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style="font-size:12pt"><p>SEMPRA ENERGY AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS <br />NOTE 1. SIGNIFICANT ACCOUNTING POLICIES AND OTHER FINANCIAL DATA <br />Principles of Consolidation<br />Sempra Energy<br />Sempra Energy's Consolidated Financial Statements include the accounts of Sempra Energy, a California-based Fortune 500 holding company, its consolidated subsidiaries, and variable interest entities. Sempra Energy&#8217;s principal subsidiaries are<br /></p><ul><li>San Diego Gas &amp; Electric Company (SDG&amp;E) and Southern California Gas Company (SoCalGas), which we collectively refer to as the Sempra Utilities; and<br /></li><li>Sempra Global, which is the holding company for Sempra Commodities, Sempra Generation, Sempra Pipelines &amp; Storage, Sempra LNG and other, smaller businesses. <br /></li></ul><p>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 Notes 3 and 4. <br />SDG&amp;E<br />SDG&amp;E's Consolidated Financial Statements include its accounts, the accounts of its sole subsidiary, SDG&amp;E Funding LLC, and the accounts of Otay Mesa Energy Center LLC (Otay Mesa VIE) and Orange Grove Energy L.P. (Orange Grove VIE), which are variable interest entities of which SDG&amp;E is the primary beneficiary, as discussed below under "Variable Interest Entities." SDG&amp;E&#8217;s common stock is wholly owned by Enova Corporation, which is a wholly owned subsidiary of Sempra Energy. The activities of SDG&amp;E Funding LLC were substantially complete in 2007, and the entity was dissolved in 2008. &l t;br />Pacific Enterprises and SoCalGas<br />The Consolidated Financial Statements of Pacific Enterprises include the accounts of Pacific Enterprises (PE) and its subsidiary, SoCalGas. Sempra Energy owns all of PE&#8217;s common stock and PE owns all of SoCalGas&#8217; common stock. SoCalGas&#8217; Consolidated Financial Statements include its subsidiaries, which comprise less than one percent of its consolidated financial position and results of operations. <br />PE's operations consist solely of those of SoCalGas and additional items (e.g., cash, intercompany accounts and equity) attributable to serving as a holding company for SoCalGas.<br />Basis of Presentation<br />This is a combined report of Sempra Energy, SDG&amp;E, PE and SoCalGas. We provide separate information for SDG&amp;E, PE and SoCalGas as required. When only information for SoCalGas is provided, it is the same for PE. References in this report to "we," "our" and "Sempra Energy Consolidated" ar e to Sempra Energy and its consolidated entities, unless otherwise indicated by the context. We have eliminated intercompany accounts and transactions within each set of consolidated financial statements.<br />We evaluated events and transactions that occurred after December 31, 2009 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.</p><p>Use of Estimates in the Preparation of the Financial Statements <br />We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP). This requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, including the disclosure of contingent assets and liabilities at the date of the financial statements. Although we believe the estimates and assumptions are reasonable, actual amounts ultima tely may differ significantly from those estimates. </p></div> <div style="font-size:12pt"><p>Quasi-Reorganization<br />In 1993, PE effected a quasi-reorganization for financial reporting purposes as of December 31, 1992. A quasi-reorganization permits a company, for accounting purposes, to adjust its financial statements and proceed on much the same basis as if it had been legally reorganized. In 2007, an adjustment to liabilities related to the quasi-reorganization resulted in a decrease to equity. We expect to resolve the remaining liabilities of $4 million in 2010. We believe the provisions established for these matters are adequate.</p><p>Dividends and Loans at the Sempra Utilities <br />The CPUC's regulation of the Sempra Utilities' capital structures limits the amounts that are available for dividends and loans to Sempra Energy. At December 31, 2009, Sempra Energy could have received combined loans and dividends of approximately $140 million from SoCalGas and $75 million from SDG&amp;E.</p></div> <div style="font-size:12pt"><p>REGULATORY MATTERS <br />Effects of Regulation <br />The accounting policies of our principal regulated utility subsidiaries, SDG&amp;E and SoCalGas, conform with GAAP for regulated enterprises and reflect the policies of the California Public Utilities Commission (CPUC) and the Federal Energy Regulatory Commission (FERC). <br />The Sempra Utilities prepare their financial statements in accordance with GAAP provisions governing regulated operations. Under these provisions, a regulated utility records a regulatory asset if it is probable that, through the ratemaking process, the utility will recover that asset from customers. To the extent that recovery is no longer probable as a result of changes in regulation or the utility's competitive position, the related regulatory assets are written off. Regulatory liabilities represent amounts collected fro m customers in advance of the actual expenditure by the utility. If the actual expenditures are less than amounts previously collected from ratepayers, the excess would be refunded to customers, generally by reducing future rates. <br />The following subsidiaries of Sempra Pipelines &amp; Storage also apply GAAP for regulated utilities to their operations:<br /></p><ul><li>Mobile Gas Service Corporation (Mobile Gas), a small regulated natural gas distribution utility in Southwest Alabama acquired in October 2008<br /></li><li>Ecogas Mexico, S de RL de CV (Ecogas), a small regulated natural gas distribution utility in Northern Mexico<br /></li></ul><p>We provide information concerning regulatory assets and liabilities below in "Regulatory Balancing Accounts" and "Regulatory Assets and Liabilities." <br />Regulatory Balancing Accounts <br />The following table summarizes our regulatory balancing accounts at December 31. Th e net payables (payables net of receivables) will be returned to customers by reducing future rates.</p><table style="border-collapse: collapse; margin-top: 20px;"><tr><td width="547" align="left" colspan="13" style="border-top: 1px solid #000000;" height="19"><b>SUMMARY OF REGULATORY BALANCING ACCOUNTS AT DECEMBER 31</b></td></tr><tr><td width="547" align="left" height="19" colspan="13"><i>(Dollars in millions)</i></td></tr><tr><td height="14" width="145" align="left">&#160;</td><td width="134" align="center" height="14" colspan="4">Sempra Energy</td><td width="134" align="center" height="14" colspan="4">&#160;</td><td width="134" align="center" height="14" colspan="4">&#160;</td></tr><tr><td height="14" width="145" align="left">&#160;</td><td width="134" align="center" colspan="4" style="border-bottom: 1px solid #000000;" height ="14">Consolidated</td><td width="134" align="center" colspan="4" style="border-bottom: 1px solid #000000;" height="14">SDG&amp;E</td><td width="134" align="center" colspan="4" style="border-bottom: 1px solid #000000;" height="14">SoCalGas</td></tr><tr><td height="14" style="border-bottom: 1px solid #000000;" align="left" width="145">&#160;</td><td width="67" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2009&#160;</td><td width="67" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2008&#160;</td><td width="67" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2009&#160;</td><td width="67" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2008& ;#160;</td><td width="67" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2009&#160;</td><td width="67" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 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style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="53">&#160;335&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="left" width="14">$</td><td height="16" style="border-top: 1px solid #000000; border-bottom: 3px solid #000000;" align="right" width="53">&#160;159&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="14">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="53">&#160;114&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="left" width="14">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="53">&#160;223&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="14">$</td><td 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Amounts in the balancing accounts are recoverable or refundable in future rates, subject to CPUC approval. Balancing account treatment eliminates the impact on earnings from variances in the covered costs from authorized amounts. Absent balancing account treatment, variations in operating and maintenance costs from amounts approved by the CPUC would increase volatility in utility earnings. <br />We provide additional information about regulatory matters in Notes 15 and 16. <br />Regulatory Assets and Liabilities<br />We show the details of regulatory assets and liabilities in the following table, and discuss each of them separately below. </p><table style="border-collapse: collapse; margin-top: 20px;"><tr><td width="635" align="left" colspan="6" style="border-top: 1px solid #000000;" height="19"><b>REGULATORY ASSETS (LIABILITIES) AT D ECEMBER 31</b></td></tr><tr><td width="635" align="left" height="19" colspan="6"><i>(Dollars in millions)</i></td></tr><tr><td height="14" style="border-bottom: 1px solid #000000;" align="left" width="29">&#160;</td><td height="14" style="border-bottom: 1px solid #000000;" align="left" width="432">&#160;</td><td width="87" align="center" colspan="2" style="border-bottom: 1px solid 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transportation contracts. The regulatory asset is increased/decreased based on changes in the fair market value of the contracts. It is also reduced as payments are made for commodities and services under these contracts.<br /></li><li>Deferred taxes recoverable/refundable in rates are based on current regulatory ratemaking and income tax laws. SDG&amp;E and SoCalGas expect to recover/refund net regulatory assets/liabilities related to deferred income taxes over the lives of the assets that give rise to the accumulated deferred income tax liabilities/assets. <br /></li><li>Regulatory assets related to unamortized losses on reacquired debt are recovered over the remaining original amortization periods of the losses on reacquired debt. These periods range from 3 months to 18 years for SDG&amp;E and from 3 to 16 years for SoCalGas.<br /></li><li>Regulatory a ssets related to environmental costs represent the portion of our environmental liability recognized at the end of the period in excess of the amount that has been recovered through rates charged to customers. We expect this amount to be recovered in future rates as expenditures are made. <br /></li><li>Regulatory assets related to pension and other postretirement benefit obligations are offset by corresponding liabilities and are being recovered in rates as the plans are funded.<br /></li></ul><p>For substantially all of these assets, the cash has not yet been expended and the assets are offset by liabilities that do not incur a carrying cost.</p></div> <div style="font-size:12pt"><p>Fair Value Measurements<br />We apply recurring fair value measurements to certain assets and liabilities, primarily nuclear decommissioning trusts, marketable securities and other miscellaneous derivatives. Prior to the formation of RBS Sempra Commodities LLP (RBS Sempra Commodities) on April 1, 2008, as we discuss in Notes 3 and 4, we also applied fair value measurements to trading derivatives and certain trading inventories. <br />"Fair value" is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). <br />A fair value measurement reflects the assumptions market participants would use in pricing an asset or liability based on the best available information. These assumptions include the risk inherent in a particular val uation technique (such as a pricing model) and the risks inherent in the inputs to the model. Also, we consider an issuer's credit standing when measuring liabilities at fair value.<br />We establish a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:<br />Level 1 &#8211; Quoted prices are available in active markets for identical assets or liabilities as of the reporting date.&#160;Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Our Level 1 financial instruments primarily consist of exchange-traded derivatives, listed equities and U.S. government treasury securities.<br />Level 2 &#8211; Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including:<br /></p><ul><li>quoted forward prices for commodities<br /></li><li>time value<br /></li><li>current market and contractual prices for the underlying instruments<br /></li><li>volatility factors<br /></li><li>other relevant economic measures <br /></li></ul><p>Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Our financial instruments in this category include non-exchange-traded derivatives such as over-the-counter (OTC) forwards and options.<br />Level 3 &#8211; Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management's best estimate of fair value from the perspective of a market participant. <br />As a result of implementing new accounting standards in 2007 related to fair value measurement, we recorded a transition adjustment gain of $12 million to Sempra Energy's beginning retained earnings in 2007, net of tax. There was no transition adjustment at SDG&amp;E or SoCalGas. </p></div> <div style="font-size:12pt"><p>Cash and Cash Equivalents<br />Cash equivalents are highly liquid investments with maturities of three months or less at the date of purchase. </p><p>Restricted Cash <br />Restricted cash at Sempra Energy was $35 million in 2009 and $27 million in 2008 at December 31. In 2009 and 2008, $27 million of restricted cash represents funds held in trust for construction financing of certain natural gas storage facilities of Sempra Pipelines &amp; Storage. SDG&amp;E had $8 million of restricted cash at December 31, 2009, which represents funds held by a trustee for Otay Mesa VIE to pay certain operating costs.</p></div> <div style="font-size:12pt"><p>Collection Allowances <br />We record allowances for the collection of receivables and, prior to the sale of our commodities-marketing businesses, realization of trading assets (discussed below under "Trading Instruments"). The allowances for collection of receivables include allowances for doubtful customer accounts and for other receivables. 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We record deferred income taxes for temporary differences between the book and the tax bases of assets and liabilities. Investment tax credits from prior years are amortized to income by the Sempra Utilities over the estimated service lives of the properties as required by the CPUC, and represent regulatory liabilities. At Sempra Global and Parent, investment tax credits and other credits, mainly low-income housing and synthetic fuels tax credits in 2007, are recognized in income as earned. <br />The Sempra Utilities and Mobile Gas recognize <br /></p><ul><li>regulatory assets to offset deferred tax liabilities if it is probable that the amounts will be recovered from customers; and <br /></li><li>regulatory li abilities to offset deferred tax assets if it is probable that the amounts will be returned to customers. <br /></li></ul><p>We currently do not record deferred income taxes for undistributed earnings of our non-U.S. subsidiaries. <br />When there are uncertainties related to potential income tax benefits, in order to qualify for recognition, the position we take has to have at least a "more likely than not" chance of being sustained (based on the position&#8217;s technical merits) upon challenge by the respective authorities. The term "more likely than not" means a likelihood of more than 50 percent. Otherwise, we may not recognize any of the potential tax benefit associated with the position. We recognize a benefit for a tax position that meets the "more likely than not" criterion at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon its effective resolution.<br />Unrecognized tax benefits involve management&#8217;s ju dgment regarding the likelihood of the benefit being sustained. The final resolution of uncertain tax positions could result in adjustments to recorded amounts and may affect our results of operations, financial position and cash flows. <br />We provide additional information about income taxes in Note 8.</p></div> <div style="font-size:12pt"><p>Property, Plant and Equipment <br />Property, plant and equipment primarily represents the buildings, equipment and other facilities used by the Sempra Utilities to provide natural gas and electric utility services, and by Sempra Generation, Sempra LNG and Sempra Pipelines &amp; Storage. It also reflects projects included in construction work in progress at these business units. <br />Our plant costs include<br /></p><ul><li>labor<br /></li><li>materials and contract services<br /></li><li>expenditures for replacement parts incurred during a major maintenance outage of a generating plant<br /></li></ul><p>In addition, the cost of our utility plant includes an allowance for funds used during construction (AFUDC). We discuss AFUDC below. The cost of non-utilit y plant includes capitalized interest.<br />Maintenance costs are expensed as incurred. 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width="20">&am p;#160;</td></tr><tr><td width="652" align="left" colspan="12" style="border-top: 3px solid #000000;" height="12"><i>(1) Includes capital lease assets of $21 million at December 31, 2009.</i></td></tr><tr><td width="652" align="left" height="12" colspan="12"><i>(2) Includes capital lease assets of $29 million at December 31, 2009.</i></td></tr><tr><td width="652" align="left" height="12" colspan="12"><i>(3) December 31, 2009 balances include $150 million and $125 million of utility plant, primarily pipelines and storage, at Mobile Gas and Ecogas, respectively. 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Upon classifying an asset as held for sale, we record the asset at the lower of its carrying value or its estimated fair value reduced for selling costs. We cease to record depreciation expense on an asset when it is classified as held for sale.<br />During 2008, management approved and committed to a formal plan to dispose of certain Sempra Generation assets, recorded at December 31, 2009 and 2008 as follows:</p><table style="border-collapse: collapse; margin-top: 20px;"><tr><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="183"><i>(Dollars in millions)</i>< /td><td width="86" align="center" colspan="2" style="border-bottom: 1px solid #000000;" height="17">&#160;</td></tr><tr><td height="17" style="border-top: 1px solid #000000;" align="left" width="183">Gas turbine</td><td height="17" style="border-top: 1px solid #000000;" align="left" width="22">$</td><td height="17" style="border-top: 1px solid #000000;" align="right" width="64">&#160;34&#160;</td></tr><tr><td height="17" width="183" align="left">Steam turbine</td><td height="17" width="22" align="left">&#160;</td><td height="17" width="64" align="right">&#160;6&#160;</td></tr><tr><td height="17" width="183" align="left">Emission reduction credits</td><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="22">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="64">&#1 60;1&#160;</td></tr><tr><td height="18" style="border-bottom: 3px solid #000000;" align="left" width="183">&#160;</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="left" width="22">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="64">&#160;41&#160;</td></tr></table><p>We classified these assets as held for sale as of December 31, 2009 and 2008. They are included in Other Current Assets on the Consolidated Balance Sheets. For the years ended December 31, 2009 and 2008, there was no impairment of the assets held for sale nor do the assets held for sale generate operating income. We continue to evaluate the assets in our total portfolio for whether events or circumstances have occurred that may affect recoverability or estimated useful life, and continue to pursue disposal of our assets held for sale.</p>& lt;p>Long-Lived Assets <br />We periodically evaluate whether events or circumstances have occurred that may affect the recoverability or the estimated useful lives of long-lived assets, the definition of which includes intangible assets subject to amortization, but does not include unconsolidated subsidiaries. Impairment of long-lived assets occurs when the estimated future undiscounted cash flows are less than the carrying amount of the assets. If that comparison indicates that the assets' carrying value may not be recoverable, the impairment is measured based on the difference between the carrying amount and the fair value of the assets. This evaluation is performed at the lowest level for which separately identifiable cash flows exist. <br />In the second quarter of 2009, we recorded a $132 million pretax write-off related to certain assets at one of Sempra Pipelines &amp; Storage&#8217;s Liberty Gas Storage natural gas storage projects. This amount is recorded as Write-off of Long - -lived Assets on our Consolidated Statement of Operations for the year ended December 31, 2009. Sempra Pipelines &amp; Storage owns 75 percent of the partnership that is developing the project. Our partner's 25-percent share of the pretax charge is $33 million, which is included in (Earnings) Losses Attributable to Noncontrolling Interests on our Consolidated Statement of Operations for the year ended December 31, 2009. The impact to our net income and to our earnings is $97 million and $64 million, respectively, for the year ended December 31, 2009. In September 2009, the members of the partnership unanimously voted to proceed with the abandonment of the assets that were written off.</p></div> <div style="font-size:12pt"><p>Goodwill and other Intangible Assets<br />Goodwill<br />Goodwill is the excess of the purchase price over the fair value of the net assets of acquired companies. Goodwill is not amortized but is tested annually on October 1 for impairment. 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These intangible assets represent storage and development rights related to the Bay Gas and Mississippi Hub natural gas storage facilities and were recorded at estimated fair value as of the date of the acquisition using discounted cash flows analysis. Our important assumptions in determining fair value include estimated future cash flows, the estimated useful life of the intangible assets and our use of appropriate discount rates. 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We estimate the aggregate amortization expense for the next five years to be $10 million per year.</p></div> <div style="font-size:12pt"><p>Variable Interest Entities<br />We consolidate a variable interest entity (VIE) if we are the primary beneficiary of the VIE&#8217;s activities. Our determination of whether we are the primary beneficiary is based upon qualitative and quantitative analyses, which assess<br /></p><ul><li>the purpose and design of the VIE;<br /></li><li>the nature of the VIE's risks and the risks we absorb; and<br /></li><li>whether the variable interest holders will absorb a majority of the VIE's expected losses or receive a majority of its expected residual returns (or both). <br /></li></ul><p>Otay Mesa VIE<br />SDG&amp;E has a 10-year agreement to purchase power to be generated at the Otay Mesa Energy Center (OMEC), a 573-megawatt (MW) generating facility that began co mmercial operations in October 2009. SDG&amp;E supplies all of the natural gas to fuel the power plant and purchases its electric generation output (i.e., tolling). The agreement provides SDG&amp;E with the option to purchase the power plant at the end of the contract term in 2019, or upon earlier termination of the purchased-power agreement, at a predetermined price subject to adjustments based on performance of the facility. If SDG&amp;E does not exercise its option, under certain circumstances, it may be required to purchase the power plant at a predetermined price. <br />The facility owner, Otay Mesa Energy Center LLC (OMEC LLC), is a VIE (Otay Mesa VIE), of which SDG&amp;E is the primary beneficiary. SDG&amp;E has no OMEC LLC voting rights and does not operate OMEC.<br />Based upon our analysis, SDG&amp;E absorbs the majority of risk from Otay Mesa VIE under the combination of the tolling agreement and the put option. Accordingly, Sempra Energy and SDG&amp;E hav e consolidated Otay Mesa VIE since the second quarter of 2007. The CPUC has approved an additional financial return to SDG&amp;E to compensate it for the effect on its financial ratios from the requirement to consolidate Otay Mesa VIE. Otay Mesa VIE's equity of $146 million and $128 million is included on the Consolidated Balance Sheets in Other Noncontrolling Interests for Sempra Energy and in Noncontrolling Interests for SDG&amp;E at December 31, 2009 and 2008, respectively.<br />OMEC LLC has a loan outstanding of $375 million at December 31, 2009, the proceeds of which were used for the construction of OMEC. The loan is with third party lenders and is secured by property, plant and equipment. SDG&amp;E is not a party to the loan agreement and does not have any additional implicit or explicit financial responsibility to Otay Mesa VIE. The loan matures in April&#160;2019 and bears interest at rates varying with market rates. In addition, OMEC LLC has entered into interest-rate swap agr eements to moderate its exposure to interest-rate changes. We provide additional information concerning the interest-rate swaps in Note 11. <br />Orange Grove VIE<br />SDG&amp;E has a 25-year agreement to purchase power to be generated by Orange Grove Energy L.P. (Orange Grove), at its 94-MW generating facility located in San Diego County, California. The facility is currently under construction, and we expect it to be available for commercial operation during the second quarter of 2010. Orange Grove is a VIE (Orange Grove VIE) of which SDG&amp;E is the primary beneficiary. During the third quarter of 2009, all of the conditions precedent in the purchased-power agreement were satisfied, therefore, effective on September 30, 2009, Sempra Energy and SDG&amp;E have consolidated Orange Grove VIE. <br />Orange Grove has credit facilities that provide for a total of $100 million for construction of the generating facility. 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In accordance with the current GAAP provisions governing variable interest entities, SDG&amp;E continues the process of determining if it has any such situations and, if so, gathering the information that would be needed to perform the consolidation. However, such information has not been made available to us and an evaluation of v ariable interests has not been completed for these entities that are grandfathered pursuant to current GAAP guidance. The effects of any required consolidation are not expected to significantly affect the financial position, results of operations or liquidity of SDG&amp;E. </p></div> <div style="font-size:12pt"><p>Asset Retirement Obligations<br />For tangible long-lived assets, we record asset retirement obligations for the present value of liabilities of future costs expected to be incurred when assets are retired from service, if the retirement process is legally required and if a reasonable estimate of fair value can be made. We record the estimated retirement cost over the life of the related asset by depreciating the present value of the obligation (measured at the time of the asset's acquisition) and accreting the discount until the liability is settled. Rate-regulated entities record regulatory assets or liabilities as a result of the timing difference between the recognition of costs in accordance with GAAP and costs recovered through the rate-making process. We have recorded a regulatory liability to show that the Sempra Utilities have collected fund s from customers more quickly and for larger amounts than we would accrete the retirement liability and depreciate the asset in accordance with GAAP. <br />We have recorded asset retirement obligations related to various assets including:<br />SDG&amp;E and SoCalGas<br /></p><ul><li>fuel and storage tanks<br /></li><li>natural gas distribution system<br /></li><li>hazardous waste storage facilities<br /></li><li>asbestos-containing construction materials<br /></li></ul><p>SDG&amp;E<br /></p><ul><li>decommissioning of nuclear power facilities<br /></li><li>electric distribution and transmission systems<br /></li><li>site restoration of a former power plant<br /></li></ul><p>SoCalGas<br /></p><ul><li>natural gas transmission pipeline<br /></li><li>underground natural gas storage facilities and wells<br /></li></ul><p>Sempra Global<br /></p><ul><li>certain power generation plants (natural gas and 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That amount includes the cost to decommission Units 2 and 3, and the remaining cost to complete the decommissioning of Unit 1, which is currently in progress. Southern California Edison (Edison), the operator of SONGS, updates decommissioning cost studies every three years. Rate recovery of decomm issioning costs is allowed until the time that the costs are fully recovered and is subject to adjustment every three years based on the costs allowed by regulators. Collections are authorized to continue until 2022. The most recent cost study is under review by the CPUC, and we expect a decision by mid-2010. SDG&amp;E's share of costs under the revised study is approximately $760 million. <br />Unit 1 was permanently shut down in 1992, and physical decommissioning began in January 2000. Most structures, foundations and large components have been dismantled, removed and disposed of. Spent nuclear fuel has been removed from the Unit 1 Spent Fuel Pool and stored on-site in an independent spent fuel storage installation (ISFSI) licensed by the NRC. The decommissioning of Unit 1 remaining structures (subsurface and intake/discharge) will take place when Units 2 and 3 are decommissioned. The ISFSI will be decommissioned after a permanent storage facility becomes available and the U.S. Department of Ener gy (DOE) removes the spent fuel from the site. The Unit 1 reactor vessel is expected to remain on site until Units 2 and 3 are decommissioned. <br />The amounts collected in rates for SONGS' decommissioning are invested in externally managed trust funds. Amounts held by the trusts are invested in accordance with CPUC regulations. These trusts are shown on the Sempra Energy and SDG&amp;E Consolidated Balance Sheets at fair value with the offsetting credits recorded in Regulatory Liabilities Arising from Removal Obligations.<br /></p></div> <div style="font-size:12pt"><p>Contingencies<br />We accrue losses for the estimated impacts of various conditions, situations or circumstances involving uncertain outcomes. For loss contingencies, we accrue the loss if an event has occurred on or before the balance sheet date and:<br /></p><ul><li>Information available through the date we file our financial statements indicates it is probable that a loss has been incurred, given the likelihood of uncertain future events, and <br /></li><li>the amounts of the loss can be reasonably estimated. <br /></li></ul><p>We do not accrue contingencies that might result in gains. 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They record these revenues under the accrual method and recognize them upon delivery and performance. They also record revenue from CPUC-approved incentive awards, some of which require approval by the CPUC prior to being recognized. We provide additional discussion on utility incentive mechanisms in Note 16.<br />Under an operating agreement with the California Department of Water Resources (DWR), SDG&amp;E acts as a limited agent on behalf of the DWR in the administration of energy contracts, including natural gas procurement functions under the DWR contracts allocated to SDG&amp;E's customers. The legal and fina ncial responsibilities associated with these activities continue to reside with the DWR. Accordingly, the commodity costs associated with long-term contracts allocated to SDG&amp;E from the DWR (and the revenues to recover those costs) are not included in our Consolidated Statements of Operations. We provide discussion on electric industry restructuring related to the DWR in Note 15.<br />On a monthly basis, SoCalGas accrues natural gas storage contract revenues, which consist of storage, reservation, and variable charges based on negotiated agreements with terms of up to 15 years. <br />The table below shows the total revenues from the Sempra Utilities in Sempra Energy's Consolidated Statements of Operations, net of sales taxes, for each of the last three years. 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Effective as of that date, SoCalGas procures natural gas for SDG&amp;E&#8217;s core customers. Core customers are primarily residential and small commercial and industrial customers. This core gas procurement function is considered a shared service, therefore amounts related to SDG&amp;E are not included in SoCalGas' income statement.<br />We provide additional information concerning utility revenue recognition in "Regulatory Matters" above.<br />Sempra Global<br />Sempra Commodities<br />As we discuss in Notes 3 and 4, on April 1, 2008, our commodities-marketing businesses, previously wholly owned subsidiaries of Sempra Energy, were s old into RBS Sempra Commodities, a partnership jointly owned by Sempra Energy and The Royal Bank of Scotland. Therefore, beginning April 1, 2008, we account for our earnings in the partnership under the equity method. RBS Sempra Commodities generates most of its revenues from trading and marketing activities in natural gas, electricity, petroleum, petroleum products, base metals and other commodities. RBS Sempra Commodities quotes bid and ask prices to end users and other market makers. It also earns trading profits as a dealer by structuring and executing transactions. Principal transaction revenues are recognized on a trade-date basis and include realized gains and losses and the net change in unrealized gains and losses.<br />RBS Sempra Commodities uses derivative instruments (which we discuss further in Note 11) to reduce its exposure to unfavorable changes in market prices. Non-derivative contracts are accounted for on an accrual basis and the related profit or loss is recognized as the contracts are settled.<br />Sempra Generation<br />Sempra Generation generates revenues primarily from selling electricity to governmental and wholesale power marketing entities. These revenues are recognized as the electricity is delivered. In each of 2009, 2008 and 2007, Sempra Generation's electricity sales to the DWR accounted for a significant portion of its revenues. Sempra Generation&#8217;s revenues also include net realized gains and losses and the net change in the fair value of unrealized gains and losses on derivative contracts for power and natural gas. <br />Sempra Pipelines &amp; Storage<br />Sempra Pipelines &amp; Storage has consolidated foreign subsidiaries in Mexico. The pipeline operations in Mexico recognize revenues on the sale and transportation of natural gas as deliveries are made. The natural gas distribution utility in Mexico applies GAAP for regulated utilities, as we discuss above. Sempra Pipelines &amp; Storage's natural gas storage and transportati on operations recognize revenues when they provide services in accordance with contractual agreements for the storage and transportation services. Sempra Pipelines &amp; Storage&#8217;s revenues also include net realized gains and losses and the net change in the fair value of unrealized gains and losses on derivative contracts for natural gas.<br />Sempra LNG<br />Sempra LNG recognizes revenues on the sale of natural gas as deliveries are made and as injection services are performed, and from reservation fees under terminal capacity agreements. 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The resulting noncash translation adjustments do not enter into the calculation of earnings or retained earnings (unless the operation is being discontinued), but are reflected in Comprehensive Income and in Accumulated Other Comprehensive Income (Loss), a component of shareholders' equity. <br />To reflect the fluctuations in the values of functional currencies of Sempra Pipelines &amp; Storage&#8217;s South American investments accounted for under the equity method, the following adjustments were ma de to the carrying value of these investments (dollars in millions):</p><table style="border-collapse: collapse; margin-top: 20px;"><tr><td height="34" width="82" align="left">&#160;</td><td height="34" width="24" align="left">&#160;</td><td height="34" width="180" align="left">&#160;</td><td width="207" align="center" colspan="6" style="border-bottom: 1px solid #000000;" height="34">Upward (downward) adjustment to investments</td></tr><tr><td height="14" style="border-bottom: 1px solid #000000;" align="left" width="82">Investment</td><td height="14" style="border-bottom: 1px solid #000000;" align="left" width="24"><i>&#160;</i></td><td height="14" style="border-bottom: 1px solid #000000;" align="left" width="180">Currency</td><td width="69" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2009&#160;</td><td width="69" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2008&#160;</td><td width="69" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2007&#160;</td></tr><tr><td height="16" style="border-top: 1px solid #000000;" align="left" width="82">Chile</td><td height="16" style="bo rder-top: 1px solid #000000;" align="left" width="24">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="180">Chilean Peso</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="22">$</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="47">&#160;85&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="22">$</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="47">&#160;(101)</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="22">$</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="47">&#160;29&#160;</td></tr><tr><td height="16" width="82" align="left">Peru</td><td height="16" width="24" align="left">&#160;</td><td height="16" width="180" align="left"> ;Peruvian Nuevo Sol</td><td height="16" width="22" align="left">&#160;</td><td height="16" width="47" align="right">&#160;13&#160;</td><td height="16" width="22" align="left">&#160;</td><td height="16" width="47" align="right">&#160;(7)</td><td height="16" width="22" align="left">&#160;</td><td height="16" width="47" align="right">&#160;8&#160;</td></tr><tr><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="left" width="82">Argentina</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="left" width="24">&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="left" width="180">Argentine Peso</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="left" width="22">&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="47">&#160;-& amp;#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="left" width="22">&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="47">&#160;(8)</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="left" width="22">&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="47">&#160;(2)</td></tr></table><p>Smaller adjustments have been made to other operations where the U.S. dollar is not the functional currency. 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These companies are affiliates of Sempra Pipelines &amp; Storage&#8217;s Argentine investments discussed in Note 4. In June 2006, Sempra Pipelines &amp; Storage collected the outstanding balance from Camuzzi Gas Pampeana S.A. The loan to Camuzzi Gas del Sur S.A. has a $27 million balance outstanding at a variable interest rate (7.25 percent at December 31, 2009). The loan is fully reserved at December 31, 2009.<br />Loans from Unconsolidated Affiliates <br />At December 31, 2008, Sempra Pipelines &amp; Storage had a $100 million note payable due in 201 1 to Chilquinta Energ&#237;a Finance Co. 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align="right">&#160;27&#160;</td><td height="16" width="22" align="left">&#160;</td><td height="16" width="54" align="right">&#160;(54)</td><td height="16" width="22" align="left">&#160;</td><td height="16" width="54" align="right">&#160;(17)</td></tr><tr><td width="305" align="left" height="16" colspan="2">Gain on interest rate swaps, other </td><td height="16" width="22" align="left">&#160;</td><td height="16" width="54" align="right">&#160;6&#160;</td><td height="16" width="22" align="left">&#160;</td><td height="16" width="54" align="right">&#160;1&a mp;#160;</td><td height="16" width="22" align="left">&#160;</td><td height="16" width="54" align="right">&#160;24&#160;</td></tr><tr><td width="305" align="left" height="16" colspan="2">Mexican peso exchange losses(3)</td><td height="16" width="22" align="left">&#160;</td><td height="16" width="54" align="right">&#160;-&#160;</td><td height="16" width="22" align="left">&#160;</td><td height="16" width="54" 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align="left" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="54">&#160;-&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="left" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="54">&#160;-&#160;</td></tr><tr><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="32">&#160;</td><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="273">Total at PE</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="left" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="54">& amp;#160;4&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="left" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="54">&#160;2&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="left" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="54">&#160;(3)</td></tr><tr><td height="18" style="border-top: 3px solid #000000;" align="center" width="32"><i>(1)</i></td><td width="501" align="left" colspan="7" style="border-top: 3px solid #000000;" height="18"><i>Amounts for Sempra Energy Consolidated, SDG&amp;E, and PE have been adjusted for the retrospective adoption of ASC 810 (SFAS 160).