10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-K
(Mark One)
[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended		December 31, 2005
[   ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from	to
	Commission file number		1-14201
SEMPRA ENERGY
(Exact name of registrant as specified in its charter)
	California		33-0732627
	(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
101 Ash Street, San Diego, California 92101
(Address of principal executive offices) (Zip Code)
(619) 696-2034
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
	Title of each class		Name of each exchange on which registered
	Common stock, without par value		New York and Pacific
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:				None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
	Yes	X	No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
	Yes		No	X

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

			Yes		X		No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
								X
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer	[ X ]	Accelerated filer		[     ]		Non-accelerated filer			[     ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
			Yes				No	X
Exhibit Index on page 38. Glossary on page 46.
Aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2005 was $10.5 billion.
Registrant's common stock outstanding as of January 31, 2006 was 258,414,771 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the 2005 Annual Report to Shareholders are incorporated by reference into Parts I, II, and IV.
Portions of the Proxy Statement prepared for the May 2006 annual meeting of shareholders are incorporated by reference into Part III.

TABLE OF CONTENTS		Page
PART I
Item 1.	Business and Risk Factors	5
Item 2.	Properties	24
Item 3.	Legal Proceedings	25
Item 4.	Submission of Matters to a Vote of Security Holders	25
PART II
Item 5.	Market for Registrant's Common Equity and Related Stockholder Matters	25
Item 6.	Selected Financial Data	27
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 8.	Financial Statements and Supplementary Data	28
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	28
Item 9A.	Controls and Procedures	28
PART III
Item 10.	Directors and Executive Officers of the Registrant	29
Item 11.	Executive Compensation	29
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	29
Item 13.	Certain Relationships and Related Transactions	30
Item 14.	Principal Accountant Fees and Services	30
PART IV
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	30
Consent of Independent Registered Public Accounting Firm and Report on Schedules		32
Schedule I - Condensed Financial Information of Parent		33
Signatures		37
Exhibit Index		38
Glossary		46

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

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

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

PART I

ITEM 1. BUSINESS AND RISK FACTORS

Description of Business

A description of Sempra Energy and its subsidiaries (the company) is given in "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the 2005 Annual Report to Shareholders, which is incorporated by reference. The company has four separately managed reportable segments comprised of Southern California Gas Company (SoCalGas), San Diego Gas & Electric Company (SDG&E), Sempra Commodities and Sempra Generation. SoCalGas and SDG&E are collectively referred to as "the California Utilities."

Company Website

The company's website address is http://www.sempra.com. The company makes available free of charge through its website, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. The charters of the audit, compensation and corporate governance committees of the company's board of directors (the board), the board's corporate governance guidelines, and the company's code of business conduct and ethics for directors and officers are posted on the company's website. Printed copies may be obtained by writing to the company's Corporate Secretary at Sempra Energy, 101 Ash Street, San Diego, CA 92101-3017.

Risk Factors

The following risk factors and all other information contained in this report should be considered carefully when evaluating Sempra Energy and its subsidiaries. These risk factors could affect the actual results of Sempra Energy and its subsidiaries and cause such results to differ materially from those expressed in any forward-looking statements of, or made by or on behalf of, Sempra Energy or its subsidiaries. Other risks and uncertainties, in addition to those that are described below, may also impair their business operations. If any of the following risks occurs, Sempra Energy's business, cash flows, results of operations and financial condition could be seriously harmed. In addition, the trading price of its securities could decline due to the occurrence of any of these risks. These risk factors should be read in conjunction with the other detailed information concerning Sempra Energy and its subsidiaries set forth in the notes to Consolidated Financial Statements and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the 2005 Annual Report to Shareholders, which is incorporated by reference in this report.

Risks Related to the California Utilities

The California Utilities are subject to extensive regulation by state, federal and local legislation and regulatory authorities, which may adversely affect the operations, performance and growth of their businesses.

The California Public Utilities Commission (CPUC), which consists of five commissioners appointed by the Governor of California for staggered six-year terms, regulates the California Utilities' rates (except electric transmission rates, which are regulated by the Federal Energy Regulatory Commission (FERC)) and conditions of service, sales of securities, rates of return, rates of depreciation, uniform systems of accounts, examination of records and long-term resource procurement. The CPUC conducts various reviews of utility performance (which may include reasonableness and prudency reviews) and affiliate relationships and conducts audits and investigations into various matters which may, from time to time, result in disallowances and penalties adversely affecting earnings and cash flows. Various proceedings involving the CPUC and relating to the California Utilities' rates, costs, incentive mechanisms, performance-based regulation and compliance with affiliate and holding company rules are discussed in the notes to Consolidated Financial Statements and in "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Periodically, the California Utilities' rates are approved by the CPUC based on forecasts of capital and operating costs. If the California Utilities' actual capital and operating costs were to exceed the amount included in its base rates approved by the CPUC, it would adversely affect earnings and cash flows.

To promote efficient operations and improved productivity and to move away from reasonableness reviews and disallowances, the CPUC adopted Performance-Based Regulation (PBR) for the California Utilities. Under PBR, regulators require future income potential to be tied to achieving or exceeding specific performance and operating income goals, rather than relying solely on expanding utility plant to increase earnings. The three areas that are eligible for PBR rewards are: operational incentives based on measurements of safety, reliability and customer satisfaction; energy efficiency rewards based on the effectiveness of the programs; and natural gas procurement rewards. Although the California Utilities have received PBR rewards in the past, there can be no assurance that they will receive rewards in the future, or that they would be of comparable amounts. Additionally, if the California Utilities fail to achieve certain minimum performance levels established under the PBR mechanisms, they may be assessed f inancial disallowances or penalties which could negatively affect earnings and cash flows.

The FERC regulates electric transmission rates, the transmission and wholesale sales of electricity in interstate commerce, transmission access and other similar matters involving SDG&E.

The California Utilities may be adversely affected by new regulations, decisions, orders or interpretations of the CPUC, FERC or other regulatory bodies. New legislation, regulations, decisions, orders or interpretations could change how the California Utilities operate, could affect their ability to recover various costs through rates or adjustment mechanisms, or could require the California Utilities to incur additional expenses.

SDG&E may incur substantial costs and liabilities as a result of its ownership of nuclear facilities.

SDG&E owns a 20% interest in the San Onofre Nuclear Generating Station (SONGS), a 2,150 megawatt nuclear generating facility near San Clemente, California. The Nuclear Regulatory Commission (NRC) has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generation facilities. SDG&E's ownership interest in SONGS subjects it to the risks of nuclear generation, which include:

• the potential harmful effects on the environment and human health resulting from the operation of nuclear facilities and the storage, handling and disposal of radioactive materials;
• limitations on the amounts and types of insurance commercially available to cover losses that might arise in connection with nuclear operations; and
• uncertainties with respect to the technological and financial aspects of decommissioning nuclear plants at the end of their licensed lives.

The California Utilities' future results of operations and financial condition may be materially adversely affected by the outcome of pending litigation against them.

The California energy crisis of 2000 - 2001 has generated numerous lawsuits, governmental investigations and regulatory proceedings involving many energy companies, including Sempra Energy and the California Utilities. In January 2006, Sempra Energy and the California Utilities reached agreement to settle several of these lawsuits including, subject to court and other approvals, the principal class action antitrust lawsuits in which they are defendants. The companies remain defendants in several additional lawsuits arising out of the energy crisis, including lawsuits commenced in the fourth quarter of 2005 by the California Attorney General. The company is also responding to an ongoing CPUC proceeding related to the increase in natural gas prices at the California-Arizona border in 2000 - 2001. Sempra Energy and the California Utilities have expended and continue to expend substantial amounts defending these lawsuits and in connection with related investigations and regulatory proceedings. Sempra Energy and the California Utilities have established reserves for the agreed and unresolved issues. However, given the uncertainties involved in resolving litigation, Sempra Energy's and the California Utilities' results of operations and financial condition may be materially adversely affected.

These proceedings are discussed in the notes to Consolidated Financial Statements and in "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Risks Related to Sempra Energy's Electric Generation, Commodities Trading, Liquefied Natural Gas (LNG), Pipelines & Storage and Other Businesses

Sempra Energy's businesses are exposed to market risk, and its financial condition, results of operations, cash flows and liquidity may be adversely affected by fluctuations in commodity market prices that are beyond its control.

Sempra Commodities is a full-service trading company that markets and trades physical and financial commodity products. Its trading portfolios consist of physical and financial commodity contracts, including contracts for natural gas, electricity, petroleum products, base metals and other commodities that are settled by the delivery of the commodity or cash. Although Sempra Commodities generally seeks to structure its trading contracts so that a substantial majority of its trading revenues are realizable within 24 months and strives to maintain appropriate hedging mechanisms for its trading book, Sempra Commodities may have substantial unhedged trading positions in the market, resulting from the management of its trading portfolios or from its inability to hedge, in whole or in part, particular risks.

Sempra Generation generates electricity that it sells under long-term contracts and into the spot market or other competitive markets. It purchases fuel for its power plants, consisting of natural gas and coal, and may also purchase electricity in the open market to satisfy its contractual obligations.

Sempra Energy's revenues and results of operations could be adversely affected if the prevailing market prices for electricity, natural gas, coal or other commodities, whether procured for power plants or to satisfy contractual obligations with trading counterparties or customers, in regional markets and other competitive markets in which the company competes, change in a direction or manner that it has not anticipated and for which it has not provided through purchase or sale commitments or other hedging transactions.

Unanticipated changes in market prices for energy-related and other commodities result from multiple factors, including: weather conditions; seasonality; changes in demand; transmission or transportation constraints or inefficiencies; availability of competitively priced alternative energy sources; commodity production levels; actions by the Organization of the Petroleum Exporting Countries with respect to the supply of crude oil; federal, state and foreign energy and environmental regulation and legislation; natural disasters, wars, embargoes and other catastrophic events; and expropriation of assets by foreign countries.

In 2001 the FERC, which has jurisdiction over wholesale power and transmission rates, independent system operators and other entities that control transmission facilities or that administer wholesale power sales in some of the markets in which the company operates, imposed price limitations which resulted in unexpected moves in electricity prices. The FERC may impose additional price limitations, bidding rules and other mechanisms or terminate existing price limitations from time to time in the future. Any such action by the FERC may result in prices for electricity changing in an unanticipated direction or manner, and may have an adverse effect on Sempra Energy's sales and results of operations.

Sempra Energy and its subsidiaries cannot and do not attempt to fully hedge their assets or positions against changes in commodity prices, and their hedging procedures may not work as planned.

To reduce financial exposure related to commodity price fluctuations, Sempra Energy's subsidiaries routinely enter into contracts to hedge a substantial portion of their purchase and sale commitments and inventories of electricity, natural gas, coal, crude oil and refined petroleum products, base metals and other commodities. As part of this strategy, they routinely utilize fixed-price, forward, physical purchase and sales contracts, futures, financial swaps and option contracts traded in the over-the-counter markets or on exchanges. However, the company does not cover the entire exposure of its assets or its positions to market price volatility and the coverage will vary over time. To the extent Sempra Energy's subsidiaries have unhedged positions, or if their hedging strategies do not work as planned, fluctuating commodity prices could have a material adverse effect on Sempra Energy's business, results of operations, cash flows and financial condition.

Risk management procedures may not prevent losses.

Although Sempra Energy and its subsidiaries have in place risk management systems and control systems that use advanced methodologies to quantify and manage risk, these systems may not always prevent material losses. Risk management procedures may not always be followed or may not always work as planned. In addition, daily value-at-risk and loss limits are based on historic price movements. If prices significantly or persistently deviate from historic prices, the limits may not protect the company from significant losses. As a result of these and other factors, there can be no assurances that Sempra Energy's risk management procedures will prevent losses that would negatively affect its business, results of operations, cash flows and financial condition.

A downgrade in Sempra Energy's credit ratings could negatively affect its commodities trading and other non-utility businesses.

If Sempra Energy's credit ratings were to be downgraded, the business prospects of its commodities trading and other non-utility businesses, which generally rely on the credit-worthiness of Sempra Energy, would be adversely affected. Sempra Commodities would be required to comply with various margin or other credit enhancement obligations under its trading and marketing contracts, substantially all of which are guaranteed by Sempra Energy, and it may be unable to continue to trade or able to do so only on less-favorable terms. To meet liquidity requirements, Sempra Energy and its subsidiaries maintain substantial unused committed lines of credit for which borrowings are available without regard to credit ratings. However, a ratings downgrade could require Sempra Energy to divert to Sempra Commodities all or a portion of the liquidity that these lines would otherwise provide for the expansion of Sempra Energy's other non-utility businesses. In addition, if these lines were to become unavailable or to be inadequate to meet margin or other credit enhancement requirements, Sempra Commodities' trading partners could exercise other remedies such as liquidating and netting their exposures to Sempra Commodities, making it more difficult or impossible for Sempra Commodities to manage effectively its remaining trading positions or to continue its trading business, and Sempra Energy and its subsidiaries may not have sufficient liquidity to meet their obligations.

Sempra Energy's businesses depend on counterparties, customers and suppliers performing in accordance with their agreements, and any failure by them to perform could require the company to incur substantial expenses and expose it to commodity price risk and volatility, which could adversely affect Sempra Energy's liquidity, cash flows and results of operations.

Sempra Energy's subsidiaries are exposed to the risk that counterparties, customers and suppliers that owe money or commodities as a result of market transactions or other long-term agreements will not perform their obligations under such agreements. Should they fail to perform, the company may be required to acquire alternative hedging arrangements or to honor the underlying commitment at then-current market prices. In such event, Sempra Energy's subsidiaries may incur additional losses to the extent of amounts already paid to such counterparties or suppliers. In addition, the subsidiaries often extend credit to counterparties and customers. While the company performs significant credit analyses prior to extending credit, Sempra Energy and its subsidiaries are exposed to the risk that they may not be able to collect amounts owed to them.

If the Department of Water Resources (DWR) were to succeed in setting aside, or were to fail to perform its obligations under its long-term power contract with Sempra Generation, Sempra Energy's business, results of operations and cash flows will be materially adversely affected.

In 2001, Sempra Generation entered into a 10-year power sales agreement with the DWR, to supply up to 1,900 megawatts to the state. Sempra Energy expects the contract with the DWR will be a source of significant revenue over the 10-year period. The validity of the power sales agreement with the DWR continues to be the subject of extensive litigation between the parties before the FERC, in California courts and in arbitration proceedings. If the DWR were to succeed in setting aside its obligations under the contract, or if the DWR fails or is unable to meet its contractual obligations on a timely basis, it could have a material adverse effect on Sempra Energy's business, results of operations, cash flows and financial condition. These proceedings are described in the notes to Consolidated Financial Statements and in "Management's Discussion and Analysis of Financial Condition and Results of Operations." As described in Note 15 of the notes to Consolidated Financial Statements, the company unilatera lly reduced its price to the DWR by $4.15 per megawatt-hour in connection with the agreement to settle other litigation.

In the future, Sempra Energy's subsidiaries may elect not to or may not be able to enter into long-term supply and sales agreements or long-term firm capacity agreements for their projects, which would subject their sales to increased volatility and its businesses to increased competition.

The electric generation and wholesale power sales industries have become highly competitive. As more plants are built and competitive pressures increase, wholesale electricity prices become more volatile. Without the benefit of long-term power sales agreements, such as the 10-year power sales agreement between Sempra Generation and the DWR, Sempra Energy's sales will be subject to increased price volatility, and it may be unable to sell the power generated by Sempra Generation's facilities or operate those facilities profitably.

Sempra LNG has obtained long-term LNG supply agreements that substantially reduce its exposure to changes in natural gas prices (through corresponding natural gas sales agreements or by tying supply prices to prevailing natural gas prices or long-term firm capacity agreements) for a substantial portion of the processing capacity of the LNG terminals that it currently has under construction and does not intend to commence significant construction of other LNG terminals until it has obtained similar long-term agreements. However, if the counterparties, customers or suppliers to one or more of the key agreements for the LNG facilities were to fail or become unable to meet their contractual obligations on a timely basis, it could have a significant negative impact on Sempra Energy's business, results of operations, cash flows and financial condition.

Business development activities may not be successful and projects under construction may not commence operation as scheduled, which could increase Sempra Energy's costs and impair its ability to recover its investments.

The acquisition, development and construction of LNG receiving terminals, natural gas pipelines and storage facilities, and other energy infrastructure projects involve numerous risks. Sempra Energy and its subsidiaries may be required to expend significant sums for preliminary engineering, permitting, fuel supply, resource exploration, legal and other expenses before it can be established whether a project is feasible, economically attractive or capable of being built. Sempra Energy's success in developing a particular project is contingent upon, among other things, negotiation of satisfactory engineering, procurement and construction agreements, supply and natural gas sales agreements or firm capacity service agreements, receipt of required governmental permits and timely implementation and satisfactory completion of construction, and successful completion of a particular project may be adversely affected by unforeseen engineering problems, construction delays and contractor performance shortfalls, work stoppages, adverse weather conditions, environmental and geological conditions, and other factors. If the company is unable to complete the development of a facility, it typically will not be able to recover its investment in the project.

The operation of existing and future facilities also involves many risks, including the breakdown or failure of generation or regasification and storage facilities or other equipment or processes, labor disputes, fuel interruption and operating performance below expected levels. In addition, weather-related incidents and other natural disasters can disrupt generation, regasification, storage and transmission systems. The occurrence of any of these events could lead to operating facilities below expected capacity levels, which may result in lost revenues or increased expenses, including higher maintenance costs and penalties, and could adversely affect Sempra Energy's business, cash flows and results of operations.

