Edgar Filing: PACIFIC ENTERPRISES INC

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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, 2009

[ ]

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)696-2034

1-3779

SAN DIEGO GAS & ELECTRIC COMPANY

California

95-1184800

No change

8326 Century Park Court

San Diego, California 92123

(619)696-2000

1-40

PACIFIC ENTERPRISES

California

94-0743670

No change

101 Ash Street

San Diego, California 92101

(619)696-2020

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 registrants have submitted electronically and posted on their 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

Pacific Enterprises

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 ]

[ ]

Pacific Enterprises

[ ]

[ 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

Pacific Enterprises

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 July 24, 2009:

Sempra Energy

245,337,795 shares

San Diego Gas & Electric Company

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

Pacific Enterprises

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 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	66
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	90
Item 4.	Controls and Procedures	91

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	92
Item 1A.	Risk Factors	92
Item 4.	Submission of Matters to a Vote of Security Holders	93
Item 6.	Exhibits	94

Signatures		96

This combined Form 10-Q is separately filed by Sempra Energy, San Diego Gas & Electric Company, Pacific Enterprises and Southern California Gas Company. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company provides information only as to itself and its consolidated entities and not 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," "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, the California State Legislature, the California Department of Water Resources, the Federal Energy Regulatory Commission, the Federal Reserve Board, and other regulatory and governmental bodies in the United States, the United Kingdom and other countries;

capital markets conditions and inflation, interest and exchange rates;

energy and trading 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 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,
	2009		2008*		2009		2008*
	(unaudited)
REVENUES
Sempra Utilities	$	1,316	$	1,887	$	2,958	$	4,177
Sempra Global and parent		373		616		839		1,596
Total revenues		1,689		2,503		3,797		5,773
EXPENSES AND OTHER INCOME
Sempra Utilities:
Cost of natural gas		(249)		(784)		(789)		(2,019)
Cost of electric fuel and purchased power		(129)		(220)		(300)		(383)
Sempra Global and parent:
Cost of natural gas, electric fuel and purchased power		(187)		(513)		(455)		(922)
Other cost of sales		(16)		(17)		(33)		(153)
Operation and maintenance		(589)		(549)		(1,105)		(1,252)
Depreciation and amortization		(189)		(171)		(372)		(346)
Franchise fees and other taxes		(69)		(71)		(151)		(154)
Gains on sale of assets		3		109		3		114
Write-off of long-lived assets		(132)		-		(132)		-
Equity earnings:
RBS Sempra Commodities LLP		126		146		279		146
Other		2		9		9		15
Other income, net		70		32		73		51
Interest income		5		10		11		24
Interest expense		(79)		(38)		(161)		(98)
Income before income taxes and equity earnings
of certain unconsolidated subsidiaries		256		446		674		796
Income tax expense		(90)		(202)		(199)		(329)
Equity earnings, net of income tax		23		18		39		39
Net income		189		262		514		506
(Earnings) losses attributable to noncontrolling interests		12		(15)		5		(15)
Preferred dividends of subsidiaries		(3)		(3)		(5)		(5)
Earnings	$	198	$	244	$	514	$	486

Basic earnings per common share	$	0.82	$	0.99	$	2.12	$	1.93
Weighted-average number of shares outstanding,
basic (thousands)		242,718		245,576		242,245		252,100

Diluted earnings per common share	$	0.80	$	0.98	$	2.09	$	1.90
Weighted-average number of shares outstanding,
diluted (thousands)		247,090		249,677		246,039		256,169
Dividends declared per share of common stock	$	0.39	$	0.35	$	0.78	$	0.67
* As adjusted for the retrospective adoption of SFAS 160 (ASC 810).
See Notes to Condensed Consolidated Financial Statements.


SEMPRA ENERGY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
	June 30,		December 31,
	2009		2008
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	818	$	331
Short-term investments		-		176
Restricted cash		27		27
Trade accounts receivable, net		596		903
Other accounts and notes receivable, net		119		78
Due from unconsolidated affiliates		21		4
Income taxes receivable		114		195
Deferred income taxes		96		31
Inventories		169		320
Regulatory assets		88		121
Fixed-price contracts and other derivatives		100		160
Insurance receivable related to wildfire litigation (Note 10)		940		-
Other		236		130
Total current assets		3,324		2,476

Investments and other assets:
Regulatory assets arising from fixed-price contracts and other derivatives		252		264
Regulatory assets arising from pension and other postretirement
benefit obligations		1,212		1,188
Other regulatory assets		558		534
Nuclear decommissioning trusts		580		577
Investment in RBS Sempra Commodities LLP		2,019		2,082
Other investments		1,470		1,166
Goodwill and other intangible assets		529		539
Sundry		565		709
Total investments and other assets		7,185		7,059

Property, plant and equipment:
Property, plant and equipment		23,889		23,153
Less accumulated depreciation and amortization		(6,476)		(6,288)
Property, plant and equipment, net		17,413		16,865
Total assets	$	27,922	$	26,400
See Notes to Condensed Consolidated Financial Statements.


SEMPRA ENERGY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
	June 30,		December 31,
	2009		2008*
	(unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$	291	$	503
Accounts payable - trade		478		606
Accounts payable - other		138		250
Due to unconsolidated affiliates		31		38
Dividends and interest payable		183		156
Accrued compensation and benefits		186		280
Regulatory balancing accounts, net		602		335
Current portion of long-term debt		624		410
Fixed-price contracts and other derivatives		115		180
Customer deposits		149		170
Reserve for wildfire litigation (Note 10)		940		-
Other		616		684
Total current liabilities		4,353		3,612
Long-term debt		6,723		6,544

Deferred credits and other liabilities:
Due to unconsolidated affiliate		102		102
Customer advances for construction		154		155
Pension and other postretirement benefit obligations, net of plan assets		1,512		1,487
Deferred income taxes		1,152		946
Deferred investment tax credits		54		57
Regulatory liabilities arising from removal obligations		2,453		2,430
Asset retirement obligations		1,210		1,159
Other regulatory liabilities		209		219
Fixed-price contracts and other derivatives		347		392
Deferred credits and other		842		909
Total deferred credits and other liabilities		8,035		7,856
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; 245 million and 243 million
shares outstanding at June 30, 2009 and December 31, 2008, respectively;
no par value)		2,328		2,265
Retained earnings		6,559		6,235
Deferred compensation		(15)		(18)
Accumulated other comprehensive income (loss)		(395)		(513)
Total Sempra Energy shareholders' equity		8,477		7,969
Preferred stock of subsidiaries		100		100
Other noncontrolling interests		155		240
Total equity		8,732		8,309
Total liabilities and equity	$	27,922	$	26,400
* As adjusted for the retrospective adoption of SFAS 160 (ASC 810).
See Notes to Condensed Consolidated Financial Statements.


