INFRASTRUCTURE AND PROJECT FINANCE

CREDIT OPINION
10 September 2018
San Diego Gas & Electric Company
Update following downgrade to A2 stable
Update Summary
San Diego Gas & Electric Company’s (SDG&E) credit reflects the low business risk profile of
its regulated transmission and distribution (T&D) operations, which account for the majority
of its business, and are subject to the regulatory overview of the Federal Energy Regulatory
Commission (FERC) and the California Public Utilities Commission (CPUC). The credit quality
RATINGS further considers a track-record of credit supportive regulatory outcomes, as well as a broad
San Diego Gas & Electric Company suite of above-average cost recovery mechanisms and regulatory financial parameters. These
Domicile San Diego, California, factors underpin our expectation that the utility will be able to further generate a ratio of
United States
Long Term Rating A2
CFO before changes in working capital (CFO pre-WC) to debt of at least 25%.
Type LT Issuer Rating
Outlook Stable
At the same time, the application of strict liability under inverse condemnation tempers
SDG&E’s credit quality. This is a unique risk factor affecting all California investor owned
Please see the ratings section at the end of this report utilities, which has weakened our assessment of the credit supportiveness of the California
for more information. The ratings and outlook shown legislative and regulatory framework compared to other environments. SDG&E benefits from
reflect information as of the publication date.
having a smaller service territory and effective wildfire mitigation and prevention programs
than the other IOUs in the state. However, no utility is completely immune to the wildfire
risks. That said, the passage of Senate Bill (SB 901) is a net credit positive over the existing
Analyst Contacts
situation for all of California’s regulated utilities. Pending implementation, it offers some
Natividad Martel, +1.212.553.4561 constructive tools for the CPUC to utilize going forward in conducting its reasonableness
CFA
VP-Senior Analyst
review and could enhance the utilities’ ability to recover the costs.
natividad.martel@moodys.com
Exhibit 1
Cliff Wang +1.212.553.6905
Historical CFO pre-WC, Total Debt and CFO pre-WC to Debt ($ in millions) [1]
Associate Analyst
cliff.wang@moodys.com CFO Pre-WC Total Debt CFO Pre-WC / Debt
$7,000 30.0%

Michael G. Haggarty +1.212.553.7172 28.4% 27.1%

$6,181
$6,381

Associate Managing Director $6,000

25.0%
michael.haggarty@moodys.com
24.8%
$5,277 $5,269
$5,078 22.3%
21.3%
Jim Hempstead +1.212.553.4318
$5,000
20.0%
MD-Utilities
james.hempstead@moodys.com $4,000

15.0%

$3,000
CLIENT SERVICES
10.0%

Americas 1-212-553-1653 $2,000

$1,498 $1,428 $1,379 $1,356
$1,258
Asia Pacific 852-3551-3077 $1,000
5.0%

Japan 81-3-5408-4100
$0 0.0%

EMEA 44-20-7772-5454 Dec-14 Dec-15 Dec-16 Dec-17 LTM Jun-18

[1] See Exhibit 6 for Moody's analyst adjusted credit metrics

Source: Moody's Financial Metrics
 MOODY'S INVESTORS SERVICE INFRASTRUCTURE AND PROJECT FINANCE

Credit strengths
» Track-record of credit supportive rate case decisions, regulatory parameters and cost recovery mechanisms

» Smaller service territory and effective wildfire mitigation and prevention programs

» SB 901 provides new regulatory tools although benefits are dependent on implementation by state regulators

» Credit metrics are adequate despite implementation of tax reform

Credit challenges
» Elevated political risk and public scrutiny in California

» Demanding public policy

» Exposure to climate change liabilities, such as more intense wildfires, could be significant because of the application of strict liability
under inverse condemnation law

Rating outlook
SDG&E's stable outlook assumes that no major wildfires will affect SDG&E's service territory and that SDG&E will receive a credit
supportive outcome in its ongoing general rate case (GRC) for the 2019-2022 period. The stable outlook anticipates that, despite
the implementation of tax reform, SDG&E will continue to generate a ratio of CFO pre-WC to debt of at least 25%, aided by the
GRC outcome along with its regulatory financial parameters and suite of cost recovery mechanisms as well as some moderation in
the utility's future capital investment program compared to historical levels. The stable outlook acknowledges the financial benefits
from belonging to a large diverse corporate family under parent company Sempra Energy (Sempra, Baa1 ratings under review for
downgrade).

