Edgar Filing: SAN DIEGO GAS & ELECTRIC CO

Sempra Energy, SDG&E, SoCalGas 06-30-2011 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

June 30, 2011

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission File No.

Exact Name of Registrants as Specified in their Charters, Address and Telephone Number

States of Incorporation

I.R.S. Employer

Identification Nos.

Former name, former address and former fiscal year, if changed since last report

1-14201

SEMPRA ENERGY

California

33-0732627

No change

101 Ash Street

San Diego, California 92101

(619)696-2000

1-3779

SAN DIEGO GAS & ELECTRIC COMPANY

California

95-1184800

No change

8326 Century Park Court

San Diego, California 92123

(619)696-2000

1-1402

SOUTHERN CALIFORNIA GAS COMPANY

California

95-1240705

No change

555 West Fifth Street

Los Angeles, California 90013

(213)244-1200

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.

Yes

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files).

Sempra Energy

Yes

San Diego Gas & Electric Company

Yes

Southern California Gas Company

Yes

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large

accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Sempra Energy

[ X ]

[ ]

San Diego Gas & Electric Company

[ ]

[ X ]

[ ]

Southern California Gas Company

[ ]

[ X ]

[ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Sempra Energy

Yes

San Diego Gas & Electric Company

Yes

Southern California Gas Company

Yes

Indicate the number of shares outstanding of each of the issuers' classes of common stock, as of the latest practicable date.

Common stock outstanding on August 5, 2011:

Sempra Energy

239,552,287 shares

San Diego Gas & Electric Company

Wholly owned by Enova Corporation, which is wholly owned by Sempra Energy

Southern California Gas Company

Wholly owned by Pacific Enterprises, which is wholly owned by Sempra Energy

SEMPRA ENERGY FORM 10-Q SAN DIEGO GAS & ELECTRIC COMPANY FORM 10-Q SOUTHERN CALIFORNIA GAS COMPANY FORM 10-Q TABLE OF CONTENTS
		Page
Information Regarding Forward-Looking Statements		4

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	64
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	93
Item 4.	Controls and Procedures	94

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	95
Item 1A.	Risk Factors	95
Item 6.	Exhibits	95

Signatures		98

This combined Form 10-Q is separately filed by Sempra Energy, San Diego Gas & Electric Company and Southern California Gas Company. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes representations only as to itself and makes no other representation whatsoever as to any other company.

You should read this report in its entirety as it pertains to each respective reporting company. No one section of the report deals with all aspects of the subject matter. Separate Part I - Item 1 sections are provided for each reporting company, except for the Notes to Condensed Consolidated Financial Statements. The Notes to Condensed Consolidated Financial Statements for all of the reporting companies are combined. All Items other than Part I – Item 1 are combined for the reporting companies.

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

We make statements in this report that are not historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are necessarily based upon assumptions with respect to the future, involve risks and uncertainties, and are not guarantees of performance. These forward-looking statements represent our estimates and assumptions only as of the date of this report.

In this report, when we use words such as "believes," "expects," "anticipates," "plans," "estimates," "projects," "contemplates," "intends," "depends," "should," "could," "would," "will," "may," "potential," "target," "goals," or similar expressions, or when we discuss our strategy, plans or intentions, we are making forward-looking statements.

Factors, among others, that could cause our actual results and future actions to differ materially from those described in forward-looking statements include

§	local, regional, national and international economic, competitive, political, legislative and regulatory conditions and developments;

actions by the California Public Utilities Commission, California State Legislature, Federal Energy Regulatory Commission, Nuclear Regulatory Commission, California Energy Commission, California Air Resources Board, and other regulatory, governmental and environmental bodies in the United States and other countries in which we operate;

§	capital markets conditions and inflation, interest and exchange rates;

§	energy markets, including the timing and extent of changes and volatility in commodity prices;

§	the availability of electric power, natural gas and liquefied natural gas;

§	weather conditions and conservation efforts;

§	war and terrorist attacks;

§	business, regulatory, environmental and legal decisions and requirements;

§	the status of deregulation of retail natural gas and electricity delivery;

§	the timing and success of business development efforts;

§	the resolution of litigation; and

§	other uncertainties, all of which are difficult to predict and many of which are beyond our control.

We caution you not to rely unduly on any forward-looking statements. You should review and consider carefully the risks, uncertainties and other factors that affect our business as described in this report and in our Annual Report on Form 10-K and other reports that we file with the Securities and Exchange Commission.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share amounts)

	Three months ended June 30,				Six months ended June 30,
	2011		2010		2011		2010
	(unaudited)
REVENUES
Utilities	$	1,922	$	1,550	$	3,868	$	3,541
Energy-related businesses		500		458		988		1,001
Total revenues		2,422		2,008		4,856		4,542
EXPENSES AND OTHER INCOME
Utilities:
Cost of natural gas		(403)		(381)		(1,045)		(1,184)
Cost of electric fuel and purchased power		(397)		(129)		(568)		(277)
Energy-related businesses:
Cost of natural gas, electric fuel and purchased power		(212)		(235)		(442)		(528)
Other cost of sales		(32)		(20)		(55)		(45)
Litigation expense		(6)		1		(13)		(167)
Other operation and maintenance		(667)		(616)		(1,299)		(1,192)
Depreciation and amortization		(248)		(215)		(479)		(425)
Franchise fees and other taxes		(80)		(77)		(175)		(167)
Equity earnings (losses), before income tax		7		(8)		8		7
Remeasurement of equity method investments		277		―		277		―
Other income, net		31		8		74		16
Interest income		12		4		15		8
Interest expense		(118)		(103)		(226)		(212)
Income before income taxes and equity earnings
of certain unconsolidated subsidiaries		586		237		928		376
Income tax expense		(92)		(59)		(201)		(117)
Equity earnings, net of income tax		8		27		39		46
Net income		502		205		766		305
Losses attributable to noncontrolling interests		12		20		8		28
Preferred dividends of subsidiaries		(3)		(3)		(5)		(5)
Earnings	$	511	$	222	$	769	$	328

