[SPE] In accordance with SFAS 132 (revised), Employers' Disclosures about Pensions and Other Postretirement Benefits, the following tables provide the components of benefit costs for the three months ended March 31:


  

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-K

(Mark One)

[X]

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

 

For the fiscal year ended

December 31, 2008

 

 

 

OR

 

 

[   ]

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

 

For the transition period from

 

 

to

 

 

 

 

 

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.

1-14201

SEMPRA ENERGY

California

33-0732627

 

101 Ash Street

 

 

 

San Diego, California 92101

 

 

 

(619)696-2034

 

 

 

 

 

 

1-3779

SAN DIEGO GAS & ELECTRIC COMPANY

California

95-1184800

 

8326 Century Park Court

 

 

 

San Diego, California 92123

 

 

 

(619)696-2000

 

 

 

 

 

 

1-40

PACIFIC ENTERPRISES

California

94-0743670

 

101 Ash Street

 

 

 

San Diego, California 92101

 

 

 

(619)696-2020

 

 

 

 

 

 

1-1402

SOUTHERN CALIFORNIA GAS COMPANY

California

95-1240705

 

555 West Fifth Street

 

 

 

Los Angeles, California 90013

 

 

 

(213)244-1200

 

 

 

 

 

 

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

 

 

Title of Each Class

 

Name of Each Exchange on Which Registered

 

Sempra Energy Common Stock, without par value

 

New York

 


SDG&E Preference Stock (Cumulative)
         Without Par Value (except $1.70 Series)

SDG&E Cumulative Preferred Stock, $20 Par
         Value (except 4.60% Series)

 


New York


New York

 


Pacific Enterprises Preferred Stock:
        $4.75 dividend, $4.50 dividend
        $4.40 dividend, $4.36 dividend

 


New York

 

 

 

 

 

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None

 

 

 

 



1







Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

 

 

 

 

 

Sempra Energy

Yes

X

 

No

 

San Diego Gas & Electric Company

Yes

 

 

No

X

Pacific Enterprises

Yes

 

 

No

X

Southern California Gas Company

Yes

 

 

No

X


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

 

 

 

 

 

 

Sempra Energy

Yes

 

 

No

X

San Diego Gas & Electric Company

Yes

 

 

No

X

Pacific Enterprises

Yes

 

 

No

X

Southern California Gas Company

Yes

 

 

No

X


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 registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.

 

 

 

 

 

 

 

Yes

X

 

No

 


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

 

 

 

 

 

X


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

 

 

No

X

San Diego Gas & Electric Company

Yes

 

 

No

X

Pacific Enterprises

Yes

 

 

No

X

Southern California Gas Company

Yes

 

 

No

X

 

 

 

 

 

 

Exhibit Index on page 48. Glossary on page 56.



2




 

Aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2008:

 

 

Sempra Energy

$13.8 billion (based on the price at which the common equity was last sold as of the last business day of the most recently completed second fiscal quarter)

San Diego Gas & Electric Company

$0

Pacific Enterprises

$0

Southern California Gas Company

$0

 

Common Stock outstanding, without par value, as of February 12, 2009:

 

 

Sempra Energy

243,425,520 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

 

DOCUMENTS INCORPORATED BY REFERENCE:

 

 

 

 

 

 

Portions of the 2008 Annual Report to Shareholders of Sempra Energy, San Diego Gas & Electric Company, Pacific Enterprises and Southern California Gas Company are incorporated by reference into Parts I, II and IV.

 

 

 

 

 

 

Portions of the Sempra Energy Proxy Statement prepared for the April 2009 annual meeting of shareholders are incorporated by reference into Parts II and III.

 

Portions of the San Diego Gas & Electric Company, Southern California Gas Company and Pacific Enterprises Information Statement are incorporated by reference into Part III.

 

 

 

 

 

 

  




3




SEMPRA ENERGY 10-K
TABLE OF CONTENTS

 

 

Page

Information Regarding Forward-Looking Statements

5

 

 

PART I

 

 

Item 1.

Business

6

Item 1A.

Risk Factors

17

Item 1B.

Unresolved Staff Comments

25

Item 2.

Properties

25

Item 3.

Legal Proceedings

26

Item 4.

Submission of Matters to a Vote of Security Holders

27

 

 

 

PART II

 

 

Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

28

Item 6.

Selected Financial Data

30

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

30

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

30

Item 8.

Financial Statements and Supplementary Data

31

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

31

Item 9A.

Controls and Procedures

31

Item 9B.

Other Information

31

 

 

 

PART III

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

32

Item 11.

Executive Compensation

33

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

34

Item 13.

Certain Relationships and Related Transactions, and Director Independence

34

Item 14.

Principal Accountant Fees and Services

34

 

 

 

PART IV

 

 

Item 15.

Exhibits and Financial Statement Schedules

35

 

 

 

Sempra Energy: Consent of Independent Registered Public Accounting Firm and Report on Schedule

36

San Diego Gas & Electric Company: Consent of Independent Registered Public Accounting Firm

36

Southern California Gas Company: Consent of Independent Registered Public Accounting Firm

37

Pacific Enterprises: Report of Independent Registered Public Accounting Firm

37

 

 

 

Schedule I – Sempra Energy Condensed Financial Information of Parent

38

Schedule I – Pacific Enterprises Condensed Financial Information of Parent

42

 

 

 

Signatures

 

44

Exhibit Index

48

Glossary

56

 

 

 

This combined Form 10-K 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 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 Item 6 and 8 sections are provided for each reporting company, except for the Notes to Consolidated Financial Statements. The Notes to Consolidated Financial Statements for all of the reporting companies are combined. All Items other than 6 and 8 are combined for the reporting companies.




4



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.




5



PART I

ITEM 1. BUSINESS

DESCRIPTION OF BUSINESS

We provide a description of Sempra Energy and its subsidiaries in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2008 Annual Report to Shareholders (Annual Report), which is incorporated by reference.

This report includes information for the following separate registrants:

§

Sempra Energy and its consolidated entities

§

San Diego Gas & Electric Company (SDG&E)

§

Pacific Enterprises (PE), the holding company for Southern California Gas Company

§

Southern California Gas Company (SoCalGas)

References in this report to "we," "our" and "our company" are to Sempra Energy and its subsidiaries, collectively.  SDG&E and SoCalGas are collectively referred to as the Sempra Utilities.

Sempra Energy has five separately managed reportable segments consisting of SDG&E, SoCalGas, Sempra Commodities, Sempra Generation and Sempra Pipelines & Storage. Sempra Commodities, Sempra Generation, Sempra Pipelines & Storage, and an additional business unit, Sempra LNG (liquefied natural gas) are subsidiaries of Sempra Global. Sempra Global is a holding company for most of our subsidiaries that are not subject to California utility regulation.

SDG&E, PE and SoCalGas are subsidiaries of Sempra Energy. Sempra Energy directly or indirectly owns all the common stock and substantially all of the voting stock of each of the three companies.

In April 2008, Sempra Energy formed a partnership with The Royal Bank of Scotland plc (RBS) to purchase and operate our commodities-marketing businesses, which generally comprised the Sempra Commodities segment. This partnership, RBS Sempra Commodities LLP (RBS Sempra Commodities), is discussed in "Sempra Global – Sempra Commodities" below.

COMPANY WEBSITES

Company website addresses are:

Sempra Energy – http://www.sempra.com
SDG&E – http://www.sdge.com
PE/SoCalGas – http://www.socalgas.com

We make available free of charge on our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. SDG&E and SoCalGas make available free of charge via a hyperlink on their websites their annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission.  

The charters of the audit, compensation and corporate governance committees of Sempra Energy’s board of directors (the board), the board's corporate governance guidelines, and Sempra Energy's code of business conduct and ethics for directors and officers are posted on Sempra Energy's website.



6



Printed copies of all of these materials may be obtained by writing to our Corporate Secretary at Sempra Energy, 101 Ash Street, San Diego, CA 92101-3017.

GOVERNMENT REGULATION

The most significant government regulation affecting Sempra Energy is the regulation of our utility subsidiaries.

California Utility Regulation

The Sempra Utilities are regulated in California by the California Public Utilities Commission (CPUC), the California Energy Commission (CEC), and the California Air Resources Board (CARB).

The California Public Utilities Commission:

§

consists of five commissioners appointed by the Governor of California for staggered, six-year terms.

§

regulates SDG&E’s and SoCalGas’ rates and conditions of service, sales of securities, rates of return, capital structure, rates of depreciation, and long-term resource procurement, except as described below in "United States Utility Regulation."

§

has jurisdiction over the proposed construction of major new electric transmission, electric distribution, and natural gas transmission and distribution facilities in California.

§

conducts various reviews of utility performance, conducts audits for compliance with regulatory guidelines, and conducts investigations into various matters, such as deregulation, competition and the environment, to determine its future policies.

§

regulates the interactions and transactions of the Sempra Utilities with Sempra Energy and its other affiliates.

We provide further discussion in Notes 14 and 15 of the Notes to Consolidated Financial Statements in the Annual Report.

SDG&E is also subject to regulation by the CEC, which establishes electric demand forecasts for the state and for specific service territories.  Based upon these forecasts, the CEC:

§

determines the need for additional energy sources and conservation programs;

§

sponsors alternative-energy research and development projects;

§

promotes energy conservation programs;

§

maintains a statewide plan of action in case of energy shortages; and

§

certifies power-plant sites and related facilities within California.

The CEC conducts a 20-year forecast of available supplies and prices for every market sector that consumes natural gas in California. This forecast includes resource evaluation, pipeline capacity needs, natural gas demand and wellhead prices, and costs of transportation and distribution. This analysis is one of many source materials used to support the Sempra Utilities’ long-term investment decisions.

Currently, the State of California is requiring certain California electric retail sellers, including SDG&E, to deliver 20 percent of their 2010 retail demand from renewable energy sources, and 33 percent by 2020. The rules governing this requirement, administered by both the CPUC and the CEC, are generally known as the Renewables Portfolio Standard (RPS) Program. Certification of a generation project by the CEC as an Eligible Renewable Energy Resource (ERR) allows the purchase of output from a generation facility to be counted towards fulfillment of the RPS Program requirements. This may affect the demand for output from renewables projects developed by Sempra Generation, particularly from California utilities. Final certification as an ERR for Sempra Generation’s recently completed El Dorado solar generation facility is pending.

California Assembly Bill 32, the California Global Warming Solutions Act of 2006, makes the CARB responsible for monitoring and establishing policies for reducing greenhouse gas (GHG) emissions. The bill requires CARB to develop and adopt a comprehensive plan for achieving real, quantifiable and cost-effective GHG emission



7



reductions, including a statewide GHG emissions cap, mandatory reporting rules, and regulatory and market mechanisms to achieve reductions of GHG emissions. CARB is a part of the California Environmental Protection Agency, an organization which reports directly to the Governor's Office in the Executive Branch of California State Government.  As the CARB formulates its plan, provisions of the plan may apply to the Sempra Utilities.

United States Utility Regulation

The Sempra Utilities are also regulated nationally by the Federal Energy Regulatory Commission (FERC) and the Nuclear Regulatory Commission (NRC).

In the case of SDG&E, the FERC regulates the interstate sale and transportation of natural gas, the transmission and wholesale sales of electricity in interstate commerce, transmission access, rates of return on transmission investment, the uniform systems of accounts, rates of depreciation and electric rates involving sales for resale.

In the case of SoCalGas, the FERC regulates the interstate sale and transportation of natural gas and the uniform systems of accounts.

The NRC oversees the licensing, construction and operation of nuclear facilities in the United States, including the nuclear power plant in which SDG&E owns an interest. NRC regulations require extensive review of the safety, radiological and environmental aspects of these facilities. Periodically, the NRC requires that newly developed data and techniques be used to reanalyze the design of a nuclear power plant and, as a result, may require plant modifications as a condition of continued operation.

Sempra Pipelines & Storage operates Mobile Gas Service Corporation (Mobile Gas), a small natural gas distribution utility serving Southwest Alabama that is regulated by the Alabama Public Service Commission (APSC).  The FERC regulates Mobile Gas’ interstate transportation of natural gas, the uniform systems of accounts, and rates of depreciation.

Local Regulation Within the U.S.

SoCalGas has natural gas franchises with the 243 separate counties and cities in its service territory. These franchises allow SoCalGas to locate, operate and maintain facilities for the transmission and distribution of natural gas in public places. Most of the franchises have indefinite lives with no expiration date. Some franchises have fixed expiration dates, ranging from 2009 to 2048.

SDG&E has

§

electric franchises with the two counties and the 26 cities in its electric service territory, and

§

natural gas franchises with the one county and the 18 cities in its natural gas service territory.

These franchises allow SDG&E to locate, operate and maintain facilities for the transmission and distribution of electricity and/or natural gas in public places. Most of the franchises have indefinite lives with no expiration dates. Some franchises have fixed expiration dates, ranging from 2012 to 2035.

Sempra Generation, Sempra LNG and Sempra Pipelines & Storage have operations or development projects in Alabama, Arizona, California, Louisiana, Mississippi, Nevada and Texas. These entities are subject to state and local laws, and to regulations in the states in which they operate.

Other Regulation

RBS Sempra Commodities is subject to regulation by the U.K. Financial Services Authority, the New York Mercantile Exchange, the Commodity Futures Trading Commission, the FERC, the London Metals Exchange, NYSE Euronext and the National Futures Association.

In the United States, the FERC regulates Sempra Generation’s, Sempra Pipelines & Storage’s and Sempra LNG’s operations.  Sempra Pipelines & Storage also owns an interest in a natural gas pipeline, Rockies Express, which is operating and under construction in several states in the United States and is subject to regulation by the FERC.

Bay Gas Storage Company (Bay Gas) is regulated by the APSC and its intrastate storage contracts are subject to APSC approval. Bay Gas provides long-term services for customers that include storage and transportation of natural gas from interstate and intrastate sources. As an intrastate facility, Bay Gas is regulated by the FERC as a



8



311 facility, and the FERC has also approved market-based rates for interstate storage services and cost-based rates for transportation services.

Several of our segments operate in Mexico as follows:

§

Sempra Generation owns and operates a natural gas-fired power plant in Baja California, Mexico

§

Sempra Pipelines & Storage’s Mexican utilities build and operate natural gas distribution systems in Mexicali, Chihuahua, and the La Laguna-Durango zone in north-central Mexico

§

Sempra Pipelines & Storage transports gas between the U.S border and Baja California, Mexico

§

Sempra LNG owns and operates the Energía Costa Azul LNG receipt terminal located in Baja California, Mexico

These operations are subject to regulation by the Comisión Reguladora de Energía and by the labor and environmental agencies of city, state and federal governments in Mexico.

Sempra Pipelines & Storage also has investments in Latin America that are subject to laws and regulations in the localities and countries in which they operate.

Licenses and Permits

The Sempra Utilities obtain numerous permits, authorizations and licenses in connection with the operation and construction of assets for the transmission and distribution of natural gas and electricity. Because these permits, authorizations and licenses require periodic renewal, they are continuously regulated by the granting agencies.

Our other subsidiaries are also required to obtain numerous permits, authorizations and licenses in the normal course of business. Some of these permits, authorizations and licenses require periodic renewal.

Sempra Generation and its subsidiaries obtain a number of permits, authorizations and licenses in connection with the construction and operation of power generation facilities, and in connection with the wholesale distribution of electricity.

Sempra Pipelines & Storage’s Mexican subsidiaries obtain construction permits for their natural gas distribution and transmission systems from the local governments where the service is provided. Sempra Pipelines & Storage’s U.S. operations obtain licenses and permits for natural gas storage facilities and pipelines.

Sempra LNG obtains licenses and permits for the construction and operation of LNG facilities.

We describe other regulatory matters in Notes 14 and 15 of the Notes to Consolidated Financial Statements in the Annual Report.

CALIFORNIA NATURAL GAS UTILITY OPERATIONS

SoCalGas and SDG&E sell, distribute, and transport natural gas. SoCalGas purchases and stores natural gas for itself and SDG&E on a combined portfolio basis and provides natural gas storage services for others. The Sempra Utilities’ resource planning, natural gas procurement, contractual commitments, and related regulatory matters are discussed below. We also provide further discussion in the Annual Report in "Management's Discussion and Analysis of Financial Condition and Results of Operations," and in Notes 15 and 16 of the Notes to Consolidated Financial Statements.

Customers

For regulatory purposes, end-use customers are classified as either core or noncore customers. Core customers are primarily residential and small commercial and industrial customers. Noncore customers at SoCalGas consist primarily of electric generation, wholesale, large commercial, industrial, and enhanced oil recovery customers. Noncore customers at SDG&E consist primarily of electric generation, and large commercial and industrial customers.



9



Most core customers purchase natural gas directly from SoCalGas or SDG&E. While core customers are permitted to aggregate their natural gas requirements and purchase directly from producers, marketers or brokers, the Sempra Utilities continue to be obligated to provide reliable supplies of natural gas to serve the requirements of their core customers. Noncore customers are responsible for the procurement of their natural gas requirements.

Natural Gas Procurement and Transportation

SoCalGas purchases natural gas under short-term and long-term contracts for the Sempra Utilities’ core customers. SoCalGas purchases natural gas on a spot basis from Canada, the U.S. Rockies and the southwestern U.S. to meet customer requirements and maintain pipeline reliability. It also purchases some California natural gas production and additional spot-market supplies delivered directly to California for its remaining requirements.

To ensure the delivery of the natural gas supplies to the distribution system and to meet the seasonal and annual needs of customers, SoCalGas is committed to firm interstate pipeline capacity contracts that require the payment of fixed reservation charges to reserve firm transportation entitlements. Interstate pipeline companies, primarily El Paso Natural Gas Company, Transwestern Pipeline Company, and Kern River Gas Transmission Company, provide transportation services into SoCalGas' intrastate transmission system for supplies purchased by SoCalGas or its transportation customers from outside of California. The FERC regulates the rates that interstate pipeline companies may charge for natural gas and transportation services.

SoCalGas has natural gas transportation contracts with various interstate pipelines. These contracts expire on various dates between 2009 and 2025.

Natural Gas Storage

SoCalGas provides natural gas storage services for core, noncore and non-end-use customers. The Sempra Utilities’ core customers are allocated a portion of SoCalGas' storage capacity. SoCalGas offers the remaining storage capacity for sale to others through an open bid process. The storage service program provides opportunities for these customers to purchase and store natural gas when natural gas costs are low, usually during the summer, thereby reducing purchases when natural gas costs are expected to be higher. This program allows customers to better manage their fuel procurement and transportation needs.

Demand for Natural Gas

The Sempra Utilities face competition in the residential and commercial customer markets based on the customers' preferences for natural gas compared with other energy products. In the noncore industrial market, some customers are capable of securing alternate fuel supplies from other suppliers which can affect the demand for natural gas. The Sempra Utilities’ ability to maintain their respective industrial market shares is largely dependent on the relative spread between delivered energy prices.

Short-Term Demand. The demand for natural gas by electric generators is influenced by a number of factors:

§

the availability of alternative sources of generation; for example, the availability of hydroelectricity is highly dependent on precipitation in the western U.S. and Canada;

§

the performance of other generation sources in the western U.S., including nuclear and coal, renewable energy and other natural gas facilities outside the service area; and

§

the changes in end-use electricity demand; for example, natural gas use generally increases during extended heat waves.

Long-Term Demand. The demand for natural gas used to generate electricity will be influenced by additional factors such as the location of new power plants and the development of renewable energy resources. Recently, more generation capacity has been constructed outside the Sempra Utilities' service area than within it. This new generation will displace the output of older, less-efficient local generation, thereby reducing the use of natural gas for local electric generation. Over the next few years, however, the construction of smaller natural gas-fired peaking and other electric generation facilities within the Sempra Utilities’ respective service areas are expected to result in a slight overall increase in the demand for local natural gas for electric generation.



10



Natural gas demand for electric generation within Southern California competes with electric power generated throughout the western U.S. Natural gas transported for electric generating plant customers may be significantly affected to the extent that regulatory changes and electric transmission infrastructure investment divert electric generation from the Sempra Utilities’ respective service areas. We provide additional information regarding electric industry restructuring in Note 14 of the Notes to Consolidated Financial Statements in the Annual Report.

Growth in the demand for natural gas largely depends on the health and expansion of the Southern California economy, prices of alternate energy products, environmental regulations, renewable energy, legislation, and the effectiveness of energy efficiency programs. External factors such as weather, the price of electricity, electric deregulation, the use of hydroelectric power, development of renewable energy resources, development of new natural gas supply sources, and general economic conditions can also result in significant shifts in demand and market price.

In 2008, SDG&E added 3,000 new customer natural gas meters at a growth rate of 0.4 percent; in 2007, it added 5,000 new meters at a growth rate of 0.7 percent. In 2008, SoCalGas added 41,000 new customer natural gas meters at a growth rate of 0.7 percent; in 2007, it added 57,000 new meters at a growth rate of 1.0 percent. SDG&E and SoCalGas expect that their respective growth rates will continue to decline in 2009 based on housing market forecasts and due to the continuing economic downturn.

The natural gas distribution business is seasonal, and revenues generally are greater during the winter months. As is prevalent in the industry, SoCalGas injects natural gas into storage during the summer months (usually April through October) for withdrawal from storage during the winter months (usually November through March) when customer demand is higher.

ELECTRIC UTILITY OPERATIONS

Customers

SDG&E’s service area covers 4,100 square miles. At December 31, 2008, SDG&E had 1.4 million customer meters consisting of:

§

1,217,200 residential

§

147,600 commercial

§

500 industrial

§

2,000 street and highway lighting

§

5,000 direct access

In 2008, SDG&E added 7,400 new electric customer meters at a growth rate of 0.5 percent; in 2007, it added 10,000 new customers at a growth rate of 0.7 percent. SDG&E expects that its growth rate will continue to decline in 2009 based on housing market forecasts and due to the continuing economic downturn.

Resource Planning and Power Procurement

SDG&E's resource planning, power procurement and related regulatory matters are discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in Notes 14, 15 and 16 of the Notes to Consolidated Financial Statements in the Annual Report.

Electric Resources

The supply of electric power available to SDG&E for resale is based on CPUC-approved purchased-power contracts currently in place with its various suppliers, its Palomar and Miramar generating facilities, its 20-percent ownership interest in the San Onofre Nuclear Generating Station (SONGS) and purchases on a spot basis. This supply as of December 31, 2008 is as follows:



11




SDG&E ELECTRIC RESOURCES

Supplier

 

Source

 

Expiration date

 

Megawatts (MW)

PURCHASED-POWER CONTRACTS:

 

 

 

 

 

 

Department of Water Resources (DWR)-allocated contracts:

 

 

 

 

 

 

 

JP Morgan

 

Natural gas

 

2009 to 2010

 

325

 

 

Sunrise Power Co. LLC

 

Natural gas

 

2012

 

570

 

 

Other (5 contracts)

 

Natural gas/Wind

 

2011 to 2013

 

259

 

 

Total

 

 

 

 

 

1,154

 

Other contracts with Qualifying Facilities* (QFs):

 

 

 

 

 

 

 

Applied Energy Inc.

 

Cogeneration

 

2019

 

107

 

 

Yuma Cogeneration

 

Cogeneration

 

2024

 

53

 

 

Goal Line Limited Partnership

 

Cogeneration

 

2025

 

50

 

 

Other (19 contracts)

 

Cogeneration

 

2009 and thereafter

 

53

 

 

Total

 

 

 

 

 

263

 

Other contracts with renewable sources:

 

 

 

 

 

 

 

Oasis Power Partners

 

Wind

 

2019

 

60

 

 

Kumeyaay

 

Wind

 

2025

 

50

 

 

Covanta Delano

 

Bio-mass

 

2017

 

49

 

 

Iberdola Renewables

 

Wind

 

2018

 

25

 

 

WTE/FPL

 

Wind

 

2019

 

17

 

 

Other (8 contracts)

 

Bio-gas/Hydro

 

2012 to 2022

 

31

 

 

Total

 

 

 

 

 

232

 

Other long-term and tolling contracts:

 

 

 

 

 

 

 

 

Cabrillo Power I, LLC

 

Natural Gas

 

2009

 

964

 

 

Dynegy South Bay Holdings, LLC

 

Natural Gas

 

2009

 

704

 

 

Portland General Electric (PGE)

 

Coal

 

2013

 

89

 

 

Enernoc

 

Demand Response/Distributed Generation

 

2016

 

25

 

 

Total

 

 

 

 

 

1,782

 

Total contracted

 

 

 

 

 

3,431

 

 

 

 

 

 

 

 

 

GENERATION:

 

 

 

 

 

 

 

 

Palomar

 

Natural Gas

 

 

 

550

 

 

SONGS

 

Nuclear

 

 

 

430

 

 

Miramar

 

Natural Gas

 

 

 

45

 

Total generation

 

 

 

 

 

1,025

 

TOTAL CONTRACTED AND GENERATION

 

 

 

4,456

 

* A QF is a generating facility which meets the requirements for QF status under the Public Utility Regulatory Policies Act of 1978. It includes cogeneration facilities, which produce electricity and another form of useful thermal energy (such as heat or steam) used for industrial, commercial, residential or institutional purposes. It also includes small power production facilities, which are generating facilities whose primary energy source is renewable (hydro, wind, solar, etc.), biomass, waste, or geothermal resources. Small power production facilities are generally limited in size to 80 MW.


Under the contract with PGE, SDG&E pays a capacity charge plus a charge based on the amount of energy received and/or PGE's non-fuel costs. Costs under most of the contracts with QFs are based on SDG&E's avoided cost. Charges under the remaining contracts are for firm and as-available energy, and are based on the amount of energy received or are tolls based on available capacity. The prices under these contracts are based on the market value at the time the contracts were negotiated.

Natural Gas Supply

SDG&E buys natural gas under short-term contracts for its Palomar and Miramar generating facilities and for the Cabrillo Power I, LLC and Dynegy South Bay Holdings, LLC tolling contracts. Purchases are from various southwestern U.S. suppliers and are primarily based on monthly and spot-market prices. SDG&E's natural gas is



12



delivered from southern California border receipt points to the SoCal CityGate pool via firm access rights which expire on March 31, 2011.  The natural gas is then delivered from the SoCal CityGate pool to the generating facilities through SoCalGas' pipelines on a SoCalGas transportation agreement that expires on May 31, 2009. Prior to the expiration of this agreement, SDG&E intends to enter into a new transportation agreement with SoCalGas to meet its projected delivery requirements. SDG&E has also contracted with SoCalGas for natural gas storage from April 1, 2009 to March 31, 2010.

SDG&E also buys natural gas as the California DWR's limited agent for the DWR-allocated contracts. Most of the natural gas deliveries for the DWR-allocated contracts are transported through the Kern River Gas Transmission Pipeline under a long-term transportation agreement. The DWR is financially responsible for the costs of gas and transportation.

SONGS

SDG&E has a 20-percent ownership interest in SONGS, which is located south of San Clemente, California. SONGS consists of two operating nuclear generating units: Units 2 and 3. Unit 1 is permanently shut down and is being decommissioned. The city of Riverside owns 1.79 percent of Units 2 and 3, and Southern California Edison (Edison), the operator of SONGS, owns the remaining interests.

Units 2 and 3 began commercial operation in August 1983 and April 1984, respectively. SDG&E's share of the capacity is 214 MW of Unit 2 and 216 MW of Unit 3.

Unit 1 was removed from service in November 1992 when the CPUC issued a decision to permanently shut it down. The decommissioning of Unit 1 is now in progress and its spent nuclear fuel is being stored on site in an independent spent fuel storage installation (ISFSI) licensed by the NRC.

SDG&E has fully recovered its capital investment in SONGS through December 31, 2003 and earns a return only on subsequent capital additions, including SDG&E’s share of costs associated with planned steam generator replacements.

We provide additional information concerning the SONGS units and nuclear decommissioning below in "Environmental Matters" and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Notes 7, 14 and 16 of the Notes to Consolidated Financial Statements in the Annual Report.

Nuclear Fuel Supply

The nuclear fuel supply cycle includes materials and services (uranium oxide, conversion of uranium oxide to uranium hexafluoride, uranium enrichment services, and fabrication of fuel assemblies) performed by others under various contracts that extend through 2020. The supply contracts are index-priced and provide nuclear fuel supply through 2022, the expiration of SONGS’ NRC license.

Spent fuel from SONGS is being stored on site in both the ISFSI and spent fuel pools. Upon completion of the current phase of Unit 1 decommissioning, the site will have adequate space to build ISFSI storage capacity through 2022. Pursuant to the Nuclear Waste Policy Act of 1982, SDG&E entered into a contract with the U.S. Department of Energy (DOE) for spent-fuel disposal. Under the agreement, the DOE is responsible for the ultimate disposal of spent fuel from SONGS. SDG&E pays the DOE a disposal fee of $1.00 per megawatt-hour of net nuclear generation, or $3 million per year. The DOE projects that it will not begin accepting spent fuel until 2017 at the earliest.

We provide additional information concerning nuclear-fuel costs and the storage and movement of spent fuel in Notes 14 and 16, respectively, of the Notes to Consolidated Financial Statements in the Annual Report.

Power Pools

SDG&E is a participant in the Western Systems Power Pool, which includes an electric-power and transmission-rate agreement with utilities and power agencies located throughout the United States and Canada. More than 300 investor-owned and municipal utilities, state and federal power agencies, energy brokers and power marketers share power and information in order to increase efficiency and competition in the bulk power market. Participants are able to make power transactions on standardized terms preapproved by the FERC.



13



Transmission Arrangements

SDG&E's 500-kV Southwest Powerlink transmission line, which is shared with Arizona Public Service Company and Imperial Irrigation District, extends from Palo Verde, Arizona to San Diego, California. SDG&E's share of the line is 1,162 MW, although it can be less under certain system conditions.

Mexico's Baja California Norte system is connected to SDG&E's system via two 230-kV interconnections with firm capability of 408 MW in the north to south direction and 800 MW in the south to north direction.

In December 2008, the CPUC approved SDG&E’s Sunrise Powerlink, a new 120-mile, 500-kV transmission line between the existing Imperial Valley Substation and a new central substation to be located within the SDG&E system. SDG&E is in the final engineering, design and procurement phase. SDG&E expects the line to be in commercial operation in 2012. The Sunrise Powerlink is designed to have a rating of 1,000 MW. We provide further discussion in Note 14 of the Notes to Consolidated Financial Statements in the Annual Report.

Transmission Access

The National Energy Policy Act governs procedures for requests for transmission service. The FERC approved the California investor-owned utilities' (IOUs) transfer of operation and control of their transmission facilities to the Independent System Operator (ISO) in 1998. We provide additional information regarding the FERC and transmission issues in Note 14 of the Notes to Consolidated Financial Statements in the Annual Report.

RATES AND REGULATION – SEMPRA UTILITIES

We provide information concerning rates and regulation applicable to the Sempra Utilities in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in Notes 1, 14 and 15 of the Notes to Consolidated Financial Statements in the Annual Report.

SEMPRA GLOBAL

Sempra Global is a holding company for most of our subsidiaries that are not subject to California utility regulation. Sempra Global includes Sempra Commodities, Sempra Generation, Sempra Pipelines & Storage and Sempra LNG. We provide descriptions of these business units and information concerning their operations under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in Notes 1, 3, 4, 5, 16 and 17 of the Notes to Consolidated Financial Statements in the Annual Report.  

Competition

Sempra Energy’s non-utility businesses are among many others in the energy industry providing similar products and services.  They are engaged in highly competitive activities that require significant capital investments and highly skilled and experienced personnel. Many of their competitors may have significantly greater financial, personnel and other resources than Sempra Global.

Sempra Commodities

Sempra Commodities is primarily comprised of our investment in RBS Sempra Commodities, a joint venture formed in April 2008.  This partnership is discussed in Notes 3 and 4 of the Notes to Consolidated Financial Statements in the Annual Report. This business unit also includes Sempra Rockies Marketing, which holds firm service capacity on the Rockies Express Pipeline.

All aspects of RBS Sempra Commodities’ business are intensely competitive and are expected to remain so. Sources of competition include the following:

§

other brokers and dealers,

§

investment banking firms,

§

energy companies, and

§

other companies that offer similar products and services in the U.S. and globally.



14



RBS Sempra Commodities’ competition is based on a number of factors, including transaction execution, products and services, innovation, reputation and price.

RBS Sempra Commodities also faces intense competition in attracting and retaining qualified employees. RBS Sempra Commodities’ ability to compete effectively will depend upon the ability to attract new employees and retain and motivate existing employees.

RBS Sempra Commodities’ competitors include Goldman Sachs, JPMorgan, Morgan Stanley and Barclay’s Capital.

Sempra Generation

For sales of non-contracted power, Sempra Generation is subject to competition from energy marketers, utilities, industrial companies and other independent power producers. For a number of years, natural gas has been the fuel of choice for new power generation facilities for economic, operational and environmental reasons. While natural gas-fired facilities will continue to be an important part of the nation’s generation portfolio, some regulated utilities are now constructing units powered by renewable resources, often with subsidies or under legislative mandate. These utilities generally have a lower cost of capital than most independent power producers and often are able to recover fixed costs through rate base mechanisms. This recovery allows them to build, buy and upgrade generation without relying exclusively on market clearing prices to recover their investments.

When Sempra Generation sells power not subject to long-term contract commitments, it is exposed to market fluctuations in prices based on a number of factors, including the amount of capacity available to meet demand, the price and availability of fuel, and the presence of transmission constraints. Some of Sempra Generation’s competitors, such as electric utilities and generation companies, have their own generation capacity, including nuclear generation.  These companies, generally larger than Sempra Generation, may have a lower cost of capital and may have competitive advantages as a result of their scale and the location of their generation facilities.

Sempra Generation’s competitors include

§

Edison Mission Energy

§

Reliant Energy

§

FPL Energy LLC

§

Mirant Energy

§

Calpine

§

Dynegy

Sempra Pipelines & Storage

Within its market area, Sempra Pipelines & Storage’s natural gas storage facilities and pipelines compete with other storage facilities and pipelines (both regulated and unregulated systems). It competes primarily on the basis of price (in terms of storage and transportation fees), available capacity, and connections to downstream markets.

Sempra Pipelines & Storage’s competitors include

§

Iberdrola (Enstor)

§

Kinder Morgan

§

Spectra Energy

§

Enterprise Product Partners LP

§

Energy Transfer Partners LP

§

Boardwalk Pipeline Partners

§

Plains All-American LP

§

El Paso Corporation

§

The Williams Companies

§

Various independent midstream asset developers

§

TransCanada

 

Sempra LNG

New supplies to meet North America’s natural gas demand may be developed from a combination of the following sources:

§

existing producing basins in the United States, Canada, and Mexico;

§

frontier basins in Alaska, northern Canada, and offshore deepwater;

§

areas currently restricted from exploration and development due to public policies, such as areas in the Rocky Mountains and offshore Atlantic, Pacific and Gulf of Mexico coasts; and

§

imported LNG.



15



In addition, the demand for energy currently met by natural gas could alternatively be met by other energy forms such as coal, hydroelectric, oil, wind, solar and nuclear energy. Sempra LNG will, therefore, face competition from each of these energy sources.

Sempra LNG competes with other companies to construct and operate LNG receiving terminals. According to the FERC, as of October 31, 2008, there were 10 existing LNG terminals in North America. There are six terminals currently under construction. In addition, as of December 31, 2008, there were 66 LNG receiving terminals in 18 countries. There are also other proposed LNG receiving terminals worldwide with which Sempra LNG will compete to be the most economical delivery point for LNG production of both long-term contracted and spot volumes.

Sempra LNG’s U.S. competitors include

§

Cheniere Energy, Inc.

§

GDF Suez Energy International

§

El Paso Corporation

§

Dominion Resources, Inc.

§

Exxon Mobil Corporation

§

Southern Union Company

§

Excelerate Energy

 

ENVIRONMENTAL MATTERS

We discuss environmental issues affecting us in Notes 14, 15 and 16 of the Notes to Consolidated Financial Statements in the Annual Report. You should read the following additional information in conjunction with those discussions.

Hazardous Substances  

In 1994, the CPUC approved the Hazardous Waste Collaborative mechanism, allowing California's IOUs to recover hazardous waste cleanup costs for certain sites, including those related to certain Superfund sites. This mechanism permits the Sempra Utilities to recover in rates 90 percent of hazardous waste cleanup costs and related third-party litigation costs, and 70 percent of the related insurance-litigation expenses. In addition, the Sempra Utilities have the opportunity to retain a percentage of any recoveries from insurance carriers and other third parties to offset the cleanup and associated litigation costs not recovered in rates.

At December 31, 2008, we had accrued estimated remaining investigation and remediation liabilities of $0.5 million at SDG&E and $39.8 million at SoCalGas, both related to hazardous waste sites. These accruals include costs for numerous locations that had been manufactured-gas plants, for which the Hazardous Waste Collaborative mechanism authorizes us to recover 90 percent. This estimated cost excludes remediation costs of $7.3 million associated with SDG&E's former fossil-fuel power plants and another location for which the cleanup costs are not being recovered in rates. We believe that any costs not ultimately recovered through rates, insurance or other means will not have a material adverse effect on our consolidated results of operations or financial position.

We record estimated liabilities for environmental remediation when amounts are probable and estimable. In addition, we record amounts authorized to be recovered in rates under the Hazardous Waste Collaborative mechanism as regulatory assets.

Air and Water Quality   

The transmission and distribution of natural gas require the operation of compressor stations, which are subject to increasingly stringent air-quality standards, such as those established by the CARB. We discuss these standards in "Government Regulation – California Utility Regulation" above. The Sempra Utilities generally recover in rates the costs to comply with these standards.

In connection with the issuance of operating permits, SDG&E and the other owners of SONGS have an agreement with the California Coastal Commission to mitigate the environmental damage to the marine environment attributed to the cooling-water discharge from SONGS. SDG&E's share of the mitigation costs is estimated to be $50 million, of which $30.3 million had been incurred through December 31, 2008, and $19.7 million is accrued for the remaining costs through 2050. In 2008, an artificial kelp reef project was completed. The remaining costs are to complete a wetlands project and maintain both projects through 2050.



16



OTHER MATTERS

Employees of Registrants

As of December 31, each company had the following number of employees:

 

 

At December 31,

 

 

2008

 

 

2007

 

 

Sempra Energy Consolidated

 

 

13,673

 

 

 

14,314

 

 

SDG&E

 

 

4,833

 

 

 

4,774

 

 

SoCalGas

 

 

7,188

 

 

 

7,222

 

 

Labor Relations

Field, technical and most clerical employees at SoCalGas are represented by the Utility Workers Union of America or the International Chemical Workers Union Council. The collective bargaining agreement for these employees covering wages, hours, working conditions, and medical and other benefit plans expired on September 30, 2008. On January 31, 2009, SoCalGas and representatives of the unions reached a tentative agreement for a new collective bargaining agreement. To allow time for ratification of the collective bargaining agreement by the employees, it was also agreed to extend the terms and conditions of the existing contract through February 28, 2009.

Field, technical and some clerical employees at SDG&E are represented by the International Brotherhood of Electrical Workers. The collective bargaining agreement for these employees covering wages, hours and working conditions is in effect through August 31, 2011. For these same employees, the agreement covering health and welfare benefits is in effect through December 31, 2010, and the agreement covering pension benefits is in effect through December 4, 2009.

ITEM 1A.  RISK FACTORS

When evaluating our company and its subsidiaries, you should consider carefully the following risk factors and all other information contained in this report. These risk factors could affect our actual results and cause such results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. Other risks and uncertainties, in addition to those that are described below, may also impair our business operations. If any of the following risks occurs, our business, cash flows, results of operations and financial condition could be seriously harmed. In addition, the trading price of our securities could decline due to the occurrence of any of these risks. These risk factors should be read in conjunction with the other detailed information concerning our company set forth in the Notes to Consolidated Financial Statements and in "Management's Discussion and Analysis of Financial Condition and Res ults of Operations" in the Annual Report.

Sempra Energy's cash flows, ability to pay dividends and ability to meet its debt obligations largely depend on the performance of its subsidiaries.

Sempra Energy's ability to pay dividends and meet its debt obligations depends on cash flows from its subsidiaries and, in the short term, its ability to raise capital from external sources. In the long term, cash flows from the subsidiaries depend on their ability to generate operating cash flows in excess of their own capital expenditures and long-term debt obligations. In addition, the subsidiaries are separate and distinct legal entities and could be precluded from making such distributions under certain circumstances, including as a result of legislation or regulation or in times of financial distress.

Our businesses may be adversely affected by conditions in the financial markets and economic conditions generally.

Our businesses are capital intensive and we rely significantly on short-term borrowings to fund a portion of day-to-day business operations and on long-term debt to fund a portion of our capital expenditures and refund outstanding debt.



17



The credit markets and financial services industry have been experiencing a period of extreme world-wide turmoil characterized by the bankruptcy, failure, collapse or sale of many financial institutions and by extraordinary levels of government intervention.

Limitations on the availability of credit and increases in interest rates or credit spreads may adversely affect our liquidity and results of operations. In difficult credit markets, we may find it necessary to fund our operations and capital expenditures at a higher cost or we may be unable to raise as much funding as we need to support business activities. This could cause us to reduce capital expenditures and could increase our cost of funding, both of which could reduce our short-term and long-term profitability.

The availability and cost of credit for our businesses may be greatly affected by credit ratings. If the credit ratings of SoCalGas or SDG&E were to be reduced, their businesses could be adversely affected and any reduction in Sempra Energy's ratings could adversely affect its non-utility subsidiaries.

Risks Related to All Sempra Energy Subsidiaries

Our businesses are subject to complex government regulations and may be adversely affected by changes in these regulations or in their interpretation or implementation.

In recent years, the regulatory environment that applies to the electric power and natural gas industries has undergone significant changes, on both federal and state levels. These changes have affected the nature of these industries and the manner in which their participants conduct their businesses. These changes are ongoing, and we cannot predict the future course of changes in this regulatory environment or the ultimate effect that this changing regulatory environment will have on our businesses. Moreover, existing regulations may be revised or reinterpreted, and new laws and regulations may be adopted or become applicable to us and our facilities. Future changes in laws and regulations may have a detrimental effect on our business, cash flows, financial condition and results of operations.  

Our operations are subject to rules relating to transactions among the Sempra Utilities and other Sempra Energy operations. These rules are commonly referred to as the Affiliate Transaction Rules. These businesses could be adversely affected by changes in these rules or by additional CPUC or FERC rules that further restrict our ability to sell electricity or natural gas, or to trade with the Sempra Utilities and with each other. Affiliate Transaction Rules also could require us to obtain prior approval from the CPUC before entering into any such transactions with the Sempra Utilities. Any such restrictions or approval requirements could adversely affect the LNG receiving terminals, natural gas pipelines, electric generation facilities, or trading operations of our subsidiaries.

Sempra Generation has various proceedings, inquiries and investigations relating to its business activities currently pending before the FERC. A description of such proceedings, inquiries and investigations is provided in Note 16 of the Notes to Consolidated Financial Statements in the Annual Report.

Our businesses require numerous permits and other governmental approvals from various federal, state, local and foreign governmental agencies; any failure to obtain or maintain required permits or approvals could cause our sales to decline and/or our costs to increase.

All of our existing and planned development projects require multiple permits. The acquisition, ownership and operation of LNG receiving terminals, natural gas pipelines and storage facilities, and electric generation facilities require numerous permits, approvals and certificates from federal, state, local and foreign governmental agencies. If there is a delay in obtaining any required regulatory approvals or if we fail to obtain or maintain any required approvals or to comply with any applicable laws or regulations, we may not be able to operate our facilities, or we may be forced to incur additional costs.  

Our businesses have significant environmental compliance costs, and future environmental compliance costs could adversely affect our profitability.

We are subject to extensive federal, state, local and foreign statutes, rules and regulations relating to environmental protection, including, in particular, global warming and greenhouse gas (GHG) emissions. We are required to obtain numerous governmental permits, licenses and other approvals to construct and operate our businesses. Additionally, to comply with these legal requirements, we must spend significant sums on environmental monitoring, pollution



18



control equipment, mitigation costs and emissions fees. In addition, we are generally responsible for all on-site liabilities associated with the environmental condition of our electric generation facilities and other energy projects, regardless of when the liabilities arose and whether they are known or unknown. If we fail to comply with applicable environmental laws, we may be subject to penalties, fines and/or curtailments of our operations.