Factors that could lead to an upgrade

An upgrade of SDG&E's ratings could occur following a repeal or material change in inverse condemnation that significantly reduces
the utility's wildfire risk exposure and strengthens our view of the legislative and regulatory environment in California. Assuming a
significant change to inverse condemnation, an upgrade could be also considered if SDG&E maintains a CFO pre-WC to debt ratio of
25% or above.

Factors that could lead to a downgrade

A downgrade to SDG&E's ratings is likely upon a deterioration in its credit metrics such that its CFO pre-WC to debt falls to the
low-20% range for a sustained period of time, if there are material changes to shareholder rewards programs that which appear overly
biased to the benefit of equity at the expense of lenders, or if there is a substantial increase in regulatory contentiousness of new
environmental risk exposures.

Profile
SDG&E is a regulated electric utility that operates in San Diego County and part of Orange County (nearly 1.5 million electric
customers) while it also renders natural gas distribution services in San Diego County (nearly 0.9 million customers). Its service territory
covers 4,100 square miles. Following the retirement of the San Onofre Nuclear Generating Station (SONGS), in which SDG&E held a
20% interest stake, the utility’s owned electric generation assets approximates 2,000 MW. These consist of two natural gas Combined
Cycle units (CCGTs; 1,045 MW), two peaking units (around 140 MW) and two small solar facilities.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on
www.moodys.com for the most updated credit rating action information and rating history.

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 MOODY'S INVESTORS SERVICE INFRASTRUCTURE AND PROJECT FINANCE

Exhibit 2 Exhibit 3
SDG&E’s rate base in 2016 (in %) Moody’s estimated development of SDG&E’s rate base items 2019
GRC (in %)
NG NG
8% 10%

FERC
FERC 37%
39%

Electric Dx
45% Electric Dx
44%

Electric Gx Electric Gx
8% 9%

Source: 2016 GRC filings, Moody’s estimates [1] Moody's assumes that Mesa Energy Center will be added to SDG&E's rate base in 2019
Source: 2019 GRC filings, Moody’s estimates

SDG&E is currently the largest subsidiary of Sempra Energy (Sempra; Baa1 ratings on review for downgrade) in terms of operating cash
flows (nearly $1.6 billion), total assets (2017: $17.8 billion) and dividends ($450 million) at year-end 2017.

Exhibit 4
Simplified Sempra Organizational Chart
(2017 adjusted figures)

Source: Moody's Investors Service, Company filings

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Key indicators
Exhibit 5
San Diego Gas & Electric Company [1] [2]
Dec-14 Dec-15 Dec-16 Dec-17 LTM Jun-18
CFO Pre-WC + Interest / Interest 7.6x 6.5x 7.4x 6.8x 6.6x
CFO Pre-WC / Debt 28.4% 24.8% 27.1% 22.3% 21.3%
CFO Pre-WC D / Debt 24.6% 18.9% 23.8% 15.0% 16.9%
Debt / Capitalization 42.8% 39.8% 38.4% 46.6% 46.2%
[1] All ratios are based on 'Adjusted' financial data and incorporate Moody's Global Standard Adjustments for Non-Financial Corporations.
[2] See Exhibit 6 for Moody's analyst adjusted credit metrics
Source: Moody's Financial Metrics