Basic earnings per common share	$	2.14	$	0.90	$	3.21	$	1.33
Weighted-average number of shares outstanding, basic (thousands)		239,415		246,784		239,769		246,435

Diluted earnings per common share	$	2.12	$	0.89	$	3.19	$	1.31
Weighted-average number of shares outstanding, diluted (thousands)		240,761		249,727		241,154		249,835
Dividends declared per share of common stock	$	0.48	$	0.39	$	0.96	$	0.78
See Notes to Condensed Consolidated Financial Statements.

SEMPRA ENERGY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		June 30,		December 31,
		2011		2010(1)
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	392	$	912
Restricted cash			188		131
Trade accounts receivable			1,014		891
Other accounts and notes receivable			162		141
Due from unconsolidated affiliates			―		34
Income taxes receivable			243		248
Deferred income taxes			―		75
Inventories			211		258
Regulatory assets			69		90
Fixed-price contracts and other derivatives			87		81
Settlement receivable related to wildfire litigation			―		300
Other			185		192
Total current assets			2,551		3,353

Investments and other assets:
Restricted cash			2		27
Regulatory assets arising from pension and other postretirement
benefit obligations			868		869
Regulatory assets arising from wildfire litigation costs			397		364
Other regulatory assets			948		934
Nuclear decommissioning trusts			808		769
Investment in RBS Sempra Commodities LLP			439		787
Other investments			1,513		2,164
Goodwill			1,059		87
Other intangible assets			450		453
Sundry			645		600
Total investments and other assets			7,129		7,054

Property, plant and equipment:
Property, plant and equipment			29,400		27,087
Less accumulated depreciation and amortization			(7,244)		(7,211)
Property, plant and equipment, net ($503 and $516 at June 30, 2011 and December 31, 2010, respectively, related to VIE)			22,156		19,876
Total assets		$	31,836	$	30,283
(1)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

SEMPRA ENERGY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		June 30,		December 31,
		2011		2010(1)
		(unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt		$	453	$	158
Accounts payable - trade			783		755
Accounts payable - other			132		109
Due to unconsolidated affiliates			―		36
Deferred income taxes			31		―
Dividends and interest payable			217		188
Accrued compensation and benefits			269		311
Regulatory balancing accounts, net			277		241
Current portion of long-term debt			144		349
Fixed-price contracts and other derivatives			85		106
Customer deposits			135		129
Reserve for wildfire litigation			422		639
Other			627		765
Total current liabilities			3,575		3,786
Long-term debt ($350 and $355 at June 30, 2011 and December 31, 2010, respectively, related to VIE)			9,648		8,980

Deferred credits and other liabilities:
Customer advances for construction			139		154
Pension and other postretirement benefit obligations, net of plan assets			1,106		1,105
Deferred income taxes			1,826		1,561
Deferred investment tax credits			48		50
Regulatory liabilities arising from removal obligations			2,692		2,630
Asset retirement obligations			1,490		1,449
Other regulatory liabilities			115		138
Fixed-price contracts and other derivatives			279		290
Deferred credits and other			867		823
Total deferred credits and other liabilities			8,562		8,200
Contingently redeemable preferred stock of subsidiary			79		79

Commitments and contingencies (Note 10)

Equity:
Preferred stock (50 million shares authorized; none issued)			―		―
Common stock (750 million shares authorized; 240 million shares
outstanding at June 30, 2011 and December 31, 2010, no par value)			2,074		2,036
Retained earnings			7,868		7,329
Deferred compensation			(5)		(8)
Accumulated other comprehensive income (loss)			(358)		(330)
Total Sempra Energy shareholders' equity			9,579		9,027
Preferred stock of subsidiaries			20		100
Other noncontrolling interests			373		111
Total equity			9,972		9,238
Total liabilities and equity		$	31,836	$	30,283
(1)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
	Six months ended June 30,
	2011		2010
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	766	$	305
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization		479		425
Deferred income taxes and investment tax credits		147		96
Equity earnings		(47)		(53)
Remeasurement of equity method investments		(277)		―
Fixed-price contracts and other derivatives		(2)		14
Other		(23)		(6)
Net change in other working capital components		53		294
Distributions from RBS Sempra Commodities LLP		53		198
Changes in other assets		2		53
Changes in other liabilities		(12)		(19)
Net cash provided by operating activities		1,139		1,307

CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(1,225)		(839)
Expenditures for investments and acquisition of businesses, net of cash acquired		(682)		(370)
Distributions from RBS Sempra Commodities LLP		276		―
Distributions from other investments		29		36
Purchases of nuclear decommissioning and other trust assets		(97)		(159)
Proceeds from sales by nuclear decommissioning and other trusts		94		159
Decrease in restricted cash		388		45
Increase in restricted cash		(420)		(40)
Other		(16)		1
Net cash used in investing activities		(1,653)		(1,167)

CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid		(210)		(172)
Redemption of subsidiary preferred stock		(80)		―
Preferred dividends paid by subsidiaries		(5)		(5)
Issuances of common stock		20		22
Repurchases of common stock		(18)		(2)
Issuances of debt (maturities greater than 90 days)		870		270
Payments on debt (maturities greater than 90 days)		(270)		(710)
(Decrease) increase in short-term debt, net		(319)		534
Other		10		1
Net cash used in financing activities		(2)		(62)

Effect of exchange rate changes on cash and cash equivalents		(4)		―

(Decrease) increase in cash and cash equivalents		(520)		78
Cash and cash equivalents, January 1		912		110
Cash and cash equivalents, June 30	$	392	$	188
See Notes to Condensed Consolidated Financial Statements.

SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
	Six months ended June 30,
	2011		2010
	(unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments, net of amounts capitalized	$	211	$	212
Income tax payments, net		75		5

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Acquisition of businesses:
Assets acquired	$	2,815	$	303
Cash paid, net of cash acquired		(611)		(285)
Fair value of equity method investments immediately prior to the acquisition		(882)		―
Fair value of noncontrolling interests		(279)		―
Additional consideration accrued		(32)		(7)
Liabilities assumed	$	1,011	$	11

Increase in capital lease obligations for investments in property, plant and equipment	$	―	$	183
Accrued capital expenditures		273		290
Dividends declared but not paid		119		99
See Notes to Condensed Consolidated Financial Statements.

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions)

	Three months ended June 30,				Six months ended June 30,
	2011		2010		2011		2010
	(unaudited)
Operating revenues
Electric	$	583	$	589	$	1,248	$	1,152
Natural gas		114		103		289		282
Total operating revenues		697		692		1,537		1,434
Operating expenses
Cost of electric fuel and purchased power		156		129		327		277
Cost of natural gas		52		44		135		133
Operation and maintenance		228		237		501		469
Depreciation and amortization		105		95		208		187
Franchise fees and other taxes		43		41		90		84
Total operating expenses		584		546		1,261		1,150
Operating income		113		146		276		284
Other income (expense), net		13		(16)		29		(16)
Interest expense		(31)		(31)		(67)		(62)
Income before income taxes		95		99		238		206
Income tax expense		(42)		(44)		(91)		(75)
Net income		53		55		147		131
Losses attributable to noncontrolling interests		19		21		15		29
Earnings		72		76		162		160
Preferred dividend requirements		(1)		(1)		(2)		(2)
Earnings attributable to common shares	$	71	$	75	$	160	$	158
See Notes to Condensed Consolidated Financial Statements.

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		June 30,		December 31,
		2011		2010(1)
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	85	$	127
Restricted cash			186		116
Accounts receivable - trade			254		248
Accounts receivable - other			38		59
Due from unconsolidated affiliates			1		12
Income taxes receivable			72		37
Deferred income taxes			40		129
Inventories			67		71
Regulatory assets arising from fixed-price contracts and other derivatives			52		66
Other regulatory assets			6		5
Fixed-price contracts and other derivatives			22		28
Settlement receivable related to wildfire litigation			―		300
Other			32		50
Total current assets			855		1,248

Other assets:
Restricted cash			2		―
Deferred taxes recoverable in rates			536		502
Regulatory assets arising from fixed-price contracts and other derivatives			212		233
Regulatory assets arising from pension and other postretirement
benefit obligations			274		279
Regulatory assets arising from wildfire litigation costs			397		364
Other regulatory assets			73		73
Nuclear decommissioning trusts			808		769
Sundry			127		56
Total other assets			2,429		2,276

Property, plant and equipment:
Property, plant and equipment			11,723		11,247
Less accumulated depreciation and amortization			(2,641)		(2,694)
Property, plant and equipment, net ($503 and $516 at June 30, 2011 and December 31, 2010, respectively, related to VIE)			9,082		8,553
Total assets		$	12,366	$	12,077
(1)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		June 30,		December 31,
		2011		2010(1)
		(unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	269	$	292
Due to unconsolidated affiliates			33		16
Accrued compensation and benefits			79		115
Regulatory balancing accounts, net			122		61
Current portion of long-term debt			19		19
Fixed-price contracts and other derivatives			50		51
Customer deposits			59		54
Reserve for wildfire litigation			422		639
Other			120		136
Total current liabilities			1,173		1,383
Long-term debt ($350 and $355 at June 30, 2011 and December 31, 2010, respectively, related to VIE)			3,470		3,479

Deferred credits and other liabilities:
Customer advances for construction			21		21
Pension and other postretirement benefit obligations, net of plan assets			305		309
Deferred income taxes			1,115		1,001
Deferred investment tax credits			24		25
Regulatory liabilities arising from removal obligations			1,460		1,409
Asset retirement obligations			638		619
Fixed-price contracts and other derivatives			236		248
Deferred credits and other			288		283
Total deferred credits and other liabilities			4,087		3,915
Contingently redeemable preferred stock			79		79