</i></td></tr><tr><td height= "18" width="32" align="center"><i>(2)</i></td><td width="501" align="left" height="18" colspan="7"><i>Represents investment gains (losses) on dedicated assets in support of our executive retirement and deferred compensation plans. These amounts are partially offset by corresponding changes in compensation expense related to the plans.</i></td></tr><tr><td height="18" width="32" align="center"><i>(3)</i></td><td width="501" align="left" height="18" colspan="7"><i>The losses for the year ended December 31, 2008 were largely offset by Mexican tax benefits arising from fluctuations in the U.S. dollar/Mexican peso exchange rate and inflation rate.</i></td></tr><tr><td height="18" width="32" align="center"><i>(4)</i></td><td width="501" align="left" height="18" colspan="7"><i>The year ended December 31, 2008 includes a $16 million cash payment received for the ear ly termination of a capacity agreement for the Cameron LNG receipt terminal. </i></td></tr></table></div> <div style="font-size:12pt"><p>NOTE 2. NEW ACCOUNTING STANDARDS <br />We describe below recent pronouncements that have had or may have a significant effect on our financial statements. We do not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to our financial condition, results of operations, or disclosures. <br />SEMPRA ENERGY, SDG&amp;E, PE AND SOCALGAS <br />Statement of Financial Accounting Standards (SFAS) No. 168, "The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles&#8212;a replacement of FASB Statement No. 162" (SFAS 168): The Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC or the Codification) became the official source of GAAP on July 1, 2009. For convenience, we have provided the pri or GAAP source references in addition to the Codification reference throughout these financial statements and footnotes. In addition, the Codification changed the referencing system used to identify new accounting guidance. As a result, we refer to an accounting update issued after July 1, 2009 as an Accounting Standards Update (ASU). We refer to new pronouncements issued before July 1, 2009 by their original title.<br />ASU 2010-06, &#8220;Improving Disclosures About Fair Value Measurements&#8221; (ASU 2010-06): ASU 2010-06 requires the following additional fair value measurement disclosures: <br /></p><ul><li>transfers into and out of Levels 1 and 2<br /></li><li>segregation of classes of assets and liabilities measured at fair value<br /></li><li>valuation techniques and inputs used for Level 2 and Level 3 instruments<br /></li><li>detailed activity for Level 3 instruments, including separate presentation of purch ases, sales, issuances, and settlements<br /></li></ul><p>ASU 2010-06 applies to us beginning with the first quarter of 2010, and we will provide the additional disclosure in our 2010 interim financial statements. <br />ASU 2009-17, "Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities" (ASU 2009-17): ASU 2009-17 (SFAS 167) amends FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities &#8211; an interpretation of ARB No. 51 (FIN 46(R)), which provides consolidation guidance related to variable interest entities. <br />ASU 2009-17 requires<br /></p><ul><li>a qualitative approach for identifying the primary beneficiary of a variable interest entity based on 1) the power to direct activities that most significantly impact the economic performance of the entity, and 2) the obligation to absorb losses or right to receive benefits that could be significant to the entity;<br /></li> ;<li>ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; and <br /></li><li>separate disclosure by the primary beneficiary on the face of the balance sheet to identify 1) assets that can only be used to settle obligations of the variable interest entity, and 2) liabilities for which creditors do not have recourse to the primary beneficiary.<br /></li></ul><p>ASU 2009-17 applies to us beginning with the first quarter of 2010. We are evaluating the impact of its adoption on our financial position, but we do not expect it to have a material effect on earnings. <br />ASU 2009-12, &#8220;Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)&#8221; (ASU 2009-12): ASU 2009-12 provides guidance on how to measure the fair value of investments in entities that calculate net asset value per share (NAV), such as hedge funds, private equity funds, venture capital funds and funds of funds. If the investments are measured at fair value at the entity&#8217;s measurement date, investors are allowed to use NAV to estimate the fair value unless fair value is readily determinable or it is probable the investment will be sold at something other than NAV. If not calculated as of the reporting entity's measurement date, the NAV must be adjusted for significant market events occurring since the investee calculated the NAV. We adopted ASU 2009-12 on October 1, 2009, and it did not affect our financial position or results of operations. We provide additional disclosure in Note 9. <br /><br />ASU 2009-05, &#8220;Measuring Liabilities at Fair Value&#8221; (ASU 2009-05): ASU 2009-05 addresses practical difficulties that arise when calculating the fair value of a liability, or the price at which the liability may be transferred to a market participant. Generally, a quoted price for an identical liability is not available because few liabilities are transferred to a nother party. <br />In the absence of a quoted price in an active market for an identical liability, ASU 2009-05 allows the following valuation techniques:<br /></p><ul><li>a quoted price of an identical or similar liability traded as an asset<br /></li><li>a valuation technique consistent with ASC 820, Fair Value Measurements and Disclosures<br /></li></ul><p>We adopted ASU 2009-05 on October 1, 2009, and it did not affect our financial position or results of operations.<br />SFAS 165, "Subsequent Events" (SFAS 165), as amended by ASU 2010-09, "Amendments to Certain Recognition and Disclosure Requirements" (ASU 2010-09): SFAS 165 (ASC 855), as amended by ASU 2010-09, requires management to evaluate events that occur after the balance sheet date through the date that the financial statements are issued. The guidance is similar to current audit guidance and does not change the way we assess subsequent events. SFAS 165 required that companies disclose the date through which they evaluated subsequent events. ASU 2010-09 removed the requirement for companies that must file financial statements with the U.S. Securities and Exchange Commission. <br />We provide the required disclosure in Note 1. <br />SFAS 160, "Noncontrolling Interests in Consolidated Financial Statements &#8211; an amendment of ARB No.&#160;51" (SFAS 160): SFAS 160 (ASC 810) amends Accounting Research Bulletin (ARB) No. 51, Consolidated Financial Statements, to establish accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent. <br />SFAS 160 provides guidance on the following:<br /></p><ul><li>how to report noncontrolling interests in a subsidiary in consolidated financial statements; <br /></li><li>the amount of consolidated net income attributable to the parent and to the noncontrolling interest; and <br /></li><li>changes in a parent&#8217;s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. <br /></li></ul><p>We adopted SFAS 160 on January 1, 2009, and the presentation and disclosure requirements must be applied retrospectively. Accordingly, Sempra Energy&#8217;s, SDG&amp;E&#8217;s and PE's Consolidated Financial Statements at December 31, 2008 and for the years ended December 31, 2008 and 2007 have been reclassified to conform to the new presentation. The adoption of SFAS 160 had no effect on SoCalGas&#8217; financial statements. The pronouncement also requires disclosures that clearly identify and distinguish between the interest of the parent and the interests of the noncontrolling owners. We provide the required disclosure on the Statements of Consolidated Comprehensive Income and Changes in Equity for Sempra Energy, SDG&amp;E and PE and in Note 1. <br />In connection with the adoption of SFAS 160, we evaluated the requirements of ASC 480, Distinguishing Liabilities from Equity (ASC 480) (EITF Topic D-98) with respect to the presentation of preferred securities, and determined that certain preferred securities at SDG&amp;E that had been presented within the shareholders&#8217; equity section of the balance sheet should have been presented separate from and outside of shareholders&#8217; equity in a manner consistent with temporary equity defined in ASC 480-10-S99-3A. Although SDG&amp;E believes that the effects are not material to the previously issued balance sheets, SDG&amp;E has corrected the classification of these securities as of December 31, 2008 for comparability purposes. This change, which affects preferred securities totaling $79 million at both December 31, 2008 and 2009, had no impact on earnings or on cash flows for any periods presented.<br />SFAS 161, "Disclosures about Derivative Instruments and Hedging Activities &#8211; an amendment of FASB Statement No. 13 3" (SFAS 161): SFAS 161 (ASC 815) expands the disclosure requirements in SFAS 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). <br />SFAS 161 requires disclosures about the following:<br /></p><ul><li>qualitative objectives and strategies for using derivatives;<br /></li><li>quantitative disclosures of fair value amounts, and gains and losses on derivative instruments and related hedged items; and<br /></li><li>credit-risk-related contingent features in derivative agreements. <br /></li></ul><p>We adopted SFAS 161 prospectively on January 1, 2009. We provide the required disclosure in Note 11. <br />FASB Staff Position (FSP) FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That are Not Orderly" (FSP FAS 157-4): FSP FAS 157-4 (ASC 820) concerns the determination of fair values f or assets and liabilities when there is no active market or where the prices used might represent distressed sales. Specifically, it reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive. The FSP also outlines factors to be used to determine whether there has been a significant decrease in the volume and level of activity for the assets and liabilities when compared with normal market activity. We adopted FSP FAS 157-4 on April 1, 2009, and it did not affect our financial position or results of operations. <br />FSP FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments" (FSP FAS 115-2 and FAS 124-2): FSP FAS 115-2 and FAS 124-2 (ASC 320) establishes a new model for determining and recording other-than-temporary impairment for debt securities. The pronouncement also requires disclosure about the fair value of investments for interim periods. Prior to the issuan ce of this FSP, this disclosure was required only for annual periods. We adopted FSP FAS 115-2 and FAS 124-2 on April 1, 2009, and it did not affect our financial position or results of operations. We provide the required disclosure in Note 12.<br />FSP FAS 132(R)-1, "Employers&#8217; Disclosures about Postretirement Benefit Plan Assets" (FSP FAS 132(R)-1): FSP FAS 132(R)-1 (ASC 715) requires annual disclosure about the assets held in postretirement benefit plans, including a breakdown by the level of the assets and a reconciliation of any change in Level 3 assets during the year. It requires disclosures about the following:<br /></p><ul><li>valuation inputs, with detailed disclosure required about Level 3 assets<br /></li><li>asset categories, broken down to relevant detail <br /></li><li>concentration of risk in plan assets<br /></li></ul><p>We adopted FSP FAS 132(R)-1 prospectively on December 31, 2009. We prov ide the required disclosure in Note 9. <br />SEMPRA ENERGY<br />FSP EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities" (FSP EITF 03-6-1): FSP EITF 03-6-1 (ASC 260) states that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities. As such, they are required to be included when computing earnings per share (EPS) under the two-class method described in SFAS 128, Earnings per Share (ASC 260). All prior-period EPS data are to be adjusted retrospectively to conform with the provisions of this FSP. We adopted FSP EITF 03-6-1 on January 1, 2009, and it did not have a material effect on our EPS. <br />EITF Issue No. 08-6, "Equity Method Investment Accounting Considerations" (EITF 08-6): EITF 08-6 (ASC 323) clarifies accounting and impairment considerations involving equity method investments. We adopted EITF 08-6 on January 1, 2009, and it did not have a material effect on our financial position or results of operations. <br />EITF Issue No. 08-5, "Issuer&#8217;s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement" (EITF 08-5): EITF 08-5 (ASC 820) provides that an issuer of a liability with a third-party credit enhancement that is inseparable from the liability may not include the effect of the credit enhancement in the fair value measurement of the liability. We adopted EITF 08-5 on January 1, 2009, and it did not affect our financial position or results of operations.</p></div> <div style="font-size:12pt"><p>NOTE 3. RECENT INVESTMENT ACTIVITY<br /></p><p>Sempra Pipelines &amp; Storage<br />In October 2008, Sempra Pipelines &amp; Storage acquired EnergySouth, an energy services holding company based in Mobile, Alabama for $511 million in cash and the assumption of debt. Principal holdings of EnergySouth include EnergySouth Midstream and Mobile Gas. As a natural gas distribution utility, Mobile Gas serves approximately 93,000 customers in southwest Alabama. In December 2008, EnergySouth Midstream changed its name to Sempra Midstream.<br />Sempra Midstream is the general partner and 91-percent owner of Bay Gas Storage Company (Bay Gas) and owned 60 percent of Mississippi Hub, LLC (Mississippi Hub) through December 31, 2008. 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Note 4.</p></div> <div style="font-size:12pt"><p>Sempra Commodities<br />On April 1, 2008, Sempra Energy and The Royal Bank of Scotland (RBS) completed the formation of RBS Sempra Commodities, a partnership to own and operate the commodities-marketing businesses previously operated through wholly owned subsidiaries of Sempra Energy. Our initial equity contribution to the partnership was $1.6 billion. RBS made an initial equity contribution of $1.665 billion and is committed to provide any additional funding required for the ongoing operations of the partnership&#8217;s businesses. &#160;As a result of the transaction, we received approximately $1.2 billion in cash, net of our contribution and including cash withdrawn from the businesses in anticipation of the transaction. We recorded an after-tax gain of $67 million on the transaction. <br />We provide additional information about th is transaction in Notes 4 and 6.<br />On February 16, 2010, Sempra Energy, RBS and the partnership entered into an agreement to sell certain businesses within the partnership. We discuss this transaction and related agreements affecting the partnership in Note 20.<br />Sempra Generation<br />We provide information about investment activity at Sempra Generation in Note 4.<br /></p><p>NOTE 4. INVESTMENTS IN UNCONSOLIDATED ENTITIES<br />We account for investments under the equity method when we have an ownership interest of 20 to 50 percent. In these cases, our pro rata shares of the subsidiaries&#8217; net assets are included in Other Investments and in Investment in RBS Sempra Commodities LLP on the Consolidated Balance Sheets. These investments are adjusted for our share of each investee&#8217;s earnings or losses, dividends, and other comprehensive income or loss. <br />Equity in earnings of unconsolidated subsidiaries that is recorded before income t ax is reported in Equity Earnings (Losses) &#8211; RBS Sempra Commodities LLP and in Equity Earnings (Losses) &#8211; Other on the Consolidated Statements of Operations. 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align="left" width="26">$</td><td height="16" style="border-bottom: 3px solid #000000;" align="right" width="61">&#160;2,172&#160;</td><td height="16" style="border-bottom: 3px solid #000000;" align=" left" width="26">$</td><td height="16" style="border-bottom: 3px solid #000000;" align="right" width="61">&#160;2,082&#160;</td></tr><tr><td width="387" align="left" height="16" colspan="2">Other equity method investments:</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="26">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="61">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="26">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="61">&#160;</td></tr><tr><td width="387" align="left" height="16" colspan="2">&#160;&#160;&#160;&#160;Sempra Pipelines &amp; Storage:</td><td height="16" width="26" align="left">&#160;</td><td height="16" width="61" 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Equity method goodwill related to our unconsolidated subsidiaries located in South America is included in Other Investments on the Sempra Energy Consolidated Balance Sheets. These amounts, before foreign-currency translation adjustments, were $254 million at both December 31, 2009 and 2008. Including foreign-currency translation adjustments, these amounts were<br /></p><ul><li>$253 million at December 31, 2009<br /></li>< ;li>$213 million at December 31, 2008 <br /></li></ul><p>Descriptive information concerning our equity method investments by segment follows.</p><p>Sempra Commodities<br />RBS Sempra Commodities is a United Kingdom limited liability partnership formed to own and operate the commodities-marketing businesses previously operated through wholly owned subsidiaries of Sempra Energy, as we discuss in Note 3. We account for our investment in RBS Sempra Commodities under the equity method. Our share of partnership earnings is reported in the Sempra Commodities segment. Subject to certain limited exceptions, partnership pretax income is allocated each year as follows:<br /></p><ul><li>First, we receive a preferred 15-percent return on our adjusted equity capital.<br /></li><li>Next, RBS receives a preferred 15-percent return on any capital in excess of capital attributable to us that is required by the U.K. Financial Services Autho rity to be maintained by RBS in respect of the operations of the partnership.<br /></li><li>Next, we receive 70 percent of the next $500 million in pretax income; RBS receives the remaining 30 percent. <br /></li><li>Then, we receive 30 percent and RBS receives 70 percent of any remaining pretax income.<br /></li><li>Any losses of the partnership are shared equally between us and RBS.<br /></li></ul><p>We had pretax equity earnings from RBS Sempra Commodities of $463 million for the year ended December 31, 2009, and $383 million for the nine months ended December 31, 2008. The partnership income that is distributable to us on an annual basis is computed on the partnership's basis of accounting, International Financial Reporting Standards (IFRS), as adopted by the European Union. This distributable income, on an IFRS basis, was $300 million for the year ended December 31, 2009, and $389 million for the nine months ended December 31, 2008. In 2009 and 2008, we received cash distributions from the partnership of $407 million and $85 million, respectively. <br />We have indemnified the partnership for certain litigation and tax liabilities related to the businesses purchased by the partnership. We recorded these obligations at a fair value of $5 million on April 1, 2008, the date we formed the partnership. This liability is being amortized over its expected life. <br />On February 16, 2010, Sempra Energy, RBS and the partnership entered into an agreement to sell certain businesses within the partnership. We discuss this transaction and related agreements, including expected changes in earnings sharing, affecting the partnership in Note 20.<br />We provide information regarding the Sempra Commodities segment in Note 18. <br />The following tables show summarized financial information for RBS Sempra Commodities (on a GAAP basis):</p><table style="border-collapse: collapse; margin-top: 20px;"><tr>< ;td width="506" align="left" colspan="5" style="border-top: 1px solid #000000;" height="19"><b>RBS SEMPRA COMMODITIES SUMMARIZED FINANCIAL INFORMATION</b></td></tr><tr><td width="506" align="left" height="19" colspan="5"><i>(Dollars in millions)</i></td></tr><tr><td height="61" style="border-bottom: 1px solid #000000;" align="left" width="306">&#160;</td><td height="61" style="border-bottom: 1px solid #000000;" align="center" width="15">&#160;</td><td height="61" style="border-bottom: 1px solid #000000;" align="center" width="85">Year ended December 31, 2009</td><td height="61" 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The after-tax&#160;gain on this transaction, recorded in Equity Earnings (Losses), Net of Income Tax, on th e Consolidated Statements of Operations, was $30 million. <br /></p><p>Sempra Generation<br />The 550-MW Elk Hills Power (Elk Hills) plant located near Bakersfield, California began commercial operations in July 2003. Elk Hills is 50-percent owned by Sempra Generation.<br />During 2009, Sempra Generation invested $235 million to become an equal partner with BP Wind Energy, a wholly owned subsidiary of BP p.l.c., in the development of the 200-MW Fowler Ridge II Wind Farm (Fowler Ridge II) project near Indianapolis, Indiana. The project became operational in December 2009. The project uses 133 wind turbines, each with the ability to generate 1.5 MW. The project's entire power output has been sold under four long-term contracts, each for 50 MW and 20-year terms. Our investment in Fowler Ridge II is accounted for as an equity method investment.</p><p>Sempra Pipelines &amp; Storage<br />Sempra Pipelines &amp; Storage owns a 25-percent interest in Rockies Exp ress, a partnership that operates a natural gas pipeline, the Rockies Express Pipeline (REX), that links producing areas in the Rocky Mountain region to the upper Midwest and the eastern United States. Kinder Morgan Energy Partners, L.P. (KMP) and ConocoPhillips (Conoco) own the remaining interests of 50 percent and 25 percent, respectively. We made investments in Rockies Express of $625 million in 2009, $150 million in 2008 and $100 million in 2007. We provide additional information in Note 6. <br />Sempra Pipelines &amp; Storage owns a 50-percent interest in Chilquinta Energ&#237;a S.A., a Chilean electric utility, and a 38-percent interest in Luz del Sur S.A., a Peruvian electric utility. In November 2009, Sempra Pipelines &amp; Storage purchased $50 million of 2.75-percent bonds issued by Chilquinta Energ&#237;a S.A. that are denominated in Chilean Unidades de Fomento. The Chilean Unidad de Fomento is a unit of account used in Chile that is adjusted for inflation, and its value is q uoted in Chilean Pesos. The bonds mature on October 30, 2014. The carrying value of the bonds after the effect of foreign currency translation was $51 million at December 31, 2009.<br />Sempra Pipelines &amp; Storage also owns 43 percent of two Argentine natural gas utility holding companies, Sodigas Pampeana and Sodigas Sur. As a result of the devaluation of the Argentine peso at the end of 2001 and subsequent changes in the value of the peso, Sempra Pipelines &amp; Storage has reduced the carrying value of its investment by a cumulative total of $270 million as of December 31, 2009. These noncash adjustments, based on fluctuations in the value of the Argentine peso, did not affect earnings, but were recorded in Comprehensive Income and Accumulated Other Comprehensive Income (Loss). <br />The Argentine economic decline and government responses (including Argentina&#8217;s unilateral, retroactive abrogation of utility agreements early in 2002) continue to adversely affect the operatio ns of these Argentine utilities. In 2002, Sempra Pipelines &amp; Storage initiated arbitration proceedings at the International Center for the Settlement of Investment Disputes (ICSID) under the 1994 Bilateral Investment Treaty between the United States and Argentina for recovery of the diminution of the value of its investments that has resulted from Argentine governmental actions. In September 2007, the tribunal officially closed the arbitration proceedings and awarded us compensation of $172 million, which includes interest up to the award date. In January 2008, Argentina filed an action at the ICSID seeking to annul the award. The Annulment Committee lifted the stay of enforcement so that we may now attach and sell any non-sovereign assets of the Argentine government. The annulment hearing was held in early September 2009 and we anticipate a decision by the second quarter of 2010. We will not recognize the award until collectibility is assured. <br />In December 2006, we decided to sell our Arg entine investments, and we continue to actively pursue their sale. 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align="left" width="61">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="61">&#160;</td></tr><tr><td width="318" align="left" height="16" colspan="2"><b>As of December 31, 2008:</b></td><td height="16" width="22" align="right">&#160;</td><td height="16" width="61" align="left">&#160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="61" align="left">&#160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="61" align="left">&#160;</td><td height= "16" width="22" align="right">&#160;</td><td height="16" width="61" align="left">&#160;</td></tr><tr><td width="318" align="left" height="16" colspan="2">Debt securities:</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="61" align="left">&#160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="61" 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We determine the cost of securities in the trusts on the basis of specific identification. <br />The fair value of securities in an unrealized loss position as of December 31, 2009 was $110 million. The unrealized losses of $11 million were primarily caused by a negative market environment. We do not consider these investments to be other than temporarily impaired as of December 31, 2009. <br />Customer contribution amounts are determined by the CPUC using estimates of after-tax investment returns, decommissi oning costs, and decommissioning cost escalation rates. Changes in investment returns and decommissioning costs may result in a change in future customer contributions.<br />We discuss the impact of asset retirement obligations in Note 1. We provide additional information about SONGS in Notes 15 and 17.</p></div> <div style="font-size:12pt"><p>NOTE 5. 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DEBT AND CREDIT FACILITIES <br />Committed Lines of Credit<br />At December 31, 2009, Sempra Energy Consolidated had $4.3 billion in committed lines of credit to provide liquidity and to support commercial paper and variable-rate demand notes, the major components of which are detailed below. Available unused credit on these lines at December 31, 2009 was $3.6 billion.<br />These amounts exclude lines of credit associated with Sempra Commodities, some of which we continue to guarantee, as we discuss below in "RBS Sempra Commodities." RBS has replaced Sempra Energy as guarantor on all uncommitted lines of credit associated with Sempra Commodities. To the extent that Sempra Energy's credit support arrangements, including Sempra Commodities' committed facilities, have not been terminated or replaced, RBS has indemnified Sempra Energy for any claims or lo sses arising in connection with those arrangements.<br />Sempra Energy<br />Sempra Energy has a $1 billion, three-year syndicated revolving credit agreement expiring in 2011. Citibank, N.A. serves as administrative agent for the syndicate of 17 lenders. No single bank has greater than an 11-percent share. <br />Borrowings bear interest at benchmark rates plus a margin that varies with market index rates and Sempra Energy's credit ratings. The facility requires Sempra Energy to maintain a ratio of total indebtedness to total capitalization (as defined in the agreement) of no more than 65 percent at the end of each quarter. The actual ratio at December 31, 2009, calculated as defined in the agreement, was 48.1 percent.<br />At December 31, 2009, Sempra Energy had no outstanding borrowings under the facility. <br />Sempra Global<br />Sempra Global has a $2.5 billion, three-year syndicated revolving credit agreement expiring in 2011. Citibank, N.A. serves as administrative age nt for the syndicate of 18 lenders. No single bank has greater than an 11-percent share. The facility also provides for issuance of up to $300 million of letters of credit on behalf of Sempra Global with the amount of borrowings otherwise available under the facility reduced by the amount of outstanding letters of credit.<br />Sempra Energy guarantees Sempra Global&#8217;s obligations under the credit facility. Borrowings bear interest at benchmark rates plus a margin that varies with market index rates and Sempra Energy&#8217;s credit ratings. The facility requires Sempra Energy to maintain a ratio of total indebtedness to total capitalization (as defined in the agreement) of no more than 65 percent at the end of each quarter. <br />At December 31, 2009, Sempra Global had letters of credit of $7 million outstanding and no outstanding borrowings under the facility. The facility provides support for $460 million of commercial paper outstanding at December 31, 2009. At December 31, 2008, $6 00 million of the $1.1 billion commercial paper outstanding under this facility was classified as long-term debt based on management's intent and ability to maintain this level of borrowing on a long-term basis either supported by this credit facility or by issuing long-term debt. The classification had no impact on cash flows. <br />Sempra Utilities<br />SDG&amp;E and SoCalGas have a combined $800 million, three-year syndicated revolving credit agreement expiring in 2011. JPMorgan Chase Bank serves as administrative agent for the syndicate of 17 lenders. No single bank has greater than a 10-percent share. The agreement permits each utility to individually borrow up to $600 million, subject to a combined limit of $800 million for both utilities. It also provides for the issuance of letters of credit on behalf of each utility subject to a combined letter of credit commitment of $200 million for both utilities. The amount of borrowings otherwise available under the facility is reduced by the am ount of outstanding letters of credit. <br />Borrowings under the facility bear interest at benchmark rates plus a margin that varies with market index rates and the borrowing utility's credit rating. The agreement requires each utility to maintain a ratio of total indebtedness to total capitalization (as defined in the agreement) of no more than 65 percent at the end of each quarter. The actual ratios for SDG&amp;E and SoCalGas at December 31, 2009, calculated as defined in the agreement, were 48.8 percent and 42.3 percent, respectively. <br />Each utility&#8217;s obligations under the agreement are individual obligations, and a default by one utility would not constitute a default by the other utility or preclude borrowings by, or the issuance of letters of credit on behalf of, the other utility.<br />At December 31, 2009, SDG&amp;E and SoCalGas had no outstanding borrowings under this facility. SDG&amp;E had $25 million of outstanding letters of credit and $237 million of variable-rate demand notes outstanding supported by this facility at December 31, 2009. 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align="right" width="64">&#160;6,258&#160;</td></tr></table><p>In addition, the OMEC LLC project financing loan and the Orange Grove Energy L.P. project financing loan, discussed in Note 1, with $375 million and $87 million, respectively, of borrowings at December 31, 2009, may be prepaid at the borrowers' o ption. <br />First Mortgage Bonds <br />The Sempra Utilities issue first mortgage bonds which are secured by a lien on utility plant. The Sempra Utilities may issue additional first mortgage bonds upon compliance with the provisions of their bond agreements (indentures). These indentures require, among other things, the satisfaction of pro forma earnings-coverage tests on first mortgage bond interest and the availability of sufficient mortgaged property to support the additional bonds, after giving effect to prior bond redemptions. The most restrictive of these tests (the property test) would permit the issuance, subject to CPUC authorization, of an additional $3.3 billion of first mortgage bonds at SDG&amp;E and $536 million at SoCalGas at December 31, 2009. <br />In May 2009, SDG&amp;E publicly offered and sold $300 million of 6.0-percent first mortgage bonds, maturing in 2039.<br />Industrial development bonds<br />SDG&amp;E<br />During 2008, Sempra Energy p urchased $413 million of industrial development bonds, net of sales and purchases with SDG&amp;E as the cash flow needs of each entity changed. SDG&amp;E purchased $488 million of the bonds during 2008, and sold $228 million to Sempra Energy during 2008. The bonds were initially issued as insured, auction-rate securities, the proceeds of which were loaned to SDG&amp;E, and are repaid with payments on SDG&amp;E first mortgage bonds that have terms corresponding to those of the industrial development bonds that they secure.<br />In December 2008, SDG&amp;E remarketed $237 million of these industrial development bonds. These included $75 million remarketed at an initial daily floating rate of 0.65 percent (maturing in 2039), and $161 million initially remarketed for a three-month term at a rate of 1.00 percent (maturing in 2018). Beginning in March 2009, the interest rate on the $161 million series is reset on a weekly basis. <br />The remaining industrial development bonds, $24 million held by SDG&amp;E and $152 million held by Sempra Energy, were classified as available-for-sale securities and included in Short-term Investments on the Consolidated Balance Sheets at December 31, 2008. <br />In June 2009, SDG&amp;E remarketed the remaining $176 million of these bonds at a fixed rate of 5.875 percent, maturing in 2034. Prior to SDG&amp;E's remarketing of the remaining bonds in 2009, SDG&amp;E purchased $152 million of the bonds from Sempra Energy.<br />Sempra Pipelines &amp; Storage<br />In July 2009, to secure an approved exemption from sales and use tax, Sempra Pipelines &amp; Storage incurred $75 million out of a maximum available $265 million of long-term debt related to the construction and equipping of its Mississippi Hub Gas Storage facility. The debt is payable to the Mississippi Business Finance Corporation (MBFC), and we recorded bonds receivable from the MBFC for the same amount. Both the financing obligation and the bonds receiv able have interest rates of 4.5 percent and are due on July 1, 2024.<br />In 2006, in order to reduce its property tax, Sempra Pipelines &amp; Storage incurred $128 million of long-term debt related to the development of its Liberty Gas Storage (Liberty) facility in Calcasieu Parish, Louisiana. The debt is payable to the Calcasieu Parish Industrial Development Board. Related to the debt, we recorded bonds receivable from the Industrial Development Board for the same amount. Both the financing obligation and the bonds receivable have interest rates of 6.3 percent and are due on December 31, 2021. <br />Debt of Employee Stock Ownership Plan (ESOP) and Trust (Trust) <br />The ESOP covers substantially all Sempra Energy employees, including those of SDG&amp;E and SoCalGas. The Trust is used to fund part of the retirement savings plan described in Note 9. The notes of the ESOP are payable by the Trust and mature in 2014. <br />In July 2007, $50 million of these notes was repriced a t an interest rate of 5.781 percent for a three-year term ending July 1, 2010. The remaining $7 million of the notes is repriced weekly and subject to repurchase at our option. ESOP debt was paid down by a total of $35 million during the last three years when 815,593 shares of Sempra Energy common stock were released from the Trust in order to fund employer contributions to the Sempra Energy savings plan trust. Interest on the ESOP debt amounted to $3 million in 2009 and $4 million in each of 2008 and 2007. Dividends used for debt service amounted to $2 million in each of 2009, 2008 and 2007. <br /></p></div> <div style="font-size:12pt"><p>RBS Sempra Commodities<br />RBS is obligated to provide RBS Sempra Commodities with all growth capital, working-capital requirements and credit support. However, as a transitional measure, we continue to provide back-up guarantees for a portion of RBS Sempra Commodities&#8217; trading obligations and for a credit facility with third party lenders pending novation (legal transfer) of the remaining trading obligations to RBS, or after the closing of the transaction we discuss in Note 20, to J.P. Morgan Ventures Energy Corporation. Some of these back-up guarantees may continue for a prolonged period of time. RBS, which is controlled by the government of the United Kingdom, has fully indemnified us for any claims or losses in connection with these arrangements. <br />RBS Sempra Commodities&#8217; net trading liabilities supported by Sempra Energ y&#8217;s guarantees at December 31, 2009 were $798 million, consisting of guaranteed trading obligations net of collateral. The amount of guaranteed net trading liabilities varies from day to day with the value of the trading obligations and related collateral.<br />Sempra Energy also has guaranteed $344 million of $1.72 billion of RBS Sempra Commodities' commitments under a credit facility expiring September 29, 2010. Extensions of credit under the committed facility, which totaled $968 million at December 31, 2009, are limited to and secured by a borrowing base consisting of receivables, inventories and other joint venture assets that are valued at varying percentages of current market value. At December 31, 2009, the gross market value of the borrowing base assets was $3.3 billion. The facility will be reduced and end as the borrowing base assets are transferred to RBS as established by the joint-venture agreement.<br />On February 16, 2010, Sempra Energy, RBS and the partnership entered into an agreement to sell certain businesses within the partnership. We discuss this transaction and related agreements affecting the partnership in Note 20.<br />Other Guarantees <br />As discussed in Note 4, Sempra Energy, Conoco and KMP hold 25-percent, 25-percent and 50-percent ownership interests, respectively, in Rockies Express. Rockies Express operates a natural gas pipeline linking natural gas producing areas in the Rocky Mountain region to the upper Midwest and the eastern United States. Rockies Express has a $2 billion, five-year credit facility expiring in 2011 that provides for revolving extensions of credit that are guaranteed by Sempra Energy, Conoco and KMP in proportion to their respective ownership percentages. <br />Borrowings under the facility bear interest at rates varying with market rates plus a margin that varies with the credit ratings of the lowest-rated guarantor. The facility requires each guarantor to comply with various financial and other covenants comparable to those contained in its senior unsecured credit facilities. In the case of Sempra Energy, the primary requirement is that we maintain a ratio of total indebtedness to total capitalization (as defined in the facility) of no more than 65 percent at the end of each quarter. Rockies Express had $1.7 billion of outstanding borrowings under this facility at December 31, 2009, of which $418 million is guaranteed by Sempra Energy. The recorded fair value of this guarantee is negligible.<br /></p><p>Guarantees<br />Sempra Energy&#8217;s guarantees related to RBS Sempra Commodities and Rockies Express are discussed in Note 6. <br />As of December 31, 2009, SDG&amp;E and SoCalGas did not have any outstanding guarantees.</p></div> <div style="font-size:12pt"><p>Interest Rate Swaps<br />We discuss our fair value interest rate swaps and interest rate swaps to hedge cash flows in Note 11.