SEMPRA ENERGY
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in millions)
	Six months ended June 30,
	2009		2008*
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	514	$	506
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization		372		346
Deferred income taxes and investment tax credits		90		51
Equity earnings		(327)		(200)
Gains on sale of assets		(3)		(114)
Write-off of long-lived assets		132		-
Fixed-price contracts and other derivatives		(38)		47
Other		51		40
Net change in other working capital components		364		226
Distributions from RBS Sempra Commodities LLP		375		-
Changes in other assets		21		(10)
Changes in other liabilities		(26)		(27)
Net cash provided by operating activities		1,525		865

CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(938)		(1,114)
Proceeds from sale of assets, net of cash sold		179		2,071
Expenditures for investments		(217)		(2,180)
Distributions from investments		9		16
Purchases of nuclear decommissioning and other trust assets		(99)		(173)
Proceeds from sales by nuclear decommissioning and other trusts		93		177
Decrease in notes receivable from unconsolidated affiliate		-		60
Other		(14)		(15)
Net cash used in investing activities		(987)		(1,158)

CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid		(170)		(166)
Preferred dividends paid by subsidiaries		(5)		(5)
Issuances of common stock		28		11
Repurchases of common stock		-		(1,002)
(Decrease) increase in short-term debt, net		(612)		496
Issuances of long-term debt		1,108		593
Payments on long-term debt		(311)		(73)
Purchase of noncontrolling interest		(94)		-
Other		5		1
Net cash used in financing activities		(51)		(145)

Increase (decrease) in cash and cash equivalents		487		(438)
Cash and cash equivalents, January 1		331		668
Cash and cash equivalents, June 30	$	818	$	230
* As adjusted for the retrospective adoption of SFAS 160 (ASC 810).
See Notes to Condensed Consolidated Financial Statements.


SEMPRA ENERGY
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in millions)
	Six months ended June 30,
	2009		2008
	(unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments, net of amounts capitalized	$	141	$	157

Income tax payments, net	$	36	$	140

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Decrease in accounts payable from investments in property, plant
and equipment	$	(103)	$	(62)

Dividends declared but not paid	$	98	$	89
See Notes to Condensed Consolidated Financial Statements.


SAN DIEGO GAS & ELECTRIC COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions)
	Three months ended June 30,				Six months ended June 30,
	2009		2008*		2009		2008*
	(unaudited)
Operating revenues
Electric	$	535	$	583	$	1,088	$	1,084
Natural gas		96		171		275		416
Total operating revenues		631		754		1,363		1,500
Operating expenses
Cost of electric fuel and purchased power		129		220		300		383
Cost of natural gas		37		113		124		265
Operation and maintenance		232		195		413		382
Depreciation and amortization		81		78		158		155
Franchise fees and other taxes		39		36		80		74
Total operating expenses		518		642		1,075		1,259
Operating income		113		112		288		241
Other income, net		27		20		44		23
Interest income		-		2		-		4
Interest expense		(21)		(22)		(46)		(49)
Income before income taxes		119		112		286		219
Income tax expense		(28)		(35)		(88)		(67)
Net income		91		77		198		152
Earnings attributable to noncontrolling interest		(20)		(15)		(27)		(15)
Earnings		71		62		171		137
Preferred dividend requirements		(1)		(1)		(2)		(2)
Earnings attributable to common shares	$	70	$	61	$	169	$	135
* As adjusted for the retrospective adoption of SFAS 160 (ASC 810).
See Notes to Condensed Consolidated Financial Statements.


SAN DIEGO GAS & ELECTRIC COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
	June 30,		December 31,
	2009		2008
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	187	$	19
Short-term investments		-		24
Accounts receivable - trade		221		225
Accounts receivable - other		69		30
Due from unconsolidated affiliates		1		29
Income taxes receivable		26		22
Deferred income taxes		37		17
Inventories		63		62
Regulatory assets arising from fixed-price contracts and other derivatives		68		94
Other regulatory assets		6		8
Fixed-price contracts and other derivatives		35		39
Insurance receivable related to wildfire litigation (Note 10)		940		-
Other		62		15
Total current assets		1,715		584

Other assets:
Due from unconsolidated affiliate		3		4
Deferred taxes recoverable in rates		388		369
Regulatory assets arising from fixed-price contracts and other derivatives		252		264
Regulatory assets arising from pension and other postretirement
benefit obligations		397		393
Other regulatory assets		56		59
Nuclear decommissioning trusts		580		577
Sundry		41		154
Total other assets		1,717		1,820

Property, plant and equipment:
Property, plant and equipment		9,526		9,095
Less accumulated depreciation and amortization		(2,489)		(2,420)
Property, plant and equipment, net		7,037		6,675
Total assets	$	10,469	$	9,079
See Notes to Condensed Consolidated Financial Statements.


SAN DIEGO GAS & ELECTRIC COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
	June 30,		December 31,
	2009		2008*
	(unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	196	$	261
Due to unconsolidated affiliates		55		1
Regulatory balancing accounts, net		232		114
Customer deposits		54		53
Fixed-price contracts and other derivatives		57		77
Accrued compensation and benefits		67		105
Current portion of long-term debt		7		2
Reserve for wildfire litigation (Note 10)		940		-
Other		152		163
Total current liabilities		1,760		776
Long-term debt		2,495		2,142

Deferred credits and other liabilities:
Customer advances for construction		21		26
Pension and other postretirement benefit obligations, net of plan assets		422		419
Deferred income taxes		686		628
Deferred investment tax credits		25		26
Regulatory liabilities arising from removal obligations		1,222		1,212
Asset retirement obligations		566		550
Fixed-price contracts and other derivatives		291		347
Deferred credits and other		180		204
Total deferred credits and other liabilities		3,413		3,412
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)		1,138		1,138
Retained earnings		1,436		1,417
Accumulated other comprehensive income (loss)		(10)		(13)
Total SDG&E shareholders' equity		2,564		2,542
Noncontrolling interest		158		128
Total equity		2,722		2,670
Total liabilities and equity	$	10,469	$	9,079
* As adjusted for the retrospective adoption of SFAS 160 (ASC 810).
See Notes to Condensed Consolidated Financial Statements.


SAN DIEGO GAS & ELECTRIC COMPANY AND SUBSIDIARY
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in millions)
	Six months ended June 30,
	2009		2008*
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	198	$	152
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		158		155
Deferred income taxes and investment tax credits		15		41
Fixed-price contracts and other derivatives		(34)		(15)
Other		(9)		(3)
Net change in other working capital components		30		108
Changes in other assets		13		(2)
Changes in other liabilities		(23)		(15)
Net cash provided by operating activities		348		421

CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(443)		(428)
Expenditures for short-term investments		(152)		(236)
Proceeds from sale of short-term investments		176		75
Purchases of nuclear decommissioning trust assets		(95)		(173)
Proceeds from sales by nuclear decommissioning trusts		93		175
Decrease (increase) in loans to affiliates, net		33		(24)
Other		1		-
Net cash used in investing activities		(387)		(611)

CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid		(150)		-
Preferred dividends paid		(2)		(2)
Redemptions of preferred stock		-		(14)
Issuances of long-term debt		358		84
Other		1		8
Net cash provided by financing activities		207		76

Increase (decrease) in cash and cash equivalents		168		(114)
Cash and cash equivalents, January 1		19		158
Cash and cash equivalents, June 30	$	187	$	44

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments, net of amounts capitalized	$	50	$	47

Income tax payments (refunds), net	$	86	$	(17)

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Decrease in accounts payable from investments in property, plant
and equipment	$	(61)	$	(35)

Dividends declared but not paid	$	1	$	1
* As adjusted for the retrospective adoption of SFAS 160 (ASC 810).
See Notes to Condensed Consolidated Financial Statements.


