Mexican issuers. In recent years, economic conditions in Mexico have become increasingly correlated with economic conditions in the United States as a result of NAFTA (and the recently approved USMCA) and increased economic activity between the two countries. Therefore, adverse economic conditions in the United States, the termination or re-negotiation of the USMCA or other related events could have a significant adverse effect on the Mexican economy. IEnova cannot assure you that events in other countries, in the United States or elsewhere will not adversely affect the business, financial condition or results of operations of IEnova.

Changes in the relative value of the Mexican peso to the U.S. dollar may have a material adverse effect on IEnova.

The Mexican peso-U.S. dollar exchange rate is important for IEnova because it has an effect on IEnova’s business, financial condition, results of operations, cash flows and outlook. In general, as described below, a depreciation of the Mexican peso will likely result in an increase in IEnova’s operating margins and an appreciation of the Mexican peso will likely result in a decrease in IEnova’s operating margins. This is because the aggregate amount of IEnova’s net sales denominated in or linked to U.S. dollars exceeds the aggregate amount of IEnova’s cost of sales denominated in Mexican pesos. In addition, a depreciation of the Mexican peso will likely affect the value of U.S. dollar receivables and payables and Mexican peso-denominated deferred income tax assets and liabilities.

Mostly, IEnova’s net sales are either denominated in, or linked to the value of, the U.S. dollar. However, a portion of IEnova’s cost of goods sold, including labor costs and other selling, general and administrative expenses are invoiced in Mexican pesos and IEnova’s Mexican taxes will also be paid in Mexican pesos, as may be debt obligations IEnova incurs in the future. Consequently, the real appreciation or depreciation of the Mexican peso relative to the U.S. dollar can have an effect on IEnova’s operating margins and IEnova’s income tax expense. The monetary policy decision by the U.S. Federal Reserve and the Mexican Central Bank could also impact the Mexican peso to U.S. dollar exchange rate. Changes in the Mexican peso-U.S. dollar exchange rate could have a material adverse effect on IEnova’s business, financial condition, results of operations, cash flows, outlook and/or the market price of its securities.

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An increase in interest rates in the United States could adversely impact the Mexican economy and may have a negative effect on IEnova’s financial condition or performance.

An increase in the U.S. interest rates that does not match with an increase of the Mexican interest rates, causing a reduction in the interest rate differential between the two countries, could redirect the flow of capital away from emerging markets, including Mexico, and into the United States, because investors may be able to obtain greater risk-adjusted returns in larger or more developed economies rather than in Mexico. Thus, companies in emerging market economies such as Mexico could find it more difficult and expensive to borrow capital and refinance existing debt. This may negatively affect IEnova’s potential for economic growth and could have a material adverse effect on IEnova’s business, financial condition, results of operations, cash flows, outlook and/or the market price of its securities.

The increase in violence in Mexico has adversely impacted, and may continue to adversely impact, the Mexican economy and may have a negative effect on IEnova’s financial condition or performance.

Over the past few years Mexico has experienced a significant increase in violence. This increase in violence has had an adverse impact on the economic activity in Mexico. Also, social instability in Mexico and adverse social or political developments in or affecting Mexico could have a material adverse effect on IEnova’s business, financial conditions, results of operations, cash flows, outlook, and/or the market price of its securities. In addition, violent crime may increase IEnova’s insurance and security costs. IEnova cannot assure that the levels of violent crime in Mexico, over which IEnova has no control, will not increase or will decrease. An increase in violent crime could have a material adverse effect on their business, financial condition, and results of operations, cash flows, outlook and/or their ability to repay its securities.

Changes in Mexican federal governmental policies could have a material adverse effect on IEnova’s business, financial condition, results of operations, cash flows, prospects and/or its ability to meet any of its financial obligations.

The Mexican government has exercised, and continues to exercise, significant influence over the Mexican economy. Mexican governmental actions concerning the economy and state-owned and private enterprises could have a significant effect on Mexican private sector entities in general, and IEnova in particular, as well as on market conditions, prices and returns on investments in Mexico, including any securities issued by IEnova.