Commitments and contingencies (Note 10)

Equity:
Common stock (255 million shares authorized; 117 million shares outstanding;
no par value)			1,338		1,138
Retained earnings			2,140		1,980
Accumulated other comprehensive income (loss)			(10)		(10)
Total SDG&E shareholder's equity			3,468		3,108
Noncontrolling interest			89		113
Total equity			3,557		3,221
Total liabilities and equity		$	12,366	$	12,077
(1)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)

	Six months ended June 30,
	2011		2010
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	147	$	131
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		208		187
Deferred income taxes and investment tax credits		167		23
Fixed price contracts and other derivatives		(6)		28
Other		(20)		(14)
Net change in other working capital components		52		(133)
Changes in other assets		15		9
Changes in other liabilities		(7)		(10)
Net cash provided by operating activities		556		221

CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(714)		(522)
Purchases of nuclear decommissioning trust assets		(95)		(155)
Proceeds from sales by nuclear decommissioning trusts		90		150
Decrease in loans to affiliates, net		―		14
Decrease in restricted cash		257		45
Increase in restricted cash		(329)		(40)
Other		―		(1)
Net cash used in investing activities		(791)		(509)

CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution		200		―
Preferred dividends paid		(2)		(2)
Issuances of long-term debt		―		250
Payments on long-term debt		(5)		(5)
Increase in short-term debt, net		―		63
Other		―		(3)
Net cash provided by financing activities		193		303

(Decrease) increase in cash and cash equivalents		(42)		15
Cash and cash equivalents, January 1		127		13
Cash and cash equivalents, June 30	$	85	$	28

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments, net of amounts capitalized	$	64	$	58
Income tax payments, net		29		49

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Increase in capital lease obligations for investments in property, plant, and equipment	$	―	$	183
Accrued capital expenditures		131		109
Dividends declared but not paid		1		1
See Notes to Condensed Consolidated Financial Statements.

SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions)

	Three months ended June 30,				Six months ended June 30,
	2011		2010		2011		2010
	(unaudited)

Operating revenues	$	876	$	834	$	1,932	$	2,016
Operating expenses
Cost of natural gas		335		318		866		992
Operation and maintenance		327		293		615		555
Depreciation		82		77		163		152
Franchise fees and other taxes		29		28		66		65
Total operating expenses		773		716		1,710		1,764
Operating income		103		118		222		252
Other income, net		3		2		6		6
Interest expense		(18)		(16)		(35)		(33)
Income before income taxes		88		104		193		225
Income tax expense		(28)		(34)		(65)		(90)
Net income		60		70		128		135
Preferred dividend requirements		(1)		(1)		(1)		(1)
Earnings attributable to common shares	$	59	$	69	$	127	$	134
See Notes to Condensed Consolidated Financial Statements.

SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		June 30,		December 31,
		2011		2010(1)
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	16	$	417
Accounts receivable - trade			363		534
Accounts receivable - other			54		49
Due from unconsolidated affiliates			287		63
Income taxes receivable			20		28
Inventories			35		105
Regulatory assets			7		12
Other			48		39
Total current assets			830		1,247

Other assets:
Regulatory assets arising from pension and other postretirement
benefit obligations			590		586
Other regulatory assets			126		123
Sundry			16		8
Total other assets			732		717

Property, plant and equipment:
Property, plant and equipment			9,974		9,824
Less accumulated depreciation and amortization			(3,796)		(3,802)
Property, plant and equipment, net			6,178		6,022
Total assets		$	7,740	$	7,986
(1)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		June 30,		December 31,
		2011		2010(1)
		(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade		$	223	$	327
Accounts payable - other			58		79
Due to unconsolidated affiliate			―		11
Deferred income taxes			17		17
Accrued compensation and benefits			97		98
Regulatory balancing accounts, net			154		180
Current portion of long-term debt			8		262
Customer deposits			69		73
Other			165		163
Total current liabilities			791		1,210
Long-term debt			1,317		1,320
Deferred credits and other liabilities:
Customer advances for construction			112		133
Pension and other postretirement benefit obligations, net of plan assets			620		613
Deferred income taxes			506		418
Deferred investment tax credits			24		25
Regulatory liabilities arising from removal obligations			1,219		1,208
Asset retirement obligations			808		788
Deferred taxes refundable in rates			115		138
Deferred credits and other			195		178
Total deferred credits and other liabilities			3,599		3,501

Commitments and contingencies (Note 10)

Shareholders' equity:
Preferred stock			22		22
Common stock (100 million shares authorized; 91 million shares outstanding;
no par value)			866		866
Retained earnings			1,166		1,089
Accumulated other comprehensive income (loss)			(21)		(22)
Total shareholders' equity			2,033		1,955
Total liabilities and shareholders' equity		$	7,740	$	7,986
(1)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
	Six months ended June 30,
	2011		2010
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	128	$	135
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation		163		152
Deferred income taxes and investment tax credits		62		13
Other		(3)		(2)
Net change in other working capital components		74		325
Changes in other assets		16		4
Changes in other liabilities		(4)		(6)
Net cash provided by operating activities		436		621

CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(325)		(216)
Increase in loans to affiliates, net		(211)		(252)
Net cash used in investing activities		(536)		(468)

CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid		(50)		(100)
Payment of long-term debt		(250)		―
Preferred dividends paid		(1)		(1)
Net cash used in financing activities		(301)		(101)

(Decrease) increase in cash and cash equivalents		(401)		52
Cash and cash equivalents, January 1		417		49
Cash and cash equivalents, June 30	$	16	$	101

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments, net of amounts capitalized	$	34	$	29
Income tax payments, net		6		44

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Accrued capital expenditures	$	78	$	61
See Notes to Condensed Consolidated Financial Statements.

