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Sempra Energy/SDG&E/SoCalGas 03/31/2012 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]

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

For the quarterly period ended

March 31, 2012

[ ]

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

For the transition period from

Commission File No.

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

States of Incorporation

I.R.S. Employer

Identification Nos.

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

1-14201

SEMPRA ENERGY

California

33-0732627

No change

101 Ash Street

San Diego, California 92101

(619)696-2000

1-3779

SAN DIEGO GAS & ELECTRIC COMPANY

California

95-1184800

No change

8326 Century Park Court

San Diego, California 92123

(619)696-2000

1-1402

SOUTHERN CALIFORNIA GAS COMPANY

California

95-1240705

No change

555 West Fifth Street

Los Angeles, California 90013

(213)244-1200

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

Yes

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

Sempra Energy

Yes

San Diego Gas & Electric Company

Yes

Southern California Gas Company

Yes

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

Large

accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Sempra Energy

[ X ]

[ ]

San Diego Gas & Electric Company

[ ]

[ X ]

[ ]

Southern California Gas Company

[ ]

[ X ]

[ ]

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

Sempra Energy

Yes

San Diego Gas & Electric Company

Yes

Southern California Gas Company

Yes

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

Common stock outstanding on April 30, 2012:

Sempra Energy

240,991,088 shares

San Diego Gas & Electric Company

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

Southern California Gas Company

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

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

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	62
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	92
Item 4.	Controls and Procedures	93

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	94
Item 1A.	Risk Factors	94
Item 6.	Exhibits	94

Signatures		96

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

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

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

We make statements in this report that are not historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are necessarily based upon assumptions with respect to the future, involve risks and uncertainties, and are not guarantees of performance. These forward-looking statements represent our estimates and assumptions only as of the filing date of this report. We assume no obligation to update or revise any forward-looking statement as a result of new information, future events or other factors.

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

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

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

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

§	capital markets conditions, including the availability of credit and the liquidity of our investments;

§	inflation, interest and exchange rates;

§	the impact of benchmark interest rates, generally U.S. Treasury bond and Moody’s A-rated utility bond yields, on our California Utilities’ cost of capital;

§	the timing and success of business development efforts and construction, maintenance and capital projects, including risks inherent in the ability to obtain, and the timing of granting of, permits, licenses, certificates and other authorizations;

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

§	the availability of electric power, natural gas and liquefied natural gas, including disruptions caused by failures in the North American transmission grid, pipeline explosions and equipment failures;

§	weather conditions, natural disasters, catastrophic accidents, and conservation efforts;

§	risks inherent in nuclear power generation and radioactive materials storage, including the catastrophic release of such materials;

§	risks posed by decisions and actions of third parties who control the operations of investments in which we do not have a controlling interest;

§	wars, terrorist attacks and cybersecurity threats;

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

§	expropriation of assets by foreign governments and title and other property disputes;

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

§	the inability or determination not to enter into long-term supply and sales agreements or long-term firm capacity agreements;

§	the resolution of litigation; and

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

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

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

		Three months ended March 31,
		2012		2011(1)
		(unaudited)
REVENUES
Utilities		$	2,091	$	1,946
Energy-related businesses			292		488
Total revenues			2,383		2,434
EXPENSES AND OTHER INCOME
Utilities:
Cost of natural gas			(431)		(642)
Cost of electric fuel and purchased power			(388)		(171)
Energy-related businesses:
Cost of natural gas, electric fuel and purchased power			(129)		(230)
Other cost of sales			(33)		(23)
Operation and maintenance			(671)		(639)
Depreciation and amortization			(257)		(230)
Franchise fees and other taxes			(96)		(95)
Equity earnings, before income tax			12		1
Other income, net			75		43
Interest income			5		3
Interest expense			(113)		(108)
Income before income taxes and equity earnings
of certain unconsolidated subsidiaries			357		343
Income tax expense			(117)		(114)
Equity earnings, net of income tax			11		31
Net income			251		260
Earnings attributable to noncontrolling interests			(13)		(4)
Preferred dividends of subsidiaries			(2)		(2)
Earnings		$	236	$	254

Basic earnings per common share		$	0.98	$	1.06
Weighted-average number of shares outstanding, basic (thousands)			240,566		240,128

Diluted earnings per common share		$	0.97	$	1.05
Weighted-average number of shares outstanding, diluted (thousands)			243,761		241,903
Dividends declared per share of common stock		$	0.60	$	0.48
(1)	As adjusted for the retrospective effect of a change in accounting principle as we discuss in Note 1.
See Notes to Condensed Consolidated Financial Statements.

SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
		Three months ended March 31,
		2012						2011(1)
		(unaudited)
				Non-						Non-
		Sempra		controlling				Sempra		controlling
		Energy		Interests		Total		Energy		Interests		Total
Net income		$	238	$	13	$	251	$	256	$	4	$	260
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments			67		4		71		(6)		―		(6)
Net actuarial gain			1		―		1		2		―		2
Financial instruments			3		―		3		2		1		3
Total other comprehensive income (loss)			71		4		75		(2)		1		(1)
Total comprehensive income			309		17		326		254		5		259
Preferred dividends of subsidiaries			(2)		―		(2)		(2)		―		(2)
Total comprehensive income, after preferred
dividends of subsidiaries		$	307	$	17	$	324	$	252	$	5	$	257
(1)	As adjusted for the retrospective effect of a change in accounting principle as we discuss in Note 1.
See Notes to Condensed Consolidated Financial Statements.

SEMPRA ENERGY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		March 31,		December 31,
		2012		2011(1)(2)
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	404	$	252
Restricted cash			23		24
Trade accounts receivable, net			1,062		1,198
Other accounts and notes receivable, net			177		147
Inventories			222		346
Regulatory balancing accounts — undercollected			71		38
Regulatory assets			105		89
Fixed-price contracts and other derivatives			83		85
Settlement receivable related to wildfire litigation			5		10
Other			146		143
Total current assets			2,298		2,332

Investments and other assets:
Restricted cash			24		22
Regulatory assets arising from pension and other postretirement
benefit obligations			1,074		1,126
Regulatory assets arising from wildfire litigation costs			603		594
Other regulatory assets			1,070		1,060
Nuclear decommissioning trusts			865		804
Investments			1,722		1,671
Goodwill			1,071		1,036
Other intangible assets			443		448
Sundry			799		691
Total investments and other assets			7,671		7,452

Property, plant and equipment:
Property, plant and equipment			31,995		31,192
Less accumulated depreciation and amortization			(7,919)		(7,727)
Property, plant and equipment, net ($488 and $494 at March 31, 2012 and December 31, 2011, respectively, related to VIE)			24,076		23,465
Total assets		$	34,045	$	33,249
(1)	As adjusted for the retrospective effect of a change in accounting principle as we discuss in Note 1.
(2)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

SEMPRA ENERGY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		March 31,		December 31,
		2012		2011(1)(2)
		(unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt		$	426	$	449
Accounts payable — trade			901		983
Accounts payable — other			112		124
Income taxes payable			53		5
Deferred income taxes			172		173
Dividends and interest payable			297		219
Accrued compensation and benefits			203		323
Regulatory balancing accounts — overcollected			240		105
Current portion of long-term debt			713		336
Fixed-price contracts and other derivatives			92		92
Customer deposits			148		142
Reserve for wildfire litigation			441		586
Other			682		615
Total current liabilities			4,480		4,152
Long-term debt ($342 and $345 at March 31, 2012 and December 31, 2011, respectively, related to VIE)			10,180		10,078

Deferred credits and other liabilities:
Customer advances for construction			143		142
Pension and other postretirement benefit obligations, net of plan assets			1,373		1,423
Deferred income taxes			1,601		1,520
Deferred investment tax credits			48		49
Regulatory liabilities arising from removal obligations			2,621		2,551
Asset retirement obligations			1,927		1,905
Other regulatory liabilities			80		87
Fixed-price contracts and other derivatives			281		301
Deferred credits and other			862		784
Total deferred credits and other liabilities			8,936		8,762
Contingently redeemable preferred stock of subsidiary			79		79

Commitments and contingencies (Note 10)

Equity:
Preferred stock (50 million shares authorized; none issued)			―		―
Common stock (750 million shares authorized; 241 million and 240 million shares
outstanding at March 31, 2012 and December 31, 2011, respectively; no par value)			2,117		2,104
Retained earnings			8,254		8,162
Deferred compensation			(1)		(2)
Accumulated other comprehensive income (loss)			(418)		(489)
Total Sempra Energy shareholders’ equity			9,952		9,775
Preferred stock of subsidiaries			20		20
Other noncontrolling interests			398		383
Total equity			10,370		10,178
Total liabilities and equity		$	34,045	$	33,249
(1)	As adjusted for the retrospective effect of a change in accounting principle as we discuss in Note 1.
(2)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
			Three months ended March 31,
			2012		2011(1)
			(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income			$	251	$	260
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization				257		230
Deferred income taxes and investment tax credits				31		82
Equity earnings				(23)		(32)
Fixed-price contracts and other derivatives				(12)		(9)
Other				14		(13)
Net change in other working capital components				168		297
Changes in other assets				12		(5)
Changes in other liabilities				1		(5)
Net cash provided by operating activities				699		805

CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment				(811)		(607)
Expenditures for investments				(51)		(4)
Distributions from investments				8		21
Purchases of nuclear decommissioning and other trust assets				(134)		(45)
Proceeds from sales by nuclear decommissioning and other trusts				135		46
Decrease in restricted cash				39		160
Increase in restricted cash				(40)		(320)
Other				(5)		(7)
Net cash used in investing activities				(859)		(756)

CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid				(115)		(94)
Preferred dividends paid by subsidiaries				(2)		(2)
Issuances of common stock				13		15
Repurchases of common stock				(16)		(18)
Issuances of debt (maturities greater than 90 days)				1,008		803
Payments on debt (maturities greater than 90 days)				(347)		(260)
Decrease in short-term debt, net				(224)		(192)
Other				(7)		6
Net cash provided by financing activities				310		258

Effect of exchange rate changes on cash and cash equivalents				2		―

Increase in cash and cash equivalents				152		307
Cash and cash equivalents, January 1				252		912
Cash and cash equivalents, March 31			$	404	$	1,219
(1)		As adjusted for the retrospective effect of a change in accounting principle as we discuss in Note 1.
	See Notes to Condensed Consolidated Financial Statements.

SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
	Three months ended March 31,
	2012		2011
	(unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments, net of amounts capitalized	$	62	$	63
Income tax payments, net of refunds		38		37

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Accrued capital expenditures	$	336	$	233
Dividends declared but not paid		151		118
See Notes to Condensed Consolidated Financial Statements.

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

	Three months ended March 31,
	2012		2011
	(unaudited)
Operating revenues
Electric	$	671	$	665
Natural gas		163		175
Total operating revenues		834		840
Operating expenses
Cost of electric fuel and purchased power		163		171
Cost of natural gas		67		83
Operation and maintenance		268		273
Depreciation and amortization		112		103
Franchise fees and other taxes		46		47
Total operating expenses		656		677
Operating income		178		163
Other income, net		30		16
Interest expense		(36)		(36)
Income before income taxes		172		143
Income tax expense		(60)		(49)
Net income		112		94
Earnings attributable to noncontrolling interest		(6)		(4)
Earnings		106		90
Preferred dividend requirements		(1)		(1)
Earnings attributable to common shares	$	105	$	89
See Notes to Condensed Consolidated Financial Statements.

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
	Three months ended March 31,
	2012						2011
	(unaudited)
			Non-						Non-
			controlling						controlling
	SDG&E		Interest		Total		SDG&E		Interest		Total
Net income	$	106	$	6	$	112	$	90	$	4	$	94
Other comprehensive income, net of tax:
Financial instruments		―		―		―		―		1		1
Total other comprehensive income		―		―		―		―		1		1
Total comprehensive income	$	106	$	6	$	112	$	90	$	5	$	95
See Notes to Condensed Consolidated Financial Statements.

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		March 31,		December 31,
		2012		2011(1)
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	139	$	29
Restricted cash			18		21
Accounts receivable – trade, net			228		267
Accounts receivable – other, net			23		23
Due from unconsolidated affiliates			1		67
Income taxes receivable			109		102
Inventories			77		82
Regulatory balancing accounts, net			71		38
Regulatory assets arising from fixed-price contracts and other derivatives			81		67
Other regulatory assets			11		11
Fixed-price contracts and other derivatives			28		27
Settlement receivable related to wildfire litigation			5		10
Other			37		51
Total current assets			828		795

Other assets:
Restricted cash			24		22
Deferred taxes recoverable in rates			585		570
Regulatory assets arising from fixed-price contracts and other derivatives			183		191
Regulatory assets arising from pension and other postretirement
benefit obligations			314		309
Regulatory assets arising from wildfire litigation costs			603		594
Other regulatory assets			162		160
Nuclear decommissioning trusts			865		804
Income taxes receivable			104		―
Sundry			73		70
Total other assets			2,913		2,720

Property, plant and equipment:
Property, plant and equipment			13,352		13,003
Less accumulated depreciation and amortization			(3,045)		(2,963)
Property, plant and equipment, net ($488 and $494 at March 31, 2012 and December 31, 2011, respectively, related to VIE)			10,307		10,040
Total assets		$	14,048	$	13,555
(1)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		March 31,		December 31,
		2012		2011(1)
		(unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	305	$	375
Due to unconsolidated affiliates			36		14
Deferred income taxes			59		62
Accrued compensation and benefits			65		124
Current portion of long-term debt			19		19
Fixed-price contracts and other derivatives			59		55
Customer deposits			67		62
Reserve for wildfire litigation			441		586
Other			202		139
Total current liabilities			1,253		1,436
Long-term debt ($342 and $345 at March 31, 2012 and December 31, 2011, respectively, related to VIE)			4,303		4,058

Deferred credits and other liabilities:
Customer advances for construction			19		20
Pension and other postretirement benefit obligations, net of plan assets			347		342
Deferred income taxes			1,337		1,167
Deferred investment tax credits			25		26
Regulatory liabilities arising from removal obligations			1,527		1,462
Asset retirement obligations			704		693
Fixed-price contracts and other derivatives			232		243
Deferred credits and other			270		188
Total deferred credits and other liabilities			4,461		4,141
Contingently redeemable preferred stock			79		79