Detailed credit considerations

SDG&E’s LARGELY LOW RISK REGULATED T&D UTILITY OPERATIONS

SDG&E is a T&D utility because its generation assets are relatively modest. The utility’s capital investment remains largely focused
on T&D assets. Next year's addition of the 608 MW Otay Mesa Energy Center, OMEC, to SDG&E’s fleet (put price: +$280 million)
will increase the generation assets' rate base to around $900 million. However, it will still represent less than 10% of SDG&E’s total
rate base. We also calculate that the capacity and output of its owned generation fleet, including OMEC, will still account for less than
35% of its total available resources (2017: 22% out of nearly 5.4 TWh) and power demand of the end-users for which SDG&E procures
bundled electric procurement services per Assembly Bill 57 (so called “bundled customers”). This expectation considers that SDG&E’s
contracted output will also increase because the Carlsbad Energy Center tolling-PPA (not owned plant) will also become effective this
year.

SDG&E’s energy resources include power procured under long-term agreements; for example, contracts with qualifying facilities
(246 MW) as well as the tolling arrangements (1,341 MW) that it has entered with combined cycle units and peaking plants built and
operated by third parties to enhance the system’s reliability. Some of these contractual arrangements include put/call options; for
example, Calpine Corporation (Ba3 negative) has a put option to sell OMEC to SDG&E in October 2019. In contrast, other contracts do
not foresee changes in the plant’s ownership, such as the 25-year agreements entered over six peaking units including the Pio Pico unit
(CoD: 2017) and the Carlsbad Energy Center (CoD: 2018). For the analytical implications of these two types of arrangements, please
refer to the credit metrics section below.

MODEST CARBON TRANSITION RISK AMID HIGH POLITICAL RISK AND WILDFIRES STRICT LIABILITY EXPOSURE

SDG&E has a moderate carbon transition risk within the regulated utility sector. Its “moderate” positioning reflects its aforementioned
energy-mix but also our view that California utilities face a higher degree of political risk than most other jurisdictions in the US.
Utilities tend to receive a higher level of scrutiny and attention from both the media and the public, such that issues can quickly
become contentious. In our assessment, we also consider that California’s policy environment includes aggressive carbon targets and
100% renewable portfolio standard by 2045 after the California legislature recently passed Senate Bill 100.

Moreover, risks surrounding wildfires in the state distinguish California’s utilities from other T&D utilities which generally have lower
climate change risk. SDG&E’s credit quality benefits from having a smaller service territory compared to the other California utilities
and effective wildfire mitigation and prevention programs. They include an aggressive vegetation management program, year-around
access to a firefighting helicopter, material investments to harden the transmission and distribution systems, and undergrounding work
(60% of its electric distribution system). The utility has also been replacing wood poles with steel poles, particularly in high-speed wind
areas. It also deployed weather monitoring stations (170) and a high-tech alert camera network, particularly in fire prone areas. Another
key tool is the Santa Ana Wildfire Threat Index (developed with several parties including the University of California at Los Angeles and
the U.S. Forest Service) because it helps forecast fire risk at least six days in advance, allowing SDG&E to proactively deploy equipment
and resources to high-risk areas in anticipation of wildfires. SDG&E’s long experience with the de-energization (CPUC’s authorization
in 2009) of power lines is also an important last resource that it applies under extreme circumstances based on the Index forecasts.

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SDG&E has implemented several initiatives, including deployment of back-up generation in the communities most exposed to wildfire
risk, to minimize the disruption to the affected end-users and its exposure to liabilities that can result from de-energization.

However, the rising risks associated with wildfires are an increasing concern for all of California's utilities, including SDG&E. Wildfires
have become more frequent and damaging due to the effects of climate change, including more severe and prolonged droughts and
stronger winds. In addition, California has witnessed a proliferation of real estate developments in fire-prone areas. Thus, we believe
that no California utility is fully immune to the risks.

