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Sempra Energy/SDG&E/SoCalGas 9/30/2012 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

September 30, 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

1-03779

SAN DIEGO GAS & ELECTRIC COMPANY

California

95-1184800

No change

8326 Century Park Court

San Diego, California 92123

(619)696-2000

1-01402

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 registrant was 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 November 1, 2012:

Sempra Energy

241,851,686 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	73
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	111
Item 4.	Controls and Procedures	112

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	113
Item 1A.	Risk Factors	113
Item 6.	Exhibits	115

Signatures		117

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 and the timing of 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, the disallowance of the recovery of the investment in or operating costs of the generation facility due to an extended outage, and increased regulatory oversight;

§	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 September 30,				Nine months ended September 30,
		2012		2011(1)		2012		2011(1)
		(unaudited)
REVENUES
Utilities		$	2,170	$	2,065	$	6,099	$	5,933
Energy-related businesses			337		511		880		1,499
Total revenues			2,507		2,576		6,979		7,432
EXPENSES AND OTHER INCOME
Utilities:
Cost of natural gas			(212)		(322)		(864)		(1,367)
Cost of electric fuel and purchased power			(515)		(408)		(1,252)		(976)
Energy-related businesses:
Cost of natural gas, electric fuel and purchased power			(136)		(252)		(346)		(694)
Other cost of sales			(43)		(68)		(117)		(123)
Operation and maintenance			(732)		(691)		(2,123)		(2,003)
Depreciation and amortization			(280)		(251)		(803)		(729)
Franchise fees and other taxes			(89)		(84)		(264)		(259)
Equity (losses) earnings, before income tax:
Rockies Express Pipeline LLC			(87)		10		(366)		29
Other			(7)		(22)		(9)		(33)
Remeasurement of equity method investments			―		―		―		277
Other income, net			44		12		137		86
Interest income			5		6		14		21
Interest expense			(126)		(118)		(352)		(344)
Income before income taxes and equity earnings
of certain unconsolidated subsidiaries			329		388		634		1,317
Income tax expense			(49)		(75)		(48)		(289)
Equity earnings, net of income tax			10		6		29		45
Net income			290		319		615		1,073
Earnings attributable to noncontrolling interests			(20)		(29)		(44)		(21)
Preferred dividends of subsidiaries			(2)		(1)		(5)		(6)
Earnings		$	268	$	289	$	566	$	1,046

Basic earnings per common share		$	1.11	$	1.21	$	2.35	$	4.36
Weighted-average number of shares outstanding, basic (thousands)			241,689		239,545		241,133		239,693

Diluted earnings per common share		$	1.09	$	1.20	$	2.31	$	4.32
Weighted-average number of shares outstanding, diluted (thousands)			245,802		241,880		245,013		241,955
Dividends declared per share of common stock		$	0.60	$	0.48	$	1.80	$	1.44
(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 September 30,
		2012						2011(1)
		(unaudited)
				Non-						Non-
		Sempra		controlling				Sempra		controlling
		Energy		Interests		Total		Energy		Interests		Total
Net income		$	270	$	20	$	290	$	290	$	29	$	319
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments			80		8		88		(132)		(7)		(139)
Net actuarial (loss) gain			(10)		―		(10)		1		―		1
Financial instruments			(3)		(4)		(7)		(14)		(25)		(39)
Total other comprehensive income (loss)			67		4		71		(145)		(32)		(177)
Total comprehensive income (loss)			337		24		361		145		(3)		142
Preferred dividends of subsidiaries			(2)		―		(2)		(1)		―		(1)
Total comprehensive income (loss), after preferred
dividends of subsidiaries		$	335	$	24	$	359	$	144	$	(3)	$	141
		Nine months ended September 30,
		2012						2011(1)
		(unaudited)
				Non-						Non-
		Sempra		controlling				Sempra		controlling
		Energy		Interests		Total		Energy		Interests		Total
Net income		$	571	$	44	$	615	$	1,052	$	21	$	1,073
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments			114		11		125		(109)		(1)		(110)
Reclassification to net income of foreign currency
translation adjustments related to equity
method investments(2)			―		―		―		(54)		―		(54)
Net actuarial (loss) gain			(5)		―		(5)		8		―		8
Financial instruments			(9)		(13)		(22)		(18)		(34)		(52)
Total other comprehensive income (loss)			100		(2)		98		(173)		(35)		(208)
Total comprehensive income (loss)			671		42		713		879		(14)		865
Preferred dividends of subsidiaries			(5)		―		(5)		(6)		―		(6)
Total comprehensive income (loss), after preferred
dividends of subsidiaries		$	666	$	42	$	708	$	873	$	(14)	$	859
(1)	As adjusted for the retrospective effect of a change in accounting principle as we discuss in Note 1.
(2)	Related to the acquisition of Chilquinta Energía and Luz del Sur.
See Notes to Condensed Consolidated Financial Statements.