The scope and effect of new environmental laws and regulations, including their effects on our current operations and future expansions, are difficult to predict. Increasing international, national, regional and state-level concerns as well as new or proposed legislation and regulation may have substantial effects on our operations, operating costs, and the scope and economics of proposed expansion. In particular, state-level laws and regulations, as well as proposed national and international legislation and regulation relating to GHG emissions (including carbon dioxide, methane, nitrogen oxide, hydrofluorocarbon, perfluorocarbon and sulfur hexafluoride), may limit or otherwise adversely affect our operations. The implementation of recent California legislation and proposed federal legislation may adversely affect our unregulated businesses by imposing additional costs associated with emission limits and the possible require ment of carbon taxes or the purchase of emissions credits. Similarly, the Sempra Utilities may be affected if costs are not recoverable in rates. The effects of significantly tougher standards may cause rates to increase to levels that substantially reduce customer demand and growth. In addition, SDG&E may be subject to penalties if certain mandated renewable energy goals are not met. We provide further discussion of these matters in Notes 14, 15 and 16 of the Notes to Consolidated Financial Statements in the Annual Report.

In addition, existing and future laws and regulation on mercury, nitrogen and sulfur oxides, particulates, or other emissions could result in requirements for additional pollution control equipment or emission fees and taxes that could adversely affect us. Moreover, existing rules and regulations may be interpreted or revised in ways that may adversely affect us and our facilities and operations. We provide additional information about these matters in Note 15 of the Notes to the Consolidated Financial Statements in the Annual Report. 

Natural disasters, catastrophic accidents or acts of terrorism could materially adversely affect our business, earnings and cash flows.

Like other major industrial facilities, ours may be damaged by natural disasters, catastrophic accidents, or acts of terrorism. Such facilities include

§

generation

§

chartered oil and LNG tankers

§

electric transmission and distribution

§

natural gas pipelines and storage

§

LNG receipt terminals and storage

 

Such incidents could result in severe business disruptions, significant decreases in revenues, or significant additional costs to us. Any such incident could have a material adverse effect on our financial condition, earnings and cash flows.

Depending on the nature and location of the facilities affected, any such incident also could cause fires, leaks, explosions, spills or other significant damage to natural resources or property belonging to third parties, or cause personal injuries. Any of these consequences could lead to significant claims against us. Insurance coverage may become unavailable for certain of these risks, and any insurance proceeds we receive may be insufficient to cover our losses or liabilities, which could materially adversely affect our financial condition, earnings and cash flows.

Our future results of operations, financial condition, and cash flows may be materially adversely affected by the outcome of pending litigation against us.

Sempra Energy and its subsidiaries are defendants in numerous lawsuits. We have spent, and continue to spend, substantial amounts defending these lawsuits, and in related investigations and regulatory proceedings. In particular, SDG&E is subject to numerous lawsuits arising out of San Diego County wildfires in 2007, and Sempra Generation is subject to extensive litigation regarding a major long-term power agreement. We discuss these and other litigation in Note 16 of the Notes to Consolidated Financial Statements in the Annual Report. The uncertainties inherent in legal proceedings make it difficult to estimate with any degree of certainty the costs and effects of resolving these matters. In addition, California juries have demonstrated an increasing willingness to grant large awards, including punitive damages, in personal injury, product liability, property damage and other claims. Accordingly, actual costs incurred may differ materially from insured or reserved amounts and could materially adversely affect our business, cash flows, results of operations and financial condition.



19



We discuss these proceedings in Note 16 of the Notes to Consolidated Financial Statements and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report.

Risks Related to the Sempra Utilities

The Sempra Utilities are subject to extensive regulation by state, federal and local legislation and regulatory authorities, which may adversely affect the operations, performance and growth of their businesses.

The CPUC regulates the Sempra Utilities' rates, except SDG&E's electric transmission rates, which are regulated by the FERC. The CPUC also regulates the Sempra Utilities'

§

conditions of service

§

rates of depreciation

§

capital structure

§

long-term resource procurement

§

rates of return

§

sales of securities

The CPUC conducts various reviews and audits of utility performance, compliance with CPUC regulations and standards, affiliate relationships and other matters. These reviews and audits may result in disallowances and penalties that could adversely affect earnings and cash flows. We discuss various CPUC proceedings relating to the Sempra Utilities' rates, costs, incentive mechanisms, and performance-based regulation in Notes 14 and 15 of the Notes to Consolidated Financial Statements and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report.

The Sempra Utilities may spend funds related to a major capital project prior to receiving regulatory approval. If the project does not receive regulatory approval or if management decides not to proceed with the project, they may not be able to recover all amounts spent for that project, which could adversely affect earnings and cash flows.

The CPUC periodically approves the Sempra Utilities' rates based on authorized capital expenditures, operating costs and an authorized rate of return on investment. If actual capital expenditures and operating costs were to exceed the amount approved by the CPUC, earnings and cash flows could be adversely affected.

The CPUC applies performance-based measures and incentive mechanisms to all California utilities. Under these, income potential above authorized base margins is tied to achieving or exceeding specific performance and operating goals, rather than relying solely on expanding utility plant to increase earnings. At the Sempra Utilities, the areas that are eligible for incentives are operational activities such as employee safety, energy efficiency programs and, at SoCalGas, natural gas procurement. Although the Sempra Utilities have received incentive awards in the past, there can be no assurance that they will receive awards in the future, or that any future awards earned would be in amounts comparable to prior periods. Additionally, if the Sempra Utilities fail to achieve certain minimum performance levels established under such mechanisms, they may be assessed financial disallowances or penalties which could negatively affect earnings and cash flows. SoC alGas is also eligible for incentives, but is not subject to penalties, associated with unbundled gas storage activities.

The FERC regulates electric transmission rates, the transmission and wholesale sales of electricity in interstate commerce, transmission access, the rates of return on transmission investments, and other similar matters involving SDG&E.  

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

The construction and expansion of the Sempra Utilities' natural gas pipelines, SoCalGas' storage facilities, and SDG&E's electric transmission and distribution facilities require numerous permits and approvals from federal, state and local governmental agencies. If there are delays in obtaining required approvals, or failure to obtain or maintain required approvals, or to comply with applicable laws or regulations, the Sempra Utilities' business, cash flows, results of operations and financial condition could be materially adversely affected.  



20



SDG&E may incur substantial costs and liabilities as a result of its ownership of nuclear facilities.

SDG&E has a 20-percent ownership interest in SONGS, a 2,150-MW nuclear generating facility near San Clemente, California, operated by Southern California Edison Company. The NRC has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generation facilities. SDG&E's ownership interest in SONGS subjects it to the risks of nuclear generation, which include

§

the potential harmful effects on the environment and human health resulting from the operation of nuclear facilities and the storage, handling and disposal of radioactive materials;

§

limitations on the amounts and types of insurance commercially available to cover losses that might arise in connection with nuclear operations; and

§

uncertainties with respect to the technological and financial aspects of replacing steam generators or other equipment, and the decommissioning of nuclear plants.

Risks Related to our Electric Generation, LNG, Pipelines & Storage and Other Businesses

Our businesses are exposed to market risk, and our financial condition, results of operations, cash flows and liquidity may be adversely affected by fluctuations in commodity market prices that are beyond our control.

Sempra Generation generates electricity that it sells under long-term contracts and into the spot market or other competitive markets. It purchases natural gas to fuel its power plants and may also purchase electricity in the open market to satisfy its contractual obligations. As part of its risk management strategy, Sempra Generation may hedge a substantial portion of its electricity sales and natural gas purchases to manage its portfolio.

We buy energy-related and other commodities from time to time, for power plants or for LNG regasification terminals to satisfy contractual obligations with customers, in regional markets and other competitive markets in which we compete. Our revenues and results of operations could be adversely affected if the prevailing market prices for electricity, natural gas, LNG or other commodities that we buy change in a direction or manner not anticipated and for which we had not provided through purchase or sale commitments or other hedging transactions.

Unanticipated changes in market prices for energy-related and other commodities result from multiple factors, including:

§

weather conditions

§

seasonality

§

changes in supply and demand

§

transmission or transportation constraints or inefficiencies

§

availability of competitively priced alternative energy sources

§

commodity production levels

§

actions by the Organization of the Petroleum Exporting Countries with respect to the supply of crude oil

§

federal, state and foreign energy and environmental regulation and legislation

§

natural disasters, wars, embargoes and other catastrophic events

§

expropriation of assets by foreign countries

The FERC has jurisdiction over wholesale power and transmission rates, independent system operators, and other entities that control transmission facilities or that administer wholesale power sales in some of the markets in which we operate. In 2001, the FERC imposed price limitations that resulted in unexpected moves in electricity prices. In the future, the FERC may impose additional price limitations, bidding rules and other mechanisms, or terminate existing price limitations from time to time. Any such action by the FERC may result in prices for electricity changing in an unanticipated direction or manner and, as a result, may have an adverse effect on our sales and results of operations.



21



Business development activities may not be successful and projects under construction may not commence operation as scheduled, which could increase our costs and impair our ability to recover our investments.

The acquisition, development and construction of LNG receiving terminals, natural gas pipelines and storage facilities, electric generation facilities, and other energy infrastructure projects involve numerous risks. We may be required to spend significant sums for preliminary engineering, permitting, fuel supply, resource exploration, legal, and other expenses before we can determine whether a project is feasible, economically attractive, or capable of being built. Success in developing a particular project is contingent upon, among other things:

§

negotiation of satisfactory engineering, procurement and construction agreements

§

negotiation of supply and natural gas sales agreements or firm capacity service agreements

§

receipt of required governmental permits

§

timely implementation and satisfactory completion of construction

Successful completion of a particular project may be adversely affected by:

§

unforeseen engineering problems

§

construction delays and contractor performance shortfalls

§

work stoppages

§

equipment supply

§

adverse weather conditions

§

environmental and geological conditions

§

other factors

If we are unable to complete the development of a facility, we typically will not be able to recover our investment in the project.

The operation of existing and future facilities also involves many risks, including the breakdown or failure of generation or regasification and storage facilities or other equipment or processes, labor disputes, fuel interruption, and operating performance below expected levels. In addition, weather-related incidents and other natural disasters can disrupt generation, regasification, storage and transmission systems. The occurrence of any of these events could lead to operating facilities below expected capacity levels, which may result in lost revenues or increased expenses, including higher maintenance costs and penalties. Such occurrences could adversely affect our business, cash flows and results of operations.

We may elect not to, or may not be able to, enter into long-term supply and sales agreements or long-term firm capacity agreements for our projects, which would subject our sales to increased volatility and our businesses to increased competition.

The electric generation and wholesale power sales industries have become highly competitive. As more plants are built and competitive pressures increase, wholesale electricity prices may become more volatile. Without the benefit of long-term power sales agreements, such as the 10-year power sales agreement between Sempra Generation and the DWR that expires in 2011, our sales may be subject to increased price volatility. As a result, we may be unable to sell the power generated by Sempra Generation's facilities or operate those facilities profitably.  

Sempra LNG utilizes its regasification terminals by entering into long-term firm capacity service agreements. Under these agreements, customers pay Sempra LNG fees to use its facilities to regasify the customer's LNG. Sempra LNG also may enter into long-term supply agreements to purchase LNG, which is regasified at its terminals for sale to other parties. The long-term supply agreement contracts are expected to substantially reduce our exposure to changes in natural gas prices through corresponding natural gas sales agreements or by tying supply prices to prevailing natural gas price market indices. However, if Sempra LNG is unable to obtain sufficient long-term agreements or if the counterparties, customers or suppliers to one or more of the key agreements for the LNG facilities were to fail or become unable to meet their contractual obligations on a timely basis, it could have a material adverse effect on our business, results of operations, cash flows and f inancial condition. In addition, reduced availability of LNG to the United States due to inadequate supplies, increased demand and higher prices in other countries, and delays in the development of new liquefaction capacity could affect the timing of development



22



of new LNG facilities and expansion of existing facilities. These conditions also are likely to delay near-term attainment of full-capacity utilization at our facilities. Our potential LNG suppliers also may be subject to international political and economic pressures and risks, which may also affect the supply of LNG.

Sempra Pipelines & Storage's natural gas pipeline operations are dependent on supplies of natural gas from their transportation customers, which may include Sempra LNG facilities.

Our businesses depend on counterparties, business partners, customers, and suppliers performing in accordance with their agreements. If they fail to perform, we could incur substantial expenses and be exposed to commodity price risk and volatility, which could adversely affect our liquidity, cash flows and results of operations.

We are exposed to the risk that counterparties, business partners, customers, and suppliers that owe money or commodities as a result of market transactions or other long-term agreements will not perform their obligations under such agreements. Should they fail to perform, we may be required to acquire alternative hedging arrangements or to honor the underlying commitment at then-current market prices. In such event, we may incur additional losses to the extent of amounts already paid to such counterparties or suppliers. In addition, we often extend credit to counterparties and customers. While we perform significant credit analyses prior to extending credit, we are exposed to the risk that we may not be able to collect amounts owed to us.  

Sempra LNG's obligations and those of its suppliers for LNG supplies are contractually subject to 1) suspension or termination for "force majeure" events beyond the control of the parties; and 2) substantial limitations of remedies for other failures to perform, including limitations on damages to amounts that could be substantially less than those necessary to provide full recovery of capital for breach of the agreements.

If California's DWR were to succeed in setting aside, or were to fail to perform its obligations under its long-term power contract with Sempra Generation, our business, results of operations and cash flows will be materially adversely affected.

In 2001, Sempra Generation entered into a 10-year power sales agreement with the DWR to supply up to 1,900 MW to the state. The validity of the power sales agreement with the DWR continues to be the subject of extensive litigation between the parties before the FERC, in the courts and in arbitration proceedings. If the DWR were to succeed in setting aside its obligations under the contract, or if the DWR fails or is unable to meet its contractual obligations on a timely basis, it could have a material adverse effect on our business, results of operations, cash flows and financial condition. These proceedings are described in the Notes to Consolidated Financial Statements and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report. As described in Note 16 of the Notes to Consolidated Financial Statements, we unilaterally reduced our price to the DWR in connection with an agreement to settle other litigation.

We rely on transportation assets and services that we do not own or control to deliver electricity and natural gas.

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

1) deliver the electricity and natural gas we sell to wholesale markets,

2) supply natural gas to our electric generation facilities, and

3) provide retail energy services to customers.

Sempra Pipelines & Storage also depends on natural gas pipelines to interconnect with their ultimate source or customers of the commodities they are transporting. Sempra LNG also relies on specialized ships to transport LNG to its facilities and on natural gas pipelines to transport natural gas for customers of the facilities. If transportation is disrupted, or if capacity is inadequate, our ability to sell and deliver our products and services may be hindered. As a result, we may be responsible for damages incurred by our customers, such as the additional cost of acquiring alternative supply at then-current spot market rates.

We cannot and do not attempt to fully hedge our assets or contract positions against changes in commodity prices. Therefore, our hedging procedures may not work as planned.

To reduce financial exposure related to commodity price fluctuations, we may enter into contracts to hedge our purchase and sale commitments, inventories of natural gas, and electric generation capacity. As part of this strategy,



23



we may use fixed-price, forward, physical purchase and sales contracts, futures, financial swaps, and options. However, we do not hedge the entire exposure to market price volatility of our assets or our contract positions and the coverage will vary over time. To the extent we have unhedged positions, or if our hedging strategies do not work as planned, fluctuating commodity prices could have a material adverse effect on our business, results of operations, cash flows and financial condition.

Risk management procedures may not prevent losses.

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

Our international businesses are exposed to different local, regulatory and business risks and challenges, which could have a material adverse effect on our financial condition, cash flows and results of operations.

We have interests in electricity generation and transmission, natural gas distribution and transportation, and LNG terminal projects in Mexico. Sempra Pipelines & Storage has ownership interests in electricity and natural gas distribution businesses in Argentina, Chile and Peru. We have an ownership interest in RBS Sempra Commodities, which has trading, marketing and risk management operations in Canada, Europe and Asia. Developing infrastructure projects, owning energy assets, and operating businesses in foreign jurisdictions subject us to significant political, legal and financial risks that vary by country, including:

§

changes in foreign laws and regulations, including tax and environmental laws and regulations, and U.S. laws and regulations related to foreign operations

§

high rates of inflation

§

changes in government policies or personnel

§

trade restrictions

§

limitations on U.S. company ownership in foreign countries

§

permitting and regulatory compliance

§

changes in labor supply and labor relations in operations outside the U.S.

§

adverse rulings by foreign courts or tribunals, challenges to permits, difficulty in enforcing contractual rights, and unsettled property rights and titles in Mexico and other foreign jurisdictions

§

general political, economic and business conditions  

Our international businesses also are subject to foreign currency risks. These risks arise from both volatility in foreign currency exchange and inflation rates and devaluations of foreign currencies. In such cases, an appreciation of the U.S. dollar against a local currency could reduce the amount of cash and income received from those foreign subsidiaries. Fluctuations in foreign currency exchange and inflation rates may result in increased taxes in foreign countries. While Sempra Pipelines & Storage believes that it has contracts and other measures in place to mitigate its most significant foreign currency exchange risks, some exposure is not fully mitigated.

Other Risks

Sempra Energy has substantial investments and other obligations in businesses that it does not control or manage.

Sempra Energy is a partner with The Royal Bank of Scotland (RBS) in RBS Sempra Commodities, a commodities-marketing firm in which we invested $1.6 billion. RBS, which has been greatly affected by the world-wide turmoil in banking and is now indirectly controlled by the government of the United Kingdom, is obligated to provide all of the additional capital required for the operation and expansion of the commodities-marketing business.



24



We also own a 25-percent interest in Rockies Express, a joint venture which is completing construction of a 1,679-mile natural gas pipeline at an estimated cost of approximately $6.2 billion. Rockies Express is controlled by Kinder Morgan Energy Partners, which holds a 51-percent interest.

We have also guaranteed a portion of the debt and other obligations of RBS Sempra Commodities and debt of Rockies Express as we discuss in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report. We also have smaller investments in other entities that we do not control or manage.

We do not control and have limited influence over these businesses and their management. In addition to the other risks inherent in these businesses, if their management were to fail to perform adequately or the other investors in the businesses were unable or otherwise failed to perform their obligations to provide capital and credit support for these businesses, it could have a material adverse affect on our results of operations, financial position and cash flows.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

ELECTRIC PROPERTIES – SDG&E

At December 31, 2008, SDG&E owns two natural gas-fired power plants:

§

a 550-MW electric generation facility (the Palomar generation facility) in Escondido, California, and

§

a 45-MW electric generation facility (the Miramar generation facility) in San Diego, California.

SDG&E has exercised its option to purchase the 480-MW natural gas-fired power plant located in El Dorado, Nevada from Sempra Generation in 2011. In January 2009, the CPUC approved SDG&E's application to construct a 46.5-MW natural gas-fired peaking plant in San Diego next to the Miramar generation facility noted above.

SDG&E's interest in SONGS is described above in "Electric Utility Operations SONGS."

At December 31, 2008, SDG&E's electric transmission and distribution facilities included substations, and overhead and underground lines. These electric facilities are located in San Diego, Imperial and Orange counties of California and in Arizona. The facilities consist of 1,868 miles of transmission lines and 22,198 miles of distribution lines. Periodically, various areas of the service territory require expansion to accommodate customer growth.

NATURAL GAS PROPERTIES – SEMPRA UTILITIES

At December 31, 2008, SDG&E's natural gas facilities, which are located in San Diego and Riverside counties of California, consisted of the Moreno and Rainbow compressor stations, 168 miles of transmission pipelines, 8,389 miles of distribution mains, and 6,320 miles of service lines.

At December 31, 2008, SoCalGas’ natural gas facilities included 2,890 miles of transmission and storage pipelines, 53,499 miles of distribution pipelines and 47,190 miles of service pipelines. They also included 11 transmission compressor stations and 4 underground natural gas storage reservoirs with a combined working capacity of 131 billion cubic feet (Bcf).



25



ENERGY PROPERTIES – SEMPRA GLOBAL

At December 31, 2008, Sempra Generation operates power plants in California, Arizona, Nevada and Mexico with a total capacity of 2,640 MW. We provide additional information in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and in Notes 3 and 4 of the Notes to Consolidated Financial Statements in the Annual Report.

Sempra Generation leases or owns property in Arizona, Nevada and Mexico for potential development of solar and wind electric generation facilities.

At December 31, 2008, Sempra Pipelines & Storage's operations in Mexico included 1,837 miles of distribution pipelines, 203 miles of transmission pipelines and 2 compressor stations.   

Sempra Pipelines & Storage leases land in Calcasieu Parish, Louisiana, where its Liberty Gas Storage natural gas storage facility is under construction.  In 2006, Sempra Pipelines & Storage and Proliance Transportation and Storage, LLC acquired three existing salt caverns representing 10 Bcf to 12 Bcf of potential natural gas storage capacity in Cameron Parish, Louisiana, that is currently being developed into a natural gas storage facility.

Sempra Pipelines & Storage operates Mobile Gas, a small natural gas distribution utility located in Mobile and Baldwin counties in Alabama. Its property consists of distribution mains, service lines and regulating equipment.

In Washington County, Alabama, Sempra Pipelines & Storage operates an 11.4 Bcf natural gas storage facility under a land lease, with plans to expand total working capacity to 27 Bcf, and also owns land in Simpson County, Mississippi, with plans to develop natural gas storage with a working capacity of 30 Bcf.

Sempra LNG operates an LNG receipt terminal on land it owns in Baja California, Mexico and has a land lease in Hackberry, Louisiana, where its Cameron LNG receipt terminal is under construction. Sempra LNG also owns land in Port Arthur, Texas, for potential development.

OTHER PROPERTIES

Sempra Energy occupies its 19-story corporate headquarters building in San Diego, California, pursuant to an operating lease that expires in 2015. The lease has two five-year renewal options.

SoCalGas leases approximately half of a 52-story office building in downtown Los Angeles, California, pursuant to an operating lease expiring in 2011. The lease has six five-year renewal options.

SDG&E occupies a six-building office complex in San Diego pursuant to two separate operating leases, both ending in December 2017. One lease has four five-year renewal options and the other lease has three five-year renewal options.

Sempra Global leases office facilities at various locations in the U.S. and Mexico with the leases ending from 2008 to 2035.

Sempra Energy, SDG&E and SoCalGas own or lease other land, easements, rights of way, warehouses, offices, operating and maintenance centers, shops, service facilities and equipment necessary in the conduct of their business.

ITEM 3. LEGAL PROCEEDINGS

We are not party to, and our property is not the subject of, any material pending legal proceedings (other than ordinary routine litigation incidental to our businesses) except for the matters 1) described in Notes 14, 15 and 16 of the Notes to Consolidated Financial Statements, or 2) referred to in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report.

The Los Angeles Regional Water Quality Control Board has asserted that SoCalGas violated the California Water Code in connection with certain maintenance activities in Los Angeles County's Sullivan Canyon. In June 2008, the board dismissed without prejudice a related lawsuit to provide an opportunity for the parties to resolve this matter



26



without litigation. SoCalGas believes that any resolution will impose upon it fines and penalties of no more than $525,000.

On July 13, 2007, SDG&E, one of its employees, and an SDG&E contractor were convicted in a federal jury trial on criminal charges of environmental violations in connection with the 2000 – 2001 dismantlement of a natural gas storage facility. SDG&E was also convicted of a related charge of making a false statement to a governmental agency. On December 7, 2007, the trial court set aside all of the convictions and granted all of the defendants a new trial on all counts. The government has appealed the trial court's decision.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.



27



PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

COMMON STOCK AND RELATED SHAREHOLDER MATTERS

The common stock, related shareholder, and dividend restriction information required by Item 5 is included in "Common Stock Data" in the Annual Report.

PERFORMANCE GRAPH -- COMPARATIVE TOTAL SHAREHOLDER RETURNS

The performance graph required by Item 5 is provided in "Performance Graph – Comparative Total Shareholder Returns" in the Annual Report.

SEMPRA ENERGY EQUITY COMPENSATION PLANS

In May 2008, Sempra Energy's 2008 Long Term Incentive Plan was approved by shareholders and replaced our 1998 Long Term Incentive Plan and our Employee Stock Incentive Plan. These plans permit the grant of a wide variety of equity and equity-based incentive awards to officers and key employees. The 2008 Long Term Incentive Plan also replaced our Non-Employee Directors Stock Plan and provides for automatic annual grants of stock options to non-employee directors.

The Sempra Energy 2008 Long Term Incentive Plan for EnergySouth, Inc. Employees and Other Eligible Individuals ("the Plan") authorizes the issuance of up to 302,478 shares of Sempra Energy common stock. In connection with our acquisition of EnergySouth in October 2008, we adopted the Plan to utilize the shares remaining available for future awards under the 2008 Incentive Plan of EnergySouth, Inc. (the "Prior Plan"). All awards outstanding under the Prior Plan at the time of the acquisition were cancelled and the holders were paid the merger consideration in accordance with the terms of the merger agreement. The Plan provides for the grant of substantially the same types of share-based awards (other than incentive stock options) that are available under the Sempra Energy 2008 Long Term Incentive Plan.

At December 31, 2008, outstanding awards consisted of stock options, restricted stock, and restricted stock units held by 326 employees.



28



The following table sets forth information regarding our equity compensation plans at December 31, 2008.  


 

Number of shares to
be issued upon
exercise of
outstanding
options, warrants
and rights (A)

Weighted-average
exercise price of
outstanding options,
warrants and rights

Number of
additional
shares remaining
available for future
issuance

 

 

 

 

 

 

 

Equity compensation plans approved by shareholders:

 

 

 

 

 

2008 Long Term Incentive Plan

6,852,256

$

36.42

6,993,761

(B)

 

 

 

 

 

 

 Equity compensation plans not approved by shareholders:

 

 

 

 

 

2008 Long Term Incentive Plan for EnergySouth, Inc. Employees and Other Eligible Individuals (C)

    --

$

--

302,478

(D)

 

 

 

 

 

 

Total

6,852,256

$

36.42

7,296,239

 

(A)

Consists solely of options to purchase shares of our common stock, all of which were granted at an exercise price of 100% of the grant date fair market value of the shares subject to the option.

(B)

The number of shares available for future issuance is increased by the number of shares withheld to satisfy related tax withholding obligations relating to stock option and other plan awards and by the number of shares subject to awards that lapse, expire or are otherwise terminated or are settled other than by the issuance of shares.

(C)

Adopted in connection with our acquisition of EnergySouth in October 2008 to utilize shares remaining available under the 2008 Incentive Plan of EnergySouth, Inc., which had been previously approved by EnergySouth shareholders.

(D)

The number of shares available for future issuance is increased by the number of shares subject to awards that terminate without the issuance of shares.


We provide additional discussion of share-based compensation in Note 10 of the Notes to Consolidated Financial Statements in the Annual Report.



29



PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

On September 11, 2007, the Sempra Energy board of directors authorized the repurchase of Sempra Energy common stock provided that the amounts spent for such purposes do not exceed the greater of $2 billion or amounts spent to purchase no more than 40 million shares.

On April 1, 2008, we entered into a Collared Accelerated Share Acquisition Program with Merrill Lynch International. Under this program, we paid $1 billion to repurchase shares of our common stock. We discuss this repurchase in Note 13 of the Notes to Consolidated Financial Statements in the Annual Report.

The following table sets forth information concerning purchases made by us, from the programs authorized above, of our common stock during the fourth quarter of 2008:


 

Total
Number
of Shares
Purchased (1)

Average
Price Paid
Per Share (1)

Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs (1)

Maximum
Dollar Value of
Shares that may
Yet be Purchased
Under the Plans
or Programs

 

 

 

 

 

October 2008

3,008,280

 

$

54.30

 

3,008,280

 

 

 

November 2008

--

 

$

--

 

--

 

 

 

December 2008

--

 

$

--

 

--

 

 

 

 

3,008,280

 

$

54.30

 

3,008,280

 

$1 billion remaining

(2)(3)

(1)

Our publicly announced Collared Accelerated Share Acquisition Program that began in April 2008 was completed on October 13, 2008. A total of 18,416,241 shares were purchased at a weighted average price of $54.30 per share under this program, 3,008,280 of which were received in October 2008.  Additional information regarding the program is provided in Note 13 of the Notes to Consolidated Financial Statements in the Annual Report.

(2)

Approximately $1 billion remains authorized by our board of directors to purchase additional shares. However, we do not expect to repurchase any common shares in 2009, except as we discuss in (3) below.

(3)

We may, from time to time, purchase shares of our common stock from holders of our restricted stock and restricted stock units in amounts sufficient to meet minimum statutory tax withholding requirements upon vesting.


ITEM 6. SELECTED FINANCIAL DATA

The information required by Item 6 is included in "Five-Year Summaries" in the Annual Report.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information required by Item 7 is set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report, on pages 1 to 55.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by Item 7A is set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations – Market Risk" in the Annual Report.



30



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by Item 8 is set forth on pages 69 through 189 of the Annual Report. Item 15(a)1 includes a listing of financial statements included.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

The information required by Item 9A is provided in "Controls and Procedures" in the Annual Report.

ITEM 9B. OTHER INFORMATION

On February 19, 2009, the Compensation Committee of the Sempra Energy board of directors awarded Mark A. Snell, an Executive Vice President and the Chief Financial Officer of Sempra Energy, a performance-based restricted stock award under Sempra Energy's shareholder approved 2008 Long Term Incentive Plan.  The award consists of 14,880 restricted shares of Sempra Energy common stock.  Subject to the satisfaction of performance criteria, the restricted shares (together with additional restricted shares attributable to reinvested dividends) are scheduled to vest in equal annual installments of one-third of the shares initially subject to the award. However, each installment of restricted shares will be forfeited if we have not achieved positive operating income for the year prior to the scheduled vesting date. In addition, the Compensation Committee may at any time reduce the number of unvested shares remaining subject to the award if it determines that the principal objectives for the formation of RBS Sempra Commodities, a joint venture between Sempra Energy and The Royal Bank of Scotland, are not continuing to be achieved.  Unvested shares also will be forfeited if Mr. Snell’s employment with Sempra Energy and its subsidiaries were to terminate for any reason other than his death.

The award to Mr. Snell is in addition to customary awards of service-based stock options and performance-based restricted stock units granted to officers and other employees of Sempra Energy at the beginning of each year under Sempra Energy's 2008 Long Term Incentive Plan.





31



PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

SEMPRA ENERGY

The information required by Item 10 for Sempra Energy is incorporated by reference from "Corporate Governance" and "Share Ownership" in the Proxy Statement prepared for the April 2009 annual meeting of shareholders. The information required on our executive officers is provided below.


EXECUTIVE OFFICERS OF THE REGISTRANT

 

 

 

Name

Age*

Position*

Donald E. Felsinger

61

Chairman and Chief Executive Officer

Neal E. Schmale

62

President and Chief Operating Officer

Javade Chaudhri

56

Executive Vice President and General Counsel

Edwin A. Guiles

59

Executive Vice President - Corporate Development

Jessie J. Knight, Jr.

58

Executive Vice President - External Affairs

Mark A. Snell

52

Executive Vice President and Chief Financial Officer

Joseph A. Householder

53

Senior Vice President, Controller and Chief Accounting Officer

Charles A. McMonagle

59

Senior Vice President and Treasurer

G. Joyce Rowland

54

Senior Vice President - Human Resources

* As of February 24, 2009.


Each executive officer has been an officer of Sempra Energy or one of its subsidiaries for more than five years, except for Mr. Knight. Prior to joining Sempra Energy in 2006, Mr. Knight served as President and CEO of the San Diego Regional Chamber of Commerce since 1999.



32



SDG&E, PE AND SOCALGAS

The information required by Item 10 for SDG&E, PE and SoCalGas is incorporated by reference from the Information Statement prepared for the June 2009 annual meeting of shareholders. The information required on the executive officers is set forth below.


EXECUTIVE OFFICERS OF THE REGISTRANTS

 

Name

Age*

Position*

SAN DIEGO GAS & ELECTRIC COMPANY

Debra L. Reed

52

Chairperson, President and Chief Executive Officer

Michael R. Niggli

59

Chief Operating Officer

James P. Avery

52

Senior Vice President - Electric

Lee Schavrien

54

Senior Vice President - Regulatory and Finance

Anne S. Smith

55

Senior Vice President - Customer Services

W. Davis Smith

59

Senior Vice President and General Counsel

Lee M. Stewart

63

Senior Vice President - Gas Operations

Robert M. Schlax

53

Vice President, Controller and Chief Financial Officer

 

 

 

PACIFIC ENTERPRISES

 

 

Debra L. Reed

52

Chairperson, President and Chief Executive Officer

Michael R. Niggli

59

Chief Operating Officer

Robert M. Schlax

53

Vice President, Controller and Chief Financial Officer

 

 

 

SOUTHERN CALIFORNIA GAS COMPANY

Debra L. Reed

52

Chairperson, President and Chief Executive Officer

Michael R. Niggli

59

Chief Operating Officer

Lee Schavrien

54

Senior Vice President - Regulatory and Finance

Anne S. Smith

55

Senior Vice President - Customer Services

W. Davis Smith

59

Senior Vice President and General Counsel

Lee M. Stewart

63

Senior Vice President - Gas Operations

Robert M. Schlax

53

Vice President, Controller and Chief Financial Officer

* As of February 24, 2009.


Each executive officer of SDG&E, PE and SoCalGas has been an officer or employee of Sempra Energy or its subsidiaries for more than five years, with the exception of Mr. Schlax. Prior to joining SDG&E in 2005, Mr. Schlax was Chief Financial Officer, Treasurer and Vice President of Finance of Mercury Air Group, Inc. since 2002. Except for Mr. Avery, each executive officer of SDG&E holds the same position at SoCalGas.  

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated by reference from "Corporate Governance," and "Executive Compensation," including "Compensation Discussion and Analysis," and "Compensation Committee Report" in the Proxy Statement prepared for the April 2009 annual meeting of shareholders for Sempra Energy and from the Information Statement prepared for the June 2009 annual meeting of shareholders for SDG&E, PE and SoCalGas.



33



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

Information regarding securities authorized for issuance under equity compensation plans as required by Item 12 is included in Item 5.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The security ownership information required by Item 12 is incorporated by reference from "Share Ownership" in the Proxy Statement prepared for the April 2009 annual meeting of shareholders for Sempra Energy and from the Information Statement prepared for the June 2009 annual meeting of shareholders for SDG&E, PE and SoCalGas.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by Item 13 is incorporated by reference from "Corporate Governance" in the Proxy Statement prepared for the April 2009 annual meeting of shareholders for Sempra Energy and from the Information Statement prepared for the June 2009 annual meeting of shareholders for SDG&E, PE and SoCalGas.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information regarding principal accountant fees and services, as required by Item 14, is incorporated by reference from "Proposals To Be Voted On - Proposal 2: Ratification of Independent Registered Public Accounting Firm" in the Proxy Statement prepared for the April 2009 annual meeting of shareholders for Sempra Energy and from the Information Statement prepared for the June 2009 annual meeting of shareholders for SDG&E, PE and SoCalGas.



34



PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this report:

1. FINANCIAL STATEMENTS

 

Page in Annual Report*

 

 

 

 

 

 

Sempra Energy

San Diego Gas & Electric Company

Pacific Enterprises

Southern California Gas Company

 

 

 

 

 

Management's Report On Internal Control Over Financial Reporting

60

60

60

60

 

 

 

 

 

Reports of Independent Registered Public Accounting Firm

61

63

65

67

 

 

 

 

 

Statements of Consolidated Income for the years ended December 31, 2008, 2007 and 2006  

69

75

81

87

 

 

 

 

 

Consolidated Balance Sheets at December 31, 2008 and 2007

70

76

82

88

 

 

 

 

 

Statements of Consolidated Cash Flows for the years ended December 31, 2008, 2007 and 2006

72

78

84

90

 

 

 

 

 

Statements of Consolidated Comprehensive Income and Changes in Shareholders' Equity for the years ended December 31, 2008, 2007 and 2006

74

80

86

92

 

 

 

 

 

Notes to Consolidated Financial Statements

93

93

93

93

* Incorporated by reference from the indicated pages of the 2008 Annual Report to Shareholders, filed as Exhibit 13.1.

2. FINANCIAL STATEMENT SCHEDULES

Sempra Energy

Schedule I--Sempra Energy Condensed Financial Information of Parent may be found on page 38.

Pacific Enterprises

Schedule I--Pacific Enterprises Condensed Financial Information of Parent may be found on page 42.

Any other schedule for which provision is made in Regulation S-X is not required under the instructions contained therein, is inapplicable or the information is included in the Consolidated Financial Statements and notes thereto.

3. EXHIBITS

See Exhibit Index on page 48 of this report.

(c) RBS Sempra Commodities LLP and Subsidiaries – Consolidated Financial Statements as of December 31, 2008 and for the Period From April 1, 2008 (Date of Commencement) to December 31, 2008 and Report of Independent Registered Public Accounting Firm are provided in Exhibit 99.1.



35



CONSENTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND REPORT ON SCHEDULE

SEMPRA ENERGY

To the Board of Directors and Shareholders of Sempra Energy:

We consent to the incorporation by reference in Registration Statement No. 333-153425 on Form S-3 and 333-56161, 333-50806, 333-49732, 333-121073, 333-128441, 333-151184, and 333-155191 on Form S-8 of our reports dated February 23, 2009, relating to the consolidated financial statements of Sempra Energy and subsidiaries ("the Company") and the effectiveness of the Company’s internal control over financial reporting, incorporated by reference in this Annual Report on Form 10-K of Sempra Energy for the year ended December 31, 2008.

Our audits of the financial statements referred to in our aforementioned report relating to the consolidated financial statements also included the financial statement schedule of the Company, listed in Item 15.  This financial statement schedule is the responsibility of the Company’s management.  Our responsibility is to express an opinion based on our audits.  In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/S/ DELOITTE & TOUCHE LLP

San Diego, California
February 23, 2009

SAN DIEGO GAS & ELECTRIC COMPANY

To the Board of Directors and Shareholders of San Diego Gas & Electric Company:

We consent to the incorporation by reference in Registration Statement No. 333-133541 on Form S-3 of our reports dated February 23, 2009, relating to the consolidated financial statements of San Diego Gas & Electric Company and subsidiary ("the Company") and the effectiveness of the Company's internal control over financial reporting, incorporated by reference in this Annual Report on Form 10-K of San Diego Gas & Electric Company for the year ended December 31, 2008.

/S/ DELOITTE & TOUCHE LLP

San Diego, California
February 23, 2009



36




SOUTHERN CALIFORNIA GAS COMPANY

To the Board of Directors and Shareholders of Southern California Gas Company:

We consent to the incorporation by reference in Registration Statement No. 333-134289 on Form S-3 of our reports dated February 23, 2009, relating to the consolidated financial statements of Southern California Gas Company and subsidiaries (the "Company") and the effectiveness of the Company's internal control over financial reporting, incorporated by reference in this Annual Report on Form 10-K of Southern California Gas Company for the year ended December 31, 2008.

/S/ DELOITTE & TOUCHE LLP

San Diego, California
February 23, 2009


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

PACIFIC ENTERPRISES

To the Board of Directors and Shareholders of Pacific Enterprises:

We have audited the consolidated financial statements of Pacific Enterprises and subsidiaries (the "Company") as of December 31, 2008 and 2007, and for each of the three years in the period ended December 31, 2008, and the Company’s internal control over financial reporting as of December 31, 2008, and have issued our reports thereon dated February 23, 2009; such consolidated financial statements and reports are included in your 2008 Annual Report to Shareholders and are incorporated by reference herein. Our audits also included the financial statement schedule of the Company listed in Item 15. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/S/ DELOITTE & TOUCHE LLP

San Diego, California
February 23, 2009



37




SCHEDULE I – SEMPRA ENERGY CONDENSED FINANCIAL INFORMATION OF PARENT


SEMPRA ENERGY

CONDENSED STATEMENTS OF INCOME

(Dollars in millions, except per share amounts)

 

 

Years ended December 31,

 

2008

2007

2006

 

 

 

 

 

 

 

 

 

 

Interest income

$

104

 

$

166

 

$

188

 

Interest expense

 

(130

)

 

(178

)

 

(202

)

Operation and maintenance

 

(64

)

 

(105

)

 

(120

)

Other income (expense), net

 

(63

)

 

58

 

 

21

 

Income tax benefits

 

93

 

 

38

 

 

61

 

Loss before equity in earnings of subsidiaries

 

(60

)

 

(21

)

 

(52

)

Equity in earnings of subsidiaries

 

1,173

 

 

1,120

 

 

1,458

 

Net income

$

1,113

 

$

1,099

 

$

1,406

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

Net income

$

4.50

 

$

4.24

 

$

5.48

 

Weighted-average number of shares outstanding (thousands)

 

247,387

 

 

259,269

 

 

256,477

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

Net income

$

4.43

 

$

4.16

 

$

5.38

 

Weighted-average number of shares outstanding (thousands)

 

251,159

 

 

264,004

 

 

261,368

 

See Notes to Condensed Financial Information of Parent (Sempra Energy).




38




SEMPRA ENERGY

 

CONDENSED BALANCE SHEETS

 

(Dollars in millions)

 

 

 

 

 

 

 

December 31,

 

December 31,

 

 

2008

 

2007

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

12

 

 

$

6

 

Short-term investments

 

 

152

 

 

 

--

 

Due from affiliates

 

 

28

 

 

 

103

 

Income taxes receivable

 

 

299

 

 

 

210

 

Other current assets

 

 

9

 

 

 

31

 

 

Total current assets

 

 

500

 

 

 

350

 

 

 

 

 

 

 

 

 

 

Investments in subsidiaries

 

 

9,644

 

 

 

8,766

 

Due from affiliates

 

 

2,365

 

 

 

2,298

 

Other assets

 

 

811

 

 

 

784

 

 

 Total assets

 

$

13,320

 

 

$

12,198

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

300

 

 

$

--

 

Due to affiliates

 

 

1,876

 

 

 

1,708

 

Other current liabilities

 

 

307

 

 

 

344

 

 

Total current liabilities

 

 

2,483

 

 

 

2,052

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

2,233

 

 

 

1,290

 

Other long-term liabilities

 

 

635

 

 

 

517

 

Shareholders' equity

 

 

7,969

 

 

 

8,339

 

 

 Total liabilities and shareholders' equity

 

$

13,320

 

 

$

12,198

 

See Notes to Condensed Financial Information of Parent (Sempra Energy).




39




SEMPRA ENERGY

CONDENSED STATEMENTS OF CASH FLOWS

(Dollars in millions)

 

Years ended December 31,

 

2008

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

$

173

 

 

$

240

 

 

$

322

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends received from subsidiaries

 

350

 

 

 

150

 

 

 

150

 

Expenditures for property, plant and equipment

 

(4

)

 

 

(13

)

 

 

(19

)

Expenditures for short-term investments

 

(640

)

 

 

--

 

 

 

--

 

Proceeds from sale of short-term investments

 

488

 

 

 

--

 

 

 

--

 

Increase in investments and other assets

 

(8

)

 

 

(4

)

 

 

(207

)

Purchase of trust assets

 

(9

)

 

 

(59

)

 

 

(65

)

Proceeds from sales by trust

 

2

 

 

 

21

 

 

 

19

 

Decrease (increase) in loans to affiliates, net

 

(149

)

 

 

532

 

 

 

(23

)

 

Cash provided by (used in) investing activities

 

30

 

 

 

627

 

 

 

(145

)

 

 

 

 

 

 

 

 

 

 

 

 

Common stock dividends paid

 

(339

)

 

 

(316

)

 

 

(283

)

Issuances of common stock

 

18

 

 

 

40

 

 

 

97

 

Repurchases of common stock

 

(1,018

)

 

 

(185

)

 

 

(37

)

Issuances of long-term debt

 

1,247

 

 

 

82

 

 

 

--

 

Payments on long-term debt

 

(11

)

 

 

(990

)

 

 

(12

)

Increase (decrease) in loans from affiliates, net

 

(102

)

 

 

59

 

 

 

273

 

Other

 

8

 

 

 

22

 

 

 

29

 

 

Cash provided by (used in) financing activities

 

(197

)

 

 

(1,288

)

 

 

67

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

6

 

 

 

(421

)

 

 

244

 

Cash and cash equivalents, January 1

 

6

 

 

 

427

 

 

 

183

 

Cash and cash equivalents, December 31

$

12

 

 

$

6

 

 

$

427

 

See Notes to Condensed Financial Information of Parent (Sempra Energy).