WILDFIRES STRICT LIABILITY EXPOSURE HAS WEAKENED OUR ASSESSMENT OF THE CREDIT SUPPORTIVENESS

Therefore, SDG&E’s credit quality is tempered by the application in California of strict liability standards under case law known as
inverse condemnation that was not repealed or changed before the end of the last legislative session on 31 August 2018. The strict
liability standard exposes the utilities to uncapped liabilities related to wildfire damages where utility equipment is determined
to be the source of the fire, regardless of whether they are found to be negligent or somehow at fault. The application of inverse
condemnation is a unique risk factor affecting all California investor owned utilities that has weakened our assessment of the credit
supportiveness of the California legislative and regulatory framework compared to other US environments.

SB 901 IS NET CREDIT POSITIVE BUT BENEFITS DEPENDENT ON IMPLEMENTATION BY CPUC

On a positive note, we expect Governor Brown to sign Senate Bill (SB 901) into law in September after both California legislative
houses passed it on 31 August 2018. SB 901 is a net credit positive over the existing situation for all of California’s regulated utilities
and it is evidence of extraordinary legislative intervention to address material risks faced by the state’s critical infrastructure utility
companies.

SB 901 offers some constructive tools for the CPUC to utilize going forward in conducting their reasonableness review on catastrophic
wildfire related costs. Compared to the prudency standard used historically, these regulatory tools outlined under SB 901 appear
to offer the CPUC more flexibility and discretion in determining the reasonableness of the costs. This is important because in their
concurrent opinion issued in December 2017, Commissioners Guzman-Aceves and CPUC president Picker, cited that key challenges in
the CPUC’s decision, which denied SDG&E’s recovery of $379 million (pre-tax) of costs associated with the 2007 wildfires, included
that the regulators felt that they did not have the option of allocating portions of recovery for those costs (it was a binary outcome,
all or nothing). The CPUC’s ruling followed FERC’s previous decision that SDG&E met its prudency standards; thus changes to the
prudency standards in California are a credit positive. The benefits, however, will still depend on CPUC’s implementation, and the
absence of any track-record tempers our opinion.

According to SB 901, the CPUC is expected to consider several key factors in its reasonableness review including whether the
utility disregarded indicators of wildfire risk; failed to design, operate and/or maintain its assets in a reasonable manner; findings of
government agencies including CAL Fire; whether the utility was in compliance with regulations, its wildfire risk mitigation plans,
and the regulators orders including the utility’s history of compliance and, whether single or multiple violations caused the costs.
Importantly, the CPUC is also expected to consider additional factors, including whether climate conditions exacerbated the extent
of the damages or whether circumstances beyond the utility’s control in part caused the costs. The bill includes the opportunity
for affected utilities to issue securitization bonds to recover costs from ratepayers, however, the issuance is subject to CPUC’s
authorization under a financing order. We also note that the reasonableness review will apply to wildfires that occur after 1 January
2019. This leaves a gap in coverage for any potential fires in 2018, a credit negative, particularly as the peak period of the wildfire
season recently started.

ABOVE-AVERAGE REGULATORY PARAMETERS AND ACCESS TO BROAD SUITE OF COST RECOVERY MECHANISMS

In our analysis, SDG&E’s cash flows benefit from an authorized return on equity (RoE) (CPUC: 10.2%; FERC: 10.05%) and equity layer
(CPUC: 52%; FERC: 56.56%) in the capital structure that provide a strong incentive for investments. These will remain in place until
at least December 2018, the scheduled expiration of FERC formula, and December 2019, in California. The CPUC determines these
parameters separately from a GRC-proceeding, subject to a multi-year Cost of Capital Mechanism (CCM) in place since 2008. The
current regulatory parameters in California have remained largely unchanged since 2013 (filing due in April 2019, based on a 2020
test year), following a slight reduction in the RoE (-0.1%) last year. The CCM foresees certain adjustments to the authorized RoE

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when the difference between the Moody’s Bond Utility Baa-index and a baseline yield exceeds 100 bps (adjustments reflect 50% of
the difference), as well as adjustments to reflect changes in the utility’s actual costs of preferred stock and long-term debt. Effective
January 2018, SDG&E’s weighted returns on rate base dropped to 7.55% (previously: 7.79%) to reflect forecasted lower cost of long-
term debt which is still higher than the weighted return on rate base applicable to SDG&E’s transmission assets of 7.51%.