PACIFIC ENTERPRISES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions)
	Three months ended June 30,				Six months ended June 30,
	2009		2008*		2009		2008*
	(unaudited)

Operating revenues	$	694	$	1,143	$	1,614	$	2,699
Operating expenses
Cost of natural gas		214		673		669		1,760
Operation and maintenance		266		265		517		515
Depreciation		75		71		147		142
Franchise fees and other taxes		24		32		56		71
Total operating expenses		579		1,041		1,389		2,488
Operating income		115		102		225		211
Other income, net		4		1		5		1
Interest income		2		6		3		13
Interest expense		(18)		(15)		(35)		(32)
Income before income taxes		103		94		198		193
Income tax expense		(40)		(36)		(76)		(77)
Net income		63		58		122		116
Preferred dividends of subsidiary		(1)		(1)		(1)		(1)
Earnings		62		57		121		115
Preferred dividend requirements		(1)		(1)		(2)		(2)
Earnings attributable to common shares	$	61	$	56	$	119	$	113
* As adjusted for the retrospective adoption of SFAS 160 (ASC 810).
See Notes to Condensed Consolidated Financial Statements.


PACIFIC ENTERPRISES AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
	June 30,		December 31,
	2009		2008
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	538	$	206
Accounts receivable - trade		294		572
Accounts receivable - other		13		20
Due from unconsolidated affiliates		12		5
Income taxes receivable		11		108
Deferred income taxes		1		-
Inventories		57		167
Other regulatory assets		14		18
Other		87		37
Total current assets		1,027		1,133

Other assets:
Due from unconsolidated affiliate		517		457
Regulatory assets arising from pension and other postretirement
benefit obligations		816		795
Other regulatory assets		114		105
Sundry		42		49
Total other assets		1,489		1,406

Property, plant and equipment:
Property, plant and equipment		8,975		8,816
Less accumulated depreciation and amortization		(3,509)		(3,448)
Property, plant and equipment, net		5,466		5,368
Total assets	$	7,982	$	7,907
See Notes to Condensed Consolidated Financial Statements.


PACIFIC ENTERPRISES AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
	June 30,		December 31,
	2009		2008*
	(unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable - trade	$	142	$	257
Accounts payable - other		91		163
Due to unconsolidated affiliates		111		106
Deferred income taxes		-		6
Regulatory balancing accounts, net		370		221
Customer deposits		94		114
Accrued compensation and benefits		80		92
Current portion of long-term debt		100		100
Other		165		213
Total current liabilities		1,153		1,272
Long-term debt		1,269		1,270
Deferred credits and other liabilities:
Customer advances for construction		132		131
Pension and other postretirement benefit obligations, net of plan assets		842		823
Deferred income taxes		197		157
Deferred investment tax credits		29		30
Regulatory liabilities arising from removal obligations		1,230		1,218
Asset retirement obligations		599		581
Deferred taxes refundable in rates		203		214
Deferred credits and other		247		251
Total deferred credits and other liabilities		3,479		3,405

Commitments and contingencies (Note 10)

Equity:
Preferred stock		80		80
Common stock (600 million shares authorized; 84 million shares outstanding;
no par value)		1,462		1,462
Retained earnings		545		426
Accumulated other comprehensive income (loss)		(26)		(28)
Total Pacific Enterprises shareholders' equity		2,061		1,940
Preferred stock of subsidiary		20		20
Total equity		2,081		1,960
Total liabilities and equity	$	7,982	$	7,907
* As adjusted for the retrospective adoption of SFAS 160 (ASC 810).
See Notes to Condensed Consolidated Financial Statements.


PACIFIC ENTERPRISES AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in millions)
	Six months ended June 30,
	2009		2008*
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	122	$	116
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation		147		142
Deferred income taxes and investment tax credits		20		21
Other		4		1
Net change in other working capital components		266		315
Changes in other assets		7		5
Changes in other liabilities		(9)		(20)
Net cash provided by operating activities		557		580

CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(227)		(242)
Decrease (increase) in loans to affiliates, net		5		(59)
Net cash used in investing activities		(222)		(301)

CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid		-		(200)
Preferred dividends paid		(2)		(2)
Preferred dividends paid by subsidiary		(1)		(1)
Net cash used in financing activities		(3)		(203)

Increase in cash and cash equivalents		332		76
Cash and cash equivalents, January 1		206		59
Cash and cash equivalents, June 30	$	538	$	135

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments, net of amounts capitalized	$	30	$	31

Income tax payments, net	$	29	$	104

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Decrease in accounts payable from investments in property, plant
and equipment	$	(16)	$	(31)

Dividends declared but not paid	$	1	$	1
* As adjusted for the retrospective adoption of SFAS 160 (ASC 810).
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,
	2009		2008		2009		2008
	(unaudited)

Operating revenues	$	694	$	1,143	$	1,614	$	2,699
Operating expenses
Cost of natural gas		214		673		669		1,760
Operation and maintenance		265		266		516		515
Depreciation		75		71		147		142
Franchise fees and other taxes		24		32		56		71
Total operating expenses		578		1,042		1,388		2,488
Operating income		116		101		226		211
Other income, net		4		2		5		2
Interest income		1		4		2		7
Interest expense		(18)		(14)		(35)		(30)
Income before income taxes		103		93		198		190
Income tax expense		(37)		(36)		(73)		(76)
Net income		66		57		125		114
Preferred dividend requirements		(1)		(1)		(1)		(1)
Earnings attributable to common shares	$	65	$	56	$	124	$	113
See Notes to Condensed Consolidated Financial Statements.


SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
	June 30,		December 31,
	2009		2008
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	538	$	206
Accounts receivable - trade		294		572
Accounts receivable - other		13		20
Due from unconsolidated affiliates		7		-
Income taxes receivable		11		41
Deferred income taxes		1		-
Inventories		57		167
Other regulatory assets		14		18
Other		87		37
Total current assets		1,022		1,061

Other assets:
Regulatory assets arising from pension and other postretirement
benefit obligations		816		795
Other regulatory assets		114		105
Sundry		18		24
Total other assets		948		924

Property, plant and equipment:
Property, plant and equipment		8,973		8,814
Less accumulated depreciation and amortization		(3,509)		(3,448)
Property, plant and equipment, net		5,464		5,366
Total assets	$	7,434	$	7,351
See Notes to Condensed Consolidated Financial Statements.


SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
	June 30,		December 31,
	2009		2008
	(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade	$	142	$	257
Accounts payable - other		91		163
Due to unconsolidated affiliates		27		23
Deferred income taxes		-		6
Regulatory balancing accounts, net		370		221
Customer deposits		94		114
Accrued compensation and benefits		80		92
Current portion of long-term debt		100		100
Other		164		211
Total current liabilities		1,068		1,187
Long-term debt		1,269		1,270
Deferred credits and other liabilities:
Customer advances for construction		132		131
Pension and other postretirement benefit obligations, net of plan assets		842		823
Deferred income taxes		207		167
Deferred investment tax credits		29		30
Regulatory liabilities arising from removal obligations		1,230		1,218
Asset retirement obligations		599		581
Deferred taxes refundable in rates		203		214
Deferred credits and other		239		240
Total deferred credits and other liabilities		3,481		3,404

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		754		630
Accumulated other comprehensive income (loss)		(26)		(28)
Total shareholders' equity		1,616		1,490
Total liabilities and shareholders' equity	$	7,434	$	7,351
See Notes to Condensed Consolidated Financial Statements.


SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in millions)
	Six months ended June 30,
	2009		2008
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	125	$	114
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation		147		142
Deferred income taxes and investment tax credits		20		21
Other		4		1
Net change in other working capital components		263		313
Changes in other assets		7		5
Changes in other liabilities		(6)		(20)
Net cash provided by operating activities		560		576

CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(227)		(242)
Increase in loans to affiliates, net		-		(57)
Net cash used in investing activities		(227)		(299)

CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid		-		(200)
Preferred dividends paid		(1)		(1)
Net cash used in financing activities		(1)		(201)

Increase in cash and cash equivalents		332		76
Cash and cash equivalents, January 1		206		59
Cash and cash equivalents, June 30	$	538	$	135

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments, net of amounts capitalized	$	30	$	29

Income tax payments, net	$	29	$	104

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Decrease in accounts payable from investments in property, plant
and equipment	$	(16)	$	(31)
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, its consolidated subsidiaries, and a variable interest entity. 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, which is the holding company for Sempra Commodities, Sempra Generation, Sempra Pipelines & Storage, Sempra LNG and other, smaller businesses.

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.

SDG&E

SDG&E's Condensed Consolidated Financial Statements include its accounts, the accounts of its sole subsidiary, SDG&E Funding LLC, and the accounts of Otay Mesa Energy Center LLC (Otay Mesa VIE), a variable interest entity of which SDG&E is the primary beneficiary, as discussed 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. The activities of SDG&E Funding LLC were substantially complete in 2007, and the entity was dissolved in 2008.

Pacific Enterprises and SoCalGas

The Condensed Consolidated Financial Statements of Pacific Enterprises include the accounts of Pacific Enterprises (PE) and its subsidiary, SoCalGas. Sempra Energy owns all of PE’s common stock and PE owns all of SoCalGas’ common stock. SoCalGas’ Condensed Consolidated Financial Statements include its subsidiaries, which comprise less than one percent of its consolidated financial position and results of operations.

PE's operations consist solely of those of SoCalGas and additional items (e.g., cash, intercompany accounts and equity) attributable to being a holding company for SoCalGas.

BASIS OF PRESENTATION

This is a combined report of Sempra Energy, SDG&E, PE and SoCalGas. We provide separate information for SDG&E, PE and SoCalGas as required. When only information for SoCalGas is provided, it is the same for PE. 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 each set of consolidated financial statements.

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, 2009 but before the issuance of these financial statements on July 31, 2009, 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, except as we discuss below in "Presentation of Preferred Securities" and in Note 2.

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, 2008 (the Annual Report) and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, which are combined reports for Sempra Energy, SDG&E, PE and SoCalGas.

Our significant accounting policies are described 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 account for the economic effects of regulation on utility operations in accordance with Statement of Financial Accounting Standards (SFAS) 71, Accounting for the Effects of Certain Types of Regulation (ASC 980).

Presentation of Preferred Securities

In connection with the adoption of SFAS 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51 (SFAS 160) (ASC 810), as we discuss in Note 2, we evaluated the requirements of Emerging Issues Task Force (EITF) Topic No. 98, Classification and Measurement of Redeemable Securities (Topic D-98) (ASC 480), with respect to the presentation of preferred securities. In previously issued financial statements, SDG&E classified certain preferred securities within the shareholders' equity section of the balance sheet. These preferred securities contain a contingent redemption feature that allows the holder to elect a majority of SDG&E's board of directors if dividends are not paid for eight consecutive quarters. Because such a redemption triggering event is not solely within the control of SDG&E, SDG&E has concluded that these preferred securities should have been presented separate from and outside of shareholders' equity in a manner consistent with temporary equity defined in Topic D-98. Although SDG&E believes that the effects are not material to the previously issued balance sheets, SDG&E has corrected the classification of these amounts as of December 31, 2008 for comparability purposes. This change, which affects preferred securities totaling $79 million at both December 31, 2008 and June 30, 2009, affects only the balance sheet presentation of equity accounts and has no impact on earnings or on cash flows for any period presented.

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, PE AND SOCALGAS

SFAS 168, "The FASB Accounting Standards Codification^TM and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162" (SFAS 168): The Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) (the Codification) becomes the official source of GAAP on July 1, 2009, and its use is effective for periods ending after September 15, 2009. For convenience, we have provided references to the Codification throughout this Form 10-Q in addition to the current GAAP source reference.

SFAS 167, "Amendments to FASB Interpretation No. 46(R)" (SFAS 167): SFAS 167 (ASC 810) amends FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities – an interpretation of ARB No. 51 (FIN 46(R)) which provides consolidation guidance related to variable interest entities.

SFAS 167 requires

a qualitative approach for identifying the primary beneficiary of a variable interest entity based on 1) the power to direct activities that most significantly impact the economic performance of

the entity, and 2) the obligation to absorb losses or right to receive benefits that could be significant to the entity

ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity

separate disclosure by the primary beneficiary on the face of the balance sheet to identify 1) assets that can only be used to settle obligations of the variable interest entity, and 2) liabilities for which creditors do not have recourse to the primary beneficiary.

FAS 167 applies to us prospectively for the first quarter of 2010. We are in the process of evaluating the effects of this statement on our financial position and results of operations.

SFAS 165, "Subsequent Events" (SFAS 165): SFAS 165 (ASC 855) requires management to evaluate events that occur after the balance sheet through the date that the financial statements are issued. The guidance is similar to current audit guidance and does not change the way we assess subsequent events. The statement requires that we disclose the date through which we evaluated subsequent events.

We adopted SFAS 165 on April 1, 2009 and provide the required disclosure in Note 1.