</p><p>NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS<br />On January 1, 2009, we adopted SFAS 161 (ASC 815) as discussed in Note 2. The adoption had no impact on our consolidated financial statements, but requires additional disclosures, which we provide below. Comparative disclosures for periods prior to the date of adoption are not required and we have not provided them. <br />We use derivative instruments primarily to manage exposures arising in the normal course of business. These exposures are commodity market risk and benchmark interest rate risk. Our use of derivatives for these risks is integrated into the economic management of our anticipated revenues, anticipated expenses, assets and liabilities. Derivatives may be effective in mitigating these risks that could lead to declines in anticipated revenues or increases in anticipated expenses, or that our asset values may fall or our liabilities increase. Accordingly, our derivative activity summarized below generally represents an impact that is intended to offset associated revenues, expenses, assets or liabilities that are not presented below. <br />We record all derivatives at fair value on the Consolidated Balance Sheets. We designate each derivative as 1) a cash flow hedge, 2) a fair value hedge, or 3) undesignated.&#160;Depending on the applicability of hedge accounting and, for the Sempra Utilities and other operations subject to regulatory accounting, the requirement to pass impacts through to customers, the impact of derivative instruments may be offset in other comprehensive income (cash flow hedge), on the balance sheet (fair value hedges and regulatory offsets), or recognized in earnings. We classify cash flows from the settlements of derivative instruments as operating activities on the Statements of Consolidated Cash Flows. <br />In certain cases, we apply the normal purchase or sale exception to derivative accounting and have other commodity contracts that are not derivatives. These contracts are not recorded at fair value and are therefore excluded from the disclosures below. <br />HEDGE ACCOUNTING<br />We may designate a derivative as a cash flow hedging instrument if it effectively converts anticipated revenues or expenses to a fixed dollar amount. We may utilize cash flow hedge accounting for derivative commodity instruments and interest rate instruments. Designating cash flow hedges is dependent on the business context in which the instrument is being used, the effectiveness of the instrument in offsetting the risk that a given future revenue or expense item may vary, and other criteria.<br />We may designate an interest rate derivative as a fair value hedging instrument if it effective ly converts our own debt from a fixed interest rate to a variable rate. The combination of the derivative and debt instruments results in fixing that portion of the fair value of the debt that is related to benchmark interest rates. Designating fair value hedges is dependent on the instrument being used, the effectiveness of the instrument in offsetting changes in the fair value of our debt instruments, and other criteria.<br />ENERGY DERIVATIVES<br />Our market risk is primarily related to natural gas and electricity price volatility and the specific physical locations where we transact. We use energy derivatives to manage these risks. The use of energy derivatives in our various businesses depends on the particular energy market, and the operating and regulatory environments applicable to the business.<br /></p><ul><li>The Sempra Utilities use natural gas energy derivatives, on their customers' behalf, with the objective of managing price risk and lowering natural gas co sts. These derivatives include fixed price natural gas positions, options, and basis risk instruments and are governed by risk management and transacting activity plans that have been filed with and approved by the CPUC. Natural gas derivative activities are recorded as commodity costs that are offset by regulatory account balances and are recovered in rates. Net commodity cost impacts on the Consolidated Statements of Operations are reflected in Cost of Electric Fuel and Purchased Power or in Cost of Natural Gas. <br /></li><li>SDG&amp;E is allocated and may purchase congestion revenue rights (CRRs), which serve to reduce the regional electricity price volatility risk which may result from local transmission capacity constraints. Unrealized gains and losses do not impact earnings, as they are offset by regulatory account balances. Realized gains and losses associated with CRRs are recorded in Cost of Electric Fuel and Purchased Power on the Consolidated Statements of Operations. We pro vide further discussion in Note 15.<br /></li><li>Sempra Generation uses natural gas and electricity instruments to market and optimize the earnings of its power generation fleet. Gains and losses associated with these derivatives are recognized in Sempra Global and Parent Revenues or in Cost of Natural Gas, Electric Fuel and Purchased Power on the Consolidated Statements of Operations. <br /></li><li>Sempra LNG and Sempra Pipelines &amp; Storage use natural gas derivatives to market and optimize the earnings of the liquefied natural gas business and Sempra Pipelines &amp; Storage's natural gas storage and transportation assets. Sempra Pipelines &amp; Storage also uses natural gas energy derivatives with the objective of managing price risk and lowering natural gas prices at its Mexican distribution operations. Sempra Pipelines &amp; Storage&#8217;s derivatives are either undesignated or are recorded as commodity costs that are offset by regulatory acco unt balances and are recovered in rates. Sempra LNG&#8217;s derivatives are undesignated and their impact on earnings is recorded in Sempra Global and Parent Revenues on the Consolidated Statements of Operations. The impacts on earnings are recognized in Sempra Global and Parent Revenues or in Cost of Natural Gas, Electric Fuel and Purchased Power on the Consolidated Statements of Operations.<br /></li></ul><p>From time to time, our various businesses, including the Sempra Utilities, may use other energy derivatives to hedge exposures such as the price of vehicle fuel. 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We periodically enter into interest rate derivative agreements intended to moderate our exposure to interest rates and to lower our overall costs of borrowing. We utilize interest rate swaps typically designated as fair value hedges, as a means to achieve our targeted level of variable rate debt as a percent of total debt. In addition, we may utilize interest rate swaps, which are typically designated as cash flow hedges, to lock in interest rates in anticipation of future financings. <br />Interest rate derivatives are utilized by the Sempra Utilities as well as by other Sempra Energy subsidiaries. Although the Sempra Utilities generally recover borrowing costs in rates over time, the use of interest rate derivatives is subject to certain regulatory constraints, and the impact of interest rate derivatives may not be recovered from customers as timely as described above with regard to natural gas derivatives. 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style="border-top: 3px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="85">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="19">&#160;</td><td height="16" st yle="border-top: 3px solid #000000;" align="right" width="72">&#160;</td></tr><tr><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="34">&#160;</td><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="286">Interest rate instruments</td><td height="16" style="border-bottom: 3px solid #000000;" align="right" width="19">$</td><td height="16" style="border-bottom: 3px solid #000000;" align="right" width="81">&#160;6&#160;</td><td height="16" style="border-bottom: 3px solid #000000;" align="right" width="19">$</td><td height="16" style="border-bottom: 3px solid #000000;" align="right" width="80">&#160;2&#160;</td><td height="16" style="border-bottom: 3px solid 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style="border-top: 3px solid #00 0000;" align="right" width="85">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="19">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="72">&#160;</td></tr><tr><td width="320" align="left" colspan="2" style="border-bottom: 1px solid #000000;" height="16">Derivatives not designated as hedging instruments</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="81">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="80">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="19">&#160;</td><td height="16" sty le="border-bottom: 1px solid #000000;" align="right" width="85">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="72">&#160;</td></tr><tr><td width="320" align="left" colspan="2" style="border-top: 1px solid #000000;" height="16"><b>Sempra Energy Consolidated:</b></td><td height="16" style="border-top: 1px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="81">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="80">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="19">&#160;</td>< td height="16" style="border-top: 1px solid #000000;" align="right" width="85">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-top: 1px solid 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width="19" align="right">&#160;</td><td height="16" width="85" align="right">&#160;(64)</td><td height="16" width="19" align="right">&#160;</td><td height="16" width="72" align="right">&#160;(42)</td></tr><tr><td height="16" width="34" align="left">&#160;</td><td height="16" width="286" align="left">&#160;&#160;&#160;&#160;Associated offsetting commodity contracts</td><td height="16" width="19" align="right">&#160;</td><td height="16" width="81" align="right">&#160;(34)</td><td height="16" width="19" align="right">&#160;</td><td height="16" width="80" align="right">&#160;(6)</td><td height="16" width="19" align="right">&#160;</td><td height="16" width="85" align="right">&#160;34&#160;</td><td height="16" width="19" align="right">&#160;</td><td height="16" width="72" align="right">&#160;6&#160;</td></tr><tr><td height="16" width="34" align="left">&#160;</td><td height="16" width="286" align="left">Commodity contracts subject to rate recovery</td><td height="16" width="19" align="right">&#160;</td><td height="16" width="81" align="right">&#160;20&#160;</td><td height="16" width="19" align="right">&#160;</td><td height="16" width="80" align="right">&#160;7& ;#160;</td><td height="16" width="19" align="right">&#160;</td><td height="16" width="85" align="right">&#160;(20)</td><td height="16" width="19" align="right">&#160;</td><td height="16" width="72" align="right">&#160;(13)</td></tr><tr><td height="16" width="34" align="left">&#160;</td><td height="16" width="286" align="left">&#160;&#160;&#160;&#160;Associated offsetting commodity contracts</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="81">&#160;(14)</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="80">&#160;(9)</td><td height="16" style="border-bottom: 1px solid # 000000;" align="right" width="19">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="85">&#160;14&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="72">&#160;9&#160;</td></tr><tr><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="34">&#160;</td><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="286">Total</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="19">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="81">&#160;55&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" ali gn="right" width="19">$</td><td height="16" style="border-top: 1px solid 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style="border-top: 3px solid #000000;" align="right" width="80">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="85">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="72">&#160;</td></tr><tr><td height="16" width="34" align="left">&#160;</td><td height="16" width="286" align="left">Interest rate instruments(3)</td><td height="16" width="19" align="right">$</td><td height="16" width="81" align="right">&#16 0;-&#160;</td><td height="16" width="19" align="right">$</td><td height="16" width="80" align="right">&#160;-&#160;</td><td height="16" width="19" align="right">$</td><td height="16" width="85" align="right">&#160;(17)</td><td height="16" width="19" align="right">$</td><td height="16" width="72" 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style="border-bottom: 1px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="80">&#160;(9)</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="85">&#160;13&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="72">&#160;9&#160;</td></tr><tr><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="34">&#160;</td><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="286">Total</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="19">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" 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style="border-top: 3px solid #000000;" align="right" width="81">&#160;</td><td height="16" style="border-top: 3px solid #00000 0;" align="right" width="19">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="80">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="85">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="72">&#160;</td></tr><tr><td height="16" width="34" align="left">&#160;</td><td height="16" width="286" align="left">Commodity contracts subject to rate recovery</td><td height="16" width="19" align="right">$</td><td height="16" width="81" align="right">&#160;2&#160;</td><td height="16" width="19" align="right">$</td><td height="16" width="80" align="right">& amp;#160;-&#160;</td><td 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The swaps expire in 2027. During the second quarter of 2007, we revised our borrowing plans in anticipation of receiving net cash proceeds in connection with the sale of the commodities-marketing businesses. Accordingly, as of June 30, 2007, we reclassified the cash flow hedge gain of $30 million pretax from Accumulated Other Comprehensive Income (Loss) to Other Income (Expense), Net in the Consolidated Statements of Operations. In August 2007, we entered into interest rate swaps with a collective notional value of $450 million to economically offset the original swap instruments. <br />Sempra Energy expects that gains of $12 million, which are net of income tax expense, that are currently recorded in Accumulated Other Comprehensive Income (Loss) related to cash flow hedges will be reclassified into earnings during the next twelve months as the hedged items affect earnings. Actual amounts ultimately reclassified to earnings depend on the commodity prices and interest rates in effect when derivative contracts that are currently outstanding mature. For all forecasted transactions, the maximum term over which we are hedging exposures to the variability of cash flows, excluding interest payments, is 30 months at December 31, 2009. The maximum term over which RBS Sempra Commodities hedges forecasted natural gas purchases and sales is six years.<br />SDG&amp;E and SoCalGas expect that losses of $1 million and $3 million, respectivel y, which are net of income tax benefit, that are currently recorded in Accumulated Other Comprehensive Income (Loss) related to these cash flow hedges will be reclassified into earnings during the next twelve months as the hedged items affect earnings.</p><p>Hedge Ineffectiveness<br />We recorded negligible hedge ineffectiveness in 2009. 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Sempra Energy Consolidated also includes additional instruments.</i></td></tr></table><p>CONTINGENT FEATURES <br />For Sempra Energy and SDG&amp;E, certain of our derivative instruments contain&#160;credit&#160;limits&#160;which vary depending upon our credit rating.&#160; Generally, these provisions, if applicable, may reduce&#160;our credit limit if a&#160;specified&#160;credit rating agency reduces our&#160;rating.&#160;In certain cases, if our&#160;credit rating were to fall below investment grade, the&#160;counterparty to&#160;these&#160;derivative liability&#160;instruments could request immediate payment or demand immediate and ongoing full collateralization.&#160;<br />For Sempra Energy, the total fair value of&#160;this group of derivative instruments in a net liabi lity position at December 31, 2009 is $4&#160;million.&#160;As of December 31, 2009, if&#160;the credit rating of Sempra Energy were reduced below investment grade, $4 million of additional assets could be required to be posted as collateral for these derivative contracts.<br />For Sempra Energy, SDG&amp;E, PE and SoCalGas, some of our derivative contracts contain a provision that would permit the counterparty, in certain circumstances, to request adequate assurance of our performance under the contract. 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width="75">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="26">&#160;</td></tr><tr><td height="16" width="344" align="left">U.S. federal statutory income tax rate</td><td height="16" width="75" align="right">&#160;35&#160;</td><td height="16" width="26" align="right">%</td><td height="16" width="75" align="right">&#160;35&#160;</td><td height="16" width="26" align="right">%</td><td height="16" width="75" align="right">&#160;35&#160;</td><td height="16" width="26" align="right">%</td></tr><tr><td height="16" width="344" align="left">Depr eciation</td><td height="16" width="75" align="right">&#160;6&#160;</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="75" align="right">&#160;5&#160;</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="75" align="right">&#160;6&#160;</td><td height="16" width="26" align="right">&#160;</td></tr><tr><td height="16" width="344" align="left">State income taxes, 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style="border-bottom: 1px solid #000000;" align="right" width="75">&#160;48&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="rig ht" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="75">&#160;96&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="75">&#160;51&#160;</td></tr><tr><td height="16" width="301" align="left">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Total </td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="75">&#160;127&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border - 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width="301" align="left">&#160;&#160;&#160;&#160;U.S. Federal</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="75" align="right">&#160;216&#160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="75" align="right">&#160;359&#160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="75" align="right">&#160;124&#160;</td></tr><tr><td height="16" width="301" align="left">&#160;&#160;&#160;&#160;U.S. State</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="75" align="right">&#160;24&#160;</td><td height="16" width="22" align="right">&am p;#160;</td><td height="16" width="75" align="right">&#160;29&#160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="75" align="right">&#160;(5)</td></tr><tr><td height="16" width="301" align="left">&#160;&#160;&#160;&#160;Non-U.S.</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="75">&#160;58&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="75">&#160;(59)</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="75">& ;#160;36&#160;</td></tr><tr><td height="16" width="301" align="left">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Total </td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="75">&#160;298&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="75">&#160;329&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right " width="75">&#160;155&#160;</td></tr><tr><td height="16" width="301" align="left">Deferred investment tax credits</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="75">&#160;(3)</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="75">&#160;(5)</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="75">&#160;(6)</td></tr>< ;tr><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="301">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Total income tax expense</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="75">&#160;422&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="75">&#160;438&#160;</td><td height="16" style="border-top: 1px solid 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width="75" align="le ft">&#160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="75" align="left">&#160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="75" align="left">&#160;</td></tr><tr><td height="16" width="301" align="left">&#160;&#160;&#160;&#160;U.S. Federal</td><td height="16" width="22" align="right">$</td><td height="16" width="75" align="right">&#160;70&#160;</td><td height="16" width="22" align="right">$</td><td height="16" width="75" align="right">&#160;25&#160;</td><td height="16" width="22" align="right">$</td><td height="16" width="75" align="right">&#160;131&#160;</td></tr><tr><td height="16" width="301" align="left">&#160;&#160;&#160;&#160;U.S. State</td><td height="16" style="border-bottom: 1px so lid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="75">&#160;34&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="75">&#160;23&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="75">&#160;44&#160;</td></tr><tr><td height="16" width="301" align="left">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Total </td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom : 1px solid #000000;" align="right" width="75">&#160;104&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="75">&#160;48&#160;</td><td height="16" style="border-top: 1px 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style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="75">&#160;177&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="75">&#160;161&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="75">&#160;135&#160;</td></tr><tr><td height="16" style="border-top: 3px solid #000000;" align="left" width="301"><b>PE</b></td><td height="16" style="border-top: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 1px s olid #000000;" align="left" width="75">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="75">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="75">&#160;</td></tr><tr><td height="16" width="301" align="left">Current:</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="75" align="left">&#160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="75" align="left">&#160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="75" align="left">&#160;</td></tr><tr><td height="16" wi dth="301" align="left">&#160;&#160;&#160;&#160;U.S. Federal</td><td height="16" width="22" align="right">$</td><td height="16" width="75" align="right">&#160;52&#160;</td><td height="16" width="22" align="right">$</td><td height="16" width="75" align="right">&#160;28&#160;</td><td height="16" width="22" align="right">$</td><td 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style="border-top: 1px solid #000000;" align="left" width="75">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" wid th="75">&#160;</td></tr><tr><td height="16" width="301" align="left">&#160;&#160;&#160;&#160;U.S. Federal</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="75" align="right">&#160;68&#160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="75" align="right">&#160;89&#160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="75" align="right">&#160;15&#160;</td></tr><tr><td height="16" width="301" align="left">&#160;&#160;&#160;&#160;U.S. State</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="75">&#160;7&#160;</td><td height="16" 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align="right">&#160;</td><td height="16" width="75" align="left">&#160;</td></tr><tr><td height="16" width="301" align="left">&#160;&#160;&#160;&#160;U.S. Federal</td><td height="16" width="22" align="right">$</td><td height="16" width="75" align="right">&#160;52&#160;</td><td height="16" width="22" align="right">$</td><td height="16" width="75" align ="right">&#160;31&#160;</td><td height="16" width="22" align="right">$</td><td height="16" width="75" align="right">&#160;119&#160;</td></tr><tr><td height="16" width="301" align="left">&#160;&#160;&#160;&#160;U.S. State</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="75">&#160;22&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="75">&#160;22&#160;</td><td height="16" 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width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="75">&#160;73&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="75">&#160;90&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;bo rder-bottom: 1px solid #000000;" align="right" width="75">&#160;11&#160;</td></tr><tr><td height="16" width="301" align="left">Deferred investment tax credits</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="75">&#160;(3)</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="75">&#160;(3)</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="7 5">&#160;(3)</td></tr><tr><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="301">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Total income tax expense</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="75">&#160;144&#160;</td><td height="16" style="border-top: 1px solid 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align="left">&#160;</td><td width="174" align="center" colspan="4" style="border-bottom: 1px solid #000000;" height="14">December 31,</td></tr><tr><td height="14" style="border-bottom: 1px solid #000000;" align="left" width="495">&#160;</td><td width ="87" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2009&#160;</td><td width="87" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2008&#160;</td></tr><tr><td height="16" style="border-top: 1px solid #000000;" align="left" width="495">Deferred income tax liabilities:</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="26">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="61">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="26">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="61">&#160;</td></tr><tr><td height="16" width="495" align="left">&#160;&#160;&#160;&#160;Differences in financial and tax base s of depreciable and amortizable assets</td><td height="16" width="26" align="right">$</td><td height="16" width="61" align="right">&#160;1,528&#160;</td><td height="16" width="26" align="right">$</td><td height="16" width="61" align="right">&#160;1,323&#160;</td></tr><tr><td height="16" width="495" align="left">&#160;&#160;&#160;&#160;Regulatory balancing accounts</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="61" align="right">&#160;501&#160;</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="61" align="right">&#160;632&#160;</td></tr><tr><td height="16" width="495" align="left">&#160;&#160;&#160;&#160;Unrealized revenue</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="61" align="r ight">&#160;25&#160;</td><td height="16" width="26" align="right">&#160;</td><td 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align="right">&#160;</td><td height="16" width="61" align="right">&#160;46&#160;</td></tr><tr><td height="16" width="495" align="left">&#160;&#160;&#160;&#160;Other</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="26">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="61">&#160;61&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="26">&#160;</td><td height="16" style="border-bottom: 1px s olid #000000;" align="right" width="61">&#160;15&#160;</td></tr><tr><td height="16" width="495" align="left">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Total deferred income tax liabilities</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="26">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="61">&#160;2,252&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="26">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="61">&#160;2,090&#160;</td></tr><tr><td height="16" width="495" align="left">Deferred income tax assets:</td><td height="16" style="border-top: 1px solid #000000 ;" align="right" width="26">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="61">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="26">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="61">&#160;</td></tr><tr><td height="16" width="495" align="left">&#160;&#160;&#160;&#160;Investment tax credits</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="61" align="right">&#160;35&#160;</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="61" align="right">&#160;37&#160;</td></tr><tr><td height="16" width="495" align="left">&#160;&#160;&#160;&#160;Equity losses</td><td height="16" width="26" align="right">&#160;</td><td height=" 16" width="61" align="right">&#160;3&#160;</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="61" align="right">&#160;6&#160;</td></tr><tr><td height="16" width="495" align="left">&#160;&#160;&#160;&#160;Net operating losses of separate state and foreign entities</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="61" align="right">&#160;21&#160;</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="61" align="right">&#160;77&#160;</td></tr><tr><td height="16" width="495" align="left">&#160;&#160;&#160;&#160;Compensation-related items</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="61" align="right">&#160;177&#160;</td><td height="16" width="26" align="right"& gt;&#160;</td><td height="16" width="61" align="right">&#160;193&#160;</td></tr><tr><td height="16" width="495" align="left">&#160;&#160;&#160;&#160;Postretirement benefits</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="61" align="right">&#160;510&#160;</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="61" align="right">&#160;609&#160;</td></tr><tr><td height="16" width="495" align="left">&#160;&#160;&#160;&#160;Other deferred assets</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="61" align="right">&#160;41&#160;</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="61" align="right">&#160;4&#160;</td></tr><tr><td height="16" wid th="495" align="left">&#160;&#160;&#160;&#160;State income taxes</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="61" align="right">&#160;50&#160;</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="61" align="right">&#160;35&#160;</td></tr><tr><td height="16" width="495" align="left">&#160;&#160;&#160;&#160;Bad debt allowance</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="61" align="right">&#160;7&#160;</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="61" align="right">&#160;7&#160;</td></tr><tr><td height="16" width="495" align="left">&#160;&#160;&#160;&#160;Litigation and other accruals not yet deductible</td><td height="16" style="border-bo ttom: 1px solid #000000;" align="right" width="26">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="61">&#160;129&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="26">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="61">&#160;233&#160;</td></tr><tr><td height="16" width="495" align="left">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Deferred income tax assets before valuation allowances</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="26">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="61">&#160;973&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="26">&#160;</td><td height="16" style="border-top: 1px sol id #000000;" align="right" width="61">&#160;1,201&#160;</td></tr><tr><td height="16" width="495" align="left">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Less: valuation allowances</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="26">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="61">&#160;29&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="26">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="61">&#160;26&#160;</td></tr><tr><td height="16" width="495" align="left">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Total deferred income tax assets</td><td height="16" style="border-top: 1px solid #000000;border-bot tom: 1px solid #000000;" align="right" width="26">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="61">&#160;944&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="26">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="61">&#160;1,175&#160;</td></tr><tr><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="495">Net deferred income tax liability</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="26">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" 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style="border-top: 1px solid #000000;" align="left" width="22">$</td><td height="17" style="border-top: 1px solid #000000;border-right: 1px solid #000000;" align="right" width="47">&#160;6&#160;</td><td height="17" style="border-top: 1px solid #000000;border-left: 1px solid #000000;" align="left" width="22">$</td><td height="17" style="border-t op: 1px solid #000000;" align="right" width="47">&#160;6&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="left" width="22">$</td><td height="17" style="border-top: 1px solid #000000;" align="right" width="47">&#160;6&#160;</td></tr><tr><td height="17" width="151" align="left">Noncurrent liability</td><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="22">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="57">&#160;1,318&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="22">&#160;</td><td height="17" style="border-bottom: 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width="47">&#160;157&#160;</td><td height="17" style="border-bottom: 1px solid #000000;border-left: 1px solid #000000;" alig n="left" width="22">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="47">&#160;280&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="22">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="47">&#160;167&#160;</td></tr><tr><td height="18" style="border-bottom: 3px solid #000000;" align="left" width="151">Total</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="left" width="22">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="57">&#160;1,308&#160;</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="left" width="22">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #0 00000;border-right: 1px solid #000000;" align="right" width="47">&#160;915&#160;</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;border-left: 1px solid #000000;" align="left" width="22">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="47">&#160;733&#160;</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="left" width="22">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;border-right: 1px solid #000000;" align="right" width="47">&#160;611&#160;</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;border-left: 1px solid #000000;" align="left" width="22">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="47">&#160;27 8&#160;</td><td height="18" style="border-top: 1px solid 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A valuation allowance is recorded when, based on more-likely-than-not criteria, negative evidence outweighs positive evidence with regard to our ability to realize a deferred tax asset in the future. At both Sempra Energy and SDG&amp;E, deferred income taxes for variable interest entities are shown on a net basis. Therefore, a valuation allowance of $117 million related to variable interest entities is not reflected in the tables above. Of Sempra Energy&#8217;s total valuation allowance of $29 million, $18 million is related to non-U.S. net operating losses, $7 million to other future deductions, and $4 million to U.S. state and local net operating losses. The total valuation allowance, excluding the amount related to variable interest entities, increased during 2009, when compared to 2008, primarily due to the increase in the valuation allowance established for U.S. state and local net operating losses. This increase was offset by a decrease in the valuation allowance established for U.S. state and local capital losses. We believe that it is more likely than not that the remainder of the total deferred income tax asset is realizable. <br />At December 31, 2009, Sempra Energy&#8217;s non-U.S. subsidiaries had $46 million of unused net operating losses (NOLs) available to utilize in the future to reduce Sempra Energy&#8217;s future non-U.S. income tax expense, which is in Denmark, Netherlands and Spain. The carry forward periods on our non-U.S. unused NOLs are as follows: $18 million does not expire and $28 million expires between 2011and 2023. As of December 31, 2009, $215 million of Mexican subsidiary NOLs, which have been utilized on a consolidated level, are subject to recapture between 2013 and 2015 if the Mexican subsidiary that generated them does not have sufficient taxable income itself to realize them within 5 years. These NOLs expire between 2013 and 2019. Sempra Energy&#8217;s U.S. subsidiaries had $100 million of unused U.S. state and local NOLs, primarily in Louisiana, Connecticut, Alabama and Washington D.C. These U.S. state and local NOLs expire between 2010 and 2028. We have not recorded income tax benefits on a portion of these NOLs because they were incurred in jurisdictions where we currently believe they will not be realized, as discussed above. <br />At December 31, 2009, Sempra Energy had not recognized a U.S. deferred income tax liability on $1.5 billion of cumulative undistributed earnings of non-U.S. subsidiaries that we expect to reinvest indefinitely outside the U.S. These earnings have previously been reinvested or will be reinvested in active non-U.S. operations, thus we do not intend to use these earnings as a source of funding for U.S. operations. It is not practical to determine the amount of U.S. income taxes that might be payable if these earnings were eventually distributed. U.S. deferred income taxes will be recorded when it is determined that all , or a part, of these earnings are no longer intended to be reinvested indefinitely. <br />Sempra Commodities recorded synthetic fuels tax credits of $32 million in 2007.