These regulatory parameters compare well with SDG&E’s electric utility peers in the US, particularly considering that both its electric
and natural gas operations benefit from a decoupling mechanism which reduces the financial impact from fluctuations in sales
caused by the weather, energy conservation, or the economy. The utility’s cash flows also benefit from forward test years and other
recovery mechanisms that allow it to recoup some costs in-between rate cases. However, despite some improvements, some of
these mechanisms still expose the utility to some lag in the recovery of certain costs, particularly if they are subject to CPUC’s review.
For example, differences between the forecasted and actual volumes drive the under-collected balances under the Energy Resource
Recovery Account (ERRA; June 2018: $176 million) and the Electric Distribution Fixed Cost Account (EDFCA; June 2018: $90 million).
That said, we understand that the ongoing regulatory proceedings will also update the baseline number used in the recovery (refunds)
calculations which should also help reduce the recovery-lag and liquidity impact going forward.

EXPECTATION OF A CREDIT SUPPORTIVE 2019-2022 GRC OUTCOME AND PCIA DECISION

We anticipate an overall credit supportive outcome of the ongoing 2019 GRC proceedings, whereby rates will become effective in
January 2019. According to the revised 2019 GRC filings (April 2018) to reflect the implementation of the tax policies which resulted
from the enactment of Tax Cuts and Jobs Act in December 2017, SDG&E requested a $217 million rate increase. This is based on a
total revenue requirement (adjusted post-tax reform) for 2019 of $2.1 billion. In California, utilities have a tax tracking mechanism
in place. However, SDG&E is proposing alternative uses to the amounts that are due to the end-users in connection with the
implementation of tax reform, which largely consist of initiatives to offset other cost increases; for example, higher expenses related to
the prevention and mitigation of the wildfires risk, including the year-around firefighting helicopter and increased insurance coverage.
SDG&E and SoCalGas have also requested to return to four year authorized rate-cycles. In contrast to previous cases, the 2016 GRC
proceeding set rates for a three year period (2016-2018). The GRCs incorporate forward test years which reduces the likelihood of
capex disallowances, and permits attrition rate increases, that is scheduled rate increases in-between rate cases premised on various
adjustment factors. In the case of SDG&E, the requested attrition adjustments for 2020 through 2022 would result in annual increases
ranging between 5%-7%. We view multi-year rates to be credit positive because they enhance the visibility of the utility’s cash flows as
well as provide incentives for the utility to implement cost saving initiatives which will be eventually shared with end-users in the next
GRC-proceeding.

We believe that the GRC is progressing smoothly. Key areas of disagreement with the intervenors include the annual increases starting
in 2019 (for example, ratepayers advocates: +4%) and the decision on the recovery of the aforementioned OMEC facility in a separate
regulatory proceeding (rate impact nearly $90 million). CPUC authorized the terms of the PPA, including the $280 million put-option,
which should limit the risk of disallowances.

Another key pending CPUC decision refers to the changes to the methodology as well as underlying inputs and calculations of the
state’s electric charge indifference adjustments (PCIA). The CPUC’s proposed decision was followed by an alternate proposal which is
currently under discussion. The PCIA is a non-bypassable fee payable by the utilities’ departing load that decides to procure their power
through community choice aggregators (CCAs) or electric service providers instead of further receiving utilities’ bundled services. The
CCAs phenomena is more extended in northern California but is also progressively expanding to the southern parts of the state. The
PCIA is set annually to compensate SDG&E for the cost of excess purchased power that cannot be recovered through market sales;
however, the recovery is only partial at present. The changes to the formula are sought to ensure full recovery of these costs, and to
avoid cost shifts to the utilities’ remaining bundled customers who ultimately bear the costs.