SFAS 160, "Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51" (SFAS 160): SFAS 160 (ASC 810) amends Accounting Research Bulletin (ARB) No. 51, Consolidated Financial Statements, to establish accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent.

SFAS 160 provides guidance on the following:

how to report noncontrolling interests in a subsidiary in consolidated financial statements;

the amount of consolidated net income attributable to the parent and to the noncontrolling interest; and

changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated.

We adopted SFAS 160 on January 1, 2009, and the presentation and disclosure requirements must be applied retrospectively. Accordingly, Sempra Energy’s, SDG&E’s and PE's condensed consolidated financial statements at December 31, 2008 and for the six months ended June 30, 2008 have been reclassified to conform to the new presentation. The adoption of SFAS 160 had no impact on SoCalGas’ financial statements. The pronouncement also requires disclosures that clearly identify and distinguish between the interest of the parent and the interests of the noncontrolling owners. We provide the required disclosure in Note 5.

SFAS 161, "Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133" (SFAS 161): SFAS 161 (ASC 815) expands the disclosure requirements in SFAS 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133).

SFAS 161 requires disclosures about the following:

qualitative objectives and strategies for using derivatives;

quantitative disclosures of fair value amounts, and gains and losses on derivative instruments and related hedged items; and

credit-risk-related contingent features in derivative agreements.

We adopted SFAS 161 prospectively on January 1, 2009. We provide the required disclosure in Note 7.

FASB Staff Position (FSP) FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That are Not Orderly" (FSP FAS 157-4): FSP FAS 157-4 (ASC 820) concerns the determination of fair values for assets and liabilities when there is no active market or where the prices used might represent distressed sales. Specifically, it reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive. The FSP also outlines factors to be used to determine whether there has been a significant

decrease in the volume and level of activity for the assets and liabilities when compared with normal market activity. We adopted FSP FAS 157-4 on April 1, 2009, and it did not affect our financial position or results of operations.

FSP FAS 107-1 and APB 28-1, "Interim Disclosures About Fair Value of Financial Instruments" (FSP FAS 107-1 and APB 28-1): FSP FAS 107-1 and APB 28-1 (ASC 820) requires disclosure about the carrying amount and fair value of financial instruments for interim periods. Prior to the issuance of this FSP, this disclosure was required only for annual periods. We adopted FSP FAS 107-1 and APB 28-1 on April 1, 2009 and provide the required disclosure in Note 8.

FSP FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments" (FSP FAS 115-2 and FAS 124-2): FSP FAS 115-2 and FAS 124-2 (ASC 320) establishes a new model for determining and recording other-than-temporary impairment for debt securities. The pronouncement also requires disclosure about the fair value of investments for interim periods. Prior to the issue of this FSP, this disclosure was required only for annual periods. We adopted FSP FAS 115-2 and FAS 124-2 on April 1, 2009, and it did not affect our financial position or results of operations. We provide the required disclosure in Note 8.

FSP FAS 132(R)-1, "Employers’ Disclosures about Postretirement Benefit Plan Assets" (FSP FAS 132(R)-1): FSP FAS 132(R)-1 (ASC 715) requires annual disclosure about the assets held in postretirement benefit plans, including a breakdown by the level of the assets and a reconciliation of any change in Level 3 assets during the year. It requires disclosures about the following:

valuation inputs, with detailed disclosure required about Level 3 assets

asset categories, broken down to relevant detail

concentration of risk in plan assets

FSP FAS 132(R)-1 applies to us prospectively for fiscal years ending after December 15, 2009. Early application is permitted. We are in the process of evaluating the effect of this statement on our financial statement disclosures and will include the additional disclosure in our 2009 annual financial statements.

SEMPRA ENERGY

FSP EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities" (FSP EITF 03-6-1): FSP EITF 03-6-1 (ASC 260) states that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities. As such, they are required to be included when computing earnings per share (EPS) under the two-class method described in SFAS 128, Earnings per Share. All prior-period EPS data are to be adjusted retrospectively to conform with the provisions of this FSP. We adopted FSP EITF 03-6-1 on January 1, 2009, and it did not have a material effect on our EPS.

EITF Issue No. 08-6, "Equity Method Investment Accounting Considerations" (EITF 08-6): EITF 08-6 (ASC 323) clarifies accounting and impairment considerations involving equity method investments. We adopted EITF 08-6 on January 1, 2009, and it did not have a material effect on our financial position or results of operations.

EITF Issue No. 08-5, "Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement" (EITF 08-5): EITF 08-5 (ASC 820) provides that an issuer of a liability with a third-party credit enhancement that is inseparable from the liability may not include the effect of the credit enhancement in the fair value measurement of the liability. We adopted EITF 08-5 on January 1, 2009, and it did not affect our financial position or results of operations.

NOTE 3. RECENT EQUITY TRANSACTION

SEMPRA PIPELINES & STORAGE

Sempra Midstream, owned by Sempra Pipelines & Storage, owned 60 percent of Mississippi Hub, LLC (Mississippi Hub) at December 31, 2008. On January 16, 2009, Sempra Midstream purchased the remaining 40-percent ownership interest of Mississippi Hub for $94 million in cash.

NOTE 4. INVESTMENTS IN UNCONSOLIDATED ENTITIES

SEMPRA ENERGY AND SDG&E

Available-for-Sale Securities

During the six months ended June 30, 2008, Sempra Energy and SDG&E purchased $252 million and $161 million, respectively, of SDG&E's industrial development bonds, net of purchases and sales between Sempra Energy and SDG&E as the cash flow needs of each entity changed. In December 2008, SDG&E remarketed $237 million of these industrial development bonds. In June 2009, SDG&E remarketed the remaining $176 million of these industrial development bonds at a fixed rate of 5.875 percent, maturing in 2034. At December 31, 2008, the $176 million of industrial development bonds, $24 million of which were held by SDG&E, were classified as available-for-sale securities and included in Short-Term Investments on the Condensed Consolidated Balance Sheets. In the first six months of 2009, SDG&E purchased $152 million of the bonds from Sempra Energy prior to their remarketing. We discuss these bonds further in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report.

SEMPRA COMMODITIES

On April 1, 2008, Sempra Energy and The Royal Bank of Scotland (RBS) completed the formation of RBS Sempra Commodities LLP (RBS Sempra Commodities), a limited liability partnership formed in the United Kingdom to own and operate the commodities-marketing businesses previously operated through wholly owned subsidiaries of Sempra Energy. We account for our investment in RBS Sempra Commodities under the equity method, and our share of partnership earnings is reported in the Sempra Commodities segment.

For the three months and six months ended June 30, 2009, we had $126 million and $279 million of pretax equity earnings, respectively, from RBS Sempra Commodities. Pretax equity earnings from RBS Sempra Commodities were $146 million for both the three and six months ended June 30, 2008. The partnership income that is distributable to us on an annual basis is computed on the partnership's basis of accounting, International Financial Reporting Standards (IFRS) as adopted by the European Union. For the three months and six months ended June 30, 2009, this distributable income, on an IFRS basis, was $102 million and $216 million, respectively. For both the three and six months ended June 30, 2008, the distributable income, on an IFRS basis, was $165 million. In the first quarter of 2009, we received the remaining distribution of 2008 partnership income of $305 million, and an additional $70 million in the second quarter of 2009 to fund estimated tax payments as provided in the partnership agreement.