SEMPRA ENERGY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. GENERAL

PRINCIPLES OF CONSOLIDATION

Sempra Energy

Sempra Energy's Condensed Consolidated Financial Statements include the accounts of Sempra Energy, a California-based Fortune 500 holding company, and its consolidated subsidiaries and variable interest entities (VIEs). Sempra Energy’s principal subsidiaries are

§	San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company (SoCalGas), which we collectively refer to as the Sempra Utilities; and

§	Sempra Global is the holding company for our energy-related businesses, which are Sempra Generation, Sempra Pipelines & Storage and Sempra LNG. Sempra Pipelines & Storage also owns utilities in the U.S., Mexico, and South America.

Sempra Energy uses the equity method to account for investments in affiliated companies over which we have the ability to exercise significant influence, but not control. We discuss our investments in unconsolidated subsidiaries in Note 4 below and Note 4 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2010.

SDG&E

SDG&E's Condensed Consolidated Financial Statements include its accounts and the accounts of a VIE of which SDG&E is the primary beneficiary, as we discuss in Note 5 under "Variable Interest Entities." SDG&E’s common stock is wholly owned by Enova Corporation, which is a wholly owned subsidiary of Sempra Energy.

SoCalGas

SoCalGas’ Condensed Consolidated Financial Statements include its subsidiaries, which comprise less than one percent of its consolidated financial position and results of operations. SoCalGas’ common stock is wholly owned by Pacific Enterprises (PE), which is a wholly owned subsidiary of Sempra Energy.

BASIS OF PRESENTATION

This is a combined report of Sempra Energy, SDG&E and SoCalGas. We provide separate information for SDG&E and SoCalGas as required. References in this report to "we," "our" and "Sempra Energy Consolidated" are to Sempra Energy and its consolidated entities, unless otherwise indicated by the context. We have eliminated intercompany accounts and transactions within the consolidated financial statements of each reporting entity.

We have prepared the Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (GAAP) and in accordance with the interim-period-reporting requirements of Form 10-Q. Results of operations for interim periods are not necessarily indicative of results for the entire year. We evaluated events and transactions that occurred after June 30, 2011 through the date the financial statements were issued, and in the opinion of management, the accompanying statements reflect all adjustments necessary for a fair presentation. These adjustments are only of a normal, recurring nature.

As we discuss in Note 3, in April 2011, Sempra Pipelines & Storage acquired two electric distribution utilities in South America. Sempra Pipelines & Storage also owns Mobile Gas Service Corporation (Mobile Gas) in southwest Alabama and Ecogas Mexico, S de RL de CV (Ecogas) in Northern Mexico, both natural gas distribution utilities. Previous to this quarterly report, we provided separate revenue and cost of revenue information on our consolidated statements of operations for the Sempra Utilities only, as the amounts for Mobile Gas and Ecogas were immaterial. Due to the addition of the South American utilities, beginning with this quarterly report, we are providing separate revenue and cost of revenue information on the Condensed Consolidated Statements of Operations on a combined basis for all of our utilities. Accordingly, amounts in the prior periods have been reclassified to conform with the current year presentation.

All December 31, 2010 balance sheet information in the Condensed Consolidated Financial Statements has been derived from our audited 2010 consolidated financial statements. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the interim-period-reporting provisions of GAAP and the Securities and Exchange Commission.

You should read the information in this Quarterly Report in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2010 (the Annual Report) and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, which are combined reports for Sempra Energy, SDG&E, PE and SoCalGas. PE is no longer obligated to file such annual or quarterly reports due to the redemption of its preferred stock as we discuss in Note 5.

We describe our significant accounting policies in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report. We follow the same accounting policies for interim reporting purposes, except for the adoption of new accounting standards as we discuss in Note 2.

The Sempra Utilities and Sempra Pipelines & Storage's Mobile Gas and Ecogas prepare their financial statements in accordance with GAAP provisions governing regulated operations, as we discuss in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.

NOTE 2. NEW ACCOUNTING STANDARDS

We describe below recent pronouncements that have had or may have a significant effect on our financial statements. We do not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to our financial condition, results of operations, or disclosures.

SEMPRA ENERGY, SDG&E AND SOCALGAS

Accounting Standards Update (ASU) 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (IFRSs)" (ASU 2011-04): ASU 2011-04 amends Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures, and provides changes in the wording used to describe the requirements for measuring fair value and disclosing information about fair value measurement. ASU 2011-04 results in common fair value measurement and disclosure requirements under both GAAP and IFRSs.

ASU 2011-04 expands fair value measurement disclosures for Level 3 instruments to require

§	quantitative information about the unobservable inputs

§	a description of the valuation process

§	a qualitative discussion about the sensitivity of the measurements

We will adopt ASU 2011-04 on January 1, 2012 as required and do not expect it to affect our financial position or results of operations. We will provide the additional disclosure in our 2012 interim financial statements.