Commitments and contingencies (Note 10)

Equity:
Common stock (255 million shares authorized; 117 million shares outstanding;
no par value)			1,338		1,338
Retained earnings			2,516		2,411
Accumulated other comprehensive income (loss)			(10)		(10)
Total SDG&E shareholder's equity			3,844		3,739
Noncontrolling interest			108		102
Total equity			3,952		3,841
Total liabilities and equity		$	14,048	$	13,555
(1)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
	Three months ended March 31,
	2012		2011
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	112	$	94
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		112		103
Deferred income taxes and investment tax credits		152		75
Fixed price contracts and other derivatives		(3)		(4)
Other		(27)		(12)
Net change in other working capital components		(85)		241
Changes in other assets		8		7
Changes in other liabilities		(3)		(3)
Net cash provided by operating activities		266		501

CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(398)		(348)
Purchases of nuclear decommissioning trust assets		(133)		(44)
Proceeds from sales by nuclear decommissioning trusts		131		42
Decrease in restricted cash		37		109
Increase in restricted cash		(36)		(311)
Net cash used in investing activities		(399)		(552)

CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution		―		200
Preferred dividends paid		(1)		(1)
Issuance of long-term debt		249		―
Payments on long-term debt		(3)		(3)
Other		(2)		―
Net cash provided by financing activities		243		196

Increase in cash and cash equivalents		110		145
Cash and cash equivalents, January 1		29		127
Cash and cash equivalents, March 31	$	139	$	272

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments, net of amounts capitalized	$	17	$	17
Income tax (refunds) payments, net		(62)		24

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Accrued capital expenditures	$	134	$	145
Dividends declared but not paid		1		1
See Notes to Condensed Consolidated Financial Statements.

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

	Three months ended March 31,
	2012		2011
	(unaudited)

Operating revenues	$	880	$	1,056
Operating expenses
Cost of natural gas		349		531
Operation and maintenance		289		288
Depreciation and amortization		87		81
Franchise fees and other taxes		36		37
Total operating expenses		761		937
Operating income		119		119
Other income, net		4		3
Interest expense		(17)		(17)
Income before income taxes		106		105
Income tax expense		(40)		(37)
Net income/Earnings attributable to common shares	$	66	$	68
See Notes to Condensed Consolidated Financial Statements.

SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
	Three months ended March 31,
	2012		2011
	(unaudited)
Net income	$	66	$	68
Total other comprehensive income, net of tax		―		―
Comprehensive income attributable to common and preferred shareholders	$	66	$	68
See Notes to Condensed Consolidated Financial Statements.

SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		March 31,		December 31,
		2012		2011(1)
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	70	$	36
Accounts receivable – trade, net			457		578
Accounts receivable – other, net			70		63
Due from unconsolidated affiliates			229		40
Income taxes receivable			―		17
Inventories			42		151
Regulatory assets			7		9
Temporary LIFO liquidation			32		―
Other			26		28
Total current assets			933		922

Other assets:
Regulatory assets arising from pension and other postretirement
benefit obligations			751		808
Other regulatory assets			138		137
Sundry			8		8
Total other assets			897		953

Property, plant and equipment:
Property, plant and equipment			10,679		10,565
Less accumulated depreciation and amortization			(4,017)		(3,965)
Property, plant and equipment, net			6,662		6,600
Total assets		$	8,492	$	8,475
(1)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		March 31,		December 31,
		2012		2011(1)
		(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable – trade		$	195	$	315
Accounts payable – other			73		78
Due to unconsolidated affiliate			―		2
Income taxes payable			5		―
Deferred income taxes			44		44
Accrued compensation and benefits			82		99
Regulatory balancing accounts, net			240		105
Current portion of long-term debt			256		257
Customer deposits			76		75
Other			197		172
Total current liabilities			1,168		1,147
Long-term debt			1,063		1,064
Deferred credits and other liabilities:
Customer advances for construction			111		110
Pension and other postretirement benefit obligations, net of plan assets			778		833
Deferred income taxes			599		576
Deferred investment tax credits			22		23
Regulatory liabilities arising from removal obligations			1,080		1,075
Asset retirement obligations			1,173		1,161
Deferred taxes refundable in rates			80		87
Deferred credits and other			209		206
Total deferred credits and other liabilities			4,052		4,071

Commitments and contingencies (Note 10)