40



SEMPRA ENERGY

NOTES TO CONDENSED FINANCIAL INFORMATION OF PARENT

Note 1. Basis of Presentation

Sempra Energy accounts for the earnings of its subsidiaries under the equity method in this unconsolidated financial information.

Other Income (Expense), Net, on the Condensed Statements of Income includes $53 million of losses in 2008 and $27 million of gains in 2007 associated with investment earnings or losses on dedicated assets in support of our executive retirement and deferred compensation plans. It also included $57 million from Mexican peso exchange losses in 2008.

Equity in Earnings of Subsidiaries on the Condensed Statements of Income includes a loss of $26 million in 2007 and income of $315 million in 2006 related to discontinued operations.

Because of its nature as a holding company, Sempra Energy classifies dividends received from subsidiaries as an investing cash flow.

Note 2. Long-Term Debt

 

 

December 31,

 

December 31,

(Dollars in millions)

 

2008

 

2007

 

 

 

 

 

 

 

 

 

 

9.8% Notes February 15, 2019

 

$

500

 

$

--

 

 

6.15% Notes June 15, 2018

 

 

500

 

 

--

 

 

6.0% Notes February 1, 2013

 

 

400

 

 

400

 

 

Notes at variable rates after fixed-to-floating swap

 

 

300

 

 

300

 

 

(5.06% at December 31, 2008) March 1, 2010

 

4.75% Notes May 15, 2009

 

 

300

 

 

300

 

 

8.9% Notes November 15, 2013

 

 

250

 

 

--

 

 

7.95% Notes March 1, 2010

 

 

200

 

 

200

 

 

Employee Stock Ownership Plan

 

 

 

 

 

 

 

 

Bonds at 5.781% (fixed rate to July 1, 2010) November 1, 2014

 

 

50

 

 

50

 

 

Bonds at variable rates (5.26% at December 31, 2008)

 

 

22

 

 

33

 

 

November 1, 2014

 

Market value adjustments for interest-rate swap, net

 

 

15

 

 

8

 

 

(expires March 1, 2010)

 

 

 

2,537

 

 

1,291

 

 

Current portion of long-term debt

 

 

(300

)

 

--

 

 

Unamortized discount on long-term debt

 

 

(4

)

 

(1

)

 

Total long-term debt

 

$

2,233

 

$

1,290

 


Maturities of long-term debt, excluding market value adjustments for the interest-rate swap, are $300 million in 2009, $500 million in 2010, $650 million in 2013 and $1.1 billion thereafter.

Additional information on Sempra Energy's long-term debt is provided in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report.

Note 3. Commitments and Contingencies

For contingencies and guarantees related to Sempra Energy, refer to Notes 6 and 16 of the Notes to Consolidated Financial Statements in the Annual Report.



41




SCHEDULE I – PACIFIC ENTERPRISES CONDENSED FINANCIAL INFORMATION OF PARENT


PACIFIC ENTERPRISES

 

CONDENSED STATEMENTS OF INCOME

 

(Dollars in millions)

 

 

Years ended December 31,

 

2008

2007

2006

 

 

 

 

 

 

 

 

 

 

Interest and other income

$

11

 

$

23

 

$

35

 

Expenses, interest and income taxes

 

7

 

 

15

 

 

23

 

Income before equity in earnings of subsidiaries

 

4

 

 

8

 

 

12

 

Equity in earnings of subsidiaries

 

244

 

 

230

 

 

223

 

Earnings applicable to common shares

$

248

 

$

238

 

$

235

 

See Notes to Condensed Financial Information of Parent (Pacific Enterprises).



PACIFIC ENTERPRISES

 

 

 

 

CONDENSED BALANCE SHEETS

 

 

 

 

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

December 31,

 

December 31,

 

 

 

 

2008

 

2007

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Current assets

 

$

72

 

 

$

219

 

Investment in subsidiary

 

 

1,470

 

 

 

1,450

 

Due from affiliates long-term

 

 

457

 

 

 

457

 

Deferred charges and other assets

 

 

37

 

 

 

39

 

 

 Total assets

 

$

2,036

 

 

$

2,165

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity:

 

 

 

 

 

 

 

 

Due to affiliates

 

$

84

 

 

$

232

 

Other current liabilities

 

 

1

 

 

 

1

 

 

Total current liabilities

 

 

85

 

 

 

233

 

Long-term liabilities

 

 

11

 

 

 

16

 

Common equity

 

 

1,860

 

 

 

1,836

 

Preferred stock

 

 

80

 

 

 

80

 

 

 Total liabilities and shareholders' equity

 

$

2,036

 

 

$

2,165

 

See Notes to Condensed Financial Information of Parent (Pacific Enterprises).




42




PACIFIC ENTERPRISES

CONDENSED STATEMENTS OF CASH FLOWS

(Dollars in millions)

 

 

 

 

 

 

 

Years ended December 31,

 

 

 

 

 

2008

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

$

5

 

 

$

14

 

 

$

38

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends received from subsidiaries

 

350

 

 

 

150

 

 

 

150

 

Increase in loans to affiliates, net

 

(1

)

 

 

(9

)

 

 

(33

)

Other

 

--

 

 

 

(1

)

 

 

(1

)

 

Cash provided by investing activities

 

349

 

 

 

140

 

 

 

116

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock dividends paid

 

(350

)

 

 

(150

)

 

 

(150

)

Preferred dividends paid

 

(4

)

 

 

(4

)

 

 

(4

)

 

Cash used in financing activities

 

(354

)

 

 

(154

)

 

 

(154

)

 

 

 

 

 

 

 

 

 

 

 

 

Change in cash and cash equivalents

 

--

 

 

 

--

 

 

 

--

 

Cash and cash equivalents, January 1

 

--

 

 

 

--

 

 

 

--

 

Cash and cash equivalents, December 31

$

--

 

 

$

--

 

 

$

--

 

See Notes to Condensed Financial Information of Parent (Pacific Enterprises).



PACIFIC ENTERPRISES

NOTES TO CONDENSED FINANCIAL INFORMATION OF PARENT

Note 1. Basis of Presentation

Pacific Enterprises accounts for the earnings of its subsidiaries under the equity method in this unconsolidated financial information.

Because of its nature as a holding company, Pacific Enterprises classifies dividends received from subsidiaries as an investing cash flow.

Note 2. Commitments and Contingencies

For contingencies related to Pacific Enterprises, refer to Note 16 of the Notes to Consolidated Financial Statements in the Annual Report.



43






Sempra Energy:

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

SEMPRA ENERGY,
(Registrant)

 

 

 

By:  /s/ Donald E. Felsinger

 

Donald E. Felsinger
Chairman and Chief Executive Officer










Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

 

 

 

Name/Title

Signature

Date

Principal Executive Officer:
Donald E. Felsinger
Chairman and Chief Executive Officer



/s/ Donald E. Felsinger



February 24, 2009

 

 

 

Principal Financial Officer:
Mark A. Snell
Executive Vice President and
Chief Financial Officer




/s/ Mark A. Snell




February 24, 2009

 

 

 

Principal Accounting Officer:
Joseph A. Householder
Senior Vice President, Controller and Chief Accounting Officer




/s/ Joseph A. Householder




February 24, 2009

 

 

 

Directors:

 

 

Donald E. Felsinger, Chairman

/s/ Donald E. Felsinger

February 24, 2009

 

 

 

 

 

 

James G. Brocksmith, Jr., Director

/s/ James G. Brocksmith, Jr.

February 24, 2009

 

 

 

 

 

 

Richard A. Collato, Director

/s/ Richard A. Collato

February 24, 2009

 

 

 

 

 

 

Wilford D. Godbold, Jr., Director

/s/ Wilford D. Godbold, Jr.

February 24, 2009

 

 

 

 

 

 

William D. Jones, Director

/s/ William D. Jones

February 24, 2009

 

 

 

 

 

 

Richard G. Newman, Director

/s/ Richard G. Newman

February 24, 2009

 

 

 

 

 

 

William G. Ouchi, Director

/s/ William G. Ouchi

February 24, 2009

 

 

 

 

 

 

Carlos Ruiz, Director

/s/ Carlos Ruiz

February 24, 2009

 

 

 

 

 

 

William C. Rusnack, Director

/s/ William C. Rusnack

February 24, 2009

 

 

 

 

 

 

William P. Rutledge, Director

/s/ William P. Rutledge

February 24, 2009

 

 

 

Lynn Schenk, Director

/s/ Lynn Schenk

February 24, 2009

 

 

 

Neal E. Schmale, Director

/s/ Neal E. Schmale

February 24, 2009

 

 

 




44




San Diego Gas & Electric Company:

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

SAN DIEGO GAS & ELECTRIC COMPANY,
(Registrant)

 

 

 

By:  /s/ Debra L. Reed

 

Debra L. Reed
Chairperson, President and Chief Executive Officer











Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

 

 

 

Name/Title

Signature

Date

Principal Executive Officer:
Debra L. Reed
Chairperson, President and Chief Executive Officer




/s/ Debra L. Reed




February 24, 2009

 

 

 

Principal Financial and Accounting Officer:
Robert M. Schlax
Vice President, Controller and Chief Financial Officer




/s/ Robert M. Schlax




February 24, 2009

 

 

 

Directors:

 

 

Debra L. Reed, Chairperson

/s/ Debra L. Reed

February 24, 2009

 

 

 

 

 

 

Michael R. Niggli, Director

/s/ Michael R. Niggli

February 24, 2009

 

 

 

 

 

 

Mark A. Snell, Director

/s/ Mark A. Snell

February 24, 2009

 

 

 





45




Pacific Enterprises:

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

PACIFIC ENTERPRISES,
(Registrant)

 

 

 

By:  /s/ Debra L. Reed

 

Debra L. Reed
Chairperson, President and Chief Executive Officer











Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

 

 

 

Name/Title

Signature

Date

Principal Executive Officer:
Debra L. Reed
Chairperson, President and Chief Executive Officer




/s/ Debra L. Reed




February 24, 2009

 

 

 

Principal Financial and Accounting Officer:
Robert M. Schlax
Vice President, Controller
and Chief Financial Officer





/s/ Robert M. Schlax





February 24, 2009

 

 

 

Directors:

 

 

Debra L. Reed, Chairperson

/s/ Debra L. Reed

February 24, 2009

 

 

 

 

 

 

Michael R. Niggli, Director

/s/ Michael R. Niggli

February 24, 2009

 

 

 

 

 

 

Mark A. Snell, Director

/s/ Mark A. Snell

February 24, 2009

 

 

 





46




Southern California Gas Company:

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

SOUTHERN CALIFORNIA GAS COMPANY,
(Registrant)

 

 

 

By:  /s/ Debra L. Reed

 

Debra L. Reed
Chairperson, President and Chief Executive Officer












Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

 

 

 

Name/Title

Signature

Date

Principal Executive Officer:
Debra L. Reed
Chairperson, President and Chief Executive Officer




/s/ Debra L. Reed




February 24, 2009

 

 

 

Principal Financial and Accounting Officer:
Robert M. Schlax
Vice President, Controller
and Chief Financial Officer




/s/ Robert M. Schlax




February 24, 2009

 

 

 

Directors:

 

 

Debra L. Reed, Chairperson

/s/ Debra L. Reed

February 24, 2009

 

 

 

 

 

 

Michael R. Niggli, Director

/s/ Michael R. Niggli

February 24, 2009

 

 

 

 

 

 

Mark A. Snell, Director

/s/ Mark A. Snell

February 24, 2009

 

 

 



47





EXHIBIT INDEX

 

The Registration Statements and Forms S-8, 8-K, 10-K and 10-Q incorporated herein by reference were filed under Commission File Number 1-14201 (Sempra Energy), Commission File Number 1-40 (Pacific Enterprises/Pacific Lighting Corporation), Commission File Number 1-3779 (San Diego Gas & Electric Company) and/or Commission File Number 1-1402 (Southern California Gas Company).

 

The following exhibits relate to each registrant as indicated.

EXHIBIT 3 -- BYLAWS AND ARTICLES OF INCORPORATION

Sempra Energy

3.1  

Amended and Restated Articles of Incorporation of Sempra Energy effective May 23, 2008 (Appendix B to the 2008 Sempra Energy Definitive Proxy Statement, filed on April 15, 2008).

 

 

3.2  

Amended Bylaws of Sempra Energy effective December 4, 2007 (Sempra Energy Form 8-K filed on December 5, 2007, Exhibit 3(ii)).

 

 

3.3  

Amended and Restated Bylaws of Sempra Energy effective May 26, 1998 (Registration Statement on Form S-8 Sempra Energy Registration Statement No. 333-56161 dated June 5, 1998, Exhibit 3.2).

San Diego Gas & Electric Company

3.4  

Amended Bylaws of San Diego Gas & Electric effective August 4, 2003 (2007 SDG&E Form 10-K, Exhibit 3.01).

 

 

3.5  

Amended and Restated Bylaws of San Diego Gas & Electric effective May 14, 2002 (2007 SDG&E Form 10-K, Exhibit 3.02).

 

 

3.6  

Amended and Restated Articles of Incorporation of San Diego Gas & Electric Company effective November 10, 2006 (2006 SDG&E Form 10-K, Exhibit 3.02).

Pacific Enterprises / Southern California Gas Company

3.7  

Amended and Restated Bylaws of Pacific Enterprises effective May 12, 2002 (2007 PE Form 10-K, Exhibit 3.01).

 

 

3.8  

Amended Bylaws of Southern California Gas Company effective August 3, 2003 (2007 SoCalGas Form 10-K, Exhibit 3.02).

 

 

3.9  

Amended and Restated Bylaws of Southern California Gas Company effective May 14, 2002 (2007 SoCalGas Form 10-K, Exhibit 3.03).

 

 

3.10  

Restated Articles of Incorporation of Pacific Enterprises (1996 PE Form 10-K, Exhibit 3.01).

 

 

3.11  

Restated Articles of Incorporation of Southern California Gas Company (1996 SoCalGas Form 10-K, Exhibit 3.01).



48






EXHIBIT 4 -- INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES

The companies agree to furnish a copy of each such instrument to the Commission upon request.

Sempra Energy

4.1  

Description of rights of Sempra Energy Common Stock (Amended and Restated Articles of Incorporation of Sempra Energy effective May 23, 2008, Exhibit 3.1 above).

San Diego Gas & Electric Company

4.2  

Description of preferences of Cumulative Preferred Stock, Preference Stock (Cumulative) and Series Preference Stock (SDG&E Amended and Restated Articles of Incorporation as of November 10, 2006, Exhibit 3.6 above).

Pacific Enterprises / Southern California Gas Company

4.3  

Description of preferences of Preferred Stock, Preference Stock and Series Preferred Stock (Southern California Gas Company Restated Articles of Incorporation, Exhibit 3.11 above).

Sempra Energy / San Diego Gas & Electric Company

4.4  

Mortgage and Deed of Trust dated July 1, 1940 (SDG&E Registration Statement No. 2-49810, Exhibit 2A).

 

 

4.5  

Ninth Supplemental Indenture dated as of August 1, 1968 (SDG&E Registration Statement No. 2-68420, Exhibit 2D).

 

 

4.6  

Sixteenth Supplemental Indenture dated August 28, 1975 (SDG&E Registration Statement No. 2-68420, Exhibit 2E).

 

 

4.7  

Thirtieth Supplemental Indenture dated September 28, 1983 (SDG&E Registration Statement No. 33-34017, Exhibit 4.3).

Sempra Energy / Pacific Enterprises / Southern California Gas Company

4.8  

First Mortgage Indenture of Southern California Gas Company to American Trust Company dated October 1, 1940 (Registration Statement No. 2-4504 filed by Southern California Gas Company on September 16, 1940, Exhibit B-4).

 

 

4.9  

Supplemental Indenture of Southern California Gas Company to American Trust Company dated as of August 1, 1955 (Registration Statement No. 2-11997 filed by Pacific Lighting Corporation on October 26, 1955, Exhibit 4.07).

 

 

4.10  

Supplemental Indenture of Southern California Gas Company to American Trust Company dated as of June 1, 1956 (Registration Statement No. 2-12456 filed by Southern California Gas Company on April 23, 1956, Exhibit 2.08).

 

 

4.11  

Supplemental Indenture of Southern California Gas Company to American Trust Company dated as of December 1, 1956 (2006 Sempra Energy Form 10-K, Exhibit 4.09).

 

 

4.12  

Supplemental Indenture of Southern California Gas Company to Wells Fargo Bank dated as of June 1, 1965 (2006 Sempra Energy Form 10-K, Exhibit 4.10).

 

 

4.13  

Supplemental Indenture of Southern California Gas Company to Wells Fargo Bank, National Association dated as of August 1, 1972 (Registration Statement No. 2-59832 filed by Southern California Gas Company on September 6, 1977, Exhibit 2.19).



49






 

 

4.14  

Supplemental Indenture of Southern California Gas Company to Wells Fargo Bank, National Association dated as of May 1, 1976 (Registration Statement No. 2-56034 filed by Southern California Gas Company on April 14, 1976, Exhibit 2.20).

 

 

4.15  

Supplemental Indenture of Southern California Gas Company to Manufacturers Hanover Trust Company of California, successor to Wells Fargo Bank, National Association, and Crocker National Bank as Successor Trustee dated as of May 18, 1984 (Southern California Gas Company 1984 Form 10-K, Exhibit 4.29).

EXHIBIT 10 -- MATERIAL CONTRACTS

Sempra Energy / San Diego Gas & Electric Company / Pacific Enterprises / Southern California Gas Company

10.1  

Form of Continental Forge and California Class Action Price Reporting Settlement Agreement dated as of January 4, 2006 (Form 8-K filed on January 5, 2006, Exhibit 99.1).  

 

 

10.2  

Form of Nevada Antitrust Settlement Agreement dated as of January 4, 2006 (Form 8-K filed on January 5, 2006, Exhibit 99.2).  

Sempra Energy

10.3  

Limited Liability Partnership Agreement, dated as of April 1, 2008, between Sempra Energy, Sempra Commodities, Inc., Sempra Energy Holdings, VII B.V., RBS Sempra Commodities LLP and The Royal Bank of Scotland plc (Sempra Energy March 31, 2008 Form 10-Q, Exhibit 10.1).

 

 

10.4  

Indemnity Agreement, dated as of April 1, 2008, between Sempra Energy, Pacific Enterprises, Enova Corporation and The Royal Bank of Scotland plc (Sempra Energy March 31, 2008 Form 10-Q, Exhibit 10.2).

 

 

10.5  

Master Confirmation for Share Purchase Agreement, dated as of April 1, 2008, between Sempra Energy and Merrill Lynch International (June 30, 2008 Sempra Energy Form 10-Q, Exhibit 10.4).

 

 

10.6  

First amendment to the Master Formation and Equity Interest Purchase Agreement, dated as of April 1, 2008, by and among Sempra Energy, Sempra Global, Sempra Energy Trading International, B.V. and The Royal Bank of Scotland plc (Sempra Energy March 31, 2008 Form 10-Q, Exhibit 10.3).

 

 

10.7  

Master Formation and Equity Interest Purchase Agreement, dated as of July 9, 2007, by and among Sempra Energy, Sempra Global, Sempra Energy Trading International, B.V. and The Royal Bank of Scotland plc (Sempra Energy Form 8-K filed on July 9, 2007, Exhibit 10.2).  

 

 

10.8  

Energy Purchase Agreement between Sempra Energy Resources and the California Department of Water Resources, executed May 4, 2001 (2001 Sempra Energy Form 10-K, Exhibit 10.01).

Sempra Energy / San Diego Gas & Electric Company

10.9  

Operating Agreement between San Diego Gas & Electric and the California Department of Water Resources dated April 17, 2003 (2003 Sempra Energy Form 10-K, Exhibit 10.06).

 

 

10.10  

Servicing Agreement between San Diego Gas & Electric and the California Department of Water Resources dated December 19, 2002 (2003 Sempra Energy Form 10-K, Exhibit 10.07).



50





Compensation

Sempra Energy / San Diego Gas & Electric Company / Pacific Enterprises / Southern California Gas Company

10.11  

Sempra Energy 2008 Long Term Incentive Plan (Appendix A to the 2008 Sempra Energy Definitive Proxy Statement, filed on April 15, 2008).

 

 

10.12  

Form of Indemnification Agreement with Directors and Executive Officers (June 30, 2008 Sempra Energy Form 10-Q, Exhibit 10.2).

 

 

10.13  

Form of Sempra Energy 2008 Long Term Incentive Plan, 2008 Performance-Based Restricted Stock Unit Award (June 30, 2008 Sempra Energy Form 10-Q, Exhibit 10.3).

 

 

10.14  

Form of Sempra Energy 2008 Long Term Incentive Plan, 2008 Nonqualified Stock Option Agreement (June 30, 2008 Sempra Energy Form 10-Q, Exhibit 10.4).

 

 

10.15  

Sempra Energy Amended and Restated Executive Life Insurance Plan.

 

 

10.16  

Amendment and Restatement of the Sempra Energy Cash Balance Restoration Plan.

 

 

10.17  

Form of Amended and Restated Sempra Energy Severance Pay Agreement.

 

 

10.18  

Amendment and Restatement of the Sempra Energy 2005 Deferred Compensation Plan.

 

 

10.19  

Amendment and Restatement of the Sempra Energy Supplemental Executive Retirement Plan.

 

 

10.20  

Sempra Energy Executive Personal Financial Planning Program Policy Document (September 30, 2004 Sempra Energy Form 10-Q, Exhibit 10.11).

 

 

10.21  

2003 Sempra Energy Executive Incentive Plan B (2003 Sempra Energy Form 10-K, Exhibit 10.10).

 

 

10.22  

Sempra Energy Executive Incentive Plan effective January 1, 2003 (2002 Sempra Energy Form 10-K, Exhibit 10.09).

 

 

10.23  

Amended and Restated Sempra Energy Deferred Compensation and Excess Savings Plan (September 30, 2002 Sempra Energy Form 10-Q, Exhibit 10.3).

 

 

10.24  

Sempra Energy Employee Stock Ownership Plan and Trust Agreement effective January 1, 2001 (September 30, 2008 Sempra Energy Form 10-Q, Exhibit 10.1).

 

 

10.25  

Amendment to the Amended and Restated Sempra Energy Deferred Compensation and Excess Savings Plan.

 

 

10.26  

Sempra Energy Amended and Restated Executive Medical Plan.

 

 

10.27  

Form of Sempra Energy 1998 Long Term Incentive Plan, 2008 Performance-Based Restricted Stock Unit Award (2007 Sempra Energy Form 10-K, Exhibit 10.09).

 

 

10.28  

Form of Sempra Energy 1998 Long Term Incentive Plan, 2008 Non-Qualified Stock Option Agreement (2007 Sempra Energy Form 10-K, Exhibit 10.10).

 

 

10.29  

Amended and Restated Sempra Energy 1998 Long-Term Incentive Plan (June 30, 2003 Sempra Energy Form 10-Q, Exhibit 10.2).



51





Sempra Energy

10.30  

Sempra Energy 2008 Long Term Incentive Plan for EnergySouth, Inc. Employees and Other Eligible Individuals (Registration Statement on Form S-8 Sempra Energy Registration Statement No. 333-155191 dated November 7, 2008, Exhibit 10.1).

 

 

10.31  

Form of Sempra Energy 2008 Non-Employee Directors' Stock Plan, Nonqualified Stock Option Agreement (June 30, 2008 Sempra Energy Form 10-Q, Exhibit 10.5).

 

 

10.32  

Sempra Energy Amended and Restated Sempra Energy Retirement Plan for Directors (June 30, 2008 Sempra Energy Form 10-Q, Exhibit 10.7).

 

 

10.33  

Neal Schmale Restricted Stock Award Agreement (September 30, 2004 Sempra Energy Form 10-Q, Exhibit 10.8).

 

 

10.34  

Form of Sempra Energy 1998 Non-Employee Directors' Stock Plan Non-Qualified Stock Option Agreement (2006 Sempra Energy Form 10-K, Exhibit 10.09).

 

 

10.35  

Sempra Energy 1998 Non-Employee Directors' Stock Plan (Registration Statement on Form S-8 Sempra Energy Registration Statement No. 333-56161 dated June 5, 1998, Exhibit 4.2).

Nuclear

Sempra Energy / San Diego Gas & Electric Company

10.36  

Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station, approved November 25, 1987 (1992 SDG&E Form 10-K, Exhibit 10.7).

 

 

10.37  

Amendment No. 1 to the Qualified CPUC Decommissioning Master Trust Agreement dated September 22, 1994 (see Exhibit 10.36 above)(1994 SDG&E Form 10-K, Exhibit 10.56).

 

 

10.38  

Second Amendment to the San Diego Gas & Electric Company Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.36 above)(1994 SDG&E Form 10-K, Exhibit 10.57).

 

 

10.39  

Third Amendment to the San Diego Gas & Electric Company Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.36 above)(1996 SDG&E Form 10-K, Exhibit 10.59).

 

 

10.40  

Fourth Amendment to the San Diego Gas & Electric Company Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.36 above)(1996 SDG&E Form 10-K, Exhibit 10.60).

 

 

10.41  

Fifth Amendment to the San Diego Gas & Electric Company Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generation Station (see Exhibit 10.36 above)(1999 SDG&E Form 10-K, Exhibit 10.26).

 

 

10.42  

Sixth Amendment to the San Diego Gas & Electric Company Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.36 above)(1999 SDG&E Form 10-K, Exhibit 10.27).

 

 

10.43  

Seventh Amendment to the San Diego Gas & Electric Company Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station dated December 24, 2003 (see Exhibit 10.36 above)(2003 Sempra Energy Form 10-K, Exhibit 10.42).



52






 

 

10.44  

Nuclear Facilities Non-Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station, approved November 25, 1987 (1992 SDG&E Form 10-K, Exhibit 10.8).

 

 

10.45  

First Amendment to the San Diego Gas & Electric Company Nuclear Facilities Non-Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.44 above)(1996 SDG&E Form 10-K, Exhibit 10.62).

 

 

10.46  

Second Amendment to the San Diego Gas & Electric Company Nuclear Facilities Non-Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.44 above)(1996 SDG&E Form 10-K, Exhibit 10.63).

 

 

10.47  

Third Amendment to the San Diego Gas & Electric Company Nuclear Facilities Non-Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.44 above)(1999 SDG&E Form 10-K, Exhibit 10.31).

 

 

10.48  

Fourth Amendment to the San Diego Gas & Electric Company Nuclear Facilities Non-Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.44 above)(1999 SDG&E Form 10-K, Exhibit 10.32).

 

 

10.49  

Fifth Amendment to the San Diego Gas & Electric Company Nuclear Facilities Non-Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station dated December 24, 2003 (see Exhibit 10.44 above)(2003 Sempra Energy Form 10-K, Exhibit 10.48).

 

 

10.50  

Second Amended San Onofre Operating Agreement among Southern California Edison Company, SDG&E, the City of Anaheim and the City of Riverside, dated February 26, 1987 (1990 SDG&E Form 10-K, Exhibit 10.6).

 

 

10.51  

U. S. Department of Energy contract for disposal of spent nuclear fuel and/or high-level radioactive waste, entered into between the DOE and Southern California Edison Company, as agent for SDG&E and others; Contract DE-CR01-83NE44418, dated June 10, 1983 (1988 SDG&E Form 10-K, Exhibit 10N).

EXHIBIT 12 -- STATEMENTS RE: COMPUTATION OF RATIOS

Sempra Energy

12.1  

Sempra Energy Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends for the years ended December 31, 2008, 2007, 2006, 2005 and 2004.

San Diego Gas & Electric Company

12.2  

San Diego Gas & Electric Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends for the years ended December 31, 2008, 2007, 2006, 2005 and 2004.

Pacific Enterprises

12.3  

Pacific Enterprises Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends for the years ended December 31, 2008, 2007, 2006, 2005 and 2004.

 



53





Southern California Gas Company

12.4  

Southern California Gas Company Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends for the years ended December 31, 2008, 2007, 2006, 2005 and 2004.

EXHIBIT 13 -- ANNUAL REPORT TO SECURITY HOLDERS

Sempra Energy / San Diego Gas & Electric Company / Pacific Enterprises / Southern California Gas Company

13.1  

Sempra Energy 2008 Annual Report to Shareholders. (Such report, except for the portions thereof which are expressly incorporated by reference in this Annual Report, is furnished for the information of the Securities and Exchange Commission and is not to be deemed "filed" as part of this Annual Report).

EXHIBIT 14 -- CODE OF ETHICS

San Diego Gas & Electric Company / Southern California Gas Company

14.1  

Sempra Energy Code of Business Conduct and Ethics for Board of Directors and Senior Officers (also applies to directors and officers of San Diego Gas & Electric Company and Southern California Gas Company) (2006 SDG&E and SoCalGas Forms 10-K, Exhibit 14.01).

EXHIBIT 21 -- SUBSIDIARIES

Sempra Energy

21.1  

Sempra Energy Schedule of Significant Subsidiaries at December 31, 2008.

Pacific Enterprises

21.2  

Pacific Enterprises Schedule of Significant Subsidiaries at December 31, 2008.

EXHIBIT 23 -- CONSENTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND REPORT ON SCHEDULE, PAGES 36 AND 37.

EXHIBIT 31 -- SECTION 302 CERTIFICATIONS

Sempra Energy

31.1  

Statement of Sempra Energy's Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.

 

 

31.2  

Statement of Sempra Energy's Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.

San Diego Gas & Electric Company

31.3  

Statement of San Diego Gas & Electric's Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.



54






 

 

31.4  

Statement of San Diego Gas & Electric's Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.

Pacific Enterprises

31.5  

Statement of PE's Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.

 

 

31.6  

Statement of PE's Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.

Southern California Gas Company

31.7  

Statement of SoCalGas' Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.

 

 

31.8  

Statement of SoCalGas' Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.

EXHIBIT 32 -- SECTION 906 CERTIFICATIONS

Sempra Energy

32.1  

Statement of Sempra Energy's Chief Executive Officer pursuant to 18 U.S.C. Sec. 1350.

 

 

32.2  

Statement of Sempra Energy's Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350.

San Diego Gas & Electric Company

32.3  

Statement of San Diego Gas & Electric's Chief Executive Officer pursuant to 18 U.S.C. Sec. 1350.

 

 

32.4  

Statement of San Diego Gas & Electric's Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350.

Pacific Enterprises

32.5  

Statement of PE's Chief Executive Officer pursuant to 18 U.S.C. Sec. 1350.

 

 

32.6  

Statement of PE's Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350.

Southern California Gas Company

32.7  

Statement of SoCalGas' Chief Executive Officer pursuant to 18 U.S.C. Sec. 1350.

 

 

32.8  

Statement of SoCalGas' Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350.

EXHIBIT 99 -- ADDITIONAL EXHIBITS

Sempra Energy

99.1  

RBS Sempra Commodities LLP and Subsidiaries – Consolidated Financial Statements as of December 31, 2008 and for the Period From April 1, 2008 (Date of Commencement) to December 31, 2008, and Report of Independent Registered Public Accounting Firm.

 

 

99.2  

Sempra Energy Unaudited Pro Forma Condensed Statement of Consolidated Income for the Year Ended December 31, 2008.



55







GLOSSARY

 

 

 

 

 

 

 

 

 

 

APSC

Alabama Public Service Commission

 

LNG

Liquefied Natural Gas

 

 

 

 

 

Annual Report

2008 Annual Report to Shareholders

 

Mobile Gas

Mobile Gas Service Corporation

 

 

 

 

 

Bay Gas

Bay Gas Storage Company

 

MW

Megawatt

 

 

 

 

 

Bcf

Billion Cubic Feet (of natural gas)

 

NRC

Nuclear Regulatory Commission

 

 

 

 

 

CARB

California Air Resources Board

 

PE

Pacific Enterprises

 

 

 

 

 

CEC

California Energy Commission

 

PGE

Portland General Electric Company

 

 

 

 

 

CEQA

California Environmental Quality Act

 

QFs

Qualifying Facilities

 

 

 

 

 

CPUC

California Public Utilities Commission

 

RBS

The Royal Bank of Scotland plc

 

 

 

 

 

DOE

Department of Energy

 

RBS Sempra Commodities

RBS Sempra Commodities LLP

 

 

 

 

 

DWR

Department of Water Resources  

 

Rockies Express

Rockies Express Pipeline LLC

 

 

 

 

 

Edison

Southern California Edison Company

 

RPS

Renewables Portfolio Standard

 

 

 

 

 

Elk Hills

Elk Hills Power

 

SDG&E

San Diego Gas & Electric Company

 

 

 

 

 

ERR

Eligible Renewable Energy Resource

 

Sempra Utilities

San Diego Gas & Electric Company and Southern California Gas Company

 

 

 

 

 

FERC

Federal Energy Regulatory Commission

 

SoCalGas

Southern California Gas Company

 

 

 

 

 

FSA

U.K. Financial Services Authority

 

SONGS

San Onofre Nuclear Generating Station

 

 

 

 

 

GHG

Greenhouse Gas

 

The Board

Sempra Energy’s board of directors

 

 

 

 

 

IOUs

Investor-Owned Utilities

 

The Plan

The Sempra Energy 2008 Long Term Incentive Plan for EnergySouth, Inc. Employees and Other Eligible Individuals

 

 

 

 

 

ISFSI

Independent Spent Fuel Storage Installation

 

The Prior Plan

2008 Incentive Plan of EnergySouth, Inc.

 

 

 

 

 

ISO

Independent System Operator

 

 

 




56



Exhibit 10.15



Exhibit 10.15











SEMPRA ENERGY

AMENDED AND RESTATED

EXECUTIVE LIFE INSURANCE PLAN






Sempra Energy, a California corporation (“Sempra”), hereby amends and restates the Sempra Energy Executive Life Insurance Plan (the “Plan”), which was originally effective June 1, 1998.  The Plan was amended and restated effective as of July 1, 2003.  

Sempra hereby amends and restates the Plan effective as of December 12, 2008, except as otherwise provided herein.  This amendment and restatement of the Plan is intended to comply with the requirements of Sections 409A(a)(2), (3) and (4) of the Code (as defined below) and the Treasury Regulations thereunder.  Also, the name of the Plan is hereby amended to be “The Sempra Energy Executive Life Insurance Plan.”


PURPOSE OF PLAN

The purpose of this Plan is to assist certain of Sempra’s senior executives to obtain additional life insurance coverage.  In connection with this, the Plan provides that the Company will make certain life insurance premium payments on the policies obtained under the terms and conditions of this Plan.  In addition, the Plan provides for a tax gross-up to offset the income taxes associated with those premium payments.


ARTICLE I

DEFINITIONS

Whenever capitalized in this Plan document, the following terms shall have the meanings set forth below unless otherwise expressly provided:

1.1

 “Board” shall mean the Board of Directors of the Company.

1.2

“Code” means the Internal Revenue Code of 1986, as amended.

1.3

“Committee” shall mean the Compensation Committee of the Board, or such other committee as the Compensation Committee shall appoint from time to time to administer the Plan.

1.4

“Company” shall mean Sempra Energy, a California corporation, and any successor thereto, including any corporation that is a successor to all or substantially all of the Company’s assets or business.  “Company” shall also include any corporation or other entity a majority of whose outstanding voting stock or voting power is owned, directly or indirectly, by Sempra Energy, Inc.

1.5

 “Participant” shall mean any senior executive of the Company who is selected to participate in the Plan and who has satisfied the conditions for Plan participation as set forth in Section 2.1.

1.6

“Plan” shall mean this Sempra Energy Executive Life Insurance Plan, as it may be amended from time to time.

1.7

“Plan Year” shall mean the calendar year.

1.8

“Policy” shall mean the life insurance policy (or life insurance policies if more than one is required because of death benefit amounts or otherwise) purchased on a Participant’s life that is subject to the terms and conditions of this Plan.

1.9

Separation from Service”, with respect to a Participant (or another Service Provider) means the Participant’s (or such Service Provider’s) “separation from service,” as defined in Treasury Regulation Section 1.409A-1(h).  

1.10

 “Service Provider” means a Participant or any other “service provider,” as defined in Treasury Regulation Section 1.409A-1(f).

1.11

Service Recipient,” with respect to a Participant, means the Company and all persons considered part of the “service recipient,” as defined in Treasury Regulation Section 1.409A-1(g), as determined from time to time.  As provided in Treasury Regulation Section 1.409A-1(g), the “Service Recipient” shall mean the person for whom the services are performed and with respect to whom the legally binding right to compensation arises, and all persons with whom such person would be considered a single employer under Section 414(b) or 414(c) of the Code.

1.12

Specified Employee” means a Service Provider who, as of the date of the Service Provider’s Separation from Service, is a “Key Employee” of the Service Recipient any stock of which is publicly traded on an established securities market or otherwise.  For purposes of this definition, a Service Provider is a “Key Employee” if the Service Provider meets the requirements of Section 416(i)(1)(A)(i), (ii) or (iii) of the Code (applied in accordance with the Treasury Regulations thereunder and disregarding Section 416(i)(5) of the Code) at any time during the Testing Year.  If a Service Provider is a “Key Employee” (as defined above) as of a Specified Employee Identification Date, the Service Provider shall be treated as “Key Employee” for the entire twelve (12) month period beginning on the Specified Employee Effecti ve Date.  For purposes of this definition, a Service Provider’s compensation for a Testing Year shall mean such Service Provider’s compensation, as determined under Treasury Regulation Section 1.415(c)-2(a) (and applied as if the Service Recipient were not using any safe harbor provided in Treasury Regulation Section 1.415(c)-2(d), were not using any of the elective special timing rules provided in Treasury Regulation Section 1.415(c)-2(e), and were not using any of the elective special rules provided in Treasury Regulation Section 1.415(c)-2(g)).  The “Specified Employees” shall be determined in accordance with Section 409A(a)(2)(B)(i) of the Code and Treasury Regulation Section 1.409A-1(i).

1.13

Specified Employee Effective Date” means the first day of the fourth month following the Specified Employee Identification Date.  The Specified Employee Effective Date may be changed by the Company, in its discretion, in accordance with Treasury Regulation Section 1.409A-1(i)(4).

1.14

Specified Employee Identification Date”, for purposes of Treasury Regulation Section 1.409A-1(i)(3), means December 31.  The “Specified Employee Identification Date” shall apply to all “nonqualified deferred compensation plans” (as defined in Treasury Regulation Section 1.409A-1(a)) of the Service Recipient and all affected Service Providers.  The “Specified Employee Identification Date” may be changed by Sempra Energy, in its discretion, in accordance with Treasury Regulation Section 1.409A-1(i)(3).

1.15

“Tax Gross-Up” shall mean the tax gross-up amount set forth in Section 3.4 below.

1.16

Testing Year” means the twelve (12) month period ending on the Specified Employee Identification Date, as determined from time to time.

1.17

“Years of Service” shall mean the total number of full years of employment in which a Participant has been employed by the Company.  For purposes of this definition, a year of employment shall be a 365 day period (or 366 day period in the case of a leap year) that, for the first year of employment, commences on the Participant’s date of hiring and that, for any subsequent year, commences on an anniversary of that hiring date.  Any partial year of employment shall not be counted.

ARTICLE II

ELIGIBILITY

2.1

Eligibility for Participation.  A senior executive of the Company shall participate in this Plan as a Participant if either he or she is participating in the Plan as of the effective date of this amendment and restatement or meets all of the following requirements:

(1)

Has been designated in writing by the Committee, in its sole and absolute discretion, as a Participant;

(2)

Completes and returns to the Committee, no later than thirty (30) days after he or she receives written notice of such designation, such administrative and other forms as the Committee may require for participation;

(3)

Completes such insurance forms, exams, and questions as the Committee may designate from time to time;

(4)

Timely completes any other participation conditions as may be prescribed by the Committee from time to time; and


If a senior executive fails to meet all of the above-listed requirements within a reasonable time, as determined by the Committee in its sole discretion, the Committee shall provide that executive with written notice within thirty (30) days of such failure, and that person shall not become a Participant under this Plan.

2.2

Acquisition of Insurance.   As a condition of participation in this Plan, the Participant shall be required  to cooperate in applying for and obtaining a  Policy on his or her life.  The selection of the Policy  shall be at the sole discretion of the Company.  The Policy shall be issued in the name of the Participant as the sole and exclusive owner of the Policy, subject to the rights and interests granted to the Company, as provided in this Plan.  At the sole discretion of the Committee, the Participant may designate a person or entity other than the Participant as the owner of the Policy, provided that such owner agrees to be bound to the terms and conditions of this Plan.

2.3

Additional Life Insurance Coverage.  During the term of this Plan, the death benefit coverage under the Policy may be increased from time to time, to reflect increases in the Participant’s compensation pursuant to the provisions of Sections 3.1 and 3.2.  As a condition of receiving the benefits of any such increase, the Participant shall be required  to cooperate in applying for and obtaining such additional coverage.  If the Participant does not so cooperate, and such coverage cannot be obtained because of the Participant’s failure to cooperate, the Company shall have no obligation under this Plan to provide such additional coverage.  Further, if the Participant is not insurable at the time such additional coverage is sought on a guaranteed issue basis, or if simplified or full medical underwriting is required, on a rated basis that is no lower than standard, smoker, then the Compan y shall have no obligation under this Plan to provide such additional coverage.  The Committee, in its sole discretion, may reduce the minimum standard referred to in the previous sentence, in its sole discretion, based on the cost of insurance or otherwise.


ARTICLE III

BONUS AMOUNTS

3.1

Life Insurance Coverage Prior to Separation from Service.  Subject to Article II above, for each Plan Year of the Participant’s participation in the Plan and prior to the Participant’s Separation from Service, the Company shall pay to the life insurance carrier the premiums on the Policy in accordance with this Section 3.1, as determined by the Company in its sole discretion, which Policy shall provide a death benefit equal to the sum of the following amounts, as those amounts are determined as of the last day of each Plan Year, as determined by the Committee in its sole discretion: (i) two (2) times the Participant’s annual base salary, plus (ii) two (2) times the Participant’s average  annual bonus under the 2003 Executive Incentive Plan, or any successor thereto (the “Bonus Plan”), including any amount deferred, in the three (3) highest  years in t he ten (10) previous years, or during the Participant’s actual years of employment with the Company, if less.  In determining the amounts described in the previous sentence for any Plan Year, the Committee shall substitute the Participant’s target bonus under the Bonus Plan for a Participant who is in his or her first Plan Year of participation and has not received any bonus under the Bonus Plan.  The premium for any Plan Year shall be paid by the Company not later than March 15 of the next following Plan Year; provided, however, that such premium shall not be paid if the Participant has a Separation from Service prior to the payment of such premium.  If a Participant’s compensation increases after the Committee has determined the Participant’s death benefit as of the last day of the Plan Year, the Participant’s death benefit under the Policy shall not be adjusted until the last day of the next following Plan Year and then it will be based on the Participant’s com pensation at that time.  These premium payments shall be treated as a bonus payments to the Participant.