<br />Following is a summary of unrecognized tax benefits at December 31:</p><table style="border-collapse: collapse; margin-top: 20px;"><tr><td width="755" align="left" colspan="19" style="border-top: 1px solid #000000;" height="17"><b>SUMMARY OF UNRECOGNIZED TAX BENEFITS </b></td></tr><tr><td width="755" align="left" height="17" colspan="19"><i>(Dollars in millions)</i></td></tr><tr><td height="14" width="220" align="left">&#160;</td><td width="189" align="center" height="14" colspan="6">Sempra Energy</td><td height="14" width="18" align="left">&#160;</td><td height="14" width="42" align="left">&#160;</td><td height="14" width="18" align="left">&#160;</td><td h eight="14" width="41" align="left">&#160;</td><td height="14" width="18" 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height="14">2009&#160;</td><td width="63" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2008&#160;</td><td width="65" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2007&#160;</td><td width="60" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2009&#160;</td><td width="59" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2008&#160;</td><td width="59" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2007&#160;</td><td width="55" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2009&#160;</td><td width="54" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" 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style="border-top: 1px solid #000000;" align="center" width="42">&#160;</td><td height="14" style="border-top: 1px solid #000000;" align="left" width="18">&#160;</td><td height="14" style="border-top: 1px solid #000000;" align="center" width="41">&#160;</td><td height="14" style="border-top: 1px solid #000000;" align="center" width="18">&#160;</td><td height="14" style="border-top: 1px solid #000000;border-right: 1px solid #000000;" align="center" width="41" >&#160;</td><td height="14" style="border-top: 1px solid #000000;border-left: 1px solid #000000;" align="left" width="18">&#160;</td><td height="14" style="border-top: 1px solid #000000;" align="center" width="37">&#160;</td><td height="14" style="border-top: 1px solid #000000;" align="left" width="18">&#160;</td><td height="14" style="border-top: 1px solid #000000;" align="center" width="36">&#160;</td><td height="14" style="border-top: 1px solid #000000;" align="left" width="18">&#160;</td><td height="14" style="border-top: 1px 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align="left" width="18">$</td><td height="18" style="border-bottom: 3px solid #000000;" align="right" width="41">&#160;18&#160;</td><td height="18" style="border-bottom: 3px solid #000000;" align="left" width="18">$ </td><td height="18" style="border-bottom: 3px solid #000000;border-right: 1px solid #000000;" align="right" width="41">&#160;26&#160;</td><td height="18" style="border-bottom: 3px solid #000000;border-left: 1px solid #000000;" align="left" width="18">$</td><td height="18" style="border-bottom: 3px solid #000000;" align="right" width="37">&#160;11&#160;</td><td height="18" style="border-bottom: 3px solid #000000;" align="left" width="18">$</td><td height="18" style="border-bottom: 3px solid #000000;" align="right" width="36">&#160;19&#160;</td><td height="18" style="border-bottom: 3px solid #000000;" align="left" width="18">$</td><td height="18" style="border-bottom: 3px solid #000000;" align="right" width="41">&#160;40&#160;</td></tr><tr><td height="49" width="220" align="left">Of the total, amounts related to tax positions that, if recognized, in future years, would:&l t;/td><td height="49" style="border-top: 3px solid #000000;" align="left" width="18">&#160;</td><td height="49" style="border-top: 3px solid #000000;" align="left" width="43">&#160;</td><td height="49" style="border-top: 3px solid #000000;" align="left" width="18">&#160;</td><td height="49" style="border-top: 3px solid #000000;" align="left" width="45">&#160;</td><td height="49" style="border-top: 3px solid #000000;" align="left" width="18">&#160;</td><td height="49" style="border-top: 3px solid #000000;border-right: 1px solid #000000;" align="left" width="47">&#160;</td><td height="49" style="border-top: 3px solid #000000;border-left: 1px solid #000000;" align="left" width="18">&#160;</td><td height="49" style="border-top: 3px solid #000000;" align="left" width="42">&#160;</td><td height="49" style="border-top: 3px solid #000000;" align="left" width="18">&#160;</td& gt;<td height="49" style="border-top: 3px solid #000000;" align="left" width="41">&#160;</td><td height="49" style="border-top: 3px solid #000000;" align="left" width="18">&#160;</td><td height="49" style="border-top: 3px solid #000000;border-right: 1px solid #000000;" align="left" width="41">&#160;</td><td height="49" style="border-top: 3px solid #000000;border-left: 1px solid #000000;" align="left" width="18">&#160;</td><td height="49" style="border-top: 3px solid #000000;" align="left" width="37">&#160;</td><td height="49" style="border-top: 3px solid #000000;" align="left" width="18">&#160;</td><td height="49" style="border-top: 3px solid #000000;" align="left" width="36">&#160;</td><td height="49" style="border-top: 3px solid #000000;" align="left" width="18">&#160;</td><td height="49" style="border-top: 3px solid #000000;" align="left" width="41">&#160;</td>< ;/tr><tr><td height="17" width="220" align="left">&#160;&#160;&#160;decrease the effective tax rate</td><td height="17" width="18" align="left">$</td><td height="17" width="43" align="right">&#160;(76)</td><td height="17" width="18" align="left">$</td><td height="17" width="45" align="right">&#160;(64)</td><td height="17" width="18" align="left">$</td><td height="17" style="border-right: 1px solid #000000;" align="right" width="47">&#160;(109)</td><td height="17" style="border-left: 1px solid #000000;" align="left" width="18">$</td><td height="17" width="42" align="right">&#160;(13)</td><td height="17" width="18" align="left">$</td><td height="17" width="41" align="right">&#160;(17)</td><td height="17" width="18" align="left">$</td><td height="17" style="border-right: 1px solid #000000;" align="right" width="41">&#16 0;(23)</td><td height="17" style="border-left: 1px solid #000000;" align="left" width="18">$</td><td height="17" width="37" align="right">&#160;(1)</td><td height="17" width="18" align="left">$</td><td height="17" width="36" align="right">&#160;-&#160;</td><td height="17" width="18" 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align="right" width="42">&#160;13&#160;</td><td height="18" style="border-bottom: 3px solid #C0C0C0;" align="left" width="18">$</td><td height="18" style="border-bottom: 3px solid #C0C0C0;" align="right" width="41">&#160;17&#160;</td><td height="18" style="border-bottom: 3px solid #C0C0C0;" align="left" width="18">$</td><td height="18" style="border-bottom: 3px solid #C0C0C0;border-right: 1px solid #000000;" align="right" width="41">&#160;22& #160;</td><td height="18" style="border-bottom: 3px solid #C0C0C0;border-left: 1px solid #000000;" align="left" width="18">$</td><td height="18" style="border-bottom: 3px solid #C0C0C0;" align="right" width="37">&#160;-&#160;</td><td height="18" style="border-bottom: 3px solid #C0C0C0;" align="left" width="18">$</td><td height="18" style="border-bottom: 3px solid #C0C0C0;" align="right" width="36">&#160;-&#160;</td><td height="18" style="border-bottom: 3px solid #C0C0C0;" align="left" width="18">$</td><td height="18" style="border-bottom: 3px solid #C0C0C0;" align="right" width="41">&#160;21&#160;</td></tr></table><p>Following is a reconciliation of the changes in unrecognized tax benefits for the years ended December 31</p><table style="border-collapse: collapse; margin-top: 20px;"><tr><td width="570" align="left" colspan="7" style="border-top: 1px solid #000000;" heig ht="17"><b>RECONCILIATION OF UNRECOGNIZED TAX BENEFITS</b></td></tr><tr><td width="570" align="left" height="17" colspan="7"><i>(Dollars in millions)</i></td></tr><tr><td height="14" style="border-bottom: 1px solid #000000;" align="left" width="243">&#160;</td><td width="110" align="center" colspan="2" style="border-bottom: 1px solid #000000;" height="14">2009&#160;</td><td width="109" align="center" colspan="2" style="border-bottom: 1px solid #000000;" height="14">2008&#160;</td><td width="108" align="center" colspan="2" style="border-bottom: 1px solid #000000;" height="14">2007&#160;</td></tr><tr><td height="17" style="border-top: 1px solid #000000;" 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align="left">&#160;&#160;&#160;&#160;Increase in current period tax positions</td><td height="17" width="29" align="right">&#160;</td><td height="17" width="81" align="right">&#160;15&#160;</td><td height="17" width="28" align="right">&#160;</td><td height="17" width="81" align="right">&#160;4&#160;</td><td height="17" width="27" align="right">&#160;</td><td height="17" width="81" align="right">&#160;8&#160;</td></tr><tr><td height="17" width="243" align="left">&#160;&#160;&#160;&#160;Decrease in current period tax positions</td><td height="17" width="29" align="right">&#160;</td><td height="17" widt h="81" align="right">&#160;-&#160;</td><td height="17" width="28" align="right">&#160;</td><td height="17" width="81" align="right">&#160;(5)</td><td height="17" width="27" align="right">&#160;</td><td height="17" width="81" align="right">&#160;(2)</td></tr><tr><td height="17" width="243" align="left">&#160;&#160;&#160;&#160;Settlements with taxing authorities</td><td height="17" width="29" align="right">&#160;</td><td height="17" width="81" align="right">&#160;(54)</td><td height="17" width="28" align="right">&#160;</td><td height="17" width="81" align="right">&#160;(38)</td><td height="17" width="27" align="right">&#160;</td><td height="17" width="81" align="right">&#160;(16)</td></tr><tr><td height="17" width="243" align="left">&#160;&#160;&#160;&#160;Expirat ions of statutes of limitations</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="29">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="81">&#160;(12)</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="28">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="81">&#160;(7)</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="27">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="81">&#160;(6)</td></tr><tr><td height="18" style="border-bottom: 3px solid #000000;" align="left" width="243">Balance as of December 31 </td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="29">$</td><td height="18" style="border- top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="81">&#160;94&#160;</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="28">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="81">&#160;104&#160;</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="27">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="81">&#160;131&#160;</td></tr><tr><td height="18" style="border-top: 3px solid #000000;" align="left" width="243"><b>SDG&amp;E:</b></td><td height="18" style="border-top: 3px solid #000000;" align="right" width="29">&#160;</td><td height="18" style="border-top: 3px solid #000000;" align="left" width=" 81">&#160;</td><td height="18" style="border-top: 3px solid #000000;" align="right" width="28">&#160;</td><td height="18" style="border-top: 3px solid #000000;" align="left" width="81">&#160;</td><td height="18" style="border-top: 3px solid #000000;" align="left" width="27">&#160;</td><td height="18" style="border-top: 3px solid #000000;" align="right" width="81">&#160;</td></tr><tr><td height="17" width="243" align="left">Balance as of January 1 </td><td height="17" width="29" align="right">$</td><td height="17" width="81" align="right">&#160;18&#160;</td><td height="17" width="28" align="right">$</td><td height="17" width="81" align="right">&#160;26&#160;</td><td height="17" width="27" align="right">$</td><td height="17" width="81" align="right">&#160;40&#160;</td></tr><tr><td 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positions</td><td height="17" width="29" align="right">&#160;</td><td height="17" width="81" align="right">&#160;3&#160;</td><td height="17" width="28" align="right">&#160;</td><td height="17" width="81" align="right">&#160;3&#160;</td><td height="17" width="27" align="right">&#160;</td><td height="17" width="81" align="right">&#160;3&#160;</td></tr><tr><td height="17" width="243" align="left">&#160;&#160;&#160;&#160;Decrease in current period tax positions</td><td height="17" width="29" align="right">&#160;</td><td height="17" width="81" align="right">&#160;-&#160;</td>& lt;td height="17" width="28" align="right">&#160;</td><td height="17" width="81" align="right">&#160;(1)</td><td height="17" width="27" align="right">&#160;</td><td height="17" width="81" align="right">&#160;(1)</td></tr><tr><td height="17" width="243" align="left">&#160;&#160;&#160;&#160;Settlements with taxing authorities</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="29">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="81">&#160;(8)</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="28">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="81">&#160;(12)</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="27">&#160;</td><td height="17" style="border-bo ttom: 1px solid #000000;" align="right" width="81">&#160;(13)</td></tr><tr><td height="18" style="border-bottom: 3px solid #000000;" align="left" width="243">Balance as of December 31 </td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="29">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="81">&#160;14&#160;</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="28">$</td><td 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align="right" width="81">&#160;</td></tr><tr><td height="17" width="243" align="left">Balance as of January 1 </td><td height="17" width="29" align="right">$</td><td height="17" wi dth="81" align="right">&#160;19&#160;</td><td height="17" width="28" align="right">$</td><td height="17" width="81" align="right">&#160;40&#160;</td><td height="17" width="27" align="right">$</td><td height="17" width="81" align="right">&#160;33&#160;</td></tr><tr><td height="17" width="243" align="left">&#160;&#160;&#160;&#160;Increase in prior period tax positions</td><td height="17" width="29" align="right">&#160;</td><td height="17" width="81" align="right">&#160;1&#160;</td><td height="17" width="28" align="right">&#160;</td><td height="17" width="81" align="right">&#160;-&#160;</td><td height="17" width="27" align="right">&#160;</td><td height="17" width="81" align="right">&#160;12&#160;</td></tr><tr><td height="17" width="243" align="left">&#160;&#160 ;&#160;&#160;Decrease in prior period tax positions</td><td height="17" width="29" align="right">&#160;</td><td height="17" width="81" align="right">&#160;-&#160;</td><td height="17" width="28" align="right">&#160;</td><td height="17" width="81" align="right">&#160;-&#160;</td><td height="17" width="27" align="right">&#160;</td><td height="17" width="81" align="right">&#160;(2)</td></tr><tr><td height="17" width="243" align="left">&#160;&#160;&#160;&#160;Settlements with taxing authorities</td><td height="17" width="29" align="right">&#160;</td><td height="17" width="81" align="right">&#160;(1)</td><td height="17" width="28" align="right">&#160;</td><td height="17" width="81" align="right">&#160;(21)</td><td height="17" width="27" align="right">&#160;</td><td height="17" width="81" align="right">&#160;(3)</td></tr><tr><td height="17" width="243" align="left">&#160;&#160;&#160;&#160;Expirations of statutes of limitations</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="29">&#160;</td><td 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style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="81">&#160;19&#160;</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="27">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="81">&#160;40&#160;</td></tr></table><p>It is reasonably possible that within the next 12 months unrecognized tax benefits could decrease due to the following:< ;/p><table style="border-collapse: collapse; margin-top: 20px;"><tr><td width="641" align="left" colspan="7" style="border-top: 1px solid #000000;" height="17"><b>POSSIBLE DECREASES IN UNRECOGNIZED TAX BENEFITS WITHIN 12 MONTHS</b></td></tr><tr><td width="641" align="left" height="17" colspan="7"><i>(Dollars in millions)</i></td></tr><tr><td height="14" width="359" align="left">&#160;</td><td width="282" align="center" colspan="6" style="border-bottom: 1px solid #000000;" height="14">At 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We remain subject to examination for U.S. federal tax years after 2005. We are subject to examination by major state tax jurisdictions for tax years after 2001. Certain major foreign income tax returns from 1995 through the present are open to examination. <br />In addition, we have filed state refund claims for tax years back to 1998. The pre-2002 tax years are closed to new issues; therefore, no additional tax may be assessed by the taxing authorities for these years.<br />SDG&amp;E, PE and SoCalGas are subject to U.S. federal income tax as well as income tax of state jurisdictions. They remain subject to examination for U.S. federal years after 2005 and by major state tax jurisdictions for years after 2001. <br />In addition, PE has state refund claims for tax years back to 1993. The pre-2002 tax years are closed to new issues; therefore, no additional tax may be assessed by the taxing authorities for these years.</p></div> <div style="font-size:12pt"><p>NOTE 9. EMPLOYEE BENEFIT PLANS<br />We are required by applicable GAAP to: <br /></p><ul><li>recognize an asset for a plan's overfunded status or a liability for a plan's underfunded status in the statement of financial position;<br /></li><li>measure a plan's assets and its obligations that determine its funded status as of the end of the fiscal year (with limited exceptions); and<br /></li><li>recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. Generally, those changes are reported in other comprehensive income and as a separate component of shareholders' equity.<br /></li></ul><p>The information presented below covers the employee benefit plans of Sempra Energy and its principal subsidi aries. <br />Sempra Energy has funded and unfunded noncontributory defined benefit plans, including separate plans for SDG&amp;E and SoCalGas, which together cover substantially all employees and Sempra Energy's board of directors. The plans generally provide defined benefits based on years of service and either final average or career salary.<br />Sempra Energy also has other postretirement benefit plans, including separate plans for SDG&amp;E and SoCalGas, which together cover substantially all employees and Sempra Energy's board of directors. The life insurance plans are both contributory and noncontributory and the health-care plans are contributory. Participants' contributions are adjusted annually. Other postretirement benefits include medical benefits for retirees' spouses. <br />Pension and other postretirement benefits costs and obligations are dependent on assumptions used in calculating such amounts. These assumptions include<br /></p><ul><li>disco unt rates <br /></li><li>expected return on plan assets<br /></li><li>health-care cost trend rates<br /></li><li>mortality rates<br /></li><li>compensation increase rates<br /></li><li>payout elections (lump sum or annuity)<br /></li></ul><p>We review these assumptions on an annual basis prior to the beginning of each year and update them as appropriate. We consider current market conditions, including interest rates, in making these assumptions. We use a December 31 measurement date for all of our plans.<br />In support of its Supplemental Executive Retirement, Cash Balance Restoration and Deferred Compensation Plans, Sempra Energy maintains dedicated assets, including investments in life insurance contracts, which totaled $453 million and $401 million at December 31, 2009 and 2008, respectively.<br />Pension and Other Postretirement Benefit Plans<br />Benefit Plan Amendments A ffecting 2008 and 2009<br />Effective January 1, 2009, one of Sempra Energy's pension plans, separate from the Sempra Utilities' plans, was amended to increase the cash balance benefit obligation for certain participants. This amendment resulted in an increase of $3 million in the benefit obligation and unrecognized prior service costs as of December 31, 2008.<br />Effective October 1, 2009, the SDG&amp;E pension plan was amended to set the automatic cost of living adjustment for retirees with grandfathered benefits at 0 percent for the period beginning October 1, 2009 and ending September 30, 2010. Without this amendment, the automatic cost of living adjustment for 2009 would have been negative, resulting in a reduction in benefits. This amendment resulted in an increase of $3 million in the benefit obligation and net periodic benefit costs as of December 31, 2009 for Sempra Energy and SDG&amp;E.<br />During 2009, the SoCalGas pension plan was amended to provide a minimum benefit f or participants that transfer from a position covered by the represented employees' pension plan to a management position covered by the cash balance plan after June 29, 2005. This amendment resulted in an increase of $1 million in the benefit obligation and unrecognized prior service costs as of December 31, 2009 for Sempra Energy and SoCalGas.<br />Effective December 1, 2009, the Sempra Utilities' other postretirement benefit plans were amended to establish a health reimbursement account benefit for represented retirees. This amendment resulted in an increase of $2 million, $4 million, and $6 million in the benefit obligation and unrecognized prior service costs as of December 31, 2009 for SDG&amp;E, SoCalGas, and Sempra Energy, respectively. <br />Benefit Obligations and Assets<br />The following three tables provide a reconciliation of the changes in the plans' projected benefit obligations and the fair value of assets during 2009 and 2008, and a statement of the funded status at D ecember 31, 2009 and 2008:</p><table style="border-collapse: collapse; margin-top: 20px;"><tr><td width="638" align="left" colspan="10" style="border-top: 1px solid #000000;" height="19"><b>PROJECTED BENEFIT OBLIGATION, FAIR VALUE OF ASSETS AND FUNDED STATUS</b></td></tr><tr><td width="638" align="left" height="19" colspan="10"><i>(Dollars in millions)</i></td></tr><tr><td height="29" width="286" align="left">&#160;</td><td width="170" align="center" colspan="4" style="border-bottom: 1px solid #000000;" height="29">Pension 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However, this increase was more than offset by favorable claims experience and projections, primarily due to the decrease in the average cost for pre-65 retirees relative to the average cost of the total population for certain medical plans for SDG&amp;E and SoCalGas.<br /><br />< ;/p><table style="border-collapse: collapse; margin-top: 20px;"><tr><td width="638" align="left" colspan="10" style="border-top: 1px solid #000000;" height="19"><b>PROJECTED BENEFIT OBLIGATION, FAIR VALUE OF ASSETS AND FUNDED STATUS</b></td></tr><tr><td width="638" align="left" height="19" colspan="10"><i>(Dollars in millions)</i></td></tr><tr><td height="29" width="286" align="left">&#160;</td><td width="170" align="center" colspan="4" style="border-bottom: 1px solid #000000;" height="29">Pension Benefits</td><td height="29" width="12" align="center">&#160;</td><td width="170" align="center" colspan="4" style="border-bottom: 1px solid #000000;" height="29">Other Postretirement Benefits</td></tr><tr><td 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width="63">&#160;1,105&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="left" width="12">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="63">&#160;562&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="63">&#160;471&#160;</td></tr><tr><td height="16" width="286" align="left">Funded status at December 31</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align= "right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="63">&#160;(432)</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="63">&#160;(548)</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="left" width="12">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="63">&#160;(218)</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" sty le="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="63">&#160;(277)</td></tr><tr><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="286">Net recorded liability at December 31</td><td height="16" style="border-top: 3px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 3px solid #000000;border-bottom: 3px solid #000000;" align="right" width="63">&#160;(432)</td><td height="16" style="border-top: 3px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 3px solid #000000;border-bottom: 3px solid #000000;" align="right" width="63">&#160;(548)</td><td height="16" style="border-top: 3px solid #000000;border-bottom: 3px solid #000000;" align="left" width="12">&#160;</td><td height="16" style="border-top: 3px solid #00 0000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 3px solid #000000;border-bottom: 3px solid #000000;" align="right" width="63">&#160;(218)</td><td height="16" style="border-top: 3px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 3px solid #000000;border-bottom: 3px solid #000000;" align="right" width="63">&#160;(277)</td></tr></table><p>Net Assets and Liabilities<br />The assets and liabilities of the pension and other postretirement benefit plans are affected by changing market conditions as well as when actual plan experience is different than assumed. Such events result in investment gains and losses, which we defer and recognize in pension and postretirement benefit costs over a period of years. Sempra Energy uses the asset smoothing method for its pension and other postretirement plans, except for the SD G&amp;E plans. This method develops an asset value that recognizes realized and unrealized investment gains and losses over a three-year period. This adjusted asset value, known as the market-related value of assets, is used in conjunction with an expected long-term rate of return to determine the expected return-on-assets component of net periodic cost. SoCalGas also uses the asset smoothing method. <br />The 10-percent corridor accounting method is used at Sempra Energy, SDG&amp;E and SoCalGas. Under the corridor-accounting method, if, as of the beginning of a year, unrecognized net gain or loss exceeds 10 percent of the greater of the projected benefit obligation or the market-related value of plan assets, the excess is amortized over the average remaining service period of active participants. The asset smoothing and 10-percent corridor accounting methods help mitigate volatility of net periodic costs from year to year.<br />We recognize the overfunded or underfunded status of defined benefit pension and other postretirement plans as assets or liabilities, respectively; unrecognized changes or credits in these assets and/or liabilities are normally recorded to other comprehensive income (loss) on the balance sheet. The Sempra Utilities and Mobile Gas record regulatory assets and liabilities that offset the funded pension and other postretirement plans' assets or liabilities, as these costs are expected to be recovered in future utility rates based on agreements with regulatory agencies.<br />The Sempra Utilities record annual pension and other postretirement net periodic benefit costs equal to the contributions to their plans as authorized by the CPUC. The annual contributions to the pension plans are limited to a minimum required funding amount as determined by the Internal Revenue Service. The annual contributions to the other postretirement plans are equal to the lesser of the maximum tax deductible amount or the net periodic cost calculated in accordance with GAAP for pension a nd other postretirement benefit plans. Mobile Gas records annual pension and other postretirement net periodic benefit cost based on an estimate of the net periodic cost at the beginning of the year calculated in accordance with GAAP for pension and other postretirement benefit plans, as authorized by the Alabama Public Service Commission. Any differences between booked net periodic benefit cost and amounts contributed to the pension and other postretirement plans are disclosed as regulatory adjustments in accordance with GAAP for regulated entities. <br />The net liability is included in the following captions on the Consolidated Balance Sheets at December 31:</p><table style="border-collapse: collapse; margin-top: 20px;"><tr><td height="29" width="323" align="left">&#160;</td><td width="170" align="center" colspan="4" style="border-bottom: 1px solid #000000;" height="29">Pension Benefits</td><td height="29" width="12" align="center">&#160;< ;/td><td width="170" align="center" colspan="4" style="border-bottom: 1px solid #000000;" height="29">Other Postretirement Benefits</td></tr><tr><td height="15" style="border-bottom: 1px solid #000000;" align="left" width="323"><i>(Dollars in millions)</i></td><td width="85" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="15">2009&#160;</td><td width="85" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="15">2008&#160;</td><td height="15" style="border-bottom: 1px solid #000000;" align="center" width="12">&#160;</td><td width="85" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="15">2009&#160;</td><td width="85" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="15">2008&#160;</td></tr><tr><td height="16" style="border-top: 1px solid #000000;" align="left" width="323"& gt;<b>Sempra Energy Consolidated</b></td><td height="16" style="border-top: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="63">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="63">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="12">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="63">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="63">&#160;</td ></tr><tr><td height="16" width="323" align="left">Current liabilities</td><td height="16" width="22" align="right">$</td><td height="16" width="63" align="right">&#160;(27)</td><td height="16" width="22" align="right">$</td><td height="16" width="63" align="right">&#160;(25)</td><td height="16" width="12" align="left">&#160;</td><td height="16" width="22" align="right">$</td><td height="16" width="63" align="right">&#160;(1)</td><td height="16" width="22" align="right">$</td><td 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width="63">&#160;(389)</td></tr><tr><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="323">Net recorded liability</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" a lign="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="63">&#160;(953)</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="63">&#160;(1,123)</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="left" width="12">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" 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align="center" width="63">&#160;& lt;/td><td height="16" style="border-top: 3px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="center" width="63">&#160;</td></tr><tr><td height="17" width="323" align="left">Current liabilities</td><td height="17" width="22" align="right">$</td><td height="17" width="63" align="right">&#160;(2)</td><td height="17" width="22" align="right">$</td><td height="17" width="63" align="right">&#160;(2)</td><td height="17" width="12" align="left">&#160;</td><td height="17" width="22" align="right">$</td><td height="17" width="63" align="right">&#160;-&#160;</td><td height="17" width="22" align="right">$</td><td height="17" width="63" align="right">&#160;-&#160;</td></tr><tr><td height="17" width="323" align="left">Noncurrent liabilities</td ><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="63">&#160;(291)</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="63">&#160;(332)</td><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="12">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="63">&#160;(79)</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="63">&#160;(87)</td></tr>& lt;tr><td height="18" style="border-bottom: 3px solid #000000;" align="left" width="323">Net recorded liability</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="18" style="border-top: 1px solid 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solid #000000;" align="left" width="323"><b>SoCalGas</b></td><td height="18" style="border-top: 3px solid #000000;" align="right" width="22">&#160;</td><td height="18" style="border-top: 3px solid #000000;" align="center" width="63">&#160;</td><td height="18" style="border-top: 3px solid #000000;" align="right" width="22">&#160;</td><td height="18" style="border-top: 3px solid #000000;" align="center" width="63">&#160;</td><td height="18" style="border-top: 3px solid #000000;" align="center" width="12">&#160;&l t;/td><td height="18" style="border-top: 3px solid #000000;" align="right" width="22">&#160;</td><td height="18" style="border-top: 3px solid #000000;" align="center" width="63">&#160;</td><td height="18" style="border-top: 3px solid #000000;" align="right" width="22">&#160;</td><td height="18" style="border-top: 3px solid #000000;" align="center" width="63">&#160;</td></tr><tr><td height="17" width="323" align="left">Current liabilities</td><td height="17" width="22" align="right">$</td><td height="17" width="63" align="right">&#160;(6)</td><td height="17" width="22" align="right">$</td><td height="17" width="63" align="right">&#160;(2)</td><td height="17" width="12" align="left">&#160;</td><td height="17" width="22" align="right">$</td><td height="17" width="63" align="right">&#160;-&#160;</td><td height="17" wi dth="22" align="right">$</td><td height="17" width="63" align="right">&#160;-&#160;</td></tr><tr><td height="17" width="323" align="left">Noncurrent liabilities</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="63">&#160;(426)</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="63">&#160;(546)</td><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="12">&#160;</td><td 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width="22" align="right">&#160;</td><td height="17" width="63" align="left">&#160;</td><td height="17" width="22" align="right">&#160;</td><td height="17" width="63" align="left">&#160;</td></tr><tr><td height="18" style="border-bottom: 3px solid #000000;" align="left" width="323">Total</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td>& lt;td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="63">&#160;(10)</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="63">&#160;(12)</td><td height="18" width="12" align="left">&#160;</td><td height="18" width="22" align="right">&#160;</td><td height="18" width="63" align="left">&#160;</td><td height="18" width="22" align="right">&#160;</td><td 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align="right">$</td><td height="17" width="63" align="right">&#160;(5)</td><td height="17" wid th="12" align="left">&#160;</td><td height="17" width="22" align="right">&#160;</td><td height="17" width="63" align="left">&#160;</td><td height="17" width="22" align="right">&#160;</td><td height="17" width="63" align="left">&#160;</td></tr><tr><td height="17" width="323" align="left">Prior service credit</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="63">&#160;1&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="63">&#160;1&#160;</td><td height="17" width="12" align="left">&#160;</td><td height="17" width="22" align="right">&#160;</td><td heigh t="17" width="63" align="left">&#160;</td><td height="17" width="22" align="right">&#160;</td><td height="17" width="63" align="left">&#160;</td></tr><tr><td height="18" style="border-bottom: 3px solid #000000;" align="left" width="323">Total</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="63">&#160;(4)</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="63">&#160;(4)</td><td height="18" width="12" align="left">&#160;</td><td height="18" width="22" align="right">&#160;</td><td height="18" width ="63" align="left">&#160;</td><td height="18" width="22" align="right">&#160;</td><td height="18" width="63" align="left">&#160;</td></tr></table><p>The accumulated benefit obligations for defined benefit 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solid #000000;" height="14">2008&#160;</td><td height="14" style="border-bottom: 1px solid #000000;" align="center" width="12">&#160;</td><td width="76" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2009&#160;</td><td width="76" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2008&#160;</td><td height="14" style="border-bottom: 1px solid #000000;" align="center" width="12">&#160;</td><td width="76" align="c enter" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2009&#160;</td><td width="76" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2008&#160;</td></tr><tr><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #C0C0C0;" align="left" width="201">Accumulated benefit obligation</td><td height="18" style="border-top: 1px solid 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solid #000000;border-bottom: 3px solid #C0C0C0;" align="right" width="54">&#160;803&#160;</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #C0C0C0;" align="left" width="12">&#160;</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #C0C0C0;" align="right" width="22">$</td><td height="18" style="bo rder-top: 1px solid #000000;border-bottom: 3px solid #C0C0C0;" align="right" width="54">&#160;1,601&#160;</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #C0C0C0;" align="right" width="22">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #C0C0C0;" align="right" width="54">&#160;1,493&#160;</td></tr></table><p>Sempra Energy has unfunded and funded pension plans. 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align="left" width="61">&#160;</td></tr><tr><td height="16" width="298" align="left">Projected benefit obligation</td><td height="16" width="26" align="right">$</td><td height="16" width="61" align="right">&#160;2,835&#160;</td><td height="16" width="26" align="right">$</td><td height="16" width="61" align="right">&#160;2,621&#160;</td></tr><tr><td height="16" width="298" align="left">Accumulated benefit obligation</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="61" align="right">&#160;2,660&#160;</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="61" align="right">&#160;2,449&#160;</td></tr><tr><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="left" width="298">Fair value of plan assets</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="26">&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="61">&#160;2,130&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="26">&#160;</td& gt;<td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="61">&#160;1,742&#160;</td></tr><tr><td height="16" style="border-top: 3px solid #C0C0C0;" align="left" width="298"><b>SDG&amp;E</b></td><td height="16" style="border-top: 3px solid #C0C0C0;" align="right" width="26">&#160;</td><td height="16" style="border-top: 3px solid #C0C0C0;" align="left" width="61">&#160;</td><td height="16" style="border-top: 3px solid #C0C0C0;" align="right" width="26">&#160;</td><td height="16" style="border-top: 3px solid #C0C0C0;" align="left" width="61">&#160;</td></tr><tr><td height="16" width="298" align="left">Projected benefit obligation</td><td height="16" width="26" align="right">$</td><td height="16" width="61" align="right">&#160;878&#160;</td><td height="16" width="26" align="right">$</td><td height ="16" width="61" align="right">&#160;787&#160;</td></tr><tr><td height="16" width="298" align="left">Accumulated benefit obligation</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="61" align="right">&#160;870&#160;</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="61" align="right">&#160;780&#160;</td></tr><tr><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="left" width="298">Fair value of plan assets</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="26">&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="61">&#160;615&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="26">&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0; " align="right" width="61">&#160;480&#160;</td></tr><tr><td height="16" style="border-top: 3px solid #C0C0C0;" align="left" width="298"><b>SoCalGas</b></td><td height="16" style="border-top: 3px solid #C0C0C0;" align="right" width="26">&#160;</td><td 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assets</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="26">&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="61">&#160;1,332&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="26">&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="61">&#160;1,105&#160;< /td></tr></table><p>Net Periodic Benefit Cost, 2007-2009<br />The following three tables provide the components of net periodic benefit cost and amounts recognized in other comprehensive income for the years ended December 31:</p><table style="border-collapse: collapse; margin-top: 20px;"><tr><td width="743" align="left" colspan="14" style="border-top: 1px solid #000000;" height="19"><b>NET PERIODIC BENEFIT COST AND AMOUNTS RECOGNIZED IN OTHER COMPREHENSIVE INCOME</b></td></tr><tr><td width="743" align="left" height="19" colspan="14"><i>(Dollars in millions)</i></td></tr><tr><td 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width="12">&#160;</td><td width="66" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2009&#160;</td><td width="66" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2008&#160;</td><td width="66" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2007&#160;</td></tr><tr><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="left" width="335">Net Periodic Benefit Cost</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="47">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="47">&#160;</td><td height="16" style="border-top: 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style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="47">&#160;68&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="left" width="12">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="47">&#160;46&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="47">&#160;32&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" 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Negligible amounts of prior service credit for the pension plans will be similarly amortized.</p><p>The estimated prior service credit for the other postretirement benefit plans that will be amortized from Accumulated Other Comprehensive Income (Loss) into net periodic benefit cost in 2010 is $1 million at Sempra Energy.</p><p>Medicare Prescription Drug, Improvement and Modernization Act of 2003 <br />The Medicare Prescription Drug, Improvement and Modernization Act of 2003 establishes a prescription drug benefit under Medicare (Medicare Part D) and a tax-exempt federal subsidy to sponsors of retiree health-care benefit plans that provide a benefit that actuarially is at least equivalent to Medicare Part D. We have determined that benefits provided to certain p articipants actuarially will be at least equivalent to Medicare Part D. 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width="12">&#160;</td><td height="18" style="border-bottom: 3px solid #C0C0C0;" align="right" width="22">$</td><td height="18" style="border-bottom: 3px solid #C0C0C0;" align="right" width="47">&#160;93&#160;</td><td height="18" style="border-bottom: 3px solid #C0C0C0;" align="right" width="22">$</td><td height="18" style="border-bottom: 3px solid #C0C0C0;" align="right" width="47">&#160;(76)</td></tr></table><p>Plan A ssets<br />Investment Allocation Strategy for Sempra Energy's Pension Master Trust<br />Sempra Energy's pension master trust holds the investments for the pension and other postretirement benefit plans. We maintain additional trusts as we discuss below for certain of Sempra Utilities' other postretirement plans. Other than index weight, the trusts do not invest in securities of Sempra Energy.<br />The current asset allocation objective for the pension master trust is to protect the funded status of the plans while generating sufficient returns to cover future benefit payments and accruals. We assess the portfolio performance by comparing actual returns with relevant benchmarks, such as the Morgan Stanley Capital International (MSCI) US Investable Index, the MSCI Pacific Rim and Europe Indices, the MSCI Emerging Markets Index, and the Barclays Aggregate and Long Government Credit Indices.<br />Both the equity and fixed income portions of the asset allocation use primarily passive inves tment strategies to achieve risk and return exposures consistent with these indices. The fixed income asset allocation consists of some longer-duration fixed income securities in order to reduce plan exposure to interest rate variation. The foreign equity components provide a growth element, diversification and exposure to different currencies and economies.