Shareholders' equity:
Preferred stock			22		22
Common stock (100 million shares authorized; 91 million shares outstanding;
no par value)			866		866
Retained earnings			1,342		1,326
Accumulated other comprehensive income (loss)			(21)		(21)
Total shareholders' equity			2,209		2,193
Total liabilities and shareholders' equity		$	8,492	$	8,475
(1)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
	Three months ended March 31,
	2012		2011
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	66	$	68
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		87		81
Deferred income taxes and investment tax credits		14		48
Other		(1)		(2)
Net change in other working capital components		280		168
Changes in other assets		3		12
Changes in other liabilities		―		(4)
Net cash provided by operating activities		449		371

CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(165)		(168)
Increase in loans to affiliates, net		(200)		(287)
Net cash used in investing activities		(365)		(455)

CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid		(50)		(50)
Payment of long-term debt		―		(250)
Net cash used in financing activities		(50)		(300)

Increase (decrease) in cash and cash equivalents		34		(384)
Cash and cash equivalents, January 1		36		417
Cash and cash equivalents, March 31	$	70	$	33

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments, net of amounts capitalized	$	5	$	8
Income tax refunds, net		17		14

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Accrued capital expenditures	$	64	$	76
See Notes to Condensed Consolidated Financial Statements.

SEMPRA ENERGY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. GENERAL

PRINCIPLES OF CONSOLIDATION

2012 Business Segment Realignment

Effective January 1, 2012, management realigned some of the company’s major subsidiaries to better fit its strategic direction and to enhance the management and integration of our assets. This realignment resulted in a change in reportable segments in 2012. In accordance with accounting principles generally accepted in the United States (GAAP), historical information for Sempra Energy has been restated in its Condensed Consolidated Financial Statements and these Notes to reflect the effect of this change. All discussions of our operating units and reportable segments in these Notes reflect the new segments and operating structure.

Sempra Energy

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

§	San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company (SoCalGas);

§	Sempra International, which includes our Sempra South American Utilities and Sempra Mexico reportable segments; and

§	Sempra U.S. Gas & Power, which includes our Sempra Renewables and Sempra Natural Gas reportable segments.

We provide descriptions of each of our segments in Note 11.

We refer to SDG&E and SoCalGas collectively as the California Utilities, which do not include the utilities in our Sempra International and Sempra U.S. Gas & Power operating units. Sempra Global is the holding company for most of our subsidiaries that are not subject to California utility regulation. All references in these Notes to “Sempra International,” “Sempra U.S. Gas & Power” and their respective reportable segments are not intended to refer to any legal entity with the same or similar name.

Sempra Energy uses the equity method to account for investments in affiliated companies over which we have the ability to exercise significant influence, but not control. We discuss our investments in unconsolidated subsidiaries in Note 4 herein and Note 4 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2011.

SDG&E

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

SoCalGas

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

BASIS OF PRESENTATION

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

We have prepared the Condensed Consolidated Financial Statements in conformity with GAAP and in accordance with the interim-period-reporting requirements of Form 10-Q. Results of operations for interim periods are not necessarily indicative of results for the entire year. We evaluated events and transactions that occurred after March 31, 2012 through the date the financial statements were issued and, in the opinion of management, the accompanying statements reflect all adjustments necessary for a fair presentation. These adjustments are only of a normal, recurring nature.

As we discuss in Note 3, in April 2011, Sempra South American Utilities acquired controlling interests in two electric distribution utilities in South America. Sempra Natural Gas owns Mobile Gas Service Corporation (Mobile Gas) in southwest Alabama and Sempra Mexico owns Ecogas Mexico, S de RL de CV (Ecogas) in Northern Mexico, both natural gas distribution utilities. Previous to the quarterly report for the quarter ended June 30, 2011, we provided separate revenue and cost of revenue information on our consolidated statements of operations for the California Utilities only, as the amounts for Mobile Gas and Ecogas were immaterial. Due to the addition of the South American utilities, beginning with the quarterly report for the quarter ended June 30, 2011, we have provided separate revenue and cost of revenue information on the Condensed Consolidated Statements of Operations on a combined basis for all of our utilities. Accordingly, amounts in the quarterly period ended March 31, 2011 have been reclassified to conform with the current year presentation.

All December 31, 2011 balance sheet information in the Condensed Consolidated Financial Statements has been derived from our audited 2011 consolidated financial statements. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the interim-period-reporting provisions of GAAP and the Securities and Exchange Commission.

You should read the information in this Quarterly Report in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2011 (the Annual Report) which is a combined report for Sempra Energy, SDG&E and SoCalGas.

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

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

Change in Accounting Principle

Effective January 1, 2012, we changed our method of accounting for investment tax credits (ITC) from the flow-through method to the deferral method for Sempra Energy. Under the flow-through method, we reduced our income tax expense by the amount of ITC in the year in which the qualifying assets were placed in service. Under the deferral method, we record ITC in the year when the qualifying assets are placed in service as a reduction to the cost of the asset that generated the ITC. This results in lower book depreciation over the life of the asset. This change has no historical or prospective impact on the California Utilities because ITC is effectively deferred as a result of the application of regulatory accounting required under GAAP.