SEMPRA ENERGY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		September 30,		December 31,
		2012		2011(1)(2)
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	530	$	252
Restricted cash			42		24
Trade accounts receivable, net			922		1,198
Other accounts and notes receivable, net			152		147
Income taxes receivable			18		―
Inventories			398		346
Regulatory balancing accounts — undercollected			301		38
Regulatory assets			88		89
Fixed-price contracts and other derivatives			74		85
U.S. Treasury grants receivable			181		―
Settlements receivable related to wildfire litigation			180		10
Other			192		143
Total current assets			3,078		2,332

Investments and other assets:
Restricted cash			20		22
Regulatory assets arising from pension and other postretirement
benefit obligations			1,027		1,126
Regulatory assets arising from wildfire litigation costs			326		594
Other regulatory assets			1,155		1,060
Nuclear decommissioning trusts			892		804
Investments			1,585		1,671
Goodwill			1,109		1,036
Other intangible assets			441		448
Sundry			767		691
Total investments and other assets			7,322		7,452

Property, plant and equipment:
Property, plant and equipment			33,251		31,192
Less accumulated depreciation and amortization			(8,261)		(7,727)
Property, plant and equipment, net ($473 and $494 at September 30, 2012 and December 31, 2011, respectively, related to VIE)			24,990		23,465
Total assets		$	35,390	$	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)
		September 30,		December 31,
		2012		2011(1)(2)
		(unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt		$	584	$	449
Accounts payable — trade			970		983
Accounts payable — other			126		124
Income taxes payable			―		5
Deferred income taxes			155		173
Dividends and interest payable			309		219
Accrued compensation and benefits			273		323
Regulatory balancing accounts — overcollected			117		105
Current portion of long-term debt			709		336
Fixed-price contracts and other derivatives			82		92
Customer deposits			150		142
Reserve for wildfire litigation			284		586
Other			590		615
Total current liabilities			4,349		4,152
Long-term debt ($337 and $345 at September 30, 2012 and December 31, 2011, respectively, related to VIE)			11,193		10,078

Deferred credits and other liabilities:
Customer advances for construction			146		142
Pension and other postretirement benefit obligations, net of plan assets			1,337		1,423
Deferred income taxes			1,609		1,520
Deferred investment tax credits			47		49
Regulatory liabilities arising from removal obligations			2,673		2,551
Asset retirement obligations			1,981		1,905
Other regulatory liabilities			55		87
Fixed-price contracts and other derivatives			270		301
Reserve for wildfire litigation			127		10
Deferred credits and other			1,028		774
Total deferred credits and other liabilities			9,273		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; 242 million and 240 million shares
outstanding at September 30, 2012 and December 31, 2011, respectively; no par value)			2,178		2,104
Retained earnings			8,293		8,162
Deferred compensation			―		(2)
Accumulated other comprehensive income (loss)			(389)		(489)
Total Sempra Energy shareholders’ equity			10,082		9,775
Preferred stock of subsidiary			20		20
Other noncontrolling interests			394		383
Total equity			10,496		10,178
Total liabilities and equity		$	35,390	$	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)
		Nine months ended September 30,
		2012		2011(1)
		(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	615	$	1,073
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization			803		729
Deferred income taxes and investment tax credits			(45)		211
Equity losses (earnings)			346		(41)
Remeasurement of equity method investments			―		(277)
Fixed-price contracts and other derivatives			1		(7)
Other			(8)		(43)
Net change in other working capital components			(373)		(75)
Distributions from RBS Sempra Commodities LLP			―		53
Changes in other assets			202		31
Changes in other liabilities			147		(11)
Net cash provided by operating activities			1,688		1,643

CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment			(2,241)		(2,031)
Expenditures for investments and acquisition of businesses, net of cash acquired			(359)		(696)
Proceeds from sale of joint venture interest			9		―
Distributions from RBS Sempra Commodities LLP			―		374
Distributions from other investments			43		47
Purchases of nuclear decommissioning and other trust assets			(534)		(399)
Proceeds from sales by nuclear decommissioning and other trusts			534		398
Decrease in restricted cash			89		473
Increase in restricted cash			(105)		(450)
Other			(12)		(20)
Net cash used in investing activities			(2,576)		(2,304)

CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid			(405)		(325)
Redemption of subsidiary preferred stock			―		(80)
Preferred dividends paid by subsidiaries			(5)		(6)
Issuances of common stock			50		22
Repurchases of common stock			(16)		(18)
Issuances of debt (maturities greater than 90 days)			2,294		1,525
Payments on debt (maturities greater than 90 days)			(563)		(366)
Decrease in short-term debt, net			(142)		(300)
Purchase of noncontrolling interests			―		(43)
Distributions to noncontrolling interests			(36)		(10)
Other			(20)		5
Net cash provided by financing activities			1,157		404

Effect of exchange rate changes on cash and cash equivalents			9		2

Increase (decrease) in cash and cash equivalents			278		(255)
Cash and cash equivalents, January 1			252		912
Cash and cash equivalents, September 30		$	530	$	657
(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)
		Nine months ended September 30,
		2012		2011
		(unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments, net of amounts capitalized		$	278	$	281
Income tax payments, net of refunds			99		106

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES
Acquisition of businesses:
Assets acquired		$	29	$	2,831
Cash paid, net of cash acquired			(19)		(611)
Fair value of equity method investments immediately prior to the acquisition			―		(882)
Fair value of noncontrolling interests			―		(279)
Additional consideration accrued			―		(32)
Liabilities assumed		$	10	$	1,027

Accrued capital expenditures		$	315	$	306
U.S. Treasury grants receivable(1)			136		―

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES
Dividends declared but not paid		$	149	$	119
(1)	Cash grants, excluding $45 million previously recorded in 2011 as investment tax credits.
See Notes to Condensed Consolidated Financial Statements.

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

	Three months ended September 30,				Nine months ended September 30,
	2012		2011		2012		2011
	(unaudited)
Operating revenues
Electric	$	998	$	763	$	2,349	$	2,011
Natural gas		94		105		357		394
Total operating revenues		1,092		868		2,706		2,405
Operating expenses
Cost of electric fuel and purchased power		301		207		604		534
Cost of natural gas		29		40		130		175
Operation and maintenance		309		255		852		756
Depreciation and amortization		128		108		359		316
Franchise fees and other taxes		55		48		144		138
Total operating expenses		822		658		2,089		1,919
Operating income		270		210		617		486
Other income, net		5		26		59		55
Interest expense		(49)		(37)		(124)		(104)
Income before income taxes		226		199		552		437
Income tax expense		(38)		(63)		(151)		(154)
Net income		188		136		401		283
Earnings attributable to noncontrolling interest		(12)		(21)		(23)		(6)
Earnings		176		115		378		277
Preferred dividend requirements		(2)		(2)		(4)		(4)
Earnings attributable to common shares	$	174	$	113	$	374	$	273
See Notes to Condensed Consolidated Financial Statements.

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
	Three months ended September 30,
	2012						2011
	(unaudited)
			Non-						Non-
			controlling						controlling
	SDG&E		Interest		Total		SDG&E		Interest		Total
Net income	$	176	$	12	$	188	$	115	$	21	$	136
Other comprehensive income (loss), net of tax:
Net actuarial gain		―		―		―		1		―		1
Financial instruments		―		(4)		(4)		―		(25)		(25)
Total other comprehensive income (loss)		―		(4)		(4)		1		(25)		(24)
Total comprehensive income (loss)	$	176	$	8	$	184	$	116	$	(4)	$	112
	Nine months ended September 30,
	2012						2011
	(unaudited)
			Non-						Non-
			controlling						controlling
	SDG&E		Interest		Total		SDG&E		Interest		Total
Net income	$	378	$	23	$	401	$	277	$	6	$	283
Other comprehensive income (loss), net of tax:
Net actuarial gain		―		―		―		1		―		1
Financial instruments		―		(13)		(13)		―		(34)		(34)
Total other comprehensive income (loss)		―		(13)		(13)		1		(34)		(33)
Total comprehensive income (loss)	$	378	$	10	$	388	$	278	$	(28)	$	250
See Notes to Condensed Consolidated Financial Statements.