<br />The asset allocation of the plans is reviewed by our Pension and Benefits Investment Committee (the Committee) on a regular basis. When evaluating its strategic asset allocation, the Committee considers many variables, including:<br /></p><ul><li>long-term cost<br /></li><li>variability and level of contributions<br /></li><li>funded status <br /></li><li>a range of expected outcomes over varying confidence levels <br /></li></ul><p>We maintain allocations at strategic levels with reasonable bands of variance. When asset class exposure reache s a minimum or maximum level, we generally rebalance the portfolio back to target allocations, unless the Committee determines otherwise.<br />Rate of Return Assumption<br />For all plans except the SDG&amp;E postretirement medical plans, we base the long-term rate of return assumption on the asset-weighted-average of the expected return for each asset class. We develop the expected returns from examining periods of historical returns and expectations for future returns from several investment and actuarial consultants. Specifically, we reached a 7.0 percent return expectation by assuming a 4.5 percent yield/return on a risk-free bond portfolio (treasury securities), adding a 50 basis point risk premium for our investment grade bond portfolio and another 300 basis point risk premium for equity securities. A 70 percent equity/30 percent bond portfolio mix results in a total portfolio return expectation of approximately 7.0 percent.<br />The expected rate of return for the SDG&amp;E p ostretirement medical plan assets is based on the weighted average after-tax expected return of the portfolio's target asset allocation of 30 percent equity/70 percent fixed income. The fixed-income portfolio is invested in tax-exempt municipal bond securities, while the equity portfolio is invested 25 percent S&amp;P (Standard &amp; Poor's) 500 index/5 percent MSCI EAFE index (MSCI Index for equity market performance in Europe, Australasia and Far East). <br />Concentration of Risk<br />Plan assets are fully diversified across global equity and bond markets, and other than what is indicated by the target asset allocations, contain no concentration of risk in any one economic, industry, maturity, or geographic sector.<br />Investment Strategy for SoCalGas' Other Postretirement Benefit Plans <br />SoCalGas' other postretirement benefit plans are funded by cash contributions from SoCalGas and current retirees. The assets of these plans are placed in the pension master trust and other Voluntary Employee Beneficiary Association (VEBA) trusts, as we detail below. The assets in the VEBA trusts are invested at identical allocations to the pension master trust, 70 percent equities/30 percent bonds, using primarily index funds. This allocation has been formulated to best suit the long-term nature of the obligations.<br />Investment Strategy for SDG&amp;E's Postretirement Health Plans <br />SDG&amp;E&#8217;s postretirement health plans are funded by cash contributions from SDG&amp;E and current retirees. The assets are placed in the pension master trust and a VEBA trust, as we detail below. Assets in the pension master trust are invested at the 70 percent equity/30 percent bond asset mix using index funds. Assets in the VEBA trust are taxable and therefore have a different asset allocation strategy. These assets are invested with a target asset allocation of 30 percent equity/70 percent bonds, with a large portion of the bond portfolio placed in actively managed tax-exempt municipal bonds. The equity portfolio is indexed.<br />Fair Value of Pension and Other Postretirement Benefit Plan Assets<br />We classify the investments in Sempra Energy's pension master trust and the trusts for the Sempra Utilities' other postretirement benefit plans into:<br /></p><ul><li>Level 1, for securities valued using quoted prices from active markets for identical assets; <br /></li><li>Level 2, for securities not traded on an active market but for which observable market inputs are readily available;<br /></li><li>Level 3, for securities and investments valued based on the lowest level of input that is significant to the fair value measurement. <br /></li></ul><p>We provide more discussion of fair value measurements in Notes 1 and 2. The following table sets forth by level within the fair value hierarchy a summary of the investments in Sempra Energy's pension and other postretirement benef it plan trusts measured at fair value on a recurring basis at December 31, 2009.<br />The fair values of our pension plan assets by asset category are as follows:</p><table style="border-collapse: collapse; margin-top: 20px;"><tr><td width="594" align="left" colspan="10" style="border-top: 1px solid #000000;" height="17"><b>FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2009</b></td></tr><tr><td width="594" align="left" height="17" colspan="10"><i>(Dollars in millions)</i></td></tr><tr><td height="17" style="border-bottom: 1px solid #000000;" align="center" width="87">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="center" width="203">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="center" 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Under these programs, the Sempra Energy pension trust requires collateral in the form of cash equal to 102 percent and 105 percent of the fair value of the loaned domestic and foreign securities, respectivel y. The trust maintains effective control of the loaned investments during the terms of the agreement, in that they may recall the securities loaned at any time prior to the maturity of the agreement. Upon maturity of the agreement, the borrower must return the same, or substantially the same, investments that were borrowed. The risks of securities lending programs include collateral reinvestment risk, trade settlement risk, borrower default and operational negligence. All agents engaged through the securities lending programs provide indemnification against trade settlement risk and operational negligence. Additionally, the agent of the separately managed account provides indemnification against borrower defaults. Under the securities lending program, cash collateral received may be invested in various funds, managed by the external agents, in a manner that generally seeks to preserve principal, and to provide liquidity and current income. 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width="7">&#160;</td><td height="18" style="border-top: 3px solid #000000;" align="right" width="22">&#160;</td><td height="18" style="border-top: 3px solid #000000;" align="left" width="64">&#160;</td><td height="18" style="border-top: 3px solid #000000;" align="right" width="40">&#160;</td><td height="18" style="border-top: 3px solid #000000;" align="left" width="64">&#160;</td><td height="18" style="border-top: 3px solid #000000;" align="right" width="22">&#160;</td><td height="18" style="border-top: 3px solid #000000;" align="left" width="64">&#160;</td></tr></table><p>Collateral received was reinvested in a po rtfolio of investments, through an agent, mostly consisting of AAArated asset backed floating rate notes, and floating rate notes rated A2 or better at the time of purchase by Moody&#8217;s Investor Service or A by S&amp;P. <br />Derivative Financial Instruments <br />In accordance with the Company&#8217;s pension investment guidelines, derivative financial instruments are used by the pension master trust&#8217;s equity and fixed income portfolio investment managers. Futures and foreign currency exchange contracts are used primarily to rebalance the fixed income/equity allocation of the pension master trust&#8217;s portfolio and to hedge all or a portion of the currency risk component of the foreign equity investments. Currency hedge positions are not permitted to exceed the level of underlying foreign security exposure in the pension master trust&#8217;s related assets. Some of the fixed income investment managers are permitted to use certain specified types of derivative instruments as part of their respective strategies. These strategies include the use of futures and options as substitutes for certain types of fixed income securities. During 2009 and 2008, the pension master trust owned shares in funds that held futures contracts and foreign currency forward contracts. In 2009 and 2008, such funds in which the pension master trust owned shares were the S&amp;P 1500 Index and the Foreign Equity Index managed by Barclay&#8217;s Global Investors. As these futures contracts are not held directly by the pension master trust, they are not included in the following discussion.<br />At December&#160;31, 2009 and 2008, the pension master trust did not directly hold any futures or currency forward contracts. 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style="border-bottom: 1px solid #000000;" align="right" width="115">&#160;39&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="left" width="22">&#160;</td></tr><tr><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="132">&#160;&#160;&#160;Total</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="112">&#160;100&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="left" width="22">%</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="138"> ;&#160;100&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="left" width="22">%</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="115">&#160;100&#160;</td><td height="16" style="border-top: 1px solid 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Participation in the plans is immediate for salary deferrals for all employees except for the represented employees at SoCalGas, who are eligible upon completion of one year of service. Subject to plan provisions, employees may contribute from one percent to 25 percent of their regular earnings when they begin employment. After one year of the employee's completed service, Sempra Energy makes matching contributions. Employer contribution amounts and methodology vary by plan, but generally the contributions are equal to 50 percent of the first 6 percent of eligible base salary contributed by employees and, if certain company goals are met, an additional amount related to incentive compensation payments.<br />Employer contributions are initially invested in Sempra Energy common stock, but the employee may transfer the contribution to other investments. Employee contributions are invested in Sempra Energy stock, mutual funds or institutional trusts (the same investments to which employees may direct the employer contributions), which the employee selects. In Sempra Energy plans, employee contributions may also be invested in guaranteed investment contracts. Employer contributions for the Sempra Energy and SoCalGas plans are partially funded by the ESOP referred to below.<br />Contributions to the savings plans were as follows:</p><table style="border-collapse: collapse; margin-top: 20px;"><tr><td height="14" style="border-bottom: 1px solid #000000;" align="left" width="215"><i>(Dollars in millions)</i></td><td width="87" align="center" colspan="2" style=" border-bottom: 1px solid #000000;" height="14">2009&#160;</td><td width="87" align="center" colspan="2" style="border-bottom: 1px solid #000000;" height="14">2008&#160;</td><td width="87" align="center" colspan="2" style="border-bottom: 1px solid #000000;" height="14">2007&#160;</td></tr><tr><td height="16" style="border-top: 1px solid #000000;" align="left" width="215">Sempra Energy Consolidated</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="26">$</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="61">&#160;31&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="26">$</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="61">&#160;32&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="26">$</td><td height="16" st yle="border-top: 1px solid #000000;" align="right" width="61">&#160;31&#160;</td></tr><tr><td height="16" width="215" align="left">SDG&amp;E</td><td height="16" width="26" align="left">&#160;</td><td height="16" width="61" align="right">&#160;13&#160;</td><td height="16" width="26" align="left">&#160;</td><td height="16" width="61" align="right">&#160;13&#160;</td><td height="16" width="26" align="left">&#160;</td><td height="16" width="61" align="right">&#160;12&#160;</td></tr><tr><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="left" width="215">PE/SoCalGas</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="left" width="26">&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="61">&#160;13&#160;</td><td height="16" style="bor der-bottom: 3px solid #C0C0C0;" align="left" width="26">&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="61">&#160;12&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="left" width="26">&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="61">&#160;12&#160;</td></tr></table><p>The market value of Sempra Energy common stock held by the savings plans was $919 million and $700 million at December 31, 2009 and 2008, respectively. </p><p>Employee Stock Ownership Plan<br />All contributions to the ESOP Trust (described in Note 6) are made by Sempra Energy; there are no contributions made by the participants. As Sempra Energy makes contributions, the ESOP debt service is paid and shares are released in proportion to the total expected debt service. We charge compensation expense and credit equity for the market value of the released shares. Dividends on unallocated shares are used to pay debt service and are applied against the liability. The shares held by the Trust are unallocated and consist of 0.9 million shares of Sempra Energy common stock with a fair value of $49 million at December 31, 2009, and 1.2 million shares of Sempra Energy common stock with a fair value of $50 million at December 31, 2008.</p></div> <div style="font-size:12pt"><p>NOTE 10. SHARE-BASED COMPENSATION<br />Sempra Energy Equity Compensation Plans<br />Sempra Energy has share-based compensation plans intended to align employee and shareholder objectives related to the long-term growth of Sempra Energy. The plans permit a wide variety of share-based awards, including: <br /></p><ul><li>non-qualified stock options <br /></li><li>incentive stock options <br /></li><li>restricted stock<br /></li><li>restricted stock units<br /></li><li>stock appreciation rights<br /></li><li>performance awards<br /></li><li>stock payments<br /></li><li>dividend equivalents<br /></li></ul><p>Eligible Sempra Utilities employees participate in Sempra Energy's share-based compensation plans as a component of their compensation package.<br />At December 31, 2009, Sempra Energy had the following types of equity awards outstanding:<br /></p><ul><li>Non-Qualified Stock Options: Options have an exercise price equal to the market price of the common stock at the date of grant, are service-based, become exercisable over a four-year period, and expire 10 years from the date of grant. Vesting and/or the ability to exercise may be accelerated upon a change in control, in accordance with severance pay agreements or upon eligibility for retirement. Options are subject to forfeiture or earlier expiration when an employee terminates employment. <br /></li><li>Restricted Stock: Substantially all restricted stock awards vest at the end of four-year performance periods based on Sempra Energy&#8217;s total return to shareholders relative to that of market indices. Vesting is subject to earlier forfeiture upon termi nation of employment and accelerated vesting upon a change in control, in accordance with severance pay agreements or upon eligibility for retirement. Holders of restricted stock have full voting rights. They also have full dividend rights; however, dividends paid on restricted stock held by officers are reinvested to purchase additional shares that become subject to the same vesting conditions as the restricted stock to which the dividends relate. <br /></li><li>Restricted Stock Units: Restricted stock unit awards vest at the end of four-year performance periods based on Sempra Energy&#8217;s total return to shareholders relative to that of market indices. If Sempra Energy&#8217;s total return to shareholders exceeds the target levels established under the 2008 Long Term Incentive Plan for awards granted beginning in 2008, up to an additional 50 percent of the number of granted restricted stock units may be issued. If Sempra Energy's total return to shareholders is below the target levels, shares are subject to partial vesting on a pro rata basis. Vesting is subject to earlier forfeiture upon termination of employment and accelerated vesting upon a change in control, in accordance with severance pay agreements or upon eligibility for retirement. Dividend equivalents on shares subject to restricted stock units are reinvested to purchase additional shares that become subject to the same vesting conditions as the restricted stock units to which the dividends relate. <br /></li></ul><p>The Sempra Energy 2008 Long Term Incentive Plan for EnergySouth, Inc. Employees and Other Eligible Individuals (the Plan) authorizes the issuance of up to 302,478 shares of Sempra Energy common stock. In connection with the acquisition of EnergySouth in October 2008, we adopted the Plan to utilize the shares remaining available for future awards under the 2008 Incentive Plan of EnergySouth, Inc. (the Prior Plan). All awards outstanding under the Prior Plan at the time of the acquisi tion were canceled, and the holders were paid the merger consideration in accordance with the terms of the merger agreement. The Plan provides for the grant of substantially the same types of share-based awards (other than incentive stock options) that are available under the Sempra Energy 2008 Long Term Incentive Plan.<br />Share-Based Awards and Compensation Expense<br />We measure and recognize compensation expense for all share-based payment awards made to our employees and directors based on estimated fair values on the date of grant. We recognize compensation costs net of an estimated forfeiture rate (based on historical experience) and recognize the compensation costs for non-qualified stock options and restricted stock and stock units on a straight-line basis over the requisite service period of the award, which is generally four years. However, in the year that an employee becomes eligible for retirement, the remaining expense related to the employee's awards is recognized immediately. S ubstantially all awards outstanding are classified as equity instruments, therefore we recognize additional paid in capital as we recognize the compensation expense associated with the awards. <br />As of December 31, 2009, 5,421,920 shares were authorized and available for future grants of share-based awards. Company practice is to satisfy share-based awards by issuing new shares rather than by open-market purchases.<br />Total share-based compensation expense for all of Sempra Energy&#8217;s share-based awards was comprised as follows:</p><table style="border-collapse: collapse; margin-top: 20px;"><tr><td width="620" align="left" colspan="7" style="border-top: 1px solid #000000;" height="19"><b>SHARE-BASED COMPENSATION EXPENSE - SEMPRA ENERGY CONSOLIDATED</b></td></tr><tr><td width="620" align="left" height="19" colspan="7"><i>(Dollars in millions, except per share amounts)</i></td></tr><tr><td heig ht="14" width="353" align="left">&#160;</td><td width="267" align="center" colspan="6" style="border-bottom: 1px solid #000000;" height="14">Years ended December 31,</td></tr><tr><td height="14" style="border-bottom: 1px solid #000000;" align="left" width="353">&#160;</td><td width="89" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" 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recognized for stock option exercises as financing cash flows. <br />Sempra Energy subsidiaries record an expense for the plans to the extent that subsidiary employees participate in the plans and/or the subsidiaries are allocated a portion of the Sempra Energy plans&#8217; corporate staff costs. 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height="14" colspan="2">Shares</td><td width="106" align="center" height="14" colspan="2">Average</td><td width="100" align="center" height="14" colspan="2">Remaining</td><td width="92" align="center" height="14" colspan="2">Aggregate</td></tr><tr><td height="14" width="297" align="left">&#160;</td><td width="103" align="center" height="14" colspan="2">Under</td><td width="106" align="center" height="14" colspan="2">Exercise</td><td width="100" align="center" height="14" colspan="2">Contractual Term</td><td width="92" align="center" height="14" colspan="2">Intrinsic Value</td></tr><tr><td height="14" style="border-bottom: 1px sol id #000000;" align="left" width="297">&#160;</td><td width="103" align="center" colspan="2" style="border-bottom: 1px solid #000000;" height="14">Option</td><td width="106" align="center" colspan="2" style="border-bottom: 1px solid #000000;" height="14">Price</td><td width="100" align="center" colspan="2" style="border-bottom: 1px solid #000000;" 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The valuation also is affected by the risk-free rates of return, and a number of other variables. 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margin-top: 20px;"><tr><td width="511" align="left" colspan="5" style="border-top: 1px solid #000000;" height="17"><b>RESTRICTED STOCK AWARDS</b></td></tr><tr><td width="511" align="left" height="17" colspan="5"><i>&#160;</i></td></tr><tr><td height="14" width="305" align="left">&#160;</td><td width="109" align="center" height="14" colspan="2">&#160;</td><td width="97" align="center" height="14" colspan="2">Weighted-</td></tr><tr><td height="14" width="305" align="left">&#160;</td><td width="109" align="center" height="14" colspan="2">&#160;</td><td width="97" align="center" height="14" colspan="2">Average</td></tr><tr>< ;td height="14" width="305" align="left">&#160;</td><td width="109" align="center" height="14" colspan="2">&#160;</td><td width="97" align="center" height="14" colspan="2">Grant-Date</td></tr><tr><td height="14" style="border-bottom: 1px solid #000000;" align="left" width="305">&#160;</td><td width="109" align="center" colspan="2" style="border-bottom: 1px solid #000000;" height="14">Shares</td><td width="97" align="center" colspan="2" style="border-bottom: 1px solid #000000;" height="14">Fair Value</td></tr><tr><td height="17" style="border-top: 1px solid #000000;" align="left" width="305">Nonvested at December 31, 2008</td><td height="17" style="border-top: 1px solid #000000;" align="left" width="22">&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="right" width="87">&#160;1,710,988&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="right" width="22">$</td><td height="17" style="border-top: 1px solid #000000;" align="right" width="75">&#160;34.06&#160;</td></tr><tr><td height="17" width="305" align="left">&#160;&#160;&#160;&#160;Granted</td><td height="17" width="22" align="left">&#160;</td><td height="17" width="87" align="right">&#160;37,233&#160;</td><td height="17" width="22" align="right">$</td><td height="17" width="75" align="right">&#160;40.34&#160;</td></tr><tr><td height="17" width="305" align="left">&#160;&#160;&#160;&#160;Vested</td><td height="17" width="22" align="left">&#160;</td><td height="17" width="87" align="right">&#160;(885,814)</td><td height="17" width="22" align="right">$</td><td height="17" width="75" align="right">&#160;30.11&#160;</td></tr>< ;tr><td height="17" width="305" align="left">&#160;&#160;&#160;&#160;Forfeited</td><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="22">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="87">&#160;(4,000)</td><td height="17" width="22" align="right">$</td><td height="17" width="75" align="right">&#160;34.20&#160;</td></tr><tr><td height="18" width="305" align="left">Nonvested at December 31, 2009</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="left" width="22">&#160;</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="87">&#160;858,407&#160;</td><td height="18" width="22" align="right">$</td><td height="18" width="75" align="right">&#160;38.36&#160;</ td></tr><tr><td height="18" style="border-bottom: 3px solid #C0C0C0;" align="left" width="305">Vested or expected to vest, at December 31, 2009</td><td height="18" style="border-top: 3px solid #000000;border-bottom: 3px solid #C0C0C0;" align="left" width="22">&#160;</td><td height="18" style="border-top: 3px solid #000000;border-bottom: 3px solid #C0C0C0;" align="right" width="87">&#160;851,958&#160;</td><td height="18" style="border-bottom: 3px solid #C0C0C0;" align="right" width="22">$</td><td height="18" style="border-bottom: 3px solid #C0C0C0;" align="right" width="75">&#160;38.37&#160;</td></tr></table><p>The $4&#160;million of total compensation cost related to nonvested restricted stock awards not yet recognized as of December 31, 2009 is expected to be recognized over a weighted-average period of 1.2&#160;years. 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Up to an additional 50% of the shares represented by the units may be issued if Sempra Energy exceeds target performance conditions.</i></td></tr></table><p>The $21 million of total compensation cost related to nonvested restricted stock units not yet recognized as of December 31, 2009 is expected to be recognized over a weighted-average period of 2.6 years.</p></div> <div style="font-size:12pt"><p>NOTE 12. FAIR VALUE MEASUREMENTS<br />Fair Value of Financial Instruments<br />The fair values of certain of our financial instruments (cash, temporary investments, accounts and notes receivable, dividends and accounts payable, short-term debt and customer deposits) approximate their carrying amounts. 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Sempra Energy estimated the fair values of debt incurred to acquire affordable housing partnerships based on the present value of the future cash flows, discounted at rates available for similar notes with comparable maturities.<br />All entities based the fair values of the long-term debt and preferred stock on their quoted market prices or quoted market prices for similar securities.</p></div> <div style="font-size:12pt"><p>Derivative Positions Net of Cash Collateral<br />Each Consolidated Balance Sheet reflects the offsetting of net derivative positions with fair value amounts for cash collateral with the same counterparty when management believes a legal right of offset exists.<br />The following table provides the amount of fair value of cash collateral receivables that were not offset in the Consolidated Balance Sheets as of December 31, 2009 and 2008:</p><table style="border-collapse: collapse; margin-top: 20px;"><tr><td height="14" width="320" align="left"><b>&#160;</b></td><td width="194" align="center" colspan="4" style="border-bottom: 1px solid #000000;" height="14">December 31,</td></tr><tr><td height="14" style="border-bottom: 1px solid #000000;" align="left" width="320"><i& gt;(Dollars in millions)</i></td><td width="97" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2009&#160;</td><td width="97" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2008&#160;</td></tr><tr><td height="16" style="border-top: 1px solid #000000;" align="left" width="320">Sempra Energy Consolidated</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="75">&#160;36&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="75">&#160;28&#160;</td></tr><tr><td height="16" width="320" align="left">SDG&amp;E</ td><td height="16" width="22" align="left">&#160;</td><td height="16" width="75" align="right">&#160;30&#160;</td><td height="16" width="22" align="left">&#160;</td><td height="16" width="75" align="right">&#160;21&#160;</td></tr><tr><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="left" width="320">SoCalGas</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="left" width="22">&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="75">&#160;5&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="left" width="22">&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="75">&#160;7&#160;</td></tr></table><p>Fair Value Hierarchy<br />We discuss the valuation techniques we use to measure fair value and the definition of the three levels of the fair value hierarchy in Note 1 under "Fair Value Measurements" and in Note 2 under "FSP FAS 157-4." <br />The three tables below, by level within the fair value hierarchy, set forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2009 and 2008. We classify financial assets and liabilities in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities, and their placement within the fair value hierarchy levels. <br />The fair value of commodity derivative assets and liabilities is determined in accordance with our netting policy, as discussed above under "Derivative Positions Net of Cash Collateral." <br />The determination of fair values, shown in the tables below, incorp orates various factors, including but not limited to, the credit standing of the counterparties involved and the impact of credit enhancements (such as cash deposits, letters of credit and priority interests).<br />Our financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2009 and 2008 in the tables below include the following: <br /></p><ul><li>Nuclear decommissioning trusts reflect the assets of SDG&amp;E's nuclear decommissioning trusts, excluding cash balances, as we discuss in Note 7. The trust assets are valued by a third party trustee. The trustee obtains prices from pricing services that are derived from observable data. We monitor the prices supplied by pricing services by validating pricing with other sources of data.<br /></li><li>Investments include marketable securities and are primarily priced based on observable interest rates for similar instruments actively trading in the marketplace. <br /></li><li>Commodity and other derivative positions, which include other interest rate management instruments, are entered into primarily as a means to manage price exposures. We use market participant assumptions to price these derivatives. Market participant assumptions include those about risk, and the risk inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable.<br /></li></ul><p>In the third quarter of 2007, the California Independent System Operator (ISO) began the process of allocating CRRs to load serving entities, including SDG&amp;E. These instruments are included with commodity derivatives and are recorded at fair value based on the most current annual auction prices published by the California ISO. Prior to the ISO auction conducted in November 2008, the CRRs were priced based on discounted cash flows. They are classified as Level 3 and reflected in the Sempra Energ y and SDG&amp;E tables below. 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align="right">&#160;</td><td height="16" width="65" align="right">&#160;-&#160;</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="65" align="right">&#160;177&#160;</td></tr><tr><td height="16" width="220" align="left">&#160;&#160;&#160;&#160;Commodity derivatives</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="65" align="right">&#160;55&#160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="65" align="right">&#160;76&#160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="65" align="right">&#160;27&# 160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="65" align="right">&#160;(38)</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="65" align="right">&#160;120&#160;</td></tr><tr><td height="16" width="220" align="left">&#160;&#160;&#160;&#160;Other derivatives</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;-&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;76&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td hei ght="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;-&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;-&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="26">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;76&#160;</td></tr><tr><td height="16" width="220" align="left">Total</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="65">&#160;477&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="65">&#160;476&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="65">&#160;27&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="65">&#160;(38)</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="26">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="65">&#160;94 2&#160;</td></tr><tr><td height="16" width="220" align="left">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="65">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="65">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="65">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="65">&#160;</td><td height="16" style="border-top: 3px solid #000000;" al ign="right" width="26">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="65">&#160;</td></tr><tr><td height="16" width="220" align="left">Liabilities:</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="65" align="left">&#160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="65" align="left">&#160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="65" align="left">&#160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="65" align="left">&#160;</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="65" align="left">&#160;</td></tr><tr><td height="16" width="220" align="left">&#160;&#160;&#160;&# 160;Commodity derivatives</td><td height="16" width="22" align="right">$</td><td height="16" width="65" align="right">&#160;63&#160;</td><td height="16" width="22" align="right">$</td><td height="16" width="65" align="right">&#160;110&#160;</td><td height="16" width="22" align="right">$</td><td height="16" width="65" align="right">&#160;-&#160;</td><td height="16" width="22" align="right">$</td><td height="16" width="65" align="right">&#160;(63)</td><td height="16" width="26" align="right">$</td><td height="16" width="65" align="right">&#160;110&#160;</td></tr><tr><td height="16" width="220" align="left">&#160;&#160;&#160;&#160;Other derivatives</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #0 00000;" align="right" width="65">&#160;-&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;130&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;-&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;-&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="26">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;130&#160;</td></tr><tr><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="220">Total</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="65">&#160;63&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="65">&#160;240&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="65">&#160;-&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="65">&#160;(63)</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="26">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="65">&#160;240&#160;</td></tr><tr><td width="659" align="left" colspan="11" style="border-top: 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height="14" style="border-top: 1px solid #000000;" align="center" width="22">&#160;</td><td height="14" style="border-top: 1px solid #000000;" align="center" width="65">&#160;</td><td height="14" style="bor der-top: 1px solid #000000;" align="center" width="22">&#160;</td><td height="14" style="border-top: 1px solid #000000;" align="center" width="65">&#160;</td><td height="14" style="border-top: 1px solid #000000;" align="center" width="22">&#160;</td><td height="14" style="border-top: 1px solid #000000;" align="center" width="65">Collateral</td><td height="14" style="border-top: 1px solid #000000;" align="center" width="26">&#160;</td><td height="14" style="border-top: 1px solid #000000;" align="center" width="65">&#160;</td></tr><tr><td height="14" width="220" align="left">&#160;</td><td height="14" style="border-bottom: 1px solid #000000;" align="center" width="22">&#160;</td><td height="14" style="border-bottom: 1px solid #000000;" align="center" width="65">Level 1</td><td 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width="65">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="65">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="65">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="65">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="26">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="65">&#160;</td></tr><tr><td height="16" width="220" align="left">&#160;&#160;&#160;&#160;Nuclear decommissioning trusts(1)</td><td height="16" width="22" align="right">$</td><td height="16" width="65" align="right">&#160;532&#160;</td><td height="16" width="22" align="right">$</td><td height="16" width="65" align="right">&#160;137&#160;</td><td height="16" width="22" align="right">$</td><td height="16" width="65" align="right">&#160;-&#160;</td><td height="16" width="22" align="right">$</td><td height="16" width="65" align="right">&#160;-&#160;</td><td height="16" width="26" align="right">$</td><td height="16" width="65" align="right">&#160;669&#160;</td></tr><tr><td height="16" width="220" align="left">&#160;&#160;&#160;&#160;Commodity derivatives</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;30&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;2&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;10&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;-&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="26">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;42&#160;</td></tr>< tr><td height="16" width="220" align="left">Total</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="65">&#160;562&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid 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solid #000000;" align="left" width="65">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="65">&#160;</td><td height="16" style="border-top: 3px sol id #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="65">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="65">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="26">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="65">&#160;</td></tr><tr><td height="16" width="220" align="left">Liabilities:</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="65" align="left">&#160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="65" align="left">&#160;</td><td height="16" width="22" align="right">&#160;</td> <td height="16" width="65" align="left">&#160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="65" align="left">&#160;</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="65" align="left">&#160;</td></tr><tr><td height="16" width="220" align="left">&#160;&#160;&#160;&#160;Commodity derivatives</td><td height="16" width="22" align="right">$</td><td height="16" width="65" align="right">&#160;9&#160;</td><td height="16" width="22" align="right">$</td><td height="16" width="65" align="right">&#160;-&#160;</td><td height="16" width="22" align="right">$</td><td height="16" width="65" align="right">&#160;-&#160;</td><td height="16" width="22" align="right">$</td><td height="16" width="65" align="right">&#160;(9)</td>&l t;td height="16" width="26" align="right">$</td><td height="16" width="65" align="right">&#160;-&#160;</td></tr><tr><td height="16" width="220" align="left">&#160;&#160;&#160;&#160;Other derivatives</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;-&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;43&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;-&#160;</td><td height="16" style="border-bottom: 1px solid #00000 0;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;-&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" 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style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="65">&#160;(9)</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="26">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="65">&#160;43&#160;</td></tr><tr><td height="16" style="border-top: 3px solid #000000;" align="left" width="220">&am p;#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="22">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="65">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="22">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="65">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="22">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="65">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="22">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="65">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="26">&#160;</td><td height="16" style="border-top: 3px solid #00 0000;" align="left" width="65">&#160;</td></tr><tr><td height="16" width="220" align="left">&#160;</td><td width="439" align="center" colspan="10" style="border-bottom: 1px solid #000000;" height="16">At fair value as of December 31, 2008</td></tr><tr><td height="16" width="220" align="left">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="65">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="65">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="65">&#160;& lt;/td><td height="16" style="border-top: 1px solid #000000;" align="center" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="65">Collateral</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="26">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="65">&#160;</td></tr><tr><td height="16" width="220" align="left">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="center" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="center" width="65">Level 1</td><td height="16" style="border-bottom: 1px solid #000000;" align="center" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="center" width="65">Level 2</td><td height="16" style="border-bottom: 1px solid #00 0000;" align="center" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="center" width="65">Level 3</td><td height="16" style="border-bottom: 1px solid #000000;" align="center" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="center" width="65">Netted</td><td height="16" style="border-bottom: 1px solid #000000;" align="left" width="26">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="center" width="65">Total</td></tr><tr><td height="16" width="220" align="left">Assets:</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="65">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="22">&#160;</td><td height="16 " style="border-top: 1px solid #000000;" align="left" width="65">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="65">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="65">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="26">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="65">&#160;</td></tr><tr><td height="16" width="220" align="left">&#160;&#160;&#160;&#160;Nuclear decommissioning trusts(1)</td><td height="16" width="22" align="right">$</td><td height="16" width="65" align="right">&#160;421&#160;</td> <td height="16" width="22" align="right">$</td><td height="16" width="65" align="right">&#160;148&#160;</td><td height="16" width="22" align="right">$</td><td height="16" width="65" align="right">&#160;-&#160;</td><td height="16" width="22" align="right">$</td><td height="16" width="65" align="right">&#160;-&#160;</td><td height="16" width="26" align="right">$</td><td height="16" width="65" align="right">&#160;569&#160;</td></tr><tr><td height="16" width="220" align="left">&#160;&#160;&#160;&#160;Commodity derivatives</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="65" align="right">&#160;21&#160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="65" align="right">&#160;-&#160;</td><td height="16" width="22" al ign="right">&#160;</td><td height="16" width="65" align="right">&#160;27&#160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="65" align="right">&#160;-&#160;</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="65" align="right">&#160;48&#160;</td></tr><tr><td height="16" width="220" align="left">&#160;&#160;&#160;&#160;Short-term investments(2)</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;-&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;24&#160;</td><t d height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;-&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;-&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="26">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;24&#160;</td></tr><tr><td height="16" width="220" align="left">Total</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="65"> &#160;442&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="65">&#160;172&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="65">&#160;27&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="65">&#160;-&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="26">$</td><td he ight="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="65">&#160;641&#160;</td></tr><tr><td height="16" width="220" align="left">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="65">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="65">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="65">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-top: 3px so lid #000000;" align="left" width="65">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="26">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="65">&#160;</td></tr><tr><td height="16" width="220" align="left">Liabilities:</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="65" align="left">&#160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="65" align="left">&#160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="65" align="left">&#160;</td><td height="16" width="22" align="right">&#160;</td><td height="16" width="65" align="left">&#160;</td><td height="16" width="26" align="right">&#160;</td><td height="16" width="65" align="left">&am p;#160;</td></tr><tr><td height="16" width="220" align="left">&#160;&#160;&#160;&#160;Commodity derivatives</td><td height="16" width="22" align="right">$</td><td height="16" width="65" align="right">&#160;52&#160;</td><td height="16" width="22" align="right">$</td><td height="16" width="65" align="right">&#160;24&#160;</td><td height="16" width="22" align="right">$</td><td height="16" width="65" align="right">&#160;-&#160;</td><td height="16" width="22" align="right">$</td><td height="16" width="65" align="right">&#160;(52)</td><td height="16" width="26" align="right">$</td><td height="16" width="65" align="right">&#160;24&#160;</td></tr><tr><td height="16" width="220" align="left">&#160;&#160;&#160;&#160;Other derivatives</td><td height="16" style="border-bottom: 1p x solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;-&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;88&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;-&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;-&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="26">&#160;</td><td height="16" style="borde r-bottom: 1px solid #000000;" align="right" width="65">&#160;88&#160;</td></tr><tr><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="220">Total</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid 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solid #000000;" align="center" width="22">&#160;</td><td height="14" style="border-top: 1px solid #000000;" align="center" width="65">&#160;</td><td height="14" style="border-top: 1px solid #000000;" align="center" width="22">&#160;</td><td height="14" style ="border-top: 1px solid #000000;" align="center" width="65">&#160;</td><td height="14" style="border-top: 1px solid #000000;" align="center" width="22">&#160;</td><td height="14" style="border-top: 1px solid #000000;" align="center" width="65">&#160;</td><td height="14" style="border-top: 1px solid #000000;" align="center" width="22">&#160;</td><td height="14" style="border-top: 1px solid #000000;" align="center" width="65">Collateral</td><td height="14" style="border-top: 1px solid #000000;" align="center" width="26">&#160;</td><td height="14" style="border-top: 1px solid #000000;" align="center" width="65">&#160;</td></tr><tr><td height="14" width="209" align="left">&#160;</td><td height="14" style="border-bottom: 1px solid 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1px solid # 000000;" align="center" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="65">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="65">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="65">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="22">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="65">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="26">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="center" width="65">&#160;< ;/td></tr><tr><td height="16" width="209" align="left">&#160;&#160;&#160;&#160;Commodity derivatives</td><td height="16" width="22" align="right">$</td><td height="16" width="65" align="right">&#160;6&#160;</td><td height="16" width="22" align="right">$</td><td height="16" width="65" align="right">&#160;1&#160;</td><td height="16" width="22" align="right">$</td><td height="16" width="65" align="right">&#160;-&#160;</td><td height="16" width="22" align="right">$</td><td height="16" width="65" align="right">&#160;-&#160;</td><td height="16" width="26" align="right">$</td><td height="16" width="65" align="right">&#160;7&#160;</td></tr><tr><td height="16" width="209" align="left">&#160;&#160;&#160;&#160;Other derivatives</td><td height="16" style="border-bottom: 1px soli d #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;-&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;8&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;-&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="22">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;-&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="26">&#160;</td><td height="16" style="border-botto m: 1px solid #000000;" align="right" width="65">&#160;8&#160;</td></tr><tr><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="209">Total</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="22">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="65">&#160;6&#160;</td><td height="16" 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style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="52" >&#160;401&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="left" width="11">&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="19">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="44">&#160;10&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="19">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="44">&#160;27&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="19">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="44">&#160;7&#160;</td&g 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width="19">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="44">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="44">&#160;</td></tr><tr><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="left" width="302">&#160;&#160;&#160;&#160;instruments still held at December 31</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="19">$</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="44">&#160;(16)</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="19">$</td><td height="16" s tyle="border-bottom: 3px solid #C0C0C0;" align="right" width="52">&#160;27&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="19">$</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" 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width="79" align="left">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="14">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="61">&#160;</td><td height="1 6" style="border-top: 1px solid #000000;" align="left" width="14">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="61">&#160;</td></tr><tr><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="23">&#160;</td><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="399"><b>&#160;&#160;&#160;&#160;Sempra Energy - total preferred stock of subsidiaries</b></td><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="14">&#160;</td><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="79">&#160;</td><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="14">$</td><td height="16" style="border-bottom: 3px solid #000000;" align="right" width="61">&#160;100&#160;</td><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="14">$</td><td height="16" style="border-bottom: 3px solid #000000;" align="right" width="61">&#160;100&#160;</td></tr></table><p>Following are the attributes of each company&#8217;s preferred stock. No amounts currently outstanding are subject to mandatory redemption.<br />SDG&amp;E<br /></p><ul><li>All outstanding series are callable. <br /></li><li>The $20 par value preferred stock has two votes per share on matters being voted upon by shareholders of SDG&amp;E and a liquidation preference at par plus any unpaid dividends. <br /></li><li>All outstanding series of SDG&amp;E's preferred stock have cumulative preferences as to dividends.<br /></li><li>The no-par-value preferred stock is nonvoting and has a liquidation preference of $25 per share plus any unpaid dividends. <br /></li><li>SDG&amp;E is author ized to issue 10 million shares of no-par-value preferred stock (both subject to and not subject to mandatory redemption). <br /></li></ul><p>SDG&amp;E is currently authorized to issue up to 25&#160;million shares of an additional class of preference shares designated as "Series Preference Stock." The Series Preference Stock is in addition to the Cumulative Preferred Stock, Preference Stock (Cumulative) and Common Stock that SDG&amp;E was otherwise authorized to issue, and when issued would rank junior to the Cumulative Preferred Stock and Preference Stock (Cumulative). The stock&#8217;s rights, preferences and privileges would be established by the board of directors at the time of issuance. <br />SDG&amp;E's outstanding preferred securities are classified as contingently redeemable because they contain a contingent redemption feature that allows the holder to elect a majority of SDG&amp;E's board of directors if dividends are not paid for eight consecu tive quarters, and such a redemption triggering event is not solely within the control of SDG&amp;E. They are therefore presented separate from and outside of equity in a manner consistent with temporary equity. We provide additional information concerning these securities in Note 2.<br />Pacific Enterprises<br /></p><ul><li>Outstanding PE preferred stock is subject to redemption at PE's option at any time with at least 30 days' notice at the applicable redemption price for each series plus any unpaid dividends. <br /></li><li>All outstanding series have one vote per share, cumulative preferences as to dividends, and liquidation preferences of $100 per share plus any unpaid dividends. <br /></li></ul><p>PE currently is authorized to issue 10 million shares of series preferred stock, less currently outstanding shares, and 5 million shares of Class A series preferred stock, both without par value and with cumulative preferences as to d ividends and liquidation value. Class A series preferred stock, when issued, would rank junior to other series of preferred stock. Other rights and privileges of the stock would be established by the board of directors at the time of issuance. <br />SOCALGAS<br /></p><ul><li>None of SoCalGas' outstanding preferred stock is callable. <br /></li><li>All outstanding series have one vote per share, cumulative preferences as to dividends and liquidation preferences of $25 per share plus any unpaid dividends. <br /></li></ul><p>SoCalGas currently is authorized to issue 5 million shares of series preferred stock and 5 million shares of preference stock, both without par value and with cumulative preferences as to dividends and liquidation value. The preference stock would rank junior to all series of preferred stock. Other rights and privileges of the stock would be established by the board of directors at the time of issuance. </p></d iv> <div style="font-size:12pt"><p>NOTE 14. 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Under this method, proceeds based on the exercise price plus unearned compensation and windfall tax benefits and minus tax shortfalls are assumed to be used to repurchase shares on the open market at the average market price for the year. The windfall tax benefits are tax de ductions we would receive upon the assumed exercise of stock options in excess of the deferred income taxes we recorded related to the compensation expense on the stock options. Tax shortfalls occur when the assumed tax deductions are less than recorded deferred income taxes. The calculation excludes options for which the exercise price on common stock was greater than the average market price during the year. We had 1,504,250; 1,496,500 and 55,800 such stock options outstanding during 2009, 2008 and 2007, respectively. <br />During 2007, we had 699,600 stock options outstanding that were antidilutive because of the unearned compensation and windfall tax benefits included in the assumed proceeds under the treasury stock method. There were no such antidilutive stock options outstanding during 2009 or 2008.<br />The dilution from unvested restricted stock awards and units is also based on the treasury stock method. Assumed proceeds equal to the unearned compensation and windfall tax benefits and mi nus tax shortfalls related to the awards are assumed to be used to repurchase shares on the open market at the average market price for the year. The windfall tax benefits or tax shortfalls are the difference between tax deductions we would receive upon the assumed vesting of restricted stock awards and units and the deferred income taxes we recorded related to the compensation expense on the restricted stock awards and units. We had 1,009 restricted stock awards and units outstanding that were antidilutive during 2008. There were no such anti-dilutive restricted stock awards or units in 2009 or 2007.</p></div> <div style="font-size:12pt"><p>We are authorized to issue 750,000,000 shares of no-par-value common stock. In addition, we are authorized to issue 50,000,000 shares of preferred stock having rights, preferences and privileges that would be established by the Sempra Energy board of directors at the time of issuance. <br />Shares of common stock held by the ESOP were 868,173; 1,177,196 and 1,488,046 at December 31, 2009, 2008 and 2007, respectively. 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Purchases may include open-market and negotiated transactions, structured purchase arrangements, and tender offers.<br />In April 2008, we entered into a Collared Accelerated Share Acquisition Program under which we prepaid $1 billion to repurchase shares of our co mmon stock to be delivered later in 2008 in a share forward transaction. Our outstanding shares used to calculate earnings per share were reduced by the number of shares repurchased when they were delivered to us, and the $1 billion purchase price was recorded as a reduction in shareholders&#8217; equity upon its prepayment. We received 18,416,241 shares under the program during 2008 based on a final weighted average price of $54.30 per share.<br />This share repurchase program is unrelated to share-based compensation as described in Note 10.</p></div> <div style="font-size:12pt"><p>NOTE 15. ELECTRIC INDUSTRY REGULATION <br />Background<br />California's legislative response to the 2000 - 2001 energy crisis resulted in the DWR purchasing a substantial portion of power for California's electricity users. In 2001, the DWR entered into long-term contracts with suppliers, including Sempra Generation, to provide power for the utility procurement customers of each of the California investor-owned utilities (IOUs), including SDG&amp;E. The CPUC allocates the power and its administrative responsibility, including collection of power contract costs from utility customers, among the IOUs. Effective in 2003, the IOUs resumed responsibility for electric commodity procurement above their allocated share of the DWR's long-term contracts. </p><p>Power Procurement and Resource Planning<br />Effective in 2003, the CPUC: <br /></p><ul><li>directed the IOUs, including SDG&amp;E, to resume electric commodity procurement to cover their net short energy requirements, which are the total customer energy requirements minus supply from resources owned, operated or contracted; <br /></li><li>implemented legislation regarding procurement and renewable energy portfolio standards; and<br /></li><li>established a process for review and approval of the utilities' long-term resource and procurement plans. <br /></li></ul><p>This process is intended to identify anticipated needs for generation and transmission resources in order to support transmission grid reliability and to better serve customers. </p><p>Sunrise Powerlink Electric Transmission Line<br />In December 2008, the CPUC issued a final decision authorizing SDG&amp;E to construct a 500-kilovolt (kV) electric transmission line between the Imperial Valley and the San Diego region (Sunrise Powerlink). This line is designed to provide 1,000 MW of increased import capability into the San Diego area. The decision allows SDG&amp;E to construct the Sunrise Powerlink along a route that would generally run south of the Anza-Borrego Desert State Park. The decision also approves the environmental impact review conducted jointly by the CPUC and the Bureau of Land Management (BLM) and establishes a total project cost cap of $1.9 billion, including approximately $190 million for environmental mitigation costs. <br />In January 2009, the BLM issued its decision approving the project, route and environmental review. Three community groups and an individual have filed a lawsuit in Federal District Court in Sacramento, California, for Declaratory and Injunctive Relief regarding Sunrise Powerlink. The complaint alleges that the BLM failed to properly assess the environmental impacts of the approved Sunrise Powerlink route and the related potential development of renewable resources in east S an Diego County and Imperial County. The complaint requests a declaration that the BLM violated Federal law in approving Sunrise Powerlink and an injunction against any construction activities.&#160;<br />Sunrise Powerlink costs will be recovered in SDG&amp;E's Electric Transmission Formula Rate, where SDG&amp;E must demonstrate to the FERC that such costs were prudently incurred. <br />The CPUC decision requires SDG&amp;E to adhere to certain commitments it made during the application process, as follows:<br /></p><ul><li>not to contract, for any length of term, with conventional coal generators to deliver power via the Sunrise Powerlink;<br /></li><li>if any currently approved renewable energy contract that is deliverable via the Sunrise Powerlink fails, to replace it with a viable contract with a renewable generator located in the Imperial Valley; and<br /></li><li>voluntarily raise SDG&amp;E's RPS goal to 33 perce nt by 2020.<br /></li></ul><p>After the issuance of the CPUC final decision, applications for rehearing before the CPUC were filed by the Utility Consumers Action Network (UCAN) and the Center for Biological Diversity/Sierra Club (CBD). The CPUC issued a final decision in July 2009 denying the requests for rehearing. UCAN and CBD jointly filed a petition with the California Supreme Court in August 2009 challenging the CPUC's decision with regard to implementation of the California Environmental Quality Act (CEQA). UCAN also filed a petition with the California Court of Appeal (Court of Appeal) challenging the decision on other legal grounds. The CPUC, the ISO and SDG&amp;E filed separate motions with the California Supreme Court requesting transfer of the UCAN petition to the California Supreme Court, which denied the transfer requests. Responses to the UCAN petition before the Court of Appeal were filed in January 2010. After a ruling by the Court of Appeal, the California Suprem e Court will address the UCAN/CBD petition regarding CEQA.<br />Three appeals of the BLM decision approving the segment of the route in its jurisdiction were filed by individuals, a community organization, and the Viejas Indian tribe in March 2009. A request to stay the BLM's decision was also filed. The Interior Board of Land Appeals (IBLA) has dismissed the appeal filed by the individuals and issued a ruling in July 2009 denying the request for stay. In addition, the Viejas Indian tribe withdrew its appeal in July 2009. The IBLA is still reviewing the one remaining appeal. <br />The Sunrise Powerlink also requires approval from the United States Forest Service (USFS). SDG&amp;E expects the USFS to issue a decision approving the segment of the route in its jurisdiction in the first quarter of 2010. The USFS decision is also subject to administrative and judicial review.<br />SDG&amp;E commenced procurement activities for the project in 2009, but before construction can begin, addit ional agency permits must be obtained. The total amount invested by SDG&amp;E in the Sunrise Powerlink project as of December 31, 2009 was $235 million, which is included in Property, Plant and Equipment on the Consolidated Balance Sheets of Sempra Energy and SDG&amp;E. SDG&amp;E expects the Sunrise Powerlink to be in commercial operation in 2012. </p><p>Renewable Energy<br />Certain California electric retail sellers, including SDG&amp;E, are required to deliver 20 percent of their retail demand from renewable energy sources beginning in 2010. The rules governing this requirement, administered by both the CPUC and the California Energy Commission (CEC), are generally known as the Renewables Portfolio Standard (RPS) Program. In September 2009, the Governor of California issued an Executive Order which requires California utilities by 2020 to procure 33 percent of their electric energy requirements from renewable energy sources. This Executive Order designates the California Air Resources Board (CARB) as the agency responsible for establishing the compliance rules and regulations.<br />In 2008, the CPUC issued a decision defining flexible compliance mechanisms that can be used to defer compliance with or meet the RPS Program mandates in 2010 and beyond. The decision established that a finding by the CPUC of insufficient transmission is a permissible reason to defer compliance with the RPS Program mandates. This decision also confirmed that any renewable energy procured in excess of the established targets, currently and in the future, could be applied to any shortfalls in the years 2010 and beyond.<br />SDG&amp;E continues to aggressively secure renewable energy supplies to achieve the RPS Program goals. A substantial number of these supply contracts, however, are contingent upon many factors, including: <br /></p><ul><li>access to electric transmission infrastructure (including SDG&amp;E's Sunrise Powerlink transmission line); <br /></li><li>timely regulatory approval of contracted renewable energy projects; <br /></li><li>the renewable energy project developers' ability to obtain project financing and permitting; and <br /></li><li>successful development and implementation of the renewable energy technologies. <br /></li></ul><p>As previously noted, SDG&amp;E expects the Sunrise Powerlink transmission line to be in operation in 2012. This would be too late to provide transmission capability to meet the RPS Program requirements for 2010 and 2011. However, SDG&amp;E believes it will be able to comply with the RPS Program requirements based on its contracting activity and application of the flexible compliance mechanisms. SDG&amp;E's failure to comply with the RPS Program requirements in 2010, or in any subsequent years, could subject it to a CPUC-imposed penalty of 5 cents per kilowatt hour of renewable energy under-delivery up to a maximum penalty o f $25 million per year.</p><p>Miramar II Peaking Plant<br />Miramar II is a 48.6-MW natural gas-fired peaking plant in San Diego, located next to an existing SDG&amp;E peaking plant. Built by SDG&amp;E at a cost of approximately $50 million, Miramar II began commercial operation in August 2009.</p><p>Solar Photovoltaic Program<br />In July 2008, SDG&amp;E filed an application with the CPUC proposing to invest up to $250 million to install solar photovoltaic panels in the San Diego area. These panels could generate approximately 50 MW of direct current power (approximately equivalent to 35 MW of power to the electric grid). In March 2009, SDG&amp;E, UCAN and other interested parties submitted a settlement agreement which, if approved by the CPUC, would, among other provisions, reduce SDG&amp;E's investment in the program to the lesser of $125 million or 26 MW (direct current). A CPUC decision is expected in the first half of 2010. If approved, SDG&am p;E expects to install its portion of the panels in phases from 2011 through 2015. </p><p>San Onofre Nuclear Generating Station (SONGS)<br />SONGS is jointly owned by Edison (78.21%), SDG&amp;E (20%) and the city of Riverside (1.79%). In March 2009, as part of Edison's 2009 General Rate Case, the CPUC granted SDG&amp;E's request for an approximate $116 million base revenue requirement for 2009 (an approximate $10 million increase from its 2008 base revenue) to recover costs for its 20-percent ownership in SONGS. The final decision also grants SDG&amp;E's request for approximately $13 million, a decrease of $2.7 million, for its share of SONGS refueling outage expenses (per refueling outage) in 2009. <br />Edison is in the process of replacing the steam generators at SONGS. Project completion is expected in 2010 and 2011 for Units 2 and 3, respectively. Total estimated capital expenditure for the project, in 2004 dollars, is $671 million, excluding AFUDC. SDG&amp;E's cu rrent expected share is $169 million, of which it has incurred $95 million through December 31, 2009, and there are $38 million of firm commitments at December 31, 2009. In 2006, the CPUC approved SDG&amp;E's participation in the replacement project as well as providing SDG&amp;E with full recovery of current operating and maintenance costs via balancing account treatment effective January 1, 2007. <br />Spent Nuclear Fuel<br />SONGS owners are responsible for interim storage of spent nuclear fuel generated at SONGS until the DOE accepts it for final disposal. Spent nuclear fuel has been stored in the SONGS Units 1, 2 and 3 spent fuel pools and in the ISFSI. Movement of all Unit 1 spent fuel to the ISFSI was completed in 2005. <br /></p><ul><li>Spent fuel for Unit 2 is being stored in both the Unit 2 spent fuel pool and the ISFSI. <br /></li><li>Spent fuel for Unit 3 is being stored in both the Unit 3 spent fuel pool and the ISFSI. <br />< ;/li></ul><p>A second ISFSI pad, completed in 2009, will provide sufficient storage capacity to allow for the continued operation of SONGS through 2022. </p><p>NOTE 16. OTHER REGULATORY MATTERS</p><p>General Rate Case (GRC)<br />The CPUC uses a general rate case proceeding to prospectively set rates sufficient to allow the Sempra Utilities to recover their reasonable cost of operations and to provide the opportunity to realize an acceptable rate of return on their investment. The Sempra Utilities are scheduled to file their next rate case with the CPUC with a 2012 test year. <br />In November 2009, SDG&amp;E and SoCalGas, jointly with the Division of Ratepayer Advocates (DRA), a division of the CPUC representing the interests of customers, filed petitions with the CPUC to delay the filing of SDG&amp;E's and SoCalGas' next GRC applications by one year. If approved by the CPUC, both SDG&amp;E and SoCalGas would file their next GRC application in la te 2011 for test year 2013. The petitions propose methodologies to determine the 2012 revenue requirements for each company which would result in SDG&amp;E and SoCalGas receiving an increase of no less than approximately $45 million and $55 million, respectively, in authorized margin, or three percent, above the 2011 authorized margin. The parties also agreed, among other things, to allow the Sempra Utilities to recover the increase, as deemed reasonable, in their annual excess liability insurance premiums in 2012, primarily due to the coverage for wildfire claims. In December 2009, The Utility Reform Network, UCAN and Aglet Consumer Alliance filed a joint response opposing the requested increase. <br />In February 2010, due to the lack of progress by the CPUC in responding to the joint request to delay the GRC filings by one year, SDG&amp;E and SoCalGas filed with the CPUC to withdraw the request for delay. If the withdrawal requests are approved by the CPUC, SDG&amp;E and SoCalGas will ea ch file in the third quarter of 2010 a Notice of Intent to file a GRC with a 2012 test year.</p><p>Utility Incentive Mechanisms <br />The CPUC applies performance-based measures and incentive mechanisms to all California utilities. Under these, the Sempra Utilities have earnings potential above authorized base margins if they achieve or exceed specific performance and operating goals. Generally, for performance-based awards, if performance is above or below specific benchmarks, the utility is eligible for financial awards or subject to financial penalties. There are four general areas that operate under an incentive structure: <br /></p><ul><li>operational incentives <br /></li><li>energy efficiency/demand side management <br /></li><li>natural gas procurement <br /></li><li>unbundled natural gas storage and system operator hub services<br /></li></ul><p>Incentive awards are included in our earnings when we receive any required CPUC approval of the award. We would record penalties for results below the specified benchmarks in earnings when we believe it is more likely than not that the CPUC would assess a penalty. <br />We provide a summary of the incentive awards recognized below.</p><table style="border-collapse: collapse; margin-top: 20px;"><tr><td height="17" style="border-top: 1px solid #000000;" align="left" width="342"><b>UTILITY INCENTIVE AWARDS 2007-2009</b></td><td height="17" style="border-top: 1px solid #000000;" align="right" width="18">&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="left" width="64">&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="left" width="18">&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="right" width="20">&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="left" width="64">&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="left" width="22">&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="right" width="23">&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="left" width="64">&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="left" width="14">&#160;</td></tr><tr><td height="17" width="342" align="left"><i>(Dollars in millions)</i></td><td height="17" width="18" align="right">&#160;</td><td height="17" width="64" align="left">&#160;</td><td height="17" width="18" align="left">&#160;</td><td height="17" width="20" align="right">&#160;</td><td height="17" width="64" align="left">&#160;</td><td height="17" width="22" align="left">&#160;</td><td height="17" width="2 3" align="right">&#160;</td><td height="17" width="64" align="left">&#160;</td><td height="17" width="14" align="left">&#160;</td></tr><tr><td height="17" width="342" align="left">&#160;</td><td width="307" align="center" colspan="9" style="border-bottom: 1px solid #000000;" height="17">Years ended December 31,</td></tr><tr><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="342">&#160;</td><td width="100" align="center" colspan="3" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="17">2009&#160;</td><td width="106" align="center" colspan="3" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="17">2008&#160;</td><td width="101" align="center" colspan="3" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="17">2007&#160;</td></tr><t r><td height="17" style="border-top: 1px solid #000000;" align="left" width="342"><b>Sempra Energy Consolidated</b></td><td height="17" style="border-top: 1px solid #000000;" align="right" width="18">&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="left" width="64">&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="left" width="18">&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="right" width="20">&#160;</td><td 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width="64">&#160;31&#160;</td><td height="18" style="border-top: 1px solid #000000 ;border-bottom: 2px solid #000000;" align="left" width="22">&#160;</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="23">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="64">&#160;37&#160;</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="14">&#160;</td></tr></table><p>Operational Incentives<br />The CPUC has established operational incentive mechanisms that have been based on measurements of safety, reliability and customer satisfaction. The 2008 GRC proposed modified performance measures for customer satisfaction for both SDG&amp;E and SoCalGas, and electric reliability for SDG&amp;E. The Sempra Utilities filed responses in September 2008 rejecting the electric reliability and customer satisfaction measures. As a result, effect ive in 2008, the Sempra Utilities are no longer eligible for awards or subject to penalties for electric reliability and customer satisfaction.<br />The Sempra Utilities plan to submit their employee safety results and incentive awards claims in May 2010 for performance in 2009.</p><p>Energy Efficiency and Demand Side Management<br />The CPUC established incentive mechanisms that are based on the effectiveness of energy efficiency and demand side management programs. The CPUC-approved energy efficiency awards in 2008 were net of a holdback of 65 percent. In May 2009, SDG&amp;E and SoCalGas filed a partial party settlement agreement regarding the appropriate method to determine incentive awards for the 2006 &#8211; 2008 program period. The settlement, if approved by the CPUC, would have resulted in 1) awards of $10.7 million for SDG&amp;E and $12.5 million for SoCalGas; and 2) upon conclusion of the CPUC's assessment and audit process, awards of up to $11.6 million for SDG& amp;amp;E and $9.5 million for SoCalGas for the remaining holdback amounts. The CPUC issued a decision in December 2009 rejecting the settlement agreement and instead awarding $0.3 million and $2.1 million to SDG&amp;E and SoCalGas, respectively. The decision held back 35 percent of the program incentive awards pending a final true-up in 2010. In the first quarter of 2010, the Sempra Utilities expect to file a petition for modification of the December 2009 decision to address errors identified in the decision. <br />In September 2009, the CPUC approved the Sempra Utilities' energy efficiency programs through&#160;2012 and will use a similar annual review process to determine any utility incentive awards.&#160;The CPUC is also considering&#160;future enhancements&#160;to the overall incentive award process and mechanism, and a draft decision on possible&#160;changes will likely&#160;be issued in the first half of 2010.</p><p>Natural Gas Procurement<br />The Sempra Utilities procure natural gas on behalf of their core natural gas customers. The CPUC has established incentive mechanisms to allow the Sempra Utilities the opportunity to share in the savings and/or costs from buying natural gas for its core customers at prices below or above market-based monthly benchmarks. Beginning April 1, 2008, the SDG&amp;E and SoCalGas core natural gas supply portfolios were combined, and SoCalGas now procures natural gas for SDG&amp;E's core natural gas customers' requirements. All SDG&amp;E assets associated with its core natural gas supply portfolio were transferred or assigned to SoCalGas. Accordingly, SDG&amp;E&#8217;s incentive mechanism for natural gas procurement awards or penalties ended as of the effective date of the combination of the core natural gas supply portfolios, and SoCalGas' gas cost incentive mechanism (GCIM) is applied on the combined portfolio basis going forward. <br />In January 2010, the CPUC approved a SoCalGas GCIM award o f $12 million for its procurement activities in the 12-month period ended March 31, 2009, which will be recorded in the first quarter of 2010. </p><p>Unbundled Natural Gas Storage and System Operator Hub Services<br />The CPUC has established a revenue sharing mechanism which provides for the sharing between ratepayers and SoCalGas of the net revenues generated by SoCalGas' unbundled natural gas storage and system operator hub services. In 2008, the CPUC adopted an uncontested settlement agreement in Phase I of the Sempra Utilities' Biennial Cost Allocation Proceeding (BCAP) which, among other things, established that the annual net revenues (revenues less allocated service costs) be shared on a graduated basis, as follows: <br /></p><ul><li>the first $15 million of net revenue to be shared 90 percent ratepayer/10 percent shareholders; <br /></li><li>the next $15 million of net revenue to be shared 75 percent ratepayer/25 percent shareholders; <b r /></li><li>all additional net revenues to be shared evenly between ratepayer and shareholders; and<br /></li><li>the maximum total annual shareholder-allocated portion of the net revenues cannot exceed $20 million.</li></ul><p></p><p>Cost of Capital<br />A cost of capital proceeding determines the Sempra Utilities' authorized capital structure and the authorized rate of return that the Sempra Utilities may earn on their electric and natural gas distribution and electric generation assets.</p><p>SoCalGas<br />SoCalGas' authorized return on equity (ROE) is 10.82 percent and its authorized return on rate base (ROR) is 8.68 percent. These rates continue to be effective until market interest rate changes are large enough to trigger an automatic adjustment or until the CPUC orders a periodic review. SoCalGas' current authorized capital structure is<br /></p><ul><li>48.0 percent common equity<br /> </li><li>6.4 percent preferred equity<br /></li><li>45.6 percent long-term debt<br /></li></ul><p>In July 2009, the CPUC denied SoCalGas&#8217; petition seeking to suspend its cost of capital Market Index Capital Adjustment Mechanism (MICAM). SoCalGas believes that the index used for the MICAM does not provide a strong correlation with utility risks and that further government actions to manage interest rates could increase the likelihood of triggering the MICAM in the future. Although the MICAM did not trigger in 2009, SoCalGas may eventually seek a change in the MICAM benchmarks to defer any resultant change in its cost of capital and propose a more indicative index associated with the natural gas distribution business.</p><p>SDG&amp;E<br />SDG&amp;E's authorized ROE is 11.10 percent and its authorized ROR is 8.40 percent. SDG&amp;E's current authorized capital structure is<br /></p><ul><li>49.00 percent common equity<br /></li><li>5.75 percent preferred equity<br /></li><li>45.25 percent long-term debt <br /></li></ul><p>In January 2010, the CPUC approved SDG&amp;E's and the DRA's joint petition to delay SDG&amp;E's next scheduled cost of capital application for two years. With this approval, SDG&amp;E's next cost of capital application is scheduled to be filed in April 2012, consistent with the schedule for cost of capital applications for each of Edison and Pacific Gas and Electric (PG&amp;E).