Edgar Filing: SEMPRA ENERGY

Sempra Energy/SDG&E/SoCalGas June 30, 2014 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]

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

For the quarterly period ended

June 30, 2014

[ ]

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

For the transition period from

Commission File No.

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

States of Incorporation

I.R.S. Employer

Identification Nos.

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

1-14201

SEMPRA ENERGY

California

33-0732627

No change

101 Ash Street

San Diego, California 92101

(619)696-2000

1-03779

SAN DIEGO GAS & ELECTRIC COMPANY

California

95-1184800

No change

8326 Century Park Court

San Diego, California 92123

(619)696-2000

1-01402

SOUTHERN CALIFORNIA GAS COMPANY

California

95-1240705

No change

555 West Fifth Street

Los Angeles, California 90013

(213)244-1200

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

Yes

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

Sempra Energy

Yes

San Diego Gas & Electric Company

Yes

Southern California Gas Company

Yes

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

Large

accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Sempra Energy

[ X ]

[ ]

San Diego Gas & Electric Company

[ ]

[ X ]

[ ]

Southern California Gas Company

[ ]

[ X ]

[ ]

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

Sempra Energy

Yes

San Diego Gas & Electric Company

Yes

Southern California Gas Company

Yes

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

Common stock outstanding on August 4, 2014:

Sempra Energy

245,893,714 shares

San Diego Gas & Electric Company

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

Southern California Gas Company

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

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

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	78
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	117
Item 4.	Controls and Procedures	118

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	119
Item 1A.	Risk Factors	119
Item 6.	Exhibits	119

Signatures		121

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

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

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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

actions and the timing of actions, including issuances of permits to construct and licenses for operation, by the California Public Utilities Commission, California State Legislature, U.S. Department of Energy, Federal Energy Regulatory Commission, Nuclear Regulatory Commission, Atomic Safety and Licensing Board, California Energy Commission, U.S. Environmental Protection Agency, California Air Resources Board, and other regulatory, governmental and environmental bodies in the United States and other countries in which we operate;

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

§	the timing and success of business development efforts and construction, maintenance and capital projects, including risks in obtaining permits, licenses, certificates and other authorizations on a timely basis and risks in obtaining adequate and competitive financing for such projects;

§	delays in the timing of costs incurred and the timing of the regulatory agency authorization to recover such costs in rates from customers;

§	inflation, interest and exchange rates;

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

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

§	the availability of electric power, natural gas and liquefied natural gas, including disruptions caused by failures in the North American transmission grid, pipeline explosions and equipment failures and the decommissioning of San Onofre Nuclear Generating Station (SONGS);

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

risks inherent with nuclear power facilities and radioactive materials storage, including the catastrophic release of such materials, the disallowance of the recovery of the investment in, or operating costs of, the nuclear facility due to an extended outage and facility closure, and increased regulatory oversight;

§	risks that our partners or counterparties will be unable or unwilling to fulfill their contractual commitments;

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

§	wars, terrorist attacks that threaten system operations and critical infrastructure, and cybersecurity threats to the energy grid and the confidentiality of our proprietary information and the personal information of our customers;

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

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

§	the impact on reliability of San Diego Gas & Electric Company’s (SDG&E) electric transmission and distribution system due to increased amount and variability of power supply from renewable energy sources;

§	the impact on competitive customer rates of the growth in distributed and local power generation and the corresponding decrease in demand for power delivered through SDG&E’s electric transmission and distribution system;

§	the inability or determination not to enter into long-term supply and sales agreements or long-term firm capacity agreements due to insufficient market interest, unattractive pricing or other factors;

