Company: SREA
Filing Date: 2025-11-05
Form Type: 10-Q
Source: 0001032208-25-000065
Chunk: 39

Company: SEMPRA
Filing Date: 2025-11-05
Form: 10-Q
Item: Item 1
Chunk 39
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 we recognize equity earnings in Note 5 of the Notes to Consolidated Financial Statements in the Annual Report.Sempra, SDG&E and SoCalGas record income taxes for interim periods utilizing a forecasted ETR anticipated for the full year. Unusual and infrequent items and items that cannot be reliably estimated are recorded in the interim period in which they occur, which can result in variability in the ETR. For SDG&E and SoCalGas, the CPUC requires flow-through rate-making treatment for the current income tax benefit or expense arising from certain property-related and other temporary differences between the treatment for financial reporting and income tax, which will reverse over time. Under the regulatory accounting treatment required for these flow-through temporary differences, deferred income tax assets and liabilities are not recorded to deferred income tax expense, but rather to a regulatory asset or liability that will be flowed through to customers in the future, which impacts the ETR. As a result, changes in the relative size of these items compared to pretax income, from period to period, can cause variations in the ETR. Items subject to flow-through treatment include:▪repairs expenditures related to certain utility plant fixed assets ▪the equity component of AFUDC, which is non-taxable ▪cost of removal related to certain utility plant assets ▪utility self-developed software expenditures▪depreciation related to certain utility plant assets▪state income taxes AFUDC related to equity recorded for regulated construction projects at Sempra Infrastructure has similar flow-through treatment.

47

The OBBBA was signed into law on July 4, 2025. The OBBBA includes revisions to tax credits and other incentives for energy and climate initiatives of the Inflation Reduction Act enacted in 2022 and extends or revises key provisions of the TCJA, among other changes. Effective January 1, 2025, we have adopted the provisions of OBBBA, which include immediate expensing of domestic research and experimental expenditures, including utility self-developed software expenditures, under the new Internal Revenue Code Section 174A. This change supersedes prior rules requiring five-year amortization of domestic research and experimental expenditures under the TCJA. In accordance with IRS transitional guidance (Revenue Procedure 2025-28), we plan to elect to accelerate deductions for domestic unamortized utility self-developed software expenditures incurred in tax years 2022-2024, with remaining balances deductible over 2025 and 2026. As a result, Sempra, SDG