PE/SoCalGas 2nd qtr 2005 Form 10-Q

 

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

FORM 10-Q

 

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

 

For the quarterly period ended

June 30, 2005

     

Commission File Number

Name of Registrant, State of Incorporation, Address and Telephone Number

 

(I.R.S. Employer Identification No.)

1-40

Pacific Enterprises
(A California Corporation)
101 Ash Street
San Diego, California 92101
(619) 696-2020

 

94-0743670

1-1402

Southern California Gas Company

(A California Corporation)
555 West Fifth Street
Los Angeles, California 90013
(213) 244-1200

 

95-1240705


No Change

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

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

 

Yes

X

 

No

 


Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

 

Yes

   

No

X


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

           

Common stock outstanding:

 

Pacific Enterprises

Wholly owned by Sempra Energy

Southern California Gas Company

Wholly owned by Pacific Enterprises






INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report contains statements that are not historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words "estimates," "believes," "expects," "anticipates," "plans," "intends," "may," "could," "would" and "should" or similar expressions, or discussions of strategy or of plans are intended to identify forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Future results may differ materially from those expressed in these forward-looking statements.

Forward-looking statements are necessarily based upon various assumptions involving judgments with respect to the future and other risks, including, among others, local, regional and national economic, competitive, political, legislative and regulatory conditions and developments; actions by the California Public Utilities Commission, the California State Legislature, and the Federal Energy Regulatory Commission and other regulatory bodies in the United States; capital markets conditions, inflation rates, interest rates and exchange rates; energy and trading markets, including the timing and extent of changes in commodity prices; the availability of natural gas; weather conditions and conservation efforts; war and terrorist attacks; business, regulatory, environmental and legal decisions and requirements; the status of deregulation of retail natural gas and electricity delivery; the timing and success of business development efforts; the resolution of litigation; and other uncertainties, all of which are difficult to predict and many of which are beyond the control of the companies. Readers are cautioned not to rely unduly on any forward-looking statements and are urged to review and consider carefully the risks, uncertainties and other factors which affect the companies' business described in this report and other reports filed by the companies from time to time with the Securities and Exchange Commission.

 






PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PACIFIC ENTERPRISES AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(Dollars in millions)

 

               

Three months ended

             

June 30,

             

2005

 

2004

                           

Operating revenues

$

940

   

$

847

 

                           

Operating expenses

             
 

Cost of natural gas

 

527

     

425

 
 

Other operating expenses

 

218

     

230

 
 

Depreciation

 

66

     

76

 
 

Income taxes

 

33

     

37

 
 

Franchise fees and other taxes

 

28

     

24

 

   

Total operating expenses

 

872

     

792

 

               

Operating income

 

68

     

55

 

               

Other income and deductions (Note 3)

 

2

     

5

 

               

Interest charges

             
 

Long-term debt

 

10

     

8

 
 

Other

 

3

     

4

 
 

Allowance for borrowed funds used during construction

 

(1

)

   

(1

)

   

Total

 

12

     

11

 

                 

Net income

   

58

     

49

 

Preferred dividend requirements

   

1

     

1

 

Earnings applicable to common shares

 

$

57

   

$

48

 

See notes to Consolidated Financial Statements.






PACIFIC ENTERPRISES AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(Dollars in millions)

 

               

Six months ended

             

June 30,

             

2005

 

2004

                           

Operating revenues

$

2,181

   

$

1,995

 

                           

Operating expenses

             
 

Cost of natural gas

 

1,328

     

1,146

 
 

Other operating expenses

 

433

     

440

 
 

Depreciation

 

132

     

150

 
 

Income taxes

 

81

     

81

 
 

Franchise fees and other taxes

 

61

     

57

 

   

Total operating expenses

 

2,035

     

1,874

 

               

Operating income

 

146

     

121

 

               

Other income and deductions (Note 3)

 

5

     

10

 

               

Interest charges

             
 

Long-term debt

 

20

     

17

 
 

Other

 

5

     

7

 
 

Allowance for borrowed funds used during construction

 

(1

)

   

(1

)

   

Total

 

24

     

23

 

                 

Net income

   

127

     

108

 

Preferred dividend requirements

   

2

     

2

 

Earnings applicable to common shares

 

$

125

   

$

106

 

See notes to Consolidated Financial Statements.






PACIFIC ENTERPRISES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)

 

           

June 30,

 

December 31,

           

2005

 

2004

                         

ASSETS

                 

Utility plant, at original cost

   

$

7,374

   

$

7,254

 

Accumulated depreciation

     

(2,936

)

   

(2,863

)

 

Utility plant, net

   

4,438

     

4,391

 

                 

Current assets:

               
 

Cash and cash equivalents

   

26

     

34

 
 

Accounts receivable - trade

   

376

     

673

 
 

Accounts receivable - other

   

30

     

14

 
 

Interest receivable

   

9

     

32

 
 

Due from unconsolidated affiliates

   

176

     

7

 
 

Income taxes receivable

   

105

     

31

 
 

Deferred income taxes

   

11

     

9

 
 

Regulatory assets arising from fixed-price contracts and other derivatives

   

83

     

97

 
 

Other regulatory assets

   

31

     

26

 
 

Inventories

   

24

     

72

 
 

Other

   

7

     

10

 

   

Total current assets

   

878

     

1,005

 

                 

Other assets:

               
 

Due from unconsolidated affiliates

   

409

     

396

 
 

Regulatory assets arising from fixed-price contracts and other derivatives

   

13

     

52

 
 

Sundry

   

83

     

109

 

   

Total other assets

   

505

     

557

 

Total assets

 

$

5,821

   

$

5,953

 

See notes to Consolidated Financial Statements.






PACIFIC ENTERPRISES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)

 

June 30,

December 31,

2005

2004

CAPITALIZATION AND LIABILITIES

Capitalization:

Common stock (600 million shares authorized; 84 million shares outstanding)

$

1,453

$

1,453

Retained earnings

310

285

Accumulated other comprehensive income (loss)

(4

)

(4

)

Total common equity

1,759

1,734

Preferred stock

80

80

Total shareholders' equity

1,839

1,814

Long-term debt

857

864

Total capitalization

2,696

2,678

Current liabilities:

Short-term debt

--

30

Accounts payable - trade

245

314

Accounts payable - other

42

65

Due to unconsolidated affiliates

73

127

Regulatory balancing accounts, net

179

178

Fixed-price contracts and other derivatives

84

97

Customer deposits

57

49

Current portion of long-term debt

8

--

Temporary LIFO liquidation

70

--

Other

250

269

Total current liabilities

1,008

1,129

Deferred credits and other liabilities:

Customer advances for construction

59

55

Postretirement benefits other than pensions

60

64

Deferred income taxes

124

123

Deferred investment tax credits

40

41

Regulatory liabilities arising from cost of removal
obligations

1,477

1,446

Other regulatory liabilities

63

67

Fixed-price contracts and other derivatives

13

52

Preferred stock of subsidiary

20

20

Deferred credits and other

261

278

Total deferred credits and other liabilities

2,117

2,146

Commitments and contingencies (Note 6)

Total liabilities and shareholders' equity

$

5,821

$

5,953

See notes to Consolidated Financial Statements.