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		September 30,		December 31,
		2012		2011(1)
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	22	$	29
Restricted cash			11		21
Accounts receivable – trade, net			294		267
Accounts receivable – other, net			20		23
Due from unconsolidated affiliates			17		67
Income taxes receivable			171		102
Inventories			83		82
Regulatory balancing accounts, net			301		38
Regulatory assets arising from fixed-price contracts and other derivatives			63		67
Other regulatory assets			11		11
Fixed-price contracts and other derivatives			25		27
Settlements receivable related to wildfire litigation			180		10
Other			109		51
Total current assets			1,307		795

Other assets:
Restricted cash			20		22
Deferred taxes recoverable in rates			647		570
Regulatory assets arising from fixed-price contracts and other derivatives			138		191
Regulatory assets arising from pension and other postretirement
benefit obligations			287		309
Regulatory assets arising from wildfire litigation costs			326		594
Other regulatory assets			252		160
Nuclear decommissioning trusts			892		804
Sundry			89		70
Total other assets			2,651		2,720

Property, plant and equipment:
Property, plant and equipment			13,827		13,003
Less accumulated depreciation and amortization			(3,196)		(2,963)
Property, plant and equipment, net ($473 and $494 at September 30, 2012 and December 31, 2011, respectively, related to VIE)			10,631		10,040
Total assets		$	14,589	$	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)
		September 30,		December 31,
		2012		2011(1)
		(unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt		$	2	$	―
Accounts payable			304		375
Due to unconsolidated affiliate			20		14
Deferred income taxes			54		62
Dividends and interest payable			55		32
Accrued compensation and benefits			93		124
Current portion of long-term debt			19		19
Fixed-price contracts and other derivatives			54		55
Customer deposits			63		62
Reserve for wildfire litigation			284		586
Other			117		107
Total current liabilities			1,065		1,436
Long-term debt ($337 and $345 at September 30, 2012 and December 31, 2011, respectively, related to VIE)			4,293		4,058

Deferred credits and other liabilities:
Customer advances for construction			18		20
Pension and other postretirement benefit obligations, net of plan assets			323		342
Deferred income taxes			1,515		1,167
Deferred investment tax credits			26		26
Regulatory liabilities arising from removal obligations			1,575		1,462
Asset retirement obligations			724		693
Fixed-price contracts and other derivatives			220		243
Reserve for wildfire litigation			127		10
Deferred credits and other			421		178
Total deferred credits and other liabilities			4,949		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			2,785		2,411
Accumulated other comprehensive income (loss)			(10)		(10)
Total SDG&E shareholder's equity			4,113		3,739
Noncontrolling interest			90		102
Total equity			4,203		3,841
Total liabilities and equity		$	14,589	$	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)
	Nine months ended September 30,
	2012		2011
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	401	$	283
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		359		316
Deferred income taxes and investment tax credits		262		226
Fixed price contracts and other derivatives		(9)		(13)
Other		(55)		(43)
Net change in other working capital components		(518)		18
Changes in other assets		201		32
Changes in other liabilities		129		―
Net cash provided by operating activities		770		819

CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(998)		(1,162)
Purchases of nuclear decommissioning trust assets		(530)		(395)
Proceeds from sales by nuclear decommissioning trusts		524		389
Decrease in restricted cash		74		340
Increase in restricted cash		(62)		(355)
Net cash used in investing activities		(992)		(1,183)

CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution		―		200
Capital (distribution) contribution at Otay Mesa VIE		(22)		5
Preferred dividends paid		(4)		(4)
Issuance of long-term debt		249		348
Payments on long-term debt		(7)		(7)
Increase in short-term debt, net		2		―
Other		(3)		(2)
Net cash provided by financing activities		215		540

(Decrease) increase in cash and cash equivalents		(7)		176
Cash and cash equivalents, January 1		29		127
Cash and cash equivalents, September 30	$	22	$	303

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments, net of amounts capitalized	$	96	$	80
Income tax (refunds) payments, net		(121)		59

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES
Accrued capital expenditures	$	87	$	161

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES
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 September 30,				Nine months ended September 30,
	2012		2011		2012		2011
	(unaudited)