The most recent federal congressional elections in Mexico that took place in July 2018 resulted in an absolute majority for the coalition led by the Mexican president’s party. Since 1997, no Mexican president has had an absolute majority in the House of Representatives and majority in the Senate. The Mexican federal government along with the House of Representatives could implement significant changes in laws, policies and regulations, which could affect the economic and political situation in Mexico.

During his campaign and more recently while acting as president, Andrés Manuel López Obrador has proposed, among other things, modifying and/or terminating certain structural reforms, including the energy reform of 2013. As of the date of this prospectus, a new education reform was approved by the Mexican Congress and ratified by the legislative authorities of 22 Mexican states. In addition, the new administration canceled the construction of the new Mexico City international airport project, and announced the kickoff of the main infrastructure projects that were promised during the campaign (including a new refinery at the Dos Bocas Port in Tabasco, the “Mayan train,” and the construction of a new airport in Santa Lucía in the State of Mexico). In 2020, the Mexican federal government also carried out a referendum to solicit voter opinion in connection with the then pending construction and development of a brewing facility by Constellation Brands in Baja California. Based on the results of the referendum, the government decided to cancel the project, which had a negative effect on international investor perception of the business climate in Mexico. Investors and credit rating agencies may be cautious about the new administration’s policies, which could contribute to a decrease in the Mexican economy’s resilience in the event of a global economic downturn.

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Similarly, changes in government policies could present challenges for IEnova’s business. For instance, CFE began arbitration proceedings against IEnova in August 2019 in order to renegotiate transportation service agreements relating to the Sur de Texas–Tuxpan natural gas marine pipeline and the Guaymas–El Oro segment of the Sonora natural gas pipelines. The parties renegotiated new tariffs for these projects and CFE consequently withdrew the arbitration claim, and IEnova does not expect the renegotiated contracts to affect its financial condition or results of operations. However, IEnova cannot predict if the new administration will implement substantial changes in law, policy and regulations pertaining to hydrocarbons in Mexico or initiate future proceedings against IEnova, any of which could negatively affect its business, financial condition, operations and prospects.

Since 2019, several amendments to existing regulations, as well as new regulations and policies, have been enacted that impact the power sector in Mexico, including IEnova’s renewable power assets and projects under development. IEnova believes these changes strengthen CFE’s authority in the power sector, which could have potential material adverse effects on IEnova’s wind and solar assets. Such adverse effects could present challenges for IEnova’s business.

Through administrative action, SENER, CRE and CENACE have issued modifications to existing regulations which IEnova expects to adversely affect its ability to dispatch renewable energy and to receive or maintain operation permits, which could be material. Such modifications may also increase costs of electricity provided under legacy concessions contracts, and otherwise negatively impact the consumers and suppliers of renewable energy.

Most of these newly enacted regulations and policies have been suspended through litigation and judicial rulings obtained by businesses operating in the power sector, including by IEnova. IEnova cannot predict whether it will ultimately be successful in the ongoing litigation, nor can it assure that there will be no new regulations and policies or further amendments to existing regulations that could materially adversely affect IEnova’s business, financial condition, results of operations, cash flows, prospects and/or its ability to meet any of its financial obligations.

For instance, official electricity policy papers (Programa de Desarrollo del Sistema Eléctrico Nacional—PRODESEN and Programa Sectorial de Energía 2020-2024 – PROSENER 2020-2024) have shed light on the current administration’s intention to favor state-owned companies to the detriment of the private sector and of end users. More recently, Mexico’s President issued a memorandum informing the CRE that CFE’s power plants should be given dispatch priority over every other power plant in the country, that the grant of permits should be restricted, and that private investment should only participate in the energy sector through subcontracts from the CFE and Petroleos Mexicanos (“Pemex”).

Based on the aforementioned actions of the administration, it could be possible that subsequent regulatory and legal changes re-enacted that limit or restrict the incorporation and operation of privately owned assets, delay IEnova’s future projects, or entail operational restrictions of current projects.

In general, changes that may be made to the existing legal framework, as well as the impact of new regulations, may result in increased costs to IEnova or its customers, and may require IEnova to amend its existing permits, secure additional permits to operate its natural gas, LNG, LPG, ethane, refined products or power generation facilities or render its services, take additional actions to secure the requisite rights-of-way for its projects, perform social impact assessments or, upon prior consultation with the competent authorities, require the consent of indigenous communities for the development of its projects.

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