ASU 2011-05, "Presentation of Comprehensive Income" (ASU 2011-05): ASU 2011-05 amends ASC Topic 220, Comprehensive Income, and eliminates the option to report other comprehensive income and its components in the statement of changes in equity. The ASU allows an entity an option to present the components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements.

ASU 2011-05 does not change the items that must be reported in other comprehensive income, when an item of other comprehensive income must be reclassified to net income, or the earnings per share computation.

We will adopt ASU 2011-05 on January 1, 2012 and present our 2012 interim financial statements as required by the ASU.

NOTE 3. ACQUISITION AND INVESTMENT ACTIVITY

SEMPRA PIPELINES & STORAGE

Chilquinta Energía S.A. (Chilquinta Energía) and Luz del Sur S.A.A. (Luz del Sur)

On April 6, 2011, Sempra Pipelines & Storage acquired from AEI its interests in Chilquinta Energía in Chile and Luz del Sur in Peru, and their subsidiaries. Prior to the acquisition, Sempra Pipelines & Storage and AEI each owned 50 percent of Chilquinta Energía and approximately 38 percent of Luz del Sur. Sempra Pipelines & Storage now owns 100 percent of Chilquinta Energía and approximately 76 percent of Luz del Sur, with the remaining shares of Luz del Sur held by institutional investors and the general public. As part of the transaction, Sempra Pipelines & Storage also acquired AEI’s interests in two energy-services companies, Tecnored S.A. and Tecsur S.A. The adjusted purchase price of $888 million resulted from valuing the net assets in Chile, Peru and other holding companies at $495 million, $385 million and $8 million, respectively. We paid $611 million in cash ($888 million less $245 million of cash acquired and $32 million of consideration withheld for a liability related to the purchase).

As part of our acquisition of AEI’s interest in Luz del Sur, we are required to launch a tender offer to the minority shareholders of Luz del Sur to purchase their shares (up to a maximum 14.73 percent interest in the company). On August 8, 2011, we initiated a public tender offer for up to 14.73 percent of Luz del Sur’s stock to begin on August 9, 2011 and conclude on September 6, 2011 at a price of $2.29 per share. If the maximum shares were to be tendered, this would require a cash expenditure of up to $164 million. The per share value, computed according to procedures established by the local securities regulatory agency, was based on an independent appraiser’s valuation of $2.22 per share as of April 6, 2011, the date of acquisition, adjusted by an interest rate factor to the value as of August 1, 2011. The interest rate factor is published daily by the Central Bank of Peru.

We expect the acquisition to be accretive to our earnings per share in 2011 and beyond, based on historically strong operating performance of the companies within sound regulatory environments and stable, growing countries. We provide additional information about Sempra Pipelines & Storage’s investments in Chilquinta Energía and Luz Del Sur in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.

The allocation of the purchase price is preliminary and will be completed during the measurement period. Our analysis of acquired assets and liabilities is ongoing to ensure that all identifiable assets are properly valued. Accordingly, the amounts shown below, which include goodwill, deferred taxes and related amounts, could change upon completion of our analysis. The following table summarizes the preliminary consideration paid in the acquisition and the recognized amounts of the assets acquired and liabilities assumed, as well as the fair value at the acquisition date of the noncontrolling interests:

			At April 6, 2011
				Chilean		Peruvian		Other holding
(Dollars in millions)				entities		entities		companies		Total
Fair value of businesses acquired:
		Cash consideration (fair value of total consideration)	$	495	$	385	$	8	$	888
		Fair value of equity method investments
		immediately prior to the acquisition		495		385		2		882
		Fair value of noncontrolling interests		37		242		―		279
Total fair value of businesses acquired				1,027		1,012		10		2,049

Recognized amounts of identifiable assets
	acquired and liabilities assumed:
		Cash		219		22		4		245
		Accounts receivable(1)		159		101		6		266
		Other current assets		20		19		―		39
		Property, plant and equipment		554		931		―		1,485
		Other noncurrent assets		66		―		―		66
		Accounts payable		(79)		(59)		―		(138)
		Short-term debt and current portion of long-term debt		―		(47)		―		(47)
		Other current liabilities		(29)		(56)		―		(85)
		Long-term debt		(294)		(179)		―		(473)
		Other noncurrent liabilities		(90)		(178)		―		(268)
Total identifiable net assets				526		554		10		1,090
Goodwill			$	501	$	458	$	―	$	959

Acquisition-related costs (included in Other Operation
	and Maintenance expense on the Condensed
	Consolidated Statements of Operations for the
	three months and six months ended June 30, 2011)		$	1	$	1	$	―	$	2
(1)		We expect acquired accounts receivable to be substantially realizable in cash. Accounts receivable are net of collection allowances of $6 million for Chile and $1 million for Peru.