3.2

Life Insurance Coverage after Separation from Service with Age and Service.  If at the time of the Participant’s Separation from Service (other than by reason of the Participant’s death), the Participant has attained age 62 and has completed at least five Years of Service, then the Participant shall be entitled to the benefit, if any, specified in this Section 3.2.  Upon such Separation from Service, the Committee shall have the life insurance carrier which issued the Policy prepare a life insurance projection for the Policy, determined as of the January 1 of the Plan Year next following such Separation from Service (the “Projection Date”), based on the following assumptions:  (i) the then current policy charges, (ii) a crediting rate of 6.5% net of investment management fees (but before mortality and expense charges), (iii) death benef it coverage until the Participant’s 100th birthday equal to (x) one (1) times the Participant’s annual base salary (determined as of the date of the Participant’s Separation from Service), plus (y) one (1) times the Participant’s average  annual bonus under the Bonus Plan, including any amount deferred, in the three (3) highest  years in the ten (10) previous years, or during the Participant’s actual years of employment with the Company, if less (determined as of the date of the Participant’s Separation from Service), (iv) except in the case of a Participant whose name is listed on Exhibit A, the Company shall be assumed to have paid only the minimum premiums under the Policy necessary to maintain the death benefit coverage, as required under Section 3.1, for each Plan Year of the Participant’s participation in the Plan prior to the Projection Date, (v) in the case of a Participant whose name is listed on Exhibit A, the cash value of the Policy f or such Participant, determined  as December 31, 2008, shall be the amount set forth on Exhibit A and the Company shall be assumed to have paid no premium payments under the Policy after December 31, 2008 and prior to the Projection Date.  If the illustration shows that the Policy will sustain itself until at least the Participant’s 100th birthday without lapsing based on these assumptions, then the Company shall have no further obligations under the Plan.  If the illustration provides that the Policy will not so sustain itself until that time without lapsing, the Company shall have the life insurance carrier determine the minimum premium, determined as of the January 1 of the Plan Year next following such Separation from Service, required to be paid into the Policy to sustain the Policy until the Participant’s 100th birthday without lapsing, based on these assumptions.  Except as provided in Section 5.1(2), the Company will then pay such premium to the life insurance carrier during the Plan Year next following the Plan Year in which such Participant’s Separation from Service occurs and the Company shall have no further obligation to the Participant under this Plan.  The Company shall not make a premium payment under this Section 3.2 in the event of the Participant’s Separation from Service by reason of death.

3.3

Life Insurance Coverage after Separation from Service without Age and Service.  If at the time of the Participant’s Separation from Service, the Participant has not attained age 62, or has not completed at least  five Years of Service, the Company’s obligations under this Plan to pay any future premiums on the Policy or any Tax Gross-Up shall cease immediately upon the Participant’s Separation from Service and the Company shall have no further obligation to the Participant under the Plan.

3.4

Tax Gross-Up.  To offset the federal and state income tax liability incurred by the Participant as a result of premiums paid on behalf of the Participant, as provided for in Sections 3.1 and 3.2 above, the Company shall pay a tax gross-up (the “Tax Gross-Up”) directly to the Participant concurrent with each premium payment under Section 3.1 or 3.2.  The Committee shall determine the amount of each Participant’s Tax Gross-Up each time a premium is paid.  The amount of the Tax Gross-Up shall be calculated in the following manner.  The Committee shall determine the Participant’s actual federal and state (for the state in which the Participant resides at the time of the premium payment) income tax rates at the time of premium payment.  Using those rates, the amount of the Tax Gross-Up will be determined using the following formula.  Assuming that the applicable federal income tax rate is X and the applicable state income tax rate is Y, the Tax Gross-Up equals the applicable premium divided by Z, minus the premium amount, where Z equals (1-X) times (1-Y).  For example, if the applicable premium is $1,000, X is 0.4 (i.e. the actual marginal federal tax rate is 40%), and Y is 0.1 (i.e. the actual marginal state tax rate is 10%), the Tax Gross-Up would be $851.85.  In no event shall the Company pay any Tax Gross-Up later than the taxable year of the Participant next following the Participant’s taxable year in which the Participant remits the related taxes.  All Tax Gross-Up payments shall be paid in a manner that complies with Treasury Regulation Section 1.409A-3(i)(1)(v).  Notwithstanding anything to the contrary in this Section 3.4, in no event shall any Tax Gross-Up payment exceed the amount of the “tax gross-up payment” permitted under Treasury Regulation Section 1.409A-3(i)(1)(v).

3.5

Tax Withholding.  The Company shall withhold from the Participant’s compensation all federal, state and local income, employment and other taxes required to be withheld by the Company in connection with the premium or Tax Gross-Up payments, in amounts and in a manner to be determined in the sole discretion of the Company.

3.6

Right to Invest Cash Surrender Value.  Until the earlier of the Participant’s Separation from Service or the termination of the Plan, the Company shall have the sole and absolute right to invest and reallocate the Participant’s Policy’s cash surrender value as the Company determines in its sole discretion.  The Participant shall cooperate with the Company with respect to any actions required by the life insurance carrier issuing the Policy to grant to the Company such power.  The Company shall not have any liability associated with such investment authority and discretion, provided that the Company makes all premium and Tax Gross-Up payments required under this Plan.


ARTICLE IV

ADMINISTRATION

4.1

Administration.  This Plan shall be administered by the Committee.  The Committee shall be authorized to construe and interpret all of the provisions of this Plan, to adopt procedures and practices concerning the administration of this Plan, and to make any determinations necessary hereunder, which shall, subject to Section 4.8 below, be binding and conclusive on all parties.  The Committee may appoint one or more individuals and delegate such of its power and duties as it deems desirable to any such individual, in which case every reference herein made to the Committee shall be deemed to mean or include the individuals as to matters within their jurisdiction.

4.2

Decisions and Actions of the Committee.  The Committee may act at a meeting or in writing without a meeting.  All decisions and actions of the Committee shall be made by vote of the majority, including actions in writing taken without a meeting.

4.3

Rules and Records of the Committee.  The Committee shall make such rules and regulations in connection with its administration of the Plan as are consistent with the terms and provisions hereof.  The Committee shall keep a records of each Participant’s name, address, social security number, benefit commencement date, and the amount of benefit.

4.4

Employment of Agents.  The Committee may employ agents, including without limitation, accountants, actuaries, consultants, or attorneys, to exercise and perform the powers and duties of the Committee as the Committee delegates to them, and to render such services to the Committee as the Committee may determine, and the Committee may enter into agreements setting forth the terms and conditions of such service.

4.5

 Agents for Service of Legal Process.  The Chairman of the Committee shall serve as agent for service of legal process.

4.6

Plan Expenses.  The Company shall pay all expenses reasonably incurred in the administration of this Plan.  The members of the Committee shall serve without compensation for their services as such, but all expenses of the Committee shall be paid by the Company.  No employee of the Company shall receive compensation from this Plan regardless of the nature of his services to this Plan.

4.7

Indemnification.  To the extent permitted by law, the Committee and all agents and representatives of the Committee shall be indemnified by the Company and saved harmless against any claims, and the expenses of defending against such claims, resulting from any action or conduct relating to the administration of this Plan except claims arising from gross negligence, willful neglect, or willful misconduct.

4.8

Claims Procedure.  

(1)

Claim.  A Participant, beneficiary or other person who believes that he is being denied a benefit to which he is entitled under this Plan (hereinafter referred to as “Claimant”) may file a written request for such benefit with the Committee, setting forth his claim.  The request must be addressed to the Committee at Sempra Energy at its then principal place of business.  The claims procedure of this Section shall be applied in accordance with Section 503 of ERISA and Department of Labor Regulation Section 2560.503-1.  A Participant, beneficiary or other person may assert a claim, or request review of the denial of a claim, through such Participant’s, beneficiary’s or person’s authorized representative, provided that such Participant, beneficiary or person has submitted a written notice evidencing the authority of such representative to the Committee.  < /P>

A Claimant or his duly authorized representative shall submit his claim under the Plan in writing to the Committee.  The Claimant may include documents, records or other information relating to the claim for review by the Committee in connection with such claim.

(2)

Claim Decision.  The Committee shall review the Claimant’s claim (including any documents, records or other information submitted with such claim) and determine whether such claim shall be approved or denied in accordance with the Plan.

Upon receipt of a claim, the Committee shall advise the Claimant that a claim decision shall be forthcoming within ninety (90) days and shall, in fact, deliver such claim decision within such period.  The Committee may, however, extend the claim decision period for an additional ninety (90) days for special circumstances.  If the Committee extends the claim decision period, the Committee shall provide the Claimant with written notice of such extension prior to the end of the initial ninety (90) day period.  The extension notice shall indicate the special circumstances requiring the extension of time and the date by which the Committee expects to render a claim decision.

If the claim is denied in whole or in part, the Committee shall inform the Claimant in writing, using language calculated to be understood by the Claimant, setting forth: (i) the specified reason or reasons for such denial; (ii) references to the specific provisions of this Plan on which such denial is based; (iii) a description of any additional material or information necessary for the Claimant to perfect his claim and an explanation of why such material or such information is necessary; and (iv) a description of the Plan’s procedures for review and the time limits applicable to such procedures, including a statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA following a denial of the review of the denial of the claim.

The Claimant may request a review of any denial of the claim in writing to the Committee within sixty (60) days after receipt of the Committee’s notice of denial of claim.  The Claimant’s failure to appeal the denial of the claim by the Committee in writing within the sixty (60) day period shall render the Committee’s determination final, binding, and conclusive.

(3)

Request for Review.  With sixty (60) days after the receipt by the Claimant of the denial of the claim described above, the Claimant may request in writing a review the determination of the Compensation Committee.  Such review shall be completed by the Compensation Committee.  Such request must be addressed to the Committee, at Sempra Energy’s then principal place of business.  

The Claimant shall be afforded the opportunity to submit written comments, documents, records, and other information relating to the claim, and the Claimant shall be provided, upon request and free of charge, reasonable access to all documents, records, and other information relevant to the Claimant’s claim.  A document, record or other information shall be considered “relevant” to the claim, as provided in Department of Labor Regulation Section 2560.503-1(m)(8).  The review by the Committee shall take into account all comments, documents, records, and other information submitted by the Claimant, without regard to whether such information was submitted or considered in the Committee’s initial determination with respect to the claim.  

The Committee shall advise the Claimant in writing of the Committee’s determination of the review within sixty (60) days of the Claimant’s written request for review, unless special circumstances (such as a hearing) would make the rendering of a determination within the sixty (60) day period infeasible, but in no event shall the Committee render a determination regarding the denial of a claim later than one hundred twenty (120) days after its receipt of a request for review.  If an extension of time for review is required because of special circumstances, written notice of the extension shall be furnished to the Claimant prior to the date the extension period commences.  The extension notice shall indicate the special circumstances requiring the extension of time and the date by which the Committee expects to render a review decision.

(4)

Review of Decision.  The Committee shall inform the Claimant in writing, in a manner calculated to be understood by the Claimant, the decision on the review of the denial of the claim, setting forth:  (i) the specific reasons for the decision, (ii) if the claim is denied, reference to the specific Plan provisions on which the denial of the claim is based; (iii) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the Claimant’s claim (and a document, record or other information shall be considered “relevant” to the benefits claim, as provided in Department of Labor Regulation Section 2560.503-1(m)(8)); and (iv) a statement describing Claimant’s right to bring an action under Section 502(a) of ERISA.

ARTICLE V
SECTION 409A OF THE CODE

5.1

Compliance with Section 409A of the Code.  

(1)

Plan Interpretation and Administration.  This Plan shall be interpreted, construed and administered in a manner that satisfies the requirements of Sections 409A(a)(2), (3) and (4) of the Code and the Treasury Regulations thereunder (subject to the transitional relief under Internal Revenue Service Notice 2005-1, the Proposed Regulations under Section 409A of the Code, Internal Revenue Service Notice 2006-79, Internal Revenue Service Notice 2007-78, Internal Revenue Service Notice 2007-86 and other applicable authority issued by the Internal Revenue Service).  As provided in Internal Revenue Notice 2007-86, notwithstanding any other provision of this Plan, with respect to an election or amendment to change a time and form of payment under the Plan made on or after January 1, 2008 and on or before December 31, 2008, the election or amendment shall apply only to amounts that would not otherwise be payable in 2008 and shall not cause an amount to be paid in 2008 that would not otherwise be payable in 2008.

(2)

Premium Payment for Specified Employees.  In the case of a Participant who is a Specified Employee on the date of such Participant’s Separation from Service, the premium payment under Section 3.2 with respect to such Participant (if any) shall not be made before the date which is six months after the date of such Participant’s Separation from Service in accordance with Section 409A(a)(2)(B)(i) of the Code and the Treasury Regulations thereunder.  Any premium payment under Section 3.2 with respect to such Participant that otherwise would have been made during the first six months following the date of such Participant’s Separation from Service shall be accumulated (without interest) and paid on the first day of the seventh month following the date of such Participant’s Separation from Service; provided, however, that such premium shall not be paid in the event of such Parti cipant’s death prior to the first day of the seventh month following the date of such Participant’s Separation from Service.  The Tax Gross-Up payment with respect to any such premium payment under Section 3.2 shall be paid concurrent with such premium payment in accordance with Section 3.4.

(3)

Prohibition of Acceleration of Premiums.  The time of payment of any payment of the premium with respect to a Participant under Section 3.2 (and any Tax Gross-Up with respect to any such premium) shall not be subject to acceleration, except as provided under Treasury Regulations promulgated in accordance with Section 409A(a)(3) of the Code.

5.2

Short-Term Deferral Exemption.  The premium payments under Section 3.1 with respect to a Participant (and any Tax Gross-Up with respect to any such premium) are intended to be short-term deferrals under Treasury Regulation Section 1.409A-1(b)(4) and exempt from Section 409A of the Code.  The premium payments under Section 3.1 with respect to a Participant (and any Tax Gross-Up with respect to any such premium) shall be made on or before the last day of the applicable 2 ½ month period, as defined in Treasury Regulation Section 1.409A-1(b)(4).

ARTICLE VI
MISCELLANEOUS

6.1

Amendment and Termination.  This Plan may be amended or terminated, in whole or in part, at any time by written action of the Board, or the Compensation Committee of the Board, in its discretion; provided that any amendment or termination that materially and adversely affects any payments under Article III at the time of such amendment or termination must be consented to in writing by any Participant so affected before it shall have any effect as to that Participant.  Notwithstanding the foregoing, the Board, or the Compensation Committee of the Board, may terminate the Plan without the Participants’ consent, provided that (i) such Plan termination is treated for purposes of this Plan as a Separation from Service of all Participants (assuming that each had obtained age 62 with five Years of Service, regardless of whether such requirements were actually met), (ii) the Company pays the premium and Tax Gross-Up, if any, required by Sections 3.2 and 3.4, and (iii) such termination of the Plan and the payment of such premiums and Tax Gross-Up comply with Section 409A of the Code and the Treasury Regulations thereunder.

6.2

Binding Effect.  This Plan shall bind the Participant and the Company and their beneficiaries, survivors, executors, administrators, and transferees.

6.3

No Guarantee of Employment.  This Plan is not an employment policy or contract.  It does not give the Participant the right to remain an employee of the Company, nor does it interfere with the Company’s right to discharge the Participant, with or without cause.  If also does not require the Participant to remain an employee nor interfere with the Participant’s right to terminate employment at any time.

6.4

Applicable Law.  This Plan and all rights hereunder shall be governed by the internal laws of the State of California without regard to its conflict of laws provisions, except to the extent preempted by the laws of the United States of America.

6.5

Non-Transferability.

(1)

Prior to the Participant’s termination of employment, benefits under this Plan cannot be sold, transferred, or assigned and the Participant cannot withdraw the cash surrender value of the policy.  

(2)

The previous sentence shall not in any way limit or prohibit the right of a Participant to transfer ownership of the life insurance policy described in this Plan to a trust for which the Participant is the grantor.

6.6

Named Fiduciary.  The Company shall be the named fiduciary and plan administrator under this Plan.  The named fiduciary may delegate to others certain aspects of the management and operation responsibilities of the plan including the employment of advisors and the delegation of ministerial duties to qualified individuals.


IN WITNESS WHEREOF, the Company has executed this amendment and restatement of the Plan as of December 12th, 2008.


SEMPRA ENERGY



By:  

        G. Joyce Rowland

       Sr. Vice President, Human Resources






Exhibit A




Participant

December 31, 2008
Policy Cash Value

 

 

 

 

 

 

 

 










Exhibit 10.16



Exhibit 10.16


AMENDMENT AND RESTATEMENT OF THE
SEMPRA ENERGY

CASH BALANCE RESTORATION PLAN







Table of Contents


1.

EFFECTIVE DATE

2.

PURPOSE

3.

ADMINISTRATION

4.

ELIGIBILITY; PARTICIPATION

5.

AMOUNT OF BENEFITS

6.

PAYMENT OF BENEFITS

7.

EMPLOYEE’S RIGHTS

8.

AMENDMENT AND DISCONTINUANCE

9.

DEFINITIONS

10.

EMPLOYEES OF SEMPRA ENERGY TRADING CORPORATION
AND SEMPRA ENERGY SOLUTIONS LLC

11.

SECTION 409A OF THE CODE

12.

CLAIMS PROCEDURE

13.

MISCELLANEOUS







1.

EFFECTIVE DATE

The Sempra Energy Excess Cash Balance Plan (the “Plan”) was effective as of July 1, 1998.   

The Plan was amended and restated effective as of November 5, 2007.  The name of the Plan was changed to the Sempra Energy Cash Balance Restoration Plan effective June 16, 2008.

Sempra Energy hereby amends and restates this Plan in its entirety effective as of December 31, 2008, except as otherwise provided herein.  This amendment and restatement of the Plan is intended to comply with the requirements of Sections 409A(a)(2), (3) and (4) of the Code (as defined below) and the Treasury Regulations thereunder.  The elections and amendments made in accordance with the transitional relief under Internal Revenue Service Notice 2005-1, the Proposed Regulations under Section 409A of the Code and Internal Revenue Service Notices 2006-79 and 2007-86 shall be effective for the relevant periods on or before December 31, 2008.

2.

PURPOSE

This Plan serves two purposes. First, it provides benefits for certain Employees in excess of the limitations on benefits under the Basic Plan (as defined below) imposed by Section 415 of the Code (as defined below). The portion of the Plan providing these benefits is intended to be an "excess benefit plan" as defined in Section 3(36) of ERISA (as defined below). Second, it provides benefits for certain Employees in excess of the limitations on benefits under the Basic Plan imposed by Section 401(a) (17) of the Code.

3.

ADMINISTRATION

This Plan shall be administered by the Compensation Committee of Sempra Energy ("Compensation Committee") in a manner consistent with the administration of the Basic Plan.  However, the portion of this Plan which is an unfunded "excess benefit plan" as defined in Section 3(36) of ERISA shall be administered as such and is exempt from the provisions of Title I of ERISA pursuant to Section 4(b) (5) of ERISA, and the rest of this Plan shall be administered as an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees.  The Compensation Committee's decisions in all matters involving the interpretation and application of this Plan shall be final.  Sempra Energy’s Senior Human Resources Officer shall have discretionary authority with respect to adm inistrative matters relating to this Plan, except when exercise of such authority would materially affect the cost of the Plan to the Company, materially increase benefits to Participants, or affect such Senior Human Resources Officer in a manner materially different from other Participants.

4.

ELIGIBILITY; PARTICIPATION

(A)

All Employees whose pension benefits under the Basic Plan are limited by the compensation and benefits limitations imposed by Sections 401(a)(17) and 415 of the Code shall be eligible for benefits under this Plan. In no event shall an Employee who is not entitled to benefits under the Basic Plan be eligible for a benefit under this Plan.  An Employee who is a participant in the Basic Plan shall first become an Eligible Employee on the first date on which such Employee’s benefits under the Basic Plan are limited by the provisions of Section 415 of the Code, or such Employee’s benefits under the Basic Plan are limited by the covered compensation limitations of Section 401(a)(17) of the Code.

(B)

An Eligible Employee shall be a Participant and shall be entitled to benefits in accordance with Section 5.

5.

AMOUNT OF BENEFITS

(A)

415 Make-Up

The benefits payable under this subsection (A) to a Participant whose benefits under the Basic Plan are limited by the provisions of Section 415 of the Code incorporated in the Basic Plan, or to his beneficiary(ies), shall equal the excess, if any, of:

(i)

the benefits which would be paid to such Participant or on his behalf to his beneficiary(ies) under the Basic Plan, if the provisions of such Plan were administered without regard to the benefit limitations under Section 415 of the Code set forth in the Basic Plan, over

(ii)

the benefits which are paid to such Participant or on his behalf to his beneficiary(ies) under the Basic Plan.

(A)

401(a) (17) Make-Up

The benefits payable under this subsection  (B) to a Participant whose benefits under the Basic Plan are limited by the covered compensation limitations of Section 401(a)(17) of the Code incorporated in the Basic Plan, or to his beneficiary(ies), shall equal the excess, if any, of:

(i)

the benefits which would be paid to such Participant or on his behalf to his beneficiary(ies) under the Basic Plan, and, if applicable, to the Participant, under subsection (A), if the provisions of such Plan were administered without regard to the covered compensation limitations under Section 401(a)(17) of the Code set forth in the Basic Plan (and, with respect to covered compensation paid or payable in plan years beginning on or after January 1, 2007, with a maximum compensation limit for each plan year of Two Million Dollars ($2,000,000)), over

(ii)

the benefits which are paid to such Participant or on his behalf to his beneficiary(ies) under the Basic Plan and, if applicable to the Participant, under subsection (A).

(C)

Conformance with Treasury Regulations

The benefits payable under subsections (A) and (B) are determined under the formula determining benefits under the Basic Plan, and the benefits payable under subsections (A) and (B) are determined as an amount offset by the benefits provided under the Basic Plan.  The benefits payable under this Plan shall be determined in a manner consistent with Treasury Regulation Sections 1.409A-2(a)(9) and 1.409A-3(j)(5) (relating to nonqualified deferred compensation plans linked to qualified employer plans).  Any amendment of the Basic Plan shall be taken into account under this Plan only to the extent permitted under Treasury Regulation Sections 1.409A-2(a)(9) and 1.409A-3(j)(5).  Any reference to the interest and mortality factors (or actuarial methods and assumptions) specified in the Basic Plan shall mean the applicable interest and mortality factors (or actuarial methods or assumptions) specified under the terms of the Basic Plan as in effect on December 31, 2008.  

6.

PAYMENT OF BENEFITS

(A)

Distribution Options for Certain SERP Participants

(i)

In the case of a Participant who is an Eligible Employee, and is a participant under the SERP (as defined below) as of December 31, 2005, the payment of benefits to such Participant under this Plan shall be made in accordance with this subsection (A).

(ii)

Unless the Participant exercises the Lump Sump Option and receives a lump sum distribution from the Basic Plan, the payment of such Participant’s Pre-Section 409A Benefit under this Plan shall be in the same payment form and at the same time as the payment of benefits to the Participant or on his behalf to his beneficiary(ies) under the Basic Plan. In the event a Participant receives a lump sum distribution from the Basic Plan, payment of such Participant’s Pre-Section 409A Benefit under this Plan will be made in the form of a straight life annuity. However, the Participant may request, in writing, payment of such Participant’s Pre-Section 409A Benefit under one of the following alternatives provided such request is filed with Sempra Energy  at least three months prior to his Retirement Date or Termination under the Basic Plan:

(a)

The Participant may request payment of such Participant’s Pre-Section 409A Benefit under any of the other annuity options for which he is eligible under the Basic Plan. The amount of such optional annuity benefit with respect to his or her Pre-Section 409A Benefit under this Plan shall be computed as specified in Section 5 of this Plan using the interest and mortality factors specified in the Basic Plan. The request will be subject to approval of the Company's Senior Human Resources Officer and, if approved, will be irrevocable as long as the Participant receives a lump sum distribution from the Basic Plan.

(b)

The Participant may request payment of such Participant’s Pre-Section 409A Benefit in a lump sum. The amount of the distribution with respect to his or her Pre-Section 409A Benefit under this Plan shall be computed as specified in Section 5 of this Plan using the actuarial factors specified in the Basic Plan. In the event such a request is timely filed, the request shall be considered by the Senior Human Resources Officer who shall have the sole discretion, considering the best interests of the Company, to allow a lump sum distribution. The decision of the Senior Human Resources Officer shall be final. The Participant will be required to show good reason for receiving a lump sum distribution and, file the request at least three months prior to separation from service as a condition of having the request approved. If the lump sum pay out is approved, the lump sum form of pay ou t shall be irrevocable even if the Participant changes his election under the Basic Plan.

The Participant’s beneficiary(ies) with respect to his or her Pre-Section 409A Benefit under this Plan shall be exactly the same as his beneficiary(ies) under the Basic Plan unless he elects and receives a lump sum distribution from the Basic Plan. In this event, the following provisions will apply if such Participant’s Pre-Section 409A Benefit under this Plan is paid in the form of a joint and survivor annuity.

The joint and survivor annuity is only available with respect to such Participant’s Pre-Section 409A Benefit if the Participant designates his or her spouse as beneficiary or obtains spousal consent to the designation of another beneficiary in the same manner as under the Basic Plan. If the spouse, or beneficiary dies before the Participant’s Retirement Date under the Basic Plan, the joint and survivor annuity with respect to such Participant’s Pre-Section 409A Benefit is canceled and the benefit is paid in the form of a straight life annuity.

(iii)

The payment of such Participant’s Post-Section 409A Benefit under this Plan shall be in a lump sum upon the Participant’s Separation from Service, unless the Participant elects to receive an optional annuity form of payment under subparagraph (a).  The amount of the Participant’s lump sum distribution with respect to his Post-Section 409A Benefit under this Plan shall be computed as specified in Section 5 of this Plan using the actuarial factors specified in the Basic Plan.  

(a)

The Participant may elect, in writing, payment commencing upon the Participant’s Separation from Service under any of the following annuity options:  (I) a straight life annuity, (II) a joint and 50% survivor annuity, and (III) a joint and 100% survivor annuity.  The amount of such optional annuity benefit with respect to such Participant’s Post-Section 409A Benefit under this Plan shall be computed as specified in Section 5 of this Plan using the interest and mortality factors specified in the Basic Plan. The election will be subject to approval of the Company's Senior Human Resources Officer, in his or her discretion, and, if approved, will become effective and  irrevocable on the date of such approval (except as provided in subsection (B)).  The payment of such Participant’s Post-Section 409A Benefit in an annuity form shall commence upon the P articipant’s Separation from Service.

(b)

A Participant’s election under subparagraph (a) may be made with respect to a Participant’s Post-Section 409A Benefit on or after January 1, 2006 and on or before December 31, 2008 in accordance with the transitional relief under Section 409A of the Internal Revenue Code and Internal Revenue Service Notices 2006-79 and 2007-86; provided, however, that a Participant’s election made in 2006 shall only apply with respect to payments that would not otherwise be payable in 2006, and shall not cause payments to be made in 2006 that would not otherwise be payable in 2006; and, provided, further, that a Participant’s election made in 2007 shall apply only with respect to payments that would not otherwise be payable in 2007 and shall not cause payments to be made in 2007 that would not otherwise be payable in 2007; and provided, further, that a Participant’s electio n made in 2008 shall apply only with respect to payments that would not otherwise be payable in 2008, and shall not cause payments to be made in 2008 that would not otherwise be payable in 2008.   A Participant’s election under subparagraph (a) shall be considered made when the election becomes irrevocable.  No election under subparagraph (a) may be made by a Participant unless such election becomes irrevocable on or prior to December 31, 2008.

(c)

The joint and survivor annuity is only available under clause (a)(II) or (III) if the Participant designates his or her spouse as beneficiary or obtains spousal consent to the designation of another beneficiary in the same manner as under the Basic Plan as part of the Participant’s election. If the spouse, or beneficiary dies before the Participant’s Separation from Service, the joint and survivor annuity is canceled and the benefit is paid in the form of a straight life annuity; provided, that the straight life annuity is actuarially equivalent, applying reasonable actuarial methods and assumptions, to the joint and survivor annuity in effect prior to such cancellation, as determined under Treasury Regulation Section 1.409A-2(b)(2)(ii).

(d)

Except as provided in subsection (B), such Participant may not change the form and time of payment of such Participant’s Post-Section 409A Benefit under this Plan after December 31, 2008.

(iv) Notwithstanding the foregoing, in no event shall a distribution option be available or apply to a Participant’s Pre-Section 409A Benefit if such distribution option would result in a material modification of the Participant’s Pre-Section 409A Benefit, as determined under Section 409A of the Code and Treasury Regulation Section 1.409A-6.

(v)

A lump sum payment of a Participant’s Post-Section 409A Benefit under this subsection (A) shall be paid on such date as is determined by Sempra Energy within thirty (30) days following the Participant’s Separation from Service.  If an annuity payment is elected for purposes of the payment of such Participant’s Post-Section 409A Benefit under this subsection (A), such Post-Section 409A Benefit shall be paid monthly, beginning on the last day of the month of the Participant’s Separation from Service and shall continue to be paid monthly during the life of the Participant and the life of the Participant’s designated beneficiary, if any (if such beneficiary survives the Participant).  In all cases, the monthly benefit shall equal the annual benefit divided by 12.

(B)

Changes in Distribution Option for Certain SERP Participants

A Participant described in subsection (A) may elect to change the form of the payment of such  Participant’s Post-Section 409A Benefit under this Plan, as follows:


(i)

The Participant may elect, in writing, to change the form of  payment of such Participant’s Post-Section 409A Benefit to any of the following options:  (a) a lump sum, (b) a straight life annuity, (c) a joint and 50% survivor annuity, and (d) a joint and 100% survivor annuity.  The amount of such optional benefit under this Plan shall be computed as specified in Section 5 of this Plan using the interest and mortality factors specified in the Basic Plan.  The Participant’s election shall be subject to paragraphs (ii), (iii), (iv), (v), (vi) and (vii).  Except as provided in paragraph (vi), the Participant’s election under this paragraph (i) shall be irrevocable.  The joint and survivor annuity is only available under subparagraph (c) or (d) if the Participant designates his or her spouse as beneficiary or obtains spousal consent to the de signation of another beneficiary in the same manner as under the Basic Plan as part of the Participant’s election.  If the spouse, or beneficiary dies before the Participant’s Separation from Service, the joint and survivor annuity elected under this paragraph (i) is canceled and the benefit is paid in the form of a straight life annuity; provided, that the straight life annuity is actuarially equivalent, applying reasonable actuarial methods and assumptions, to the joint and survivor annuity in effect prior to such cancellation, as determined under Treasury Regulation Section 1.409A-2(a)(2)(ii).  

(ii)

The Participant’s election under paragraph (i) must be made prior to the Participant’s Separation from Service.

(iii)

If the Participant’s form of payment, as in effect at the time of election under paragraph (i), is an annuity, such Participant’s election under paragraph (i)(b), (c) or (d) (an election of an alternative annuity form of payment) shall be effective immediately and paragraph (v) shall not apply to such Participant’s election; provided, that the alternative annuity form of payment elected by the Participant is actuarially equivalent applying reasonable actuarial methods and assumptions to the annuity form of payment, as in effect at the time of the election, as determined under Treasury Regulation Section 1.409A-2(b)(2)(ii).


(iv)

Except as provided in paragraph (iii), the Participant’s election under paragraph (i) shall not take effect until 12 months after his election is made, in accordance with Treasury Regulation Section 1.409A-2(b)(1)(i).  If the Participant has a Separation from Service before the election under paragraph (i) becomes effective, the election under paragraph (i) shall terminate and the Participant’s Post-Section 409A Benefit shall be paid in the form of payment as in effect at the time of the election under paragraph (i).


(v)

Except as provided in paragraph (iii), in the event the Participant’s election under paragraph (i) becomes effective, the payment of such Participant’s Post-Section 409A Benefit under the option shall be deferred for a period of five years from the date such payment would otherwise have been paid (or, in the case of a life annuity treated as a single payment, five years from the date the first amount was scheduled to be paid), in accordance with Treasury Regulation Section 1.409A-2(b)(1)(ii).

(vi)

The Participant may elect to change the annuity option elected under paragraph (i) to another annuity option specified under paragraph (i) and such election shall become effective immediately, provided, that such change is made prior to the commencement of the payment of such Participant’s Post-Section 409A Benefit under this Plan; and, provided, further, that the annuity form of payment is actuarially equivalent, applying reasonable actuarial methods and assumptions, to the annuity form of payment, as in effect at the time of the election, as determined under Treasury Regulation Section 1.409A-2(b)(2)(ii).

(vii)

Any change in a Participant’s form of payment under this subsection (B) shall be made in accordance with Treasury Regulation Section 1.409A-2(b).

(C)

Distribution Options for other Participants

Except as provided in subsection (A), in the case of a Participant who first became an Eligible Employee (as determined under Section 4) on or before December 31, 2005, the payment of benefits under this Plan shall be made in a lump sum in accordance with this subsection (C) upon the Participant’s Separation from Service, unless the Participant elects to receive an optional annuity form of payment under paragraph (i).  The amount of the Participant’s lump sum distribution under this Plan shall be computed as specified in Section 5 of this Plan using the actuarial factors specified in the Basic Plan.

(i)

Such a Participant may elect, in writing, payment commencing upon the Participant’s Separation from Service under any of the following annuity options:  (a) a straight life annuity, (b) a joint and 50% survivor annuity, and (c) a joint and 100% survivor annuity.  The amount of such optional annuity benefit under this Plan shall be computed as specified in Section 5 of this Plan using the interest and mortality factors specified in the Basic Plan. The election will be subject to approval of the Senior Human Resources Officer of Sempra Energy, in his or her discretion, and, if approved, will become effective and irrevocable on the date of such approval (except as provided in subsection (D)).  The payment of such Participant’s benefits under this Plan in an annuity form shall commence upon the Participant’s Separation from Service.

(ii)

A Participant’s election under paragraph (i) may be made with respect to such Participant’s benefit under this Plan on or after January 1, 2006 and on or before December 31, 2008 in accordance with the transitional relief under Section 409A of the Internal Revenue Code and Internal Revenue Service Notices 2006-79 and 2007-86; provided, however, that a Participant’s election made in 2006 shall apply only with respect to payments that would not otherwise be payable in 2006, and shall not cause payments to be made in 2006 that would not otherwise be payable in 2006; and, provided, further, that a Participant’s election made in 2007 shall apply only with respect to payments that would not otherwise be payable in 2007, and shall not cause payments to be made in 2007 that would not otherwise be payable in 2007; and provided, further, that a Particip ant’s election made in 2008 shall apply only with respect to payments that would not otherwise be payable in 2008, and shall not cause payments to be made in 2008 that would not otherwise be payable in 2008.  A Participant’s election under paragraph (i) shall be considered made when the election becomes irrevocable.  No election under paragraph (i) may be made by a Participant unless such election becomes irrevocable on or prior to December 31, 2008.

(iii)

The joint and survivor annuity is only available under subparagraphs (i)(b) or (c) if the Participant designates his or her spouse as beneficiary or obtains spousal consent to the designation of another beneficiary in the same manner as under the Basic Plan as part of the Participant’s election. If the spouse, or beneficiary dies before the Participant’s Separation from Service, the joint and survivor annuity is canceled and the benefit is paid in the form of a straight life annuity; provided, that the straight life annuity is actuarially equivalent, applying reasonable actuarial methods and assumptions, to the joint and survivor annuity in effect prior to such cancellation, as determined under Treasury Regulation Section 1.409A-2(b)(2)(ii).

(iv)

Except as provided in subsection (D), such Participant may not change the form and time of payment of benefits under this Plan after December 31, 2008.

(v)

A lump sum payment under this subsection (C) shall be paid on such date as is determined by Sempra Energy within thirty (30) days following the Participant’s Separation from Service.  An annuity under this subsection (C) shall be paid monthly, beginning on the last day of the month of the Participant’s Separation from Service and shall continue to be paid monthly during the life of the Participant and the life of the Participant’s designated beneficiary, if any (if such beneficiary survives the Participant).  In all cases, the monthly benefit shall equal the annual benefit divided by 12.  

(D)

Changes in Distribution Option for other Participants

A Participant described in subsection (C) may elect to change the form of the payment of such Participant’s benefit under this Plan, as follows:


(i)

The Participant may elect, in writing, to change the form of  payment of such Participant’s benefit to any of the following options:  (a) a lump sum, (b) a straight life annuity, (c) a joint and 50% survivor annuity, and (d) a joint and 100% survivor annuity.  The amount of such optional benefit under this Plan shall be computed as specified in Section 5 of this Plan using the interest and mortality factors specified in the Basic Plan.  The Participant’s election shall be subject to paragraphs (ii), (iii), (iv), (v), (vi) and (vii).  Except as provided in paragraph (vi), the Participant’s election under this paragraph (i) shall be irrevocable.  The joint and survivor annuity is only available under subparagraph (c) or (d) if the Participant designates his or her spouse as beneficiary or obtains spousal consent to the designation of anoth er beneficiary in the same manner as under the Basic Plan as part of the Participant’s election.  If the spouse, or beneficiary dies before the Participant’s Separation from Service, the joint and survivor annuity is canceled and the benefit is paid in the form of a straight life annuity; provided, that the straight life annuity is actuarially equivalent, applying reasonable actuarial methods and assumptions, to the joint and survivor annuity in effect prior to such cancellation, as determined under Treasury Regulation Section 1.409A-2(b)(2)(ii).  

(ii)

The Participant’s election under paragraph (i) must be made prior to the Participant’s Separation from Service.

(iii)

If the Participant’s form of payment, as in effect at the time of the election under paragraph (i), is an annuity, such Participant’s election under paragraph (i)(b), (c) or (d) (an election of an alternative annuity form of payment) shall be effective immediately and paragraph (v) shall not apply to such Participant’s election; provided, that the alternative annuity form of payment elected by the Participant is actuarially equivalent applying reasonable actuarial methods and assumptions to the annuity form of payment, as in effect at the time of the election, as determined under Treasury Regulation Section 1.409A-2(b)(2)(ii).


(iv)

Except as provided in paragraph (iii), the Participant’s election under paragraph (i) shall not take effect until 12 months after the date his or her election is made in accordance with Treasury Regulation Section 1.409A-2(b)(1)(i).  If the Participant has a Separation from Service before the election under paragraph (i) becomes effective, the election under paragraph (i) shall terminate and the Participant’s benefit shall be paid in the form of payment as in effect at the time of the election under paragraph (i).


(v)

Except as provided in paragraph (iii), in the event the Participant’s election under paragraph (i) becomes effective, the payment of such Participant’s benefit under the option be deferred for a period of five years from the date such payment would otherwise have been paid (or, in the case of a life annuity treated as a single payment, five years from the date the first amount was scheduled to be paid), in accordance with Treasury Regulation Section 1.409A-2(b)(1)(ii).

(vi)

The Participant may elect to change an annuity form of payment elected under paragraph (i) to another annuity form of payment specified under paragraph (i)(b), (c) or (d), and such election shall be effective immediately; provided, that such change is made prior to the commencement date of the payment of benefits under this Plan; and, provided, further, that the annuity form of payment is actuarially equivalent applying reasonable actuarial methods and assumptions to the annuity form of payment, as in effect at the time of the election, as determined under Treasury Regulation Section 1.409A-2(b)(2)(ii).

(vii)

Any change in a Participant’s form of payment under this subsection (D) shall be made in accordance with Treasury Regulation Section 1.409A-2(b).

(E)

Pre-Section 409A Benefit; Post-Section 409A Benefit.

(i)

In the case of a Participant described in subsection (A), such Participant’s “Pre-Section 409A Benefit” means the portion of such Participant’s benefit under the Plan, if any, to which such Participant had a legal binding right, and which was earned and vested, as of December 31, 2004, determined in accordance with Section 409A of the Code and Treasury Regulation Section 1.409A-6.  Such Participant’s “Pre-Section 409A Benefit” shall be determined by the terms of the Plan and the Basic Plan, as in effect as of October 3, 2004.

Such Participant’s “Pre-Section 409A Benefit” shall equal the present value of the amount to which such Participant would have been entitled under the Plan if such Participant voluntarily terminated services without cause on December 31, 2004, and received a payment of the benefits available from the Plan on the earliest possible date allowed under the Plan to receive a payment of benefits following the termination of services, and received the benefits in the form with maximum value.  Notwithstanding the foregoing, for any subsequent taxable year of such Participant, the “Pre-Section 409A Benefit” shall increase to equal the present value of the benefit such Participant actually becomes entitled to, in the form and at the time actually paid, determined under the terms of the Plan (including applicable limits under the Code), as in effect on October 3, 2004, without regard to any further services rendered by such Participant after December 31, 2004, or any other events affecting the amount of or the entitlement to benefits (other than such Participant’s election with respect to the time or form of an available benefit).  Such present value shall be computed using the applicable actuarial assumptions and methods under the Basic Plan to the extent in accordance with Treasury Regulation Section 1.409A-6(a)(3)(i), or such other reasonable actuarial assumptions and methods as are permitted under Treasury Regulation Section 1.409A-6(a)(3)(i).

(ii)

In the case of a Participant described in subsection (A), such Participant’s “Post-Section 409A Benefit” means such Participant’s benefit under this Plan, less such Participant’s Pre-Section 409A Benefit (if any).  In the case of any other Participant, such Participant’s “Post-Section 409A Benefit” means such Participant’s benefit under this Plan.

(F)

Distributions to Newly Eligible Employees


(i)

In the case of a Participant who first becomes an Eligible Employee under this Plan (as determined under Section 4) after December 31, 2005, the payment of benefits under this Plan shall be made in a lump sum in accordance with this subsection (F) upon the Participant’s Separation from Service, except as provided in paragraph (ii).


(ii)

The Participant may elect to change the form of the payment of benefits under this Plan, as follows:


(a)

The Participant may elect, in writing, to change the form of payment of such benefit to any of the following annuity options:  (I) a straight life annuity, (II) a joint and 50% survivor annuity, and (III) a joint and 100% survivor annuity.  The amount of such optional annuity benefit under this Plan shall be computed as specified in Section 5 of this Plan using the interest and mortality factors specified in the Basic Plan.  The Participant’s election shall be subject to subparagraphs (b), (c), (d), (e) and (f).  Except as provided in subparagraph (e), the Participant’s election under this subparagraph (a) shall be irrevocable.  The joint and survivor annuity is only available under clause (II) or (III) if the Participant designates his or her spouse as beneficiary or obtains spousal consent to the designation of another beneficiary in the same manner as under the Basic Plan as part of the Participant’s election.  If the spouse, or beneficiary dies before the Participant’s Separation from Service, the joint and survivor annuity is canceled and the benefit is paid in the form of a straight life annuity; provided, that the straight life annuity is actuarially equivalent, applying reasonable actuarial methods and assumptions, to the joint and survivor annuity in effect prior to such cancellation, as determined under Treasury Regulation Section 1.409A-2(b)(2)(ii).


(b)

The Participant’s election under subparagraph (a) must be made prior to the Participant’s Separation from Service.


(c)

The Participant’s election under subparagraph (a) shall not take effect until 12 months after his election is made in accordance with Treasury Regulation Section 1.409A-2(b)(1)(i).  If the Participant has a Separation from Service before the election under subparagraph (a) becomes effective, the election under subparagraph (a) shall terminate and the Participant’s benefit shall be paid in a lump sum payment under paragraph (i).


(d)

In the event the Participant’s election under subparagraph (a) becomes effective, the payment of benefits under the annuity option shall be deferred for a period of five years from the date such payment would otherwise have been paid (or, in the case of a life annuity treated as a single payment, five years from the date the first amount was scheduled to be paid), in accordance with Treasury Regulation Section 1.409A-2(b)(1)(ii).


(e)

The Participant may elect to change the annuity form of payment elected under subparagraph (a) to another annuity form of payment specified under subparagraph (a) and such election shall be effective immediately; provided, that such change is made prior to the commencement of the payment of benefits under this Plan; and, provided, further, that the annuity form of payment is actuarially equivalent applying reasonable actuarial methods and assumptions to the annuity form of payment, as in effect at the time of the election, as determined under Treasury Regulation Section 1.409A-2(b)(2)(ii).

(f)

Any change in a Participant’s form of payment under this paragraph (ii) shall be in accordance with Treasury Regulation Section 1.409A-2(b).

(iii)

A lump sum payment under paragraph (F)(i) shall be paid on such date as is determined by Sempra Energy within thirty (30) days following the Participant’s Separation from Service.  An annuity under this subsection (F) shall be paid monthly, beginning on the last day of the month in which the date determined under subparagraph (F)(i)(d) occurs and shall continue to be paid monthly during the life of the Participant and the life of the Participant’s designated beneficiary, if any (if such beneficiary survives the Participant).  In all cases, the monthly benefit shall equal the annual benefit divided by 12.