Competition among developers and operators of LNG terminals is rapidly increasing, which may adversely affect the profitability of Sempra LNG's proposed LNG terminals.

Although there are only a limited number of LNG terminal facilities operating in North America today, many companies have announced plans to develop LNG facilities to serve the North American market. Some of these competitors have more operating experience, more development experience, larger staffs and greater financial resources than the company. Industry analysts have predicted that, if all of the proposed LNG facilities in North America that have been announced by developers are actually built, there will likely be substantial excess capacity for such terminals in the near future. Excess capacity would likely lead to decreased prices for such services. Although its LNG facilities in Mexico, Louisiana and Texas are more advanced in the siting, permitting and regulatory approval processes than the proposed projects of many of its competitors, there can be no assurance that Sempra Energy will be able to maintain that advantage.

Sempra Energy's subsidiaries rely on transportation assets that they do not own or control to deliver electricity and natural gas.

Sempra Energy's subsidiaries depend on electric transmission lines, natural gas pipelines and other transportation facilities owned and operated by third parties to deliver the electricity and natural gas they sell to wholesale markets, to supply natural gas and coal to their electric generation facilities, and to provide retail energy services to customers. Sempra LNG also will rely on specialized LNG ships to transport LNG to its LNG facilities and on natural gas pipelines to transport natural gas for customers of the facilities. If transportation is disrupted, or if capacity is inadequate, the ability of Sempra Energy's subsidiaries to sell and deliver their products and services may be hindered. As a result, they may be responsible for damages incurred by their customers, such as the additional cost of acquiring alternative supply at then-current spot market rates.

Sempra Energy's businesses require numerous permits and other governmental approvals from various federal, state, local and foreign governmental agencies, and any failure to obtain or maintain required permits or approvals could cause Sempra Energy's sales to decline and/or its costs to increase.

The acquisition, ownership and operation of LNG receiving terminals, natural gas pipelines and storage facilities, and electric generation facilities require numerous permits, approvals and certificates from federal, state, local and foreign governmental agencies. All of the existing and planned development projects of Sempra Energy's subsidiaries require multiple permits. If there is a delay in obtaining any required regulatory approvals or if the company fails to obtain any required approvals or to comply with any applicable laws or regulations, it may not be able to operate its facilities, or it may be forced to incur additional costs.

Sempra Energy's businesses are subject to complex government regulations and may be adversely affected by changes in these regulations or in their interpretation or implementation.

In recent years, the regulatory environment applicable to the electric power and natural gas industries has undergone significant changes, on both federal and state levels, which have affected the nature of these industries and the manner in which their participants conduct their businesses. These changes are ongoing, and Sempra Energy cannot predict the future course of changes in this regulatory environment or the ultimate effect that this changing regulatory environment will have on its businesses. Moreover, existing regulations may be revised or reinterpreted, and new laws and regulations may be adopted or become applicable to the company and its facilities. Future changes in laws and regulations may have a detrimental effect on Sempra Energy's business, cash flows, financial condition and results of operations.

Sempra Energy's other operations are subject to affiliate rules relating to transactions with the California Utilities. These businesses could be adversely affected by changes in these rules or by additional CPUC or FERC rules' further restricting their ability to sell electricity or natural gas or to trade with the California Utilities. Affiliate transaction rules also could require these businesses to obtain the prior approval of the CPUC before entering into any such transactions with the California Utilities. Any such restrictions or approval requirements could adversely affect the LNG receiving terminals, natural gas pipelines, electric generation plants or trading operations of the company's subsidiaries.

Various proceedings, inquiries and investigations relating to the business activities of Sempra Generation and Sempra Commodities are currently pending before the FERC. A description of such proceedings, inquiries and investigations is provided in the notes to Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Sempra Energy's businesses have significant environmental compliance costs, and future environmental compliance costs could adversely affect Sempra Energy's profitability.

Sempra Energy's subsidiaries are subject to extensive federal, state, local and foreign statutes, rules and regulations relating to environmental protection. They are required to obtain numerous governmental permits, licenses and other approvals to construct and operate their businesses. Additionally, to comply with these legal requirements, they must spend significant sums on environmental monitoring, pollution control equipment and emissions fees. The company also is generally responsible for all on-site liabilities associated with the environmental condition of its electric generation facilities and other energy projects which it has acquired or developed, regardless of when the liabilities arose and whether they are known or unknown. If Sempra Energy's subsidiaries fail to comply with applicable environmental laws, they may be subject to penalties, fines and/or curtailments of their operations.

The scope and effect of any new environmental laws and regulations, including their effects on operations, are difficult to predict. However, increasing national and international concerns regarding global warming and proposed regulations regarding carbon dioxide, mercury, nitrogen oxide and sulfur dioxide emissions could result in requirements for additional pollution control equipment or significant emission fees or taxes that could adversely affect Sempra Generation. In addition, existing environmental regulations could be revised or reinterpreted and other new laws and regulations could be adopted or become applicable to the company and its facilities.

Sempra Energy's international businesses are exposed to different local, regulatory and business risks and challenges, which could have a material adverse effect on Sempra Energy's financial condition, cash flows and results of operations.

Sempra Energy subsidiaries currently have interests in electricity generation, natural gas distribution and transmission, and LNG terminal projects in Mexico, and also have trading, marketing and risk management operations in Canada, Europe and Asia. Sempra Pipelines & Storage also has ownership interests in electricity and natural gas distribution businesses in Argentina, Chile and Peru. Developing infrastructure projects, owning energy assets and operating businesses in foreign jurisdictions subject the company to significant political and financial risks which vary by country, including:

• changes in foreign laws and regulations, including tax and environmental laws and regulations;
• changes in U.S. laws and regulations, including tax and environmental laws and regulations, related to foreign operations;
• high rates of inflation;
• changes in government policies or personnel;
• trade restrictions;
• limitations on U.S. company ownership in foreign countries;
• permitting and regulatory compliance;
• changes in labor supply and labor relations in operations outside the U.S.;
• adverse rulings by foreign courts or tribunals and difficulty in enforcing contractual rights in foreign jurisdictions; and
• general political, economic and business conditions.

Sempra Energy's international businesses also are subject to foreign currency risks. These risks arise from both volatility in foreign currency exchange rates and devaluations of foreign currencies. In such cases, an appreciation of the U.S. dollar against a local currency could reduce the amount of cash and income received from those foreign subsidiaries. For example, the devaluation of the Argentine peso against the U.S. dollar in recent years (as well as the Argentine government's unilateral, retroactive abrogation of utility agreements in early 2002) has had a material adverse effect on Sempra Pipelines & Storage's two unconsolidated subsidiaries in Argentina. In September 2002, Sempra Pipelines & Storage initiated arbitration proceedings under the 1994 Bilateral Investment Treaty between the U.S. and Argentina for recovery of the diminution of the value of its investments that has resulted from Argentine governmental actions. Sempra Pipelines & Storage has claimed damages of at least $211 million (revised from an earlier claim of $258 million) in these proceedings, which are continuing. A description of legal proceedings relating to Sempra Pipelines & Storage's business operations in Argentina is provided in the notes to Consolidated Financial Statements. While Sempra Pipelines & Storage believes that it has contracts and other measures in place to mitigate its most significant foreign currency exchange risks, it has some exposure that is not fully mitigated.

Other Risks Related to the Company

Sempra Energy's cash flows, ability to pay dividends and ability to meet its debt obligations largely depend on the performance of its subsidiaries.

The company's ability to pay dividends and meet its debt obligations is dependent on cash flows from its subsidiaries and, in the short term, its ability to raise capital from external sources. Cash flows from the subsidiaries are dependent, in the long term, on the ability of the subsidiaries to generate operating cash flows in excess of their own capital expenditures. In addition, the subsidiaries are separate and distinct legal entities and could be precluded from making such distributions under certain circumstances, including as a result of legislation or regulation or in times of financial distress.

Natural disasters, catastrophic accidents or acts of terrorism could materially adversely affect Sempra Energy's business, earnings and cash flows.

Like other major industrial facilities, Sempra Energy's generation plants (including SONGS), electric transmission facilities, LNG receiving terminals and storage facilities, chartered oil and LNG tankers and natural gas pipelines and storage facilities may be damaged by natural disasters, catastrophic accidents or acts of terrorism. Any such incidents could result in severe business disruptions, significant decreases in revenues or significant additional costs to the company, which could have a material adverse effect on Sempra Energy's earnings and cash flows. Given the nature and location of these facilities, any such incidents also could cause fires, leaks, explosions, spills or other significant damage to natural resources or property belonging to third parties, or personal injuries, which could lead to significant claims against Sempra Energy and its subsidiaries. Insurance coverage may become unavailable for certain of these risks and the insurance proceeds received for any loss of or dama ge to any of its facilities, or for any loss of or damage to natural resources or property or personal injuries caused by its operations, may be insufficient to cover the company's losses or liabilities without materially adversely affecting the company's financial condition, earnings and cash flows.

GOVERNMENT REGULATION

The most significant government regulation affecting Sempra Energy is the regulation over its utility subsidiaries.

California Utility Regulation

The CPUC, which consists of five commissioners appointed by the Governor of California for staggered six-year terms, regulates SDG&E's and SoCalGas' rates and conditions of service, sales of securities, rate of return, rates of depreciation, uniform systems of accounts, examination of records, and long-term resource procurement. The CPUC conducts various reviews of utility performance and conducts investigations into various matters, such as deregulation, competition and the environment, to determine its future policies. The CPUC also regulates the relationship of the California Utilities with Sempra Energy and is currently investigating this relationship, as discussed further in Note 14 of the notes to Consolidated Financial Statements.

The California Energy Commission (CEC) has discretion over electric demand forecasts for the state and for specific service territories. Based upon these forecasts, the CEC determines the need for additional energy sources and for conservation programs. The CEC sponsors alternative-energy research and development projects, promotes energy conservation programs and maintains a state-wide plan of action in case of energy shortages. In addition, the CEC certifies power-plant sites and related facilities within California.

The CEC conducts a 20-year forecast of supply availability and prices for every market sector consuming natural gas in California. This forecast includes resource evaluation, pipeline capacity needs, natural gas demand and wellhead prices, and costs of transportation and distribution. This analysis is used to support long-term investment decisions.

United States Utility Regulation

The FERC regulates the interstate sale and transportation of natural gas, the transmission and wholesale sales of electricity in interstate commerce, transmission access, the uniform systems of accounts, rates of depreciation and electric rates involving sales for resale. Both the FERC and the CPUC are currently investigating prices charged to the California investor-owned utilities (IOUs) by various suppliers of natural gas and electricity. Further discussion is provided in Notes 13, 14 and 15 of the notes to Consolidated Financial Statements.

The NRC oversees the licensing, construction and operation of nuclear facilities. NRC regulations require extensive review of the safety, radiological and environmental aspects of these facilities. Periodically, the NRC requires that newly developed data and techniques be used to re-analyze the design of a nuclear power plant and, as a result, requires plant modifications as a condition of continued operation in some cases.

Local Regulation

SoCalGas has natural gas franchises with the 240 legal jurisdictions in its service territory. These franchises allow SoCalGas to locate, operate and maintain facilities for the transmission and distribution of natural gas in streets and other public places. Some franchises have fixed lives, such as that for the city of Los Angeles, which expires in 2012. The range of expiration dates for the franchises with definite lives is 2006 to 2048. Most of the franchises have indeterminate lives with no termination date.

SDG&E has electric franchises with the two counties and the 26 cities in its electric service territory, and natural gas franchises with the one county and the 18 cities in its natural gas service territory. These franchises allow SDG&E to locate, operate and maintain facilities for the transmission and distribution of electricity and/or natural gas in streets and other public places. Most of the franchises have indeterminate lives, except for the electric and natural gas franchises with the cities of Encinitas (2012), San Diego (2020), Coronado (2028) and Chula Vista (2035), and the natural gas franchises with the city of Escondido (2035) and the county of San Diego (2029).

Sempra Pipelines & Storage's Mexican utilities build and operate natural gas distribution systems in Mexicali, Chihuahua and the La Laguna-Durango zone in north-central Mexico. The operations are regulated by labor and environmental agencies of city and state governments, and by Mexico's Comision Reguladora de Energía.

Operations of Sempra Generation, Sempra LNG and Sempra Pipelines & Storage are regulated by various states and local public utilities commissions and other agencies.

Other Regulation

Sempra Commodities' operations are subject to regulation by the New York Mercantile Exchange, the London Metals Exchange, the Commodity Futures Trading Commission, the FERC and the National Futures Association. It also has trading locations in Canada, Europe and Asia that are subject to regulation as to operations and financial position.

Sempra Generation and Sempra LNG have operations in the United States that are subject to regulation by the FERC and operations in Mexico that are subject to regulation by the Comision Reguladora de Energía.

Sempra Pipelines & Storage's affiliates have international operations in Argentina, Chile, Mexico and Peru that are subject to federal, local and other regulations of the countries and/or political subdivisions in which they are located. These regulatory bodies include but are not limited to Mexico's Comision Reguladora de Energia, Argentina's Ente Nacional Regulador de Gas, Chile's Comision Nacional de Energia and Peru's Consejo Nacional de Energia.

Other subsidiaries are also subject to varying amounts of regulation by various governments, including various states in the United States.

Licenses and Permits

The California Utilities obtain numerous permits, authorizations and licenses in connection with the transmission and distribution of natural gas and electricity. They require periodic renewal, which results in continuing regulation by the granting agency.

The company's other subsidiaries are also required to obtain numerous permits, authorizations and licenses in the normal course of business. Some of these permits, authorizations and licenses require periodic renewal. Sempra Generation and its subsidiaries obtain a number of permits, authorizations and licenses in connection with the construction and operation of power generation facilities. In addition, Sempra Generation obtains permits in connection with wholesale distribution of electricity. Sempra Pipelines & Storage's Mexican subsidiaries obtain construction permits for their natural gas distribution and transmission systems from the local governments where the service is provided. Sempra Pipelines & Storage obtains licenses and permits for natural gas storage facilities and pipelines. Sempra LNG obtains licenses and permits for the construction and operation of LNG facilities.

Other regulatory matters are described in Notes 13 and 14 of the notes to Consolidated Financial Statements.

NATURAL GAS UTILITY OPERATIONS

Resource Planning and Natural Gas Procurement and Transportation

The company is engaged in the purchase, sale, distribution, storage and transportation of natural gas through the California Utilities. The company's resource planning, power procurement, contractual commitments and related regulatory matters are discussed below and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in Notes 14 and 15 of the notes to Consolidated Financial Statements.

Customers

For regulatory purposes, customers are separated into core and noncore customers. Core customers are primarily residential and small commercial and industrial customers, without alternative fuel capability. Noncore customers consist primarily of electric generation, wholesale, large commercial, industrial and enhanced oil recovery customers.

Most core customers purchase natural gas directly from the California Utilities. Core customers are permitted to aggregate their natural gas requirement and purchase directly from brokers or producers. The California Utilities continue to be obligated to purchase reliable supplies of natural gas to serve the requirements of core customers.

Natural Gas Procurement and Transportation

Most of the natural gas purchased and delivered by the California Utilities is produced outside of California, primarily in the southwestern U.S. and Canada. The California Utilities purchase natural gas under short-term and long-term contracts, which are primarily based on monthly spot-market prices.

To ensure the delivery of the natural gas supplies to the distribution system and to meet the seasonal and annual needs of customers, SoCalGas is committed to firm pipeline capacity contracts that require the payment of fixed reservation charges to reserve firm transportation entitlements. SoCalGas sells excess capacity, if any, on a short-term basis. Interstate pipeline companies, primarily El Paso Natural Gas Company, Transwestern Pipeline Company and Kern River Gas Transmission, provide transportation services into SoCalGas' intrastate transmission system for supplies purchased by SoCalGas or its transportation customers from outside of California. During 2005, SoCalGas renegotiated certain expiring capacity contracts with new expiration dates of up to 2011. The rates that interstate pipeline companies may charge for natural gas and transportation services are regulated by the FERC.

SDG&E has long-term natural gas transportation contracts with various interstate pipelines that expire on various dates between 2006 and 2023. SDG&E currently purchases natural gas on a spot basis from Canada, the Rocky Mountain area and the Southwestern U.S. to fill its long-term pipeline capacity and purchases additional spot-market supplies delivered directly to California for its remaining requirements. SDG&E continues its ongoing assessment of its pipeline capacity portfolio, including the release of a portion of this capacity to third parties. In accordance with regulatory directives, SDG&E has reconfigured its pipeline capacity portfolio as of November 2005 to secure firm transportation rights from a diverse mix of U.S. and Canadian supply sources for its projected core customer natural gas requirements. All of SDG&E's natural gas is delivered through SoCalGas' pipelines under a long-term transportation agreement. In addition, under separate agreements expiring in March 2008, So CalGas provides SDG&E up to nine billion cubic feet of storage capacity.

According to "Btu's Daily Gas Wire", the annual average spot price of natural gas at the California/Arizona border was $7.62 per million British thermal unit (mmbtu) in 2005 ($11.42 per mmbtu in December 2005), compared with $5.57 per mmbtu in 2004 and $5.13 per mmbtu in 2003. The California Utilities' weighted average cost (including transportation charges) per mmbtu of natural gas was $7.83 in 2005, $5.94 in 2004 and $5.06 in 2003.