PACIFIC ENTERPRISES AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in millions)

 

                     

Six months ended

                     

June 30,

                     

2005

 

2004

                                   

CASH FLOWS FROM OPERATING ACTIVITIES

                   
 

Net income

     

$

127

   

$

108

 

Adjustments to reconcile net income to net cash provided by

operating activities:

     

Depreciation

       

132

     

150

 
     

Deferred income taxes and investment tax credits

       

8

     

27

 
 

Net changes in other working capital components

       

201

     

384

 
 

Changes in other assets

       

2

     

--

 
 

Changes in other liabilities

       

(6

)

   

(42

)

     

Net cash provided by operating activities

       

464

     

627

 

                     

CASH FLOWS FROM INVESTING ACTIVITIES

                   
 

Expenditures for property, plant and equipment

       

(146

)

   

(144

)

 

Affiliate loans

       

(194

)

   

(204

)

     

Net cash used in investing activities

       

(340

)

   

(348

)

                     

CASH FLOWS FROM FINANCING ACTIVITIES

                   
 

Common dividends paid

       

(100

)

   

(100

)

 

Preferred dividends paid

       

(2

)

   

(2

)

 

Payments on long-term debt

       

--

     

(175

)

 

Decrease in short-term debt

       

(30

)

   

--

 

     

Net cash used in financing activities

       

(132

)

   

(277

)

                     

Increase (decrease) in cash and cash equivalents

       

(8

)

   

2

 

Cash and cash equivalents, January 1

       

34

     

32

 

Cash and cash equivalents, June 30

     

$

26

   

$

34

 

                 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

               
 

Interest payments, net of amounts capitalized

     

$

22

   

$

20

 

 

Income tax payments, net of refunds

     

$

135

   

$

33

 

See notes to Consolidated Financial Statements.






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

 

                 

Three months ended

                 

June 30,

                 

2005

 

2004

                               

Operating revenues

     

$

940

   

$

847

 

                     

Operating expenses

                   
 

Cost of natural gas

       

527

     

425

 
 

Other operating expenses

       

218

     

229

 
 

Depreciation

       

66

     

76

 
 

Income taxes

       

30

     

38

 
 

Franchise fees and other taxes

       

28

     

24

 

   

Total operating expenses

       

869

     

792

 

                     

Operating income

       

71

     

55

 

                     

Other income and deductions (Note 3)

     

(1

)

   

5

 

                   

Interest charges

                 
 

Long-term debt

       

10

     

8

 
 

Other

       

2

     

2

 
 

Allowance for borrowed funds used during construction

   

(1

)

   

(1

)

Total

11

9

Net income

59

51

Preferred dividend requirements

1

1

Earnings applicable to common shares

$

58

$

50

See notes to Consolidated Financial Statements.






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

 

                 

Six months ended

                 

June 30,

                 

2005

 

2004

                               

Operating revenues

     

$

2,181

   

$

1,995

 

                     

Operating expenses

                   
 

Cost of natural gas

       

1,328

     

1,146

 
 

Other operating expenses

       

433

     

438

 
 

Depreciation

       

132

     

150

 
 

Income taxes

       

77

     

81

 
 

Franchise fees and other taxes

       

61

     

57

 

   

Total operating expenses

       

2,031

     

1,872

 

                     

Operating income

       

150

     

123

 

                     

Other income and deductions (Note 3)

     

--

     

3

 

                   

Interest charges

                 
 

Long-term debt

       

20

     

17

 
 

Other

       

3

     

3

 
 

Allowance for borrowed funds used during construction

   

(1

)

   

(1

)

   

Total

       

22

     

19

 

Net income

128

107

Preferred dividend requirements

1

1

Earnings applicable to common shares

$

127

$

106

See notes to Consolidated Financial Statements.






SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)

 

June 30,

2005

December 31,

                   

2004

 

                   

ASSETS

                 

Utility plant, at original cost

   

$

7,374

   

$

7,254

 

Accumulated depreciation

     

(2,936

)

   

(2,863

)

   

Utility plant, net

     

4,438

     

4,391

 

                   

Current assets:

                 
 

Cash and cash equivalents

   

26

     

34

 
 

Accounts receivable - trade

   

376

     

673

 
 

Accounts receivable - other

   

30

     

13

 
 

Interest receivable

   

9

     

31

 
 

Due from unconsolidated affiliates

   

173

     

--

 
 

Income taxes receivable

   

31

     

--

 
 

Deferred income taxes

   

10

     

17

 
 

Regulatory assets arising from fixed-price contracts and other derivatives

   

83

     

97

 
 

Other regulatory assets

   

31

     

26

 
 

Inventories

   

24

     

72

 
 

Other

   

7

     

10

 

   

Total current assets

   

800

     

973

 

                             

Other assets:

               
 

Regulatory assets arising from fixed-price contracts and other derivatives

   

13

     

52

 
 

Sundry

   

60

     

86

 

   

Total other assets

   

73

     

138

 

Total assets

 

$

5,311

   

$

5,502

 

See notes to Consolidated Financial Statements.






SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)

 

June 30,

2005

December 31,

                   

2004

 

                 

CAPITALIZATION AND LIABILITIES

               

Capitalization:

               
 

Common stock (100 million shares authorized; 91 million shares outstanding)

 

$

866

   

$

866

 
 

Retained earnings

   

550

     

523

 
 

Accumulated other comprehensive income (loss)

   

(4

)

   

(4

)

   

Total common equity

   

1,412

     

1,385

 
 

Preferred stock

   

22

     

22

 

   

Total shareholders' equity

   

1,434

     

1,407

 
 

Long-term debt

   

857

     

864

 

   

Total capitalization

   

2,291

     

2,271

 

                 

Current liabilities:

               
 

Short-term debt

   

--

     

30

 
 

Accounts payable - trade

   

245

     

314

 
 

Accounts payable - other

   

42

     

65

 
 

Due to unconsolidated affiliates

   

--

     

55

 
 

Income taxes payable

   

--

     

63

 
 

Regulatory balancing accounts, net

   

179

     

178

 
 

Fixed-price contracts and other derivatives

   

84

     

97

 
 

Customer deposits

   

57

     

49

 
 

Current portion of long-term debt

   

8

     

--

 
 

Temporary LIFO liquidation

   

70

     

--

 
 

Other

   

248

     

267

 

   

Total current liabilities

   

933

     

1,118

 

                 

Deferred credits and other liabilities:

               
 

Customer advances for construction

   

59

     

55

 
 

Postretirement benefits other than pensions

   

60

     

64

 
 

Deferred income taxes

   

148

     

147

 
 

Deferred investment tax credits

   

40

     

41

 
 

Regulatory liabilities arising from cost of removal obligations

   

1,477

     

1,446

 
 

Other regulatory liabilities - net

   

63

     

67

 
 

Fixed-price contracts and other derivatives

   

13

     

52

 
 

Deferred credits and other

   

227

     

241

 

   

Total deferred credits and other liabilities

   

2,087

     

2,113

 

                 

Commitments and contingencies (Note 6)

               
                             

Total liabilities and shareholders' equity

 

$

5,311

   

$

5,502

 

See notes to Consolidated Financial Statements.






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

 

                     

Six months ended

                     

June 30,

                     

2005

 

2004

                                   

CASH FLOWS FROM OPERATING ACTIVITIES

                   
 

Net income

     

$

128

   

$

107

 

Adjustments to reconcile net income to net cash provided by

operating activities:

     

Depreciation

       

132

     

150

 
     

Deferred income taxes and investment tax credits

       

17

     

25

 
 

Net changes in other working capital components

       

175

     

325

 
 

Changes in other assets

       

1

     

--

 
 

Changes in other liabilities

       

(3

)

   

(22

)

     

Net cash provided by operating activities

       

450

     

585

 

                     

CASH FLOWS FROM INVESTING ACTIVITIES

                   
 

Expenditures for property, plant and equipment

       

(146

)

   

(144

)

 

Affiliate loan

       

(181

)

   

(163

)

     

Net cash used in investing activities

       

(327

)

   

(307

)

                     

CASH FLOWS FROM FINANCING ACTIVITIES

                   
 

Common dividends paid

       

(100

)

   

(100

)

 

Preferred dividends paid

       

(1

)

   

(1

)

 

Payments on long-term debt

       

--

     

(175

)

 

Decrease in short-term debt

       

(30

)

   

--

 

     

Net cash used in financing activities

       

(131

)

   

(276

)

                     

Increase (decrease) in cash and cash equivalents

       

(8

)

   

2

 

Cash and cash equivalents, January 1

       

34

     

32

 

Cash and cash equivalents, June 30

     

$

26

   

$

34

 

                 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW

   INFORMATION

 

Interest payments, net of amounts capitalized

     

$

19

   

$

17

 

 

Income tax payments, net of refunds

     

$

135

   

$

33

 

See notes to Consolidated Financial Statements.






NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. GENERAL

This Quarterly Report on Form 10-Q is that of Pacific Enterprises (PE) and of Southern California Gas Company (SoCalGas) (collectively referred to as the company or the companies). PE's common stock is wholly owned by Sempra Energy, a California-based Fortune 500 holding company, and PE owns all of the common stock of SoCalGas. The financial statements herein are, in one case, the Consolidated Financial Statements of PE and its subsidiary, SoCalGas, and, in the second case, the Consolidated Financial Statements of SoCalGas and its subsidiaries, which comprise less than one percent of SoCalGas' consolidated financial position and results of operations.

Sempra Energy also indirectly owns all of the common stock of San Diego Gas & Electric (SDG&E). SoCalGas and SDG&E are collectively referred to herein as the California Utilities.

The accompanying Consolidated Financial Statements have been prepared 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. 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.

Information in this Quarterly Report is unaudited and should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2004 (the Annual Report) and the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005.

The companies' significant accounting policies are described in Note 1 of the notes to Consolidated Financial Statements in the Annual Report. The same accounting policies are followed for interim reporting purposes.

SoCalGas accounts for the economic effects of regulation on utility operations in accordance with Statement of Financial Accounting Standards (SFAS) 71, Accounting for the Effects of Certain Types of Regulation.

In accordance with SFAS 132 (revised), Employers' Disclosures about Pensions and Other Postretirement Benefits, the following tables provide the components of benefit costs for the periods ended June 30:

             

Other

 
 

Pension Benefits

 

Postretirement Benefits

 

 

Three months ended
June 30,

 

Three months ended
June 30,

 

(Dollars in millions)

 

2005

   

2004

   

2005

   

2004

 

Service cost

$

10

 

$

7

 

$

5

 

$

4

 

Interest cost

 

23

   

23

   

12

   

13

 

Expected return on assets

 

(24

)

 

(25

)

 

(10

)

 

(8

)

Amortization of :

                       
 

Transition obligation

 

--

   

--

   

--

   

2

 
 

Prior service cost

 

1

   

2

   

--

   

--

 
 

Actuarial loss

 

4

   

1

   

2

   

2

 

Regulatory adjustment

 

(13

)

 

(8

)

 

(1

)

 

2

 

Total net periodic benefit cost

$

1

 

$

--

 

$

8

 

$

15

 

 

 

             

Other

 
 

Pension Benefits

 

Postretirement Benefits

 

 

Six months ended
June 30,

 

Six months ended
June 30,

 

(Dollars in millions)

 

2005

   

2004

   

2005

   

2004

 

Service cost

$

18

 

$

15

 

$

10

 

$

9

 

Interest cost

 

48

   

46

   

23

   

25

 

Expected return on assets

 

(49

)

 

(49

)

 

(19

)

 

(16

)

Amortization of :

                       
 

Transition obligation

 

--

   

--

   

--

   

4

 
 

Prior service cost

 

3

   

3

   

--

   

--

 
 

Actuarial loss

 

5

   

2

   

4

   

5

 

Regulatory adjustment

 

(23

)

 

(16

)

 

--

   

--

 

Total net periodic benefit cost

$

2

 

$

1

 

$

18

 

$

27

 

 

Note 5 of the notes to Consolidated Financial Statements in the Annual Report discusses the company's expected contributions to its pension and other postretirement benefit plans in 2005. For the six months ended June 30, 2005, $1 million and $19 million of contributions have been made to its pension and other postretirement benefit plans, respectively, including an immaterial amount and $9 million, respectively, for the three months ended June 30, 2005.