</p><p>Advanced Metering Infrastructure </p><p>SDG&amp;E<br />In April 2007, the CPUC approved SDG&amp;E's request to install advanced meters with integrated two-way communications functionality, including electric remote disconnect and home area network capability. SDG&amp;E estimates expenditures for this project of $572 million (including approximately $500 million in capital investment). This project involves replacing approximately 1.4 million electric meters and 850,000 natural gas meters throughout SDG&amp;E&#8217;s service territory. SDG&amp;E began mass installation of the advanced meters in March 2009, and is on schedule to complete the project by the end of 2011. </p><p>SoCalGas<br />In September 2008, SoCalGas filed an application with the CPUC for approval to upgrade approximately six million natural gas meters with an advanced metering infrastructure (AMI) at an estimated cost of $1.1 billion (including approximately $900 million in capital investment). The administrative law judge's (ALJ) preliminary decision and an assigned commissioner's alternate decision (AD) were both issued in February 2010. While the ALJ draft decision finds a gas-only AMI system is consistent with the state's energy policy goals and that the AMI system is technically feasible, the ALJ draft decision finds that the gas-only AMI system is not cost effective. The AD approves the project and finds that the proposal provides reasonable assurance that the project can be cost effective for ratepayers, provided that adequate safeguards are put in place. We expect a final CPUC decision in mid-2010. If approved, installation of the meters is expected to begin in 2012 and continue through 2017.</p><p>2007 wildfires Cost Recovery <br />SDG&amp;E filed an application with the CPUC in March 2009 seeking to recover the incremental cost incurred to replace and repair company facilities under CPUC jurisdiction damaged by the October 2007 wildfires. This application was filed in accordance with the CPUC rules governing incremental costs incurred as a result of a declared emergency or catastrophic event. The DRA filed a protest to SDG&amp;E's request for recovery of the incremental costs, requesting that the CPUC stay the proceeding until completion of the fire investigations, which we describe in Note 17. SDG&amp;E and the DRA have reached an agreement in principle r egarding the cost recovery request which, if approved by the CPUC, would result in SDG&amp;E recovering $43 million. A formal settlement agreement is being finalized, but no specific filing date has been established. <br />SDG&amp;E also incurred $30.1 million of incremental costs for the replacement and repair of company facilities under FERC jurisdiction, which are currently being recovered in SDG&amp;E's electric transmission rates. <br />In regard to the 2007 wildfire litigation discussed in Note 17, if SDG&amp;E's liability were to exceed the remaining amounts recoverable from its insurers, SDG&amp;E will file with the FERC and the CPUC for recovery of the excess costs from utility customers. SDG&amp;E is continuing to evaluate the likelihood, amount and timing of any such recoveries.</p><p>INSURANCE COST RECOVERY<br />SDG&amp;E filed an application with the CPUC in August 2009 seeking authorization to recover higher liability insurance premium a nd deductible expenses which SDG&amp;E began incurring on July 1, 2009. Evidentiary hearings are scheduled for April 2010 and a final CPUC decision is expected by the end of 2010. SDG&amp;E made the filing under the CPUC&#8217;s rules allowing utilities to seek recovery of significant cost increases resulting from unforeseen circumstances. SDG&amp;E is requesting a $29 million revenue requirement for the 2009/2010 policy period for the incremental increase in its liability and wildfire insurance premium costs above what is currently authorized in rates. The CPUC's rules allow a utility to recover costs that meet certain criteria, subject to a $5 million deductible per event. Through December 31, 2009, SDG&amp;E has expensed $15 million (pretax) of incremental insurance premiums associated with this wildfire coverage. </p><p>FUTURE EXCESS claims COST RECOVERY<br />SDG&amp;E and SoCalGas filed an application with the CPUC in August 2009 proposing a new mechanism for th e full recovery of future wildfire-related claims, litigation and insurance premium expenses that are in excess of amounts authorized by the CPUC for recovery in rates. The filing was made jointly with Edison and PG&amp;E. The utilities are asking the CPUC to approve their joint request by the second quarter of 2010. Several parties protested the request and a proceeding schedule has not yet been established.</p><p>Greenhouse Gas Regulation<br />Legislation was enacted in 2006, including California Assembly Bill 32 (AB 32) and California Senate Bill 1368, mandating reductions in greenhouse gas emissions. The CARB is the lead agency in developing a plan to meet these requirements and is in the process of developing rules and market mechanisms that will be implemented on January 1, 2012. The CPUC and CEC are also in the process of making recommendations to the CARB regarding the rules that should apply for the electricity and natural gas sectors. The CARB's formal AB 32 Scoping Plan was a dopted in December 2008.<br />The U.S. Environmental Protection Agency (EPA) has announced that it will complete a review of the national ambient air quality standards by the end of 2011 for ozone (nitrogen oxide and volatile organic chemicals), particulate matter, carbon monoxide, nitrogen dioxide, sulfur dioxide, and lead. This review could result in more stringent emissions limits on fossil-fired electric generating plants.&#160;<br />These legislative mandates could affect costs and growth at the Sempra Utilities and at Sempra Generation's power plants. Any cost impact at the Sempra Utilities is expected to be recoverable through rates. As discussed in Note 17 under "Environmental Issues," compliance with this and similar legislation could adversely affect Sempra Generation. However, such legislation could also have a positive impact on Sempra Generation because of an increasing preference for natural gas and renewables for electric generation, as opposed to other sources.</p></d iv> <div style="font-size:12pt"><p>NOTE 17. COMMITMENTS AND CONTINGENCIES<br />LEGAL PROCEEDINGS<br />We record loss reserves for legal proceedings when it is probable that a loss has been incurred and the amounts of the loss can be reasonably estimated. However, the uncertainties inherent in legal proceedings make it difficult to estimate with reasonable certainty the costs and effects of resolving these matters. Accordingly, actual costs incurred may differ materially from reserved amounts or exceed applicable insurance coverages and could materially adversely affect our business, cash flows, results of operations, and financial condition.<br />At December 31, 2009, Sempra Energy&#8217;s reserves for legal proceedings, on a consolidated basis, were $465 million, of which $270 million is offset by an insurance receivable for wildfire litigation and $161 million i s for previously resolved matters, as described further below. At December 31, 2009, SDG&amp;E and SoCalGas had reserves of $290 million (including the $270 million offset) and $11 million, respectively. </p><p>SDG&amp;E 2007 Wildfire Litigation<br />In October 2007, San Diego County experienced several catastrophic wildfires. Reports issued by the California Department of Forestry and Fire Protection (Cal Fire) concluded that two of these fires (the Witch and Rice fires) were SDG&amp;E "power line caused" and that a third fire (the Guejito fire) occurred when a wire securing a Cox Communications' fiber optic cable came into contact with an SDG&amp;E power line "causing an arc and starting the fire." Cal Fire reported that the Rice fire burned approximately 9,500 acres and damaged 206 homes and two commercial properties, and the Witch and Guejito fires merged and eventually burned approximately 198,000 acres, resulting in two fatalities, approximately 40 firefighters injured and approximately 1,141 homes destroyed.<br />A September 2008 staff report issued by the CPUC's Consumer Protection and Safety Division reached substantially the same conclusions as the Cal Fire reports, but also contended that the power lines involved in the Witch and Rice fires and the lashing wire involved in the Guejito fire were not properly designed, constructed and maintained. In November 2008, the CPUC initiated proceedings to determine if any of its rules were violated and in October 2009, SDG&amp;E and the Consumer Protection and Safety Division entered into a settlement agreement that, if approved by the CPUC, would resolve these proceedings by SDG&amp;E's payment of $14.75 million without any admission of responsibility for the wildfires. <br />Numerous plaintiffs have sued SDG&amp;E and Sempra Energy in San Diego County Superior Court seeking recovery of unspecified amounts of damages, including punitive damages, from the three fires. Plaintiffs include owners and insur ers of properties that were destroyed or damaged in the fires and public entities seeking recovery of firefighting, emergency response, and environmental costs. Plaintiffs assert various bases for recovery, including inverse condemnation based upon a California Court of Appeal decision finding that another California investor-owned utility was subject to strict liability, without regard to foreseeability or negligence, for damages resulting from a wildfire ignited by power lines. In June 2009, the trial court ruled that the plaintiffs' claims must be pursued in individual lawsuits (rather than as class actions on behalf of all persons who incurred wildfire damages), and the plaintiffs have appealed that ruling.<br />SDG&amp;E has filed cross-complaints against Cox Communications seeking indemnification for any liability that SDG&amp;E may incur that relates to the Guejito fire and may file additional actions against other parties relating to the Witch and Rice fires.<br />By early Februar y 2010, SDG&amp;E and homeowner insurers holding almost all of the insurer plaintiffs' 19,000 claims entered into settlement agreements resolving all of their claims relating to the three wildfires. These include claims for amounts paid or reserved for payment by the insurers to their policyholders for approximately 1,000 of the 1,300 houses, mobile homes, and apartment units identified in public records as having been destroyed by the three fires. <br />Under the settlement agreements, SDG&amp;E has paid or will pay the settling insurers 57.5 percent of the approximately $1.6 billion paid or reserved for payment by the insurers to their policyholders, and the settling insurers have assigned their claims against Cox Communications and other potentially responsible parties to SDG&amp;E. In addition to the claims of homeowner insurers, the wildfire litigation also includes claims for damage to uninsured and underinsured structures, business interruption, evacuation expenses, agricultural dama ge, emotional harm, personal injuries and other losses. Of the approximately 2,500 remaining plaintiffs, primarily individuals and businesses, only approximately 500 have thus far submitted settlement demands. Individual and business demands total approximately $430 million. In addition, government entities have submitted a total of approximately $135 million in demands, and additional demands from these entities are expected. <br />After giving effect to the amounts paid and to be paid in connection with the homeowner insurer settlements, additional reserves and estimated defense costs, SDG&amp;E's remaining insurance coverage for the wildfire liabilities is approximately $20 million. SDG&amp;E is continuing to gather information to evaluate and assess estimated liabilities related to the wildfires and establishes reserves as data for specific claims becomes available and probable damages are able to be estimated.<br />SDG&amp;E does not at this time have sufficient information to r easonably estimate the costs of resolving the remaining unreserved wildfire claims. It is also unable to reasonably estimate the amount that it may recover from Cox Communications and other potentially responsible parties both in respect of the amounts it has already expended to settle claims and amounts that it may expend in the future. <br />However, before giving effect to any amounts that it may recover from Cox Communications and other potentially responsible parties, SDG&amp;E expects that the aggregate costs that it may incur in resolving the remaining unreserved wildfire claims will substantially exceed its insurance coverage. If its liability for the three wildfires were to exceed the remaining insurance, SDG&amp;E will file with the FERC and the CPUC to recover the excess amount from utility customers. SDG&amp;E is continuing to evaluate the likelihood, amount and timing of any such recoveries. <br />If SDG&amp;E were unable to conclude that recovery from utility custome rs is likely, either on a current basis or in the future, SDG&amp;E&#8217;s and therefore Sempra Energy&#8217;s earnings would be materially adversely affected to the extent that it resolves wildfire claims or obtains sufficient information to establish reserves for amounts that exceed its remaining insurance, even though all or a portion of such amounts (including amounts already paid in settlements with homeowner insurers) may ultimately be recovered from Cox Communications and other potentially responsible parties or from utility customers in subsequent reporting periods. Cash flow would also be adversely affected by any delays in obtaining any such recoveries.<br />In light of the complexity of these matters and the large number of parties involved, the wildfire litigation, including any appeals, could take several years to be resolved.</p><p>DWR Contract<br />In February 2002, the California Energy Oversight Board (CEOB) and the CPUC filed challenges at the FERC to th e DWR's contracts with Sempra Generation and other power suppliers. After the FERC upheld the contracts in 2003, the CEOB and CPUC appealed to the U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit Court of Appeals) and challenged the FERC's application of the Mobile-Sierra doctrine's "public interest" standard of review to the contracts. In June 2008, the United States Supreme Court (Supreme Court) ruled that the FERC was correct to apply the Mobile-Sierra doctrine (which presumes that contract rates are just and reasonable) absent a demonstration that one of the contracting parties engaged in unlawful market manipulation that directly affected contract rates. The Supreme Court ruled that the FERC should clarify its findings on this issue and consider whether the contract rates seriously harm the public interest. The FERC has not yet acted.<br />At various times since the contract's inception, Sempra Generation and the DWR have also had disputes regarding the meaning of terms and performance o f the agreement under which Sempra Generation sells electricity to the DWR. In 2002, in a state civil action, the DWR sought to terminate its contract with Sempra Generation claiming misrepresentation and breach of contract, and seeking rescission, damages, injunctive and declaratory relief, and $100 million in punitive damages. After various procedural decisions and appeals, on November 30, 2009, a San Diego jury returned a verdict denying all of the DWR's claims and requested relief, and granting all of Sempra Generation's requested relief. The DWR has appealed the judgment.<br />In February 2006, the DWR began an additional arbitration against Sempra Generation related to the manner in which Sempra Generation schedules its Mexicali plant. The DWR sought $100 million in damages and an order terminating the contract. Arbitration hearings were held in November 2008, and in January 2009, the arbitration panel issued a decision denying all of the DWR's claims. The panel decision was confirmed by the San Francisco Superior Court in May 2009.<br />In September 2008, the DWR initiated another arbitration proceeding against Sempra Generation, alleging that Sempra Generation had breached the parties' agreement in various operational respects, and violated the order issued by an earlier arbitration panel relating to the amount refunded to the DWR and the manner in which Sempra Generation operates. The DWR seeks approximately $80 million in damages and an order terminating the contract. Arbitration hearings are scheduled for August 2010.</p><p>FERC Refund Proceedings<br />The FERC is investigating prices charged by various electric suppliers to buyers in the California Power Exchange (PX) and ISO markets. In March 2003, the FERC ordered suppliers to pay refunds on certain sales made during the October 2, 2000 through June 20, 2001 time period. <br />Various parties, including Sempra Commodities, appealed the FERC's order to the Ninth Circuit Court of Appeals. In August 2006, the Ninth Circuit Court of Appeals held that the FERC had properly established October 2, 2000 through June 20, 2001 as the refund period and had properly excluded certain short-term bilateral transactions between sellers and the DWR from the refund proceedings. However, the court also held that the FERC erred in excluding certain multi-day transactions from the refund proceedings. Finally, while the court upheld the FERC's decision not to extend the refund proceedings to the summer period (prior to October 2, 2000), it found that the FERC should have considered other remedies for tariff violations that are alleged to have occurred prior to October 2, 2000. The FERC is in the process of addressing these issues on remand.<br />In August 2007, the Ninth Circuit Court of Appeals issued a decision reversing and remanding FERC orders declining to provide refunds in a related proceeding regarding short-term bilateral sales up to one month in the Pacific Northwest. The court found that some of the short-term sales bet ween the DWR and various sellers (including Sempra Commodities) that had previously been excluded from the refund proceeding involving sales in the ISO and PX markets in California were within the scope of the Pacific Northwest refund proceeding. The FERC has not yet acted on the court's order.<br />In a separate complaint filed with the FERC in 2002, the California Attorney General contended that electricity sellers had failed to comply with the FERC's quarterly reporting requirements. The Attorney General requested that the FERC order refunds from suppliers. The FERC dismissed the complaint and instead ordered sellers to restate their reports. After an appeal by the California Attorney General, the Ninth Circuit Court of Appeals stated that failure to file transaction-specific quarterly reports gave the FERC authority to order refunds with respect to jurisdictional sellers. The FERC is in the process of addressing these issues on remand.<br />In May 2009, the California Attorney General filed a nother complaint at the FERC against various sellers, including Sempra Commodities. In this complaint, the Attorney General seeks to collect for alleged overcharges related to short-term bilateral transactions between sellers and the DWR from January 18, 2001 through June 20, 2001. These transactions also have been the subject of the Ninth Circuit Court of Appeals' orders in the proceedings described above. The FERC has not yet acted on the complaint.<br />In the cases described above, the FERC could order additional refunds or the disgorgement of profits. RBS Sempra Commodities has reserves for its estimate of the effect of the FERC's revision of the benchmark prices it will use to calculate refunds and other related developments. Pursuant to the agreements related to the formation of RBS Sempra Commodities, we have indemnified RBS related to these proceedings should the liability from the final resolution be greater than the reserves.</p><p>FERC Manipulation Investigation<br />The F ERC has separately investigated whether there was manipulation of short-term energy markets in the western United States that would constitute violations of applicable tariffs and warrant disgorgement of associated profits. <br />In June 2003, the FERC ordered a number of entities, including Sempra Commodities, to show why they should not disgorge profits from certain transactions between January 1, 2000 and June 20, 2001 that are asserted to have constituted gaming and/or anomalous market behavior under the California ISO and/or PX tariffs. In October 2003, Sempra Commodities agreed to pay $7.2 million in full resolution of these investigations. That liability was recorded as of December 31, 2003. The Sempra Commodities settlement was approved by the FERC in August 2004 and reaffirmed in November 2008. The California parties have appealed the FERC's orders to the Ninth Circuit Court of Appeals.</p><p>Other Litigation<br />Sempra Energy and several subsidiaries, along with three oil a nd natural gas companies, the City of Beverly Hills, and the Beverly Hills Unified School District, are defendants in a toxic tort lawsuit filed in Los Angeles County Superior Court by approximately 1,000 plaintiffs. This lawsuit claims that various emissions resulted in cancer or fear of cancer. We have submitted the case to our insurers, who have reserved their rights with respect to coverage. In November 2006, the court granted the defendants' summary judgment motions based on lack of medical causation for the 12 initial plaintiffs scheduled to go to trial first. The court also granted summary judgment excluding punitive damages. The court has stayed the case as to the remaining plaintiffs pending the appeal of the rulings.<br />RBS Sempra Commodities assumed litigation reserves related to Sempra Commodities, however, we have indemnified RBS should the liabilities from the final resolution of these matters be greater than the reserves. <br />We are also defendants in ordinary routine litigatio n incidental to our businesses, including personal injury, product liability, property damage and other claims. California juries have demonstrated an increasing willingness to grant large awards, including punitive damages, in these cases.</p><p>Resolved Matters<br />The reserves for legal proceedings described above include amounts for resolved matters that are primarily related to certain litigation arising out of the 2000 &#8211; 2001 California energy crisis. <br />The following is a description of specific litigation settlements.<br />Continental Forge Settlement<br />At December 31, 2009, $161 million of reserves at Sempra Energy relate to the Continental Forge class-action and individual antitrust and unfair competition lawsuits in California and Nevada, which alleged that Sempra Energy and the Sempra Utilities unlawfully sought to control natural gas and electricity markets. The detailed terms of these settlements were reported previously, and included cash pa yments, in annual installments, totaling $377 million. As provided for under the terms of the agreement, in November 2009, we prepaid the remaining installments with a lump sum of $119 million, including accrued interest and discounted at seven percent, which satisfied all cash payment obligations.<br />Additional consideration for the January 2006 California settlement includes an agreement that Sempra LNG would sell to the Sempra Utilities, subject to annual CPUC approval, regasified liquefied natural gas (LNG) from Sempra LNG's Energ&#237;a Costa Azul facility for a period of 18 years beginning in 2011 at the California border index price minus $0.02 per million British thermal units (MMBtu). Also, Sempra Generation voluntarily would reduce the price that it charges for power and limit the locations at which it would deliver power under its DWR contract. <br />Other Cases<br />Sempra Energy. As previously reported, in January 2009, we agreed to&#160;pay $2 million to settle five cases pending in Nevada claiming that energy prices had been manipulated. The&#160;settlement amount was paid following court approval of the settlement in August 2009.<br />SoCalGas. As previously reported, in May 2009, SoCalGas settled for a nominal amount class action litigation relating to its retirement plans. The court approved the settlement in October 2009.<br />Wildfire Reserves and Insurance Receivables<br />Based on discussions with the homeowner insurers in the litigation that resulted in the settlements of their claims in the SDG&amp;E wildfire litigation described above, SDG&amp;E concluded in the first six months of 2009 that its exposure to the homeowner insurers was reasonably estimable and established a reserve of $940 million that was recorded as a current liability in the Consolidated Balance Sheets and was fully offset by a current receivable of $940 million payable from SDG&amp;E's $1.1 billion of liability insurance. In the fourth quarter of 2009, SD G&amp;E recorded additional reserves and a corresponding receivable from its liability insurance for additional settlements with the homeowner insurers and reasonably estimable amounts related to the claims of other plaintiffs. There was no effect on SDG&amp;E's or Sempra Energy's 2009 earnings from the recording of the reserves. In 2009, cash received from liability insurance ($662 million), net of settlement payments ($652 million), was $10 million. Also, SDG&amp;E's insurance paid $150 million of claims directly to plaintiffs. After payments by SDG&amp;E's liability insurers in 2009, remaining reserves at December 31, 2009 were $270 million. The remaining receivable of $273 million reflects timing differences between payments by SDG&amp;E's liability insurers and settlement payments.</p><p>Other<br />We discuss reserves at Sempra Energy and SDG&amp;E for wildfire litigation above in "SDG&amp;E Wildfire Litigation."</p></div> <div style="font-size:12pt"><p>Natural Gas Contracts <br />Natural Gas<br />SoCalGas has the responsibility for procuring natural gas for both SDG&amp;E&#8217;s and SoCalGas&#8217; core customers in a combined portfolio. SoCalGas buys natural gas under short-term and long-term contracts for this portfolio. Purchases are from various southwestern U.S., U.S. Rockies, Canadian and California suppliers and are primarily based on published monthly bid-week indices. <br />SoCalGas transports natural gas primarily under long-term firm interstate pipeline capacity agreements that provide for annual reservation charges, which are recovered in rates. SoCalGas has commitments with interstate pipeline companies for firm pipeline capacity under contracts that expire at various dates through 2025. <br />At December 31, 2009, the future minimum payments under existing natural gas contracts and natural gas storage and transportation contracts were:</p><table style="border-collapse: collapse; margin-top: 20px;"><tr><td width="533" align="left" height="17" colspan="7"><b>Sempra Energy Consolidated</b></td></tr><tr><td height="14" style="border-bottom: 1px solid #000000;" align="left" width="242"><i>(Dollars in millions)</i></td><td width="97" align="center" colspan="2" style="border-bottom: 1px solid #000000;" height="14">Transportation</td><td width="97" align="center" colspan="2" style="border-bottom: 1px solid #000000;" height="14">Natural Gas(1)</td><td width="97" align="center" colspan="2" style="border-bottom: 1px solid #000000;" height="14">Total(1)</td></tr><tr><td height="17" style="border-top: 1px solid #000000;" align="right" width="242">2010&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="left" width="22"> ;$</td><td height="17" style="border-top: 1px solid #000000;" align="right" width="75">&#160;123&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="left" width="22">$</td><td height="17" style="border-top: 1px solid #000000;" align="right" width="75">&#160;1,039&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="left" width="22">$</td><td height="17" style="border-top: 1px solid #000000;" align="right" width="75">&#160;1,162&#160;</td></tr><tr><td height="17" width="242" align="right">2011&#160;</td><td height="17" width="22" align="left">&#160;</td><td height="17" width="75" align="right">&#160;80&#160;</td><td height="17" width="22" align="left">&#160;</td><td height="17" width="75" align="right">&#160;315&#160;</td><td height="17" width="22" align="left">&#160;</td ><td height="17" width="75" align="right">&#160;395&#160;</td></tr><tr><td height="17" width="242" align="right">2012&#160;</td><td height="17" width="22" align="left">&#160;</td><td height="17" width="75" align="right">&#160;46&#160;</td><td height="17" width="22" align="left">&#160;</td><td height="17" width="75" align="right">&#160;7&#160;</td><td height="17" width="22" align="left">&#160;</td><td height="17" width="75" align="right">&#160;53&#160;</td></tr><tr><td height="17" width="242" align="right">2013&#160;</td><td height="17" width="22" align="left">&#160;</td><td height="17" width="75" align="right">&#160;45&#160;</td><td height="17" width="22" align="left">&#160;</td><td height="17" width="75" align="right">&#160;7&#160;</td><td height="17 " width="22" align="left">&#160;</td><td height="17" width="75" align="right">&#160;52&#160;</td></tr><tr><td height="17" width="242" align="right">2014&#160;</td><td height="17" width="22" align="left">&#160;</td><td height="17" width="75" align="right">&#160;35&#160;</td><td height="17" width="22" align="left">&#160;</td><td height="17" width="75" align="right">&#160;6&#160;</td><td height="17" width="22" align="left">&#160;</td><td height="17" width="75" align="right">&#160;41&#160;</td></tr><tr><td height="17" width="242" align="left">Thereafter</td><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="22">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="75">&#160;176&#160;</td><td height="17" style="border-botto m: 1px solid #000000;" align="left" width="22">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="75">&#160;-&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="22">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="75">&#160;176&#160;</td></tr><tr><td height="18" style="border-bottom: 3px solid #000000;" align="left" width="242">Total minimum payments</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="left" width="22">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="75">&#160;505&#160;</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="left" width="22">$</td><td height="18" style="border-top: 1px s olid #000000;border-bottom: 3px solid #000000;" align="right" width="75">&#160;1,374&#160;</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="left" width="22">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="75">&#160;1,879&#160;</td></tr><tr><td width="533" align="left" colspan="7" style="border-top: 3px solid #000000;" height="18"><i>(1) Excludes amounts related to Sempra LNG's contracts with Tangguh PSC and RasGas discussed below.</i></td></tr></table><table style="border-collapse: collapse; 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margin-top: 20px;"><tr><td height="14" width="301" align="left">&#160;</td><td width="273" align="center" colspan="6" style="border-bottom: 1px solid #000000;" height="14">Years ended December 31,</td></tr><tr><td height="14" style="border-bottom: 1px solid #000000;" align="left" width="301"><i>(Dollars in millions)</i></td><td width="91" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2009&#160;</td><td width="91" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2008&#160;</td><td width="91" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2007&#160;</td></tr><tr><td height="16" style="border-top: 1px solid # 000000;" align="left" width="301">Sempra Energy Consolidated</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="16">$</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="75">&#160;1,754&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="16">$</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="75">&#160;3,469&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="16">$</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="75">&#160;2,976&#160;</td></tr><tr><td height="16" width="301" align="left">SDG&amp;E</td><td height="16" width="16" align="right">&#160;</td><td height="16" width="75" align="right">&#160;-&#160;</td><td height="16" width="16" align="right">&am p;#160;</td><td height="16" width="75" align="right">&#160;12&#160;</td><td height="16" width="16" align="right">&#160;</td><td height="16" width="75" align="right">&#160;390&#160;</td></tr><tr><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="left" width="301">SoCalGas</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="16">&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="75">&#160;1,452&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="16">&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="75">&#160;3,145&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align="right" width="16">&#160;</td><td height="16" style="border-bottom: 3px solid #C0C0C0;" align= "right" width="75">&#160;2,413&#160;</td></tr></table><p>LNG<br />Sempra LNG has a purchase agreement with Tangguh PSC Contractors (Tangguh PSC) for the supply of LNG equivalent to 500 million cubic feet of natural gas per day to be delivered from Tangguh PSC&#8217;s Indonesian liquefaction facility to the Energ&#237;a Costa Azul receipt terminal. The contracted deliveries under this 20-year agreement began in late 2009 and will use half of the capacity of Energ&#237;a Costa Azul. The price of LNG under this contract is based on the Southern California border index. <br />Although the LNG purchase contract specifies a minimum number of cargoes to be delivered, under the terms of the contract, Tangguh PSC may divert certain cargoes to other customers, which would reduce amounts paid under the contract by Sempra LNG. As of December 31, 2009, if all cargoes under the contract were to be delivered, future payments under this contract would be <br /> ;</p><ul><li>$847 million in 2010 <br /></li><li>$1.0 billion in 2011 <br /></li><li>$1.0 billion in 2012 <br /></li><li>$1.1 billion in 2013 <br /></li><li>$1.1 billion in 2014 <br /></li><li>$18.2 billion for the remainder of the contract term<br /></li></ul><p>The amounts above are based on forward prices of the Southern California border index price from 2010 to 2014, plus an estimated one percent escalation per year beyond 2014. Sempra LNG has a natural gas sales contract to sell a portion of the LNG purchased from Tangguh PSC to Mexico&#8217;s national electric company, Comisi&#243;n Federal de Electricidad (CFE) at prices that are based on the Southern California border index price. Sempra LNG also has a natural gas sales agreement with RBS Sempra Commodities for RBS Sempra Commodities to market any volumes purchased from Tangguh PSC that are not sold by Sempra LN G to the CFE. <br />Sempra LNG has a purchase agreement with Ras Laffan Liquefied Natural Gas Company Limited (RasGas) for the supply of LNG cargoes to be delivered by RasGas to Sempra LNG&#8217;s Cameron LNG receipt terminal. Under this agreement, effective August 2009 through the end of 2010, RasGas has the option to deliver and sell up to 52 cargoes to Sempra LNG, at a price based on market prices in the U.S. Gulf of Mexico. As of December 31, 2009, RasGas may deliver up to 32 cargoes through 2010. If all cargoes were to be delivered, payments in 2010 for these cargoes would be approximately $813 million. <br /></p><p>Purchased-Power Contracts <br />For 2010, SDG&amp;E expects to receive 25 percent of its customer power requirements from DWR allocations. The remaining requirements are expected to be met as follows<br /></p><ul><li>SONGS: 17 percent<br /></li><li>Long-term contracts: 23 percent (of which 10 percent is provided by renewable energy contracts expiring on various dates through 2025) <br /></li><li>Other SDG&amp;E-owned generation (including Palomar) and tolling contracts (including OMEC and Orange Grove): 28 percent <br /></li><li>Spot market purchases: 7 percent<br /></li></ul><p>The long-term contracts expire on various dates through 2035. <br />At December 31, 2009, the estimated future minimum payments under SDG&amp;E&#8217;s long-term purchased-power contracts (not including the DWR allocations) were:</p><table style="border-collapse: collapse; margin-top: 20px;"><tr><td width="346" align="left" colspan="2" style="border-bottom: 1px solid #000000;" height="14"><i>(Dollars in millions)</i></td><td width="97" align="center" colspan="2" style="border-bottom: 1px solid #000000;" height="14">&#160;</td></tr><tr><td height="17" style="border-top: 1px solid #000000;" alig n="right" width="47">2010&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="left" width="299">&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="left" width="22">$</td><td height="17" style="border-top: 1px solid #000000;" align="right" width="75">&#160;335&#160;</td></tr><tr><td height="17" width="47" align="right">2011&#160;</td><td height="17" width="299" align="left">&#160;</td><td height="17" width="22" align="left">&#160;</td><td height="17" width="75" align="right">&#160;238&#160;</td></tr><tr><td height="17" width="47" align="right">2012&#160;</td><td height="17" width="299" align="left">&#160;</td><td height="17" width="22" align="left">&#160;</td><td height="17" width="75" align="right">&#160;238&#160;</td></tr><tr><td heig ht="17" width="47" align="right">2013&#160;</td><td height="17" width="299" align="left">&#160;</td><td height="17" width="22" align="left">&#160;</td><td height="17" width="75" align="right">&#160;235&#160;</td></tr><tr><td height="17" width="47" align="right">2014&#160;</td><td height="17" width="299" align="left">&#160;</td><td height="17" width="22" align="left">&#160;</td><td height="17" width="75" align="right">&#160;194&#160;</td></tr><tr><td width="346" align="left" height="17" colspan="2">Thereafter</td><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="22">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="75">&#160;1,425&#160;</td></tr><tr><td width="346" align="left" colspan="2" style="border-bottom: 3px solid #0000 00;" height="18">Total minimum payments(1)</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="left" width="22">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="75">&#160;2,665&#160;</td></tr><tr><td height="18" style="border-top: 3px solid #000000;" align="center" width="47">(1)</td><td width="396" align="left" colspan="3" style="border-top: 3px solid #000000;" height="18"><i>&#160;Excludes amounts related to Otay Mesa VIE and Orange Grove VIE as they are consolidated at SDG&amp;E.</i></td></tr></table><p>The payments represent capacity charges and minimum energy purchases. SDG&amp;E is required to pay additional amounts for actual purchases of energy that exceed the minimum energy commitments. Excluding DWR-allocated contracts, total payments under the contracts were:<br /> ;</p><ul><li>$413 million in 2009 <br /></li><li>$393 million in 2008 <br /></li><li>$351 million in 2007 </li></ul><p></p><p>Construction and Development Projects<br />Sempra Energy has various capital projects in progress in the United States and in Mexico. The following is a summary of contractual commitments and contingencies related to the construction projects. <br />SDG&amp;E<br />At December 31, 2009, SDG&amp;E has commitments to make future payments of $453 million for construction projects including:<br /></p><ul><li>$219 million for implementation of the Advanced Metering Infrastructure Program;<br /></li><li>$166 million for the engineering, material procurement and construction costs associated with the Sunrise Powerlink project; and<br /></li><li>$49 million related to the replacement of the steam generators and other construct ion projects at SONGS.<br /></li></ul><p>SDG&amp;E expects future payments under these contractual commitments to be $355 million in 2010, $81 million in 2011 and $17 million in 2012. <br />SoCalGas<br />At December 31, 2009, SoCalGas has commitments to make future payments of $48 million for construction and infrastructure improvements for natural gas transmission and distribution operations. The future payments under these contractual commitments are expected to be $47 million in 2010 and $1 million in 2011. <br />Sempra Pipelines &amp; Storage<br />Sempra Pipelines &amp; Storage has commitments for the construction of natural gas storage facilities at Bay Gas and Mississippi Hub. At December 31, 2009, Sempra Pipelines &amp; Storage expects to make payments of $16 million and $30 million, respectively, in 2010 under these contracts. <br />Sempra Pipelines &amp; Storage owns 75 percent of the partnership that is developing the Libe rty Gas Storage facility located in Cameron Parish, Louisiana. The partnership is committed to construction agreements and expects to make payments of $1 million in 2010 under these agreements. <br /></p><p>Sempra Generation's Contract with the DWR<br />In May 2001, Sempra Generation entered into a ten-year agreement with the DWR to supply up to 1,900 MW of power to California. Sempra Generation delivers energy to the DWR, primarily from its portfolio of natural gas-fired plants in the western United States and Baja California, Mexico. Additional information concerning this contract is provided under "Legal Proceedings - DWR Contract" above.