Natural Gas Storage

SoCalGas provides natural gas storage services for use by the core, noncore and off-system customers. Core customers are allocated a portion of SoCalGas storage capacity. Remaining customers, including SDG&E, can bid and negotiate the desired amount of storage on a contract basis. The storage service program provides opportunities for customers to store natural gas, usually during the summer, to reduce winter purchases when natural gas costs are generally higher. This allows customers to select the level of service they desire to assist them in managing their fuel procurement and transportation needs.

Demand for Natural Gas

The California Utilities face competition in the residential and commercial customer markets based on the customers' preferences for natural gas compared with other energy products. In the non-core industrial market, some customers are capable of using alternate fuels, which can affect the demand for natural gas. The company's ability to maintain its industrial market share is largely dependent on energy prices. The demand for natural gas by electric generators is influenced by a number of factors. In the short-term, natural gas use by electric generators is impacted by the availability of alternative sources of generation. The availability of hydroelectricity is highly dependent on precipitation in the western United States. In addition, natural gas use is impacted by the performance of other generation sources in the western United States, including nuclear and coal, and other natural gas facilities outside the service area. Natural gas use is also impacted by changes in end-use electricity demand. For example, natural gas use generally increases during summer heat waves. Over the long-term, natural gas used to generate electricity will be influenced by additional factors such as the location of new power plant construction and the development of renewable resources. More generation capacity currently is being constructed outside Southern California than within the California Utilities' service area. This new generation will likely displace the output of older, less efficient local generation, reducing the use of natural gas for local electric generation.

Effective March 31, 1998, electric industry restructuring provided out-of-state producers the option to provide power to California utility customers. As a result, natural gas demand for electric generation within Southern California competes with electric power generated throughout the western United States. Although electric industry restructuring has no direct impact on the company's natural gas operations, future volumes of natural gas transported for electric generating plant customers may be significantly affected to the extent that regulatory changes divert electric generation from the company's service area.

Growth in the natural gas markets is largely dependent upon the health and expansion of the Southern California economy and prices of other energy products. External factors such as weather, the price of electricity, electric deregulation, the use of hydroelectric power, development of renewable resources, development of new natural gas supply sources and general economic conditions can result in significant shifts in demand and market price. The California Utilities added 86,000 new customer meters in each of 2005 and 2004, representing growth rates of 1.4 percent in both years. The California Utilities expect that their growth rate for 2006 will approximate 2005's.

The natural gas distribution business is seasonal in nature and revenues generally are greater during the winter months. As is prevalent in the industry, the company injects natural gas into storage during the summer months (usually April through October) for withdrawal from storage during the winter months (usually November through March) when customer demand is higher.

ELECTRIC UTILITY OPERATIONS

Customers

At December 31, 2005, SDG&E had 1.3 million meters consisting of 1,188,000 residential, 141,000 commercial, 480 industrial, 1,990 street and highway lighting, and 6,700 direct access. The company's service area covers 4,100 square miles. The company added 20,000 new customer meters in 2005 and 22,000 in 2004, representing growth rates of 1.5% and 1.7%, respectively.

Resource Planning and Power Procurement

SDG&E's resource planning, power procurement and related regulatory matters are discussed below, in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in Notes 13, 14 and 15 of the notes to Consolidated Financial Statements.

Electric Resources

Based on CPUC-approved purchased-power contracts currently in place with SDG&E's various suppliers and SDG&E's 20-percent share of a generating plant, as of December 31, 2005, the supply of electric power available to SDG&E is as follows:

Supplier			Source	Expiration date	Megawatts (MW)
PURCHASED POWER CONTRACTS:
DWR-allocated contracts:
	Williams Energy Marketing & Trading		Natural gas	2007 to 2010	1,906	*
	Sunrise Power Co. LLC		Natural gas	2012	574
	Other		Natural gas / wind	2006 to 2013	227
		Total			2,707
Other contracts with Qualifying Facilities (QFs):
	Applied Energy Inc.		Cogeneration	2019	102
	Yuma Cogeneration		Cogeneration	2024	50
	Goal Line Limited
		Partnership	Cogeneration	2025	50
	Other (16 contracts)		Cogeneration	2009 and thereafter	61
		Total			263
Other contracts with renewable sources:
	Oasis Power Partners		Wind	2019	60
	AES Delano		Bio-mass	2007	49
	PPM Energy		Wind	2018	25
	WTE / FPL		Wind	2019	17
	Other (6 contracts)		Bio-gas	2007-2014	24
		Total			175
Other long-term contracts:
	Portland General
		Electric (PGE)	Coal	2013	89
Total contracted					3,234
GENERATION:
	SONGS				430
	Miramar				47
Total Generation					477
TOTAL CONTRACTED AND GENERATION					3,711

* Effective January 1, 2007, 1,200 megawatts were reallocated to Southern California Edison (Edison) by the CPUC, as described in Note 13 of the notes to Consolidated Financial Statements.

Under the contract with PGE, SDG&E pays a capacity charge plus a charge based on the amount of energy received and/or PGE's non-fuel costs. Costs under the contracts with QFs are based on SDG&E's avoided cost. Charges under the remaining contracts are for firm and as-available energy and are based on the amount of energy received. The prices under these contracts are at the market value at the time the contracts were negotiated.

SONGS

SDG&E owns 20 percent of SONGS, which is located south of San Clemente, California. SONGS consists of three nuclear generating units. The cities of Riverside and Anaheim own a total of 5 percent of Units 2 and 3. Edison owns the remaining interests and is the operator of SONGS.

Unit 1 was removed from service in November 1992 when the CPUC issued a decision to permanently shut it down. Decommissioning of Unit 1 is now in progress and its spent nuclear fuel is being stored on site.

Units 2 and 3 began commercial operation in August 1983 and April 1984, respectively. SDG&E's share of the capacity is 214 MW of Unit 2 and 216 MW of Unit 3.

SDG&E had fully recovered its SONGS capital investment through December 31, 2003.

Additional information concerning the SONGS units and nuclear decommissioning is provided below, in "Environmental Matters" herein, and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in Notes 6, 13 and 15 of the notes to Consolidated Financial Statements.

Nuclear Fuel Supply

The nuclear fuel supply cycle includes materials and services (uranium oxide, conversion of uranium oxide to uranium hexafluoride, uranium enrichment services, and fabrication of fuel assemblies) performed by others under various contracts which extend through 2008. The availability and the cost of the various components of the nuclear-fuel cycle for SDG&E's nuclear facilities in subsequent years cannot be estimated at this time.

Spent fuel from SONGS is being stored on site in the independent spent fuel storage installation, where storage capacity is expected to be adequate through 2022, the expiration date of the units' NRC operating license. Pursuant to the Nuclear Waste Policy Act of 1982, SDG&E entered into a contract with the U.S. Department of Energy (DOE) for spent-fuel disposal. Under the agreement, the DOE is responsible for the ultimate disposal of spent fuel from SONGS. SDG&E pays the DOE a disposal fee of $1.00 per megawatt-hour of net nuclear generation, or $3 million per year. The DOE projects that it will not begin accepting spent fuel until 2010 at the earliest.

Additional information concerning nuclear-fuel costs and the storage and movement of spent fuel is provided in Notes 13 and 15, respectively, of the notes to Consolidated Financial Statements.

Power Pools

SDG&E is a participant in the Western Systems Power Pool, which includes an electric-power and transmission-rate agreement with utilities and power agencies located throughout the United States and Canada. More than 270 investor-owned and municipal utilities, state and federal power agencies, energy brokers, and power marketers share power and information in order to increase efficiency and competition in the bulk power market. Participants are able to make power transactions on standardized terms that have been pre-approved by the FERC.

Transmission Arrangements

The Pacific Intertie, consisting of AC and DC transmission lines, connects the Northwest with SDG&E, Pacific Gas & Electric (PG&E), Edison and others under an agreement that expires in July 2007. SDG&E's share of the Pacific Intertie is 266 MW.

Power originating from sources utilizing the Pacific Intertie, as well as power from other sources, can be imported into SDG&E's system via the Edison-SDG&E interconnection at the SONGS switchyard. Five 230-kilovolt transmission lines into SDG&E's system from that interconnection comprise the "South of SONGS" path, which is normally rated at 2,200 MW.

SDG&E's 500-kilovolt Southwest Powerlink transmission line, which is shared with Arizona Public Service Company and Imperial Irrigation District, extends from Palo Verde, Arizona to San Diego. SDG&E's share of the line is 970 MW, although it can be less under certain system conditions.

Mexico's Baja California Norte system is connected to SDG&E's system via two 230-kilovolt interconnections with firm capability of 408 MW in the north to south direction and 800 MW in the south to north direction.

SDG&E is in the planning stages for the Sunrise Powerlink, a new 500-kilovolt transmission line between the existing Imperial Valley Substation and a new Central Substation to be located within the SDG&E system. The proposed rating of the Sunrise Powerlink is 1,000 MW or higher. The project is subject to CPUC approval and is estimated to cost at least $1 billion. The planned in-service date is June 2010.

Transmission Access

The National Energy Policy Act governs procedures for others' requests for transmission service. The FERC approved the California IOUs' transfer of operation and control of their transmission facilities to the Independent System Operator (ISO) in 1998. Additional information regarding the FERC, ISO and transmission issues is provided in Note 14 of the notes to Consolidated Financial Statements.

SEMPRA GLOBAL AND SEMPRA FINANCIAL

Sempra Global consists of most of the businesses of Sempra Energy other than the California Utilities, and serves a broad range of customers' energy and other needs. Sempra Global includes Sempra Commodities, Sempra Generation, Sempra LNG and Sempra Pipelines & Storage. Descriptions of these business units and information concerning their operations and the operations of Sempra Financial are provided under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in Notes 2, 3, 15 and 16 of the notes to Consolidated Financial Statements.

RATES AND REGULATION -- CALIFORNIA UTILITIES

Information concerning rates and regulations applicable to the California Utilities is provided in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in Notes 1, 13 and 14 of the notes to Consolidated Financial Statements in the 2005 Annual Report to Shareholders, which is incorporated by reference.

ENVIRONMENTAL MATTERS

Discussions about environmental issues affecting the company are included in Note 15 of the notes to Consolidated Financial Statements. The following additional information should be read in conjunction with those discussions.

Hazardous Substances

In 1994, the CPUC approved the Hazardous Waste Collaborative Memorandum account, allowing California's IOUs to recover their hazardous waste cleanup costs, including those related to Superfund sites or similar sites requiring cleanup. Recovery of 90 percent of hazardous waste cleanup costs and related third-party litigation costs, and 70 percent of the related insurance-litigation expenses is permitted. In addition, the company has the opportunity to retain a percentage of any insurance recoveries to offset the 10 percent of costs not recovered in rates.

At December 31, 2005, the company had accrued its estimated remaining investigation and remediation liability related to hazardous waste sites, including numerous locations that had been manufactured-gas plants, of $46 million, of which 90 percent is authorized to be recovered through the Hazardous Waste Collaborative mechanism. This estimated cost excludes remediation costs of $10.3 million associated with SDG&E's former fossil-fuel power plants. The company believes that any costs not ultimately recovered through rates, insurance or other means will not have a material adverse effect on the company's consolidated results of operations or financial position.

Estimated liabilities for environmental remediation are recorded when amounts are probable and estimable. Amounts authorized to be recovered in rates under the Hazardous Waste Collaborative mechanism are recorded as a regulatory asset.

Electric and Magnetic Fields (EMFs)

Although scientists continue to research the possibility that exposure to EMFs causes adverse health effects, science has not demonstrated a cause-and-effect relationship between exposure to the type of EMFs emitted by power lines and other electrical facilities and adverse health effects. Some laboratory studies suggest that such exposure creates biological effects, but those effects have not been shown to be harmful. The studies that have most concerned the public are epidemiological studies, some of which have reported a weak correlation between childhood leukemia and the proximity of homes to certain power lines and equipment. Other epidemiological studies found no correlation between estimated exposure and any disease. Scientists cannot explain why some studies using estimates of past exposure report correlations between estimated EMF levels and disease, while others do not.

To respond to public concerns, the CPUC previously directed California IOUs to adopt a low-cost EMF-reduction policy that requires reasonable design changes to achieve noticeable reduction of EMF levels that are anticipated from new projects. The CPUC has recently reviewed the resultant policy in an Order Instituting Ratemaking and found no new scientific research to support a change to the existing policy, finding existing policy of prudent avoidance to be sufficient and reasonable.

Air and Water Quality

The transmission and distribution of natural gas require the operation of compressor stations, which are subject to increasingly stringent air-quality standards. Costs to comply with these standards are recovered in rates.

In connection with the issuance of operating permits, SDG&E and the other owners of SONGS previously reached agreement with the California Coastal Commission to mitigate the environmental damage to the marine environment attributed to the cooling-water discharge from SONGS Units 2 and 3. SDG&E's share of the cost is estimated to be $34 million, of which $16 million had been incurred at December 31, 2005. Rate recovery of 50% of the remaining costs is uncertain.

OTHER MATTERS

Research, Development and Demonstration (RD&D)

Effective January 2005, a surcharge was established by the CPUC for natural gas public interest RD&D. The natural gas public interest research program is administered by the CEC. For 2005, the funding level is subject to a statewide cap of $12 million. The statewide cap increases to $15 million in 2006. For 2005, SoCalGas and SDG&E funding for the natural gas public purpose RD&D program was $6 million and $1 million, respectively. In addition, SoCalGas operates a separate natural gas RD&D program as discussed below.

The SoCalGas ratepayer-funded RD&D program is focused on utility operations, end use utilization, advanced distributed power generation and transportation. Each of these activities provides benefits to customers and society by providing more cost-effective, efficient natural gas equipment with lower emissions, increased safety and reduced operating costs. For 2005, SoCalGas' RD&D expenditures were $11 million and expenditures averaged $9 million over the past three years.

SDG&E continues to fund the California Public Interest Energy Research (PIER) Program for electric research. For 2005, SDG&E's funding level was $6 million for the PIER program.

Employees of Registrant

As of December 31, 2005, the company had 13,420 employees, compared to 13,381 at December 31, 2004.

Labor Relations

Field, technical and most clerical employees at SoCalGas are represented by the Utility Workers' Union of America (UWUA) or the International Chemical Workers' Union Council (ICWUC). The collective bargaining agreement for field, technical and most clerical employees at SoCalGas covering wages, hours, working conditions, medical and various benefit plans is in effect through September 30, 2008.

Certain employees at SDG&E are represented by the Local 465 International Brotherhood of Electrical Workers. The current contract is in effect through August 31, 2008.

At some of its field job sites, Sempra Generation employs mechanics who are represented by the International Union of Operating Engineers, Local 501. One collective bargaining agreement is in effect through July 7, 2007. At another operating facility, the company is in the process of labor contract negotiations with Operating Engineers, Local 501, on a new collective bargaining agreement.

ITEM 2. PROPERTIES

Electric Properties - SDG&E

SDG&E's interest in SONGS is described in "Electric Resources" herein. At December 31, 2005, SDG&E's electric transmission and distribution facilities included substations, and overhead and underground lines. The electric facilities are located in San Diego, Imperial and Orange counties of California and in Arizona, and consist of 1,835 miles of transmission lines and 21,601 miles of distribution lines. Periodically, various areas of the service territory require expansion to accommodate customer growth.

In 2005, SDG&E purchased a 45-MW electric generation facility located in San Diego, California. In 2006, SDG&E will purchase the 550-MW Palomar power plant, located in Escondido, California, which is being constructed by Sempra Generation.

Natural Gas Properties - California Utilities

At December 31, 2005, the California Utilities' natural gas facilities included 3,037 miles of transmission and storage pipeline, 56,113 miles of distribution pipeline and 52,569 miles of service piping. They also included 13 transmission compressor stations and 4 underground storage reservoirs, with a combined working capacity of 125 billion cubic feet (bcf).

Energy Properties - Other

At December 31, 2005, Sempra Generation operates power plants in California, Arizona, Texas, Nevada and Mexico with total capacity of 3,805 MW. Additional information is provided in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in Notes 2 and 3 of the notes to Consolidated Financial Statements.

At December 31, 2005, Sempra Pipelines & Storage's operations in Mexico included 1,726 miles of distribution pipeline, 165 miles of transmission pipeline and one compressor station.

At December 31, 2005, the company's two small natural gas utilities, Frontier Energy and Bangor Gas, located in North Carolina and Maine, respectively, owned 148 miles of transmission lines and 258 miles of distribution lines.

Other Properties

The 21-story corporate headquarters building at 101 Ash Street, San Diego is occupied pursuant to an operating lease that expires in 2015. The lease has two separate five-year renewal options.

SoCalGas leases approximately half of a 52-story office building in downtown Los Angeles through 2011. The lease has six separate five-year renewal options.

SDG&E occupies an office complex in San Diego pursuant to an operating lease ending in 2007. The lease can be renewed for two five-year periods.

Sempra Global leases office facilities at various locations in the U.S., Mexico and Europe with the leases ending from 2006 to 2027. Sempra LNG owns land in Baja California, Mexico on which it is developing an LNG receiving terminal. Sempra LNG also has a land lease to develop an LNG receiving terminal in Hackberry, Louisiana and another subsidiary of Sempra Energy owns land where the Port Arthur LNG receipt terminal is under development.