Our results for the three months and six months ended June 30, 2011 include a $277 million gain (both pretax and after-tax) related to the remeasurement of equity method investments, included as Remeasurement of Equity Method Investments on the Condensed Consolidated Statements of Operations. We calculated the gain as the difference between the acquisition-date fair value ($882 million) and the book value ($605 million) of our equity interests in Chilquinta Energía and Luz del Sur immediately prior to the acquisition date. This book value of our equity interests included currency translation adjustment balances in Accumulated Other Comprehensive Income (Loss). The valuation techniques we used to measure the acquisition-date fair value of the businesses included discounted cash flow analysis and the market multiple approach (enterprise value to earnings before interest, taxes, depreciation and amortization (EBITDA)). Our assumptions for these measures included estimated future cash flows, use of appropriate discount rates, market trading multiples and market transaction multiples. Discount rates used reflect consideration of risk free rates, as well as country and company risk. Methodologies used to determine fair values of material assets as of the date of the acquisition included

§	the replacement cost approach for property, plant and equipment; and

§	goodwill associated primarily with the value of residual future cash flows that we believe these businesses will generate, to be tested for impairment annually. For income tax purposes, none of the goodwill recorded is deductible in Chile, Peru or the United States.

For substantially all other assets and liabilities, our analysis of fair value factors indicated that book value approximates fair value. We valued noncontrolling interests based on the fair value of tangible assets, and in the case of Luz del Sur, an allocation of goodwill based on relative enterprise value.

Our Condensed Consolidated Statements of Operations include 100 percent of the acquired companies' revenues, net income and earnings from the date of acquisition of $361 million, $48 million and $40 million, respectively, for the three months and six months ended June 30, 2011. These amounts do not include the remeasurement gain.

Following are pro forma revenues and earnings for Sempra Energy had the acquisition occurred on January 1, 2010, which primarily reflect the incremental increase to revenues and earnings from our increased ownership and consolidation of the entities acquired. Although some short-term debt borrowings may have resulted from the actual acquisition in 2011, we have not assumed any additional interest expense in the pro forma impact on earnings below, as the amounts would be immaterial due to the low interest rates available to us on commercial paper.

		Three months ended June 30,				Six months ended June 30,
(Dollars in millions)		2011		2010		2011		2010

Revenues		$	2,422	$	2,353	$	5,199	$	5,163

Earnings(1)			234		245		517		647
(1)	Pro forma earnings in the six months ended June 30, 2010 include a $277 million gain on this transaction related to the remeasurement of equity method investments.

Chilquinta Energía is an electric distribution utility serving customers in the cities of Valparaiso and Viña del Mar in central Chile. Luz del Sur is an electric distribution utility in the southern zone of metropolitan Lima, Peru. The companies serve primarily regulated customers, and their revenues are based on tariffs that are set by the National Energy Commission (Comisión Nacional de Energía, or CNE) in Chile and the Energy and Mining Investment Supervisory Body (OSINERGMIN) of the National Electricity Office under the Ministry of Energy and Mines in Peru.

The tariffs charged are based on an efficient model distribution company defined by Chilean law in the case of Chilquinta Energía, and OSINERGMIN in the case of Luz del Sur. The tariffs include operation and maintenance costs, an internal rate of return on the new replacement value (VNR) of depreciable assets, charges for the use of transmission systems, and a component for the value added by the distributor. Tariffs are designed to provide for a pass-through to customers of the main noncontrollable cost items (mainly power purchases and transmission charges), recovery of reasonable operating and administrative costs, incentives to reduce costs and make needed capital investments and a regulated rate of return on the distributor’s regulated asset base. Because the tariffs are based on a model and are intended to cover the costs of the model company, but are not based on the costs of the specific utility and may not result in full cost recovery, they do not meet the requirement necessary for treatment under applicable GAAP for regulatory accounting.

The components of the tariffs discussed above are reviewed and adjusted every four years. The next reviews for Chilquinta Energía and Luz del Sur are scheduled to be completed, with tariff adjustments also going into effect, in November 2012 and 2013, respectively.

The companies use their local currency, the Chilean Peso or the Peruvian Nuevo Sol, as their functional currency. We discuss the conversion of financial statements using a foreign currency as the functional currency in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.

Mexican Pipeline and Natural Gas Infrastructure Assets

On April 30, 2010, Sempra Pipelines & Storage completed the acquisition of the Mexican pipeline and natural gas infrastructure assets of El Paso Corporation for $307 million ($292 million, net of cash acquired), as we discuss in Note 3 of the Notes to Consolidated Financial Statements in the Annual Report. Pro forma impacts on revenues and earnings for Sempra Energy had the acquisition occurred on January 1, 2010 were immaterial.

Rockies Express

In the six months ended June 30, 2010, Sempra Pipelines & Storage contributed $65 million to Rockies Express, a joint venture to own and operate the Rockies Express Pipeline. The contribution was the last required for the construction phase of the project.

NOTE 4. INVESTMENTS IN UNCONSOLIDATED ENTITIES

As we discuss in Note 3, Sempra Pipelines & Storage’s interests in Chile and Peru are no longer recorded as equity method investments, but are consolidated effective April 6, 2011. We provide additional information concerning all of our equity method investments in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.

RBS SEMPRA COMMODITIES

RBS Sempra Commodities LLP (RBS Sempra Commodities) is a United Kingdom limited liability partnership that owned and operated commodities-marketing businesses. We account for our investment in RBS Sempra Commodities under the equity method, and report our share of partnership earnings in Parent and Other.

We and our partner in the joint venture, The Royal Bank of Scotland (RBS), sold substantially all of the partnership’s businesses and assets in four separate transactions completed in July, November and December of 2010 and February of 2011. We expect our share of remaining proceeds to approximate $439 million, the amount of our investment in RBS Sempra Commodities as of June 30, 2011.