The flow-through method and the deferral method are both acceptable under GAAP, but the deferral method is the preferred method. We believe that the deferral method is preferable for the ITC we receive because it recognizes ITC benefits over the same periods as the associated costs for which the ITC are intended to compensate.

We applied this change in accounting principle by retrospectively adjusting the historical financial statement amounts for all periods presented. Upon adopting the deferral method, we recorded an adjustment for the cumulative effect of the change in accounting principle to reduce Sempra Energy Consolidated retained earnings as of January 1, 2011 by $37 million.

For certain solar generating assets being placed into service during 2012, we have elected to seek cash grants rather than ITC for which the projects also qualify. Accordingly, cash grant accounting, which is similar to deferral accounting of ITC, is required to be applied. As a result, the impact of our change in accounting policy for ITC on our financial statements for the three months ending March 31, 2012 is insignificant.

The following tables summarize the effects of the change in accounting principle on Sempra Energy Consolidated’s condensed financial statements for historical periods presented.

EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
(Dollars in millions, except per share amounts)
		Three months ended March 31, 2011
			As
			Originally				Retrospectively
Sempra Energy Consolidated			Reported		Adjustments		Adjusted
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Depreciation and amortization		$	231	$	(1)	$	230
Income before income taxes and equity earnings
of certain unconsolidated subsidiaries			342		1		343
Income tax expense			109		5		114
Net income			264		(4)		260
Earnings			258		(4)		254

Basic earnings per common share		$	1.07	$	(0.01)	$	1.06
Diluted earnings per common share		$	1.07	$	(0.02)	$	1.05

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Net income		$	264	$	(4)	$	260
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization			231		(1)		230
Deferred income taxes and investment tax credits			88		(6)		82
Net change in other working capital components (income taxes)			286		11		297

		As of December 31, 2011
			As
			Originally				Retrospectively
			Reported		Adjustments		Adjusted
CONDENSED CONSOLIDATED BALANCE SHEET
Property, plant and equipment		$	31,303	$	(111)	$	31,192
Less accumulated depreciation and amortization			(7,731)		4		(7,727)
Property, plant and equipment, net		$	23,572	$	(107)	$	23,465

Income taxes payable		$	16	$	(11)	$	5
Deferred income taxes, noncurrent liability			1,554		(34)		1,520
Deferred credits and other			783		1		784
Retained earnings(1)			8,225		(63)		8,162
(1)	Adjustment includes the cumulative effect of the change in accounting principle of reductions in net income and earnings of $26 million, $30 million, a negligible amount, and $7 million for the years ended December 31, 2011, 2010, 2009 and 2008, respectively.

NOTE 2. NEW ACCOUNTING STANDARDS

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

SEMPRA ENERGY, SDG&E AND SOCALGAS

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

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

§	quantitative information about the unobservable inputs

§	a description of the valuation process

§	a qualitative discussion about the sensitivity of the measurements

We adopted ASU 2011-04 on January 1, 2012 and it did not affect our financial position, results of operations or cash flows. The required disclosure is provided in Note 8.

ASU 2011-05, “Presentation of Comprehensive Income” (ASU 2011-05) and ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (ASU 2011-12): ASU 2011-05 amends ASC Topic 220, Comprehensive Income, and eliminates the option to report other comprehensive income and its components in the statement of changes in equity. The ASU allows an entity an option to present the components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive, statements.

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

ASU 2011-12 defers the requirement to separately present on the face of the statement of operations or statement of comprehensive income reclassification adjustments for items that are reclassified from other comprehensive income to net income.

We adopted ASU 2011-05 on January 1, 2012 and have elected to present the components of net income and other comprehensive income in two separate, but consecutive, statements.

ASU 2011-11, “Disclosures about Offsetting Assets and Liabilities” (ASU 2011-11): In order to allow for balance sheet comparison between GAAP and IFRSs, ASU 2011-11 requires enhanced disclosures related to financial assets and liabilities eligible for offsetting in the statement of financial position. An entity will have to disclose both gross and net information about financial instruments and transactions subject to a master netting arrangement and eligible for offset, including cash collateral received and posted.

We will adopt ASU 2011-11 on January 1, 2013 as required and do not expect it to affect our financial position, results of operations or cash flows. We will provide the additional disclosure in our 2013 interim financial statements.

NOTE 3. ACQUISITION AND INVESTMENT ACTIVITY

We discuss our investments in unconsolidated entities in Note 4.