Operating revenues	$	728	$	844	$	2,328	$	2,776
Operating expenses
Cost of natural gas		175		267		703		1,133
Operation and maintenance		316		331		933		946
Depreciation and amortization		91		83		268		246
Franchise fees and other taxes		27		28		91		94
Total operating expenses		609		709		1,995		2,419
Operating income		119		135		333		357
Other income, net		6		3		14		9
Interest income		―		1		―		1
Interest expense		(17)		(17)		(51)		(52)
Income before income taxes		108		122		296		315
Income tax expense		(37)		(41)		(105)		(106)
Net income		71		81		191		209
Preferred dividend requirements		―		―		(1)		(1)
Earnings attributable to common shares	$	71	$	81	$	190	$	208
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 September 30,
	2012		2011
	(unaudited)
Net income	$	71	$	81
Other comprehensive income, net of tax:
Financial instruments		―		1
Total other comprehensive income		―		1
Total comprehensive income	$	71	$	82
	Nine months ended September 30,
	2012		2011
	(unaudited)
Net income	$	191	$	209
Other comprehensive income, net of tax:
Financial instruments		1		2
Total other comprehensive income		1		2
Total comprehensive income	$	192	$	211
See Notes to Condensed Consolidated Financial Statements.

SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		September 30,		December 31,
		2012		2011(1)
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	257	$	36
Accounts receivable – trade, net			273		578
Accounts receivable – other, net			72		63
Due from unconsolidated affiliates			280		40
Income taxes receivable			19		17
Inventories			166		151
Regulatory assets			6		9
Other			32		28
Total current assets			1,105		922

Other assets:
Regulatory assets arising from pension and other postretirement
benefit obligations			730		808
Other regulatory assets			117		137
Sundry			11		8
Total other assets			858		953

Property, plant and equipment:
Property, plant and equipment			10,919		10,565
Less accumulated depreciation and amortization			(4,098)		(3,965)
Property, plant and equipment, net			6,821		6,600
Total assets		$	8,784	$	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)
		September 30,		December 31,
		2012		2011(1)
		(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable – trade		$	254	$	315
Accounts payable – other			78		78
Due to unconsolidated affiliate			16		2
Deferred income taxes			42		44
Accrued compensation and benefits			102		99
Regulatory balancing accounts, net			117		105
Current portion of long-term debt			254		257
Customer deposits			76		75
Other			129		172
Total current liabilities			1,068		1,147
Long-term debt			1,409		1,064
Deferred credits and other liabilities:
Customer advances for construction			113		110
Pension and other postretirement benefit obligations, net of plan assets			756		833
Deferred income taxes			652		576
Deferred investment tax credits			21		23
Regulatory liabilities arising from removal obligations			1,084		1,075
Asset retirement obligations			1,197		1,161
Deferred taxes refundable in rates			55		87
Deferred credits and other			195		206
Total deferred credits and other liabilities			4,073		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			1,366		1,326
Accumulated other comprehensive income (loss)			(20)		(21)
Total shareholders' equity			2,234		2,193
Total liabilities and shareholders' equity		$	8,784	$	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)
	Nine months ended September 30,
	2012		2011
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	191	$	209
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		268		246
Deferred income taxes and investment tax credits		39		79
Other		(9)		(4)
Net change in other working capital components		240		(46)
Changes in other assets		4		17
Changes in other liabilities		13		(6)
Net cash provided by operating activities		746		495

CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(462)		(499)
Increase in loans to affiliates, net		(257)		(96)
Net cash used in investing activities		(719)		(595)

CASH FLOWS FROM FINANCING ACTIVITIES
Issuances of long-term debt		348		―
Common dividends paid		(150)		(50)
Payment of long-term debt		―		(250)
Preferred dividends paid		(1)		(1)
Debt issuance costs		(3)		―
Net cash provided by (used in) financing activities		194		(301)

Increase (decrease) in cash and cash equivalents		221		(401)
Cash and cash equivalents, January 1		36		417
Cash and cash equivalents, September 30	$	257	$	16

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments, net of amounts capitalized	$	36	$	39
Income tax payments, net of refunds		46		17

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES
Accrued capital expenditures	$	69	$	81
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 variable interest entities (VIEs). Sempra Energy’s principal operating units are

§	San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company (SoCalGas), which are separate, reportable segments;

§	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 and in our Current Report on Form 8-K filed on May 11, 2012, discussed below under “Basis of Presentation.”

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 September 30, 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.