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EXPECTATION OF STABLE CREDIT METRICS DESPITE TAX REFORM

Two factors largely caused the deterioration in SDG&E’s credit metrics at year-end 2017: (i) an increase in the capital obligations
related to PPAs of approximately $731 million (around 13% of the reported debt) and (ii) a material reduction in the deferred income
taxes (negative outflow: $10 million).

Capital leases

SDG&E’s reported debt includes the financial obligations related to the OMEC facility which we consider in our credit metric
calculations because we anticipate SDG&E will become its owner after Calpine exercises its put option next year. However, per
accounting guidelines, SDG&E also reports the aforementioned obligations under the tolling-PPAs under capital leases on its balance
sheet. The Pio Pico plant PPA became effective last year resulting in an increase in these capital lease obligations to $731 million (equal
to around 13% of its reported debt) from $239 million (4%) at year-end 2016. These obligations will further increase this year to
around $1.4 billion after the Carlsbad Energy Center-PPA becomes also effective during 2018.

However, in our analysis, we consider that in contrast to the OMEC facility, these peaking plants’ contractual arrangements are not
foreseen to become part of the utility’s fleet, and SDG&E has the ability to fully pass-through these contractual obligations to its end-
users, through the ERRA. Thus, as long as we do not perceive a deterioration in the regulatory support that decreases the utility’s ability
to recover these costs, we will regard these PPA obligations as operating costs with no long-term debt-like attributes. The chart below
depicts SDG&E’s CFO pre-WC to debt excluding from the utility’s debt the PPA-obligations.

Exhibit 6
Moody's analyst adjustments to SDG&E’s debt and key metrics

2013 2014 2015 2016 2017 LTM 6/30/2018

Moody's adjusted CFO pre-W/C $1,143 $1,498 $1,258 $1,428 $1,379 $1,356

Moody's Adjusted Debt $4,902 $5,277 $5,078 $5,269 $6,181 $6,381

(capital lease obligation re. PPA) ($176) ($233) ($243) ($239) ($731) ($731)
Moody's Adjusted Debt excl. obligation $4,726 $5,044 $4,835 $5,030 $5,450 $5,650

Moody's adjusted CFO pre-W/C to Debt excl. obligation 24.2% 29.7% 26.0% 28.4% 25.3% 24.0%

Source: Moody's Investors Service

Deferred income taxes

In 2017, SDG&E recorded negative amounts under deferred income taxes (see CF-Statements at year-end 2017) largely related to the
write-off of the 2007 wildfire costs following the CPUC’s denial to recover the related costs (non-cash charges pre-tax: $351 million;
after-tax: $208 million), a one-time event, and after the utility became a taxpayer in both California and at the federal level.

However, SDG&E’s credit incorporates the expectation that the impact of the implementation of tax reform on its credit metrics,
particularly following the expiration of bonus depreciation, is less severe compared to other US utilities. Key factors to help explain
this include: (i) the bonus depreciation accounted for a significant portion of the utility’s tax savings, that is the difference between
collected and deferred income tax payments. However, the contribution of the tax savings (deferred income taxes) to the utility’s
recorded CFO pre-WC averaged 17% during the 2012-2016 period; and (ii) the moderation in the utility's capex program going forward,
with the ratio of capex to depreciation falling below 2.0x (2012-2017 period generally exceeding: 2.0x).

SDG&E disclosed in its financial statements that the re-measurement of its deferred income taxes at the new US statutory corporate
federal income tax rate of 21% (previously: 35%) resulted in nearly a $1.4 billion decrease in its net deferred income tax liabilities. We
assume that the majority of these amounts are considered “protected” and likely to be refunded over the useful life of the assets in
accordance with IRS normalization rules.