The company owns or leases other warehouses, offices, operating and maintenance centers, shops, service facilities and equipment necessary in the conduct of its business.

ITEM 3. LEGAL PROCEEDINGS

Except for the matters described in Notes 13, 14 and 15 of the notes to Consolidated Financial Statements incorporated by reference in Item 8 or referred to elsewhere in "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference in this Annual Report, neither the company nor its subsidiaries are party to, nor is their property the subject of, any material pending legal proceedings.

Sempra Energy and SDG&E are defendants in a lawsuit filed by the County of San Diego seeking civil penalties for alleged violations of environmental standards applicable to the abatement, handling and disposal of asbestos-containing materials during the demolition of a natural gas storage facility in 2001. In a federal criminal indictment, SDG&E and two employees have also been charged with having violated these standards and with conspiracy and making false statements to governmental authorities in connection with these matters. Sempra Energy and SDG&E believe that the maximum fines and penalties that could reasonably be assessed against them with respect to these matters would not exceed $750,000. The company believes that the claims and charges are without merit and is vigorously contesting them.

On February 2, 2006, Mesquite Power and Maricopa County, Arizona, settled the issue regarding emissions from the Mesquite Power Plant for $350,000.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Sempra Energy common stock is traded on the New York and Pacific stock exchanges. At January 31, 2006, there were 54,000 record holders of the company's common stock. The quarterly common stock information required by Item 5 is included in the schedule of Quarterly Financial Data of the 2005 Annual Report to Shareholders, which is incorporated by reference.

The information required by Item 5 concerning dividend declarations is included in the "Statements of Consolidated Changes in Shareholders' Equity" set forth in Item 8 of the 2005 Annual Report to Shareholders.

EQUITY COMPENSATION PLANS

The company's 1998 Long Term Incentive Plan and Employee Stock Incentive Plan permit the granting of a wide variety of equity and equity-based incentive awards to officers and key employees. At December 31, 2005, outstanding awards consisted of stock options and restricted stock held by 325 employees.

The company's Non-employee Directors Stock Plan also provides for annual automatic grants to non-employee directors of options to purchase common stock.

The following table sets forth information regarding these plans at December 31, 2005.

Equity Compensation Plan Information

				Number of shares to be issued upon exercise of outstanding options (A)	Weighted-average exercise price of outstanding options	Number of additional shares remaining available for future issuance
Equity compensation
	plans approved by
	shareholders:
		1998 Long Term
			Incentive Plan	8,906,361	$25.81	6,829,968
						(B) (C) (D)
		Non-employee Directors
			Stock Plan	530,000	$26.78	834,626
Equity compensation
	plans not approved by
	shareholders:
		Employee Stock
			Incentive Plan	398,350	$24.38	8,189,980
						(B) (C)

(A) Consists solely of options to purchase common stock, all of which were granted at an exercise price of 100% of the grant date fair market value of the shares subject to the option.

(B) Excludes shares subject to outstanding stock options and those subject to other outstanding awards, consisting of unvested shares of restricted stock which total 3,151,120 shares for the 1998 Long Term Incentive Plan and 463,738 shares for the Employee Stock Incentive Plan.

(C) The number of shares available for future issuance is increased by the number of shares withheld to satisfy related tax withholding obligations relating to awards and by the number of shares subject to awards that lapse, expire or are otherwise terminated or settled other than by the issuance of shares.

(D) The number of shares available for future issuance also is increased at the beginning of each year by 1.5% of the total number of shares of common stock then outstanding.

Additional discussion of stock-based compensation is provided in Note 9 of the notes to Consolidated Financial Statements of the 2005 Annual Report to Shareholders, which is incorporated by reference.

ITEM 6. SELECTED FINANCIAL DATA

(Dollars in millions, except per share amounts)				At December 31, or for the years then ended
				2005		2004			2003			2002		2001
Income Statement Data:
	Operating revenues		$	11,737	$	9,434		$	7,891		$	6,057	$	7,733
	Operating income		$	1,111	$	1,281		$	943		$	973	$	1,014
	Income from continuing operations before extraordinary item and cumulative effect of changes in accounting principles		$	929	$	920		$	695		$	575	$	518
	Net income		$	920	$	895		$	649		$	591	$	518
Balance Sheet Data:
	Total assets		$	29,213	$	23,775		$	21,988		$	20,242	$	17,378
	Long-term debt		$	4,823	$	4,192		$	3,841		$	4,083	$	3,436
	Short-term debt (a)		$	1,163	$	803		$	1,461		$	851	$	1,117
	Trust preferred securities		$	--	$	200	*	$	200	*	$	200	$	200
	Shareholders' equity		$	6,160	$	4,865		$	3,890		$	2,825	$	2,692
Per Common Share Data:
	Income from continuing operations before extraordinary item and cumulative effect of changes in accounting principles
		Basic	$	3.78	$	4.03		$	3.29		$	2.80	$	2.54
		Diluted	$	3.69	$	3.93		$	3.24		$	2.79	$	2.52
	Net income:
		Basic	$	3.74	$	3.92		$	3.07		$	2.88	$	2.54
		Diluted	$	3.65	$	3.83		$	3.03		$	2.87	$	2.52
	Dividends declared		$	1.16	$	1.00		$	1.00		$	1.00	$	1.00
	Book value		$	23.95	$	20.77		$	17.17		$	13.79	$	13.16
	(a) Includes long-term debt due within one year.
	* Amount was reclassified to Due to Unconsolidated Affiliates effective in 2003. The company redeemed the securities in February 2005.

This data should be read in conjunction with the Consolidated Financial Statements and the notes to Consolidated Financial Statements in the 2005 Annual Report to Shareholders herein incorporated by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information required by Item 7 is incorporated by reference from pages 1 through 34 of the 2005 Annual Report to Shareholders.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by Item 7A is incorporated by reference from pages 27 through 30 of the 2005 Annual Report to Shareholders.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by Item 8 is incorporated by reference from pages 39 through 114 of the 2005 Annual Report to Shareholders. Item 15(a)1 includes a listing of financial statements included in the 2005 Annual Report to Shareholders.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

ITEM 9A. CONTROLS AND PROCEDURES

Company management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f). The company has designed and maintains disclosure controls and procedures to ensure that information required to be disclosed in the company's reports is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and is accumulated and communicated to the company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating these controls and procedures, management recognizes that any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired objectives and necessarily applies judgment in evaluating the cost-benefit relationship of other possible contr ols and procedures. In addition, the company has investments in unconsolidated entities that it does not control or manage and, consequently, its disclosure controls and procedures with respect to these entities are necessarily substantially more limited than those it maintains with respect to its consolidated subsidiaries.

During the year ended December 31, 2005, management outsourced certain human resource, payroll, and employee benefit functions to a third-party service provider, and implemented a new software application that automates the calculation of the income tax provision. The changes strengthen the design and effectiveness of the internal controls and improve the efficiency of these systems. As part of the conversion processes, management performed substantial testing of related internal controls intended to provide reasonable assurances that the converted data and subsequent ongoing process meet the company's objective to provide reliable financial reporting. Management has determined that the design of the controls surrounding these new processes satisfies the control objectives and that the controls are operating effectively.

Except for these changes, there have been no changes in the company's internal controls over financial reporting during the company's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls over financial reporting.

The company evaluates the effectiveness of its internal control over financial reporting based on the framework in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, the company evaluated the effectiveness of the design and operation of the company's disclosure controls and procedures as of December 31, 2005, the end of the period covered by this report. Based on that evaluation, the company's Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required on Identification of Directors is incorporated by reference from "Election of Directors" in the Proxy Statement prepared for the May 2006 annual meeting of shareholders. The information required on the company's executive officers is provided below.

EXECUTIVE OFFICERS OF THE REGISTRANT

Name	Age*	Position*
Donald E. Felsinger	58	Chairman and Chief Executive Officer
Neal E. Schmale	59	President and Chief Operating Officer
Edwin A. Guiles	56	Group President, Sempra Energy Utilities
M. Javade Chaudhri	53	Executive Vice President and General Counsel
Mark A. Snell	49	Executive Vice President and Chief Financial Officer
Frank H. Ault	61	Senior Vice President and Controller
G. Joyce Rowland	51	Senior Vice President, Human Resources

* As of February 22, 2006.

Each Executive Officer has been an officer of the company or one of its subsidiaries for more than five years, other than Mr. Chaudhri who, prior to joining the company in 2003, was Senior Vice President and General Counsel of Gateway, Inc.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated by reference from "Election of Directors" and "Executive Compensation" in the Proxy Statement prepared for the May 2006 annual meeting of shareholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Securities Authorized for Issuance Under Equity Compensation Plans

Information regarding securities authorized for issuance under equity compensation plans as required by Item 12 is incorporated by reference from "Share Ownership" and "Equity Compensation Plans" in the Proxy Statement prepared for the May 2006 annual meeting of shareholders.

Additional discussion of stock-based compensation is provided in Note 9 of the notes to Consolidated Financial Statements of the 2005 Annual Report to Shareholders, which is incorporated by reference.

Security Ownership of Certain Beneficial Owners

The security ownership information required by Item 12 is incorporated by reference from "Share Ownership" in the Proxy Statement prepared for the May 2006 annual meeting of shareholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information regarding principal accountant fees and services as required by Item 14 is incorporated by reference from "Proposal 3: Ratification of Independent Auditors" in the Proxy Statement prepared for the May 2006 annual meeting of shareholders.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

1. Financial statements

	Page in Annual Report*
Management's Responsibility for Financial Statements	35
Management's Report on Internal Control over Financial Reporting	35
Reports of Independent Registered Public Accounting Firm	36
Statements of Consolidated Income for the years ended December 31, 2005, 2004 and 2003	39
Consolidated Balance Sheets at December 31, 2005 and 2004	40
Statements of Consolidated Cash Flows for the years ended December 31, 2005, 2004 and 2003	42
Statements of Consolidated Changes in Shareholders' Equity for the years ended December 31, 2005, 2004 and 2003	44
Notes to Consolidated Financial Statements	45

*Incorporated by reference from the indicated pages of the 2005 Annual Report to Shareholders, filed as Exhibit 13.01.

2. Financial statement schedules

The following document may be found in this report at the indicated page number.

Schedule I--Condensed Financial Information of Parent . . 33

Any other schedules for which provision is made in Regulation S-X are not required under the instructions contained therein or are inapplicable.

3. Exhibits

See Exhibit Index on page 38 of this report.

(b) Reports on Form 8-K

The following reports on Form 8-K were filed after September 30, 2005:

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

Current Report on Form 8-K filed November 17, 2005, discussing the status of the company's energy crisis era legal proceedings.

Current Report on Form 8-K filed November 23, 2005, discussing the status of an action filed by the Attorney General of California against the company.

Current Report on Form 8-K filed November 25, 2005, discussing Sempra Global's three-year revolving credit facility.

Current Report on Form 8-K filed December 9, 2005, discussing the company's amendment to its employment agreement with its Chairman of the Board and Chief Executive Officer, the amendment of the company's Shareholder Rights Plan, implementation of a previously announced succession plan and other executive changes, and declassification of the company's Board of Directors.

Current Report on Form 8-K filed January 5, 2006, announcing the agreement to settle certain litigation and the effect of the settlements on the company's results of operations and financial condition for the year ended December 31, 2005.

Current Report on Form 8-K filed February 22, 2006, including as exhibits Sempra Energy's press release of February 22, 2006, giving the financial results for the three months ended December 31, 2005, and related Income Statement Data by Business Unit.

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND REPORT ON SCHEDULES

To the Board of Directors and Shareholders of Sempra Energy:

We consent to the incorporation by reference in Registration Statement Numbers 333-51309, 333-52192, 333-70640 and 333-103588 on Form S-3 and Registration Statement Numbers 333-56161, 333-50806, 333-49732, 333-121073 and 333-128441on Form S-8 of Sempra Energy of our reports dated February 21, 2006 relating to the financial statements of Sempra Energy (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the Company's adoption of Financial Accounting Standards Board Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143, effective December 31, 2005, Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities -- an Interpretation of ARB No. 51, effective December 31, 2003, and the rescission of EITF Issue No. 98-10, Accounting for Contracts Involved in Energy Trading and Risk Manage ment Activities, effective January 1, 2003) and management's report on the effectiveness of internal control over financial reporting, appearing in and incorporated by reference in this Annual Report on Form 10-K of Sempra Energy for the year ended December 31, 2005.

Our audits of the financial statements referred to in our aforementioned report also included the financial statement schedule of Sempra Energy, listed in Item 15.  This financial statement schedule is the responsibility of the Company's management.  Our responsibility is to express an opinion based on our audits.  In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.

/S/ DELOITTE & TOUCHE LLP

San Diego, California
February 21, 2006

Schedule I -- Condensed Financial Information of Parent

SEMPRA ENERGY

Condensed Statements of Income
(Dollars in millions, except per share amounts)

			Years ended December 31,
			2005			2004			2003
Interest income			$	186		$	168		$	122
Interest expense				(197	)		(202	)		(187	)
Trust preferred distributions				--			--			(9	)
Litigation expense				(316	)		(44	)		--
Operating expenses and other				(41	)		(8	)		(17	)
Income tax benefits				195			93			57
Loss before subsidiary earnings				(173	)		7			(34	)
Subsidiary earnings before cumulative effect of changes in
		accounting principles		1,102			913			729
Income from continuing operations				929			920			695
Discontinued operations, net of tax				(9	)		(25	)		--
Income before cumulative effect of changes in accounting
	principles			920			895			695
Cumulative effect of changes in accounting principles, net of tax				--			--			(46	)
Net income			$	920		$	895		$	649
Basic earnings per share:
	Income from continuing operations		$	3.78		$	4.03		$	3.29
	Discontinued operations, net of tax			(0.04	)		(0.11	)		--
	Cumulative effect of changes in accounting principles, net of tax			--			--			(0.22	)
	Net income		$	3.74		$	3.92		$	3.07
	Weighted-average number of shares outstanding (thousands)			245,906			228,271			211,740
Diluted earnings per share:
	Income from continuing operations		$	3.69		$	3.93		$	3.24
	Discontinued operations, net of tax			(0.04	)		(0.10	)		--
	Cumulative effect of changes in accounting principles, net of tax			--			--			(0.21	)
	Net income		$	3.65		$	3.83		$	3.03
	Weighted-average number of shares outstanding (thousands)			252,088			233,852			214,482

SEMPRA ENERGY

Condensed Balance Sheets
(Dollars in millions)

			December 31, 2005		December 31, 2004
Assets:
Cash and cash equivalents			$	183	$	23
Due from affiliates				58		116
Other current assets				84		25
		Total current assets		325		164
Investments in subsidiaries				6,369		6,330
Due from affiliates				2,822		2,701
Other assets				620		813
	Total assets		$	10,136	$	10,008
Liabilities and Shareholders' Equity:
Current portion of long-term debt			$	--	$	301
Income taxes payable				286		524
Due to affiliates				619		1,633
Other current liabilities				336		206
		Total current liabilities		1,241		2,664
Long-term debt				2,203		2,224
Other long-term liabilities				532		255
Shareholders' equity				6,160		4,865
	Total liabilities and shareholders' equity		$	10,136	$	10,008

SEMPRA ENERGY

Condensed Statements of Cash Flows
(Dollars in millions)

				Years ended December 31,
		2005				2004			2003
Net cash provided by (used in) operating activities		$	330			$	(7	)	$	(5	)
Dividends received from subsidiaries			1,025				200			250
Expenditures for property, plant and equipment			(16		)		(10	)		(4	)
Increase in investments and other assets			(48		)		(66	)		(58	)
Increase in loans to affiliates, net			(189		)		(229	)		(753	)
	Cash provided by (used in) investing activities		772				(105	)		(565	)
Common stock dividends paid			(268		)		(195	)		(182	)
Issuances of common stock			694				110			505
Repurchases of common stock			(95		)		(5	)		(7	)
Issuances of long-term debt			--				625			400
Payments on long-term debt			(511		)		(511	)		--
Increase (decrease) in loans from affiliates, net			(762		)		55			(86	)
Other			--				(3	)		(4	)
	Cash provided by (used in) financing activities		(942		)		76			626
Increase (decrease) in cash and cash equivalents			160				(36	)		56
Cash and cash equivalents, January 1			23				59			3
Cash and cash equivalents, December 31		$	183			$	23		$	59

Sempra Energy

Note to Condensed Financial Statements
Long-term Debt

					December 31,
(Dollars in millions)					2005			2004
Other long-term debt
	4.621% notes May 17, 2007			$	600		$	600
	6.0% notes February 1, 2013				400			400
	Notes at variable rates after fixed-to-floating swap				300			300
		(7.81% at December 31, 2005) March 1, 2010
	Notes at variable rates (4.46% at December 31, 2005) May 21, 2008				300			300
	4.75% notes May 15, 2009				300			300
	7.95% notes March 1, 2010				200			200
	Employee Stock Ownership Plan
		Bonds at 4.213% November 1, 2014			82			82
		Bonds at variable rates (4.59% at December 31, 2005)			22			33
			November 1, 2014
	6.95% notes, December 1, 2005				--			300
	Capitalized leases				--			1
	Market value adjustments for interest rate swap, net				1			11
		(expires March 1, 2010)
					2,205			2,527
	Current portion of long-term debt				--			(301	)
	Unamortized discount on long-term debt				(2	)		(2	)
				$	2,203		$	2,224

Maturities of long-term debt are $600 million in 2007, $300 million in 2008, $300 million in 2009, $500 million in 2010 and $504 million thereafter.