We have indemnified the partnership for certain litigation and tax liabilities related to the businesses purchased by the partnership. We recorded these obligations at a fair value of $5 million on April 1, 2008, the date we formed the partnership, and they are being amortized over 4 years.

We provide information regarding the Sempra Commodities segment in Note 11.

The following table shows summarized financial information for RBS Sempra Commodities (on a GAAP basis):


	Three months ended June 30,				Six months ended June 30,
(Dollars in millions)	2009		2008		2009		2008
Gross revenues and fee income	$	367	$	538	$	876	$	538
Gross profit		342		517		828		517
Income from continuing operations		153		254		389		254
Partnership net income		153		254		389		254

SEMPRA PIPELINES & STORAGE

In the three and six months ended June 30, 2009, Sempra Pipelines & Storage contributed $188 million and $213 million, respectively, to Rockies Express, a joint venture for the development of the Rockies Express Pipeline. Sempra Pipelines & Storage contributed $150 million in the first quarter of 2008. We discuss this investment in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.

Sempra Pipelines & Storage owns 43 percent of two Argentine natural gas utility holding companies, Sodigas Pampeana and Sodigas Sur. The Argentine economic decline and government responses (including Argentina’s unilateral, retroactive abrogation of utility agreements early in 2002) continue to adversely affect the operations of these Argentine utilities. In 2002, Sempra Pipelines & Storage initiated arbitration proceedings at the International Center for the Settlement of Investment Disputes (ICSID) under the 1994 Bilateral Investment Treaty between the United States and Argentina for recovery of the diminution of the value of its investments that has resulted from Argentine governmental actions. In September 2007, the tribunal officially closed the arbitration proceedings and awarded us compensation of $172 million, which includes interest up to the award date. In January 2008, Argentina filed an action at the ICSID seeking to annul the award. On March 5, 2009, the ICSID ordered Argentina to place $75 million in escrow within 120 days, as tangible evidence of its preparedness to comply in good faith, as a condition of a continued stay in the annulment case. Argentina has not complied with the escrow order. Sempra Pipelines & Storage has requested the ICSID to remove the stay. We will not recognize the ICSID award until collectibility is assured.

NOTE 5. OTHER FINANCIAL DATA

VARIABLE INTEREST ENTITIES

FIN 46(R) (ASC 810) requires an enterprise to consolidate a variable interest entity (VIE), as defined in FIN 46(R), if the company is the primary beneficiary of the VIE’s activities. 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; and

whether the variable interest holders will absorb a majority of the VIE's expected losses or receive a majority of its expected residual returns (or both).

SDG&E has a 10-year agreement to purchase power to be generated at the Otay Mesa Energy Center (OMEC), a 573-megawatt (MW) generating facility. Commissioning activities commenced in July 2009, and SDG&E expects the facility to be in commercial operation in the fourth quarter of 2009.

As defined in FIN 46(R), the facility owner, Otay Mesa Energy Center LLC (OMEC LLC), is a VIE (Otay Mesa VIE), of which SDG&E is the primary beneficiary. Accordingly, Sempra Energy and SDG&E have consolidated Otay Mesa VIE. SDG&E has no OMEC LLC voting rights and does not operate OMEC.

Otay Mesa VIE's equity of $158 million at June 30, 2009 and $128 million at December 31, 2008 is included on the Condensed Consolidated Balance Sheets in Other Noncontrolling Interests for Sempra Energy and in Noncontrolling Interest for SDG&E. We provide additional information about Otay Mesa VIE in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.

OMEC LLC has a project finance credit facility with third party lenders, secured by its assets, that provides for up to $377 million for the construction of OMEC. SDG&E is not a party to the credit agreement and does not have any additional implicit or explicit financial responsibility to Otay Mesa VIE. The loan matures in April 2019. Borrowings under the facility bear interest at rates varying with market rates. OMEC LLC had $316 million of outstanding borrowings under this facility at June 30, 2009. In addition, OMEC LLC has entered into interest-rate swap agreements to moderate its exposure to interest-rate changes on this facility. We provide additional information concerning the interest-rate swaps in Note 7.

Contracts under which SDG&E acquires power from generation facilities otherwise unrelated to SDG&E could also result in a requirement for SDG&E to consolidate the entity that owns the facility. In accordance with FIN 46(R), SDG&E continues the process of determining if it has any such situations and, if so, gathering the information that would be needed to perform the consolidation. However, such information has not been made available to us and an evaluation of variable interests has not been completed for these entities that are grandfathered pursuant to FIN 46(R). The effects of any required consolidation are not expected to significantly affect the financial position, results of operations or liquidity of SDG&E.

PENSION AND OTHER POSTRETIREMENT BENEFITS

Net Periodic Benefit Cost

The following three tables provide the components of net periodic benefit cost:


NET PERIODIC BENEFIT COST -- SEMPRA ENERGY CONSOLIDATED
(Dollars in millions)
	Pension Benefits				Other Postretirement Benefits
	Three months ended June 30,				Three months ended June 30,
	2009		2008		2009		2008
Service cost	$	20	$	18	$	7	$	7
Interest cost		42		41		15		13
Expected return on assets		(35)		(40)		(12)		(12)
Amortization of:
Prior service cost (credit)		1		1		(1)		-
Actuarial loss		6		2		1		-
Curtailment		-		-		-		(2)
Regulatory adjustment		(13)		(7)		5		-
Total net periodic benefit cost	$	21	$	15	$	15	$	6
	Six months ended June 30,				Six months ended June 30,
	2009		2008		2009		2008
Service cost	$	39	$	36	$	14	$	13
Interest cost		85		83		29		27
Expected return on assets		(70)		(80)		(24)		(24)
Amortization of:
Prior service cost (credit)		2		2		(1)		(1)
Actuarial loss		12		4		2		-
Curtailment		-		-		-		(2)
Regulatory adjustment		(39)		(22)		4		1
Total net periodic benefit cost	$	29	$	23	$	24	$	14


NET PERIODIC BENEFIT COST -- SDG&E
(Dollars in millions)
	Pension Benefits				Other Postretirement Benefits
	Three months ended June 30,				Three months ended June 30,
	2009		2008		2009		2008
Service cost	$	6	$	5	$	1	$	1
Interest cost		12		12		2		2
Expected return on assets		(8)		(11)		(1)		(1)
Amortization of:
Prior service cost		-		1		1		1
Actuarial loss		4		-		-		-
Regulatory adjustment		-		2		1		(1)
Total net periodic benefit cost	$	14	$	9	$	4	$	2
	Six months ended June 30,				Six months ended June 30,
	2009		2008		2009		2008
Service cost	$	12	$	11	$	3	$	3
Interest cost		24		24		4		4
Expected return on assets		(16)		(23)		(2)		(2)
Amortization of:
Prior service cost		1		1		2		2
Actuarial loss		8		1		-		-
Regulatory adjustment		(14)		(4)		1		(2)
Total net periodic benefit cost	$	15	$	10	$	8	$	5