§	the resolution of litigation; and

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

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

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share amounts)
	Three months ended June 30,				Six months ended June 30,
	2014		2013		2014		2013
	(unaudited)
REVENUES
Utilities	$	2,370	$	2,332	$	4,855	$	4,666
Energy-related businesses		308		319		618		635
Total revenues		2,678		2,651		5,473		5,301
EXPENSES AND OTHER INCOME
Utilities:
Cost of natural gas		(395)		(365)		(1,015)		(921)
Cost of electric fuel and purchased power		(571)		(477)		(1,081)		(924)
Energy-related businesses:
Cost of natural gas, electric fuel and purchased power		(126)		(94)		(264)		(205)
Other cost of sales		(42)		(49)		(80)		(97)
Operation and maintenance		(729)		(740)		(1,405)		(1,464)
Depreciation and amortization		(288)		(247)		(574)		(542)
Franchise fees and other taxes		(92)		(81)		(197)		(187)
Plant closure (loss) adjustment		―		(200)		13		(200)
Gain on sale of equity interest and assets		2		―		29		74
Equity earnings, before income tax		23		8		40		18
Other income, net		49		26		89		63
Interest income		5		4		9		10
Interest expense		(138)		(138)		(274)		(276)
Income before income taxes and equity earnings
of certain unconsolidated subsidiaries		376		298		763		650
Income tax expense		(93)		(32)		(220)		(210)
Equity earnings, net of income tax		9		1		15		5
Net income		292		267		558		445
Earnings attributable to noncontrolling interests		(22)		(21)		(41)		(19)
Preferred dividends of subsidiaries		(1)		(1)		(1)		(3)
Earnings	$	269	$	245	$	516	$	423

Basic earnings per common share	$	1.10	$	1.00	$	2.10	$	1.74
Weighted-average number of shares outstanding, basic (thousands)		245,688		243,603		245,484		243,449

Diluted earnings per common share	$	1.08	$	0.98	$	2.07	$	1.70
Weighted-average number of shares outstanding, diluted (thousands)		250,061		248,515		249,816		248,279
Dividends declared per share of common stock	$	0.66	$	0.63	$	1.32	$	1.26
See Notes to Condensed Consolidated Financial Statements.

SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
	Three months ended June 30, 2014 and 2013
	(unaudited)
	Sempra Energy Shareholders' Equity
	Pretax		Income Tax		Net-of-Tax		Noncontrolling
	Amount		(Expense) Benefit		Amount		Interests (After-Tax)		Total
2014:
Net income	$	363	$	(93)	$	270	$	22	$	292
Other comprehensive income (loss):
Foreign currency translation adjustments		2		―		2		1		3
Pension and other postretirement benefits		8		(3)		5		―		5
Financial instruments		(12)		5		(7)		(1)		(8)
Total other comprehensive income (loss)		(2)		2		―		―		―
Comprehensive income		361		(91)		270		22		292
Preferred dividends of subsidiary		(1)		―		(1)		―		(1)
Comprehensive income, after preferred
dividends of subsidiary	$	360	$	(91)	$	269	$	22	$	291
2013:
Net income	$	278	$	(32)	$	246	$	21	$	267
Other comprehensive income (loss):
Foreign currency translation adjustments		134		―		134		(20)		114
Pension and other postretirement benefits		2		(1)		1		―		1
Financial instruments		33		(10)		23		15		38
Total other comprehensive income (loss)		169		(11)		158		(5)		153
Comprehensive income		447		(43)		404		16		420
Preferred dividends of subsidiaries		(1)		―		(1)		―		(1)
Comprehensive income, after preferred
dividends of subsidiaries	$	446	$	(43)	$	403	$	16	$	419
See Notes to Condensed Consolidated Financial Statements.

SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED)
(Dollars in millions)
	Six months ended June 30, 2014 and 2013
	(unaudited)
	Sempra Energy Shareholders' Equity
	Pretax		Income Tax		Net-of-Tax		Noncontrolling
	Amount		(Expense) Benefit		Amount		Interests (After-Tax)		Total
2014:
Net income	$	737	$	(220)	$	517	$	41	$	558
Other comprehensive income (loss):
Foreign currency translation adjustments		(41)		―		(41)		(1)		(42)
Pension and other postretirement benefits		13		(5)		8		―		8
Financial instruments		(20)		8		(12)		(1)		(13)
Total other comprehensive income (loss)		(48)		3		(45)		(2)		(47)
Comprehensive income		689		(217)		472		39		511
Preferred dividends of subsidiary		(1)		―		(1)		―		(1)
Comprehensive income, after preferred
dividends of subsidiary	$	688	$	(217)	$	471	$	39	$	510
2013:
Net income	$	636	$	(210)	$	426	$	19	$	445
Other comprehensive income (loss):
Foreign currency translation adjustments		144		―		144		(24)		120
Pension and other postretirement benefits		7		(3)		4		―		4
Financial instruments		13		(4)		9		18		27
Total other comprehensive income (loss)		164		(7)		157		(6)		151
Comprehensive income		800		(217)		583		13		596
Preferred dividends of subsidiaries		(3)		―		(3)		―		(3)
Comprehensive income, after preferred
dividends of subsidiaries	$	797	$	(217)	$	580	$	13	$	593
See Notes to Condensed Consolidated Financial Statements.

SEMPRA ENERGY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		June 30,		December 31,
		2014		2013(1)
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	789	$	904
Restricted cash			20		24
Trade accounts receivable, net			1,051		1,308
Other accounts and notes receivable, net			188		214
Due from unconsolidated affiliates			4		4
Income taxes receivable			122		85
Deferred income taxes			390		301
Inventories			267		287
Regulatory balancing accounts – undercollected			780		556
Other regulatory assets			40		38
Fixed-price contracts and other derivatives			101		106
Asset held for sale, power plant			293		―
Other			150		170
Total current assets			4,195		3,997

Investments and other assets:
Restricted cash			29		25
Due from unconsolidated affiliate			38		14
Regulatory assets arising from pension and other postretirement
benefit obligations			449		435
Other regulatory assets			2,101		2,113
Nuclear decommissioning trusts			1,096		1,034
Investments			1,769		1,575
Goodwill			1,000		1,024
Other intangible assets			421		426
Sundry			1,197		1,141
Total investments and other assets			8,100		7,787

Property, plant and equipment:
Property, plant and equipment			35,226		34,407
Less accumulated depreciation and amortization			(9,214)		(8,947)
Property, plant and equipment, net ($424 and $438 at June 30, 2014 and December 31, 2013, respectively, related to VIE)			26,012		25,460
Total assets		$	38,307	$	37,244
(1)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

SEMPRA ENERGY
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in millions)
		June 30,		December 31,
		2014		2013(1)
		(unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt		$	1,238	$	545
Accounts payable – trade			1,032		1,088
Accounts payable – other			122		127
Dividends and interest payable			277		271
Accrued compensation and benefits			271		376
Regulatory balancing accounts – overcollected			―		91
Current portion of long-term debt			195		1,147
Fixed-price contracts and other derivatives			50		55
Customer deposits			149		154
Other			548		515
Total current liabilities			3,882		4,369
Long-term debt ($320 and $325 at June 30, 2014 and December 31, 2013, respectively, related to VIE)			12,323		11,253

Deferred credits and other liabilities:
Customer advances for construction			150		155
Pension and other postretirement benefit obligations, net of plan assets			675		667
Deferred income taxes			3,010		2,804
Deferred investment tax credits			40		42
Regulatory liabilities arising from removal obligations			2,746		2,623
Asset retirement obligations			2,018		2,084
Fixed-price contracts and other derivatives			223		228
Deferred credits and other			1,189		1,169
Total deferred credits and other liabilities			10,051		9,772

Commitments and contingencies (Note 11)

Equity:
Preferred stock (50 million shares authorized; none issued)			―		―
Common stock (750 million shares authorized; 246 million and 244 million shares
outstanding at June 30, 2014 and December 31, 2013, respectively; no par value)			2,448		2,409
Retained earnings			9,019		8,827
Accumulated other comprehensive income (loss)			(273)		(228)
Total Sempra Energy shareholders’ equity			11,194		11,008
Preferred stock of subsidiary			20		20
Other noncontrolling interests			837		822
Total equity			12,051		11,850
Total liabilities and equity		$	38,307	$	37,244
(1)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
	Six months ended June 30,
	2014		2013
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	558	$	445
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		574		542
Deferred income taxes and investment tax credits		105		251
Gain on sale of equity interest and assets		(29)		(74)
Plant closure (adjustment) loss		(13)		200
Equity earnings		(55)		(23)
Fixed-price contracts and other derivatives		(17)		(28)
Other		(6)		1
Net change in other working capital components		(125)		20
Changes in other assets		21		(237)
Changes in other liabilities		21		8
Net cash provided by operating activities		1,034		1,105

CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(1,513)		(1,130)
Expenditures for investments		(160)		(5)
Proceeds from sale of equity interest and assets, net of cash sold		66		384
Proceeds from U.S. Treasury grants		―		74
Distributions from investments		6		95
Purchases of nuclear decommissioning and other trust assets		(356)		(330)
Proceeds from sales by nuclear decommissioning and other trusts		350		326
Decrease in restricted cash		87		143
Increase in restricted cash		(87)		(186)
Advances to unconsolidated affiliates		(24)		―
Other		10		2
Net cash used in investing activities		(1,621)		(627)

CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid		(301)		(299)
Preferred dividends paid by subsidiaries		(1)		(3)
Issuances of common stock		28		22
Repurchases of common stock		(37)		(45)
Issuances of debt (maturities greater than 90 days)		2,345		894
Payments on debt (maturities greater than 90 days)		(1,475)		(1,134)
Proceeds from sale of noncontrolling interests, net of $25 in offering costs		―		574
Decrease in short-term debt, net		(54)		(10)
Distributions to noncontrolling interests		(23)		(13)
Other		(10)		18
Net cash provided by financing activities		472		4

Effect of exchange rate changes on cash and cash equivalents		―		(3)

(Decrease) increase in cash and cash equivalents		(115)		479
Cash and cash equivalents, January 1		904		475
Cash and cash equivalents, June 30	$	789	$	954
See Notes to Condensed Consolidated Financial Statements.

SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in millions)
	Six months ended June 30,
	2014		2013
	(unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments, net of amounts capitalized	$	269	$	269
Income tax payments, net of refunds		148		78

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Nuclear facility plant reclassified to regulatory asset, net of depreciation and amortization	$	―	$	512
Accrued capital expenditures		287		214
Increase in capital lease obligations for investment in property, plant and equipment		60		―
Capital expenditures recoverable by U.S. Treasury grants receivable		―		3
Sequestration of U.S. Treasury grants receivable		―		(23)
Dividends declared but not paid		165		158
Financing of build-to-suit property		32		―
See Notes to Condensed Consolidated Financial Statements.

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions)
	Three months ended June 30,				Six months ended June 30,
	2014		2013		2014		2013
	(unaudited)
Operating revenues
Electric	$	948	$	943	$	1,759	$	1,715
Natural gas		115		121		291		288
Total operating revenues		1,063		1,064		2,050		2,003
Operating expenses
Cost of electric fuel and purchased power		329		252		595		461
Cost of natural gas		51		45		126		121
Operation and maintenance		256		289		508		586
Depreciation and amortization		131		107		261		241
Franchise fees and other taxes		54		46		110		101
Plant closure loss (adjustment)		―		200		(13)		200
Total operating expenses		821		939		1,587		1,710
Operating income		242		125		463		293
Other income, net		7		9		20		20
Interest income		―		―		―		1
Interest expense		(51)		(49)		(101)		(97)
Income before income taxes		198		85		382		217
Income tax expense		(69)		(12)		(152)		(63)
Net income		129		73		230		154
(Earnings) losses attributable to noncontrolling interest		(6)		(7)		(8)		4
Earnings		123		66		222		158
Preferred dividend requirements		―		(1)		―		(2)
Earnings attributable to common shares	$	123	$	65	$	222	$	156
See Notes to Condensed Consolidated Financial Statements.