 (G)

Death Benefits

If a Participant dies prior to the commencement of benefits under this Plan on or after his or her Separation from Service (or, in the case of a Participant described in subsection (A), such Participant’s Pre-Section 409A Death Benefit (if any), prior to the commencement of benefits under this Plan on or after such Participant’s Retirement Date or Termination), the payment of death benefits to such Participant’s beneficiary(ies) shall be made in accordance with this subsection (G).

(i)

The death benefits payable to such Participant’s beneficiary(ies) under this subsection (G) shall be computed as specified in Section 5 of this Plan using the actuarial factors specified in the Basic Plan.

(ii)

The death benefits payable to such Participant’s beneficiary(ies) under this subsection (G) shall be in lieu of any benefits that would have been payable under the other provisions of this Section 6, if such Participant had survived until the date of commencement of benefits.

(iii)

The death benefits payable to such Participant’s beneficiary(ies) under this subsection (G) shall be payable in a lump sum payment on such date as is determined by Sempra Energy during the thirty (30) day period commencing upon such Participant’s death; provided, however, that, in the case of a Participant described in subsection (A), such Participant’s Pre-Section 409A Death Benefit (if any) shall be paid in the same payment form and at the same time as the payment of pre-commencement death benefits on behalf of such Participant under the Basic Plan and such Participant’s Post-Section 409A Death Benefit shall be payable in a lump sum on such date as is determined by Sempra Energy during the thirty (30) day period commencing upon such Participant’s death.

 (iv)

For purposes of this subsection (G) and Section 9,

(a)

in the case of a Participant described in subsection (A), such Participant’s “Pre-Section 409A Death Benefit” means the portion of the death benefits payable to such Participant’s beneficiary(ies) under this subsection (G), if any, to which such Participant had a legal binding right, and which was earned and vested, as of December 31, 2004, determined in accordance with Section 409A of the Code and Treasury Regulation Section 1.409A-6.  Such Participant’s “Pre-Section 409A Death Benefit” shall be determined by the terms of the Plan and the Basic Plan, as in effect as of October 3, 2004 and in a manner consistent with paragraph (E)(i) and Treasury Regulation Section 1.409A-6(a)(3)(i), and

(b)

in the case of a Participant described in subsection (A), such Participant’s “Post-Section 409A Death Benefit” means the death benefit payable to such Participant’s beneficiary(ies) under this subsection (G), less such Participant’s Pre-Section 409A Death Benefit.

(H)

Mandatory Distribution

Notwithstanding subsections (A), (B), (C), (D) and (F), if actuarial value of a Participant’s benefit hereunder as of the date of the Participant’s Separation from Service is less than $10,000, the benefit shall be distributed in a lump sum upon the Participant’s Separation from Service in accordance with Treasury Regulation Section 1.409A-3(j)(4)(v).  Such lump sum payment shall be paid on such date as is determined by Sempra Energy within thirty (30) days following the Participant’s Separation from Service.  Such lump sum payment shall be made only if such payment satisfies the requirement of Treasury Regulation Section 1.409A-3(j)(4)(v)(A).


(I)

Distributions to Specified Employees

Notwithstanding the foregoing, in the case of a Participant who is a Specified Employee on the date of such Participant’s Separation from Service, the payment of such Participant’s Post-Section 409A Benefit to such Participant shall not be made before the date which is six months after the date of such Participant’s Separation from Service (or, if earlier, the date such Participant’s death) in accordance with Section 409A(a)(2)(B)(i) of the Code and the Treasury Regulations thereunder.  Any payment of such Participant’s Post-Section 409A Benefit to which such Participant otherwise would have been entitled during the first six months following the date of such Participant’s Separation from Service shall be accumulated (with interest at the annual rate of interest on 30-year Treasury securities for the November next preceding the first day of the ca lendar year in which such Participant’s Separation from Service occurs) and paid on the first day of the seventh month following the date of such Participant’s Separation from Service (or, if earlier, the date of such Participant’s death) in accordance with Section 409A(a)(2)(B)(i) and the Treasury Regulations thereunder.

(J)

Prohibition on Acceleration of Distributions

The time or schedule of payment of any payment of a Participant’s Post-Section 409A Benefit under the Plan shall not be subject to acceleration, except as provided under Treasury Regulations promulgated in accordance with Section 409A(a)(3) of the Code.

(K)

Conformance of Time and Form of Payment under the SERP

(i)

If a Participant is or becomes a participant in the SERP, the payment of such Participant’s “Post-Section 409A Supplemental Retirement Benefit” (as defined in the SERP) to such Participant under the SERP shall be made or commence on the date of the payment or commencement of such Participant’s Post-Section 409A Benefit under this Plan, and the form of payment of such Participant’s “Post-Section 409A Supplemental Retirement Benefit” (as defined in the SERP) under the SERP shall be the same as the form of payment of such Participant’s Post-Section 409A Benefit under this Plan.

(ii)

In the event that a Participant elects to change the form of the payment of such Participant’s Post-Section 409A Benefit under this Plan, such Participant shall be deemed to have elected to change the form of the payment of such Participant’s “Post-Section 409A Supplemental Retirement Benefit” (as defined in the SERP) under the SERP to the form of the payment of such Participant’s Post-Section 409A Benefit under this Plan.  Any such election shall be subject to the provisions of subsection (B), (D) or (F), as applicable, and the provisions of the SERP and, in any event, the time and form of payment of such Participant’s “Post-Section 409A Supplemental Retirement Benefit” under the SERP shall be the same as the time and form of payment of such Participant’s Post-Section 409A Benefit under this Plan.

7.

EMPLOYEE’S RIGHTS

An Employee shall not be entitled to any payments from the Basic Plan on the basis of any benefits to which he may be entitled under this Plan. Benefits under this Plan shall be payable only from the general assets of the Company.

8.

AMENDMENT AND DISCONTINUANCE

The Company expects to continue this Plan indefinitely, but reserves to the Compensation Committee the right to amend or discontinue the Plan if, in the Compensation Committee's sole judgment, such a change is deemed necessary or desirable. However, if the Compensation Committee shall amend or discontinue this Plan, the Company shall be liable for any benefits accrued under this Plan as of the date of such amendment or termination determined on the basis of each employee's presumed termination of employment as of such date. Provided further, that if the Department of Labor determines, or issues regulations under which, the Plan would be subject to Parts 2 and/or 3 of Title I of ERISA, the Compensation Committee may taken such action or actions as it deems appropriate. Such actions may include, but are not limited to, modification, termination or partial termination of the Plan. In the event of such modification, termination, or partial termination, the Compensation Committee may make immediate distribution of the benefits of some or all of the Participant’s benefits, as it deems necessary or appropriate, to the extent such distribution is in accordance with Section 409A of the Code and the Treasury Regulations thereunder.

9.

DEFINITIONS

Basic Plan” means the Sempra Energy Cash Balance Plan, as amended from time to time.

Code” means the Internal Revenue Code of 1986, as amended from time to time.

Company” means Sempra Energy and any successor corporation.  “Company” shall also include each corporation which is a member of a controlled group of corporations (within the meaning of Section 414(b) of the Code) of which Sempra Energy is a member, if such corporation maintains the Basic Plan for the benefit of its employees.

Eligible Employee” means an Employee who has become eligible for benefits under the Plan, as determined in Section 4.

Employee” means an individual who is an employee of the Company.

ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

Lump Sum Option”  shall have the meaning set forth in the Basic Plan.

Retirement Date” shall have the meaning set forth in the Basic Plan.

Separation from Service”, with respect to a Participant (or another Service Provider) means the Participant’s (or such Service Provider’s) “separation from service,” as defined in Treasury Regulation Section 1.409A-1(h).  

Effective as of January 1, 2008, and in accordance with Treasury Regulation Section 1.409A-1(h)(3) (and the transitional relief under Internal Revenue Service Notice 2005-1, the proposed regulations under Section 409A of the Code and Internal Revenue Service Notice 2006-79), and in connection with the formation of RBS Sempra Commodities (as defined in Section 10), with respect to the benefits payable under this Plan to a Participant who is an employee of SET LLC or SES (each, as defined in Section 11), and who is a Transferred Employee (as defined in Section 10), the foregoing definition of “Separation from Service” shall be applied by determining the “service recipient,” as defined in Treasury Regulation Section 1.409A-1(g), by substituting the language “at least 20%” for the language “at least 80%” and applying Sections 1563(a)(1), (2) and (3) for purposes of determining a controlled group of corporations under Section 414(b) of the Code and in applying Treasury Regulation Section 1.414(c)-2 for purposes of determining trades or businesses (whether or not incorporated) that are under common control for purposes of Section 414(c) of the Code.  This paragraph shall not apply with respect to the benefits payable under this Plan to any other Participant.

SERP” means the Sempra Energy Supplemental Executive Retirement Plan, as amended from time to time.

Service Provider” means a Participant or any other “service provider,” as defined in Treasury Regulation Section 1.409A-1(f).

Service Recipient,” with respect to a Participant, means the Company and all persons considered part of the “service recipient,” as defined in Treasury Regulation Section 1.409A-1(g), as determined from time to time.  As provided in Treasury Regulation Section 1.409A-1(g), the “Service Recipient” shall mean the person for whom the services are performed and with respect to whom the legally binding right to compensation arises, and all persons with whom such person would be considered a single employer under Section 414(b) or 414(c) of the Code.

Specified Employee” means a Service Provider who, as of the date of the Service Provider’s Separation from Service, is a “Key Employee” of the Service Recipient any stock of which is publicly traded on an established securities market or otherwise.  For purposes of this definition, a Service Provider is a “Key Employee” if the Service Provider meets the requirements of Section 416(i)(1)(A)(i), (ii) or (iii) of the Code (applied in accordance with the Treasury Regulations thereunder and disregarding Section 416(i)(5) of the Code) at any time during the Testing Year.  If a Service Provider is a “Key Employee” (as defined above) as of a Specified Employee Identification Date, the Service Provider shall be treated as “Key Employee” for the entire twelve (12) month period beginning on the Specified Employee Effective Date.  For purposes of this definition, a Service Provider’s compensation for a Testing Year shall mean such Service Provider’s compensation, as determined under Treasury Regulation Section 1.415(c)-2(a) (and applied as if the Service Recipient were not using any safe harbor provided in Treasury Regulation Section 1.415(c)-2(d), were not using any of the elective special timing rules provided in Treasury Regulation Section 1.415(c)-2(e), and were not using any of the elective special rules provided in Treasury Regulation Section 1.415(c)-2(g)), from the Service Recipient for such Testing Year.  The “Specified Employees” shall be determined in accordance with Section 409A(a)(2)(B)(i) of the Code and Treasury Regulation Section 1.409A-1(i).

Specified Employee Effective Date” means the first day of the fourth month following the Specified Employee Identification Date.  The Specified Employee Effective Date may be changed by the Company, in its discretion, in accordance with Treasury Regulation Section 1.409A-1(i)(4).

Specified Employee Identification Date”, for purposes of Treasury Regulation Section 1.409A-1(i)(3), means December 31.  The “Specified Employee Identification Date” shall apply to all “nonqualified deferred compensation plans” (as defined in Treasury Regulation Section 1.409A-1(a)) of the Service Recipient and all affected Service Providers.  The “Specified Employee Identification Date” may be changed by Sempra Energy, in its discretion, in accordance with Treasury Regulation Section 1.409A-1(i)(3).

Termination” shall have the meaning set forth in the Basic Plan.

Testing Year” means the twelve (12) month period ending on the Specified Employee Identification Date, as determined from time to time.

10.

EMPLOYEES OF SEMPRA ENERGY TRADING CORPORATION AND SEMPRA ENERGY SOLUTIONS LLC

This Section 10 includes special provisions relating to the benefits of the Participants who are employed by Sempra Energy Trading Corporation (“SET”) and Sempra Energy Solutions LLC (“SES”).

(A)

Background

SET and SES maintain the Basic Plan for the benefit of their respective eligible employees.  Certain SET and SES employees are Participants in this Plan.  

On July 9, 2007, Sempra Energy, Sempra Global, Sempra Energy Trading International, B.V. (“SETI”) and The Royal Bank of Scotland plc (“RBS”) entered into the Master Formation and Equity Interest Purchase Agreement, dated as of July 9, 2007 (the “Master Formation Agreement”), which provides for the formation of a partnership, RBS Sempra Commodities LLP (“RBS Sempra Commodities”), to purchase and operate Sempra Energy’s commodity-marketing businesses.  Pursuant to a Master Formation Agreement, RBS Sempra Commodities will be formed as a United Kingdom limited liability partnership and RBS Sempra Commodities will purchase Sempra Energy’s commodity-marketing subsidiaries.  

Prior to the Closing, SET will be converted into a limited liability company (“SET LLC”).  Following such conversion, SET employees will be employed by SET LLC.  Prior to the Closing, SES will become a wholly-owned subsidiary of SET LLC.

Also, prior to the Closing, Sempra Energy will own, directly or indirectly through wholly-owned subsidiaries, 100% of the membership interests in SET LLC and SES.  Prior to the Closing, SET LLC and SES will be disregarded entities for federal income tax purposes.

Effective as of the Closing, RBS Sempra Commodities will purchase 100% of the membership interests in SET LLC.  

As provided in the Master Formation Agreement, an employee of SET LLC who is actively at work on the Closing Date will continue to be employed by SET LLC immediately after the Closing Date, and an employee of SES who is actively at work on the Closing Date will continue to be employed by SES (each such employee is referred to as a Transferred Employee).  

Also, as provided in the Master Formation Agreement, with respect to an employee of SET LLC or SES who is not actively at work on the Closing Date because such employee is on approved short-term disability or long-term disability leave in accordance with the Sempra Plans (such employee is referred to as an Inactive Employee), if such Inactive Employee returns to active work at the conclusion of such leave, and in any case within six months following the Closing Date (or such longer period as is required by applicable law), such Inactive Employee shall become a Transferred Employee as of the date of such person’s return to active employment with the SET LLC or SES (such date is referred to as the Transfer Date).

Effective as of the Closing, SET LLC will be a wholly-owned subsidiary of RBS Sempra Commodities, SES will be an indirect, wholly-owned subsidiary of RBS Commodities, Sempra Global and SETI will be partners in RBS Sempra Commodities, and Sempra Energy will own, indirectly through wholly-owned subsidiaries, at least a 50% profits interest in RBS Sempra Commodities.

(B)

Cessation of Participation by SET LLC and SES; Cessation of Benefit Accruals

(i)

Prior to the Closing, SET LLC shall be a participating employer in this Plan.  Effective as of the Closing Date, SET LLC will cease to be a participating employer in this Plan.

(ii)

Prior to the Closing, SES shall be a participating employer in this Plan.  Effective as of the Closing Date, SES will cease to be a participating employer in this Plan.

(iii)

Effective as of the Closing Date (or the Transfer Date, if applicable), a Transferred Employee who is a Participant shall cease to accrue any further benefits as an active participant in this Plan and shall have no rights to continue as an active participant under this Plan (without derogation of the rights of such Transferred Employee as a vested, terminated Participant in this Plan).

(iv)

No Transferred Employee shall become a Participant on or after the Closing Date.

(C)

Separation from Service

(i)

Effective as of the Closing, RBS Sempra Commodities will be a member of a group of trades or businesses (whether or not incorporated) under common control for purposes of Section 414(c) of the Code and Treasury Regulation Section 1.414(c)-2, as determined under Treasury Regulation Section 1.409A-1(h)(3), that includes Sempra Energy and its wholly-owned subsidiaries.  Consequently, effective as of the Closing, RBS Sempra Commodities will be included in the “service recipient” that includes Sempra Energy and its wholly-owned subsidiaries, as defined under Treasury Regulation Section 1.409A-1(h)(3).  

(ii)

A Participant who is an employee of SET LLC or SES, and who is a Transferred Employee effective as of the Closing Date, will not have a Separation from Service solely as a result of the purchase of the membership interests of SET LLC by RBS Sempra Commodities effective as of the Closing.

(iii)

A Participant who is an employee of SET LLC or SES, who is an Inactive Employee, and who becomes a Transferred Employee effective on a Transfer Date after the Closing Date, will not have a Separation from Service solely as a result of the purchase of the membership interests of SET LLC by  RBS Sempra Commodities or becoming a Transferred Employee on a Transfer Date after the Closing Date.

(iv)

For purposes of the Plan, a Participant who is an employee of SET LLC or SES, and who is or becomes a Transferred Employee, will have a Separation from Service on or after the Closing Date (or the Transfer Date, if applicable), as determined under Section 10 and Treasury Regulation Section 1.409A-1(h).

(D)

Certain Defined Terms

For purposes of this Section 11, the terms “Closing,” “Closing Date,” “Inactive Employee,” “Sempra Plans,” “Transferred Employees” and “Transfer Date” shall have the meanings ascribed to such terms under the Master Formation Agreement.

11.

SECTION 409A OF THE CODE

(A)

This Plan shall be interpreted, construed and administered in a manner that satisfies the requirements of Sections 409A(a)(2), (3) and (4) of the Code and the Treasury Regulations thereunder (subject to the transitional relief under Internal Revenue Service Notice 2005-1, the Proposed Regulations under Section 409A of the Code, Internal Revenue Service Notices 2006-79 and 2007-86 and other applicable authority issued by the Internal Revenue Service).  As provided in Internal Revenue Service Notices 2006-79 and 2007-86, notwithstanding any other provision of this Plan, with respect to an election or amendment to change a time and form of payment under the Plan made on or after January 1, 2006 and on or before December 31, 2006, the election or amendment shall apply only to amounts that would not otherwise be payable in 2006 and shall not cause an amount to be paid in 2006 that would not otherwise be payable in 2006; and, with respect to an election or amendment to change a time and form of payment under this Plan made on or after January 1, 2007 and on or before December 31, 2007, the election or amendment may apply only to amounts that would not otherwise be payable in 2007 and may not cause an amount to be paid in 2007 that would not otherwise be payable in 2007; and, with respect to an election or amendment to change a time and form of payment under this Plan made on or after January 1, 2008 and on or before December 31, 2008, the election or amendment may apply only to amounts that would not otherwise be payable in 2008 and may not cause an amount to be paid in 2008 that would not otherwise be payable in 2008.  If Sempra Energy determines that any deferred compensation amounts under this Plan subject to Section 409A of the Code do not comply with Sections 409A(a)(2), (3) and (4) of the Code, the Treasury Regulations thereunder and other applicable authority issued by the Internal Revenue Service, Sempra Energy may amend this Plan, or take such other actions as Sempra Energy deems reasonably necessary or appropriate, to ensure that such amounts comply with the requirements of Section 409A of the Code, the Treasury Regulations thereunder and other applicable authority issued by the Internal Revenue Service.  In the case of any deferred compensation amounts under this Plan that are subject to Section 409A of the Code, if any provision of the Plan would cause such amounts to fail to so comply, such provision shall be deemed amended, or shall not be effective and shall be null and void, to the extent necessary to cause such amounts to comply with Section 409A(a)(2), (3) and (4) of the Code, the Treasury Regulations thereunder and other applicable authority issued by the Internal Revenue Service.

(B)

The Plan provides that benefits under the Plan are determined under the formula for determining benefits under the Basic Plan (which is a qualified employer plan, as defined in Treasury Regulation Section 1.409A-1(a)(2)), applied without regard to the limitations applicable to the Basic Plan under Sections 401(a)(17) and 415 of the Code, and after an offset of the benefits provided under the Basic Plan.  Accordingly, the Plan is intended to be a nonqualified deferred compensation plan subject to Treasury Regulation Sections 1.409A-2(a)(9) and 1.409A-3(j)(5).

12.

CLAIMS PROCEDURE

(A)

Claim


A Participant, beneficiary or other person who believes that he is being denied a benefit to which he is entitled under this Plan (hereinafter referred to as “Claimant”) may file a written request for such benefit with the Compensation Committee, setting forth his claim.  The request must be addressed to the Compensation Committee at Sempra Energy at its then principal place of business.  The claims procedure of this Section shall be applied in accordance with Section 503 of ERISA and Department of Labor Regulation Section 2560.503-1.  A Participant, beneficiary or other person may assert a claim, or request review of the denial of a claim, through such Participant’s, beneficiary’s or person’s authorized representative, provided that such Participant, beneficiary or person has submitted a written notice evidencing the authority of such representative to the C ompensation Committee.  


A Claimant or his duly authorized representative shall submit his claim under the Plan in writing to the Compensation Committee.  The Claimant may include documents, records or other information relating to the claim for review by the Compensation Committee in connection with such claim.


(B)

Claim Decision


The Compensation Committee shall review the Claimant’s claim (including any documents, records or other information submitted with such claim) and determine whether such claim shall be approved or denied in accordance with the Plan.


Upon receipt of a claim, the Compensation Committee shall advise the Claimant that a claim decision shall be forthcoming within 90 days and shall, in fact, deliver such claim decision within such period.  The Compensation Committee may, however, extend the claim decision period for an additional 90 days for special circumstances.  If the Compensation Committee extends the claim decision period, the Compensation Committee shall provide the Claimant with written notice of such extension prior to the end of the initial 90 day period.  The extension notice shall indicate the special circumstances requiring the extension of time and the date by which the Compensation Committee expects to render a claim decision.


If the claim is denied in whole or in part, the Compensation Committee shall inform the Claimant in writing, using language calculated to be understood by the Claimant, setting forth: (i) the specified reason or reasons for such denial; (ii) references to the specific provisions of this Plan on which such denial is based; (iii) a description of any additional material or information necessary for the Claimant to perfect his claim and an explanation of why such material or such information is necessary; and (iv) a description of the Plan’s procedures for review and the time limits applicable to such procedures, including a statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA following a denial of the review of the denial of the claim.


The Claimant may request a review of any denial of the claim in writing to the Compensation Committee within 60 days after receipt of the Compensation Committee’s notice of denial of claim.  The Claimant’s failure to appeal the denial of the claim by the Compensation Committee in writing within the 60 day period shall render the Compensation Committee’s determination final, binding, and conclusive.


(C)

Request for Review


With 60 days after the receipt by the Claimant of the denial of the claim described above, the Claimant may request in writing a review the determination of the Compensation Committee.  Such review shall be completed by the Compensation Committee.  Such request must be addressed to the Compensation Committee of Sempra Energy, at its then principal place of business.  


The Claimant shall be afforded the opportunity to submit written comments, documents, records, and other information relating to the claim, and the Claimant shall be provided, upon request and free of charge, reasonable access to all documents, records, and other information relevant to the Claimant’s claim.  A document, record or other information shall be considered “relevant” to the claim, as provided in Department of Labor Regulation Section 2560.503-1(m)(8).  The review by the Compensation Committee shall take into account all comments, documents, records, and other information submitted by the Claimant, without regard to whether such information was submitted or considered in the Compensation Committee’s initial determination with respect to the claim.  


The Compensation Committee shall advise the Claimant in writing of the Compensation Committee’s determination of the review within 60 days of the Claimant’s written request for review, unless special circumstances (such as a hearing) would make the rendering of a determination within the 60 day period infeasible, but in no event shall the Compensation Committee render a determination regarding the denial of a claim later than 120 days after its receipt of a request for review.  If an extension of time for review is required because of special circumstances, written notice of the extension shall be furnished to the Claimant prior to the date the extension period commences.  The extension notice shall indicate the special circumstances requiring the extension of time and the date by which the Compensation Committee expects to render a review decision.


(D)

Review of Decision


The Compensation Committee shall inform the Claimant in writing, in a manner calculated to be understood by the Claimant, the decision on the review of the denial of the claim, setting forth:  (i) the specific reasons for the decision, (ii) if the claim is denied, reference to the specific Plan provisions on which the denial of the claim is based; (iii) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the Claimant’s claim (and a document, record or other information shall be considered “relevant” to the benefits claim, as provided in Department of Labor Regulation Section 2560.503-1(m)(8)); and (iv) a statement describing Claimant’s right to bring an action under Section 502(a) of ERISA.


13.

MISCELLANEOUS

(A)

Unsecured General Creditor

Participants and their beneficiaries, heirs, successors, and assigns shall have no legal or equitable rights, claims, or interest in any specific property or assets of the Company.  No assets of the Company shall be held in any way as collateral security for the fulfilling of the obligations of the Company under this Plan.  Any and all of the Company’s assets shall be, and remain, the general unpledged, unrestricted assets of the Company.  The Company’s obligation under the Plan shall be merely that of an unfunded and unsecured promise of the Company to pay money in the future, and the rights of the Participants and Beneficiaries shall be no greater than those of unsecured general creditors.  It is the intention of the Company that this Plan be unfunded for purposes of the Code and Title I of ERISA.

(B)

Restriction Against Assignment

The Company shall pay all amounts payable hereunder only to the person or persons designated by the Plan and not to any other person or entity.  No right, title or interest in the Plan or in any account may be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution.  No right, title or interest in the Plan or in any benefit under the Plan shall be liable for the debts, contracts or engagements of the Participant or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.

Notwithstanding the provisions of this subsection (B), a Participant’s benefit may be transferred pursuant to a domestic relations order that constitutes a “qualified domestic relations order” as defined by the Code or Title I of ERISA.

(C)

Withholding

There shall be deducted from each payment made under the Plan payable to the Participant (or beneficiary) all taxes which are required to be withheld by the Company in respect to such payment or this Plan.  The Company shall have the right to reduce any payment (or compensation) by the amount of such of cash sufficient to provide the amount of said taxes.

(D)

Governing Law

This Plan shall be construed, governed and administered in accordance with the ERISA and, to the extent not preempted by ERISA, the laws of the State of California (without regard to the conflicts of laws principles thereof).

(E)

Receipt of Release

Any payment to a Participant or the Participant’s beneficiary in accordance with the provisions of the Plan shall, to the extent thereof, be in full satisfaction of all claims against the Compensation Committee and the Company.  The Committee may require such Participant or Beneficiary, as a condition precedent to such payment, to execute a receipt and release to such effect prior to the payment date specified under the Plan.

(F)

Payments on Behalf of Persons Under Incapacity

In the event that any amount becomes payable under the Plan to a person who, in the sole judgment of the Compensation Committee, is considered by reason of physical or mental condition to be unable to give a valid receipt therefore, the Compensation Committee may direct that such payment be made to any person found by the Compensation Committee, in its sole judgment, to have assumed the care of such person.  Any payment made pursuant to such termination shall constitute a full release and discharge of the Compensation Committee and the Company.

(G)

Limitation of Rights

Neither the establishment of the Plan nor any modification thereof, nor the creating of any fund or account, nor the payment of any benefits shall be construed as giving to any Participant or other person any legal or equitable right against the Company except as provided in the Plan.  In no event shall the terms of employment of any Participant be modified or in any be effected by the provisions of the Plan.

(H)

Notice

Any notice or filing required or permitted to be given to the Compensation Committee under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to the principal office of the Company, directed to the attention of the General Counsel and Secretary of Sempra Energy.  Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.

(I)

Errors and Misstatements

In the event of any misstatement or omission of fact by a Participant to the Compensation Committee or any clerical error resulting in payment of benefits in an incorrect amount, the Compensation Committee shall promptly cause the amount of future payments to be corrected upon discovery of the facts and shall pay or, if applicable, cause the Plan to pay, the Participant or any other person entitled to payment under the Plan any underpayment in a lump sum or to recoup any overpayment from future payments to the Participant or any other person entitled to payment under the Plan in such amounts as the Compensation Committee shall direct or to proceed against the Participant or any other person entitled to payment under the Plan for recovery of any such overpayment

(J)

Pronouns and Plurality

The masculine pronoun shall include the feminine pronoun, and the singular the plural where the context so indicates.

(K)

Severability

In the event that any provision of the Plan shall be declared unenforceable or invalid for any reason, such unenforceability or invalidity shall not affect the remaining provisions of the Plan but shall be fully severable, and the Plan shall be construed and enforced as if such unenforceable or invalid provision had never been included herein.

(L)

Headings

Headings and subheadings in this Plan are inserted for convenience of reference only and are not to be considered in the construction of the provisions hereof.

Executed at San Diego, California this 11th day of December, 2008.


SEMPRA ENERGY




By:

______________________________

G. Joyce Rowland

Sr. Vice President, Human Resources





Exhibit 10.17

Exhibit 10.17





AMENDED AND RESTATED
SEMPRA ENERGY
SEVERANCE PAY AGREEMENT

THIS AGREEMENT (this “Agreement”), dated as of November 4, 2008, is made by and between SEMPRA ENERGY, a California corporation (“Sempra Energy”), and _____________ (the “Executive”).

WHEREAS, Sempra Energy and the  Executive entered into the Sempra Energy Severance Pay Agreement, dated as of ____________ (the “Prior Agreement”); and

WHEREAS, Sempra Energy and the  Executive desire to amend and restate the Prior Agreement to conform to the requirements of Section 409A of the Code (as defined below) and the Treasury Regulations thereunder, or certain exemptions from Section 409A of the Code; and

WHEREAS, the  Executive is currently employed by Sempra Energy or a direct or indirect subsidiary of Sempra Energy (Sempra Energy and its subsidiaries are hereinafter collectively referred to as the “Company”) as _____________________; and

WHEREAS, the Board of Directors of Sempra Energy (the “Board”) has authorized this amendment and restatement of the Prior Agreement.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the Company and the  Executive hereby agree as follows:

Section 1.

Definitions

.  For purposes of this Agreement, the following capitalized terms have the meanings set forth below:

Accounting Firm” has the meaning assigned thereto in Section 9(b) hereof.

Act” has the meaning assigned thereto in Section 2 hereof.

Additional Post-Change in Control Severance Payment” has the meaning assigned thereto in Section 6(a) hereof.

Affiliate” has the meaning set forth in Rule 12b-2 promulgated under the Exchange Act.

Annual Base Salary” means the  Executive’s annual base salary from the Company.

Asset Purchaser” has the meaning assigned thereto in Section 16(e).

Asset Sale” has the meaning assigned thereto in Section 16(e).

Average Annual Bonus” means the average of the annual bonuses from the Company earned by the Executive with respect to the three (3) fiscal years of the Company immediately preceding the Date of Termination (the “Bonus Fiscal Years”); provided, however, that, if the Executive was employed by the Company during all or any portion of one or two of the Bonus Fiscal Years (but not three of the Bonus Fiscal Years), “Average Annual Bonus” means the average of the annual bonuses (if any) from the Company earned by the Executive with respect to the Bonus Fiscal Years during all or any portion of which the Executive was employed by the Company; and, provided, further, that, if the Executive was not employed by the Company during all or any portion of any of the Bonus Fiscal Years, “Average Annual Bonus” means zero.

Beneficial Owner” has the meaning set forth in Rule 13d-3 promulgated under the Exchange Act.

Cause” means:  

(a)

Prior to a Change in Control, (i) the willful failure by the  Executive to substantially perform the  Executive’s duties with the Company (other than any such failure resulting from the  Executive’s incapacity due to physical or mental illness, (ii) the grossly negligent performance of such obligations referenced in clause (i) of this definition, (iii) the  Executive’s gross insubordination; and/or (iv) the  Executive’s commission of one or more acts of moral turpitude that constitute a violation of applicable law (including but not limited to a felony) which have or result in an adverse effect on the Company, monetarily or otherwise, or one or more significant acts of dishonesty.  For purposes of clause (i) of this subsection (a), no act, or failure to act, on the  Executive’s part shall be deemed “willful” unless done, or omitted to be done, by the  Executive not in good faith and without reasonable belief that the  Executive’s act, or failure to act, was in the best interests of the Company.  

(b)

From and after a Change in Control, (i) the willful and continued failure by the  Executive to substantially perform the  Executive’s duties with the Company (other than any such failure resulting from the  Executive’s incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the  Executive pursuant to Section 3 hereof) and/or (ii) the  Executive’s commission of one or more acts of moral turpitude that constitute a violation of applicable law (including but not limited to a felony) which have or result in an adverse effect on the Company, monetarily or otherwise, or one or more significant acts of dishonesty.  For purposes of clause (i) of this subsection (b), no act, or failure to act, on the  Executive’s part shall be deemed “willful” unless done, or omitted to be done, by the  Executive not in good faith and without reasonable belief that the  Executive’s act, or failure to act, was in the best interests of the Company.  Notwithstanding the foregoing, the  Executive shall not be deemed terminated for Cause pursuant to clause (i) of this subsection (b) unless and until the  Executive shall have been provided with reasonable notice of and, if possible, a reasonable opportunity to cure the facts and circumstances claimed to provide a basis for termination of the  Executive’s employment for Cause.

Change in Control” shall be deemed to have occurred on the date that a change in the ownership of Sempra Energy, a change in the effective control of Sempra Energy, or a change in the ownership of a substantial portion of assets of Sempra Energy occurs (each, as defined in subsection (a) below), except as otherwise provided in subsections (b), (c) and (d) below:

(a)

(i)

a “change in the ownership of Sempra Energy” occurs on the date that any one person, or more than one person acting as a group, acquires ownership of stock of Sempra Energy that, together with stock held by such person or group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of Sempra Energy,

(ii)

a “change in the effective control of Sempra Energy” occurs only on either of the following dates:

(A)

the date any one person, or more than one person acting as a group, acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of Sempra Energy possessing thirty percent (30%) or more of the total voting power of the stock of Sempra Energy, or

(B)

the date a majority of the members of the Board is replaced during any twelve (12) month period by directors whose appointment or election is not endorsed by a majority of the members of the Board before the date of appointment or election, and

(iii)

a “change in the ownership of a substantial portion of assets of Sempra Energy” occurs on the date any one person, or more than one person acting as a group, acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) assets from Sempra Energy that have a total gross fair market value equal to or more than eighty-five percent (85%) of the total gross fair market value of all of the assets of Sempra Energy immediately before such acquisition or acquisitions.

(b)

A “change in the ownership of Sempra Energy” or “a change in the effective control of Sempra Energy” shall not occur under clause (a)(i) or (a)(ii) by reason of any of the following:

(i)

an acquisition of ownership of stock of Sempra Energy directly from Sempra Energy or its Affiliates other than in connection with the acquisition by Sempra Energy or its Affiliates of a business,

(ii)

a merger or consolidation which would result in the voting securities of Sempra Energy outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, at least sixty percent (60%) of the combined voting power of the securities of Sempra Energy or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or

(iii)

a merger or consolidation effected to implement a recapitalization of Sempra Energy (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of Sempra Energy (not including the securities beneficially owned by such Person any securities acquired directly from Sempra Energy or its Affiliates other than in connection with the acquisition by Sempra Energy or its Affiliates of a business) representing twenty percent (20%) or more of the combined voting power of Sempra Energy’s then outstanding securities.

(c)

A “change in the ownership of a substantial portion of assets of Sempra Energy” shall not occur under clause (a)(iii) by reason of a sale or disposition by Sempra Energy of the assets of Sempra Energy to an entity, at least sixty percent (60%) of the combined voting power of the voting securities of which are owned by shareholders of Sempra Energy in substantially the same proportions as their ownership of Sempra Energy immediately prior to such sale.

(d)

This definition of “Change in Control” shall be limited to the definition of a “change in control event” relating to Sempra Energy under Treasury Regulation Section 1.409A-3(i)(5).  A “Change in Control” shall only occur if there is a “change in control event” relating to Sempra Energy under Treasury Regulation Section 1.409A-3(i)(5) with respect to the Executive.

Change in Control Date” means the date on which a Change in Control occurs.

Code” means the Internal Revenue Code of 1986, as amended.

Compensation Committee” means the compensation committee of the Board.

Consulting Period” has the meaning assigned thereto in Section 14(e) hereof.

Date of Termination” has the meaning assigned thereto in Section 3(b) hereof.

Deferred Compensation Plan” has the meaning assigned thereto in Section 5(f) hereof.

Disability” has the meaning set forth in the Company’s long-term disability plan or its successor; provided, however, that the Board may not terminate the  Executive’s employment hereunder by reason of Disability unless (i) at the time of such termination there is no reasonable expectation that the  Executive will return to work within the next ninety (90) day period and (ii) such termination is permitted by all applicable disability laws.  

Exchange Act” means the Securities Exchange Act of 1934, as amended, and the applicable rulings and regulations thereunder.

Effective Date” means _________________.

Excise Tax” has the meaning assigned thereto in Section 9(a) hereof.

Good Reason” means:

(e)

Prior to a Change in Control, the occurrence of any of the following without the prior written consent of the  Executive, unless such act or failure to act is corrected by the Company prior to the Date of Termination specified in the Notice of Termination (as required under Section 3 hereof):

(i)

the assignment to the  Executive of any duties materially inconsistent with the range of duties and responsibilities appropriate to a senior Executive within the Company (such range determined by reference to past, current and reasonable practices within the Company);

(ii)

a material reduction in the  Executive’s overall standing and responsibilities within the Company, but not including (A) a mere change in title or (B) a transfer within the Company, which, in the case of both (A) and (B), does not adversely affect the  Executive’s overall status within the Company;

(iii)

a material reduction by the Company in the  Executive’s aggregate annualized compensation and benefits opportunities, except for across-the-board reductions (or modifications of benefit plans) similarly affecting all similarly situated executives (both of the Company and of any Person then in control of the Company) of comparable rank with the  Executive;

(iv)

the failure by the Company to pay to the  Executive any portion of the  Executive’s current compensation and benefits or any portion of an installment of deferred compensation under any deferred compensation program of the Company within thirty (30) days of the date such compensation is due;

(v)

any purported termination of the  Executive’s employment that is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3 hereof; for purposes of this Agreement, no such purported termination shall be effective;

(vi)

the failure by Sempra Energy to perform its obligations under Section 16(c), (d) or (e) hereof;

(vii)

the failure by the Company to provide the indemnification and D&O insurance protection Section 11 of this Agreement requires it to provide; or

(viii)

the failure by Sempra Energy to comply with any material provision of this Agreement.

(f)

From and after a Change in Control, the occurrence of any of the following without the prior written consent of the  Executive, unless such act or failure to act is corrected by the Company prior to the Date of Termination specified in the Notice of Termination (as required under Section 3 hereof):

(i)

an adverse change in the  Executive’s title, authority, duties, responsibilities or reporting lines as in effect immediately prior to the Change in Control;

(ii)

a reduction by the Company in the  Executive’s aggregate annualized compensation opportunities, except for across-the-board reductions in base salaries, annual bonus opportunities or long-term incentive compensation opportunities of less than ten percent (10%) similarly affecting all similarly situated executives (both of the Company and of any Person then in control of the Company) of comparable rank with the  Executive; or the failure by the Company to continue in effect any material benefit plan in which the  Executive participates immediately prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the  Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the  Executive's participation relative to other participants, as existed at the time of the Change in Control;

(iii)

the relocation of the  Executive’s principal place of employment immediately prior to the Change in Control Date (the “Principal Location”) to a location which is both further away from the  Executive’s residence and more than thirty (30) miles from such Principal Location, or the Company’s requiring the  Executive to be based anywhere other than such Principal Location (or permitted relocation thereof), or a substantial increase in the  Executive’s business travel obligations outside of the Southern California area as of the Effective Date other than any such increase that (A) arises in connection with extraordinary business activities of the Company of limited duration and (B) is understood not to be part of the  Executive’s regular duties with the Company;

(iv)

the failure by the Company to pay to the  Executive any portion of the  Executive’s current compensation and benefits or any portion of an installment of deferred compensation under any deferred compensation program of the Company within thirty (30) days of the date such compensation is due;

(v)

any purported termination of the  Executive’s employment that is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3 hereof; for purposes of this Agreement, no such purported termination shall be effective;

(vi)

the failure by Sempra Energy to perform its obligations under Section 16(c), (d) or (e) hereof;

(vii)

the failure by the Company to provide the indemnification and D&O insurance protection Section 11 of this Agreement requires it to provide; or

(viii)

the failure by Sempra Energy to comply with any material provision of this Agreement.

Following a Change in Control, the  Executive’s determination that an act or failure to act constitutes Good Reason shall be presumed to be valid unless such determination is deemed to be unreasonable by an arbitrator pursuant to the procedure described in Section 13 hereof.  The  Executive’s right to terminate the  Executive’s employment for Good Reason shall not be affected by the  Executive’s incapacity due to physical or mental illness.  The  Executive’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.

Gross-Up Payment” has the meaning assigned thereto in Section 9(a) hereof.

Incentive Compensation Awards” means awards granted under Incentive Compensation Plans providing the  Executive with the opportunity to earn, on a year-by-year basis, annual and long-term incentive compensation.

Incentive Compensation Plans” means annual incentive compensation plans and long-term incentive compensation plans of the Company, which long-term incentive compensation plans may include plans offering stock options, restricted stock and other long-term incentive compensation.

Involuntary Termination” means (a) the  Executive’s Separation from Service by reason of a termination of employment by the Company other than for Cause, death, or Disability, or (b) the  Executive’s Separation from Service by reason of resignation of employment with the Company for Good Reason.    

JAMS Rules” has the meaning assigned thereto in Section 13 hereof.

Notice of Termination” has the meaning assigned thereto in Section 3(a) hereof.

Payment” has the meaning assigned thereto in Section 9(a) hereof.

Payment in Lieu of Notice” has the meaning assigned thereto in Section 3(b) hereof.

Person” has the meaning set forth in section 3(a)(9) of the Exchange Act, as modified and used in sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its Affiliates, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, or (v) a person or group as used in Rule 13d-1(b) promulgated under the Exchange Act.

Post-Change in Control Accrued Obligations” has the meaning assigned thereto in Section 6(a) hereof.

Post-Change in Control Severance Payment” has the meaning assigned thereto in Section 6 hereof.

Pre-Change in Control Accrued Obligations” has the meaning assigned thereto in Section 5(a) hereof.

Pre-Change in Control Severance Payment” has the meaning assigned thereto in Section 5 hereof.

Principal Location” has the meaning assigned thereto in clause (b)(iii) of the definition of Good Reason, above.

Proprietary Information” has the meaning assigned thereto in Section 14(a) hereof.

Release” has the meaning assigned thereto in Section 14(d) hereof.

Section 409A Payments” means any of the following:  (a) the Payment in Lieu of Notice, (b) the Pre-Change in Control Severance Payment, (c) the Post-Change in Control Severance Payment, (d) the Additional Post-Change in Control Severance Payment, (e) the Consulting Payment, (f) the payment under Section 6(b) (but only to the extent such payment or portion thereof is subject to Section 409A of the Code), (g) the financial planning services and the related tax gross up payments provided under Sections 5(e) and 6(f), (h) the Gross-Up Payments under Section 9, and (i) the legal fees and expenses reimbursed under Section 15.

Sempra Energy Control Group” means Sempra Energy and all persons with whom Sempra Energy would be considered a single employer under Section 414(b) or 414(c) of the Code, as determined from time to time.

Separation from Service”, with respect to the  Executive (or another Service Provider), means the  Executive’s (or such Service Provider’s) (a) termination of employment or (b) other termination or reduction in services, provided that such termination or reduction in clause (a) or (b) constitutes a “separation from service,” as defined in Treasury Regulation Section 1.409A-1(h), with respect to the Service Recipient.

SERP” has the meaning assigned thereto in Section 6(b) hereof.

Service Provider” means the  Executive or any other “service provider,” as defined in Treasury Regulation Section 1.409A-1(f).

Service Recipient,” with respect to the  Executive, means Sempra Energy (if the Executive is employed by Sempra Energy), or the subsidiary of Sempra Energy employing the Executive, whichever is applicable, and all persons considered part of the “service recipient,” as defined in Treasury Regulation Section 1.409A-1(g), as determined from time to time.  As provided in Treasury Regulation Section 1.409A-1(g), the “Service Recipient” shall mean the person for whom the services are performed and with respect to whom the legally binding right to compensation arises, and all persons with whom such person would be considered a single employer under Section 414(b) or 414(c) of the Code.