In accordance with Financial Accounting Standards Board (FASB) Staff Position 106-2, the net periodic postretirement benefit costs for the three months and six months ended June 30, 2005 were reduced by $3 million and $6 million, respectively, before regulatory adjustments, to reflect the expected subsidy as a result of the Medicare Prescription Drug, Improvement and Modernization Act of 2003.

There were no changes in asset retirement obligations, as defined in SFAS 143, Accounting for Asset Retirement Obligations, for the six months ended June 30, 2005 or 2004. Balances were as follows (dollars in millions):

 

2005

2004

Balance as of January 1 and June 30

$

9

$

11

At June 30, 2005 and December 31, 2004, the estimated removal costs recorded as a regulatory liability were $1.5 billion and $1.4 billion, respectively, for SoCalGas.

NOTE 2. NEW ACCOUNTING STANDARDS

Stock-Based Compensation: In December 2004, the FASB issued SFAS 123 (revised), a revision of SFAS 123, Accounting for Stock-Based Compensation, which establishes the accounting for transactions in which an entity exchanges its equity instruments for goods or services received. This statement requires companies to measure and record the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and provides for alternative transition methods. Sempra Energy has not determined the transition method it will use. The effective date of this statement is January 1, 2006 for Sempra Energy.

FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143" (FIN 47): Issued in March 2005, FIN 47 clarifies that the term "conditional asset-retirement obligation" as used in SFAS 143, Accounting for Asset Retirement Obligations, refers to a legal obligation to perform an asset-retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. FIN 47 requires companies to recognize a liability for the fair value of a conditional asset-retirement obligation if the fair value of the obligation can be reasonably estimated. FIN 47 is effective for the company's 2005 annual report. The company is in the process of evaluating the effect of FIN 47 on its financial position and results of operations.

NOTE 3. OTHER FINANCIAL DATA

Comprehensive Income

For the three months and six months ended June 30, 2005 and 2004, comprehensive income was equal to earnings applicable to common shares.

Capitalized Interest

SoCalGas recorded $1 million of capitalized interest for both the three months and six months ended June 30, 2005. SoCalGas recorded $1 million of capitalized interest for both the three months and six months ended June 30, 2004.

Other Income and Deductions

Other Income and Deductions for PE consist of the following:

Three months

Six months

ended June 30,

ended June 30,

(Dollars in millions)

2005

2004

2005

2004

Interest income

   

$

6

   

$

2

   

$

10

   

$

10

 

Regulatory interest, net

     

(2

)

   

1

     

(3

)

   

(2

)

Allowance for equity funds used during construction

 

1

     

2

     

2

     

3

 

Preferred dividends of subsidiary

     

(1

)

   

(1

)

   

(1

)

   

(1

)

Income taxes on non-operating income

     

(4

)

   

--

     

(4

)

   

--

 

Other, net

     

2

     

1

     

1

     

--

 

 

Total

   

$

2

   

$

5

   

$

5

   

$

10

 



Other Income and Deductions for SoCalGas consist of the following:

Three months

Six months

ended June 30,

ended June 30,

(Dollars in millions)

2005

2004

2005

2004

Interest income

   

$

3

   

$

1

   

$

5

   

$

2

 

Regulatory interest, net

     

(2

)

   

1

     

(3

)

   

(2

)

Allowance for equity funds used during construction

 

1

     

2

     

2

     

3

 

Income taxes on non-operating income

     

(4

)

   

--

     

(4

)

   

--

 

Other, net

     

1

     

1

     

--

     

--

 

 

Total

   

$

(1

)

 

$

5

   

$

--

   

$

3

 



NOTE 4. FINANCIAL INSTRUMENTS

Interest-Rate Swaps

The company periodically enters into interest-rate swap agreements to moderate its exposure to interest-rate changes and to lower its overall cost of borrowing. During 2003, SoCalGas entered into an interest-rate swap that effectively exchanged the fixed rate on $150 million of its $250 million 4.375% first mortgage bonds for a floating rate. The swap is classified as a fair value hedge and expires in 2011. At June 30, 2005 and December 31, 2004, market value adjustments of $1 million and $2 million, respectively, were recorded as an increase in Sundry Assets and Long-term Debt without affecting net income or other comprehensive income. There was no hedge ineffectiveness on these swaps.

At SoCalGas, the use of derivative instruments is subject to certain limitations imposed by company policy and regulatory requirements. These instruments allow the company to predict with greater certainty the effective prices to be received by the company and the prices to be charged to its customers. SoCalGas records transactions for natural gas contracts in Cost of Natural Gas in the Statements of Consolidated Income. Unrealized gains and losses related to these derivatives are offset by regulatory assets and liabilities on the Consolidated Balance Sheets to the extent derivative gains and losses will be recoverable or payable in future rates.

NOTE 5. CALIFORNIA UTILITIES' REGULATORY MATTERS

UTILITY RATEMAKING INCENTIVE AWARDS

Performance-Based Regulation (PBR), demand-side management (DSM) and Gas Cost Incentive Mechanism (GCIM) awards are not included in the company's earnings before California Public Utilities Commission (CPUC) approval of the award is received. During the six months ended June 30, 2005, the incentive rewards approved and included in earnings consisted of $2.4 million related to SoCalGas' Year 10 GCIM.

On December 30, 2004, the California Utilities and the CPUC's Office of Ratepayers Advocates settled, subject to CPUC approval, all outstanding shareholder earnings claims associated with DSM, energy efficiency and low-income energy efficiency programs through various dates, depending on the program. The proposed settlement provides for $14 million in awards, including interest, franchise fees, uncollectible amounts and awards earned in prior years that had not yet then been requested. Once approved by the CPUC, the $14 million would be included in 2005 income. A CPUC decision is expected in the third quarter of 2005.

Other performance incentives pending CPUC approval at June 30, 2005 and, therefore, not included in the company's earnings were (dollars in millions):

Program

       

GCIM Year 11

$

2.5

2003 Safety

 

0.4

Total

   

$

2.9

The cumulative amount of these awards subject to refund based on the outcome of the Border Price Investigation discussed in "Litigation" below is $59.4 million, substantially all of which has been included in net income.

NATURAL GAS MARKET OIR

The CPUC's Natural Gas Market Order Instituting Rulemaking (OIR) was instituted in January 2004 and is being addressed in two phases. A decision on Phase I was issued in September 2004; Phase II is scheduled for evidentiary hearings in August 2005 and will address a variety of issues including the adequacy of the utilities' transmission and storage facilities. Natural gas quality standards and interconnection requirements are being addressed in separate phases. Further discussion of Phase I and Phase II is included in the Annual Report.