NET PERIODIC BENEFIT COST -- SOCALGAS
(Dollars in millions)
	Pension Benefits				Other Postretirement Benefits
	Three months ended June 30,				Three months ended June 30,
	2009		2008		2009		2008
Service cost	$	11	$	10	$	4	$	5
Interest cost		24		24		12		10
Expected return on assets		(22)		(25)		(10)		(11)
Amortization of:
Prior service credit		-		-		(1)		(1)
Actuarial loss		-		-		1		-
Regulatory adjustment		(13)		(9)		4		1
Total net periodic benefit cost	$	-	$	-	$	10	$	4
	Six months ended June 30,				Six months ended June 30,
	2009		2008		2009		2008
Service cost	$	22	$	20	$	9	$	9
Interest cost		49		49		23		21
Expected return on assets		(46)		(51)		(21)		(22)
Amortization of:
Prior service cost (credit)		1		1		(2)		(2)
Actuarial loss		-		-		2		-
Regulatory adjustment		(25)		(18)		3		3
Total net periodic benefit cost	$	1	$	1	$	14	$	9

Future Payments

The following table shows our year-to-date contributions to our pension and other postretirement benefit plans and the amounts we expect to contribute in 2009:


	Sempra Energy
(Dollars in millions)	Consolidated		SDG&E		SoCalGas
Contributions through June 30, 2009:
Pension plans	$	29	$	13	$	-
Other postretirement benefit plans		24		8		15
Total expected contributions in 2009:
Pension plans	$	161	$	57	$	74
Other postretirement benefit plans		48		17		29

EARNINGS PER SHARE

The following table provides the per share computations for our earnings for the three and six months ended June 30, 2009 and 2008. Basic EPS is calculated by dividing earnings attributable to common stock by the weighted-average number of common shares outstanding for the period. Diluted EPS includes the potential dilution of common stock equivalent shares that would occur if securities or other contracts to issue common stock were exercised or converted into common stock.


EARNINGS PER SHARE COMPUTATIONS
(Dollars in millions, except per share amounts; shares in thousands)
	Three months ended June 30,				Six months ended June 30,
	2009		2008		2009		2008
Numerator:
Earnings	$	198	$	244	$	514	$	486

Denominator:
Weighted-average common shares
outstanding for basic EPS		242,718		245,576		242,245		252,100
Dilutive effect of stock options, restricted
stock awards and restricted stock units		4,372		4,101		3,794		4,069
Weighted-average common shares
outstanding for diluted EPS		247,090		249,677		246,039		256,169

Earnings per share:
Basic	$	0.82	$	0.99	$	2.12	$	1.93
Diluted	$	0.80	$	0.98	$	2.09	$	1.90

The dilution from common stock options is based on the treasury stock method. Under this method, proceeds based on the exercise price plus unearned compensation and windfall tax benefits or tax shortfalls, as defined by SFAS 123 (revised 2004), Share-Based Payment (SFAS 123(R)) (ASC 718), are assumed to be used to repurchase shares on the open market at the average market price for the period. The windfall tax benefits are tax deductions we would receive upon the assumed exercise of stock options in excess of the deferred income taxes we recorded related to the compensation expense on the stock options. Tax shortfalls occur when the assumed tax deductions are less than recorded deferred income taxes. The calculation excludes stock options for which the exercise price for common stock was greater than the average market price during the period. We had 1,506,783 and 801,684 of such stock options outstanding during the three months ended June 30, 2009 and 2008, respectively, and 2,250,061 and 1,485,542 of such stock options outstanding during the six months ended June 30, 2009 and 2008, respectively.

We had 33,889 and 710,113 stock options outstanding during the three months ended June 30, 2009 and 2008, respectively, that were antidilutive because of the unearned compensation and windfall tax benefits included in the assumed proceeds under the treasury stock method and 862,027 such antidilutive stock options during the six months ended June 30, 2009. We had no such antidilutive stock options outstanding during the six months ended June 30, 2008.

The dilution from unvested restricted stock awards and units is also based on the treasury stock method. Assumed proceeds equal to the unearned compensation and windfall tax benefits or tax shortfalls related to the awards, as defined by SFAS 123(R), are assumed to be used to repurchase shares on the open market at the average market price for the period. The windfall tax benefits or tax shortfalls are the difference between tax deductions we would receive upon the assumed vesting of restricted stock awards and units and the deferred income taxes we recorded related to the compensation expense on the restricted stock awards and units. We had no antidilutive restricted stock awards and units outstanding during the three months or six months ended June 30, 2009. We had 371,714 and 462,056 restricted stock awards and units outstanding that were antidilutive during the three months and six months ended June 30, 2008, respectively.

SHARE-BASED COMPENSATION

We discuss our share-based compensation plans in Note 10 of the Notes to Consolidated Financial Statements in the Annual Report. We recorded share-based compensation expense, net of income taxes, of $11 million and $14 million for the six months ended June 30, 2009 and 2008, respectively. Pursuant to our share-based compensation plans, we granted 918,200 non-qualified stock options, 37,200 restricted stock awards and 907,700 restricted stock units during the six months ended June 30, 2009, primarily in January 2009.

CAPITALIZED FINANCING COSTS

Capitalized financing costs include capitalized interest costs and, at the Sempra Utilities, an allowance for funds used during construction (AFUDC) related to both debt and equity financing of construction projects. The following table shows capitalized financing costs for the three months and six months ended June 30, 2009 and 2008.


CAPITALIZED FINANCING COSTS
(Dollars in millions)
	Three months ended June 30,				Six months ended June 30,
	2009		2008		2009		2008
SDG&E:
AFUDC related to debt	$	2	$	2	$	4	$	4
AFUDC related to equity		7		6		13		12
Other capitalized financing costs		2		2		2		4
Total SDG&E		11		10		19		20

SoCalGas:
AFUDC related to debt		2		1		3		2
AFUDC related to equity		3		2		5		4
Total SoCalGas		5		3		8		6

Sempra Global:
Capitalized financing costs		23		22		45		48
Total Sempra Energy Consolidated	$	39	$	35	$	72	$	74

COMPREHENSIVE INCOME

The following table provides a reconciliation of net income to comprehensive income.