Specified Employee” means a Service Provider who, as of the date of the Service Provider’s Separation from Service is a “Key Employee” of the Service Recipient any stock of which is publicly traded on an established securities market or otherwise.  For purposes of this definition, a Service Provider is a “Key Employee” if the Service Provider meets the requirements of Section 416(i)(1)(A)(i), (ii) or (iii) of the Code (applied in accordance with the Treasury Regulations thereunder and disregarding Section 416(i)(5) of the Code) at any time during the Testing Year.  If a Service Provider is a “Key Employee” (as defined above) as of a Specified Employee Identification Date, the Service Provider shall be treated as “Key Employee” for the entire twelve (12) month period beginning on th e Specified Employee Effective Date.  For purposes of this definition, a Service Provider’s compensation for a Testing Year shall mean such Service Provider’s compensation, as determined under Treasury Regulation Section 1.415(c)-2(a) (and applied as if the Service Recipient were not using any safe harbor provided in Treasury Regulation Section 1.415(c)-2(d), were not using any of the elective special timing rules provided in Treasury Regulation Section 1.415(c)-2(e), and were not using any of the elective special rules provided in Treasury Regulation Section 1.415(c)-2(g)), from the Service Recipient for such Testing Year.  The “Specified Employees” shall be determined in accordance with Section 409A(a)(2)(B)(i) of the Code and Treasury Regulation Section 1.409A-1(i).

Specified Employee Effective Date” means the first day of the fourth month following the Specified Employee Identification Date.  The Specified Employee Effective Date may be changed by Sempra Energy, in its discretion, in accordance with Treasury Regulation Section 1.409A-1(i)(4).

Specified Employee Identification Date”, for purposes of Treasury Regulation Section 1.409A-1(i)(3), shall mean December 31.  The “Specified Employee Identification Date” shall apply to all “nonqualified deferred compensation plans” (as defined in Treasury Regulation Section 1.409A-1(a)) of the Service Recipient and all affected Service Providers.  The “Specified Employee Identification Date” may be changed by Sempra Energy, in its discretion, in accordance with Treasury Regulation Section 1.409A-1(i)(3).

Testing Year” shall mean the twelve (12) month period ending on the Specified Employee Identification Date, as determined from time to time.

Underpayment” has the meaning assigned thereto in Section 9(b) hereof.

For purposes of this Agreement, references to any “Treasury Regulation” shall mean such Treasury Regulation as in effect on the date hereof.

Section 2.

Sarbanes-Oxley Act of 2002.  Notwithstanding anything herein to the contrary, if the Company determines, in its good faith judgment, that any provision of this Agreement is likely to be interpreted as a personal loan prohibited by the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder (the “Act”), then such provision shall be modified as necessary or appropriate so as to not violate the Act; and if this cannot be accomplished, then the Company shall use its reasonable efforts to provide the  Executive with similar, but lawful, substitute benefit(s) at a cost to the Company not to significantly exceed the amount the Company would have otherwise paid to provide such benefit(s) to the  Executive.  In addition, if the  Executive is required to forfeit or to make any repayment of any compensation or benefit(s) to the Company under the Act or any other law, such forfeiture or repayment shall not constitute Good Reason.

Section 3.

Notice and Date of Termination

.  

(a)

Any termination of the  Executive’s employment by the Company or by the  Executive shall be communicated by a written notice of termination to the other party (the “Notice of Termination”).  Where applicable, the Notice of Termination shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the  Executive’s employment under the provision so indicated.  Unless the Board determines otherwise, a Notice of Termination by the  Executive alleging a termination for Good Reason must be made within 180 days of the act or failure to act that the  Executive alleges to constitute Good Reason.  

(b)

The date of the  Executive’s termination of employment with the Company (the “Date of Termination”) shall be determined as follows:  (i) if the  Executive has a Separation from Service by reason of the Company terminating his or her employment, either with or without Cause, the Date of Termination shall be the date specified in the Notice of Termination (which, in the case of a termination by the Company other than for Cause, shall not be less than two (2) weeks from the date such Notice of Termination is given unless the Company elects to pay the  Executive, in addition to any other amounts payable hereunder, an amount (the “Payment in Lieu of Notice”) equal to two (2) weeks of the  Executive’s Annual Base Salary in effect on the Date of Termination), and (ii) if the basis for the  Executive’s Involuntary Termination is his resignation for Good Reason, the Date of Termination shall be determined by the  Executive and specified in the Notice of Termination, but shall not in any event be less than fifteen (15) days nor more than sixty (60) days after the date such Notice of Termination is given.   The Payment in Lieu of Notice shall be paid on such date as is determined by the Company within thirty (30) days after the date of the Executive’s Separation from Service; provided, however, that if the Executive is a Specified Employee on the date of his or her Separation from Service, such Payment in Lieu of Notice shall be paid as provided in Section 10 hereof.

Section 4.

Termination from the Board.  Upon the termination of the  Executive’s employment for any reason, the  Executive’s membership on the Board, the board of directors of any of the Company’s Affiliates, any committees of the Board and any committees of the board of directors of any of the Company’s Affiliates, if applicable, shall be automatically terminated.

Section 5.

Severance Benefits upon Involuntary Termination Prior to Change in Control

.  Except as provided in Section 6 and Section 19(i) hereof, in the event of the Involuntary Termination of the  Executive prior to a Change in Control, the Company shall pay the  Executive, in one lump sum cash payment, an amount (the “Pre-Change in Control Severance Payment”) equal to the greater of:  (X) ____% of the Executive’s Annual Base Salary as in effect on the Date of Termination, and (Y) the Executive’s Annual Base Salary as in effect on the Date of Termination, plus the Executive’s Average Annual Bonus.  In addition to the Pre-Change in Control Severance Payment, the  Executive shall be entitled to the following additional benefits specified in subsections (a) through (e).  Except as provided in Section 5(f), the Pre-Change in Control Severance Payment and the payment under Section 5(a) shall be paid on such date as is determined by the Company within thirty (30) days after the date of the Involuntary Termination; provided, however, that, if the  Executive is a Specified Employee on the date of the  Executive’s Involuntary Termination, the Pre-Change in Control Severance Payment and the financial planning services and the related tax gross up payments provided under Section 5(e) shall be paid as provided in Section 10 hereof.  

(a)

Accrued Obligations.  The Company shall pay the  Executive a lump sum amount in cash equal to the sum of (A) the  Executive’s Annual Base Salary through the Date of Termination to the extent not theretofore paid, (B) an amount equal to any annual Incentive Compensation Awards earned with respect to fiscal years ended prior to the year that includes the Date of Termination to the extent not theretofore paid, (C) any accrued and unpaid vacation, if any, and (D) reimbursement for unreimbursed business expenses, if any, properly incurred by the  Executive in the performance of his duties in accordance with policies established from time to time by the Board, in each case to the extent not theretofore paid.  (The amounts specified in clauses (A), (B), (C) and (D) shall be hereinafter referred to as the “Pre-Change in Control Accrued Obligations”).

(b)

Equity Based Compensation.  The  Executive shall retain all rights to any equity-based compensation awards to the extent set forth in the applicable plan and/or award agreement.

(c)

Welfare Benefits.  Subject to Section 12 below, for a period of ____ months following the date of the Involuntary Termination (and an additional ____ months if the  Executive provides consulting services under Section 14(e) hereof), the  Executive and his dependents shall be provided with health insurance benefits substantially similar to those provided to the  Executive and his dependents immediately prior to the date of the Involuntary Termination; provided, however, that such benefits shall be provided on substantially the same terms and conditions and at the same cost to the  Executive as in effect immediately prior to the date of the Involuntary Termination.  Such benefits shall be provided through insurance maintained by the Company under the Company’s benefit plans.  Such benefits shall be provided in a manner that complies with Treasury Re gulation Section 1.409A-1(a)(5).

(d)

Outplacement Services.  The  Executive shall receive reasonable outplacement services, on an in-kind basis, suitable to his position and directly related to the  Executive’s Involuntary Termination, for a period of ____ months following the date of the Involuntary Termination, in an aggregate amount of cost to the Company not to exceed $50,000.  Notwithstanding the foregoing, the  Executive shall cease to receive outplacement services on the date the  Executive accepts employment with a subsequent employer.  Such outplacement services shall be provided in a manner that complies with Treasury Regulation Section 1.409A-1(b)(9)(v)(A).

(e)

Financial Planning Services.  The  Executive shall receive financial planning services, on an in-kind basis, for a period of ____ months following the Date of Termination.  Such financial planning services shall include expert financial and legal resources to assist the Executive with financial planning needs and shall be limited to (i) current investment portfolio management, (ii) tax planning, (iii) tax return preparation, and (iv) estate planning advice and document preparation (including wills and trusts); provided, however, that the Company shall provide such financial planning services during any taxable year of the Executive only to the extent the cost to the Company for such taxable year does not exceed $25,000.  The Company shall provide such financial planning services through a financial planner selected by the Company, and shall pay the fees for su ch financial planning services.  The financial planning services provided during any taxable year of the  Executive shall not affect the financial planning services provided in any other taxable year of the  Executive.  The  Executive’s right to financial planning services shall not be subject to liquidation or exchange for any other benefit.  Such financial planning services shall be provided in a manner that complies with Treasury Regulation Section 1.409A-3(i)(1)(iv).  

(f)

Deferral of Payments.  The  Executive shall have the right to elect to defer the Pre-Change in Control Severance Payment to be received by the  Executive pursuant to this Section 5 under the terms and conditions of the Sempra Energy 2005 Deferred Compensation Plan (the “Deferred Compensation Plan”).  Any such deferral election shall be made in accordance with Section 18(b) hereof.

Section 6.

Severance Benefits upon Involuntary Termination in Connection with and after Change in Control

.  Notwithstanding the provisions of Section 5 above, and except as provided in Section 19(i) hereof, in the event of the Involuntary Termination of the  Executive on or within two (2) years following a Change in Control, in lieu of the payments described in Section 5 above, the Company shall pay the  Executive, in one lump sum cash payment, an amount (the “Post-Change in Control Severance Payment”) equal to ___ times the greater of:  (X)  ____% of the Executive’s Annual Base Salary as in effect immediately prior to the Change in Control or the Date of Termination, whichever is greater, and (Y) the Executive’s Annual Base Salary as in effect immediately prior to the Change in Control or on the Date of Termination, whichever is greater, plus the Executive’s Average Annual Bonus.  In addition to the Post-Change in Control Severance Payment, t he  Executive shall be entitled to the following additional benefits specified in subsections (a) through (f).  Except as provided in Sections 6(g) and 6(h), the Post-Change in Control Severance Payment and the payments under Sections 6(a) and (b) shall be paid on such date as is determined by the Company within thirty (30) days after the date of the Involuntary Termination; provided, however, that, if the  Executive is a Specified Employee on the date of the  Executive’s Involuntary Termination, the Post-Change in Control Severance Payment, the Additional Post-Change in Control Severance Payment under Section 6(a)(E), the payment under Section 6(b) (but only to the extent such payment or portion thereof is subject to Section 409A of the Code), and the financial planning services and the related tax gross up payments provided under Section 6(f) shall be paid as provided in Section 10 hereof.

(a)

Accrued Obligations.  The Company shall pay the  Executive a lump sum amount in cash equal to the sum of (A) the  Executive’s Annual Base Salary through the Date of Termination to the extent not theretofore paid, (B) an amount equal to any annual Incentive Compensation Awards earned with respect to fiscal years ended prior to the year that includes the Date of Termination to the extent not theretofore paid, (C) any accrued and unpaid vacation, if any, (D) reimbursement for unreimbursed business expenses, if any, properly incurred by the  Executive in the performance of his duties in accordance with policies established from time to time by the Board, and (E) an amount (the “Additional Post-Change in Control Severance Payment”) equal to:  (i) the greater of:  (X) ____% of the Executive’s Annual Base Salary as in effect immediately prior to the C hange in Control or on the Date of Termination, whichever is greater, or (Y) the Executive’s Average Annual Bonus, multiplied by (ii) a fraction, the numerator of which shall be the number of days from the beginning of such fiscal year to and including the Date of Termination and the denominator of which shall be 365, in the case of each amount described in clause (A), (B), (C) or (D) to the extent not theretofore paid.  (The amounts specified in clauses (A), (B), (C), (D) and (E) shall be hereinafter referred to as the “Post-Change in Control Accrued Obligations”).

(b)

Pension Supplement.  The  Executive shall be entitled to receive a Supplemental Retirement Benefit under the Sempra Energy Supplemental Executive Retirement Plan, as in effect from time to time (“SERP”), determined in accordance with this Section 6(b), in the event that the Executive is a “Participant” (as defined in the SERP) as of the Date of Termination.  Such Supplemental Retirement Benefit shall be determined by crediting the Executive with additional months of Service (if any) equal to the number of full calendar months from the Date of Termination to the date on which the Executive would have attained age 62.  The Executive shall be entitled to receive such Supplemental Retirement Benefit without regard to whether the Executive has attained age 55 or completed five years of “Service” (as defined in the SERP) as of the Date of Termination .  The Executive shall be treated as qualified for “Retirement” (as defined in the SERP) as of the Date of Termination, and the Executive’s Vesting Factor with respect to the Supplemental Retirement Benefit shall be 100%.  The Executive’s Supplemental Retirement Benefit shall be calculated based on the Executive’s actual age as of the date of commencement of payment of such Supplemental Retirement Benefit (the “SERP Distribution Date”), and by applying the applicable early retirement factors under the SERP, if the Executive has not attained age 62 but has attained age 55 as of the SERP Distribution Date.  If the Executive has not attained age 55 as of the SERP Distribution Date, the Executive’s Supplemental Retirement Benefit shall be calculated by applying the applicable early retirement factor under the SERP for age 55, and the Supplemental Retirement Benefit otherwise payable at age 55 shall be actuarially adjusted to the Executive’s actua l age as of the SERP Distribution Date using the following actuarial assumptions:  (i) the applicable mortality table promulgated by the Internal Revenue Service under Section 417(e)(3) of the Code, as in effect on the first day of the calendar year in which the SERP Distribution Date occurs, and (ii) the applicable interest rate promulgated by the Internal Revenue Service under Section 417(a)(3) of the Code for the November next preceding the first day of the calendar year in which the SERP Distribution Date occurs.  The Executive’s Supplemental Retirement Benefit shall be determined in accordance with this Section 6(b), notwithstanding any contrary provisions of the SERP and, to the extent subject to Section 409A of the Code, shall be paid in accordance with Treasury Regulation Section 1.409A-3(c)(1).  The Supplemental Retirement Benefit paid to or on behalf of the Executive in accordance with this Section 6(b) shall be in full satisfaction of any and all of the benefits payable to or o n behalf of the Executive under the SERP.  

(c)

Equity-Based Compensation.  Notwithstanding the provisions of any applicable equity-compensation plan or award agreement to the contrary, all equity-based Incentive Compensation Awards (including, without limitation, stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance share awards, awards covered under Section 162(m) of the Code, and dividend equivalents) held by the  Executive shall immediately vest and become exercisable or payable, as the case may be, as of the Date of Termination, to be exercised or paid, as the case may be, in accordance with the terms of the applicable Incentive Compensation Plan and Incentive Compensation Award agreement, and any restrictions on any such Incentive Compensation Awards shall automatically lapse; provided, however, that any such stock option or stock appreciation rights awards granted on o r after June 26, 1998 shall remain outstanding and exercisable until the earlier of (A) the later of eighteen (18) months following the Date of Termination or the period specified in the applicable Incentive Compensation Award agreements or (B) the expiration of the original term of such Incentive Compensation Award (or, if earlier, the tenth anniversary of the original date of grant) (it being understood that all Incentive Compensation Awards granted prior to or after June 26, 1998 shall remain outstanding and exercisable for a period that is no less than that provided for in the applicable agreement in effect as of the date of grant).

(d)

Welfare Benefits.  Subject to Section 12 below, for a period of ____ months following the date of Involuntary Termination (and an additional ____ months if the  Executive provides consulting services under Section 14(e) hereof), the  Executive and his dependents shall be provided with life, disability, accident and health insurance benefits substantially similar to those provided to the  Executive and his dependents immediately prior to the date of Involuntary Termination or the Change in Control Date, whichever is more favorable to the  Executive; provided, however, that such benefits shall be provided on substantially the same terms and conditions and at the same cost to the  Executive as in effect immediately prior to the date of Involuntary Termination or the Change in Control Date, whichever is more favorable to the  Executive.  Such benefits shall be provided through insurance maintained by the Company under the Company benefit plans.  Such benefits shall be provided in a manner that complies with Treasury Regulation Section 1.409A-1(a)(5).

(e)

Outplacement Services.  The  Executive shall receive reasonable outplacement services, on an in-kind basis, suitable to his position and directly related to the  Executive’s Involuntary Termination, for a period of ____ months following the date of Involuntary Termination (but in no event beyond the last day of the  Executive’s second taxable year following the  Executive’s taxable year in which the Involuntary Termination occurs), in the aggregate amount of cost to the Company not to exceed $50,000.  Notwithstanding the foregoing, the  Executive shall cease to receive outplacement services on the date the  Executive accepts employment with a subsequent employer.  Such outplacement services shall be provided in a manner that complies with Treasury Regulation Section 1.409A-1(b)(9)(v)(A).

(f)

Financial Planning Services.  The  Executive shall receive financial planning services, on an in-kind basis, for a period of ____ months following the date of Involuntary Termination.  Such financial planning services shall include expert financial and legal resources to assist the Executive with financial planning needs and shall be limited to (i) current investment portfolio management, (ii) tax planning, (iii) tax return preparation, and (iv) estate planning advice and document preparation (including wills and trusts); provided, however, that the Company shall provide such financial services during any taxable year of the Executive only to the extent the cost to the Company for such taxable year does not exceed $25,000.  The Company shall provide such financial planning services through a financial planner selected by the Company, and shall pay the fees for such f inancial planning services.  The financial planning services provided during any taxable year of the  Executive shall not affect the financial planning services provided in any other taxable year of the  Executive.  The  Executive’s right to financial planning services shall not be subject to liquidation or exchange for any other benefit.  Such financial planning services shall be provided in a manner that complies with Section 1.409A-3(i)(1)(iv).   

(g)

Involuntary Termination in Connection with a Change in Control.  Notwithstanding anything contained herein, in the event of an Involuntary Termination prior to a Change in Control, if the Involuntary Termination (1) was at the request of a third party who has taken steps reasonably calculated to effect such Change in Control or (2) otherwise arose in connection with or in anticipation of such Change in Control, then the  Executive shall, in lieu of the payments described in Section 5 hereof, be entitled to the Post-Change in Control Severance Payment and the additional benefits described in this Section 6 as if such Involuntary Termination had occurred within two (2) years following the Change in Control.  The amounts specified in Section 6 that are to be paid under this Section 6(g) shall be reduced by any amount previously paid under Section 5.  The amounts to be paid under this Section 6(g) shall be paid within thirty (30) days after the Change in Control Date of such Change in Control.

(h)

Deferral of Payments.  The  Executive shall have the right to elect to defer the Post-Change in Control Severance Payment to be received by the  Executive pursuant to this Section 6 under the terms and conditions of the Deferred Compensation Plan.  Any such deferral election shall be made in accordance with Section 18(b) hereof.

Section 7.

Severance Benefits upon Termination by the Company for Cause or by the  Executive Other than for Good Reason.  If the  Executive’s employment shall be terminated for Cause, or if the  Executive terminates employment other than for Good Reason, the Company shall have no further obligations to the  Executive under this Agreement other than the Pre-Change in Control Accrued Obligations and any amounts or benefits described in Section 11 hereof.

Section 8.

Severance Benefits upon Termination due to Death or Disability.  If the  Executive has a Separation from Service by reason of death or Disability, the Company shall pay the  Executive or his estate, as the case may be, the Post-Change in Control Accrued Obligations (without regard to whether a Change in Control has occurred) and any amounts or benefits described in Section 11 hereof.  Such payments shall be in addition to those rights and benefits to which the  Executive or his estate may be entitled under the relevant Company plans or programs.  Such payments shall be paid on such date as determined by the Company within thirty (30) days after the date of the Separation from Service; provided, however, that if the  Executive is a Specified Employee on the date of the  Executive’s Separation from Service by reason of Disability, the Additional Post- Change in Control Severance Payment under Section 6(a)(E) shall be paid as provided in Section 10 hereof.

Section 9.

Certain Additional Payments by the Company.  

(a)

Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the  Executive, whether paid or payable pursuant to this Agreement or otherwise (the “Payment”) would be subject (in whole or in part) to the excise tax imposed by Section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax (collectively, the “Excise Tax”), then the  Executive shall be entitled to receive an additional payment (the “Gross-Up Payment”) in an amount such that, after payment by the  Executive of all taxes (and any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the  Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.  Unless otherwise provided herein, the Company’s obligation to make Gross-Up Payments under this Section 9 shall not be conditioned upon the  Executive’s Separation from Service.  For purposes of determining the amount of any Gross-Up Payment, the  Executive shall be considered to pay federal income tax at the  Executive’s actual marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the  Executive’s actual marginal rate of taxation in the state and locality of the  Executive’s residence on the date on which the Gross-Up Payment is calculated for purposes of this Section 9, net of the Executive’s actual reduction in federal income taxes wh ich could be obtained from deduction of such state and local taxes, and taking into consideration the phase-out of the  Executive’s itemized deductions under federal income tax law.

(b)

Subject to the provisions of Section 9(c) below, all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized accounting firm as may be agreed by the Company and the  Executive (the “Accounting Firm”); provided, that the Accounting Firm’s determination shall be made based upon “substantial authority” within the meaning of Section 6662 of the Code.  The Accounting Firm shall provide detailed supporting calculations to both the Company and the  Executive within fifteen (15) business days of the receipt of notice from the  Executive that there has been a Payment or such earlier time as is requested by the Company.  All fees and expenses of the Accounting Firm shall be borne solely by the Company.  Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the  Executive within five (5) days of the receipt of the Accounting Firm’s determination.  Any determination by the Accounting Firm shall be binding upon the Company and the  Executive.  As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments that will not have been made by the Company should have been made (the “Underpayment”), consistent with the calculations required to be made hereunder.  In the event the Company exhausts its remedies pursuant to Section 9(c) below and the  Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred, and any such Underpayment shall be p romptly paid by the Company to or for the benefit of the  Executive.

(c)

The  Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment.  Such notification shall be given as soon as practicable, but no later than ten (10) business days after the  Executive is informed in writing of such claim.  The  Executive shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid.  The  Executive shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which the  Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due).  If the Company notifies the  Executive in writing prior to the expiration of such period that the Company desires to contest such claim, the  Executive shall:

(i)

give the Company any information reasonably requested by the Company relating to such claim,

(ii)

take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,

(iii)

cooperate with the Company in good faith in order effectively to contest such claim, and

(iv)

permit the Company to participate in any proceedings relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest, and shall indemnify and hold the  Executive harmless, on an after-tax basis, for any Excise Tax, income tax or any other taxes (including interest and penalties) imposed as a result of such representation and payment of costs and expenses.  Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest, and, at its sole discretion, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the applicable taxing authority in respect of such claim and may, at its sole discretion, either direct the  Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the &nbs p;Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the  Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the  Executive, on an interest-free basis, and shall indemnify and hold the  Executive harmless, on an after-tax basis, from any Excise Tax, income tax or any other taxes (including interest or penalties) imposed with respect to such advance or with respect to any imputed income in connection with such advance; and provided, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the  Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount.  Furthermore, the Company’s control of the contest shal l be limited to issues with respect to which the Gross-Up Payment would be payable hereunder, and the  Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

(d)

If, after the receipt by the  Executive of a Gross-Up Payment or an amount advanced by the Company pursuant to Section 9(c) above, the  Executive becomes entitled to receive any refund with respect to the Excise Tax to which such Gross-Up Payment relates or with respect to such claim, the  Executive shall (subject to the Company’s complying with the requirements of Section 9(c) above, if applicable) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto).  If, after the receipt by the  Executive of an amount advanced by the Company pursuant to Section 9(c) above, a determination is made that the  Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the  Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid, and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

(e)

Notwithstanding any other provision of this Section 9, the Company may, in its sole discretion, withhold and pay over to the Internal Revenue Service or any other applicable taxing authority, for the benefit of the  Executive, all or any portion of any Gross-Up Payment, and the  Executive hereby consents to such withholding.  If such payment is made by the Company to the Internal Revenue Service or other applicable taxing authority, then the  Executive shall not be entitled to payment pursuant to Section 9(b) above.

(f)

Any other liability for unpaid or unwithheld Excise Taxes shall be borne exclusively by the Company, in accordance with Section 3403 of the Code.  The foregoing sentence shall not in any manner relieve the Company of any of its obligations under this Agreement.

(g)

Any Gross-Up Payment and any payment of any income or other taxes and any related interest and penalties to be paid by the Company under this Section 9 shall be made by the end of the  Executive’s taxable year next following the  Executive’s taxable year in which the  Executive remits the related taxes.  Any costs and expenses incurred by the Company on behalf of the  Executive under this Section 9 due to any tax contest, audit or litigation will be paid by the Company by the end of the  Executive’s taxable year following the  Executive’s taxable year in which the taxes that are the subject of the tax contest, audit or litigation are remitted to the taxing authority, or where as a result of such tax contest, audit or litigation no taxes are remitted, the end of the  Executive’s taxable year following the  Executive’s taxable year in which the audit is completed or there is a final and nonappealable settlement or other resolution of the contest or litigation.  All Gross-Up Payments shall be paid in a manner that complies with Treasury Regulation Section 1.409A-(3)(i)(1)(v).  Notwithstanding anything to the contrary in this Section 9, in no event shall any Gross-Up Payment exceed the amount of the “tax gross-up payment” on any Payment permitted under Treasury Regulation Section 1.409A-3(i)(1)(v), and interest and penalties with respect to the Gross-Up Payment or that are incurred by the Company on the  Executive’s behalf under this Section 9 shall be paid to the  Executive only to the extent permitted under Treasury Regulation Section 1.409A-3(i)(1)(v).  To the extent required by Section 409A of the Code or the Treasury Regulations thereunder, any Gross-Up Payment is made with respect to any Section 409A Payment, such Gross-Up Payment shall be payable only upon the  Executive’s Separation from Service and subject to Section 10.

Section 10.

Delayed Distribution under Section 409A of the Code.  If the  Executive is a Specified Employee on the date of the  Executive’s Involuntary Termination (or on the date of the Executive’s Separation from Service by reason of Disability), the Section 409A Payments, and to the extent required by Section 409A of the Code and the Treasury Regulations thereunder, any Gross-Up Payments made with respect to such Section 409A Payments, and any other payments or benefits under this Agreement subject to Section 409A of the Code, shall be delayed in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, and such payments or benefits shall be paid or distributed to the  Executive during the thirty (30) day period commencing on the earlier of (a) the expiration of the six-month period measured from the date of the  Executive’s Separation from Se rvice or (b) the date of the Executive’s death.  Upon the expiration of the applicable six-month period under Section 409A(a)(2)(B)(i) of the Code, all payments deferred pursuant to this Section 10 (excluding in-kind benefits) shall be paid in a lump sum payment to the  Executive, plus interest thereon from the date of the  Executive’s Involuntary Termination through the payment date at an annual rate equal to Moody’s Rate.  The “Moody’s Rate” shall mean the average of the daily Moody’s Corporate Bond Yield Average – Monthly Average Corporates as published by Moody’s Investors Service, Inc. (or any successor) for the month next preceding the Date of Termination.  Any remaining payments due under the Agreement shall be paid as otherwise provided herein.

Section 11.

Nonexclusivity of Rights.  Nothing in this Agreement shall prevent or limit the  Executive’s continuing or future participation in any benefit, plan, program, policy or practice provided by the Company and for which the  Executive may qualify (except with respect to any benefit to which the  Executive has waived his rights in writing), including, without limitation, any and all indemnification arrangements in favor of the  Executive (whether under agreements or under the Company’s charter documents or otherwise), and insurance policies covering the  Executive, nor shall anything herein limit or otherwise affect such rights as the  Executive may have under any other contract or agreement entered into after the Effective Date with the Company.  Amounts which are vested benefits or which the  Executive is otherwise entitled to receive under any bene fit, plan, policy, practice or program of, or any contract or agreement entered into with, the Company shall be payable in accordance with such benefit, plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement.  At all times during the  Executive’s employment with the Company and thereafter, the Company shall provide (to the extent permissible under applicable law) the  Executive with indemnification and D&O insurance insuring the  Executive against insurable events which occur or have occurred while the  Executive was a director or the Executive officer of the Company, on terms and conditions that are at least as generous as that then provided to any other current or former director or the Executive officer of the Company or any Affiliate.  Such indemnification and D&O insurance shall be provided in a manner that complies with Treasury Regulation Section 1.409A-1(b)(10).

Section 12.

Full Settlement; Mitigation.  The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the  Executive or others, provided that nothing herein shall preclude the Company from separately pursuing recovery from the  Executive based on any such claim.  In no event shall the  Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts (including amounts for damages for breach) payable to the  Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the  Executive obtains other employment.

Section 13.

Dispute Resolution.

Any disagreement, dispute, controversy or claim arising out of or relating to this Agreement or the interpretation of this Agreement or any arrangements relating to this Agreement or contemplated in this Agreement or the breach, termination or invalidity thereof shall be settled by final and binding arbitration administered by JAMS in San Diego, California in accordance with the then existing JAMS arbitration rules applicable to employment disputes (the “JAMS Rules”); provided that, notwithstanding any provision in such rules to the contrary, in all cases the parties shall be entitled to reasonable discovery.  In the event of such an arbitration proceeding, the  Executive and the Company shall select a mutually acceptable neutral arbitrator from among the JAMS panel of arbitrators.  In the event the  Executive and the Company cannot agree on an arbitrator, the arbi trator shall be selected in accordance with the then existing JAMS Rules.  Neither the  Executive nor the Company nor the arbitrator shall disclose the existence, content or results of any arbitration hereunder without the prior written consent of all parties, except to the extent necessary to enforce any arbitration award in a court of competent jurisdiction.  Except as provided herein, the Federal Arbitration Act shall govern the interpretation of, enforcement of and all proceedings under this agreement to arbitrate.  The arbitrator shall apply the substantive law (and the law of remedies, if applicable) of the state of California, or federal law, or both, as applicable, and the arbitrator is without jurisdiction to apply any different substantive law.  The arbitrator shall have the authority to entertain a motion to dismiss and/or a motion for summary judgment by any party and shall apply the standards governing such motions under the Federal Rules of Civil Procedure.  The ar bitrator shall render an award and a written, reasoned opinion in support thereof.  Judgment upon the award may be entered in any court having jurisdiction thereof.  The  Executive shall not be required to pay any arbitration fee or cost that is unique to arbitration or greater than any amount he would be required to pay to pursue his claims in a court of competent jurisdiction.

Section 14.

Executive’s Covenants.    

(a)

Confidentiality.  The  Executive acknowledges that in the course of his employment with the Company, he has acquired non-public privileged or confidential information and trade secrets concerning the operations, future plans and methods of doing business (“Proprietary Information”) of the Company and its Affiliates; and the  Executive agrees that it would be extremely damaging to the Company and its Affiliates if such Proprietary Information were disclosed to a competitor of the Company and its Affiliates or to any other person or corporation.  The  Executive understands and agrees that all Proprietary Information has been divulged to the  Executive in confidence and further understands and agrees to keep all Proprietary Information secret and confidential (except for such information which is or becomes publicly available other than as a result of a bre ach by the  Executive of this provision or information the  Executive is required by any governmental, administrative or court order to disclose) without limitation in time.  In view of the nature of the  Executive’s employment and the Proprietary Information the  Executive has acquired during the course of such employment, the  Executive likewise agrees that the Company and its Affiliates would be irreparably harmed by any disclosure of Proprietary Information in violation of the terms of this paragraph and that the Company and its Affiliates shall therefore be entitled to preliminary and/or permanent injunctive relief prohibiting the  Executive from engaging in any activity or threatened activity in violation of the terms of this paragraph and to any other relief available to them.  Inquiries regarding whether specific information constitutes Proprietary Information shall be directed to the Company’s Senior Vice President, Public Policy (or, if such positio n is vacant, the Company’s then Chief Executive Officer); provided, that the Company shall not unreasonably classify information as Proprietary Information.

(b)

Non-Solicitation of Employees.  The  Executive recognizes that he possesses and will possess confidential information about other employees of the Company and its Affiliates relating to their education, experience, skills, abilities, compensation and benefits, and inter-personal relationships with customers of the Company and its Affiliates.  The  Executive recognizes that the information he possesses and will possess about these other employees is not generally known, is of substantial value to the Company and its Affiliates in developing their business and in securing and retaining customers, and has been and will be acquired by him because of his business position with the Company and its Affiliates.  The  Executive agrees that at all times during the  Executive’s employment with the Company and for a period of one (1) year thereafter, he will not, directly or indirectly, solicit or recruit any employee of the Company or its Affiliates for the purpose of being employed by him or by any competitor of the Company or its Affiliates on whose behalf he is acting as an agent, representative or employee and that he will not convey any such confidential information or trade secrets about other employees of the Company and its Affiliates to any other person; provided, however, that it shall not constitute a solicitation or recruitment of employment in violation of this paragraph to discuss employment opportunities with any employee of the Company or its Affiliates who has either first contacted the  Executive or regarding whose employment the  Executive has discussed with and received the written approval of the Company’s Vice President, Human Resources (or, if such position is vacant, the Company’s then Chief Executive Officer), prior to making such solicitation or recruitment.  In view of the nature of the  Executive’s employm ent with the Company, the  Executive likewise agrees that the Company and its Affiliates would be irreparably harmed by any solicitation or recruitment in violation of the terms of this paragraph and that the Company and its Affiliates shall therefore be entitled to preliminary and/or permanent injunctive relief prohibiting the  Executive from engaging in any activity or threatened activity in violation of the terms of this paragraph and to any other relief available to them.

(c)

Survival of Provisions.  The obligations contained in Section 14(a) and Section 14(b) above shall survive the termination of the  Executive’s employment within the Company and shall be fully enforceable thereafter.  If it is determined by a court of competent jurisdiction in any state that any restriction in Section 14(a) or Section 14(b) above is excessive in duration or scope or is unreasonable or unenforceable under the laws of that state, it is the intention of the parties that such restriction may be modified or amended by the court to render it enforceable to the maximum extent permitted by the law of that state.

(d)

Release; Lump Sum Payment.  In the event of the  Executive’s Involuntary Termination,  if the  Executive (i) agrees to the covenants described in Section 14(a) and Section 14(b) above, (ii) executes a release (the “Release”) of all claims substantially in the form attached hereto as Exhibit A within fifty (50) days after the date of Involuntary Termination and does not revoke such Release in accordance with the terms thereof, and (iii) agrees to provide the consulting services described in Section 14(e) below, then in consideration for such covenants, the Company shall pay the  Executive, in one cash lump sum, an amount (the “Consulting Payment”) in cash equal to the greater of:  (X) ____% of the Executive’s Annual Base Salary as in effect on the Date of Termination, and (Y) the Executive’s Annual Base Salary as in effect on the Date of Termination, plus the Executive’s Average Annual Bonus.  Except as provided in this subsection, the Consulting Payment shall be paid on such date as is determined by the Company within the ten (10) day period commencing on the 60th day after the date of the Executive’s Involuntary Termination; provided, however, that if the  Executive is a Specified Employee on the date of the  Executive’s Involuntary Termination, the Consulting Payment shall be paid as provided in Section 10 hereof.  The  Executive shall have the right to elect to defer the Consulting Payment under the terms and conditions of the Company’s Deferred Compensation Plan.  Any such deferral election shall be made in accordance with Section 18(b) hereof.

(e)

Consulting.  If the  Executive agrees to the covenants described in Section 14(d) above,  then the  Executive shall have the obligation to provide consulting services to the Company as an independent contractor, commencing on the Date of Termination and ending on the second anniversary of the Date of Termination (the “Consulting Period”).  The  Executive shall hold himself available at reasonable times and on reasonable notice to render such consulting services as may be so assigned to him by the Board or the Company’s then Chief Executive Officer; provided, however, that unless the parties otherwise agree, the consulting services rendered by the  Executive during the Consulting Period shall not exceed twenty (20) hours each month; and, provided, further, that the consulting services rendered by the  Executive during the Cons ulting Period shall in no event exceed twenty percent (20%) of the average level of services performed by the  Executive for the Company over the thirty-six (36) month period immediately preceding the  Executive’s Separation from Service (or the full period of services to the Company, if the  Executive has been providing services to the Company for less than thirty-six (36) months).  The Company agrees to use its best efforts during the Consulting Period to secure the benefit of the  Executive’s consulting services so as to minimize the interference with the  Executive’s other activities, including requiring the performance of consulting services at the Company’s offices only when such services may not be reasonably performed off-site by the  Executive.

Section 15.

Legal Fees.  

(a)

Reimbursement of Legal Fees.  Subject to subsection (b), in the event of the Executive’s Separation from Service either (1) prior to a Change in Control, or (2) on or within two (2) years following a Change in Control, the Company shall reimburse the  Executive for all legal fees and expenses (including but not limited to fees and expenses in connection with any arbitration) incurred by the  Executive in disputing any issue arising under this Agreement relating to the  Executive’s Separation from Service or in seeking to obtain or enforce any benefit or right provided by this Agreement.  

(b)

Requirements for Reimbursement.  The Company shall reimburse the  Executive’s legal fees and expenses pursuant to subsection (a) above only to the extent the arbitrator or court determines the following:  (i) the  Executive disputed such issue, or sought to obtain or enforce such benefit or right, in good faith, (ii) the  Executive had a reasonable basis for such claim, and (iii) in the case of subsection (a)(1) above, the  Executive is the prevailing party.  In addition, the Company shall reimburse such legal fees and expenses, only if such legal fees and expenses are incurred during the twenty (20) year period beginning on the date of the Executive’s Separation from Service.   The legal fees and expenses paid to the  Executive for any taxable year of the  Executive shall not affect the legal fees and expenses paid to the  Executi ve for any other taxable year of the  Executive.  The legal fees and expenses shall be paid to the Executive on or before the last day of the Executive’s taxable year following the taxable year in which the fees or expenses are incurred.  The  Executive’s right to reimbursement of legal fees and expenses shall not be subject to liquidation or exchange for any other benefit.  Such right to reimbursement of legal fees and expenses shall be provided in a manner that complies with Treasury Regulation Section 1.409A-3(i)(1)(iv).  If the Executive is a Specified Employee on the date of the Executive’s Separation from Service, such right to reimbursement of legal fees and expenses shall be paid as provided in Section 10 hereof.

Section 16.

Successors.

(a)

Assignment by the Executive.  This Agreement is personal to the  Executive and without the prior written consent of Sempra Energy shall not be assignable by the  Executive otherwise than by will or the laws of descent and distribution.  This Agreement shall inure to the benefit of and be enforceable by the  Executive’s legal representatives.

(b)

Successors and Assigns of Sempra Energy.  This Agreement shall inure to the benefit of and be binding upon Sempra Energy, its successors and assigns.  Sempra Energy may not assign this Agreement to any person or entity (except for a successor described in Section 16(c), (d) or (e) below) without the  Executive’s written consent.

(c)

Assumption.  Sempra Energy shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Sempra Energy to assume expressly and agree to perform the obligations and satisfy and discharge the liabilities of this Agreement in the same manner and to the same extent that Sempra Energy would have been required to perform the obligations and satisfy and discharge the liabilities under this Agreement if no such succession had taken place, and Sempra Energy shall have no further obligations and liabilities under this Agreement.  Upon such assumption, references to Sempra Energy in this Agreement shall be replaced with references to such successor.

(d)

Sale of Subsidiary.  In the event that (i) the Executive is employed by a direct or indirect subsidiary of Sempra Energy that is a member of the Sempra Energy Control Group, (ii) Sempra Energy, directly or indirectly through one or more intermediaries, sells or otherwise disposes of such subsidiary, and (iii) such subsidiary ceases to be a member of the Sempra Energy Control Group, then if, on the date such subsidiary ceases to be a member of the Sempra Energy Control Group, the Executive continues in employment with such subsidiary and the Executive does not have a Separation from Service, Sempra Energy shall require such subsidiary or any successor (whether direct or indirect, by purchase merger, consolidation or otherwise) to such subsidiary, or the parent thereof, to assume expressly and agree to perform the obligations and satisfy and discharge the liabilities under this Agreement in the sa me manner and to the same extent that Sempra Energy would have been required to perform the obligations and satisfy and discharge the liabilities under this Agreement, if such subsidiary had not ceased to be part of the Sempra Energy Control Group, and, upon such assumption, Sempra Energy shall have no further obligations and liabilities under the Agreement.  Upon such assumption, (i) references to Sempra Energy in this Agreement shall be replaced with references to such subsidiary, or such successor or parent thereof, assuming this Agreement, and (ii) subsection (b) of the definition of “Cause” and subsection (b) of the definition of “Good Reason” shall apply thereafter, as if a Change in Control had occurred on the date of such cessation.

(e)

Sale of Assets of Subsidiary.  In the event that (i) the Executive is employed by a direct or indirect subsidiary of Sempra Energy, and (ii) such subsidiary sells or otherwise disposes of substantial assets of such subsidiary to an unrelated service recipient, as determined under Treasury Regulation Section 1.409A-1(f)(2)(ii) (the “Asset Purchaser”), in a transaction described in Treasury Regulation Section 1.409A-1(h)(4) (an “Asset Sale”), then if, on the date of such Asset Sale, the Executive becomes employed by the Asset Purchaser, Sempra Energy and the Asset Purchaser shall specify, in accordance with Treasury Regulation Section 1.409A-1(h)(4), that the Executive shall not be treated as having a Separation from Service, and Sempra Energy shall require such Asset Purchaser, or the parent thereof, to assume expressly and agree to perform the obligations and sa tisfy and discharge the liabilities under this Agreement in the same manner and to the same extent that Sempra Energy would have been required to perform the obligations and satisfy and discharge the liabilities under this Agreement, if the Asset Sale had not taken place, and, upon such assumption, Sempra Energy shall have no further obligations and liabilities under the Agreement.  Upon such assumption, (i) references to Sempra Energy in this Agreement shall be replaced with references to the Asset Purchaser or the parent thereof, as applicable, and (ii) subsection (b) of the definition of “Cause” and subsection (b) of the definition of “Good Reason” shall apply thereafter, as if a Change in Control had occurred on the date of the Asset Sale.

Section 17.

Administration Prior to Change in Control.  Prior to a Change in Control, the Compensation Committee shall have full and complete authority to construe and interpret the provisions of this Agreement, to determine an individual’s entitlement to benefits under this Agreement, to make in its sole and absolute discretion all determinations contemplated under this Agreement, to investigate and make factual determinations necessary or advisable to administer or implement this Agreement, and to adopt such rules and procedures as it deems necessary or advisable for the administration or implementation of this Agreement.  All determinations made under this Agreement by the Compensation Committee shall be final and binding on all interested persons.  Prior to a Change in Control, the Compensation Committee may delegate responsibilities for the operation and administration of this Agreement to one or more officers or employees of the Company.  The provisions of this Section 17 shall terminate and be of no further force and effect upon the occurrence of a Change in Control.   

Section 18.

Section 409A of the Code.