The focus of the Natural Gas Market OIR is the period from 2006 to 2016. The Comprehensive Settlement Agreement (CSA) was entered into and approved as part of the Natural Gas Industry Restructuring (GIR) proceeding, as discussed in the Annual Report. Since the CSA would end in August 2006 and there is overlap between GIR and the OIR issues, a number of parties, including SoCalGas, have requested the CPUC not implement the CSA.

A separate application, to provide system integration, firm access rights and off-system deliveries, has been bifurcated into two phases, with the first phase (system integration) scheduled for evidentiary hearings in September 2005 to consider whether the transmission component of the natural gas transportation rates of SDG&E and SoCalGas should be equalized. System integration would allow customers in the SDG&E and SoCalGas service territories to access upstream supplies of natural gas on an equal basis. In the second phase, to be addressed in mid-2006, the CPUC will consider establishing a system of firm access rights into the utilities' system and off-system deliveries.

CPUC INVESTIGATION OF COMPLIANCE WITH AFFILIATE RULES

In February 2003, the CPUC opened an investigation of the business activities of SDG&E, SoCalGas and Sempra Energy to determine if they have complied with statutes and CPUC decisions in the management, oversight and operations of their companies. This proceeding was suspended in September 2003 pending the results of an audit.

Beginning in November 2004, the CPUC initiated an independent audit to evaluate energy-related holding company systems and affiliate activities undertaken by Sempra Energy within the service territories of SDG&E and SoCalGas. A final audit report, covering years 1997 through 2003, is expected by August 31, 2005. The scope of the audit will be broader than the annual affiliate audit.

As reported in the company's Form 10-Q for the quarter ended March 31, 2005, the California Utilities filed with the CPUC on May 2, 2005 the results of the annual independent audit of the California Utilities' transactions with other Sempra Energy affiliates covering calendar year 2004. In response to a finding of the auditor that utility procurement information was improperly provided to an affiliated risk management consulting firm employed by Sempra Energy, the California Utilities have adopted the auditor's recommendation to perform risk management functions themselves rather than utilizing Sempra Energy's Risk Management Department.

NOTE 6. LITIGATION

The company has expended and continues to expend substantial amounts with respect to the legal proceedings and related investigations and regulatory matters summarized below. At June 30, 2005, the company had accrued $86 million to provide for the estimated costs of these matters, of which $74 million related to matters arising from the 2000-2001 California energy crisis. However, the uncertainties inherent in complex legal proceedings and, in particular, jury trial litigation make it difficult to estimate with any degree of certainty the costs and effects of resolving these matters. Accordingly, costs ultimately incurred may differ materially from estimated costs and could materially adversely affect the company's business, cash flows, results of operations and financial condition. Further background on these matters is provided in the Annual Report.

California Energy Crisis

Dramatic increases in the prices of natural gas in California during 2000 and 2001 have resulted in many, often duplicative, governmental investigations, regulatory proceedings and lawsuits involving numerous energy companies seeking recovery of tens of billions of dollars for allegedly unlawful activities asserted to have caused or contributed to increased energy prices. The material proceedings that involve the company are summarized below.

Class-action and individual antitrust and unfair competition lawsuits filed in 2000 and thereafter, and now consolidated in San Diego Superior Court, allege that Sempra Energy and the California Utilities, along with El Paso Natural Gas Company (El Paso) and several of its affiliates, unlawfully sought to control natural gas and electricity markets. In December 2003, the Court approved a settlement with the El Paso entities valued at approximately $1.6 billion to resolve these claims and other litigation involving claims unrelated to those asserted against Sempra Energy and the California Utilities. The proceeding against Sempra Energy and the California Utilities, which claims damages of $23 billion after applicable trebling, has not been resolved and continues to be litigated. In late August 2005, the Court is scheduled to hear over 30 pretrial motions, including a motion to postpone the trial date. A jury trial is currently scheduled to begin on September 2, 2005; however, the judge has stated that the trial will commence no sooner than September 12, 2005.

On June 22, 2005, Sempra Energy and the California Utilities filed a petition with the Federal Energy Regulatory Commission (FERC) seeking a declaratory order that the FERC has exclusive jurisdiction with respect to the issues raised in the San Diego Superior Court litigation discussed above that preempts the California proceedings. The Superior Court has previously rejected assertions of FERC exclusive jurisdiction and a FERC ruling favorable to Sempra Energy, SoCalGas and SDG&E would not, in itself, dispose of the California litigation. In July 2005, comments opposing the petition were filed by a number of parties, including Southern California Edison, Pacific Gas and Electric, the California Attorney General's Office, the California Energy Oversight Board, the CPUC and the City of Los Angeles. Sempra Energy and the California Utilities had requested the FERC to rule on the petition by August 1, 2005, but have not yet received a ruling and cannot predict when the FERC will rule.

Similar antitrust and unfair competition lawsuits have been filed by the Attorneys General of Arizona and Nevada, alleging that El Paso and certain Sempra Energy subsidiaries unlawfully sought to control the natural gas market in their respective states. The claims against the Sempra Energy defendants in the Arizona lawsuit were settled in September 2004 for $150,000. The Nevada Attorney General's lawsuit remains pending.

The company is cooperating with an investigation being conducted by the California Attorney General into possible anti-competitive behavior in the natural gas and electricity markets during 2000-2001. Several of the company's senior officers have testified at investigational hearings conducted by the California Attorney General's Office, and the company expects additional hearings to be held.

In April 2003, Sierra Pacific Resources and its utility subsidiary Nevada Power filed a lawsuit in U.S. District Court in Las Vegas against major natural gas suppliers, and included Sempra Energy, the California Utilities and other Sempra Energy subsidiaries, seeking recovery of damages alleged to aggregate in excess of $150 million (before trebling). The U.S. District Court dismissed the case in November 2004, determining that this is a matter for the FERC to resolve. In January 2005, plaintiffs filed an appeal with the Ninth Circuit Court of Appeals.