Additional information on Sempra Energy's long-term debt is provided in Note 5 of the notes to Consolidated Financial Statements.

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
		SEMPRA ENERGY, (Registrant)
		By: /s/ Donald E. Felsinger
		Donald E. Felsinger Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Name/Title	Signature		Date
Principal Executive Officer: Donald E. Felsinger Chairman and Chief Executive Officer	/s/ Donald E. Felsinger		February 16, 2006
Principal Financial Officer: Mark A. Snell Executive Vice President and Chief Financial Officer	/s/ Mark A. Snell		February 16, 2006
Principal Accounting Officer: Frank H. Ault Senior Vice President and Controller	/s/ Frank H. Ault		February 16, 2006
Directors:
Donald E. Felsinger, Chairman	/s/ Donald E. Felsinger		February 16, 2006
James G. Brocksmith, Jr., Director	/s/ James G. Brocksmith, Jr.		February 16, 2006
Richard A. Collato, Director	/s/ Richard A. Collato		February 16, 2006
Wilford D. Godbold, Jr., Director	/s/ Wilford D. Godbold, Jr.		February 16, 2006
William D. Jones, Director	/s/ William D. Jones		February 16, 2006
Richard G. Newman, Director	/s/ Richard G. Newman		February 16, 2006
William G. Ouchi, Director	/s/ William G. Ouchi		February 16, 2006
William C. Rusnack, Director	/s/ William C. Rusnack		February 16, 2006
William P. Rutledge, Director	/s/ William P. Rutledge		February 16, 2006
Neal E. Schmale, Director	/s/ Neal E. Schmale		February 16, 2006

EXHIBIT INDEX

The Forms S-3, S-8, 8-K, 10-K and 10-Q referred to herein were filed under Commission File Number 1-14201 (Sempra Energy), Commission File Number 1-40 (Pacific Enterprises), Commission File Number 1-3779 (San Diego Gas & Electric), Commission File Number 1-1402 (Southern California Gas Company), Commission File Number 1-11439 (Enova Corporation) and/or Commission File Number 333-30761 (SDG&E Funding LLC).

3.a The following exhibits relate to Sempra Energy and its subsidiaries

Exhibit 1 -- Underwriting Agreements

Enova Corporation and San Diego Gas & Electric Company

1.01 Underwriting Agreement dated December 4, 1997 (Incorporated by reference from Form 8-K filed by SDG&E Funding LLC on December 23, 1997 (Exhibit 1.1)).

Exhibit 3 -- Bylaws and Articles of Incorporation

Bylaws

Sempra Energy

3.01 Amended and Restated Bylaws of Sempra Energy effective May 26, 1998 (Incorporated by reference from the Registration Statement on Form S-8 Sempra Energy Registration Statement No. 333-56161 dated June 5, 1998 (Exhibit 3.2)).

Articles of Incorporation

Sempra Energy

3.02 Amended and Restated Articles of Incorporation of Sempra Energy (Incorporated by reference to the Registration Statement on Form S-3 File No. 333-51309 dated April 29, 1998, Exhibit 3.1).

Exhibit 4 -- Instruments Defining the Rights of Security Holders,

Including Indentures

The company agrees to furnish a copy of each such instrument to the Commission upon request.

Enova Corporation and San Diego Gas & Electric Company

4.01 Mortgage and Deed of Trust dated July 1, 1940. (Incorporated by reference from SDG&E Registration Statement No. 2-49810, Exhibit 2A.)

4.02 Second Supplemental Indenture dated as of March 1, 1948. (Incorporated by reference from SDG&E Registration Statement No. 2-49810, Exhibit 2C.)

4.03 Ninth Supplemental Indenture dated as of August 1, 1968. (Incorporated by reference from SDG&E Registration Statement No. 2-68420, Exhibit 2D.)

4.04 Tenth Supplemental Indenture dated as of December 1, 1968. (Incorporated by reference from SDG&E Registration Statement No. 2-36042, Exhibit 2K.)

4.05 Sixteenth Supplemental Indenture dated August 28, 1975. (Incorporated by reference from SDG&E Registration Statement No. 2-68420, Exhibit 2E.)

4.06 Thirtieth Supplemental Indenture dated September 28, 1983. (Incorporated by reference from SDG&E Registration Statement No. 33-34017, Exhibit 4.3.)

4.07 Forty-Ninth Supplemental Indenture dated June 1, 2004. (2004 Form 10-K, Exhibit 4.07).

4.08 Fiftieth Supplemental Indenture Dated as of May 19, 2005. (SDG&E 8-K filed on May 19, 2005, Exhibit 4.1).

4.09 Fifty-First Supplemental Indenture Dated as of November 15, 2005. (SDG&E 8-K filed on November 17, 2005, Exhibit 4.1).

Pacific Enterprises and Southern California Gas

4.10 First Mortgage Indenture of Southern California Gas Company to American Trust Company dated as of October 1, 1940 (Registration Statement No. 2-4504 filed by Southern California Gas Company on September 16, 1940, Exhibit B-4).

4.11 Supplemental Indenture of Southern California Gas Company to American Trust Company dated as of July 1, 1947 (Registration Statement No. 2-7072 filed by Southern California Gas Company on March 15, 1947, Exhibit B-5).

4.12 Supplemental Indenture of Southern California Gas Company to American Trust Company dated as of August 1, 1955 (Registration Statement No. 2-11997 filed by Pacific Lighting Corporation on October 26, 1955, Exhibit 4.07).

4.13 Supplemental Indenture of Southern California Gas Company to American Trust Company dated as of June 1, 1956 (Registration Statement No. 2-12456 filed by Southern California Gas Company on April 23, 1956, Exhibit 2.08).

4.14 Supplemental Indenture of Southern California Gas Company to Wells Fargo Bank, National Association dated as of August 1, 1972 (Registration Statement No. 2-59832 filed by Southern California Gas Company on September 6, 1977, Exhibit 2.19).

4.15 Supplemental Indenture of Southern California Gas Company to Wells Fargo Bank, National Association dated as of May 1, 1976 (Registration Statement No. 2-56034 filed by Southern California Gas Company on April 14, 1976, Exhibit 2.20).

4.16 Supplemental Indenture of Southern California Gas Company to Wells Fargo Bank, National Association dated as of September 15, 1981 (Pacific Enterprises 1981 Form 10-K, Exhibit 4.25).

4.17 Supplemental Indenture of Southern California Gas Company to Hanover Trust Company of California, successor to Wells Fargo Bank, National Association, and Crocker National Bank as Successor Trustee dated as of May 18, 1984 (Southern Gas Company 1984 Form 10-K, Exhibit 4.29).

4.18 Supplemental Indenture of Southern California Gas Company to Bankers Trust Company of California, N.A., successor to Wells Fargo Bank, National Association dated as of January 15, 1988 (Pacific Enterprises 1987 Form 10-K, Exhibit 4.11).

4.19 Supplemental Indenture of Southern California Gas Company to First Trust of California, National Association, successor to Bankers Trust Company of California, N.A. dated as of August 15, 1992 (Registration Statement No. 33-50826 filed by Southern Gas Company on August 13, 1992, Exhibit 4.37).

4.20 Supplemental Indenture of Southern California Gas Company to. S. Bank, N.A., successor to First Trust of California, N.A., dated as of October 1, 2002. (Sempra Energy 2002 Form 10-K, Exhibit 4.17).

4.21 Supplemental Indenture of Southern California Gas Company to U.S. Bank, N.A., successor to First Trust of California, N.A., dated as of October 17, 2003. (2004 Sempra Energy Form 10-K, Exhibit 4.19).

4.22 Supplemental Indenture of Southern California Gas Company to U.S. Bank, N.A., successor to First Trust of California, N.A., Dated as of December 15, 2003. (2004 Sempra Energy Form 10-K, Exhibit 4.20).

4.23 Supplemental Indenture of Southern California Gas Company to U.S. Bank, N.A., successor to First Trust of California, N.A., Dated as of December 10, 2004. (2004 Sempra Energy Form 10-K, Exhibit 4.21).

4.24 Supplemental Indenture of Southern California Gas Company to U.S. Bank, N.A., successor to First Trust of California, N.A., Dated as of November 18, 2005 (Southern California Gas Company 8-K filed on November 18, 2005, Exhibit 4.1).

Exhibit 10 -- Material Contracts

Sempra Energy

10.01 Form of Continental Forge and California Class Action Price Reporting Settlement Agreement dated as of January 4, 2006 (8-K filed on January 5, 2006, Exhibit 99.1).

10.02 Form of Nevada Antitrust Settlement Agreement dated as of January 4, 2006 (8-K filed on January 5, 2006, Exhibit 99.2).

10.03 Text of Stipulation in Continental Forge Litigation (8-K filed on September 9, 2005, Exhibit 99.1).

10.04 Amendment to Rights Agreement dated as of December 6, 2005 between Sempra Energy and EquiServe Trust Company, N.A. (amending Rights Agreement dated as of May 26, 1998, See Exhibit 10.06 below) (8-K filed on December 9, 2005, Exhibit 99.3).

10.05 Energy Purchase Agreement between Sempra Energy Resources and the California Department of Water Resources, executed 4, 2001 (2001 Form 10-K, Exhibit 10.01).

10.06 Rights Agreement dated as of May 26, 1998 between Sempra Energy and EquiServe Trust Company, N.A. (then named First Chicago Trust Company of New York) (filed as Exhibit 1 to Sempra Energy's Form 8-A Registration Statement filed June 6, 1998).

Enova Corporation and San Diego Gas & Electric Company

10.07 Operating Agreement between San Diego Gas & Electric and the California Department of Water Resources dated April 17, 2003 (Sempra Energy 2003 10-K, Exhibit 10.06).

10.08 Servicing Agreement between San Diego Gas & Electric and the California Department of Water Resources dated December 19, 2002 (Sempra Energy 2003 10-K, Exhibit 10.07).

10.09 Transition Property Purchase and Sale Agreement dated December 16, 1997 (Incorporated by reference from Form 8-K filed by SDG&E Funding LLC on December 23, 1997, Exhibit 10.1).

10.10 Transition Property Servicing Agreement dated December 16, 1997 (Incorporated by reference from Form 8-K filed by SDG&E Funding LLC on December 23, 1997, Exhibit 10.2).

Compensation

Sempra Energy

10.11 Amendment to Employment Agreement dated as of December 6, 2005 between Sempra Energy and Stephen L. Baum (amending Employment Agreement dated as of September 17, 2002, See Exhibit 10.12 below) (8-K filed on December 9, 2005 Exhibit 99.1).

10.12 Form of Employment Agreement between Sempra Energy and Stephen L. Baum (September 30, 2002 Form 10-Q, Exhibit 10.1).

10.13 Form of Employment Agreement between Sempra Energy and Donald E. Felsinger (September 30, 2002 Form 10-Q, Exhibit 10.2).

10.14 Form of Sempra Energy Severance Pay Agreement. (2004 Form 10-K, Exhibit 10.10).

10.15 Sempra Energy 2005 Deferred Compensation Plan (8-K filed on December 07, 2004 Exhibit 10.1).

10.16 Sempra Energy Employee Stock Incentive Plan (September 30, 2004 Form 10-Q, Exhibit 10.1).

10.17 Sempra Energy Amended and Restated Executive Life Insurance Plan (September 30, 2004 Form 10-Q, Exhibit 10.2).

10.18 Sempra Energy Excess Cash Balance Plan (September 30, 2004 Form 10-Q, Exhibit 10.3).

10.19 Form of Sempra Energy 1998 Long Term Incentive Plan Performance-Based Restricted Stock Award (September 30, 2004 Form 10-Q, Exhibit 10.4).

10.20 Form of Sempra Energy 1998 Long Term Incentive Plan Nonqualified Stock Option Agreement (September 30, 2004 Form 10-Q, Exhibit 10.5).

10.21 Form of Sempra Energy 1998 Non-Employee Directors' Stock Plan Nonqualified Stock Option Agreement (September 30, 2004 10-Q, Exhibit 10.6).

10.22 Sempra Energy Supplemental Executive Retirement Plan (September 30, 2004 Form 10-Q, Exhibit 10.7).

10.23 Neal Schmale Restricted Stock Award Agreement (September 30, 2004 Form 10-Q, Exhibit 10.8).

10.24 Severance Pay Agreement between Sempra Energy and Donald E. Felsinger (September 30, 2004 Form 10-Q, Exhibit 10.9).

10.25 Severance Pay Agreement between Sempra Energy and Neal Schmale September 30, 2004 Form 10-Q, Exhibit 10.10).

10.26 Sempra Energy Executive Personal Financial Planning Program Policy Document (September 30, 2004 Form 10-Q, Exhibit 10.11).

10.27 2003 Sempra Energy Executive Incentive Plan B. (2003 Form 10-K, Exhibit 10.10).

10.28 2003 Executive Incentive Plan (June 30, 2003 Form 10-Q, Exhibit 10.1).

10.29 Amended 1998 Long-Term Incentive Plan (June 30, 2003 Form 10-Q, Exhibit 10.2).

10.30 Sempra Energy Executive Incentive Plan effective January 1, 2003 (2002 Form 10-K, Exhibit 10.09).

10.31 Amended Sempra Energy Retirement Plan for Directors (2002 Form 10-K, Exhibit 10.10).

10.32 Amended and Restated Sempra Energy Deferred Compensation and Excess Savings Plan (September 30, 2002 Form 10-Q, Exhibit 10.3).

10.33 Form of Sempra Energy Severance Pay Agreement for Executives (2001 Form 10-K, Exhibit 10.07).

10.34 Sempra Energy Executive Security Bonus Plan effective January 1, 2001 (2001 Form 10-K, Exhibit 10.08).

10.35 Sempra Energy Deferred Compensation and Excess Savings Plan effective January 1, 2000 (2000 Form 10-K, Exhibit 10.07).

10.36 Sempra Energy 1998 Long Term Incentive Plan (Incorporated by reference from the Registration Statement on Form S-8 Sempra Energy Registration Statement No. 333-56161 dated June 5, 1998, Exhibit 4.1).

10.37 Sempra Energy 1998 Non-Employee Directors' Stock Plan (Incorporated by reference from the Registration Statement on Form S-8 Sempra Energy Registration Statement No. 333-56161 dated June 5, 1998, Exhibit 4.2).

Financing

Enova Corporation and San Diego Gas & Electric

10.38 Loan agreement with the City of Chula Vista in connection with the issuance of $25 million of Industrial Development Bonds, dated as of October 1, 1997 (Enova Corporation 1997 Form 10-K, Exhibit 10.34).

10.39 Loan agreement with the City of Chula Vista in connection with the issuance of $38.9 million of Industrial Development Bonds, dated as of August 1, 1996 (Enova Corporation 1996 Form 10-K, Exhibit 10.31).

10.40 Loan agreement with the City of Chula Vista in connection with the issuance of $60 million of Industrial Development Bonds, dated as of November 1, 1996 (Enova Corporation 1996 Form 10-K, Exhibit 10.32).

10.41 Loan agreement with the City of San Diego in connection with the issuance of $92.9 million of Industrial Development Bonds 1993 Series C dated as of July 1, 1993 (June 30, 1993 SDG&E Form 10-Q, Exhibit 10.2).

10.42 Loan agreement with the City of San Diego in connection with the issuance of $70.8 million of Industrial Development Bonds 1993 Series A dated as of April 1, 1993 (March 31, 1993 SDG&E Form 10-Q, Exhibit 10.3).

10.43 Loan agreement with the City of Chula Vista in connection with the issuance of $250 million of Industrial Development Bonds, dated as of December 1, 1992 (1992 SDG&E Form 10-K, Exhibit 10.5).

10.44 Loan agreement with the California Pollution Control Financing Authority in connection with the issuance of $129.82 million of Pollution Control Bonds, dated as of June 1, 1996 (Enova Corporation 1996 Form 10-K, Exhibit 10.41).

10.45 Loan agreement with the California Pollution Control Financing Authority in connection with the issuance of $60 million of Pollution Control Bonds, dated as of June 1, 1993 (June 30, 1993 SDG&E Form 10-Q, Exhibit 10.1).

10.46 Loan agreement with the California Pollution Control Financing Authority, dated as of December 1, 1991, in connection with the issuance of $14.4 million of Pollution Control Bonds (1991 SDG&E Form 10-K, Exhibit 10.11).

10.47 Loan agreement with the City of Chula Vista in connection with the issuance of $251.3 million of Industrial Revenue Refunding Bonds, dated as of June 1, 2004 (2004 Sempra Energy Form 10-K, Exhibit 10.43).

Natural Gas Transportation

Enova Corporation and San Diego Gas & Electric

10.48 Amendment to Firm Transportation Service Agreement, dated December 2, 1996, between Pacific Gas and Electric Company and San Diego Gas & Electric Company (1997 Enova Corporation Form 10-K, Exhibit 10.58).

10.49 Firm Transportation Service Agreement, dated December 31, 1991 between Pacific Gas and Electric Company and San Diego Gas & Electric Company (1991 SDG&E Form 10-K, Exhibit 10.7).