SEMPRA SOUTH AMERICAN UTILITIES

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

On April 6, 2011, Sempra South American Utilities acquired from AEI its interests in Chilquinta Energía in Chile and Luz del Sur in Peru, and their subsidiaries. Prior to the acquisition, Sempra South American Utilities and AEI each owned 50 percent of Chilquinta Energía and approximately 38 percent of Luz del Sur and accounted for the investments under the equity method. Upon completion of the acquisition and a public tender offer to the minority shareholders of Luz del Sur, Sempra South American Utilities owned 100 percent of Chilquinta Energía and approximately 80 percent of Luz del Sur, with the remaining shares of Luz del Sur held by institutional investors and the general public. As part of the transaction, Sempra South American Utilities also acquired AEI’s interests in two energy-services companies, Tecnored S.A. (Tecnored) and Tecsur S.A. (Tecsur). We provide additional information about Sempra South American Utilities’ acquisition of Chilquinta Energía and Luz del Sur and the public tender offer in Note 3 of the Notes to Consolidated Financial Statements in the Annual Report.

Our Condensed Consolidated Statements of Operations for the three months ended March 31, 2012 include 100 percent of the acquired companies’ revenues, net income and earnings of $357 million, $49 million and $43 million, respectively. Net income and earnings include holding companies reported in Parent and Other. For the three months ended March 31, 2011, the acquired companies were accounted for as equity method investments and equity earnings were $12 million for each of Chilquinta Energía and Luz del Sur.

Following are pro forma revenues and earnings for Sempra Energy had the acquisition occurred at the beginning of the year prior to the year of acquisition, which primarily reflect the incremental increase to revenues and earnings from our increased ownership and consolidation of the entities acquired. Although some short-term debt borrowings may have resulted from the actual acquisition in 2011, we have not assumed any additional interest expense in the pro forma impact on earnings below, as the amounts would be immaterial due to the low interest rates available to us on commercial paper. The pro forma amounts do not include the impact of the increased ownership in Luz del Sur resulting from the tender offer completed in September 2011 discussed above and in Note 3 of the Notes to Consolidated Financial Statements in the Annual Report.

	Three months ended
(Dollars in millions)	March 31, 2011
Revenues	$	2,777
Earnings		279

NOTE 4. INVESTMENTS IN UNCONSOLIDATED ENTITIES

We provide additional information concerning all of our equity method investments in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.

SEMPRA RENEWABLES

For the three months ended March 31, 2012, Sempra Renewables invested $50 million in its renewable wind generation joint ventures, of which $43 million was invested in the Flat Ridge 2 Wind Farm project.

SEMPRA NATURAL GAS

Sempra Natural Gas owns a 25-percent interest in Rockies Express Pipeline LLC (Rockies Express), a partnership that operates a natural gas pipeline, the Rockies Express Pipeline (REX), that links producing areas in the Rocky Mountains region to the upper Midwest and the eastern United States. Kinder Morgan Energy Partners L.P. (KMP) and ConocoPhillips (Conoco) own the remaining interests of 50 percent and 25 percent, respectively. Our total investment in Rockies Express is accounted for as an equity method investment.

KMP has announced its intention to sell certain assets, including its interest in REX. KMP is proposing to divest these assets in order for KMP’s general partner, Kinder Morgan, Inc., to obtain approval for a proposed acquisition. We believe that this sales process could result in an indication of fair value for KMP’s interest in REX. If so, we would consider what, if any, impacts this information could have on our recorded value for REX. If such information indicated an impairment of our investment, we would also need to evaluate whether such impairment, if any, was other than temporary, in accordance with applicable accounting standards for equity method investments.

RBS SEMPRA COMMODITIES

RBS Sempra Commodities LLP (RBS Sempra Commodities) is a United Kingdom limited liability partnership that owned and operated commodities-marketing businesses previously owned by us. We and our partner in the joint venture, The Royal Bank of Scotland plc (RBS), sold substantially all of the partnership’s businesses and assets in four separate transactions completed in July, November and December of 2010 and February of 2011. We account for our investment in RBS Sempra Commodities under the equity method, and report our share of partnership earnings and other associated costs in Parent and Other.

In April 2011, we and RBS entered into a letter agreement (Letter Agreement) which amended certain provisions of the agreements that formed RBS Sempra Commodities. The Letter Agreement addresses the wind-down of the partnership and the distribution of the partnership’s remaining assets. The investment balance of $126 million at March 31, 2012 reflects remaining distributions expected to be received from the partnership in accordance with the Letter Agreement. The timing and amount of distributions may be impacted by the matters we discuss related to RBS Sempra Commodities in Note 10 under “Other Litigation.” In addition, amounts may be retained by the partnership for an extended period of time to help offset unanticipated future general and administrative costs necessary to complete the dissolution of the partnership.

In connection with the Letter Agreement described above, we also released RBS from its indemnification obligations with respect to the items for which J.P. Morgan Chase & Co. (JP Morgan), one of the buyers of the partnership’s businesses, has agreed to indemnify us.