COMPREHENSIVE INCOME
(Dollars in millions)
	Three months ended June 30,
	2009						2008
	Share-		Non-				Share-		Non-
	holders'		controlling		Total		holders'		controlling		Total
	Equity*		Interests		Equity		Equity*		Interests		Equity
Sempra Energy Consolidated:
Net income	$	201	$	(12)	$	189	$	247	$	15	$	262
Foreign currency translation
adjustments		54		-		54		(88)		-		(88)
Financial instruments		20		-		20		25		(12)		13
Available-for-sale securities		4		-		4		(14)		-		(14)
Net actuarial gain		1		-		1		3		-		3
Comprehensive income	$	280	$	(12)	$	268	$	173	$	3	$	176
SDG&E:
Net income	$	71	$	20	$	91	$	62	$	15	$	77
Financial instruments		-		1		1		(1)		(12)		(13)
Net actuarial gain		1		-		1		1		-		1
Comprehensive income	$	72	$	21	$	93	$	62	$	3	$	65
PE:
Net income	$	63	$	-	$	63	$	58	$	-	$	58
Financial instruments		1		-		1		5		-		5
Comprehensive income	$	64	$	-	$	64	$	63	$	-	$	63
SoCalGas:
Net income	$	66	$	-	$	66	$	57	$	-	$	57
Financial instruments		1		-		1		5		-		5
Comprehensive income	$	67	$	-	$	67	$	62	$	-	$	62
* Shareholders' equity of Sempra Energy Consolidated, SDG&E, PE or SoCalGas as indicated in left margin.


COMPREHENSIVE INCOME (Continued)
(Dollars in millions)
	Six months ended June 30,
	2009						2008
	Share-		Non-				Share-		Non-
	holders'		controlling		Total		holders'		controlling		Total
	Equity*		Interests		Equity		Equity*		Interests		Equity
Sempra Energy Consolidated:
Net income	$	519	$	(5)	$	514	$	491	$	15	$	506
Foreign currency translation
adjustments		80		-		80		(15)		-		(15)
Financial instruments		23		(3)		20		7		(17)		(10)
Available-for-sale securities		13		-		13		(12)		-		(12)
Net actuarial gain		2		-		2		4		-		4
Comprehensive income	$	637	$	(8)	$	629	$	475	$	(2)	$	473
SDG&E:
Net income	$	171	$	27	$	198	$	137	$	15	$	152
Financial instruments		2		(3)		(1)		(1)		(17)		(18)
Net actuarial gain		1		-		1		1		-		1
Comprehensive income	$	174	$	24	$	198	$	137	$	(2)	$	135
PE:
Net income	$	122	$	-	$	122	$	116	$	-	$	116
Financial instruments		2		-		2		-		-		-
Comprehensive income	$	124	$	-	$	124	$	116	$	-	$	116
SoCalGas:
Net income	$	125	$	-	$	125	$	114	$	-	$	114
Financial instruments		2		-		2		-		-		-
Comprehensive income	$	127	$	-	$	127	$	114	$	-	$	114
* Shareholders' equity of Sempra Energy Consolidated, SDG&E, PE or SoCalGas as indicated in left margin.

The amounts for comprehensive income in the tables above are net of income tax expense (benefit) as follows:


INCOME TAX EXPENSE (BENEFIT) ASSOCIATED WITH OTHER COMPREHENSIVE INCOME
(Dollars in millions)
	Three months ended June 30,
	2009						2008
	Share-		Non-				Share-		Non-
	holders'		controlling		Total		holders'		controlling		Total
	Equity*		Interests		Equity		Equity*		Interests		Equity
Sempra Energy Consolidated:
Financial instruments	$	12	$	-	$	12	$	17	$	12	$	29
Available-for-sale securities		1		-		1		(10)		-		(10)
Net actuarial gain		1		-		1		1		-		1
SDG&E:
Financial instruments	$	-	$	-	$	-	$	-	$	12	$	12
PE:
Financial instruments	$	-	$	-	$	-	$	4	$	-	$	4
SoCalGas:
Financial instruments	$	-	$	-	$	-	$	4	$	-	$	4
	Six months ended June 30,
	2009						2008
	Share-		Non-				Share-		Non-
	holders'		controlling		Total		holders'		controlling		Total
	Equity*		Interests		Equity		Equity*		Interests		Equity
Sempra Energy Consolidated:
Financial instruments	$	14	$	-	$	14	$	5	$	-	$	5
Available-for-sale securities		4		-		4		(10)		-		(10)
Net actuarial gain		2		-		2		2		-		2
SDG&E:
Financial instruments	$	1	$	-	$	1	$	-	$	-	$	-
PE:
Financial instruments	$	1	$	-	$	1	$	-	$	-	$	-
SoCalGas:
Financial instruments	$	1	$	-	$	1	$	-	$	-	$	-
* Shareholders' equity of Sempra Energy Consolidated, SDG&E, PE or SoCalGas as indicated in left margin.

SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS

Sempra Energy, SDG&E and PE account for noncontrolling interests in their Condensed Consolidated Financial Statements under SFAS 160, as discussed in Note 2. The following two tables provide a reconciliation of Sempra Energy and SDG&E shareholders’ equity and noncontrolling interests for the six months ended June 30, 2009 and 2008. There were no changes in the equity of PE's noncontrolling interests in the three- or six-month periods of 2009 or 2008.


SHAREHOLDERS' EQUITY AND NONCONTROLLING INTERESTS
(Dollars in millions)
		Sempra
		Energy		Non-
		Shareholders'		controlling		Total
		Equity		Interests		Equity
Balance at December 31, 2008	$	7,969	$	340	$	8,309
Comprehensive income		637		(8)		629
Purchase of noncontrolling interest in subsidiary		(10)		(84)		(94)
Share-based compensation expense		20		-		20
Common stock dividends declared		(190)		-		(190)
Preferred dividends of subsidiaries		(5)		-		(5)
Issuance of common stock		44		-		44
Tax benefit related to share-based compensation		5		-		5
Common stock released from ESOP		7		-		7
Equity contributed by noncontrolling interests		-		7		7
Balance at June 30, 2009	$	8,477	$	255	$	8,732
Balance at December 31, 2007	$	8,339	$	248	$	8,587
Comprehensive income		475		(2)		473
Share-based compensation expense		24		-		24
Common stock dividends declared		(170)		-		(170)
Preferred dividends of subsidiaries		(5)		-		(5)
Issuance of common stock		11		-		11
Tax benefit related to share-based compensation		3		-		3
Repurchase of common stock		(1,002)		-		(1,002)
Common stock released from ESOP		8		-		8
Equity contributed by noncontrolling interests		-		63		63
Balance at June 30, 2008	$	7,683	$	309	$	7,992


SHAREHOLDERS' EQUITY AND NONCONTROLLING INTEREST
(Dollars in millions)
		SDG&E		Non-
		Shareholders'		controlling		Total
		Equity		Interest		Equity
Balance at December 31, 2008	$	2,542	$	128	$	2,670
Comprehensive income		174		24		198
Common stock dividends declared		(150)		-		(150)
Preferred stock dividends declared		(2)		-		(2)
Equity contributed by noncontrolling interest		-		6		6
Balance at June 30, 2009	$	2,564	$	158