Our expectation of stable metrics assumes a credit supportive outcome of the 2019 GRC including authorization to change the
methodology applied in funding SDG&E and SoCalGas' pension obligations, to amortize their underfunded pension benefit obligations
over a seven year period. At year-end 2017, Moody’s debt adjustments related to unfunded defined pension obligations represented

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around 4% of the total adjusted debt (excluding the PPA-capital leases mentioned earlier). In our analysis we also consider SDG&E's
track-record of ceasing to upstream dividends when its capex peak which allowed them to record capital equity ratios of 52%, and
strong metrics.

Liquidity analysis
SDG&E's Prime-1 rated commercial paper (CP) program reflects its liquidity reserves and is backstopped by its $1 billion committed
credit facility, which it shares as a co-borrower with sister company Southern California Gas Company (SoCalGas, A1 stable). This
facility is currently scheduled to expire in October 2020 (amended in 2016). Under this joint facility, each utility can borrow up to a
maximum of $750 million subject to the $1 billion in total combined availability. It also provides for the issuance of letters of credit
for up to $250 million. Shared credit facilities are viewed as being less ideal from a credit perspective compared to separate facilities,
particularly considering the significant scale of the utilities' capital expenditures. However, around 59% of the liquidity arrangements
remained available at the end of June 2018. Borrowings under the facility are not subject to any conditionality, such as rating triggers
and material adverse clause representations for borrowing. The credit facility contains one financial covenant requiring SDG&E and
SoCalGas to maintain a debt-to-total capitalization ratio of no more than 65%. We expect both utilities will remain in compliance with
these covenants. During the rest of 2018 and 2019, we anticipate that SDG&E will continue funding its capital requirements including
capital expenditures (2018: nearly $1.3 billion) and dividends (2QLTM2018: $275 million) largely with internally generated cash flows
(2QLTM2018: nearly $1.6 billion), along with incremental long and short-term borrowings (limited at the holding company). SDG&E's
next debt maturity consists of $350 million first mortgage bonds (FMB) due in 2021.

Rating methodology and scorecard factors

Moody's evaluates SDG&E’s financial performance relative to the Regulated Electric and Gas Utilities rating methodology published
in June 2017. We use the standard grid to assess SDG&E’s financial performance to capture the high political risk and scrutiny in
California.

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Exhibit 7
Rating Factors
San Diego Gas & Electric Company
Regulated Electric and Gas Utilities Industry Grid [1][2] Current Moody's 12-18 Month
LTM 6/30/2018 Forward View
As of Date Published [3]

Factor 1 : Regulatory Framework (25%) Measure Score Measure Score

a) Legislative and Judicial Underpinnings of the Regulatory Framework Baa Baa Baa Baa
b) Consistency and Predictability of Regulation A A A A
Factor 2 : Ability to Recover Costs and Earn Returns (25%)
a) Timeliness of Recovery of Operating and Capital Costs A A A A
b) Sufficiency of Rates and Returns A A A A
Factor 3 : Diversification (10%)
a) Market Position A A A A
b) Generation and Fuel Diversity N/A N/A N/A N/A
Factor 4 : Financial Strength (40%)
a) CFO pre-WC + Interest / Interest (3 Year Avg) 6.9x Aa 6x - 7x Aa
b) CFO pre-WC / Debt (3 Year Avg) 23.3% A 22% - 27% A
c) CFO pre-WC – Dividends / Debt (3 Year Avg) 18.1% A 17% - 22% A
d) Debt / Capitalization (3 Year Avg) 42.5% A 40% - 45% A
Rating:
Grid-Indicated Rating Before Notching Adjustment A2 A2
HoldCo Structural Subordination Notching
a) Indicated Rating from Grid A2 A2
b) Actual Rating Assigned (P)A2 (P)A2

[1] All ratios are based on 'Adjusted' financial data and incorporate Moody's Global Standard Adjustments for Non-Financial Corporations.
[2] As of 6/30/2018(L)
[3] This represents Moody's forward view; not the view of the issuer; and unless noted in the text, does not incorporate significant acquisitions and divestitures.
[4] Standard grid for financial strength.
Source: Moody's Financial Metrics