10.50 Firm Transportation Service Agreement, dated October 13, 1994 between Pacific Gas Transmission Company (succeeded by TransCanada Pipelines - GTN Systems) and San Diego Gas & Electric Company (1997 Enova Corporation Form 10-K, Exhibit 10.60).

Nuclear

Enova Corporation and San Diego Gas & Electric

10.51 Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station, approved November 25, 1987 (1992 SDG&E Form 10-K, Exhibit 10.7).

10.52 Amendment No. 1 to the Qualified CPUC Decommissioning Master Trust Agreement dated September 22, 1994 (see Exhibit 10.51 above)(1994 SDG&E Form 10-K, Exhibit 10.56).

10.53 Second Amendment to the San Diego Gas & Electric Company Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.51 above)(1994 SDG&E Form 10-K, Exhibit 10.57).

10.54 Third Amendment to the San Diego Gas & Electric Company Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.51 above)(1996 SDG&E Form 10-K, Exhibit 10.59).

10.55 Fourth Amendment to the San Diego Gas & Electric Company Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.51 above)(1996 SDG&E Form 10-K, Exhibit 10.60).

10.56 Fifth Amendment to the San Diego Gas & Electric Company Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generation Station (see Exhibit 10.51 above)(1999 SDG&E Form 10-K, Exhibit 10.26).

10.57 Sixth Amendment to the San Diego Gas & Electric Company Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.51 above)(1999 SDG&E Form 10-K, Exhibit 10.27).

10.58 Seventh Amendment to the San Diego Gas & Electric Company Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station dated December 24, 2003 (see Exhibit 10.51 above) (2003 Form 10-K, Exhibit 10.42).

10.59 Nuclear Facilities Non-Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station, approved November 25, 1987 (1992 SDG&E Form 10-K, Exhibit 10.8).

10.60 First Amendment to the San Diego Gas & Electric Company Nuclear Facilities Non-Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.59 above)(1996 Form 10-K, Exhibit 10.62).

10.61 Second Amendment to the San Diego Gas & Electric Company Nuclear Facilities Non-Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.59 above)(1996 Form 10-K, Exhibit 10.63).

10.62 Third Amendment to the San Diego Gas & Electric Company Nuclear Facilities Non-Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.59 above)(1999 SDG&E Form 10-K, Exhibit 10.31).

10.63 Fourth Amendment to the San Diego Gas & Electric Company Nuclear Facilities Non-Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.59 above)(1999 SDG&E Form 10-K, Exhibit 10.32).

10.64 Fifth Amendment to the San Diego Gas & Electric Company Nuclear Facilities Non-Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station dated December 24, 2003 (see Exhibit 10.59 above)(2003 Form 10-K, Exhibit 10.48).

10.65 Second Amended San Onofre Operating Agreement among Southern California Edison Company, SDG&E, the City of Anaheim and the City of Riverside, dated February 26, 1987 (1990 SDG&E Form 10-K, Exhibit 10.6).

10.66 U. S. Department of Energy contract for disposal of spent nuclear fuel and/or high-level radioactive waste, entered into between the DOE and Southern California Edison Company, as agent for SDG&E and others; Contract DE-CR01-83NE44418, dated June 10, 1983 (1988 SDG&E Form 10-K, Exhibit 10N).

Exhibit 12 -- Statement re: Computation of Ratios

12.01 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends for the years ended December 31, 2005, 2004, 2003, 2002 and 2001.

Exhibit 13 -- Annual Report to Security Holders

13.01 Sempra Energy 2005 Annual Report to Shareholders. (Such report, except for the portions thereof which are expressly incorporated by reference in this Annual Report, is furnished for the information of the Securities and Exchange Commission and is not to be deemed "filed" as part of this Annual Report).

Exhibit 21 -- Subsidiaries

21.01 Schedule of Significant Subsidiaries at December 31, 2005.

Exhibit 23 -- Consent of Independent Registered Public Accounting Firm and Report on Schedules, page 32.

Exhibit 31 -- Section 302 Certifications

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

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

GLOSSARY	Back to Contents
AEG	Atlantic Electric & Gas
AEP	American Electric Power
AFUDC	Allowance for Funds Used During Construction
ALJ	Administrative Law Judge
APBO	Accounting Principles Board Opinion
ARB	Accounting Research Bulletin
BCAP	Biennial Cost Allocation Proceeding
bcf	Billion Cubic Feet (of natural gas)
California Utilities	Southern California Gas Company and San Diego Gas & Electric
Calpine	Calpine Corporation
CEC	California Energy Commission
CEMA	Catastrophic Event Memorandum Account
CFE	Comisión Federal de Electricidad
Coleto Creek	Coleto Creek Coal Plant
CPI	Consumer Price Index
CPUC	California Public Utilities Commission
CURMD	California Utilities' Risk Management Department
DOE	Department of Energy
DSM	Demand Side Management
DWR	Department of Water Resources
Edison	Southern California Edison Company
EITF	Emerging Issues Task Force
El Paso	El Paso Natural Gas Company
Elk Hills	Elk Hills Power
EMFs	Electric and Magnetic Fields
EPS	Earnings per Share
ERMG	Energy Risk Management Group
ERMOC	Energy Risk Management Oversight Committee
ESOP	Employee Stock Ownership Plan
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission
FIN	FASB Interpretation Number
FSP	FASB Staff Position
GAAP	Generally Accepted Accounting Principles
GCIM	Gas Cost Incentive Mechanism
GIR	Gas Industry Restructuring
ICWUC	International Chemical Workers' Union Council
IOUs	Investor-Owned Utilities
IRS	Internal Revenue Service
ISFSI	Independent Spent Fuel Storage Installation
ISO	Independent System Operator
Kern River	Kern River Gas Transmission Company
KMP	Kinder Morgan Energy Partners, L.P.
Liberty	Liberty Gas Storage
LIBOR	London Interbank Offered Rate
LIFO	Last In First Out inventory costing method
LNG	Liquefied Natural Gas
Luz del Sur	Luz del Sur S.A.A.
mmbtu	Million British Thermal Units(of natural gas)
MSCI	Morgan Stanley Capital International
MW	Megawatt
NRC	Nuclear Regulatory Commission
OIR	Order Instituting Ratemaking
OMPPA	Otay Mesa Power Purchase Agreement
OTC	Over-the-counter
Overthrust	Overthrust Pipeline Company
PBR	Performance-Based Ratemaking/Regulation
PE	Pacific Enterprises
PG&E	Pacific Gas and Electric Company
PGE	Portland General Electric Company
PIER	Public Interest Energy Research
PRP	Potentially Responsible Party
PSEG	Public Service Enterprise Group
PX	Power Exchange
QF	Qualifying Facility
QUIPS	Quarterly Income Preferred Securities
RD&D	Research, Development and Demonstration
Rockies Express	Rockies Express Pipeline LLC
ROE	Return on Equity
SDG&E	San Diego Gas & Electric Company
SFAS	Statement of Financial Accounting Standards
SoCalGas	Southern California Gas Company
SONGS	San Onofre Nuclear Generating Station
TDM	Termoeléctrica de Mexicali
Topaz	Topaz Power Partners
Transwestern	Transwestern Pipeline Company
Trust	ESOP Trust
Twin Oaks	Twin Oaks Power Plant
UWUA	Utility Workers' Union of America
VaR	Value at Risk
VIE	Variable Interest Entity

EX-13

Exhibit 13.01

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

This section of the 2005 Annual Report includes management's discussion and analysis of operating results from 2003 through 2005, and provides information about the capital resources, liquidity and financial performance of Sempra Energy and its subsidiaries (collectively referred to as "the company"). This section also focuses on the major factors expected to influence future operating results and discusses investment and financing activities and plans. It should be read in conjunction with the Consolidated Financial Statements included in this Annual Report.

OVERVIEW

Sempra Energy

Sempra Energy is a Fortune 500 energy services holding company. Its business units provide a wide spectrum of value-added electric and natural gas products and services to a diverse range of customers. Operations are divided into the California Utilities, Sempra Global and Sempra Financial, as described below.

		Sempra Energy
California Utilities			Sempra Global		Sempra Financial
	Southern California Gas Company			Sempra Commodities
	San Diego Gas & Electric Company			Sempra Generation
				Sempra LNG
				Sempra Pipelines & Storage

Summary descriptions of the operating business units are provided below and further detail is provided throughout this section of the Annual Report.

Major events affecting the results for 2005 and/or future years (and the page number where each is discussed) include the following:

• Agreements to settle, subject to court approvals, certain class action antitrust litigation (97);

• Continued development of the liquefied natural gas (LNG) business (20);

• Agreement in January 2006 to sell Sempra Generation's Twin Oaks Power plant (Twin Oaks) in Texas (26);

• Sempra Commodities' sale of its two natural gas storage facilities, Bluewater Gas Storage and Pine Prairie Energy Center, in September 2005 (10);

• Sempra Generation's purchase of the remaining 50-percent interest in El Dorado Energy from Reliant Energy in July 2005 (19);

• Construction by Sempra Generation of the Palomar power plant to be owned by San Diego Gas & Electric Company (SDG&E) (59);

• Favorable resolution of prior years' income tax issues (11);

• Impairment of Sempra Generation's unused turbine set (10);

• Regulatory approval of demand-side management (DSM) award settlements in 2005 (93); and

• Resolution of other regulatory matters, primarily the approval of SDG&E's settlement with the Independent System Operator (ISO, an independent operator of California's wholesale transmission grid) (96).

The California Utilities

Southern California Gas Company (SoCalGas) and SDG&E (collectively, the California Utilities) serve 23 million consumers from California's Central Valley to the Mexican border. Natural gas service is provided throughout Southern California and portions of central California through 6.4 million meters. Electric service is provided throughout San Diego County and portions of Orange County, both in Southern California, through 1.3 million meters.

Sempra Global

Sempra Global is a holding company for most of the subsidiaries of Sempra Energy that are not subject to California utility regulation.

Sempra Global's principal subsidiaries provide the following energy-related products and services:

• Sempra Commodities is a wholesale and retail trader of physical and financial products, including natural gas, power, crude oil and other commodities; a trader and wholesaler of metals, serving a broad range of customers; and an owner of synthetic fuel facilities that generate Section 29 income tax credits;

• Sempra Generation owns and operates power plants, provides energy services and facilities management, and owns mineral rights in properties that produce petroleum and natural gas;

• Sempra LNG is developing receipt terminals for the importation of LNG and has an agreement to supply natural gas to Mexico's government-owned electric utility; and

• Sempra Pipelines & Storage develops and owns natural gas pipelines and storage facilities in the United States and Mexico. It also holds interests in companies that provide natural gas or electricity services to over 2.9 million customers in Argentina, Chile, Mexico and Peru, and owns two small natural gas distribution utilities in the eastern United States.

Sempra Financial

Sempra Financial holds investments in tax-advantaged limited partnerships which own 1,300 affordable-housing properties throughout the United States.

RESULTS OF OPERATIONS

Overall Operations

Net income was $920 million in 2005, a 2.8% increase over 2004, and diluted earnings per share were $3.65, a decrease of 4.7%, as described below. The increase in net income was primarily due to increased profits at Sempra Commodities and SDG&E, offset by expenses associated with an agreement to settle certain litigation. The decrease in diluted earnings per share was due to the higher weighted-average number of shares outstanding resulting from the additional shares of common stock issued in 2005 in settlement of the equity unit contracts discussed in Note 12 of the notes to Consolidated Financial Statements.

The following table shows net income and diluted earnings per share for each of the last five years.

(Dollars in millions, except per share amounts)	Net Income	Diluted Earnings Per Share
2005	$ 920	$ 3.65
2004	$ 895	$ 3.83
2003	$ 649	$ 3.03
2002	$ 591	$ 2.87
2001	$ 518	$ 2.52

Comparison of Earnings

To assist the reader in understanding the trend of earnings, the following table summarizes the major unusual factors affecting net income and operating income in 2005, 2004 and 2003. The numbers in parentheses are the page numbers where each 2005 item is discussed therein.

	Net Income									Operating Income
(Dollars in millions)		2005			2004			2003			2005			2004			2003
Reported amounts	$	920		$	895		$	649		$	1,111		$	1,281		$	943
Unusual items:
Increase in California energy crisis litigation reserves (97)		311			84			38			508			140			66
Resolution of prior years income tax issues (11)		(156	)		(56	)		(118	)		--			--			--
Impairment losses (51)		38			--			68			63			--			101
Sempra Commodities' gain on sale of natural gas storage facilities (59)		(41	)		--			--			(67	)		--			--
DSM awards (93)		(31	)		--			--			(49	)		--			--
Other incentive awards (93)		--			--			(29	)		--			--			(49	)
Other regulatory matters (96)		(24	)		(55	)		--			(33	)		(51	)		--
South Bay charitable contribution deduction (12)		(23	)		--			--			(23	)		--			--
Discontinued operations - AEG1 (11)		9			25			--			--			--			--
Gains on sale of SoCalGas' partnership property and on partial sale of Luz del Sur		--			(14	)		--			--			(15	)		--
Resolution of vendor disputes in Argentina		--			(12	)		(11	)		--			--			--
Gain on settlement of Cameron liability		--			(8	)		--			--			--			--
SDG&E power contract settlement		--			--			(65	)		--			--			(116	)
SONGS2 incentive pricing (ended 12/31/03)		--			--			(53	)		--			--			(89	)
Changes in accounting principles		--			--			46			--			--			--
SoCalGas sublease losses		--			--			11			--			--			19
Impact of the repeal of EITF3 98-10		--			--			(9	)		--			--			(15	)
AEG equity losses - disposed of in April 2004		--			--			5			--			--			--
	$	1,003		$	859		$	532		$	1,510		$	1,355		$	860

1 Atlantic Electric & Gas (AEG)
² San Onofre Nuclear Generating Station (SONGS)
³ Emerging Issues Task Force (EITF)

Net Income (Loss) by Business Unit

	Years ended December 31,
(Dollars in millions)		2005					2004					2003
California Utilities
Southern California Gas Company *		$	211		23	%	$	232		26	%	$	209		32	%
San Diego Gas & Electric Company *			262		28			208		23			334		52
Total California Utilities			473		51			440		49			543		84
Sempra Global
Sempra Commodities			460		50			320		36			157		24
Sempra Generation			164		18			137		15			71		11
Sempra Pipelines & Storage			64		7			63		7			3		--
Sempra LNG			(25	)	(3	)		(8	)	(1	)		(2	)	--
Total Sempra Global			663		72			512		57			229		35
Sempra Financial			23		3			36		4			41		6
Parent and other **			(230	)	(25	)		(68	)	(7	)		(118	)	(18	)
Income from continuing operations			929		101			920		103			695		107
Discontinued operations, net of tax			(9	)	(1	)		(25	)	(3	)		--		--
Cumulative effect of changes in accounting principles			--		--			--		--			(46	)	(7	)
Consolidated net income		$	920		100	%	$	895		100	%	$	649		100	%

* After preferred dividends
** Includes after-tax interest expense ($102 million, $112 million and $100 million in 2005, 2004 and 2003, respectively), after-tax litigation expense, intercompany eliminations recorded in consolidation and certain corporate costs incurred at Sempra Global.

California Utility Operations

The California Utilities are subject to federal, state and local governmental agencies. The primary regulatory agency is the California Public Utilities Commission (CPUC), which regulates utility rates and operations. The Federal Energy Regulatory Commission (FERC) regulates interstate transportation of natural gas and electricity and various related matters. The Nuclear Regulatory Commission regulates nuclear generating plants. Municipalities and other local authorities regulate the location of utility assets, including natural gas pipelines and electric lines. Other business units are also subject to regulation by the FERC, various state commissions, local governmental entities, and various similar authorities in countries other than the United States.

Natural Gas Revenue and Cost of Natural Gas. Natural gas revenues increased by $716 million (16%) to $5.3 billion in 2005, and the cost of natural gas increased by $639 million (25%) to $3.2 billion in 2005. The increases in 2005 were due to higher natural gas prices, which are passed on to customers, offset by a small decrease in volume. In addition, natural gas revenues increased at SoCalGas due to higher authorized margin of $28 million, the CPUC's 2005 Cost of Service decision eliminating 2004 revenue sharing (for which $18 million was included in revenue in 2005), $14 million in DSM awards in 2005 and $14 million of higher revenues for recoverable expenses, which are fully offset in other operating expenses. SDG&E's natural gas revenues further increased due to $7 million in DSM awards in 2005. The company's weighted average cost per million British thermal units (mmbtu) of natural gas was $7.83 in 2005, $5.94 in 2004 and $5.06 in 2003.

Although the current regulatory framework provides that the cost of natural gas purchased for customers and the variations in that cost are passed through to the customers on a substantially concurrent basis, SoCalGas' Gas Cost Incentive Mechanism (GCIM) allows SoCalGas to share in the savings or costs from buying natural gas for customers below or above market-based monthly benchmarks. The mechanism permits full recovery of all costs within a tolerance band around the benchmark price. The costs or savings outside the tolerance band are shared between customers and shareholders. In addition, SDG&E's natural gas procurement Performance-Based Regulation (PBR) mechanism provides an incentive mechanism by measuring SDG&E's procurement of natural gas against a benchmark price comprised of monthly natural gas indices, resulting in shareholder rewards for costs achieved below the benchmark and shareholder penalties when costs exceed the benchmark. Further discussion is provided in Notes 1 and 14 of the n otes to Consolidated Financial Statements.