On April 15, 2011, we and RBS entered into a letter agreement (Letter Agreement) which amended certain provisions of the agreements that formed RBS Sempra Commodities. The Letter Agreement addresses the wind-down of the partnership and the distribution of the partnership’s remaining assets. In accordance with the Letter Agreement, we received a $329 million distribution on April 15, 2011. This distribution included sales proceeds and our portion of 2010 distributable income totaling $357 million, less amounts to settle certain liabilities that we owed to RBS of $28 million. The Letter Agreement affirms that RBS Sempra Commodities will consider additional distributions of capital after taking into account various factors including available cash, the need for prudent reserves, potential payouts to the purchasers of the partnership’s businesses, and any accrued or projected future operating losses or other wind-down expenses of the partnership. The availability of cash is also impacted by the transfer of trading accounts to JP Morgan, one of the buyers in the sales transactions. These transfers and the related collection of accounts receivable and net margin continue as planned, and will be done as promptly as practicable during 2011. Future distributions will generally be made 51 percent to RBS, and 49 percent to us. The Letter Agreement also allows RBS Sempra Commodities to make capital calls to us, subject to certain limits, if necessary to support the remaining operations, for other liabilities or for other payments owed in connection with the sales transactions (subject to additional limitations). We do not anticipate any such capital calls.

In connection with the Letter Agreement described above, we also released RBS from its indemnification obligations with respect to the items for which JP Morgan has agreed to indemnify us.

For the six months ended June 30, 2011, we recorded a pretax equity loss from RBS Sempra Commodities of $8 million, all of which was recorded in the first quarter of 2011. Pretax equity losses from RBS Sempra Commodities were $16 million and $9 million for the three months and six months ended June 30, 2010, respectively.

We discuss the RBS Sempra Commodities sales transactions and other matters concerning the partnership in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.

NOTE 5. OTHER FINANCIAL DATA

VARIABLE INTEREST ENTITIES (VIE)

We consolidate a VIE if we are the primary beneficiary of the VIE. Our determination of whether we are the primary beneficiary is based upon qualitative and quantitative analyses, which assess

§	the purpose and design of the VIE;

§	the nature of the VIE's risks and the risks we absorb;

§	the power to direct activities that most significantly impact the economic performance of the VIE; and

§	the obligation to absorb losses or right to receive benefits that could be significant to the VIE.

SDG&E has agreements under which it purchases power generated by facilities for which it supplies all of the natural gas to fuel the power plant (i.e., tolling agreements). SDG&E’s obligation to absorb natural gas costs may be a significant variable interest. In addition, SDG&E has the power to direct the dispatch of electricity generated by these facilities. Based upon our analysis, the ability to direct the dispatch of electricity may have the most significant impacts on the economic performance of the entity owning the generating facility because of the associated exposure to the cost of natural gas, which fuels the plants, and the value of electricity produced. To the extent that SDG&E (1) is obligated to purchase and provide fuel to operate the facility, (2) has the power to direct the dispatch, and (3) purchases all of the output from the facility for a substantial portion of the facility’s useful life, SDG&E may be the primary beneficiary of the entity owning the generating facility. SDG&E determines if it is the primary beneficiary in these cases based on the operational characteristics of the facility, including its expected power generation output relative to its capacity to generate and the financial structure of the entity, among other factors. If we determine that SDG&E is the primary beneficiary, Sempra Energy and SDG&E consolidate the entity that owns the facility as a VIE, as we discuss below.

Otay Mesa VIE

SDG&E has a 10-year agreement to purchase power generated at the Otay Mesa Energy Center (OMEC), a 605-megawatt (MW) generating facility. In addition to tolling, the agreement provides SDG&E with the option to purchase the power plant at the end of the contract term in 2019, or upon earlier termination of the purchased-power agreement, at a predetermined price subject to adjustments based on performance of the facility. If SDG&E does not exercise its option it may be required, under certain circumstances, to purchase the power plant at a predetermined price.

The facility owner, Otay Mesa Energy Center LLC (OMEC LLC), is a VIE (Otay Mesa VIE), of which SDG&E is the primary beneficiary. SDG&E has no OMEC LLC voting rights and does not operate OMEC. In addition to the risks absorbed under the tolling agreement, SDG&E absorbs separately through the put option a significant portion of the risk that the value of Otay Mesa VIE could decline. Otay Mesa VIE's equity of $89 million at June 30, 2011 and $113 million at December 31, 2010 is included on the Condensed Consolidated Balance Sheets in Other Noncontrolling Interests for Sempra Energy and in Noncontrolling Interest for SDG&E.

OMEC LLC has a loan outstanding of $360 million at June 30, 2011, the proceeds of which were used for the construction of OMEC. The loan is with third party lenders and is secured by OMEC's property, plant and equipment. SDG&E is not a party to the loan agreement and does not have any additional implicit or explicit financial responsibility to OMEC LLC. The loan fully matures in April 2019 and bears interest at rates varying with market rates. In addition, OMEC LLC has entered into interest rate swap agreements to moderate its exposure to interest rate changes. We provide additional information concerning the interest rate swaps in Note 7.

Other Variable Interest Entities