(a)

Compliance with and Exemption from Section 409A of the Code.  Certain payments and benefits payable under this Agreement (including, without limitation, the Section 409A Payments) are intended to comply with the requirements of Section 409A of the Code.  Certain payments and benefits payable under this Agreement are intended to be exempt from the requirements of Section 409A of the Code.  This Agreement shall be interpreted in accordance with the applicable requirements of, and exemptions from, Section 409A of the Code and the Treasury Regulations thereunder.  To the extent the payments and benefits under this Agreement are subject to Section 409A of the Code, this Agreement shall be interpreted, construed and administered in a manner that satisfies the requirements of Sections 409A(a)(2), (3) and (4) of the Code and the Treasury Regulations thereunder (subject to the transitional relief under Internal Revenue Service Notice 2005-1, the Proposed Regulations under Section 409A of the Code, Internal Revenue Service Notice 2006-79, Internal Revenue Service Notice 2007-78, Internal Revenue Service Notice 2007-86 and other applicable authority issued by the Internal Revenue Service).  As provided in Internal Revenue Notice 2007-86, notwithstanding any other provision of this Agreement, with respect to an election or amendment to change a time or form of payment under this Agreement made on or after January 1, 2008 and on or before December 31, 2008, the election or amendment shall apply only with respect to payments that would not otherwise be payable in 2008, and shall not cause payments to be made in 2008 that would not otherwise be payable in 2008.  If the Company and the  Executive determine that any compensation, benefits or other payments that are payable under this Agreement and intended to comply with Sections 409A(a)(2), (3) and (4) of the Code do not comply with S ection 409A of the Code, the Treasury Regulations thereunder and other applicable authority issued by the Internal Revenue Service, to the extent permitted under Section 409A of the Code, the Treasury Regulations thereunder and any applicable authority issued by the Internal Revenue Service, the Company and the  Executive agree to amend this Agreement, or take such other actions as the Company and the  Executive deem reasonably necessary or appropriate, to cause such compensation, benefits and other payments to comply with the requirements of Section 409A of the Code, the Treasury Regulations thereunder and other applicable authority issued by the Internal Revenue Service, while providing compensation, benefits and other payments that are, in the aggregate, no less favorable than the compensation, benefits and other payments provided under this Agreement.  In the case of any compensation, benefits or other payments that are payable under this Agreement and intended to comply with Sections 409A (a)(2), (3) and (4) of the Code, if any provision of the Agreement would cause such compensation, benefits or other payments to fail to so comply, such provision shall not be effective and shall be null and void with respect to such compensation, benefits or other payments to the extent such provision would cause a failure to comply, and such provision shall otherwise remain in full force and effect.

(b)

Deferral Elections.  As provided in Sections 5(f), 6(h) and 14(d), the  Executive may elect to defer the Pre-Change in Control Severance Payment, the Post-Change in Control Severance Payment and the Consulting Payment as follows.    The  Executive’s deferral election shall satisfy the requirements of Treasury Regulation Section 1.409A-2(b) and the terms and conditions of the Deferred Compensation Plan.  Such deferral election shall designate the whole percentage (up to a maximum of 100%) of the Pre-Change in Control Severance Payment, the Post-Change in Control Severance Payment and the Consulting Payment to be deferred, shall be irrevocable when made, and shall not take effect until at least twelve (12) months after the date on which the election is made.  Such deferral election shall provide that the amount deferred shall be deferred for a period of not less than five (5) years from the date the payment of the amount deferred would otherwise have been made, in accordance with Treasury Regulation Section 1.409A-2(b)(1)(ii).

Section 19.

Miscellaneous.

(a)

Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of California, without reference to its principles of conflict of laws.  The captions of this Agreement are not part of the provisions hereof and shall have no force or effect.  This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought.  No person, other than pursuant to a resolution of the Board or a committee thereof, shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto.

(b)

Notices.  All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed, in either case, to the Company’s headquarters or to such other address as either party shall have furnished to the other in writing in accordance herewith.  Notices and communications shall be effective when actually received by the addressee.

(c)

Severability.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(d)

Taxes.  The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(e)

No Waiver.  The  Executive’s or the Company’s failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the  Executive or the Company may have hereunder, including, without limitation, the right of the  Executive to terminate employment for Good Reason pursuant to Section 1 hereof, or the right of the Company to terminate the  Executive’s employment for Cause pursuant to Section 1 hereof shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

(f)

Entire Agreement; Exclusive Benefit; Supersession of Prior Agreement.  This instrument contains the entire agreement of the  Executive, the Company or any predecessor or subsidiary thereof with respect to any severance or termination pay.  The Pre-Change in Control Severance Payment, the Post-Change in Control Severance Payment and all other benefits provided hereunder shall be in lieu of any other severance payments to which the  Executive is entitled under any other severance plan or program or arrangement sponsored by the Company, as well as pursuant to any individual employment or severance agreement that was entered into by the  Executive and the Company, and, upon the Effective Date of this Agreement, all such plans, programs, arrangements and agreements are hereby automatically superseded and terminated.  This Agreement supersedes the Prior Agreement in its entire ty, effective as of the date hereof, and the Prior Agreement shall have no further force and effect.

(g)

No Right of Employment.  Nothing in this Agreement shall be construed as giving the  Executive any right to be retained in the employ of the Company or shall interfere in any way with the right of the Company to terminate the  Executive’s employment at any time, with or without Cause.

(h)

Unfunded Obligation.  The obligations under this Agreement shall be unfunded.  Benefits payable under this Agreement shall be paid from the general assets of the Company.  The Company shall have no obligation to establish any fund or to set aside any assets to provide benefits under this Agreement.

(i)

Termination upon Sale of Assets of Subsidiary.  Notwithstanding anything contained herein, this Agreement shall automatically terminate and be of no further force and effect and no benefits shall be payable hereunder in the event that (i) the Executive is employed by a direct or indirect subsidiary of Sempra Energy, and (ii) an Asset Sale (as defined in Section 16(e)) occurs (other than such a sale or disposition which is part of a transaction or series of transactions which would result in a Change in Control), and (iii) as a result of such Asset Sale, the  Executive is offered employment by the Asset Purchaser in an executive position with reasonably comparable status, compensation, benefits and severance agreement (including the assumption of this Agreement in accordance with Section 16(e)) and which is consistent with the  Executive’s experience and education, but the  Ex ecutive declines to accept such offer and the Executive fails to become employed by the Asset Purchaser on the date of the Asset Sale.  

(j)

Term.  The term of this Agreement shall commence on the Effective Date and shall continue until the third (3rd) anniversary of the Effective Date; provided, however, that commencing on the second (2nd) anniversary of the Effective Date (and each anniversary of the Effective Date thereafter), the term of this Agreement shall automatically be extended for one (1) additional year, unless at least ninety (90) days prior to such date, the Company or the  Executive shall give written notice to the other party that it or he, as the case may be, does not wish to so extend this Agreement.  Notwithstanding the foregoing, if the Company gives such written notice to the  Executive less than two (2) years after a Change in Control, the term of this Agreement shall be automatically extended until the later of (A) the date that is one (1) year after the anniversary of the Effective Date that fol lows such written notice or (B) the second (2nd) anniversary of the Change in Control Date.

(k)

Counterparts.  This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.



[remainder of page intentionally left blank]





 IN WITNESS WHEREOF, the  Executive and, pursuant to due authorization from its Board of Directors, the Company have caused this Agreement to be executed as of the day and year first above written.

SEMPRA ENERGY


G. Joyce Rowland

Senior Vice President, Human Resources


_____________________________________

Date


EXECUTIVE




NAME


_____________________________________

Date






EXHIBIT A


GENERAL RELEASE

This GENERAL RELEASE (the “Agreement”), dated ___________, is made by and between ______________________________, a California corporation (the “Company”) and  ___________________________ (“you” or “your”).

WHEREAS, you and the Company have previously entered into that certain Amended and Restated Severance Pay Agreement dated ____________, 200__ (the “Severance Pay Agreement”); and

WHEREAS, Section 14(d) of the Severance Pay Agreement provides for the payment of a benefit to you by the Company in consideration for certain covenants, including your execution and non-revocation of a general release of claims by you against the Company and its subsidiaries and affiliates.

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, you and the Company hereby agree as follows:

ONE:  Your signing of this Agreement confirms that your employment with the Company shall terminate at the close of business on ____________, or earlier upon our mutual agreement.

TWO:  As a material inducement for the payment of the benefit under Section 14(d) of the Severance Pay Agreement, and except as otherwise provided in this Agreement, you and the Company hereby irrevocably and unconditionally release, acquit and forever discharge the other from any and all Claims either may have against the other.  For purposes of this Agreement and the preceding sentence, the words “Releasee” or “Releasees” and “Claim” or “Claims” shall have the meanings set forth below:

(a)

The words “Releasee” or “Releasees” shall refer to you and to the Company and each of the Company’s owners, stockholders, predecessors, successors, assigns, agents, directors, officers, employees, representatives, attorneys, advisors, parent companies, divisions, subsidiaries, affiliates (and agents, directors, officers, employees, representatives, attorneys and advisors of such parent companies, divisions, subsidiaries and affiliates) and all persons acting by, through, under or in concert with any of them.

(b)

The words “Claim” or “Claims” shall refer to any charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses (including attorneys’ fees and costs actually incurred) of any nature whatsoever, known or unknown, suspected or unsuspected, which you or the Company now, in the past or, except as limited by law or regulation such as the Age Discrimination in Employment Act (ADEA), in the future may have, own or hold against any of the Releasees; provided, however, that the word “Claim” or “Claims” shall not refer to any charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses (including attorneys 46; fees and costs actually incurred) arising under [identify severance, employee benefits, stock option, indemnification and D&O  and other agreements containing duties, rights obligations etc. of either party that are to remain operative].  Claims released pursuant to this Agreement by you and the Company include, but are not limited to, rights arising out of alleged violations of any contracts, express or implied, any tort, any claim that you failed to perform or negligently performed or breached your duties during employment at the Company, any legal restrictions on the Company’s right to terminate employees or any federal, state or other governmental statute, regulation, or ordinance, including, without limitation:  (1) Title VII of the Civil Rights Act of 1964 (race, color, religion, sex and national origin discrimination); (2) 42 U.S.C. § 1981 (discrimination); (3) 29 U.S.C. §§ 621–634 (age discrimination); (4) 29 U.S.C. § 206(d)(l) (equal p ay); (5) 42 U.S.C. §§ 12101, et seq. (disability); (6) the California Constitution, Article I, Section 8 (discrimination); (7) the California Fair Employment and Housing Act (discrimination, including race, color, national origin, ancestry, physical handicap, medical condition, marital status, religion, sex or age); (8) California Labor Code Section 1102.1 (sexual orientation discrimination); (9) the Executive Order 11246 (race, color, religion, sex and national origin discrimination); (10) the Executive Order 11141 (age discrimination); (11) §§ 503 and 504 of the Rehabilitation Act of 1973 (handicap discrimination); (12) The Worker Adjustment and Retraining Act (WARN Act); (13) the California Labor Code (wages, hours, working conditions, benefits and other matters); (14) the Fair Labor Standards Act (wages, hours, working conditions and other matters); the Federal Employee Polygraph Protection Act (prohibits employer from requiring employee to take polygraph test as condition of employme nt); and (15) any federal, state or other governmental statute, regulation or ordinance which is similar to any of the statutes described in clauses (1) through (14).

THREE:  You and the Company expressly waive and relinquish all rights and benefits afforded by any statute (including but not limited to Section 1542 of the Civil Code of the State of California) which limits the effect of a release with respect to unknown claims.  You and the Company do so understanding and acknowledging the significance of the release of unknown claims and the waiver of statutory protection against a release of unknown claims (including but not limited to Section 1542).  Section 1542 of the Civil Code of the State of California states as follows:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.”

Thus, notwithstanding the provisions of Section 1542 or of any similar statute, and for the purpose of implementing a full and complete release and discharge of the Releasees, you and the Company expressly acknowledge that this Agreement is intended to include in its effect, without limitation, all Claims which are known and all Claims which you or the Company do not know or suspect to exist in your or the Company’s favor at the time of execution of this Agreement and that this Agreement contemplates the extinguishment of all such Claims.

FOUR:  The parties acknowledge that they might hereafter discover facts different from, or in addition to, those they now know or believe to be true with respect to a Claim or Claims released herein, and they expressly agree to assume the risk of possible discovery of additional or different facts, and agree that this Agreement shall be and remain effective, in all respects, regardless of such additional or different discovered facts.

FIVE:  You hereby represent and acknowledge that you have not filed any Claim of any kind against the Company or others released in this Agreement.  You further hereby expressly agree never to initiate against the Company or others released in this Agreement any administrative proceeding, lawsuit or any other legal or equitable proceeding of any kind asserting any Claims that are released in this Agreement.

The Company hereby represents and acknowledges that it has not filed any Claim of any kind against you or others released in this Agreement.  The Company further hereby expressly agrees never to initiate against you or others released in this Agreement any administrative proceeding, lawsuit or any other legal or equitable proceeding of any kind asserting any Claims that are released in this Agreement.

SIX:  You hereby represent and agree that you have not assigned or transferred, or attempted to have assigned or transfer, to any person or entity, any of the Claims that you are releasing in this Agreement.

The Company hereby represents and agrees that it has not assigned or transferred, or attempted to have assigned or transfer, to any person or entity, any of the Claims that it is releasing in this Agreement.

SEVEN:  As a further material inducement to the Company to enter into this Agreement, you hereby agree to indemnify and hold each of the Releasees harmless from all loss, costs, damages, or expenses, including without limitation, attorneys’ fees incurred by the Releasees, arising out of any breach of this Agreement by you or the fact that any representation made in this Agreement by you was false when made.

As a further material inducement to you to enter into this Agreement, the Company hereby agrees to indemnify and hold each of the Releasees harmless from all loss, costs, damages, or expenses, including without limitation, attorneys’ fees incurred by the Releasees, arising out of any breach of this Agreement by it or the fact that any representation made in this Agreement by it was knowingly false when made.

EIGHT:  You and the Company represent and acknowledge that in executing this Agreement, neither is relying upon any representation or statement not set forth in this Agreement or the Severance Agreement.

NINE:

(a)

This Agreement shall not in any way be construed as an admission by the Company that it has acted wrongfully with respect to you or any other person, or that you have any rights whatsoever against the Company, and the Company specifically disclaims any liability to or wrongful acts against you or any other person, on the part of itself, its employees or its agents.  This Agreement shall not in any way be construed as an admission by you that you have acted wrongfully with respect to the Company, or that you failed to perform your duties or negligently performed or breached your duties, or that the Company had good cause to terminate your employment.

(b)

If you are a party or are threatened to be made a party to any proceeding by reason of the fact that you were an officer or director of the Company, the Company shall indemnify you against any expenses (including reasonable attorneys’ fees; provided, that counsel has been approved by the Company prior to retention, which approval shall not be unreasonably withheld), judgments, fines, settlements and other amounts actually or reasonably incurred by you in connection with that proceeding; provided, that you acted in good faith and in a manner you reasonably believed to be in the best interest of the Company.  The limitations of California Corporations Code Section 317 shall apply to this assurance of indemnification.

(c)

You agree to cooperate with the Company and its designated attorneys, representatives and agents in connection with any actual or threatened judicial, administrative or other legal or equitable proceeding in which the Company is or may become involved.  Upon reasonable notice, you agree to meet with and provide to the Company or its designated attorneys, representatives or agents all information and knowledge you have relating to the subject matter of any such proceeding.  The Company agrees to reimburse you for any reasonable costs you incur in providing such cooperation.

TEN:  This Agreement is made and entered into in California.  This Agreement shall in all respects be interpreted, enforced and governed by and under the laws of the State of California and applicable Federal law.  Any dispute about the validity, interpretation, effect or alleged violation of this Agreement (an “arbitrable dispute”) must be submitted to arbitration in San Diego, California.  Arbitration shall take place before an experienced employment arbitrator licensed to practice law in such state and selected in accordance with the then existing JAMS arbitration rules applicable to employment disputes; provided, however, that in any event, the arbitrator shall allow reasonable discovery.  Arbitration shall be the exclusive remedy for any arbitrable dispute.  The arbitrator in any arbitrable dispute shall not have authority to modify or change the Agr eement in any respect.  You and the Company shall each be responsible for payment of one-half (1/2) the amount of the arbitrator’s fee(s); provided, however, that in no event shall you be required to pay any fee or cost of arbitration that is unique to arbitration or exceeds the costs you would have incurred had any arbitrable dispute been pursued in a court of competent jurisdiction.  The Company shall make up any shortfall.  Should any party to this Agreement institute any legal action or administrative proceeding against the other with respect to any Claim waived by this Agreement or pursue any arbitrable dispute by any method other than arbitration, the prevailing party shall be entitled to recover from the non-prevailing party all damages, costs, expenses and attorneys’ fees incurred as a result of that action.  The arbitrator’s decision and/or award shall be rendered in writing and will be fully enforceable and subject to an entry of judgment by the Superior Co urt of the State of California for the County of San Diego, or any other court of competent jurisdiction.

ELEVEN:  Both you and the Company understand that this Agreement is final and binding eight (8) days after its execution and return.  Should you nevertheless attempt to challenge the enforceability of this Agreement as provided in Paragraph TEN or, in violation of that Paragraph, through litigation, as a further limitation on any right to make such a challenge, you shall initially tender to the Company, by certified check delivered to the Company, all monies received pursuant to Section 14(d) of the Severance Pay Agreement, plus interest, and invite the Company to retain such monies and agree with you to cancel this Agreement and void the Company’s obligations under Section 14(d) of the Severance Pay Agreement.  In the event the Company accepts this offer, the Company shall retain such monies and this Agreement shall be canceled and the Company shall have no obligation under Section 14(d) of the Severance Pay Agreement.  In the event the Company does not accept such offer, the Company shall so notify you and shall place such monies in an interest-bearing escrow account pending resolution of the dispute between you and the Company as to whether or not this Agreement and the Company’s obligations under Section 14(d) of the Severance Pay Agreement shall be set aside and/or otherwise rendered voidable or unenforceable.  Additionally, any consulting agreement then in effect between you and the Company shall be immediately rescinded with no requirement of notice.

TWELVE:  Any notices required to be given under this Agreement shall be delivered either personally or by first class United States mail, postage prepaid, addressed to the respective parties as follows:

To Company:

[TO COME]

Attn:  [TO COME]

To You:

______________________

______________________

______________________

THIRTEEN:  You understand and acknowledge that you have been given a period of forty-five (45) days to review and consider this Agreement (as well as statistical data on the persons eligible for similar benefits) before signing it and may use as much of this forty-five (45) day period as you wish prior to signing.  You are encouraged, at your personal expense, to consult with an attorney before signing this Agreement.  You understand and acknowledge that whether or not you do so is your decision.  You may revoke this Agreement within seven (7) days of signing it.  If you wish to revoke, the Company’s Vice President, Human Resources must receive written notice from you no later than the close of business on the seventh (7th) day after you have signed the Agreement.  If revoked, this Agreement shall not be effective and enforceable, and you will not receive payments or benefi ts under Section 14(d) of the Severance Pay Agreement.

FOURTEEN:  This Agreement constitutes the entire agreement of the parties hereto and supersedes any and all other agreements (except the Severance Pay Agreement) with respect to the subject matter of this Agreement, whether written or oral, between you and the Company.  All modifications and amendments to this Agreement must be in writing and signed by the parties.

FIFTEEN:  Each party agrees, without further consideration, to sign or cause to be signed, and to deliver to the other party, any other documents and to take any other action as may be necessary to fulfill the obligations under this Agreement.

SIXTEEN:  If any provision of this Agreement or the application thereof is held invalid, the invalidity shall not affect other provisions or applications of the Agreement which can be given effect without the invalid provisions or application; and to this end the provisions of this Agreement are declared to be severable.

SEVENTEEN:  This Agreement may be executed in counterparts.

I have read the foregoing General Release, and I accept and agree to the provisions it contains and hereby execute it voluntarily and with full understanding of its consequences.  I am aware it includes a release of all known or unknown claims.

DATED:  __________

__________________________________________

DATED:  __________

__________________________________________

You acknowledge that you first received this Agreement on [date].

_________________________







Exhibit 10.18

Exhibit 10.18




AMENDMENT AND RESTATEMENT OF
THE SEMPRA ENERGY 2005
DEFERRED COMPENSATION PLAN










TABLE OF CONTENTS

ARTICLE I. TITLE AND DEFINITIONS

1.1

Title.

1.2

Definitions.

ARTICLE II. PARTICIPATION

ARTICLE III. CONTRIBUTIONS

3.1

Elections to Defer Compensation

3.2

Distribution Elections.

3.3

Company Matching Contributions

3.4

FICA and Other Taxes.

ARTICLE IV. INVESTMENTS

4.1

Measurement Funds.

4.2

Investment Elections.

4.3

Compliance with Section 16 of the Exchange Act.

ARTICLE V. ACCOUNTS

5.1

Accounts.

5.2

Subaccounts.

ARTICLE VI. VESTING

ARTICLE VII. DISTRIBUTIONS

7.1

Distribution of Accounts.

7.2

Hardship Distribution.

7.3

Effect of a Change in Control.

7.4

Inability to Locate Participant.

7.5

Prohibition on Acceleration of Distributions.

ARTICLE VIII. ADMINISTRATION

8.1

Committee.

8.2

Administrator.

8.3

Committee Action.

8.4

Powers and Duties of the Committee.

8.5

Construction and Interpretation.

8.6

Information.

8.7

Compensation, Expenses and Indemnity.

8.8

Quarterly Statements.

8.9

Disputes.

8.10

Compliance with Section 409A of the Code

ARTICLE IX. MISCELLANEOUS

9.1

Unsecured General Creditor.

9.2

Restriction Against Assignment.

9.3

Withholding.

9.4

Amendment, Modification, Suspension or Termination.

9.5

Designation of Beneficiary.

9.6

Insurance.

9.7

Governing Law.

9.8

Receipt of Release.

9.9

Compliance with Code Section 162(m)

9.10

Payments on Behalf of Persons Under Incapacity.

9.11

Limitation of Rights

9.12

Exempt ERISA Plan

9.13

Notice

9.14

Errors and Misstatements

9.15

Pronouns and Plurality

9.16

Severability

9.17

Status

9.18

Headings.

ARTICLE X.   Employees of Sempra Energy Trading Corporation
 and Sempra Energy Solutions LLC

ARTICLE XI.  SECTION 409A OF THE CODE









Sempra Energy, a California corporation (the “Company”), and its direct and indirect subsidiaries hereby establish and maintain this Sempra Energy 2005 Deferred Compensation Plan (the “Plan”) which is designed to provide supplemental retirement income benefits for certain directors and for a select group of management and highly compensated employees through deferrals of salary and incentive compensation and Company matching contributions.  This Plan shall be effective as of January 1, 2005.

The Company hereby amends and restates the Plan, effective as of the date of adoption, except as otherwise provided herein.  The elections and amendments made in accordance with the transitional relief under Internal Revenue Service Notice 2005-1, the Proposed Regulations under Section 409A of the Code, Internal Revenue Service Notice 2006-79 and Internal Revenue Service Notice 2007-86 shall be effective for the relevant periods on or before December 31, 2008.

The Plan is intended to comply with the requirements of Sections 409A(a)(2), (3) and (4) of the Code and the Treasury Regulations and other guidance issued by the Secretary of the Treasury thereunder.  To the extent permitted by such Treasury Regulations or other guidance, the Plan may be amended to conform to the requirements of Section 409A of the Code.

ARTICLE I.
TITLE AND DEFINITIONS

1.1

Title.

This Plan shall be known as the Sempra Energy 2005 Deferred Compensation Plan.

1.2

Definitions.

Whenever the following words and phrases are used in this Plan, with the first letter capitalized, they shall have the meanings specified below.

(a)

Account” or “Accounts” shall mean a Participant’s Deferral Account and/or Company Matching Account.

(b)

Administrator” shall mean the individuals designated by the Committee  (who need not be a member of the Committee) to handle the day-to-day Plan administration.  If the Committee does not make such a designation, the Administrator shall be the Senior Vice-President of Human Resources of the Company.

(c)

 “Affiliate” has the meaning ascribed to such term in Rule 12b-2 promulgated under the Exchange Act.

(d)

 “Base Salary” shall mean a Participant’s annual base salary, excluding bonus, incentive and all other remuneration for services rendered to the Company, prior to reduction for any salary contributions to a plan established pursuant to Section 125 of the Code or qualified pursuant to Section 401(k) of the Code and prior to reduction for deferrals under this Plan.

(e)

Beneficial Owner” has the meaning set forth in Rule 13d-3 under the Exchange Act.

(f)

Beneficiary” or “Beneficiaries” shall mean the person or persons, including a trustee, personal representative or other fiduciary, last designated in writing by a Participant to receive the benefits specified hereunder in the event of the Participant’s death in accordance with Section 9.5.  

(g)

Board of Directors” or “Board” shall mean the Board of Directors of the Company.

(h)

Bonus” shall mean the annual incentive award earned by a Participant under the Company’s short-term incentive plan and other special payments or awards that may be granted by the Company from time to time.

(i)

Change in Control” shall be deemed to have occurred when any event or transaction described in paragraph (1), (2), (3) or (4) occurs, subject to paragraph (5):

(1)

Any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of Sempra Energy representing twenty percent (20%) or more of the combined voting power of Sempra Energy’s then outstanding securities; or

(2)

The following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the Effective Date, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including, but not limited to, a consent solicitation, relating to the election of directors of Sempra Energy) whose appointment or election by the Board or nomination for election by Sempra Energy’s shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or

(3)

There is consummated a merger or consolidation of Sempra Energy or any direct or indirect subsidiary of Sempra Energy with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of Sempra Energy outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of Sempra Energy or any subsidiary of Sempra Energy, at least sixty percent (60%) of the combined voting power of the securities of Sempra Energy or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapi talization of Sempra Energy (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of Sempra Energy (not including in the securities beneficially owned by such Person any securities acquired directly from Sempra Energy or its affiliates other than in connection with the acquisition by Sempra Energy or its affiliates of a business) representing twenty percent (20%) or more of the combined voting power of Sempra Energy’s then outstanding securities; or

(4)

The shareholders of Sempra Energy approve a plan of complete liquidation or dissolution of Sempra Energy or there is consummated an agreement for the sale or disposition by Sempra Energy of all or substantially all of Sempra Energy’s assets, other than a sale or disposition by Sempra Energy of all or substantially all of Sempra Energy’s assets to an entity, at least sixty percent (60%) of the combined voting power of the voting securities of which are owned by shareholders of Sempra Energy in substantially the same proportions as their ownership of Sempra Energy immediately prior to such sale.

(5)

An event or transaction described in paragraph (1), (2), (3), or (4) shall be a “Change in Control” only if such event or transaction is a “change in the ownership or effective control of the corporation, or in the ownership of a substantial portion of the assets of the corporation,” within the meaning of Section 409A(a)(2)(A)(v) of the Code, to the extent provided by the Secretary of the Treasury.

(j)

 “Code” shall mean the Internal Revenue Code of 1986, as amended.

(k)

Committee” shall mean the compensation committee of the Board of Directors.

(l)

Company” shall mean Sempra Energy and any successor corporations.  Company shall also include each corporation which is a member of a controlled group of corporations (within the meaning of Section 414(b) of the Code) of which Sempra Energy is a component member, if the Board provides that such corporation shall participate in the Plan and such corporation’s governing board of directors adopts this Plan.

(m)

 “Company Matching Account” shall mean the bookkeeping account maintained by the Company for each Participant that is credited with an amount equal to the Company Matching Contribution, if any, debited by amounts equal to all distributions to and withdrawals made by the Participant and/or his Beneficiary and adjusted for investment earnings and losses pursuant to Article V.

(n)

Company Matching Contributions” shall mean the employer matching contribution made to the Plan on behalf of Participants who make deferrals under Article III.

(o)

Compensation” shall mean Base Salary and Bonus that the Participant who is an employee is entitled to receive for services rendered to the Company.  In addition, for any Participant who is an Executive Officer, Compensation includes (i) SERP Lump Sum, (ii) Restricted Stock Units, and (iii) Severance Payments.   Compensation shall mean retainer payments and/or meeting and other fees, received from the Company for services performed by any Participant as a Director.

(p)

Deferral Account” shall mean the bookkeeping account maintained by the Company for each Participant that is credited with amounts equal to the portion of the Participant’s Compensation that he elects to defer pursuant to Section 3.1, debited by amounts equal to all distributions to and withdrawals made by the Participant and/or his Beneficiary and adjusted for investment earnings and losses pursuant to Article V.  The Deferral Account may be further subdivided into subaccounts as determined by the Committee.

(q)

Deferral Election Form” shall mean the form designated by the Committee for purposes of making deferrals under Section 3.1.

(r)

Director” shall mean an individual who is a non-employee member of the Board.

(s)

Disability or Disabled” means, with respect to a Participant, that the Participant:

(1)

is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or

(2)

is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three months under an accident or health plan covering employees of such Participant’s employer,

as determined in accordance with Section 409A(a)(2)(C) of the Code and the Treasury Regulations thereunder.

(t)

 “Distributable Amount” of a Participant’s subaccounts with respect to a Plan Year shall mean the sum of the vested balance of the subaccount in a Participant’s Deferral Account and Company Matching Account with respect to such Plan Year.

(u)

Effective Date” shall mean January 1, 2005.

(v)

Election Period” with respect to a Plan Year shall mean the period designated by the Committee; provided, however, that such period shall be no less than ten business days.  The Election Period with respect to a Plan Year shall end not later than the last day of the prior Plan Year; provided, however, that, in the case of an Eligible Individual who first becomes eligible to participate in the Plan during a Plan Year, the Election Period may be the thirty (30) day period commencing on the date such Eligible Individual first becomes eligible to participate in accordance with Section 409A(a)(4)(B)(ii) of the Code and the Treasury Regulations thereunder; and provided, further, in the case of an Eligible Individual’s election to defer a Bonus (or portion thereof) for a Plan Year that is performance-based compensation b ased on services over a period of at least twelve (12) months, within the meaning of Section 409A(a)(4)(B)(iii) of the Code and the Treasury Regulations thereunder, the Election Period may be a period designated by the Committee during such Plan Year that satisfies the requirements of Section 409A(a)(4)(B)(iii) of the Code and the Treasury Regulations thereunder.

(w)

Eligible Individual” shall mean those individuals selected by the Committee from (1) those employees of the Company who either (A) are Executive Officers or (B) have Base Salary for a Calendar Year that is at least $140,000, as adjusted by the Committee from time to time and (2) those Directors who are not employees of the Company.  The Committee may, in its sole discretion, select such other individuals to participate in the Plan who do not otherwise meet the foregoing criteria.

(x)

ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

(y)

Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the applicable rules and regulations thereunder.

(z)

Executive Officer” shall mean an employee of the Company who holds a position as an executive officer in the Company and is eligible to participate in the Sempra Energy Supplemental Executive Retirement Plan or is so designated by the Committee.

(aa)

401(k) Plan” shall mean the Sempra Energy Savings Plan maintained by the Company under Code Section 401(k), as in effect from time to time or as applicable for any Participant, a plan maintained by a direct or indirect subsidiary of the Company under Code Section 401(k).

(bb)

Manager” shall mean an employee of the Company who is an Eligible Individual, other than an Executive Officer or a Director.

(cc)

Measurement Fund” shall mean one or more of the investment funds selected by the Committee pursuant to Section 4.1.

(dd)

Moody’s Plus Rate” shall mean the Moody’s Rate (as defined below) plus the greater of  (1) 10% of the Moody’s Corporate Bond Yield Average – Monthly Average Corporates as published by Moody’s Investors Service, Inc. (or any successor) or (2) one percentage point per annum. The Moody’s Rate for the month of June means the average of the daily Moody’s Corporate Bond Yield Average – Monthly Average Corporates for the month of June.

(ee)

Participant” shall mean any Eligible Individual who becomes a Participant in accordance with Article II and who has not received a complete distribution of the amounts credited to his Accounts.

(ff)

Payroll Date” shall mean, with respect to any Participant, the date on which he would otherwise be paid Compensation.

(gg)

Payment Date” shall mean the date determined by the Administrator that is on or within thirty (30) days after one of the following dates as designated by the Participant in his distribution form election with respect to a Plan Year:

(1)

the first day of the first calendar month on or next following thirty (30) days after the date of the Participant's Separation from Service or Disability, or

(2)

the first day of the first, second, third, fourth or fifth calendar year next following the date of the Participant’s Separation from Service or Disability.  

“Payment Date” shall also mean the Scheduled Withdrawal Date elected in accordance with the provisions of Section 7.1(b).  

(hh)

 “Person” means any person, entity or “group” within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, except that such term shall not include (1) the Company or any of its Affiliates, (2) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (3) an underwriter temporarily holding securities pursuant to an offering of such securities, (4) a corporation owned, directly or indirectly, by the shareholders of Sempra Energy in substantially the same proportions as their ownership of stock of Sempra Energy, or (5) a person or group as used in Rule 13d-1(b) under the Exchange Act.

(ii)

Plan” shall mean the Sempra Energy 2005 Deferred Compensation Plan set forth herein, as amended from time to time.

(jj)

Plan Year” shall mean the twelve (12) consecutive month period beginning on each January 1 and ending on each December 31.

(kk)

Restricted Stock Units” shall mean restricted stock units granted to Executive Officers under the Sempra Energy 1998 Long Term Incentive Plan or the Sempra Energy 2008 Long Term Incentive Plan.

(ll)

Rule 16b-3” shall mean that certain Rule 16b-3 under the Exchange Act, as such Rule may be amended from time to time.

(mm)

Scheduled Withdrawal Date” shall be in January in the year elected by the Participant for an in-service withdrawal of all amounts of Compensation deferred in a given Plan Year, but excluding earnings and losses attributable thereto, as set forth on the election forms for such Plan Year.  

(nn)

Sempra Energy Stock Fund” shall mean the Measurement Fund in which investment earnings and losses parallel the investment return on the common stock of the Company.

(oo)

Separation from Service”, with respect to a Participant (or another Service Provider), means the Participant’s (or such Service Provider’s) “separation from service,” as defined in Treasury Regulation Section 1.409A-1(h), with respect to the Service Recipient.   

Effective as of January 1, 2008, and in accordance with Treasury Regulation Section 1.409A-1(h)(3) (and the transitional relief under Internal Revenue Service Notice 2005-1, the proposed regulations under Section 409A of the Code, Internal Revenue Service Notice 2006-79 and Internal Revenue Notice 2007-86), and in connection with the formation of RBS Sempra Commodities (as defined in Section 10), with respect to the benefits payable under this Plan to a Participant who is an employee of SET LLC or SES (each, as defined in Section 10), and who is a Transferred Employee (as defined in Section 10), the foregoing definition of “Separation from Service” shall be applied by determining the “service recipient,” as defined in Treasury Regulation Section 1.409A-1(g), by substituting the language “at least 20%” for the language “at least 80%” and applyi ng Sections 1563(a)(1), (2) and (3) for purposes of determining a controlled group of corporations under Section 414(b) of the Code and in applying Treasury Regulation Section 1.414(c)-2 for purposes of determining trades or businesses (whether or not incorporated) that are under common control for purposes of Section 414(c) of the Code.  This subsection shall not apply with respect to the benefits payable under this Plan to any other Participant.

(pp)

SERP Lump Sum” shall mean the lump sum retirement benefit that would be payable to an Executive Officer who is a Plan Participant under either the Sempra Energy Supplemental Executive Retirement Plan or the Sempra Energy Excess Cash Balance Plan.

(qq)

Service Provider” means a Participant or any other “service provider,” as defined in Treasury Regulation Section 1.409A-1(f), with respect to the Service Recipient.

(rr)

Service Recipient”, with respect to the Participant, means Sempra Energy (if the Participant is employed by Sempra Energy or is a Director), or the subsidiary of Sempra Energy employing the Participant, whichever is applicable, and all persons considered part of the “service recipient,” as defined in Treasury Regulation Section 1.409A-1(g), as determined from time to time.  As provided in Treasury Regulation Section 1.409A-1(g), the “Service Recipient” shall mean the person for whom the services are performed and with respect to whom the legally binding right to compensation arises, and all persons with whom such person would be considered a single employer under Section 414(b) or 414(c) of the Code.

(ss)

Severance Payment” shall mean any severance payments payable to a Participant under an executive employment agreement or severance agreement with the Company.

(tt)

Specified Employee” means a Service Provider who, as of the date of the Service Provider’s Separation from Service is a “Key Employee” of the Service Recipient any stock of which is publicly traded on an established securities market or otherwise.  For purposes of this definition, a Service Provider is a “Key Employee” if the Service Provider meets the requirements of Section 416(i)(1)(A)(i), (ii) or (iii) of the Code (applied in accordance with the Treasury Regulations thereunder and disregarding Section 416(i)(5) of the Code) at any time during the Testing Year.  If a Service Provider is a “Key Employee” (as defined above) as of a Specified Employee Identification Date, the Service Provider shall be treated as “Key Employee” for the entire twelve (12) month period beginning on the Specified Employee Effective Date.  For purposes of this definition, a Service Provider’s compensation for a Testing Year shall mean such Service Provider’s compensation, as determined under Treasury Regulation Section 1.415(c)-2(a) (and applied as if the Service Recipient were not using any safe harbor provided in Treasury Regulation Section 1.415(c)-2(d), were not using any of the elective special timing rules provided in Treasury Regulation Section 1.415(c)-2(e), and were not using any of the elective special rules provided in Treasury Regulation Section 1.415(c)-2(g)), from the Service Recipient for such Testing Year.  The “Specified Employees” shall be determined in accordance with Section 409A(a)(2)(B)(i) of the Code and Treasury Regulation Section 1.409A-1(i).

(uu)

Specified Employee Effective Date” means the first day of the fourth month following the Specified Employee Identification Date.  The Specified Employee Effective Date may be changed by Sempra Energy, in its discretion, in accordance with Treasury Regulation Section 1.409A-1(i)(4).

(vv)

Specified Employee Identification Date” ”, for purposes of Treasury Regulation Section 1.409A-1(i)(3), shall mean December 31.  The “Specified Employee Identification Date” shall apply to all “nonqualified deferred compensation plans” (as defined in Treasury Regulation Section 1.409A-1(a)) of the Service Recipient and all affected Service Providers.  The “Specified Employee Identification Date” may be changed by Sempra Energy, in its discretion, in accordance with Treasury Regulation Section 1.409A-1(i)(3).

(ww)

Subaccount” or “Subaccounts” shall mean the subaccount or subaccounts maintained with respect to a Participant’s Deferral Account or Company Matching Account.

(xx)

Testing Year” shall mean the twelve (12) month period ending on the Specified Employee Identification Date, as determined from time to time.

(yy)

 “Valuation Date”, with respect to the Measurement Funds that are available under the 401(k) Plan, shall have the same meaning as under the 401(k) Plan.  For purposes of the Moody’s Plus Rate, “Valuation Date” shall mean the last day of the calendar month.  

ARTICLE II.
PARTICIPATION

(a)

An Eligible Individual shall become a Participant in the Plan by (1) electing to make deferrals in accordance with Section 3.1 and (2) filing such other forms as the Committee may reasonably require for participation hereunder.  

(b)

An Eligible Individual who completes the requirements of the preceding subsection shall commence participation in this Plan as of the first day of the Plan Year with respect to which Compensation is deferred.   

ARTICLE III.
CONTRIBUTIONS

3.1

Elections to Defer Compensation

(a)

General Rule.  Each Eligible Individual may defer Compensation for a Plan Year by filing with the Administrator a Deferral Election Form for such Plan Year that conforms to the requirements of this Section 3.1, no later than the last day of the applicable Election Period for such Plan Year, and such deferral election shall become irrevocable on the last day of the applicable Election Period for such Plan Year.  The Committee may permit an Eligible Individual who first becomes eligible to participate in the Plan during a Plan Year to have his first Election Period during such Plan Year.  An election to defer Compensation for a Plan Year must be filed during the Election Period prior to the effective date of such election and shall be irrevocable when made and shall be effective only for Compensation that constitutes compensatio n for services performed during periods during the Plan Year beginning after the effective date of such election.   Notwithstanding the previous sentence, if an Eligible Individual’s Bonus (or portion thereof) is a performance-based compensation based on services performed over a period of at least twelve (12) months, within the meaning of Section 409A(a)(4)(B)(iii) and the Treasury Regulations thereunder, the Committee may permit such Eligible Individual to file an election to defer such Bonus (or such portion thereof), or change such Eligible Individual’s prior election to defer such Bonus (or such portion thereof), no later than the date that is six months before the end of the performance period over which such services are to be performed, under the terms and conditions specified by the Committee, in accordance with Section 409A(a)(4)(B)(iii) of the Code and the Treasury Regulations thereunder, and such deferral election shall become irrevocable on the date that is six months before the end of the performance period.  A Participant shall make a separate election to defer Compensation for each Plan Year.  

(b)

Special Rules.  Notwithstanding the above, the following restrictions apply to deferrals of certain elements of Compensation.

(1)

Severance Payments.  A Participant may elect to defer Severance Payments  (or a portion thereof), to the extent permitted by the Committee.  In order to defer Severance Payments (or a portion thereof), an eligible Participant must file the appropriate Deferral Election Form no later than the election date required under Section 409A of the Code and the Treasury Regulations thereunder.  The Participant’s election to defer Severance Payments (or a portion thereof) shall satisfy the requirements of Treasury Regulation Section 1.409A-2(b).  Such deferral election shall be irrevocable when made, and shall not take effect until at least twelve (12) months after the date on which the election is made.  Such deferral election shall provide that the amount deferred shall be deferred for a period of not less than five (5) years from the date the paym ent of the amount deferred would otherwise have been made (or, in the case of a life annuity or installment payments treated as a single payment, five years from the date the first amount was scheduled to be paid), in accordance with Treasury Regulation Section 1.409A-2(b)(1)(ii).  

(2)

Restricted Stock Units.  A Participant may elect to defer Restricted Stock Units (or a portion thereof), to the extent permitted by the Committee.  In order to defer Restricted Stock Units (or a portion thereof), an eligible Participant must file the appropriate Deferral Election Form no later than the election date required under Section 409A of the Code and the Treasury Regulations thereunder.  The Participant’s election to defer Restricted Stock Units (or a portion thereof) shall apply only if the Restricted Stock Units (or portion thereof) constitute a legally binding right to a payment of compensation in a subsequent taxable year and, absent a deferral election, would be treated as a short-term deferral, within the meaning of Treasury Regulation Section 1.409A-1(b)(4), and such deferral election shall satisfy the requirements of Treasury Regulation S ection 1.409A-2(a)(4).  Such deferral election shall be irrevocable when made and shall be in accordance with Treasury Regulation Section 1.409A-2(b), applied as if the amount were a deferral of compensation and the scheduled payment date for the amount were the date the substantial risk of forfeiture lapses.  Such deferral election shall become effective only if made at least twelve (12) months before the date on which the substantial risk of forfeiture, within the meaning of Treasury Regulation Section 1.409A-1(d), with respect to the Restricted Stock Units (or portion thereof) lapses.  Such deferral election shall provide that the amount deferred shall be deferred for a period of not less than five (5) years from the date on which the substantial risk of forfeiture, within the meaning of Treasury Regulation Section 1.409A-1(b)(4), lapses, in accordance with Treasury Regulation Sections 1.409A-2(a)(4) and 1.409A-2(b)(1)(ii); provided, however, that such deferral election may provide that the deferred amounts will be payable upon a change in control event (as defined in Treasury Regulation Section 1.409A-3(i)(5)) without regard to the five year additional deferral requirement in Treasury Regulation Section 1.409A-2(b)(1)(ii).

(3)

SERP Lump Sum.  A Participant may elect to defer a SERP Lump Sum (or a portion thereof), to the extent permitted by the Committee.  In order to defer a SERP Lump Sum (or a portion thereof), an eligible Participant must file the appropriate Deferral Election Form no later than the election date required under Section 409A of the Code and the Treasury Regulations thereunder.  The Participant’s election to defer SERP Lump Sum Payments (or a portion thereof) shall satisfy the requirements of Treasury Regulation Section 1.409A-2(b).  Such deferral election shall be irrevocable when made, and shall not take effect until at least twelve (12) months after the date on which the election is made.  Such deferral election shall provide that the amount deferred shall be deferred for a period of not less than five (5) years from the date the payment of the am ount deferred would otherwise have been made (or, in the case of a life annuity or installment payments treated as a single payment, five years from the date the first amount was scheduled to be paid) in accordance with Treasury Regulation Section 1.409A-2(b)(1)(ii).

(4)

Limitation on Deferrals.  A Participant may elect to defer Severance Payments, Restricted Stock Units or a SERP Lump Sum, or any portion thereof, only to the extent such deferral satisfies the requirements of Section 409A of the Code and the Treasury Regulations thereunder.  For purposes of this subsection (b), payment shall have the meaning set forth in Treasury Regulation Section 1.409A-2(b) to the extent applicable.