Pretax equity losses from RBS Sempra Commodities were $8 million for the three months ended March 31, 2011. We recorded no equity earnings or loss related to the partnership in the first quarter of 2012. The fair value measurement of our investment in RBS Sempra Commodities was significantly impacted by unobservable inputs (i.e., Level 3 inputs) as defined by the accounting guidance for fair value measurements which we discuss in Note 11 in the Notes to Consolidated Financial Statements in the Annual Report. The inputs included estimated future cash distributions expected from the partnership.

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

NOTE 5. OTHER FINANCIAL DATA

TEMPORARY LIFO LIQUIDATION

SoCalGas values natural gas inventory by the last-in first-out (LIFO) method. As inventories are sold, differences between the LIFO valuation and the estimated replacement cost are reflected in customer rates. Temporary LIFO liquidation represents the difference between the carrying value of natural gas inventory withdrawn during the period for delivery to customers and the projected cost of the replacement of that inventory during summer months.

VARIABLE INTEREST ENTITIES (VIE)

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

§	the purpose and design of the VIE;

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

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

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

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

Otay Mesa VIE

SDG&E has a 10-year agreement to purchase power generated at the Otay Mesa Energy Center (OMEC), a 605-megawatt (MW) generating facility that began operations in October 2009. In addition to tolling, the agreement provides SDG&E with the option to purchase the power plant at the end of the contract term in 2019, or upon earlier termination of the purchased-power agreement, at a predetermined price subject to adjustments based on performance of the facility. If SDG&E does not exercise its option, under certain circumstances, it may be required to purchase the power plant at a predetermined price, which we refer to as the put option.

The facility owner, Otay Mesa Energy Center LLC (OMEC LLC), is a VIE (Otay Mesa VIE), of which SDG&E is the primary beneficiary. SDG&E has no OMEC LLC voting rights and does not operate OMEC. In addition to the risks absorbed under the tolling agreement, SDG&E absorbs separately through the put option a significant portion of the risk that the value of Otay Mesa VIE could decline. Sempra Energy and SDG&E have consolidated Otay Mesa VIE since the second quarter of 2007. Otay Mesa VIE’s equity of $108 million at March 31, 2012 and $102 million at December 31, 2011 is included on the Condensed Consolidated Balance Sheets in Other Noncontrolling Interests for Sempra Energy and in Noncontrolling Interest for SDG&E.

OMEC LLC has a loan outstanding of $352 million at March 31, 2012, the proceeds of which were used for the construction of OMEC. The loan is with third party lenders and is secured by OMEC’s property, plant and equipment. SDG&E is not a party to the loan agreement and does not have any additional implicit or explicit financial responsibility to OMEC LLC. The loan fully matures in April 2019 and bears interest at rates varying with market rates. In addition, OMEC LLC has entered into interest rate swap agreements to moderate its exposure to interest rate changes. We provide additional information concerning the interest rate swaps in Note 7.

Other Variable Interest Entities

SDG&E’s power procurement is subject to reliability requirements that may require SDG&E to enter into various power purchase arrangements which include variable interests. SDG&E evaluates the respective entities to determine if variable interests exist and, based on the qualitative and quantitative analyses described above, if SDG&E, and thereby Sempra Energy, is the primary beneficiary. SDG&E has determined that no contracts, other than the one relating to Otay Mesa VIE mentioned above, result in SDG&E being the primary beneficiary as of March 31, 2012. In addition to the tolling agreements described above, other variable interests involve various elements of fuel and power costs, including certain construction costs, tax credits, and other components of cash flow expected to be paid to or received by our counterparties. In most of these cases, the expectation of variability is not substantial, and SDG&E generally does not have the power to direct activities that most significantly impact the economic performance of the other VIEs. If our ongoing evaluation of these VIEs were to conclude that SDG&E becomes the primary beneficiary and consolidation by SDG&E becomes necessary, the effects are not expected to significantly affect the financial position, results of operations, or liquidity of SDG&E. SDG&E is not exposed to losses or gains as a result of these other VIEs, because all such variability would be recovered in rates.

Sempra Energy’s other business units also enter into arrangements which could include variable interests. We evaluate these arrangements and applicable entities based upon the qualitative and quantitative analyses described above. Certain of these entities are service companies that are VIEs. As the primary beneficiary of these service companies, we consolidate them. In all other cases, we have determined that these contracts are not variable interests in a VIE and therefore are not subject to the requirements of GAAP concerning the consolidation of VIEs.

The Condensed Consolidated Statements of Operations of Sempra Energy and SDG&E include the following amounts associated with Otay Mesa VIE. The amounts are net of eliminations of transactions between SDG&E and Otay Mesa VIE. The financial statements of other consolidated VIEs are not material to the financial statements of Sempra Energy. The captions on the table below correspond to SDG&E’s Condensed Consolidated Statements of Operations.

AMOUNTS ASSOCIATED WITH OTAY MESA VIE
(Dollars in millions)
	Three months ended March 31,
	2012	2011