Natural gas revenues increased by $532 million (13%) to $4.5 billion in 2004 compared to 2003, and the cost of natural gas increased by $522 million (25%) to $2.6 billion in 2004 compared to 2003. The increase in 2004 was primarily attributable to natural gas price increases, and at SoCalGas, the increase was further due to an increase in margin of $33 million and $18 million from a favorable Cost of Service decision in 2004, offset by $56 million of approved performance awards recognized during 2003, including $49 million of natural gas procurement awards. Performance awards are discussed in Note 14 of the notes to Consolidated Financial Statements.

Electric Revenue and Cost of Electric Fuel and Purchased Power. Electric revenues increased by $131 million (8%) to $1.8 billion in 2005, and the cost of electric fuel and purchased power increased by $48 million (8%) to $624 million in 2005. The increase in revenue was due to $41 million of higher revenues for recoverable expenses, a DSM award settlement in 2005 of $28 million and $23 million related to the 2005 Internal Revenue Service (IRS) decision relating to the sale of SDG&E's former South Bay power plant. In addition, revenues and costs increased $48 million due to higher purchased power costs.

Electric revenues decreased by $128 million (7%) to $1.7 billion in 2004 compared to 2003, and the cost of electric fuel and purchased power increased by $35 million (6%) to $576 million in 2004 compared to 2003. The decrease in revenues was due to the 2003 recognition of $116 million related to the approved settlement that allocated between SDG&E's customers and shareholders the profits from certain intermediate-term power purchase contracts that SDG&E had entered into during the early stages of California's electric utility industry, and higher 2003 earnings of $25 million from PBR awards. Performance awards are discussed in Note 14 of the notes to Consolidated Financial Statements. In addition, electric revenues and costs increased $35 million due to higher electric commodity costs and volumes.

The tables below summarize the California Utilities' natural gas and electric volumes and revenues by customer class for the years ended December 31, 2005, 2004 and 2003.

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

								Transportation and Exchange
			Natural Gas Sales										Total
			Volumes		Revenue			Volumes		Revenue			Volumes		Revenue
2005:
	Residential			271		$	3,193		1		$	6		272		$	3,199
	Commercial and industrial			123			1,257		273			190		396			1,447
	Electric generation plants			1			3		201			88		202			91
	Wholesale			--			--		19			6		19			6
				395		$	4,453		494		$	290		889			4,743
	Balancing accounts and other																510
		Total														$	5,253
2004:
	Residential			287		$	2,904		2		$	7		289		$	2,911
	Commercial and industrial			126			1,013		276			198		402			1,211
	Electric generation plants			--			2		252			90		252			92
	Wholesale			--			--		20			6		20			6
				413		$	3,919		550		$	301		963			4,220
	Balancing accounts and other																317
		Total														$	4,537
2003:
	Residential			273		$	2,479		2		$	7		275		$	2,486
	Commercial and industrial			121			863		277			189		398			1,052
	Electric generation plants			--			3		241			79		241			82
	Wholesale			--			--		20			4		20			4
				394		$	3,345		540		$	279		934			3,624
	Balancing accounts and other																381
		Total														$	4,005

Electric Distribution and Transmission
(Volumes in millions of kWhs, dollars in millions)

		2005					2004					2003
		Volumes		Revenue			Volumes		Revenue			Volumes		Revenue
Residential			7,075		$	738		7,038		$	692		6,702		$	731
Commercial			6,674			654		6,592			644		6,263			674
Industrial			2,148			141		2,072			133		1,976			161
Direct access			3,213			114		3,441			105		3,322			87
Street and highway lighting			93			11		97			11		91			11
Off-system sales			--			--		--			--		8			--
			19,203			1,658		19,240			1,585		18,362			1,664
Balancing accounts and other						131					73					122
	Total				$	1,789				$	1,658				$	1,786

Although commodity costs associated with long-term contracts allocated to SDG&E from the Department of Water Resources (DWR) (and the revenues to recover those costs) are not included in the Statements of Consolidated Income, as discussed in Note 1 of the notes to Consolidated Financial Statements, the associated volumes and distribution revenues are included in the above table.

Sempra Global and Parent Operating Revenues and Cost of Sales. These tables provide a breakdown of operating revenues and cost of sales at Sempra Global and the parent companies by business unit.

	Years ended December 31,
(Dollars in millions)		2005					2004					2003
OPERATING REVENUES
Sempra Commodities		$	2,724		58	%	$	1,689		52	%	$	1,227		58	%
Sempra Generation *			1,921		41			1,662		51			773		37
Sempra Pipelines & Storage *			329		7			269		8			210		10
Sempra LNG			--		--			--		--			(2	)	--
Total Sempra Global			4,974		106			3,620		111			2,208		105
Parent and other **			(279	)	(6	)		(381	)	(11	)		(108	)	(5	)
Total		$	4,695		100	%	$	3,239		100	%	$	2,100		100	%
COST OF SALES
Sempra Commodities		$	1,267		47	%	$	597		34	%	$	542		45	%
Sempra Generation *			1,332		49			1,198		69			498		41
Sempra Pipelines & Storage *			266		10			209		12			166		14
Total Sempra Global			2,865		106			2,004		115			1,206		100
Parent and other **			(150	)	(6	)		(263	)	(15	)		(2	)	--
Total		$	2,715		100	%	$	1,741		100	%	$	1,204		100	%

* Does not include the revenues or costs of the unconsolidated affiliates that are part of this business unit.
** Includes intercompany eliminations recorded in consolidation, including the Palomar plant as discussed in Note 2 of the notes to Consolidated Financial Statements.

Increases in 2005 revenues and cost of sales reflect increased trading activity and higher commodity prices at Sempra Commodities, primarily as a result of increased volatility in energy markets, and increased Sempra Generation power sales to the DWR as a result of higher natural gas prices.

The increase in 2004 revenues compared to 2003 was primarily due to higher revenues at Sempra Generation resulting from increased volumes of power sales under the DWR contract, and higher revenues at Sempra Commodities resulting from increased commodity revenue, particularly from metals, natural gas and petroleum due to increased volatility and higher prices. The increase in cost of sales was primarily due to costs related to the higher sales volume for Sempra Generation.

Litigation Expenses. Litigation expenses were $551 million, $150 million and $72 million for 2005, 2004 and 2003, respectively. The increases in 2005 and 2004 were primarily due to increases in litigation reserves related to matters arising from the 2000 - 2001 California energy crisis. Note 15 of the notes to Consolidated Financial Statements provides additional information concerning this matter.

Other Operating Expenses. This table provides a breakdown of other operating expenses by business unit.

	Years ended December 31,
(Dollars in millions)		2005				2004				2003
OTHER OPERATING EXPENSES
California Utilities
Southern California Gas Company		$	954	36	%	$	908	40	%	$	916	43	%
San Diego Gas & Electric Company			603	23			574	26			611	29
Total California Utilities			1,557	59			1,482	66			1,527	72
Sempra Global
Sempra Commodities			811	31			556	25			414	20
Sempra Generation			146	6			136	6			122	6
Sempra Pipelines & Storage			41	1			43	2			43	2
Sempra LNG			34	1			26	1			1	--
Total Sempra Global			1,032	39			761	34			580	28
Parent and other *			45	2			--	--			1	--
Total		$	2,634	100	%	$	2,243	100	%	$	2,108	100	%

* Includes intercompany eliminations recorded in consolidation.

Other operating expenses for 2005 increased primarily due to an increase in expenses at Sempra Commodities attributable to the growth in revenues noted previously. In addition, other operating expenses at the California Utilities increased due to $59 million of favorable resolutions of regulatory matters in 2004 and $51 million of higher recoverable expenses in 2005, offset by the $42 million net effect related to the 2005 recovery of line losses and grid management charges arising from the favorable settlement with the ISO.

The increase in other operating expenses in 2004 from 2003 was primarily the result of higher costs at Sempra Global, particularly at Sempra Commodities due to increased trading activity, start-up costs at Sempra LNG and higher costs at Sempra Generation due to new generating plants coming on line in 2003. These increases were offset by a decrease at the California Utilities in 2004, primarily resulting from the favorable resolution of regulatory matters in 2004 and losses in 2003 associated with a sublease of portions of the SoCalGas headquarters building.

Gains on Sale of Assets. 2005 included Sempra Commodities' $106 million ($67 million after related costs) before-tax gain on the sale of its two natural gas storage facilities, Bluewater Gas Storage and Pine Prairie Energy Center. 2004 included SoCalGas' $15 million before-tax gain on the sale of partnership properties.

Impairment Losses. Impairments in 2005 included a $63 million before-tax write-down of unused gas and steam turbines at Sempra Generation. Impairments in 2003 included a $77 million before-tax write-down of the carrying value of the assets of Frontier Energy, a small utility subsidiary of Sempra Pipelines & Storage, and a $24 million before-tax write-down of the carrying value of the assets at AEG.

Other Income, Net. Other income, net, as discussed further in Note 1 of the notes to Consolidated Financial Statements and which consists primarily of equity earnings from unconsolidated subsidiaries, was $51 million, $33 million and $(40) million in 2005, 2004 and 2003, respectively. The increases in 2005 and 2004 were due to higher equity earnings at Sempra Generation (resulting from the acquisition of the Coleto Creek coal plant (Coleto Creek) in July 2004 by a joint venture 50% owned by Sempra Generation) and lower equity losses at Sempra Financial (due to the 2004 sale of an alternative-fuel investment). The increases were offset by a $12 million decrease in regulatory interest at SoCalGas primarily due to a Cost of Service decision in 2004, and the $13 million before-tax gain in 2004 on the settlement of an unpaid portion of the purchase price of the proposed Cameron LNG project for an amount less than the liability (which had been recorded as a derivative). The increase in 2004 com pared to 2003 was due to lower equity losses at Sempra Financial, increased equity earnings at Sempra Generation resulting from the acquisition of the Coleto Creek coal plant and the $13 million before-tax gain in 2004 related to Cameron LNG.

Interest Income. Interest income was $75 million, $69 million and $104 million in 2005, 2004 and 2003, respectively. The decrease in 2004 from 2003 was due to $59 million recorded as a result of the favorable resolution of income tax issues with the IRS in 2003, offset by interest recorded on income tax receivables in 2004.

Income Taxes. For the years ended 2005, 2004 and 2003, the company had income tax expenses of $42 million, $193 million and $47 million, respectively. The effective income tax rates were 5 percent, 18 percent and 7 percent, respectively. The decrease in 2005 expense was due to lower pre-tax income from continuing operations and the lower effective tax rate. The decrease in the effective rate was due primarily to $156 million of favorable resolution of prior years' income tax issues in 2005 offset by $56 million of favorable resolutions in 2004. The change in income tax expense in 2004 from 2003 was due primarily to higher taxable income. Additionally, 2003 was impacted by the favorable resolution of income tax issues, which reduced income tax expense by $83 million. Income before taxes in 2003 included $59 million in interest income arising from the income tax settlement, resulting in an offsetting $24 million income tax expense.

Equity in Income of Certain Unconsolidated Subsidiaries. For the years ended 2005, 2004 and 2003, equity in income of certain unconsolidated affiliates, net of tax, as discussed further in Note 3 of the notes to Consolidated Financial Statements, was $55 million, $62 million and $62 million, respectively. The decrease in 2005 was primarily due to a $5 million after-tax gain at Sempra Pipelines & Storage from the 2004 partial sale of Luz del Sur S.A.A. (Luz del Sur), its Peruvian electric utility.

Discontinued Operations. In the second quarter of 2004, Sempra Energy disposed of its interest in AEG, a marketer of power and natural gas commodities to commercial and residential customers in the United Kingdom. Losses related to AEG were $9 million and $25 million for the years ended December 31, 2005 and 2004, respectively. The 2005 loss was primarily attributable to foreign currency translation adjustments associated with AEG's remaining assets and liabilities, legal costs and reserves against accounts receivable. Note 4 of the notes to Consolidated Financial Statements provides further details.

During 2003, the company accounted for its investment in AEG under the equity method of accounting. As such, for the year ended December 31, 2003, the company recorded its share of AEG's net losses of $5 million in Other Income, Net on the Statements of Consolidated Income. Effective December 31, 2003, AEG was consolidated as a result of the adoption of Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 46, Consolidation of Variable Interest Entities, as discussed in Note 1 of the notes to Consolidated Financial Statements.

Net Income. Variations in net income are summarized in the table shown previously under "Comparison of Earnings."

Business Unit Results

Southern California Gas Company

SoCalGas recorded net income of $211 million, $232 million and $209 million in 2005, 2004 and 2003, respectively. The decrease in 2005 was due primarily to the resolution of the 2004 Cost of Service proceedings (as discussed further in Note 14 of the notes to Consolidated Financial Statement) which favorably affected 2004 net income by $34 million, an increase of $33 million after-tax in California energy crisis litigation expenses (as discussed further in Note 15 of the notes to Consolidated Financial Statements) and the $9 million after-tax gain from the sale of the Hawaiian Gardens property in 2004, offset by favorable resolution of income tax issues in 2005 of $24 million, higher margins in 2005 of $17 million after-tax and the recognition of DSM awards of $9 million after-tax in 2005. In addition to the 2004 matters noted above, the increase in 2004 from 2003 was due to higher margins in 2004 and losses in 2003 associated with a long-term sublease of portions of its headquarters b uilding, offset by the favorable resolution of income tax issues and by higher GCIM awards in 2003.

San Diego Gas & Electric Company

SDG&E recorded net income of $262 million, $208 million and $334 million in 2005, 2004 and 2003, respectively. The increase in 2005 was due primarily to the regulatory resolution of the recovery of line losses and grid management charges arising from the favorable after-tax settlement of $24 million with the ISO (as discussed further in Note 14 of the notes to Consolidated Financial Statements), the recognition of DSM awards of $22 million after-tax, favorable resolution of income tax issues of $60 million, and the $23 million recovery of costs associated with the 2005 IRS decision relating to the sale of the South Bay power plant, offset by a $17 million increase in after-tax California energy crisis litigation expenses, the favorable after-tax impact of $21 million from the resolution of the 2004 Cost of Service proceeding and $19 million lower after-tax electric transmission and distribution margin and higher operational costs in 2005. In addition to the 2004 matters noted above, the decrease in 2004 from 2003 was primarily due to the favorable resolution of income tax issues in 2003, which positively affected 2003 earnings by $79 million, income of $65 million after-tax in 2003 related to the approved settlement of intermediate-term power purchase contracts; the 2003 Incremental Cost Incentive Pricing income (as discussed further in Note 13 of the notes to Consolidated Financial Statements) for SONGS ($53 million after-tax) and higher performance awards in 2003, offset by higher electric transmission and distribution margin in 2004.

Sempra Commodities

Sempra Commodities recorded net income of $460 million, $320 million and $157 million in 2005, 2004 and 2003, respectively, excluding the negative impact of the cumulative effect of the change in accounting principle of $29 million in 2003. The increase in 2005 was due to improvements in its North American operations and most product line segments, as shown below, the $41 million after-tax gain on the September 2005 sale of two natural gas storage facilities and a $26 million favorable resolution of prior years' income tax issues in 2005. The increase in 2004 from 2003 was primarily attributable to higher trading margins, resulting from increased volatility in the markets, particularly for metals, natural gas and petroleum. In addition to the effect of changing prices and volumes, earnings variability will continue in future periods as a result of natural gas and oil inventories, and of storage and transportation capacity contracts' not being marked to market while the economically offsetting derivative i nstruments are marked to market. Margin, summarized below by geographical region and product line, consists of net revenues less related costs (primarily brokerage, transportation and storage) plus or minus net interest income/expense, and is used by management in evaluating geographical and product line performance. Results for 2005 include $108 million of gains recorded at the time a structured derivative is originated, commonly referred to as "day-one" gains.

	Years ended December 31,
Margin (Dollars in millions)		2005				2004				2003
Geographical:
North America		$	1,091	81	%	$	689	67	%	$	439	72	%
Europe and Asia			255	19			338	33			172	28
		$	1,346	100	%	$	1,027	100	%	$	611	100	%
Product Line:
Gas		$	439	32	%	$	318	31	%	$	146	24	%
Power			443	33			170	17			137	22
Oil - crude and products			292	22			268	26			128	21
Metals			54	4			180	17			96	16
Other			118	9			91	9			104	17
		$	1,346	100	%	$	1,027	100	%	$	611	100	%

Other includes synthetic fuel credit operations of $110 million, $97 million and $77 million in 2005, 2004 and 2003, respectively, which contributed $36 million, $29 million and $23 million to net income in 2005, 2004 and 2003, respectively.

A summary of Sempra Commodities' unrealized revenues for trading activities follows:

	Years ended December 31,
(Dollars in millions)	2005			2004			2003
Balance at January 1	$	1,193		$	347		$	270
Additions		1,241			1,606			830
Realized		(946	)		(760	)		(703	)
Cumulative effect adjustment		--			--			(50	)
Balance at December 31	$	1,488		$	1,193		$	347

The estimated fair values as of December 31, 2005, and the scheduled maturities related to the unrealized revenues are (dollars in millions):

	Fair Market			Scheduled Maturity (in months)
Source of fair value	Value					0-12		13-24		25-36			>36
Prices actively quoted	$	1,188			$	725	$	92	$	297		$	74
Prices provided by other external sources		52				3		2		--			47
Prices based on models and other valuation methods		(12	)			--		--		--			(12	)
Over-the-counter (OTC) revenue		1,228	*			728		94		297			109
Exchange contracts **		260				464		71		(272	)		(3	)
Total	$	1,488			$	1,192	$	165	$	25		$	106

* The present value of unrealized revenue to be received from outstanding OTC contracts.
** Cash received (paid) associated with open exchange contracts.