(5)

Special SERP Lump Sum Deferral Elections.  Notwithstanding paragraphs (3) and (4), a Participant may elect to defer a SERP Lump Sum (or a portion thereof), to the extent permitted by the Committee, in accordance with this paragraph (5).  Such deferral election shall be irrevocable when made and shall be made on or after January 1, 2006 and on or before December 31, 2008 in accordance with the transitional relief under Section 409A of the Code and Internal Revenue Service Notices 2006-79 and 2007-86; provided, however, that a Participant’s deferral election made in 2006 shall apply only with respect to a SERP Lump Sum that would not otherwise be payable in 2006, and shall not cause a SERP Lump Sum to be made in 2006 that would not otherwise be payable in 2006; and, provided, further, that a Participant’s deferral election made in 2007 shall apply only with respect to a SERP Lump Sum that would not otherwise be payable in 2007, and shall not cause a SERP Lump Sum to be made in 2007 that would not otherwise be payable in 2007; and, provided, further, that a Participant’s deferral election made in 2008 shall apply only with respect to a SERP Lump Sum that would not otherwise be payable in 2008, and shall not cause a SERP Lump Sum to be made in 2008 that would not otherwise be payable in 2008.  No election under this paragraph (5) may be made by a Participant after December 31, 2008.

(c)

Deferral Amounts.  The amount of Compensation which a Participant may elect to defer for a Plan Year is such Compensation earned on or after the time at which the Participant elects to defer each Plan Year in accordance with Section 3.1(a), and which is earned during such Plan Year.  The applicable limitations for any Participant shall be determined based on his classification by the Committee, determined on the first day of the Election Period for such Plan Year.  

(1)

Each Participant who is a Manager shall be permitted to defer, in any whole percentage:  (A) from 6% to 100% of Base Salary and (B) from 6% to 100% of his Bonus.

(2)

Each Participant who is an Executive Officer shall be permitted to defer, in any whole percentage:  (A) from 6% to 100% of Base Salary, (B) from 6% to 100% of his Bonus and (c) from 10% to 100% of his Restricted Stock Units, Severance Payments and SERP Lump Sum, subject to Section 3.1(b).

(3)

Each Participant who is a Director shall be permitted to defer, in any whole percentage, from 10% to 100% of his Compensation.

Notwithstanding the limitations established above, the total amount deferred by a Participant shall be limited in any calendar year, if necessary, to satisfy the Participant’s income and employment tax withholding obligations  (including Social Security, unemployment and Medicare), and the Participant’s employee benefit plan contribution requirements, determined on the first day of the Election Period for such Plan Year, as determined by the Committee.  If permitted by the Committee, the Participant may make deferrals for a Plan Year with respect to any designated portion of his Compensation (such as meeting fees, for example), to the extent elected by such Participant during the Election Period for such Plan Year.

(d)

Duration of Deferral Election.

(1)

A Participant shall not modify or suspend his election to defer Compensation during a Plan Year.

(2)

A Participant must file a new deferral election for each subsequent Plan Year.  In the event a Participant fails to file a timely deferral election for the next Plan Year, he shall be deemed to have elected not to defer any Compensation for such Plan Year.

(3)

A Participant’s election to defer all or any portion of his SERP Lump Sum shall automatically become void in the event the Participant dies or becomes disabled while employed by the Company.

(e)

Elections.  Subject to the limitations of subsection (b), any Eligible Individual who does not elect to defer Compensation during his Election Period for a Plan Year may subsequently become a Participant.  

(f)

Termination of Participation and/or Deferrals.  If the Committee determines in good faith that a Participant no longer qualifies as a Director or a member of a select group of management or highly compensated employees, as membership in such group is determined in accordance with Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, the Committee shall have the right, in its sole discretion and only for purposes of preserving the Plan’s exemption from Title I of ERISA, to (1) terminate any deferral election the Participant has made for the remainder of the Plan Year in which the Participant’s membership status changes, (2) prevent the Participant from making future deferral elections and/or (3) immediately distribute the balance of the Participant’s Accounts and terminate the Participant’s participation in the Plan.

3.2

Distribution Elections.

(a)

General Rule.  Each Participant shall make a separate distribution election with respect to each Plan Year for which such Participant elects to defer Compensation in accordance with Section 3.1.  A Participant’s distribution election with respect to a Plan Year shall apply to:  (1) the subaccount in his Deferral Account to which shall be credited the amount equal to the portion of his Compensation earned during such Plan Year that he elects to defer pursuant to Section 3.1; and (2) the subaccount in his Company Matching Account to which shall be credited the amount equal to the Company Matching Contribution for such Plan Year.  A Participant’s distribution election with respect to a Plan Year shall elect the Payment Date and the form of distribution of his Distributable Amount with respect to such Plan Year for purposes of distributions under subsection 7.1(a) in the ev ent of such Participant’s Separation from Service or Disability.  Such Payment Date and distribution form elections shall be made on such Participant’s Deferral Election Form during the Election Period for which such Participant elects to defer Compensation under Section 3.1 for such Plan Year, and such Payment Date and distribution form elections with respect to such Plan Year shall be irrevocable, except as provided in subsection (b).  A Participant may elect any Payment Date described in Section 1.2(gg), and may elect distribution in the normal form, as described in paragraph 7.1(a)(1), or an optional form described in subparagraphs 7.1(a)(2)(A), (B) or (C).  In the event a Participant fails to elect a Payment Date for his Distributable Amount with respect to a Plan Year, his Payment Date for his Distributable Amount with respect to such Plan Year shall be the date described in Section 1.2(gg)(1).  In the event a Participant fails to make a distribution form election for his Distributable Amount with respect to a Plan Year, his Distributable Amount with respect to such Plan Year shall be distributed in the normal form, as described in paragraph 7.1(a)(1) in the event of his Separation from Service or Disability, except as provided in subsection (b).  Except as provided in subsection (b), a Participant’s distribution for his Distributable Amount with respect to a Plan Year shall be made or commence on such Participant’s Payment Date.


(b)

Changes to Distribution Form Election.   Subject to subsection (e), a Participant may change his distribution form election for his Distributable Amount with respect to a Plan Year in accordance with this subsection (b) as follows:


(1)

Change from Lump Sum.  If such Participant elected to receive the distribution of his Distributable Amount with respect to a Plan Year in the event of his Separation from Service or Disability in a lump sum, as provided in subparagraph 7.1(a)(2)(iii), such Participant may change such distribution form election by making a new distribution form election for his Distributable Amount with respect to such Plan Year providing for distribution in one of the following forms, with such distribution made or commencing on the fifth anniversary of his Payment Date:


(A)

a lump sum,


(B)

annual installments (calculated as set forth at Section 7.1(a)(6)) over five years,

 

(C)

annual installments (calculated as set forth at Section 7.1(a)(6) over ten (10) years, or


(D)

annual installments (calculated as set forth at Section 7.1(a)(6)) over fifteen (15) years.


(2)

Change from Installments.  If such Participant elected to receive the distribution of his Distributable Amount with respect to a Plan Year in the event of his Separation from Service or Disability in the normal form, as described in paragraph 7.1(a)(1)(A) (annual installments over ten years), or an optional form, as provided in subparagraph 7.1(a)(2)(A) (annual installments over five years) or (B) (annual installments over fifteen years), such Participant may change such distribution form election by making a new distribution form election for his Distributable Amount with respect to such Plan Year providing for distribution in one of the following forms, with such distribution commencing on the fifth anniversary of his Payment Date:


(i)

annual installments (calculated as set forth at Section 7.1(a)(6)) over the period of years specified in such Participant’s initial distribution form election, or


(ii)

annual installments (calculated as set forth at Section 7.1(a)(6)) over a period of either ten (10) years or fifteen (15) years, provided that such period exceeds the period of years specified in such Participant’s initial distribution form election.


(3)

A Participant may make only one change to his distribution form election with respect to a Plan Year under this subsection (b).


(c)

Election of Scheduled Withdrawal Date.  A Participant may elect a Scheduled Withdrawal Date with respect to his deferrals of Compensation (but excluding any investment earnings on such amounts) (the “Withdrawal Amount”) with respect to a Plan Year.  Such election of a Scheduled Withdrawal Date for such Participant’s Withdrawal Amount with respect to a Plan Year shall be made by such Participant during the Election Period for which such Participant elects to defer Compensation under Section 3.1 for such Plan Year, and such election of a Scheduled Withdrawal Date shall be irrevocable, except as provided in subsection (d).  A Participant may make separate Scheduled Withdrawal Date elections for his deferrals of Compensation (excluding any investment earnings on such amounts) with respect to different Plan Years.  A Participant’s Withdrawal Amount with respect to a Plan Year shall be credited to subaccounts under such Participant’s Accounts for such Plan Year.  A Participant shall not be required to elect a Scheduled Withdrawal Date with respect to his deferrals of Compensation for a Plan Year and, if a Participant fails to make an election of a Scheduled Withdrawal Date for a Plan Year, no Scheduled Withdrawal Date shall apply with respect to his deferrals of Compensation for such Plan Year.


(d)

Change of Scheduled Withdrawal Date.  Subject to subsection (e), if a Participant elected a Scheduled Withdrawal Date with respect to his deferrals of Compensation (excluding any investment earnings on such amounts) with respect to a Plan Year, such Participant may change such Scheduled Withdrawal Date for the Withdrawal Amount with respect to such Plan Year by electing a new Scheduled Withdrawal Date for the Withdrawal Amount with respect to such Plan Year that is not less than five years later than the Scheduled Withdrawal Date previously elected by such Participant for such Plan Year.   A Participant who has not elected a Scheduled Withdrawal Date for his deferrals of Compensation (excluding any investment earnings on such amounts) for a Plan Year may not subsequently elect a Scheduled Withdrawal Date for his deferrals of Compensation (excluding any investment earnings on such amou nts) for such Plan Year.  A Participant may make only one change to the Scheduled Withdrawal Date with respect to each Plan Year under this subsection (d).


(e)

Limitation on Distribution Changes.  A Participant’s election to change to his distribution form election with respect to a Plan Year under subsection (b), or change of a Scheduled Withdrawal Date with respect to a Plan Year under subsection (d), shall be subject to the following limitations:


(1)

The Participant’s election to change his distribution election form with respect to a Plan Year, or change his Scheduled Withdrawal Date with respect to a Plan Year, shall not take effect until at least twelve (12) months after his election to change the distribution form election, or Scheduled Withdrawal Date, is made.  If the distribution of such Participant’s Distributable Amount with respect to a Plan Year (in the case of a change in his distribution election form), or the distribution of the Withdrawal Amount with respect to such Plan Year (in the case of a change in his Scheduled Withdrawal Date), is made or commence before the election to change his distribution form election or Scheduled Withdrawal Date, as the case may be, becomes effective, the election to change his distribution form election or Scheduled Withdrawal Date shall not thereafter become effective, and distributions sh all be made in accordance with the distribution form election, and Scheduled Withdrawal Date (if any), as applicable, in effect prior to the Participant’s election to change.


(2)

The Participant’s election to change his distribution election form with respect to a Plan Year, or change his Scheduled Withdrawal Date with respect to a Plan Year, shall provide that each payment with respect to such new distribution form election, or new Scheduled Withdrawal Date, shall be deferred for a period of not less than five years from the date such payment would otherwise have been made.


(3)

The Participant’s election to change his Scheduled Withdrawal Date with respect to a Plan Year shall not be made less than twelve (12) months prior to the date of the first scheduled payment under the Participant’s initial election of the Scheduled Withdrawal Date with respect to such Plan Year.


The limitations under this subsection (e) shall be applied in accordance with Section 409A(a)(4)(C) of the Code and the Treasury Regulations thereunder.


(f)

Special Distribution Changes.  Notwithstanding the limitations under subsections (b), (d) and (e), a Participant may (1) elect to change his distribution form election with respect to a Plan Year, (2) elect to change his Scheduled Withdrawal Date with respect to a Plan Year, or (3) elect a Scheduled Withdrawal Date with respect to a Plan Year (if the Participant has not previously made a Scheduled Withdrawal Date with respect to such Plan Year under subsection (c)).  Such election shall be irrevocable when made and shall be made on or after January 1, 2006 and on or before December 31, 2008 in accordance with the transitional relief under Section 409A of the Code and Internal Revenue Service Notices 2006-79 and 2007-86; provided, however, that a Participant’s election made in 2006 shall apply only with respect to payments that would not otherwise be payable in 2006, and shall not cause payments to be made in 2006 that would not otherwise be payable in 2006; and, provided, further, that a Participant’s election made in 2007 shall apply only with respect to payments that would not otherwise be payable in 2007, and shall not cause payments to be made in 2007 that would not otherwise be payable in 2007; and, provided, further, that a Participant’s election made in 2008 shall apply only with respect to payments that would not otherwise be payable in 2008, and shall not cause payments to be made in 2008 that would not otherwise be payable in 2008.  No election under this subsection (f) may be made by a Participant after December 31, 2008.

3.3

Company Matching Contributions

(a)

The Company shall make a Company Matching Contribution for a Plan Year, on behalf of each Participant who is selected by the Company prior to the first day of such Plan Year and makes deferrals of Base Salary and Bonus under Article III, in an amount equal to:

(1)

the product of (A) the rate of the matching contribution under the 401(k) Plan in which the Participant participates and (B) the sum of:  (I) 6% of the Participant’s compensation (as defined in the 401(k) Plan) for the Plan Year, and (II) the Participant’s deferrals of Base Salary and Bonus under the Plan for the Plan Year, to the extent such sum does not exceed 6% of such Participant’s Base Salary and Bonus for such Plan Year, less

(2)

3% of such Participant’s compensation (as defined in the 401(k) Plan) for the Plan Year.  

Notwithstanding the above, the Company reserves the right to change the Company Matching Contribution in its sole discretion for any subsequent Plan Year.

(b)

The Company Matching Contribution for a Plan Year shall be credited to a Participant’s Company Matching Account in the manner determined by the Committee prior to the first day of such Plan Year.

3.4

FICA and Other Taxes.  

(a)

Annual Deferral Amounts.  For each Plan Year in which a Participant who is an employee makes a deferral under Section 3.1, the Company shall withhold from that portion of the Participant’s Compensation that is not being deferred, in a manner determined by the Company, the Participant’s share of FICA and other employment taxes on such amount.  If necessary, the Committee may reduce the Participant's deferrals under Section 3.1 or make deductions from his Deferral Account in order to comply with this Section, to the extent permitted under Section 409A of the Code and the Treasury Regulations thereunder.

(b)

Company Matching Amounts.  For each Plan Year in which a Participant is credited with a contribution to his Company Matching Account under Section 3.3, the Company shall withhold from the Participant’s Compensation that is not deferred, in a manner determined by the Company, the Participant’s share of FICA and other employment taxes.  If necessary, the Committee may reduce the Participant’s Company Matching Account in order to comply with this Section, to the extent permitted under Section 409A of the Code and the Treasury Regulations thereunder.

ARTICLE IV.
INVESTMENTS

4.1

Measurement Funds.

(a)

In the manner designated by the Committee, Participants may elect one or more Measurement Funds to be used to determine the additional amounts to be credited to their Accounts.  Although the Participant may designate the Measurement Funds, the Committee shall not be bound by such designation; provided, however, that any substitute Measurement Funds designated by the Committee for a Participant must provide the Participant with an investment opportunity comparable to the original Measurement Funds designated by the Participant.  The Committee shall select from time to time, in its sole discretion, the Measurement Funds to be available under the Plan; provided, however, that such Measurement Funds shall be the same as the investment funds which are available from time to time under the 401(k) Plan, except to the extent prohibited by law.  &nb sp;  

(b)

No Actual Investment.  Notwithstanding any other provision of this Plan that may be interpreted to the contrary, the Measurement Funds are to be used for measurement purposes only, and a Participant’s election of any such Measurement Fund, the allocation to his Accounts thereto, the calculation of additional amounts and the crediting or debiting of such amounts to a Participant’s Accounts shall not be considered or construed in any manner as an actual investment of his Accounts in any such Measurement Fund.  In the event that the Company or the trustee, in its own discretion, decides to invest funds in any or all of the Measurement Funds, no Participant shall have any rights in or to such investments themselves.  Without limiting the foregoing, a Participant’s Accounts shall at all times be a bookkeeping entry o nly and shall not represent any investment made on his behalf by the Company.  The Participant shall at all times remain an unsecured creditor of the Company.

4.2

Investment Elections.  

(a)

Executive Officers and Director Participants.  

(1)

Deferral Accounts.  Except as provided in Sections 4.2(a)(2) and 4.3, Participants who are either Executive Officers or Directors may designate how their Deferral Accounts shall be deemed to be invested under the Plan.

(A)

Such Participants may make separate investment elections for (I) their future deferrals of Compensation and (II) the existing balances of their Deferral Accounts.  

(B)

Such Participants may make and change their investment elections by choosing from the Measurement Funds designated by the Committee in accordance with the procedures established by the Committee.  

(C)

Except as otherwise designated by the Committee, the available Measurement Funds under this Section 4.2(a)(1) shall be the investment funds under the 401(k) Plan (excluding the Stable Value Fund and any brokerage account option).  Additionally, for the Deferral Account only, there shall also be a Measurement Fund based on the Moody’s Plus Rate.

(D)

If a Participant fails to elect a Measurement Fund under this Section, he shall be deemed to have elected the default Measurement Fund (as designated by the Committee) for all of his Accounts.

(2)

Company Matching Account and Certain Deferral Subaccounts.  The Company Matching Contributions credited to a Participant’s Company Matching Account, and the deferrals of a Participant’s Restricted Stock Units and Stock Option Gains credited to such Participant’s Deferral Account shall be initially deemed invested in the Sempra Energy Stock Fund.  A Participant may direct the investment of the balance of his Company Matching Account or the Restricted Stock Unit and the Stock Option Gain subaccounts of the Deferral Account into any other Measurement Fund, as permitted by the Committee.

(a)

Manager Participants.  

(1)

Deferral Account.  Any Participant who is a Manager shall have his Deferral Account invested in the Measurement Fund based on the Moody’s Plus Rate, except as otherwise permitted by the Committee.

(2)

Company Matching Account.  The Company Matching Contributions credited to a Participant’s Company Matching Account shall be initially deemed invested in the Sempra Energy Stock Fund.  A Participant may direct the investment of the balance of his Company Matching Account into any other Measurement Fund, as permitted by the Committee.

(b)

Continuing Investment Elections.  Participants who have had a Retirement or Termination but not yet commenced distributions under Article VII or Participants or Beneficiaries who are receiving installment payments may continue to make investment elections pursuant to subsection (a) and (b) above, as applicable, except as otherwise determined by the Committee.  

4.3

Compliance with Section 16 of the Exchange Act.  

(a)

Any Participant or Beneficiary who is subject to Section 16 of the Exchange Act shall have his Measurement Fund elections under the Plan subject to the requirements of the Exchange Act, as interpreted by the Committee.   Any such Participant or Beneficiary who elects to have any portion of his Deferral Account or his future deferrals (pursuant to Section 3.1) either (i) invested in the Sempra Energy Stock Fund or (ii) transferred from the Sempra Energy Stock Fund to another available Measurement Fund under the Plan may not make an election with the opposite effect under this Plan or any other Company-sponsored plan until six months and one day following the original election.

(b)

Notwithstanding any other provision of the Plan or any rule, instruction, election form or other form, the Plan and any such rule, instruction or form shall be subject to any additional conditions or limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3) that are requirements for the application of such exemptive rule.  To the extent permitted by applicable law, such Plan provision, rule, instruction or form shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

ARTICLE V.
ACCOUNTS

5.1

Accounts.

(a)

The Committee shall establish and maintain a Deferral Account, and a Company Matching Account for each Participant under the Plan. Each Participant’s Accounts shall be divided into separate subaccounts in accordance with Section 5.2.  Each such subaccount shall be further divided into separate investment fund subaccounts, each of which corresponds to a Measurement Fund elected by the Participant pursuant to Section 4.2.  In addition, Participants’ Deferral Accounts may be further divided into subaccounts consisting of deferred Restricted Stock Units and deferred Stock Option Gains.

(b)

The performance of each elected Measurement Fund (either positive or negative) shall be determined by the Committee, in its reasonable discretion, based on the performance of the Measurement Funds themselves.  A Participant’s Accounts shall be credited or debited on each Valuation Date based on the performance of each Measurement Fund selected by the Participant, as determined by the Committee in its sole discretion, as though (i) a Participant’s Accounts were invested in the Measurement Fund(s) selected by the Participant, in the percentages applicable to such period, as of the close of business on the first business day of such period, at the closing price on such date; (ii) the portion of the Participant's Compensation that was actually deferred pursuant to Section 3.1 during any period were invested in the Measurement Fund(s) selected b y the Participant, in the percentages applicable to such period, no later than the close of business on the first business day after the day on which such amounts are actually deferred from the Participant’s Compensation, at the closing price on such date; and (iii) any withdrawal or distribution made to a Participant that decreases such Participant’s Accounts ceased being invested in the Measurement Fund(s), in the percentages applicable to such period, no earlier than one business day prior to the distribution, at the closing price on such date.  The Participant’s Company Matching Contribution for a Plan Year shall be credited to his Company Matching Account for purposes of this Section, in the manner determined on the first day of the Election Period for such Plan Year, as determined by the Committee.

5.2

Subaccounts.

(a)

The Committee shall establish and maintain, with respect to a Participant’s Deferral Account, a subaccount with respect to each Plan Year, to which shall be credited the amount equal to the portion of the Participant’s Compensation earned during such Plan Year that he elects to defer pursuant to Section 3.1, debited by amounts equal to distributions to and withdrawals made by the Participant and/or his Beneficiary and adjusted for investment earnings and losses pursuant to Article V.

(b)

The Committee shall establish and maintain, with respect to a Participant’s Company Matching Account, a subaccount with respect to each Plan Year, to which shall be credited the amount equal to the Company Matching Contributions made pursuant to Section 3.3 on behalf of such Participant in respect of such Participant’s Compensation earned during such Plan Year that he elects to defer pursuant to Section 3.1, debited by amounts equal to distributions to and withdrawals made by the Participant and/or his Beneficiary and adjusted for investment earnings and losses pursuant to Article V.

ARTICLE VI.
VESTING

Each Participant shall be 100% vested in his Deferral Account and his Matching Account at all times.  


ARTICLE VII.
DISTRIBUTIONS

7.1

Distribution of Accounts.

(a)

Distribution at Separation from Service or Disability.

(1)

Normal Form.  

(A)

Except as provided in subparagraph (B), paragraph (2), paragraph (3) or Section 7.3, upon the Separation from Service or Disability of a Participant, a Participant’s Distributable Amount with respect to each Plan Year shall be paid to the Participant in substantially equal annual installments in cash (calculated as set forth in paragraph 7.1(a)(6)) over ten (10) years beginning on the Participant’s Payment Date.

(B)

Upon the Separation from Service of a Participant who is a Specified Employee (determined as of the date of Separation from Service), the distribution of the Participant’s Distributable Amount with respect each Plan Year shall not be made before the date which is six months after the date of such Participant’s Separation from Service (or, if earlier, the date of such Participant’s death) in accordance with Section 409A(a)(2)(B)(i) of the Code and the Treasury Regulations thereunder.

(2)

Optional Forms.  Instead of receiving his Distributable Amount with respect to each Plan Year as described at Section 7.1(a)(1)(A), the Participant may elect in accordance with Section 3.2 one of the following optional forms of payment (on the form provided by Company) at the time of his deferral election for such Plan Year:

(i)

equal annual installments in cash (calculated as set forth in paragraph 7.1(a)(6)) over five years beginning on the Participant’s Payment Date,

(ii)

equal annual installments in cash (calculated as set forth in paragraph 7.1(a)(6)) over fifteen (15) years beginning on the Participant’s Payment Date, or

(iii)

a lump sum in cash.

The payment of such Participant’s Distributable Amount with respect each Plan Year shall be made or commence on such Participant’s Payment Date (or, if applicable, the date determined under subparagraph (a)(1)(B)).

(3)

Distribution Election Changes.  In the event that a Participant changes his distribution form election with respect to a Plan Year in accordance with Section 3.2(b), and such new distribution form election becomes effective, upon the Separation from Service or Disability of such Participant, the Distributable Amount with respect to such Plan Year shall be paid to the Participant in accordance with such new distribution form election.

(4)

Small Accounts.  Notwithstanding provision to the contrary, in the event the  total of a Participant’s Distributable Amounts with respect to all Plan Years is equal to or less than $25,000, such Distributable Amounts shall be distributed to the Participant (or his Beneficiary, as applicable) in a lump sum.

(5)

Investment Adjustments.  The Participant’s Accounts shall continue to be adjusted for investment earnings and losses pursuant to Section 4.2 and Section 4.3 of the Plan until all amounts credited to his Accounts under the Plan have been distributed.

(6)

Calculating Installments.  All installment payments made under the Plan shall be determined in accordance with the annual fractional payment method, calculated as follows:  the balance of subaccounts in the Participant’s Accounts with respect to a Plan Year shall be calculated as of the close of business on the last business day of the year.  The annual installment shall be calculated by multiplying this balance by a fraction, the numerator of which is one, and the denominator of which is the remaining number of annual payments due the Participant.  By way of example, if the Participant elects 10 year installments for the distribution of the subaccounts in his Accounts with respect to a Plan Year, the first payment shall be 1/10 of the balance of such subaccounts in his Accounts calculated as described in this definition.  The following year, th e payment shall be 1/9 of such subaccounts in the balance of the Participant’s Accounts, calculated as described in this definition.  Each annual installment shall be paid on or as soon as practicable after the last business day of the applicable year.

(b)

Distribution on a Scheduled Withdrawal Date.  

(1)

In the case of a Participant who has elected a Scheduled Withdrawal Date for a distribution to be made while still in the employ of the Company or while still a Director, such Participant shall receive his deferrals of Compensation (but excluding any investment earnings on such amounts) (the “Withdrawal Amount”) as shall have been elected by the Participant to be subject to the Scheduled Withdrawal Date.  A Participant’s Scheduled Withdrawal Date with respect to amounts of Compensation deferred in a given Plan Year must be at least three years from the last day of the Plan Year for which such deferrals are made.  


(2)

The Withdrawal Amount shall be paid in a lump sum in cash.


(3)

A Participant may elect to change the Scheduled Withdrawal Date for the Withdrawal Amount for any Plan Year in accordance with Section 3.2(d).


(4)

In the event of Participant’s Separation from Service or Disability prior to a Scheduled Withdrawal Date, the Participant’s entire Withdrawal Amount shall be paid in accordance with the Participant’s election with respect to such Plan Year under Section 7.1(a).  In the event of a Participant’s death prior to a Scheduled Withdrawal Date, the Participant’s entire Withdrawal Amount shall be paid as soon as practicable after the Participant’s death in a lump sum in cash.  


(c)

Distribution upon Death.  In the event a Participant dies before he has begun receiving distributions under Section 7.1(a), his Accounts shall be paid to his Beneficiary in the same manner elected by the Participant.  In the event a Participant dies after he has begun receiving distributions under Section 7.1(a) with a remaining balance in his Accounts, the balance shall continue to be paid to his Beneficiary in the same manner.

7.2

Hardship Distribution.  

A Participant shall be permitted to elect a Hardship Distribution of all or a portion of his Accounts under the Plan prior to the Payment Date, subject to the following restrictions:

(a)

The election to take a Hardship Distribution shall be made by filing the form provided by the Committee before the date established by the Committee.

(b)

The Committee shall have made a determination that the requested distribution constitutes a Hardship Distribution in accordance with subsection (d).

(c)

The amount determined by the Committee as a Hardship Distribution shall be paid in a single lump sum in cash as soon as practicable after the end of the calendar month in which the Hardship Distribution election is made and approved by the Committee.  The Hardship Distribution shall be distributed proportionately from the subaccounts in the Participant’s Accounts.

(d)

If a Participant receives a Hardship Distribution, the Participant shall be ineligible to contribute deferrals to the Plan for the following Plan Year.  “Hardship Distribution” shall mean a severe financial hardship to the Participant resulting from (i) an illness or accident of the Participant, the Participant’s spouse or of his dependent (as defined in Section 152(a) of the Code), (ii) loss of a Participant’s property due to casualty, or (iii) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, as determined by the Committee in accordance with Section 409A(a)(2)(B)(ii)(I) of the Code and the Treasury Regulations thereunder.   The amount of the Hardship Distribution with respect to a severe financial hardship shall not exceed the amounts necess ary to satisfy such hardship, plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship), as determined by the Committee in accordance with Section 409A(a)(2)(B)(ii)(II) of the Code and the Treasury Regulations thereunder.  

7.3

Effect of a Change in Control.

(a)

In the event there is a Change in Control, the person who is the chief executive officer (or, if not so identified, the Company’s highest ranking officer) shall name a third-party fiduciary as the sole member of the Committee immediately prior to such Change in Control. The appointed fiduciary, shall provide for the immediate distributions of the accounts under the Plan in lump sum payments and cash.  

(b)

Upon and after the occurrence of a Change in Control, the Company must (i) pay all reasonable administrative fees and expenses of the appointed fiduciary, (ii) indemnify the appointed fiduciary against any costs, expenses and liabilities including, without limitation, attorney’s fees and expenses arising in connection with the appointed fiduciary's duties hereunder, other than with respect to matters resulting from the gross negligence of the appointed fiduciary or its agents or employees and (iii) timely provide the appointed fiduciary with all necessary information related to the Plan, the Participants and Beneficiaries.  

(c)

Notwithstanding Section 9.4, in the event there is a Change in Control no amendment may be made to this Plan except as approved by the third-party fiduciary.  Upon a Change in Control, assets shall be placed in a rabbi trust in an amount which shall equal the full accrued liability under this Plan as determined by Towers Perrin, or a successor actuarial firm.

7.4

Inability to Locate Participant.

In the event that the Committee is unable to locate a Participant or Beneficiary within two years following the required Payment Date, the amount allocated to the Participant’s Accounts shall be forfeited.  If, after such forfeiture, the Participant or Beneficiary later claims such benefit, such benefit shall be reinstated without interest or earnings from the date of forfeiture, subject to applicable escheat laws.

7.5

Prohibition on Acceleration of Distributions.

The time or schedule of payment of any withdrawal or distribution under the Plan shall not be subject to acceleration, except as provided under Treasury Regulations promulgated in accordance with Section 409A(a)(3) of the Code.

ARTICLE VIII.
ADMINISTRATION

8.1

Committee.

The Committee shall administer the Plan in accordance with this Article.

8.2

Administrator.  

The Administrator, unless restricted by the Committee, shall exercise the powers under Sections 8.4 and 8.5 except when the exercise of such authority would materially affect the cost of the Plan to the Company or materially increase benefits to Participants.

8.3

Committee Action.

The Committee shall act at meetings by affirmative vote of a majority of the members of the Committee.  Any action permitted to be taken at a meeting may be taken without a meeting if, prior to such action, a written consent to the action is signed by all members of the Committee and such written consent is filed with the minutes of the proceedings of the Committee.  A member of the Committee shall not vote or act upon any matter which relates solely to himself or herself as a Participant.  The chairman or any other member or members of the Committee designated by the chairman may execute any certificate or other written direction of behalf of the Committee.

8.4

Powers and Duties of the Committee.

(a)

The Committee, on behalf of the Participants and their Beneficiaries, shall enforce the Plan in accordance with its terms, shall be charged with the general administration of the Plan, and shall have all powers necessary to accomplish its purposes as set forth herein, including, but not by way of limitation, the following:

(1)

To select the Measurement Funds in accordance with Section 4.1 hereof;

(2)

To construe and interpret the terms and provisions of the Plan and to remedy any inconsistencies or ambiguities hereunder;

(3)

To select employees eligible to participate in the Plan;

(4)

To compute and certify to the amount and kind of benefits payable to Participants and their Beneficiaries;

(5)

To maintain all records that may be necessary for the administration of the Plan;

(6)

To provide for the disclosure of all information and the filing or provision of all reports and statements to Participants, Beneficiaries or governmental agencies as shall be required by law;

(7)

To make and publish such rules for the regulation of the Plan and procedures for the administration of the Plan as are not inconsistent with the terms hereof;

(8)

To appoint a plan administrator or any other agent, and to delegate to them such powers and duties in connection with the administration of the Plan as the Committee may from time to time prescribe; and

(9)

To take all actions necessary for the administration of the Plan.  

8.5

Construction and Interpretation.

The Committee shall have full discretion to construe and interpret the terms and provisions of this Plan, which interpretations or construction shall be final and binding on all parties, including but not limited to the Company and any Participant or Beneficiary.  The Committee shall administer such terms and provisions in a uniform and nondiscriminatory manner and in full accordance with any and all laws applicable to the Plan.

8.6

Information.

To enable the Committee to perform its functions, the Company shall supply full and timely information to the Committee on all matters relating to the Compensation of all Participants, their death or other events which cause termination of their participation in this Plan, and such other pertinent facts as the Committee may require.

8.7

Compensation, Expenses and Indemnity.

(a)

The members of the Committee shall serve without compensation for their services hereunder.

(b)

The Committee is authorized at the expense of the Company to employ such legal counsel and other advisors as it may deem advisable to assist in the performance of its duties hereunder.  Expenses and fees in connection with the administration of the Plan shall be paid by the Company.

(c)

To the extent permitted by applicable state law, the Company shall indemnify and save harmless the Committee and each member thereof, the Board of Directors and any delegate of the Committee who is an employee of the Company against any and all expenses, liabilities and claims, including legal fees to defend against such liabilities and claims arising out of their discharge in good faith of responsibilities under or incident to the Plan, other than expenses and liabilities arising out of willful misconduct.  This indemnity shall not preclude such further indemnities as may be available under insurance purchased by the Company or provided by the Company under any bylaw, agreement or otherwise, as such indemnities are permitted under state law.

8.8

Quarterly Statements.

Under procedures established by the Committee, a Participant shall receive a statement with respect to such Participant’s Accounts on a quarterly basis as of each March 31, June 30, September 30 and December 31.

8.9

Disputes.

(a)

Claim.

A person who believes that he is being denied a benefit to which he is entitled under the Plan (hereinafter referred to as “Claimant”) may file a written request for such benefit with the Administrator, setting forth his claim.  The request must be addressed to the Administrator at the Company at its then principal place of business.

(b)

Claim Decision.

Upon receipt of a claim, the Administrator shall advise the Claimant that a reply shall be forthcoming within 90 days and shall, in fact, deliver such reply within such period.  The Administrator may, however, extend the reply period for an additional 90 days for special circumstances.

If the claim is denied in whole or in part, the Administrator shall inform the Claimant in writing, using language calculated to be understood by the Claimant, setting forth: (i) the specified reason or reasons for such denial; (ii) the specific reference to pertinent provisions of this Agreement on which such denial is based; (iii) a description of any additional material or information necessary for the Claimant to perfect his claim and an explanation of why such material or such information is necessary; (iv) appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review; and (v) the time limits for requesting a review under subsection (c).

(c)

Request For Review.

With 60 days after the receipt by the Claimant of the written opinion described above, the Claimant may request in writing a review the determination of the Administrator.  Such review shall be completed by the Senior Vice-President of Human Resources of the Company for Participants who are Managers and by the Committee for Participants who are Executive Officers or Directors.  Such request must be addressed to the Secretary of the Company, at its then principal place of business.  The Claimant or his duly authorized representative may, but need not, review the pertinent documents and submit issues and comments in writing for consideration by the Senior Vice-President of Human Resources or the Committee, as applicable.  If the Claimant does not request a review within such 60-day period, he shall be barred and estopped from challenging the Administrator’s de termination.

(d)

Review of Decision.

Within 60 days after the receipt of a request for review by the Senior Vice-President of Human Resources or the Compensation Committee, as applicable, after considering all materials presented by the Claimant, the Senior Vice-President of Human Resources or the Compensation Committee, as applicable, shall inform the Participant in writing, in a manner calculated to be understood by the Claimant, the decision setting forth the specific reasons for the decision contained specific references to the pertinent provisions of this Plan on which the decision is based.  If special circumstances require that the 60 day time period be extended, the Senior Vice-President of Human Resources or the Compensation Committee, as applicable, shall so notify the Claimant and shall render the decision as soon as possible, but no later than 120 days after receipt of the request for review.

8.10

Compliance with Section 409A of the Code

The Plan shall be interpreted, construed and administered in a manner that satisfies the requirements of Sections 409A(a)(2), (3) and (4) of the Code and the Treasury Regulations thereunder.

ARTICLE IX.
MISCELLANEOUS

9.1

Unsecured General Creditor.

Participants and their Beneficiaries, heirs, successors, and assigns shall have no legal or equitable rights, claims, or interest in any specific property or assets of the Company.  No assets of the Company shall be held in any way as collateral security for the fulfilling of the obligations of the Company under this Plan.  Any and all of the Company’s assets shall be, and remain, the general unpledged, unrestricted assets of the Company.  The Company’s obligation under the Plan shall be merely that of an unfunded and unsecured promise of the Company to pay money in the future, and the rights of the Participants and Beneficiaries shall be no greater than those of unsecured general creditors.  It is the intention of the Company that this Plan be unfunded for purposes of the Code and Title I of ERISA.

9.2

Restriction Against Assignment.

(a)

The Company shall pay all amounts payable hereunder only to the person or persons designated by the Plan and not to any other person or entity.  No right, title or interest in the Plan or in any account may be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution.  No right, title or interest in the Plan or in any Account shall be liable for the debts, contracts or engagements of the Participant or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and vo id and of no effect, except to the extent that such disposition is permitted by the preceding sentence.

(b)

Notwithstanding the provisions of subsection (a), a Participant’s interest in his Account may be transferred by the Participant pursuant to a domestic relations order that constitutes a “qualified domestic relations order” as defined by the Code or Title I of ERISA.

9.3

Withholding.

There shall be deducted from each payment made under the Plan or any other Compensation payable to the Participant (or Beneficiary) all taxes which are required to be withheld by the Company in respect to such payment or this Plan.  The Company shall have the right to reduce any payment (or compensation) by the amount of such of cash sufficient to provide the amount of said taxes.

9.4

Amendment, Modification, Suspension or Termination.

(a)

Subject to Section 7.3, the Committee may amend, modify, suspend or terminate the Plan in whole or in part, except that no amendment, modification, suspension or termination shall have any retroactive effect to reduce any vested amounts allocated to a Participant’s Accounts. In the event of Plan termination, distributions shall continue to be made in accordance with the terms of the Plan.

(b)

Notwithstanding anything to the contrary in the Plan, if and to the extent the Company shall determine that the terms of the Plan may result in the failure of the Plan, or amounts deferred by or for any Participant under the Plan, to comply with the requirements of Section 409A of the Code, or any applicable regulations or guidance promulgated by the Secretary of the Treasury in connection therewith, the Company shall have authority to take such action to amend, modify, cancel or terminate the Plan or distribute any or all of the amounts deferred by or for a Participate, as it deems necessary or advisable, including without limitation:

(1)

Any amendment or modification of the Plan to conform the Plan to the requirements of Section 409A of the Code or any regulations or other guidance thereunder (including, without limitation, any amendment or modification of the terms of any applicable to any Participant’s Accounts regarding the timing or form of payment).

(2)

Any cancellation or termination of any unvested interest in a Participant’s Accounts without any payment to the Participant.

(3)

Any cancellation or termination of any vested interest in any Participant’s Accounts, with immediate payment to the Participant of the amount otherwise payable to such Participant.

Any such amendment, modification, cancellation, or termination of the Plan may adversely affect the rights of a Participant without the Participant’s consent.

9.5

Designation of Beneficiary.

(a)

Each Participant shall have the right to designate, revoke and redesignate Beneficiaries hereunder and to direct payment of his Distributable Amount to such Beneficiaries upon his death.

(b)

Designation, revocation and redesignation of Beneficiaries must be made in writing in accordance with the procedures established by the Committee and shall be effective upon delivery to the Committee.

(c)

No designation of a Beneficiary other than the Participant’s spouse shall be valid unless consented in writing by such spouse.  If there is no Beneficiary designation in effect, or the designated beneficiary does not survive the Participant, then the Participant’s spouse shall be the Beneficiary.  If there is no surviving spouse, the duly appointed and currently acting personal representative of the Participant’s estate (which shall include either the Participant’s probate estate or living trust) shall be the Beneficiary.

(d)

After the Participant’s death, any Beneficiary (other than the Participant’s estate) who is to receive installment payments may designate a secondary beneficiary to receive amounts due under this Plan to the Beneficiary in the event of the Beneficiary’s death prior to receiving full payment from the Plan.  If no secondary beneficiary is designated, it shall be the Beneficiary’s estate.

9.6

Insurance.

(a)

As a condition of participation in this Plan, each Participant shall, if requested by the Committee or the Company, undergo such examination and provide such information as may be required by the Company with respect to any insurance contracts on the Participant’s life and shall authorize the Company to purchase life insurance on his life, payable to the Company.

(b)

If the Company maintains an insurance policy on a Participant’s life to fund benefits under the Plan and such insurance policy is invalidated because (i) the Participant commits suicide during the two-year period beginning on the first day of the first Plan Year of such Participant’s participation in the Plan or because (ii) the Participant makes any material misstatement of information or nondisclosure of medical history, then the only benefits that shall be payable hereunder to such Participant, his Beneficiary or his surviving spouse, are the payment of the amount of deferrals of Compensation then credited to the Participant’s Accounts but without any interest including interest theretofore credited under this Plan.   

9.7

Governing Law.

Subject to ERISA, this Plan shall be construed, governed and administered in accordance with the laws of the State of California.

9.8

Receipt of Release.

Any payment to a Participant or the Participant’s Beneficiary in accordance with the provisions of the Plan shall, to the extent thereof, be in full satisfaction of all claims against the Committee and the Company.  The Committee may require such Participant or Beneficiary, as a condition precedent to such payment, to execute a receipt and release to such effect prior to the payment date specified under the Plan.

9.9

Compliance with Code Section 162(m)

It is the intent of the Company that any Compensation which is deferred under the Plan by a person who is, with respect to the year of distribution, deemed by the Committee to be a “covered employee” within the meaning of Code Section 162(m) and regulations thereunder, which Compensation constitutes either “qualified performance-based compensation” within the meaning of Code Section 162(m) and regulations thereunder or compensation not otherwise subject to the limitation on deductibility under Section 162(m) and regulations thereunder, shall not, as a result of deferral hereunder, become compensation with respect to which the Company in fact would not be entitled to a tax deduction under Code Section 162(m).   If the Company determines in good faith prior to a Change in Control that there is a reasonable likelihood that any compensation paid to a Partic ipant for a taxable year of the Company would not be deductible by the Company solely by reason of the limitation under Code Section 162(m), then to the extent deemed necessary by the Company to ensure that the entire amount of any distribution to the Participant pursuant to this Plan prior to the Change in Control is deductible, the Company may defer all or any portion of a distribution under this Plan.  Any amounts deferred pursuant to this limitation shall continue to be credited/debited with additional amounts in accordance with Article IV, even if such amount is being paid out in installments.  The amounts so deferred and amounts credited thereon shall be distributed to the Participant or his Beneficiary (in the event of the Participant’s death) commencing on the January 1 following the Plan Year in which such Participant’s Separation from Service, Disability or death occurs, or if earlier, the effective date of a Change in Control.  Notwithstanding anything to the contrary in t his Plan, this Section shall not apply to any distributions made after a Change in Control.

9.10

Payments on Behalf of Persons Under Incapacity.

In the event that any amount becomes payable under the Plan to a person who, in the sole judgment of the Committee, is considered by reason of physical or mental condition to be unable to give a valid receipt therefore, the Committee may direct that such payment be made to any person found by the Committee, in its sole judgment, to have assumed the care of such person.  Any payment made pursuant to such termination shall constitute a full release and discharge of the Committee and the Company.

9.11

Limitation of Rights

Neither the establishment of the Plan nor any modification thereof, nor the creating of any fund or account, nor the payment of any benefits shall be construed as giving to any Participant or other person any legal or equitable right against the Company except as provided in the Plan.  In no event shall the terms of employment of, or membership on the Board by, any Participant be modified or in any be effected by the provisions of the Plan.