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
	SDG&E Shareholder's Equity
	Pretax		Income Tax		Net-of-Tax		Noncontrolling
	Amount		(Expense) Benefit		Amount		Interest (After-Tax)		Total
	Three months ended June 30, 2014 and 2013
	(unaudited)
2014:
Net income	$	192	$	(69)	$	123	$	6	$	129
Other comprehensive income (loss):
Pension and other postretirement benefits		2		(1)		1		―		1
Financial instruments		―		―		―		(1)		(1)
Total other comprehensive income (loss)		2		(1)		1		(1)		―
Comprehensive income	$	194	$	(70)	$	124	$	5	$	129
2013:
Net income	$	78	$	(12)	$	66	$	7	$	73
Other comprehensive income:
Pension and other postretirement benefits		1		―		1		―		1
Financial instruments		―		―		―		12		12
Total other comprehensive income		1		―		1		12		13
Comprehensive income	$	79	$	(12)	$	67	$	19	$	86

	Six months ended June 30, 2014 and 2013
	(unaudited)
2014:
Net income	$	374	$	(152)	$	222	$	8	$	230
Other comprehensive income (loss):
Pension and other postretirement benefits		2		(1)		1		―		1
Financial instruments		―		―		―		(1)		(1)
Total other comprehensive income (loss)		2		(1)		1		(1)		―
Comprehensive income	$	376	$	(153)	$	223	$	7	$	230
2013:
Net income (loss)	$	221	$	(63)	$	158	$	(4)	$	154
Other comprehensive income:
Pension and other postretirement benefits		1		―		1		―		1
Financial instruments		―		―		―		15		15
Total other comprehensive income		1		―		1		15		16
Comprehensive income	$	222	$	(63)	$	159	$	11	$	170
See Notes to Condensed Consolidated Financial Statements.

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
		June 30,		December 31,
		2014		2013(1)
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	21	$	27
Restricted cash			4		6
Accounts receivable – trade, net			300		266
Accounts receivable – other, net			16		28
Due from unconsolidated affiliates			1		1
Income taxes receivable			12		32
Deferred income taxes			―		103
Inventories			74		86
Regulatory balancing accounts, net			776		556
Other regulatory assets			34		29
Fixed-price contracts and other derivatives			53		61
Other			47		75
Total current assets			1,338		1,270

Other assets:
Restricted cash			29		25
Deferred taxes recoverable in rates			764		788
Regulatory assets arising from fixed-price contracts and other derivatives			52		63
Regulatory assets arising from pension and other postretirement
benefit obligations			105		106
Other regulatory assets			935		991
Nuclear decommissioning trusts			1,096		1,034
Sundry			278		254
Total other assets			3,259		3,261

Property, plant and equipment:
Property, plant and equipment			14,845		14,346
Less accumulated depreciation and amortization			(3,675)		(3,500)
Property, plant and equipment, net ($424 and $438 at June 30, 2014 and December 31, 2013, respectively, related to VIE)			11,170		10,846
Total assets		$	15,767	$	15,377
(1)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in millions)
		June 30,		December 31,
		2014		2013(1)
		(unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt		$	127	$	59
Accounts payable			374		420
Due to unconsolidated affiliates			29		39
Deferred income taxes			108		―
Dividends and interest payable			40		39
Accrued compensation and benefits			76		113
Current portion of long-term debt			115		29
Fixed-price contracts and other derivatives			38		38
Customer deposits			68		71
Other			299		271
Total current liabilities			1,274		1,079
Long-term debt ($320 and $325 at June 30, 2014 and December 31, 2013, respectively, related to VIE)			4,577		4,525

Deferred credits and other liabilities:
Customer advances for construction			39		34
Pension and other postretirement benefit obligations, net of plan assets			134		132
Deferred income taxes			1,902		2,021
Deferred investment tax credits			23		24
Regulatory liabilities arising from removal obligations			1,551		1,403
Asset retirement obligations			751		861
Fixed-price contracts and other derivatives			166		175
Deferred credits and other			414		404
Total deferred credits and other liabilities			4,980		5,054

Commitments and contingencies (Note 11)

Equity:
Common stock (255 million shares authorized; 117 million shares outstanding;
no par value)			1,338		1,338
Retained earnings			3,521		3,299
Accumulated other comprehensive income (loss)			(8)		(9)
Total SDG&E shareholder's equity			4,851		4,628
Noncontrolling interest			85		91
Total equity			4,936		4,719
Total liabilities and equity		$	15,767	$	15,377
(1)	Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.

SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
	Six months ended June 30,
	2014		2013
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	230	$	154
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		261		241
Deferred income taxes and investment tax credits		132		34
Plant closure (adjustment) loss		(13)		200
Fixed-price contracts and other derivatives		(3)		(5)
Other		(24)		(9)
Net change in other working capital components		(231)		(115)
Changes in other assets		37		(177)
Changes in other liabilities		19		6
Net cash provided by operating activities		408		329

CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(543)		(446)
Purchases of nuclear decommissioning trust assets		(354)		(327)
Proceeds from sales by nuclear decommissioning trusts		350		326
Decrease in restricted cash		62		40
Increase in restricted cash		(64)		(38)
Net cash used in investing activities		(549)		(445)

CASH FLOWS FROM FINANCING ACTIVITIES
Preferred dividends paid		―		(2)
Issuances of long-term debt		100		―
Payments on long-term debt		(20)		(5)
Increase in short-term debt, net		68		53
Capital distribution made by Otay Mesa VIE		(13)		―
Other		―		(4)
Net cash provided by financing activities		135		42

Decrease in cash and cash equivalents		(6)		(74)
Cash and cash equivalents, January 1		27		87
Cash and cash equivalents, June 30	$	21	$	13

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments, net of amounts capitalized	$	98	$	94
Income tax payments, net of refunds		12		19

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Nuclear facility plant reclassified to regulatory asset, net of depreciation and amortization	$	―	$	512
Accrued capital expenditures		103		68
Increase in capital lease obligations for investment in property, plant and equipment		60		―
Dividends declared but not paid		―		1
See Notes to Condensed Consolidated Financial Statements.

SOUTHERN CALIFORNIA GAS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions)
	Three months ended June 30,				Six months ended June 30,
	2014		2013		2014		2013
	(unaudited)

Operating revenues	$	917	$	904	$	2,002	$	1,887
Operating expenses
Cost of natural gas		321		303		829		757
Operation and maintenance		337		316		642		622
Depreciation and amortization		107		80		212		180
Franchise fees and other taxes		30		26		68		66
Total operating expenses		795		725		1,751		1,625
Operating income		122		179		251		262
Other income, net		3		3		7		7
Interest expense		(16)		(18)		(33)		(35)
Income before income taxes		109		164		225		234
Income tax expense		(28)		(45)		(66)		(69)
Net income		81		119		159		165
Preferred dividend requirements		(1)		(1)		(1)		(1)
Earnings attributable to common shares	$	80	$	118	$	158	$	164
See Notes to Condensed Consolidated Financial Statements.

SOUTHERN CALIFORNIA GAS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
	Pretax		Income Tax		Net-of-Tax
	Amount		(Expense) Benefit		Amount
	Three months ended June 30, 2014 and 2013
	(unaudited)
2014:
Net income/Comprehensive income	$	109	$	(28)	$	81
2013:
Net income	$	164	$	(45)	$	119
Other comprehensive income:
Financial instruments		1		―		1
Total other comprehensive income		1		―		1
Comprehensive income	$	165	$	(45)	$	120

	Six months ended June 30, 2014 and 2013
	(unaudited)
2014:
Net income/Comprehensive income	$	225	$	(66)	$	159
2013:
Net income	$	234	$	(69)	$	165
Other comprehensive income:
Financial instruments		1		―		1
Total other comprehensive income		1		―		1
Comprehensive income	$	235	$	(69)	$	166
See Notes to Condensed Consolidated Financial Statements.

SOUTHERN CALIFORNIA GAS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
	June 30,		December 31,
	2014		2013(1)
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	16	$	27
Accounts receivable – trade, net		374		595
Accounts receivable – other, net		72		97
Due from unconsolidated affiliates		13		21
Income taxes receivable		37		25
Inventories		63		69
Regulatory balancing accounts, net