During 2004, 12 antitrust actions were filed against the company alleging that energy prices were unlawfully manipulated by defendants' reporting artificially inflated natural gas prices to trade publications and by entering into wash trades. On April 8, 2005, one of those lawsuits, filed in the Nevada U.S. District Court, was dismissed on the merits, on the grounds that the claims asserted were preempted by federal law and the Filed Rate Doctrine. In June 2005, the three remaining lawsuits pending in the Nevada U.S. District Court were amended to name the California Utilities as defendants. In addition, in June 2005, a lawsuit similar to those pending in the Nevada federal court was filed in the U.S. District Court for the Eastern District of California. With respect to the lawsuits coordinated before the San Diego Superior Court, on June 29, 2005, the court denied defendants' motion to dismiss on preemption and Filed Rate Doctrine grounds.

CPUC Border Price Investigation

In November 2002, the CPUC instituted an investigation into the Southern California natural gas market and the price of natural gas delivered to the California - Arizona border between March 2000 and May 2001. A CPUC ALJ proposed decision highly critical of SoCalGas' natural gas purchase, sales, hedging and storage activities during the period was rejected by the CPUC in December 2004.

The portion of this investigation relating to the California Utilities is still open. If the investigation were to determine that the conduct of either of the California Utilities contributed to the natural gas price spikes that occurred during the investigation period, the CPUC may modify the party's natural gas procurement incentive mechanism, reduce the amount of any shareholder award for the period involved, and/or order the party to issue a refund to ratepayers. At June 30, 2005, the cumulative amount of shareholder awards, substantially all of which has been included in net income, was $59.4 million.

The CPUC may hold additional rounds of hearings to consider whether other companies, including other California utilities, contributed to the natural gas price spikes, or issue an order terminating the investigation. No hearings have yet been scheduled and discovery is ongoing.

Other Litigation

In 1998, SoCalGas converted its traditional pension plan for non-union employees to a cash balance plan. On July 8, 2005, a lawsuit was filed against the company in the U.S. District Court for the Central District of California alleging that the conversion unlawfully discriminated against older employees and failed to provide required disclosure of a reduction in benefits. The company believes that any adverse determination in the litigation would not be material.

 






Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with the financial statements contained in this Form 10-Q and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" contained in the Annual Report.

RESULTS OF OPERATIONS

Revenue

During the six months and three months ended June 30, 2005, natural gas revenues increased compared to the corresponding periods in 2004 as a result of higher natural gas costs, which are passed on to customers.

Under the current regulatory framework, the cost of natural gas purchased for customers and the variations in that cost are passed through to the customers on a substantially concurrent basis. However, SoCalGas' GCIM allows SoCalGas to share in the savings or costs from buying natural gas for customers below or above market-based monthly benchmarks. Further discussion is provided in Notes 1 and 9 of the notes to Consolidated Financial Statements in the Annual Report.

The table below summarizes natural gas volumes and revenues by customer class for the six month periods ended June 30.


Natural Gas Sales, Transportation and Exchange
(Volumes in billion cubic feet, dollars in millions)

                     

Transportation

         
           

Natural Gas Sales

and Exchange

Total

           

Volumes

Revenue

Volumes

Revenue

Volumes

Revenue

2005:

                             
 

Residential

 

138

 

$

1,436

 

1

 

$

3

 

139

 

$

1,439

 

Commercial and industrial

 

56

   

504

 

136

   

85

 

192

   

589

 

Electric generation plants

 

--

   

--

 

52

   

17

 

52

   

17

 

Wholesale

 

--

   

--

 

84

   

40

 

84

   

40

             

194

 

$

1,940

 

273

 

$

145

 

467

   

2,085

 

Balancing accounts and other

                           

96

   

Total

                               

$

2,181

2004:

                             
 

Residential

 

136

 

$

1,323

 

1

 

$

4

 

137

 

$

1,327

 

Commercial and industrial

 

56

   

442

 

134

   

92

 

190

   

534

 

Electric generation plants

 

--

   

--

 

67

   

20

 

67

   

20

 

Wholesale

 

--

   

--

 

78

   

16

 

78

   

16

     

192

 

$

1,765

 

280

 

$

132

 

472

   

1,897

 

Balancing accounts and other

                         

98

   

Total

                               

$

1,995

 

Net Income

Net income for SoCalGas increased by $21 million (20%) to $128 million for the six months ended June 30, 2005 due primarily to the CPUC's 2005 cost of service decision eliminating 2004 revenue sharing ($11 million after-tax had been accrued in 2004 pending the decision and was restored to income in 2005) and authorizing higher revenues.

Additionally, net income for SoCalGas increased by $8 million (16%) to $59 million for the three months ended June 30, 2005 primarily due to higher authorized revenues.

CAPITAL RESOURCES AND LIQUIDITY

SoCalGas' operations are a major source of liquidity.

In May 2005, PE terminated its $500 million of revolving credit commitment that was previously used for the sole purpose of providing loans to Sempra Global, another subsidiary of Sempra Energy. At June 30, 2005, there was $26 million in unrestricted cash and $300 million in available unused, committed lines of credit at SoCalGas. Management believes that these amounts and cash flows from operations and security issuances will be adequate to finance capital expenditures and meet liquidity requirements and other commitments. Management continues to regularly monitor SoCalGas' ability to finance the needs of its operating, financing and investing activities in a manner consistent with its intention to maintain strong, investment-quality credit ratings.

CASH FLOWS FROM OPERATING ACTIVITIES

Net cash provided by PE's operating activities decreased by $163 million to $464 million for 2005. For SoCalGas, net cash provided by operating activities decreased by $135 million to $450 million for 2005. The changes were primarily due to a lower increase in overcollected regulatory balancing accounts in 2005, and a decrease in income tax payable in 2005 compared to an increase in 2004.

For the six months ended June 30, 2005, the company made pension and other postretirement benefit plan contributions of $1 million and $19 million, respectively.

CASH FLOWS FROM INVESTING ACTIVITIES

Net cash used in PE's investing activities decreased by $8 million to $340 million for 2005. Net cash used in SoCalGas' investing activities increased by $20 million to $327 million for 2005. The increase at SoCalGas was primarily due to higher advances to Sempra Energy in 2005.

Significant capital expenditures in 2005 are expected to be for improvements to the distribution and transmission systems. These expenditures are expected to be financed by cash flows from operations and security issuances.

CASH FLOWS FROM FINANCING ACTIVITIES

Net cash used in PE's financing activities decreased by $145 million to $132 million for 2005. Net cash used in SoCalGas' financing activities also decreased by $145 million, to $131 million for 2005. The decreases were attributable to payments on long-term debt in 2004, offset by a decrease in short-term debt in 2005.