</p></div> <div style="font-size:12pt"><p>OPERATING Leases <br />Sempra Energy, SDG&amp;E, PE and SoCalGas have operating leases on real and personal property expiring at various dates from 2010 to 2045. Certain leases on office facilities contain escalation clauses requiring annual increases in rent ranging from two percent to six percent at Sempra Energy, two percent to six percent at SDG&amp;E, and two percent to five percent at both PE and SoCalGas. The rentals payable under these leases may increase by a fixed amount each year or by a percentage of a base year, and most leases contain extension options that we could exercise. <br />The Sempra Utilities had an operating lease agreement for fleet vehicles with GE Capital that was terminated in November 2008, with remaining rental commitments to be paid by January 2011. In November 2008, to replace the prior agreement, the Sempra Utilit ies entered into an operating lease agreement for fleet vehicles with RBS Asset Finance, Inc. with an aggregate maximum lease limit of $100 million.<br />Rent expense for all operating leases totaled:</p><table style="border-collapse: collapse; margin-top: 20px;"><tr><td height="14" width="301" align="left">&#160;</td><td width="273" align="center" colspan="6" style="border-bottom: 1px solid #000000;" height="14">Years ended December 31,</td></tr><tr><td height="14" style="border-bottom: 1px solid #000000;" align="left" width="301"><i>(Dollars in millions)</i></td><td width="91" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2009&#160;</td><td width="91" align="center" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2008&#160;</td><td width="91" align="center" colspan="2" style ="border-top: 1px solid 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However, it is uncertain when the DOE will begin accepting spent nuclear fuel from SONGS. This delay will lead to increased costs for spent fuel storage. This cost will be recovered through SONGS revenue unless SDG&amp;E is able to recover the increased cost from the federal government. </p><p>Environmental Issues<br />Our operations are subject to federal, state and local environmental laws. We also are subject to regulations related to hazardous wastes, air and water quality, land use, solid waste disposal and the protection of wildlife. These laws and regulations require that we investigate and correct the effects of the release or disposal of materials at sites associated with our past and our present operations. These sites include those at which we have been identified as a Potentially Responsible Party (PRP) under the federal Superfund laws and similar state laws. <br />In addition, we are required to obtain numerous governmental permits, licenses and other approvals to construct facilities and operate our businesses. The related costs of environmental monitoring, pollution control equipment, cleanup costs, and emissions fees are significant. Increasing national and international concerns regarding global warming and mercury, carbon dioxide, nitrogen oxide and sulfur dioxide emissions could result in requirements for additional pollution control equipment or significant emissions fees or taxes that could adversely affect Sempra Generation. The Sempra Utilities' costs to operate their facilities in compliance with these laws and regulations generally have been recovered in customer rates. <br />We generally capitalize the significant costs we incur to mitigate o r prevent future environmental contamination or extend the life, increase the capacity, or improve the safety or efficiency of property used in current operations. 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Increases in 2008 compared to 2007 are primarily due to SDG&amp;E's spending related to the Sunrise Powerlink and the Miramar II peaking plant, and Sempra LNG's spending related to the Energ&#237;a Costa Azul LNG receipt terminal. We have not identified any significant environm ental issues outside the United States. From 2009 through 2013, SDG&amp;E expects to incur costs of approximately $190 million for environmental mitigation measures associated with the Sunrise Powerlink construction project. <br />At the Sempra Utilities, costs that relate to current operations or an existing condition caused by past operations are generally recorded as a regulatory asset due to the probability that these costs will be recovered in rates. <br />The environmental issues currently facing us or resolved during the last three years include 1) investigation and remediation of the Sempra Utilities' manufactured-gas sites, 2) cleanup of third-party waste-disposal sites used by the Sempra Utilities at sites which have been identified as PRPs and 3) mitigation of damage to the marine environment caused by the cooling-water discharge from SONGS. The requirements for enhanced fish protection and restoration of 150 acres of coastal wetlands for the SONGS mitigation are in process and a 1 50-acre artificial reef was completed in 2008. The table below shows the status at December 31, 2009, of the Sempra Utilities' manufactured-gas sites and the third-party waste-disposal sites identified as PRPs:</p><table style="border-collapse: collapse; margin-top: 20px;"><tr><td height="14" width="210" align="left">&#160;</td><td width="86" align="center" height="14" colspan="2"># Sites</td><td width="86" align="center" height="14" colspan="2"># Sites</td></tr><tr><td height="14" style="border-bottom: 1px solid #000000;" align="left" width="210">&#160;</td><td width="86" align="center" colspan="2" style="border-bottom: 1px solid #000000;" height="14">Completed</td><td width="86" align="center" colspan="2" style="border-bottom: 1px solid #000000;" height="14">In Process</td></tr><tr><td height="17" style="border-top: 1px solid #000000;" align="left" width="210"><b>SDG&amp ;E</b></td><td height="17" style="border-top: 1px solid #000000;" align="left" width="22">&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="left" width="64">&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="left" width="22">&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="left" width="64">&#160;</td></tr><tr><td height="17" width="210" align="left">Manufactured-gas sites</td><td height="17" width="22" align="left">&#160;</td><td height="17" width="64" align="right">&#160;3&#160;</td><td height="17" width="22" align="left">&#160;</td><td height="17" width="64" align="right">&#160;-&#160;</td></tr><tr><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="210">Third-party waste-disposal sites</td><td height="17" style="bord er-bottom: 1px solid #000000;" align="left" width="22">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="64">&#160;1&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="22">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="64">&#160;1&#160;</td></tr><tr><td height="17" style="border-top: 1px solid #000000;" align="left" width="210"><b>SoCalGas</b></td><td height="17" style="border-top: 1px solid #000000;" align="left" width="22">&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="left" width="64">&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="left" width="22">&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="left" width="64">&#160;</td></tr><tr>< ;td height="17" width="210" align="left">Manufactured-gas sites</td><td height="17" width="22" align="left">&#160;</td><td height="17" width="64" align="right">&#160;35&#160;</td><td height="17" width="22" align="left">&#160;</td><td height="17" width="64" align="right">&#160;7&#160;</td></tr><tr><td height="18" style="border-bottom: 3px solid #C0C0C0;" align="left" width="210">Third-party waste-disposal sites</td><td height="18" style="border-bottom: 3px solid #C0C0C0;" align="left" width="22">&#160;</td><td height="18" style="border-bottom: 3px solid #C0C0C0;" align="right" width="64">&#160;1&#160;</td><td height="18" style="border-bottom: 3px solid #C0C0C0;" align="left" width="22">&#160;</td><td height="18" style="border-bottom: 3px solid #C0C0C0;" align="right" width="64">&#160;1&#160;</td></tr></table><p>We rec ord environmental liabilities at undiscounted amounts when our liability is probable and the costs can be reasonably estimated. In many cases, however, investigations are not yet at a stage where we can determine whether we are liable or, if the liability is probable, to reasonably estimate the amount or range of amounts of the costs. Estimates of our liability are further subject to uncertainties such as the nature and extent of site contamination, evolving cleanup standards and imprecise engineering evaluations. We review our accruals periodically and, as investigations and cleanup proceed, we make adjustments as necessary. 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style="border-bottom: 1px solid #000000;" align="left" width="175">&#160;</td><td width="98" align="center" colspan="2" style="border-bottom: 1px solid #000000;" height="14">Gas Sites</ td><td width="106" align="center" colspan="2" style="border-bottom: 1px solid #000000;" height="14">Sites (PRP)(1)</td><td width="101" align="center" colspan="2" style="border-bottom: 1px solid #000000;" height="14">Plants</td><td width="101" align="center" colspan="2" style="border-bottom: 1px solid #000000;" height="14">Waste Sites</td><td width="91" align="center" colspan="2" style="border-bottom: 1px solid #000000;" height="14">Total</td></tr><tr><td height="17" style="border-top: 1px solid #000000;" align="left" width="175">SDG&amp;E(2)</td><td height="17" style="border-top: 1px solid #000000;" align="left" width="22">$</td><td height="17" style="border-top: 1px solid #000000;" align="right" width="76">&#160;0.4&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="right" width="29">$</td><td height="17" style="border-top: 1px solid #000000;" align="right" width ="77">&#160;0.2&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="right" width="36">$</td><td height="17" style="border-top: 1px solid #000000;" align="right" width="65">&#160;6.1&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="right" width="31">$</td><td height="17" style="border-top: 1px solid #000000;" align="right" width="70">&#160;0.7&#160;</td><td height="17" style="border-top: 1px solid #000000;" align="right" width="33">$</td><td height="17" style="border-top: 1px solid #000000;" align="right" width="58">&#160;7.4&#160;</td></tr><tr><td height="17" width="175" align="left">SoCalGas</td><td height="17" width="22" align="left">&#160;</td><td height="17" width="76" align="right">&#160;26.4&#160;</td><td height="17" width="29" align="right">&#160;</td><td height="17" wid th="77" align="right">&#160;0.5&#160;</td><td height="17" width="36" align="right">&#160;</td><td height="17" width="65" align="right">&#160;-&#160;</td><td height="17" width="31" align="right">&#160;</td><td height="17" width="70" align="right">&#160;1.0&#160;</td><td height="17" width="33" align="right">&#160;</td><td height="17" width="58" align="right">&#160;27.9&#160;</td></tr><tr><td height="17" width="175" align="left">Other</td><td height="17" style="border-bottom: 1px solid #000000;" align="left" width="22">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="76">&#160;0.2&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="29">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="77">&am p;#160;0.9&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="36">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="65">&#160;-&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="31">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="70">&#160;-&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="33">&#160;</td><td height="17" style="border-bottom: 1px solid #000000;" align="right" width="58">&#160;1.1&#160;</td></tr><tr><td height="18" style="border-bottom: 3px solid #000000;" align="left" width="175">&#160;&#160;&#160;&#160;Total Sempra Energy</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="left" width="22"> ;$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="76">&#160;27.0&#160;</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="29">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="77">&#160;1.6&#160;</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="36">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="65">&#160;6.1&#160;</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="31">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="70">&#160;1.7&#160;</td>< td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="33">$</td><td height="18" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="58">&#160;36.4&#160;</td></tr><tr><td width="672" align="left" colspan="11" style="border-top: 3px solid #000000;" height="12"><i>(1) Site for which we have been identified as a Potentially Responsible Party.</i></td></tr><tr><td width="672" align="left" height="12" colspan="11"><i>(2) Does not include SDG&amp;E's liability for SONGS marine mitigation.</i></td></tr></table><p>We expect to pay the majority of these accruals over the next three years. In connection with the issuance of operating permits, SDG&amp;E and the other owners of SONGS previously reached an agreement with the California Coastal Commission to mitigate the damage to the marine environment c aused by the cooling-water discharge from SONGS. At December 31, 2009, SDG&amp;E's share of the estimated mitigation costs remaining to be spent through 2050 is $14 million, which is recoverable in rates.<br />We discuss renewable energy requirements in Note 15 and greenhouse gas regulation in Note 16.</p></div> <div style="font-size:12pt"><p>Nuclear Insurance<br />SDG&amp;E and the other owners of SONGS have insurance to cover claims from nuclear liability incidents arising at SONGS. This insurance provides $300 million in coverage limits, the maximum amount available, including coverage for acts of terrorism. In addition, the Price-Anderson Act provides for up to $12.2 billion of secondary financial protection (SFP). If a nuclear liability loss occurring at any U.S. licensed/commercial reactor exceeds the $300 million insurance limit, all nuclear reactor owners could be required to contribute to the SFP. SDG&amp;E's contribution would be up to $47 million. This amount is subject to an annual maximum of $7 million, unless a default occurs by any other SONGS owner. If the SFP is insufficient to cover the liability loss, SDG&amp;E could be subject to an additional assessment.<br /& gt;The SONGS owners, including SDG&amp;E, also have $2.75 billion of nuclear property, decontamination, and debris removal insurance. In addition, the SONGS owners have up to $490 million insurance coverage for outage expenses and replacement power costs due to accidental property damage. This coverage is limited to $3.5 million per week for the first 52 weeks, then $2.8 million per week for up to 110 additional weeks. There is a 12-week waiting period deductible. These insurance coverages are provided through a mutual insurance company. Insured members are subject to retrospective premium assessments. SDG&amp;E could be assessed up to $8.5 million.<br />The nuclear property insurance program includes an industry aggregate loss limit for non-certified acts of terrorism (as defined by the Terrorism Risk Insurance Act). The industry aggregate loss limit for property claims arising from non-certified acts of terrorism is $3.24 billion. This is the maximum amount that will be paid to insured member s who suffer losses or damages from these non-certified terrorist acts.</p></div> <div style="font-size:12pt"><p>Concentration of Credit Risk <br />We maintain credit policies and systems to manage our overall credit risk. These policies include an evaluation of potential counterparties' financial condition and an assignment of credit limits. These credit limits are established based on risk and return considerations under terms customarily available in the industry. We grant credit to utility customers and counterparties, substantially all of whom are located in our service territory, which covers most of Southern California and a portion of central California for SoCalGas, and all of San Diego County and an adjacent portion of Orange County for SDG&amp;E.<br />As described above, Sempra Generation has a contract with the DWR to supply up to 1,900 MW of power to the state over 10 years, beginning in 2001. Sempra Generation would be at risk for the amounts of outstanding billings and the continued viability of the contract if the DWR were to default on its payments under this contract. The average monthly billing related to this contract is $26 million and is normally collected by the end of the next month.<br />When they become operational, projects at Sempra LNG and Sempra Pipelines &amp; Storage place significant reliance on the ability of their suppliers and customers to perform on long-term agreements and on our ability to enforce contract terms in the event of nonperformance. We consider many factors, including the negotiation of supplier and customer agreements, when we evaluate and approve development projects. <br />As a transitional measure, we continue to provide back-up guarantees for a portion of RBS Sempra Commodities' trading obligations and for certain credit facilities with third party lenders pending novation of the remaining trading obligations to RBS, or after the closing of the transaction we discuss in Note 20, to J.P. Morga n Ventures Energy Corporation. In addition, in conjunction with the other owners of the Rockies Express, we guarantee Rockies Express' borrowings under its credit facility. We discuss these credit guarantees in Note 6.</p></div> <div style="font-size:12pt"><p>NOTE 18. SEGMENT INFORMATION<br />We have five separately managed reportable segments, as follows: <br /></p><ul><li>SDG&amp;E provides electric service to San Diego and southern Orange counties and natural gas service to San Diego County.<br /></li></ul><p><br /></p><ul><li>SoCalGas is a natural gas distribution utility, serving customers throughout most of Southern California and part of central California.<br /></li></ul><p><br /></p><ul><li>Sempra Commodities holds our investment in RBS Sempra Commodities, a joint venture with RBS. The partnership was formed on April 1, 2008 from our commodities-marketing businesses previously reported in this segment. The partnership's commodity trading businesses serve customers in natural gas, ele ctricity, petroleum and petroleum products, and base metals. Sempra Commodities also includes the operating results of Sempra Rockies Marketing, which holds firm service capacity on the Rockies Express Pipeline. We provide further discussion regarding the joint venture in Note 4.<br /></li></ul><p>On February 16, 2010, Sempra Energy, RBS and the partnership entered into an agreement to sell certain businesses within the partnership. We discuss this transaction and related agreements affecting the partnership in Note 20.<br /><br /></p><ul><li>Sempra Generation develops, owns and operates, or holds interests in, electric power plants and energy projects in Arizona, California, Nevada, Indiana, Hawaii and Mexico to serve wholesale electricity markets in North America.<br /></li></ul><p><br /></p><ul><li>Sempra Pipelines &amp; Storage develops, owns and operates, or holds interests in, natural gas pipelines and storage facilities in the United States and Mexico, and companies that provide natural gas or electricity services in Argentina, Chile, Mexico and Peru. We are currently pursuing the sale of our interests in the Argentine utilities, which we discuss further in Note 4. Sempra Pipelines &amp; Storage also operates a small natural gas distribution utility in Southwest Alabama.<br /></li></ul><p><br />We evaluate each segment's performance based on its contribution to Sempra Energy&#8217;s reported earnings. The Sempra Utilities operate in essentially separate service territories, under separate regulatory frameworks and rate structures set by the CPUC. The Sempra Utilities' operations are based on rates set by the CPUC and the FERC. We describe the accounting policies of our segments in Note 1.<br />Sales to the DWR, which is a customer of the Sempra Generation segment and which is discussed in various sections of this Annual Report, comprised 9 percent of our re venues in 2009, 10 percent in 2008 and 9 percent in 2007.<br />The operations of Bangor Gas and Frontier Energy, which we discontinued in June 2006 and discuss in Note 5, had been in the Sempra Pipelines &amp; Storage segment.<br />The following tables show selected information by segment from our Consolidated Statements of Operations and Consolidated Balance Sheets. The tables exclude amounts from discontinued operations, unless otherwise noted. <br />Amounts labeled as "all other" in the following tables consist primarily of parent organizations and Sempra LNG.</p><table style="border-collapse: collapse; margin-top: 20px;"><tr><td width="705" align="left" colspan="13" style="border-top: 1px solid #000000;" height="19"><b>SEGMENT INFORMATION</b></td></tr><tr><td width="705" align="left" height="19" colspan="13"><i>(Dollars in millions)</i></td></tr><tr><td height="14" width="264" align="left"&g t;<b>&#160;</b></td><td width="441" align="center" colspan="12" style="border-bottom: 1px solid #000000;" height="14">Years ended December 31,</td></tr><tr><td height="14" style="border-bottom: 1px solid #000000;" align="left" width="264">&#160;</td><td width="147" align="center" colspan="4" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="14">2009&#160;</td><td width="147" align="center" colspan="4" style="border-top: 1px 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align="right">&#160;160&#160;</td><td height="16" width="44" align="left">&#160;</td><td height="16" width="23" align="left">&#160;</td></tr><tr><td height="16" width="264" align="left">&#160;&#160;Sempra Commodities</td><td height="16" width="19" align="right">&#160;</td><td height="16" width="61" align="right">&#160;108&#160;</td><td height="16" width="44" align="left">&#160;</td><td height="16" width="23" align="left">&#160;</td><td height="16" width="19" align="right">&#160;</td><td height="16" width="61" align="right">&#160;201&#160 ;</td><td height="16" width="44" align="left">&#160;</td><td height="16" width="23" align="left">&#160;</td><td height="16" width="19" align="right">&#160;</td><td height="16" width="61" align="right">&#160;252&#160;</td><td height="16" width="44" align="left">&#160;</td><td height="16" width="23" align="left">&#160;</td></tr><tr><td height="16" width="264" align="left">&#160;&#160;Sempra Generation</td><td height="16" width="19" align="right">&#160;</td><td height="16" width="61" align="right">&#160;103&#160;</td><td height="16" width="44" align="left">&#160;</td><td height="16" width="23" align="left">&#160;</td><td height="16" width="19" align="right">&#160;</td><td height="16" width="61" align="right">&#160;100&#160;</td><td height="16" width="44" align="left"> &#160;</td><td height="16" width="23" align="left">&#160;</td><td height="16" width="19" align="right">&#160;</td><td height="16" width="61" align="right">&#160;111&#160;</td><td height="16" width="44" align="left">&#160;</td><td height="16" width="23" align="left">&#160;</td></tr><tr><td height="16" width="264" align="left">&#160;&#160;Sempra Pipelines &amp; Storage</td><td height="16" width="19" align="right">&#160;</td><td height="16" width="61" align="right">&#160;(20)</td><td height="16" width="44" align="left">&#160;</td><td height="16" width="23" align="left">&#160;</td><td height="16" width="19" align="right">&#160;</td><td height="16" 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width="61">&#160;(187)</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="44">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="23">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="61">&#160;(132)</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="44">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="23">&#160;</td></tr><tr><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="264">&#160;&#160;&#160;&#160;&#160;&#160;Total</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" wid th="19">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="61">&#160;422&#160;</td><td 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align="left" width="44">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="23">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="61">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align= "left" width="44">&#160;</td><td height="16" style="border-top: 1px solid #000000;" align="left" width="23">&#160;</td></tr><tr><td height="16" width="327" align="left">&#160;Earnings (losses) recorded before tax:</td><td height="16" width="19" align="right">&#160;</td><td height="16" width="61" align="left">&#160;</td><td height="16" width="44" align="left">&#160;</td><td height="16" width="23" align="left">&#160;</td><td height="16" width="19" align="right">&#160;</td><td height="16" width="61" align="left">&#160;</td><td height="16" width="44" align="left">&#160;</td><td height="16" width="23" align="left">&#160;</td><td height="16" width="19" align="right">&#160;</td><td height="16" width="61" align="left">&#160;</td><td height="16" width="44" align="left">&#160;</td><td h eight="16" width="23" align="left">&#160;</td></tr><tr><td height="16" width="327" align="left">&#160;&#160;&#160;Sempra Commodities</td><td height="16" width="19" align="right">$</td><td height="16" width="61" align="right">&#160;463&#160;</td><td height="16" width="44" align="left">&#160;</td><td height="16" width="23" align="left">&#160;</td><td height="16" width="19" align="right">$</td><td height="16" width="61" align="right">&#160;383&#160;</td><td height="16" width="44" align="left">&#160;</td><td height="16" width="23" align="left">&#160;</td><td height="16" width="19" align="right">$</td><td height="16" width="61" align="right">&#160;-&#160;</td><td height="16" width="44" align="left">&#160;</td><td height="16" width="23" align="left">&#160;</td></tr><tr ><td height="16" width="327" align="left">&#160;&#160;&#160;Sempra 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align="right">&#160;</td><td height="16" width="61" align="right">&#160;43&#160;</td><td height="16" width="44" align="left">&#160;</td><td height="16" width="23" align="left">&#160;</td><td height="16" width="19" align="right">&#160;</td><td height="16" width="61" align="right">&#160;(4)</td><td height="16" width="44" align="left">&#160;</td><td height="16" width="23" align="left">&#160;</td></tr><tr><td height="16" width="327" align="left">&#160;&#160;&#160;All other</td>< td height="16" style="border-bottom: 1px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="61">&#160;(12)</td><td height="16" style="border-bottom: 1px solid #000000;" align="left" width="44">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="left" width="23">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-bottom: 1px solid 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style="border-top: 3px solid #000000;" align="left" width="61">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="44">&#160;</td><td height="16" style="border-top: 3px solid #0000 00;" align="left" width="23">&#160;</td></tr><tr><td height="16" width="327" align="left">&#160;&#160;&#160;SDG&amp;E(1)</td><td height="16" width="19" align="right">$</td><td height="16" width="61" align="right">&#160;344&#160;</td><td height="16" width="44" align="right">&#160;31&#160;</td><td height="16" width="23" align="left">%</td><td height="16" width="19" align="right">$</td><td height="16" width="61" align="right">&#160;339&#160;</td><td height="16" width="44" align="right">&#160;31&#160;</td><td height="16" width="23" align="left">%</td><td height="16" width="19" align="right">$</td><td height="16" width="61" align="right">&#160;283&#160;</td><td height="16" width="44" align="right">&#160;25&#160;</td><td height="16" width="23" align="left">%</td></tr> <tr><td 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align="left" width="61">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="44">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="23">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="61">&#160;</td><td height="16" style="bo rder-top: 3px solid #000000;" align="left" width="44">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="23">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="61">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="44">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="23">&#160;</td></tr><tr><td height="16" width="327" 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align="left">&#160;</td></tr><tr><td height="16" width="327" align="left">&#160;&#160;&#160;Sempra Pipelines &amp; Storage</td><td height="16" width="19" align="right">&#160;</td><td height="16" width="61" align="right">&#160;4,485&#160;</td><td height="16" width="44" align="right">&#160;16&#160;</td><td height="16" width="23" align="left">&#160;</td><td height="16" width="19" align="right">&#16 0;</td><td height="16" width="61" align="right">&#160;4,060&#160;</td><td height="16" width="44" align="right">&#160;15&#160;</td><td height="16" width="23" align="left">&#160;</td><td height="16" width="19" align="right">&#160;</td><td height="16" width="61" align="right">&#160;2,287&#160;</td><td height="16" width="44" align="right">&#160;8&#160;</td><td height="16" width="23" align="left">&#160;</td></tr><tr><td height="16" width="327" align="left">&#160;&#160;&#160;All other</td><td height="16" width="19" align="right">&#160;</td><td height="16" width="61" 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style="border-top: 3px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="61">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="44">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="23">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="61">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="44">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="23">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="right" width="19">&#160;</td><td height="16" style= "border-top: 3px solid #000000;" align="left" width="61">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="left" width="44">&#160;</td><td height="16" 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align="right" width="61">&#160;-&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="44">&#160;-&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="left" width="23">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="61">&#160;16&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="44">&#160;-&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align=" left" width="23">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="19">&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="61">&#160;59&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="right" width="44">&#160;-&#160;</td><td height="16" style="border-bottom: 1px solid #000000;" align="left" width="23">&#160;</td></tr><tr><td height="16" style="border-bottom: 3px solid #000000;" align="left" width="327">&#160;&#160;&#160;&#160;&#160;&#160;Total</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="19">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="61">&#160;8,106&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="44">&#160;100&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="23">%</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="19">$</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid #000000;" align="right" width="61">&#160;10,758&#160;</td><td height="16" style="border-top: 1px solid #000000;border-bottom: 3px solid 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align="center" width="68">&#160;</td></tr><tr><td height="16" width="326" align="left">Revenues</td><td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;2,108&#160;</td><td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;1,689&#160;</td><td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;1,853&#160;</td>< td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;2,456&#160;</td></tr><tr><td height="16" width="326" align="left">Expenses and other income</td><td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;1,690&#160;</td><td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;1,433&#160;</td><td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;1,443&#160;</td><td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;2,064&#160;</td></tr><tr><td height="16" width="326" align="left">&#160;</td><td height="16" width="22" align="center">&#160;</td><td height="16" width="68" align="left">& ;#160;</td><td height="16" width="22" align="center">&#160;</td><td height="16" width="68" align="left">&#160;</td><td height="16" width="22" align="center">&#160;</td><td height="16" width="68" align="left">&#160;</td><td height="16" width="22" align="center">&#160;</td><td height="16" width="68" align="left">&#160;</td></tr><tr><td height="16" width="326" align="left">Net income</td><td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;325&#160;</td><td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;189&#160;</td><td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;302&#160;</td><td height="16" width="22" 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align="right">&#160;1.24&#160;</td><td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;1.25&#160;</td></tr><tr><td height="16" width="326" align="left">&#160;&#160;&#160;&#160;Earnings attributable to Sempra Energy</td><td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;1.31&#160;</td><td height="16" width="22" align="center">$</ td><td height="16" width="68" align="right">&#160;0.82&#160;</td><td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;1.30&#160;</td><td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;1.18&#160;</td></tr><tr><td height="16" width="326" align="left">&#160;&#160;&#160;&#160;Weighted average common shares outstanding</td><td height="16" width="22" align="center">&#160;</td><td height="16" width="68" align="right">&#160;241.8&#160;</td><td height="16" width="22" align="center">&#160;</td><td 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width="68">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="center" width="22">&#160;</td><td height="16" style="border-top: 3px solid #000000;" align="center" width="68">&#160;</td></tr><tr><td height="16" width="326" align="left">Revenues</td><td height="16" width="22" align="center"> $</td><td height="16" width="68" align="right">&#160;3,270&#160;</td><td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;2,503&#160;</td><td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;2,692&#160;</td><td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;2,293&#160;</td></tr><tr><td height="16" width="326" align="left">Expenses and other income</td><td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;2,920&#160;</td><td height="16" width="22" align="center">$</td><td height="16" width="68" 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align="right">&#160;262&#160;</td><td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;302&#160;</td><td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;260&#160;</td></tr><tr><td height="16" width="326" align="left">Earnings attributable to Sempra Energy</td><td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;242&#160;</td><td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;244&#160;</td><td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;308&#160;</td><td height="16" width="22" align="center ">$</td><td height="16" width="68" align="right">&#160;319&#160;</td></tr><tr><td height="16" width="326" align="left">&#160;</td><td height="16" width="22" align="center">&#160;</td><td height="16" width="68" align="left">&#160;</td><td height="16" width="22" align="center">&#160;</td><td height="16" width="68" align="left">&#160;</td><td height="16" width="22" align="center">&#160;</td><td height="16" width="68" align="left">&#160;</td><td height="16" width="22" align="center">&#160;</td><td height="16" width="68" align="left">&#160;</td></tr><tr><td height="16" width="326" align="left">Basic per-share amounts(1):</td><td height="16" width="22" align="center">&#160;</td><td height="16" width="68" align="left">&#160;</td><td height="16" width="22" align="center">&a mp;#160;</td><td height="16" width="68" align="left">&#160;</td><td height="16" width="22" align="center">&#160;</td><td height="16" width="68" align="left">&#160;</td><td height="16" width="22" align="center">&#160;</td><td height="16" width="68" align="left">&#160;</td></tr><tr><td height="16" width="326" align="left">&#160;&#160;&#160;&#160;Net income</td><td height="16" width="22" align="center">$</td><td height="16" width="68" align="right">&#160;0.94&#160;</td><td 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We discuss the final CPUC decision, issued in July 2008, in Note 16.<br />F luctuations in Revenues and Expenses and Other Income in 2009 compared to 2008 were largely driven by natural gas prices, which were substantially lower in 2009. Compared to the third quarter of 2009, Operating Revenues and Operating Expenses increased in the fourth quarter of 2009 due to higher natural gas prices and volumes.<br />Net Income and Earnings Attributable to Common Shares in the third quarter of 2008 for PE and SoCalGas included $7 million for the retroactive impact of the 2008 GRC decision for January 1 through June 30, 2008.<br />Net Income and Earnings Attributable to Common Shares in the fourth quarter of 2008 for PE and SoCalGas included litigation expenses of $7 million.</p></div> <div style="font-size:12pt"><p>NOTE 20. SUBSEQUENT EVENT <br />In November 2009, RBS announced its intention to divest its interest in RBS Sempra Commodities in connection with a directive from the European Commission to dispose of certain assets. On February 16, 2010, Sempra Energy, RBS and the partnership (Seller Parties) entered into an agreement (the Purchase Agreement) with J.P. Morgan Ventures Energy Corporation (J.P. Morgan Ventures), whereby J.P. Morgan Ventures will purchase the following businesses from the joint venture: <br /></p><ul><li>the global oil, metals, coal, emissions (other than emissions related to the partnership&#8217;s North American power business), plastics, agricultural commodities and concentrates commodities trading and marketing business<br /></li><li>the European power and gas business<br /></li>< li>the investor products business <br /></li></ul><p>RBS Sempra Commodities will retain its North American power and natural gas trading businesses and its retail energy solutions business. These businesses have historically generated 40 to 60 percent of total earnings of the businesses in the partnership, and have averaged more than 50 percent.<br />The transaction is expected to close in the second quarter of 2010. J.P. Morgan Ventures will pay an aggregate purchase price equal to the estimated book value at closing of the businesses purchased, generally computed on the basis of IFRS (as adopted by the European Union), plus an amount equal to $468 million. Sempra Energy will be entitled to 53-1/3 percent of the aggregate purchase price, and RBS will be entitled to 46-2/3 percent of the aggregate purchase price. We are currently evaluating the effect of the proposed transaction on our investment and share of equity method earnings, which will be impacted by the joint vent ure&#8217;s allocation of goodwill to the transaction, U.S. GAAP/IFRS differences and the application of equity method accounting.<br />In conjunction with the transaction, JPMorgan Chase &amp; Co. has delivered a guaranty in favor of the Seller Parties to guarantee certain obligations, including the payment obligations, of J.P. Morgan Ventures under the Purchase Agreement.<br />The closing is subject to several conditions, including the following:<br /></p><ul><li>governmental approvals from the U.K. Financial Services Authority, the U.S. Department of Justice or Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and antitrust approvals from regulators in Canada and in a limited number of other jurisdictions <br /></li><li>if necessary, the obtaining of a license from the Swiss Federal Market Supervisory Authority <br /></li><li>a condition to the obligation of the Seller Partie s to close the transaction that JP Morgan Chase &amp; Co. not experience a ratings downgrade below the level specified in the Purchase Agreement <br /></li><li>entering into certain related agreements, including an agreement pursuant to which the partnership will provide transition services to the purchased businesses following the closing<br /></li></ul><p>In connection with the 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Annual Report.<br />Note 3. 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Basis of Presentation<br />Pacific Enterprises accounts for the earnings of its subsidiaries under the equity method in this unconsolidated financial information.<br />Because of its nature as a holding company, Pacific Enterprises classifies dividends received from su bsidiaries as an investing cash flow.<br />Note 2. Commitments and Contingencies<br />For contingencies related to Pacific Enterprises, refer to Note 17 of the Notes to Consolidated Financial Statements in the Annual Report.</p></div> As adjusted for the retrospective adoption of ASC 810 (SFAS 160).