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) and our Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30, 2012, which are combined reports for Sempra Energy, SDG&E and SoCalGas. You should also read the information in this Quarterly Report in conjunction with Sempra Energy’s Current Report on Form 8-K and accompanying exhibits, filed on May 11, 2012, which updates the information in the Annual Report primarily for the change in reportable segments (discussed above) and change in accounting principle (discussed below) and which we refer to in this Quarterly Report as the Updated Annual Report. Although the Updated Annual Report contains the separate information for SDG&E and SoCalGas, as filed in the Annual Report, the Form 8-K did not provide updates to their information as separate registrants as they were not impacted by the change in reportable segments or change in accounting principle at Sempra Energy.

Sempra South American Utilities has controlling interests in two electric distribution utilities in South America. Sempra Natural Gas owns Mobile Gas Service Corporation (Mobile Gas) in southwest Alabama and Willmut Gas Company (Willmut Gas) in Mississippi, and Sempra Mexico owns Ecogas Mexico, S de RL de CV (Ecogas) in Northern Mexico, all natural gas distribution utilities. The California Utilities, Sempra Natural Gas’ Mobile Gas and Willmut 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 Updated Annual Report.

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

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 and wind generating assets being placed into service during 2011 and 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 and nine months ending September 30, 2012 is insignificant. Cash grants are generally expected to be collectable in cash shortly after a project is constructed. Conversion of ITC to cash is generally dependent on reducing cash tax payments.

The following table summarizes the effects of the change in accounting principle on Sempra Energy’s Condensed Consolidated Financial Statements for the historical periods presented.

EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE – SEMPRA ENERGY CONSOLIDATED
(Dollars in millions, except per share amounts)
		Three months ended September 30, 2011
			As
			Originally				Retrospectively
			Reported		Adjustments		Adjusted
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Income tax expense		$	68	$	7	$	75
Net income			326		(7)		319
Earnings			296		(7)		289

Basic earnings per common share		$	1.23	$	(0.02)	$	1.21
Diluted earnings per common share		$	1.22	$	(0.02)	$	1.20

		Nine months ended September 30, 2011
			As
			Originally				Retrospectively
			Reported		Adjustments		Adjusted
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Depreciation and amortization		$	730	$	(1)	$	729
Income before income taxes and equity earnings
of certain unconsolidated subsidiaries			1,316		1		1,317
Income tax expense			269		20		289
Net income			1,092		(19)		1,073
Earnings			1,065		(19)		1,046

Basic earnings per common share		$	4.44	$	(0.08)	$	4.36
Diluted earnings per common share		$	4.40	$	(0.08)	$	4.32

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Net income		$	1,092	$	(19)	$	1,073
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization			730		(1)		729
Deferred income taxes and investment tax credits			224		(13)		211
Net change in other working capital components (income taxes)			(108)		33		(75)

		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			773		1		774
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 for all periods presented.

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.

ASU 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment” (ASU 2012-02): ASU 2012-02 amends ASC Topic 350, Intangibles – Goodwill and Others, to provide an option to first make a qualitative assessment of whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount before applying the quantitative impairment test. An entity is required to perform the quantitative test only if it determines that it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount.

We will adopt ASU 2012-02 for our annual impairment testing as of October 1, 2012 and do not expect it to significantly affect our 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 Updated Annual Report.

Our results for the nine months ended September 30, 2011 include a $277 million gain (both pretax and after-tax) related to the remeasurement of equity method investments, included as Remeasurement of Equity Method Investments on our Condensed Consolidated Statement of Operations. We discuss the calculation of the gain in Note 3 of the Notes to Consolidated Financial Statements in the Updated Annual Report.

Our Condensed Consolidated Statements of Operations include 100 percent of the acquired companies’ revenues, net income and earnings of $1.1 billion, $155 million and $135 million, respectively, for the nine months ended September 30, 2012, including revenues, net income, and earnings of $356 million, $56 million and $49 million, respectively, for the three months ended September 30, 2012. Net income and earnings include holding companies reported in Parent and Other. Revenues, net income and earnings from the date of acquisition were $706 million, $108 million and $92 million, respectively, for the nine months ended September 30, 2011 and $345 million, $60 million and $52 million, respectively, for the three months ended September 30, 2011. These amounts do not include the remeasurement gain.

Following are pro forma revenues and earnings for Sempra Energy had the acquisition occurred on January 1, 2010, which primarily reflect the changes 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 Updated Annual Report.

		Three months ended			Nine months ended
(Dollars in millions)		September 30, 2011