COMMITMENTS

At June 30, 2005, there were no significant changes to the commitments that were disclosed in the Annual Report, except for an increase of $958 million related to natural gas contracts at SoCalGas. The future payments under the new natural gas contracts are expected to be $311 million for 2005, $246 million for 2006, $109 million for 2007, $107 million for 2008, $91 million for 2009 and $94 million thereafter.

FACTORS INFLUENCING FUTURE PERFORMANCE

Performance of the companies will depend primarily on the ratemaking and regulatory process, natural gas industry restructuring, and the changing energy marketplace. These factors are discussed in Note 5 of the notes to Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES AND KEY NON-CASH PERFORMANCE INDICATORS

There have been no significant changes to the accounting policies viewed by management as critical or to key non-cash performance indicators for the company, as set forth in the Annual Report.

NEW ACCOUNTING STANDARDS

Relevant pronouncements that have recently become effective and have had or may have a significant effect on the company's financial statements are described in Note 2 of the notes to Consolidated Financial Statements. Pronouncements of particular importance to the company are described below.

Stock-Based Compensation: In December 2004, the FASB issued SFAS 123 (revised), a revision of SFAS 123, Accounting for Stock-Based Compensation. This statement requires companies to measure and record the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The effective date of this statement is January 1, 2006 for Sempra Energy.

FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143" (FIN 47): Issued in March 2005, FIN 47 clarifies that the term "conditional asset-retirement obligation" as used in SFAS 143, Accounting for Asset Retirement Obligations, refers to a legal obligation to perform an asset-retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. FIN 47 requires companies to recognize a liability for the fair value of a conditional asset-retirement obligation if the fair value of the obligation can be reasonably estimated. FIN 47 is effective for the company's 2005 annual report.

Further discussion is provided in Note 2 of the notes to Consolidated Financial Statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no significant changes in the risk issues affecting the company subsequent to those discussed in the Annual Report.

As of June 30, 2005, the total Value at Risk of SoCalGas' positions was not material.

ITEM 4. CONTROLS AND PROCEDURES

Company management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f). The companies have designed and maintain disclosure controls and procedures to ensure that information required to be disclosed in the companies' reports is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and is accumulated and communicated to the companies' management, including their Chief Executive Officers and Chief Financial Officers, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating these controls and procedures, management recognizes that any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired objectives and necessarily applies judgment in evaluating the cost-benefit relationship of other possible controls a nd procedures.

The companies evaluate the effectiveness of their internal control over financial reporting based on the framework in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Under the supervision and with the participation of management, including the Chief Executive Officers and the Chief Financial Officers, the companies evaluated the effectiveness of the design and operation of the companies' disclosure controls and procedures as of June 30, 2005, the end of the period covered by this report. Based on that evaluation, the companies' Chief Executive Officers and Chief Financial Officers concluded that the companies' disclosure controls and procedures were effective at the reasonable assurance level.

There has been no change in the companies' internal controls over financial reporting during the companies' most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the companies' internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Except as described in Notes 5 and 6 of the notes to Consolidated Financial Statements herein, neither the companies nor their subsidiaries are party to, nor is their property the subject of, any material pending legal proceedings other than routine litigation incidental to their businesses.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit 12 - Computation of ratios

12.1 Computation of Ratio of Earnings to Fixed Charges of PE.

12.2 Computation of Ratio of Earnings to Fixed Charges of SoCalGas.



Exhibit 31 -- Section 302 Certifications

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

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

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

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



Exhibit 32 -- Section 906 Certifications

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

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

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

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



(b) Reports on Form 8-K

The following reports on Form 8-K were filed after March 31, 2005:

Current Report on Form 8-K filed May 4, 2005, filing as an exhibit Sempra Energy's press release of May 4, 2005, giving the financial results for the three months ended March 31, 2005.

Current Report on Form 8-K filed June 23, 2005, announcing the filing of a petition with the Federal Energy Regulatory Commission seeking a declaratory order of exclusive federal jurisdiction in the Continental Forge class action litigation.

Current Report on Form 8-K filed June 30, 2005, announcing the resignation of SoCalGas' principal accounting officer, and his successor.

Current Report on Form 8-K filed August 2, 2005, filing as exhibits Sempra Energy's press release of August 2, 2005, giving the financial results for the three months ended June 30, 2005, and related Income Statement Data by Business Unit.






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

PACIFIC ENTERPRISES,
(Registrant)

   

Date: August 2, 2005

By: /s/ F. H. Ault

 

F. H. Ault
Sr. Vice President and Controller

   
 

SOUTHERN CALIFORNIA GAS COMPANY,
(Registrant)

   

Date: August 2, 2005

By: /s/ S. D. Davis

 

S. D. Davis
Sr. Vice President-External Relations
and Chief Financial Officer

 

Pacific Enterprises EXHIBIT 12.1

EXHIBIT 12.1

PACIFIC ENTERPRISES

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(Dollars in millions)

Six months ended

2000

2001

2002

2003

2004

June 30, 2005

Fixed Charges and Preferred Stock Dividends:

Interest

$ 72

$ 88

$ 63

$ 54

$ 47

$ 25

Interest portion of annual rentals

4

3

2

2

2

1

Preferred dividends of subsidiaries (1)

2

2

2

2

2

1

Total fixed charges for purpose of ratio

$ 78

$ 93

$ 67

$ 58

$ 51

$ 27

Earnings:

Pretax income from continuing operations

$ 396

$ 377

$ 383

$ 361

$ 391

$ 212

Total fixed charges (from above)

78

93

67

58

51

27

Total earnings for purpose of ratio

$ 474

$ 470

$ 450

$ 419

$ 442

$ 239

Ratio of earnings to fixed charges

6.08

5.05

6.72

7.22

8.67

8.85

(1) In computing this ratio, "Preferred dividends of subsidiaries" represents the before-tax earnings necessary to pay such dividends,

computed at the effective tax rates for the applicable periods.