Appendix
Exhibit 8
Cash flow and credit metrics [1]
CF Metrics Dec-14 Dec-15 Dec-16 Dec-17 LTM Jun-18
As Adjusted
FFO 1,263 1,367 1,437 1,409 1,363
+/- Other 235 (109) (9) (30) (7)
CFO Pre-WC 1,498 1,258 1,428 1,379 1,356
+/- WC (369) 414 (99) 169 146
CFO 1,129 1,672 1,329 1,548 1,502
- Div 200 300 175 450 275
- Capex 1,106 1,141 1,405 1,556 1,644
FCF (177) 231 (251) (458) (417)

(CFO Pre-W/C) / Debt 28.4% 24.8% 27.1% 22.3% 21.3%

(CFO Pre-W/C - Dividends) / Debt 24.6% 18.9% 23.8% 15.0% 16.9%
FFO / Debt 23.9% 26.9% 27.3% 22.8% 21.4%
RCF / Debt 20.1% 21.0% 24.0% 15.5% 17.1%
[1] All figures and ratios are calculated using Moody’s estimates and standard adjustments. Periods are Financial Year-End unless indicated. LTM = Last Twelve Months
Source: Moody's Financial Metrics

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Exhibit 9
Peer comparison [1]
DO NOT USE FOR MIDSTREAM
San Diego Gas & Electric Company Southern California Gas Company Southern California Edison Company Pacific Gas & Electric Company

(P)A2 Stable A1 Stable A3 Stable Baa1 Negative

FYE FYE LTM FYE FYE LTM FYE FYE LTM FYE FYE LTM
(in US millions) Dec-16 Dec-17 Jun-18 Dec-16 Dec-17 Jun-18 Dec-16 Dec-17 Jun-18 Dec-16 Dec-17 Jun-18
Revenue $4,253 $4,476 $4,467 $3,471 $3,785 $3,672 $11,830 $12,254 $12,202 $17,667 $17,138 $16,907
CFO Pre-WC $1,428 $1,379 $1,356 $705 $1,192 $1,013 $3,448 $4,059 $4,116 $5,767 $5,893 $5,645
Total Debt $5,269 $6,181 $6,381 $4,082 $4,124 $4,238 $13,297 $13,904 $14,645 $21,318 $21,400 $21,608
CFO Pre-WC / Debt 27.1% 22.3% 21.3% 17.3% 28.9% 23.9% 25.9% 29.2% 28.1% 27.0% 27.5% 26.1%
CFO Pre-WC D / Debt 23.8% 15.0% 16.9% 17.2% 28.9% 23.9% 20.2% 24.6% 23.5% 22.8% 23.9% 24.9%
Debt / Capitalization 38.4% 46.6% 46.2% 44.1% 45.9% 44.6% 36.5% 41.8% 42.4% 42.8% 45.8% 46.7%

[1] All figures & ratios calculated using Moody’s estimates & standard adjustments. FYE = Financial Year-End. LTM = Last Twelve Months. RUR* = Ratings under Review, where UPG = for
upgrade and DNG = for downgrade
Source: Moody's Financial Metrics

Ratings
Exhibit 10
Category Moody's Rating
SAN DIEGO GAS & ELECTRIC COMPANY
Outlook Stable
Issuer Rating A2
First Mortgage Bonds Aa3
Senior Secured Aa3
Senior Unsecured Shelf (P)A2
Pref. Shelf (P)Baa1
Commercial Paper P-1
PARENT: SEMPRA ENERGY
Outlook Rating(s) Under Review
Issuer Rating Baa11
Senior Unsecured Baa11
[1] Placed under review for possible downgrade on June 25 2018
Source: Moody's Investors Service

10 10 September 2018 San Diego Gas & Electric Company: Update following downgrade to A2 stable
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REPORT NUMBER 1140712

11 10 September 2018 San Diego Gas & Electric Company: Update following downgrade to A2 stable