Southern California Gas Company EXHIBIT 12.2

EXHIBIT 12.2

SOUTHERN CALIFORNIA GAS COMPANY

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(Dollars in millions)

Six months ended

2000

2001

2002

2003

2004

June 30, 2005

Fixed Charges:

Interest

$ 72

$ 70

$ 47

$ 48

$ 40

$ 23

Interest portion of annual rentals

4

3

2

2

2

1

Total fixed charges for purpose of ratio

$ 76

$ 73

$ 49

$ 50

$ 42

$ 24

Earnings:

Pretax income from continuing operations

$ 390

$ 377

$ 391

$ 360

$ 387

$ 209

Add: total fixed charges (from above)

76

73

49

50

42

24

Total earnings for purpose of ratio

$ 466

$ 450

$ 440

$ 410

$ 429

$ 233

Ratio of earnings to fixed charges

6.13

6.16

8.98

8.20

10.21

9.71

                                                  EXHIBIT 31.1
                       CERTIFICATION

I, Stephen L. Baum, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Pacific
Enterprises;

2.	Based on my knowledge, this Quarterly Report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this Quarterly Report;

3.	Based on my knowledge, the financial statements and other financial
information included in this Quarterly Report fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this Quarterly Report;

4.	The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this Quarterly Report is being
prepared;

b)	Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;

c)	Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this Quarterly Report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this Quarterly Report, based on such evaluation; and

d)	Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and

5.	The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing
the equivalent function):

a)	All significant deficiencies and material weaknesses in the
design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and

b)	Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.


       August 2, 2005

       /S/ STEPHEN L. BAUM
       Stephen L. Baum
       Chief Executive Officer


                                                  EXHIBIT 31.2
                       CERTIFICATION

I, Neal E. Schmale, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Pacific
Enterprises;

2.	Based on my knowledge, this Quarterly Report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this Quarterly Report;

3.	Based on my knowledge, the financial statements and other financial
information included in this Quarterly Report fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this Quarterly Report;

4.	The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this Quarterly Report is being
prepared;

b)	Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;

c)	Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this Quarterly Report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this Quarterly Report, based on such evaluation; and

d)	Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and

5.	The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing
the equivalent function):

a)	All significant deficiencies and material weaknesses in the
design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and

b)	Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.

       August 2, 2005

       /S/ NEAL E. SCHMALE
       Neal E. Schmale
       Chief Financial Officer

                                                  EXHIBIT 31.3
                       CERTIFICATION

I, Edwin A. Guiles, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Southern
California Gas Company;

2.	Based on my knowledge, this Quarterly Report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this Quarterly Report;

3.	Based on my knowledge, the financial statements and other financial
information included in this Quarterly Report fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this Quarterly Report;

4.	The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this Quarterly Report is being
prepared;

b)	Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;

c)	Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this Quarterly Report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this Quarterly Report, based on such evaluation; and

d)	Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and

5.	The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing
the equivalent function):

a)	All significant deficiencies and material weaknesses in the
design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and

b)	Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.

       August 2, 2005

       /S/ EDWIN A. GUILES
       Edwin A. Guiles
       Chief Executive Officer


                                                  EXHIBIT 31.4
                       CERTIFICATION

I, Steven D. Davis, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Southern
California Gas Company;

2.	Based on my knowledge, this Quarterly Report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this Quarterly Report;

3.	Based on my knowledge, the financial statements and other financial
information included in this Quarterly Report fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this Quarterly Report;

4.	The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this Quarterly Report is being
prepared;

b)	Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;

c)	Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this Quarterly Report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this Quarterly Report, based on such evaluation; and

d)	Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and

5.	The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing
the equivalent function):

a)	All significant deficiencies and material weaknesses in the
design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and

b)	Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.

       August 2, 2005

       /S/ STEVEN D. DAVIS
       Steven D. Davis
       Chief Financial Officer


                                                      Exhibit 32.1

Statement of Chief Executive Officer

Pursuant to 18 U.S.C. Sec 1350, as created by Section 906 of the
Sarbanes-Oxley Act of 2002, the undersigned Chief Executive Officer of
Pacific Enterprises (the "Company") certifies that:

(i)	the Quarterly Report on Form 10-Q of the Company filed with
the Securities and Exchange Commission for the quarterly
period ended June 30, 2005 (the "Quarterly Report") fully
complies with the requirements of Section 13(a) or Section
15(d), as applicable, of the Securities Exchange Act of
1934, as amended; and

(ii)	the information contained in the Quarterly Report fairly
presents, in all material respects, the financial condition
and results of operations of the Company.



August 2, 2005
                                           /S/ STEPHEN L. BAUM
                                         ______________________
                                           Stephen L. Baum
                                           Chief Executive Officer



                                                      Exhibit 32.2

Statement of Chief Financial Officer

Pursuant to 18 U.S.C. Sec 1350, as created by Section 906 of the
Sarbanes-Oxley Act of 2002, the undersigned Chief Financial Officer of
Pacific Enterprises (the "Company") certifies that:

(i)	the Quarterly Report on Form 10-Q of the Company filed with
the Securities and Exchange Commission for the quarterly
period ended June 30, 2005 (the "Quarterly Report") fully
complies with the requirements of Section 13(a) or Section
15(d), as applicable, of the Securities Exchange Act of
1934, as amended; and

(ii)	the information contained in the Quarterly Report fairly
presents, in all material respects, the financial condition
and results of operations of the Company.



August 2, 2005
                                               /S/ NEAL E. SCHMALE
                                              ______________________
                                               Neal E. Schmale
                                               Chief Financial Officer

                                                        Exhibit 32.3

Statement of Chief Executive Officer

Pursuant to 18 U.S.C. Sec 1350, as created by Section 906 of the
Sarbanes-Oxley Act of 2002, the undersigned Chief Executive Officer of
Southern California Gas Company (the "Company") certifies that:

(i)	the Quarterly Report on Form 10-Q of the Company filed with
the Securities and Exchange Commission for the quarterly
period ended June 30, 2005 (the "Quarterly Report") fully
complies with the requirements of Section 13(a) or Section
15(d), as applicable, of the Securities Exchange Act of
1934, as amended; and

(ii)	the information contained in the Quarterly Report fairly
presents, in all material respects, the financial condition
and results of operations of the Company.



August 2, 2005
                                                /S/ EDWIN A. GUILES
                                              ______________________
                                               Edwin A. Guiles
                                               Chief Executive Officer


                                                        Exhibit 32.4

Statement of Chief Financial Officer

Pursuant to 18 U.S.C. Sec 1350, as created by Section 906 of the
Sarbanes-Oxley Act of 2002, the undersigned Chief Financial Officer of
Southern California Gas Company (the "Company") certifies that:

(i)	the Quarterly Report on Form 10-Q of the Company filed with
the Securities and Exchange Commission for the quarterly
period ended June 30, 2005 (the "Quarterly Report") fully
complies with the requirements of Section 13(a) or Section
15(d), as applicable, of the Securities Exchange Act of
1934, as amended; and

(ii)	the information contained in the Quarterly Report fairly
presents, in all material respects, the financial condition
and results of operations of the Company.



August 2, 2005
                                               /S/ STEVEN D. DAVIS
                                             ______________________
                                               Steven D. Davis
                                               Chief Financial Officer