Sempra Generation

Sempra Generation recorded net income of $164 million in 2005, $137 million in 2004 and $71 million in 2003, excluding the favorable impact of the cumulative effect of the change in accounting principle of $9 million in 2003. The 2005 increase was due to $30 million of higher mark-to-market after-tax gains on long-term forward contracts for the sale of power during 2007 to 2012, $10 million of higher equity earnings from the Coleto Creek power plant (a full year of equity earnings in 2005 compared to six months in 2004), $10 million of higher earnings at Sempra Generation's energy services and facilities management businesses, $6 million of higher interest income, and improved earnings attributable to increased sales at its other power plants. The increases were offset by after-tax impairment losses of $38 million in 2005 related to the write-down of unused gas and steam turbines. The increase in 2004 from 2003 was primarily because power sales under Sempra Generation's contract with the DWR were at lowe r levels in 2003 and prior years than in 2004 and future years.

Sempra Pipelines & Storage

Net income for Sempra Pipelines & Storage was $64 million, $63 million and $3 million in 2005, 2004 and 2003, respectively. The increase in 2004 from 2003 was due to the $50 million after-tax write-down in 2003 of the carrying value of the assets of Frontier Energy, $11 million higher after-tax earnings in 2004 from the company's operations in Mexico, a $5 million after-tax gain on the sale of a portion of its interests in Luz del Sur, offset by $9 million of income tax accruals for issues related to its South American investments. Both 2004 and 2003 were favorably impacted by the resolution of vendor disputes in Argentina.

Sempra LNG

Sempra LNG recorded net losses of $25 million, $8 million and $2 million for the years ended December 31, 2005, 2004 and 2003, respectively. The increase in 2005 was primarily due to higher development costs and general and administrative expenses in 2005 and an $8 million after-tax gain in 2004 from the settlement of an unpaid portion of the purchase price of the Cameron liquefied natural gas project for an amount less than the liability (which had been recorded as a derivative).

Sempra Financial

Sempra Financial recorded net income of $23 million in 2005, $36 million in 2004 and $41 million in 2003. The decreases in 2005 and 2004 were due to lower income tax credits, offset by lower equity losses, primarily as a result of maturing affordable housing investments and the sale of its Section 29 tax credit investment (Carbontronics) during the third quarter of 2004. The sale transaction has been accounted for under the cost recovery method, whereby future proceeds in excess of Carbontronics' carrying value will be recorded as income as received. As a result of this sale, Sempra Financial will not be recognizing Section 29 income tax credits in the future. Section 29 income tax credits are discussed further in Note 7 of the notes to Consolidated Financial Statements.

Parent and Other

Net losses for Parent and Other were $230 million, $68 million and $118 million in 2005, 2004 and 2003, respectively. Net losses consist primarily of interest expense, litigation expense and tax-related adjustments. Interest expense was $102 million, $112 million and $100 million for 2005, 2004 and 2003, respectively. In addition to interest expense, net losses for 2005 included $193 million after-tax related to the California energy crisis litigation, offset by a $41 million favorable resolution of prior year's income tax issues. For 2004, net losses included $27 million after-tax of litigation expenses, offset by a reduction in income tax accruals. Additionally, 2003 losses include the $21 million after-tax write down of the carrying value of AEG's assets.

Book Value Per Share

Book value per share was $23.95, $20.77 and $17.17, at December 31, 2005, 2004 and 2003, respectively. The increases in 2005 and 2004 were primarily the result of comprehensive income's exceeding dividends, and sales of additional shares of common stock for a per-share price in excess of its book value, primarily in connection with the equity units described in Note 12 of the notes to Consolidated Financial Statements.

CAPITAL RESOURCES AND LIQUIDITY

The company's California Utility operations and Sempra Generation's power sale contract with the DWR generally are the major source of liquidity. A substantial portion of the funding of the company's capital expenditures and its ability to pay dividends is dependent on the relatively stable pattern of earnings by the California Utilities and Sempra Generation's long-term power sale contracts. The availability of capital for other business operations is also greatly affected by Sempra Commodities' liquidity and margin requirements, which fluctuate substantially. Sempra Generation's margin requirements, as discussed below, may also fluctuate substantially. The company's expansion, particularly in the LNG business, also requires the issuances of securities from time to time.

At December 31, 2005, there was $772 million in unrestricted cash and $4.7 billion in available unused, committed lines of credit to provide liquidity and support commercial paper. At December 31, 2005, $22 million of these lines supported variable-rate debt. Management believes that these amounts and cash flows from operations and security issuances will be adequate to finance capital expenditures and meet liquidity requirements and to fund shareholder dividends, any new business acquisitions or start-ups, and other commitments. Forecasted capital expenditures for the next five years are discussed in "Future Construction Expenditures and Investments." If cash flows from operations were to be significantly reduced or the company were to be unable to issue new securities under acceptable terms, the company would be required to reduce non-utility capital expenditures, trading operations and/or investments in new businesses. Management continues to regularly monitor the com pany's ability to finance the needs of its operating, investing and financing activities in a manner consistent with its intention to maintain strong, investment-quality credit ratings.

At the California Utilities, cash flows from operations, security issuances and/or capital contributions by Sempra Energy are expected to continue to be adequate to meet utility capital expenditure requirements. In June 2004, SDG&E received CPUC approval of its intended 2006 purchase from Sempra Generation of the 550-megawatt (MW) Palomar generating facility being constructed in Escondido, California. As a result, SDG&E's dividends to Sempra Energy have been suspended to increase SDG&E's equity in preparation for the purchase of the completed facility, expected in the first half of 2006, and the level of future dividends will be affected by SDG&E's increased capital expenditures. Note 2 of the notes to Consolidated Financial Statements provides additional discussion on the Palomar plant.

Sempra Commodities provides or requires cash as the level of its net trading assets fluctuates with prices, volumes, margin requirements (which are substantially affected by credit ratings and commodity price fluctuations) and the length of its various trading positions.

Sempra Commodities' intercompany borrowings were $638 million and $421 million at December 31, 2005 and 2004, respectively, and as high as $1.3 billion and $747 million in 2005 and 2004, respectively. Sempra Commodities' external debt was $103 million and $161 million at December 31, 2005 and 2004, respectively. Company management continuously monitors the level of Sempra Commodities' cash requirements in light of the company's overall liquidity. Such monitoring includes the procedures discussed in "Market Risk."

Sempra Generation's projects have been financed through a combination of operating cash flow, project financing, funds from the company and external borrowings. Sempra Generation may return funds to the company if it proceeds with plans to sell certain plants as discussed in Note 3 of the notes to Consolidated Financial Statements.

Sempra Generation's long-term power sale contracts typically contain collateral requirements related to credit lines. The collateral arrangements provide for Sempra Generation and/or the counterparty to post cash, guarantees or letters of credit to the other party for exposure in excess of established thresholds. Sempra Generation may be required to provide collateral when market price movements adversely affect the counterparty's cost of replacement energy supplies were Sempra Generation to fail to deliver the contracted amounts. As of December 31, 2005, Sempra Generation had $267 million of outstanding collateral requirements under these contracts, portions of which have been remitted or guaranteed at December 31, 2005. The $267 million excludes a $280 million collateral exposure under a purchase power agreement related to Twin Oaks. This collateral exposure will be assumed by the buyer of the power plant when the sale of the facility is completed, which is expected to occur in the first half of 2006.

Sempra Pipelines & Storage is expected to require funding from the company and/or external sources to continue the expansion of its existing natural gas distribution operations in Mexico, its Liberty Gas Storage (Liberty) facility, its planned participation in the development of a natural gas pipeline in conjunction with Kinder Morgan Energy Partners, L.P. (KMP), as discussed in "Investments," and its planned development of pipelines to serve LNG facilities in Baja California, Mexico; Louisiana and Texas, as discussed in Note 2 of the notes to Consolidated Financial Statements.

Sempra LNG will require funding for its planned development of LNG receiving facilities. While Sempra LNG's $1.25 billion credit facility and other Sempra Energy sources are expected to be adequate for these requirements, the company may decide to use project financing if that is believed to be advantageous.

CASH FLOWS FROM OPERATING ACTIVITIES

Net cash provided by operating activities totaled $521 million, $1 billion and $1.2 billion for 2005, 2004 and 2003, respectively.

The 2005 change in net cash provided by operating activities was primarily due to a $608 million increase in net trading assets and a $400 million decrease in overcollected regulatory balancing accounts in 2005, offset by a $478 million increase in other liabilities in 2005.

The decrease in cash flows from operations in 2004 compared to 2003 was primarily attributable to an increase in net trading assets in 2004 compared to a decrease in 2003, increased deposits with customers and a higher increase in accounts receivable in 2004, offset by an increase in overcollected regulatory balancing accounts at SoCalGas in 2004 compared to a decrease in 2003, and higher net income and higher accounts payable in 2004.

The company made pension plan and other postretirement benefit plan contributions of $24 million and $45 million, respectively, during 2005, and $27 million and $50 million, respectively, during 2004.

CASH FLOWS FROM INVESTING ACTIVITIES

Net cash used in investing activities totaled $1.2 billion, $611 million and $1.3 billion for 2005, 2004 and 2003, respectively.

The increase in cash used in investing activities between 2005 and 2004 was primarily attributable to a $321 million increase in capital expenditures in 2005, $363 million in proceeds from the sale of U.S. Treasury obligations that previously securitized the synthetic lease for one of Sempra Generation's power plants in 2004 and $157 million in proceeds from the disposal of AEG's discontinued operations in 2004, offset by $247 million in proceeds from the sale of Sempra Commodities' natural gas storage sites in 2005.

The decrease in cash used in investing activities in 2004 compared to 2003 was primarily due to proceeds from the sale of the U.S. Treasury obligations. The collateral was no longer necessary since Sempra Generation bought out the lease in January 2004. The decrease in cash used in investing activities was also due to lower investments in the Elk Hills power plant (Elk Hills), which was completed in 2003, and reduced capital spending for the completed Termoeléctrica de Mexicali (TDM) and Mesquite power plants, offset by investments made in Topaz Power Partners (Topaz) in 2004. In addition, the company received proceeds of $157 million from the disposal of AEG's discontinued operations.

Expenditures for property, plant and equipment and for investments are presented in the following table.

(Dollars in millions)	Property, plant and equipment	Investments in and acquisitions of subsidiaries
2005	$ 1,404	$ 86
2004	$ 1,083	$ 74
2003	$ 1,049	$ 202
2002	$ 1,214	$ 429
2001	$ 1,068	$ 111

The California Utilities

Capital expenditures for property, plant and equipment by the California Utilities were $825 million in 2005 compared to $725 million in 2004 and $762 million in 2003.

In December 2005, SDG&E submitted its initial request to the CPUC for a proposed new transmission power line between the San Diego region and the Imperial Valley. The proposed line, called the Sunrise Powerlink, would be capable of providing electricity to 650,000 homes and is estimated to cost between $1 billion and $1.4 billion. SDG&E expects to submit a proposed route and an alternative route to the CPUC in 2006.

Sempra Generation

Sempra Generation owns and operates power plants in the Pacific Southwest, Texas and Mexico. The following table lists the MW capacity of each operating power plant. All of the plants are natural gas-fired facilities, except for Coleto Creek and Twin Oaks, which are coal-fired. On January 18, 2006, Sempra Generation announced an agreement for the sale of Twin Oaks.

Power Plant	Maximum Generating Capacity (MW)		Location
Pacific Southwest:
Mesquite Power	1,250		Arlington, AZ
TDM	625		Mexicali, Baja California, Mexico
Elk Hills (50% owned)	275	*	Bakersfield, CA
El Dorado	480		Boulder City, NV
	2,630
Texas:
Coleto Creek (50% owned)	316	*	Goliad County, TX
Twin Oaks	305		Bremond, TX
Three other active Topaz
power plants (50% owned)	554	*	South Central, TX
	1,175
Total MW in operation	3,805

* Sempra Generation's share

Additional information concerning Sempra Generation's facilities is provided in Notes 2, 3 and 15 of the notes to Consolidated Financial Statements.

Sempra LNG

Sempra LNG develops and builds, and will operate LNG receipt terminals and sell regasified LNG. Information concerning its projects in Baja California, Mexico; Louisiana and Texas is provided in Note 2 of the notes to Consolidated Financial Statements.

Sempra Pipelines & Storage

Note 2 of the notes to Consolidated Financial Statements provides information concerning expenditures by Sempra Pipelines & Storage for its natural gas pipelines and storage facilities.

Investments

Investment and acquisition costs were $86 million, $74 million and $202 million for 2005, 2004 and 2003, respectively. The increase in 2005 was primarily due to the purchase of Reliant Energy's 50-percent interest in El Dorado, as discussed below. The decrease in 2004 was due to the sale of the U.S. Treasury obligations and lower investments in Elk Hills, offset by investments made in Topaz in 2004.

Sempra Generation

In July 2005, Sempra Generation purchased Reliant Energy's 50-percent interest in El Dorado for $132 million (including assumed debt), resulting in Sempra Generation's having full ownership of the 480-MW El Dorado power plant.

In December 2005, Sempra Generation announced plans to sell or refinance its Texas-based power plants due to the increased market valuation of coal-fired power plants in Texas. The coal-fired assets involved in the announcement include the company's wholly owned Twin Oaks and Coleto Creek, which the company co-owns in the Topaz joint venture with Carlyle/Riverstone. The joint venture also owns three operating natural gas and oil-fired plants in Laredo, San Benito and Corpus Christi, Texas that were included in the announcement. On January 18, 2006, Sempra Generation announced an agreement to sell Twin Oaks.

Information concerning Sempra Generation's investments in Topaz and Elk Hills is provided in Note 3 of the notes to Consolidated Financial Statements.

Sempra Pipelines & Storage

In December 2005, Sempra Pipelines & Storage entered into definitive agreements with KMP to jointly pursue through Rockies Express Pipeline LLC (Rockies Express) development of a proposed natural gas pipeline, the Rockies Express Pipeline, that would link producing areas in the Rocky Mountain region to the upper Midwest and the Eastern United States. Also in December 2005, a subsidiary of Sempra Global entered into a binding precedent agreement with Rockies Express for 200 million cubic feet per day of capacity on the Rockies Express Pipeline, which will have capacity of up to 2 billion cubic feet (bcf) per day.

In November 2005, EnCana Marketing, a subsidiary of EnCana, entered into a binding precedent agreement with Rockies Express for 500 million cubic feet per day of natural gas capacity on the proposed Rockies Express Pipeline. At the same time, Rockies Express entered into a purchase-and-sale agreement with Alenco Pipelines Inc, another subsidiary of EnCana, for the purchase of the Entrega Pipeline, which purchase is anticipated to close in the first quarter of 2006. Segment 1 of the Entrega Pipeline, which runs from the Meeker Hub in Colorado to Wamsutter, Wyoming, has been completed. Under the terms of the purchase-and-sale agreement, Rockies Express is obligated to construct the second segment of the Entrega Pipeline, which will run from Wamsutter to an interconnection with the Rockies Express Pipeline at the Cheyenne Hub in Colorado.

Also in November 2005, Sempra Pipelines & Storage and KMP announced a memorandum of understanding with Overthrust Pipeline Company (Overthrust), a subsidiary of Questar Corp., to enter into a long-term lease to provide Rockies Express Pipeline with capacity for up to 1.5 bcf per day on Overthrust's pipeline. The capacity lease will effectively extend the Rockies Express Pipeline to the Opal Hub in Wyoming.

At December 31, 2005, binding, conforming commitments (including the commitments by EnCana and Sempra Energy) in connection with the recent open seasons held to solicit shipper support for the Rockies Express Pipeline project aggregated over 1 bcf per day. Additionally, a variety of non-conforming bids were received and Rockies Express is currently in negotiations with these and other shippers to finalize binding precedent agreements for transportation on the Rockies Express Pipeline. The total cost of the project, including the cost of the Entrega Pipeline and capitalized interest during construction, is expected to be $4.0 - $4.4 billion.

During the first quarter of 2005, Sempra Pipelines & Storage filed for FERC authorization to construct and operate the Liberty facility and the Port Arthur pipeline. In May 2005, ProLiance Transportation and Storage, LLC acquired a 25-percent ownership in Liberty. In December 2005, the FERC issued a Certificate of Public Convenience and Necessity for Liberty. Further discussion is provided in Note 2 of the notes to Consolidated Financial Statements.

Discussion of investing activities by Sempra Pipelines & Storage, including the $201 million cumulative foreign currency exchange adjustment relating to its investments in Argentina, is provided in Note 3 of the notes to Consolidated Financial Statements.

Sempra LNG

In January 2005, Sempra LNG was awarded a 15-year natural gas supply contract by Mexico's state owned electric utility, Comisión Federal de Electricidad (CFE). The contract is estimated at $1.4 billion over its life and supports the CFE's future energy needs in northern Baja California, including the Presidente Juarez power plant in Rosarito. The supply is expected to come from natural gas processed at Energía Costa Azul, Sempra LNG's regasification terminal in Baja California. Starting in 2008 and running through 2022, the agreement provides the CFE with an average of about 130 million cubic feet per day of natural gas. In early 2005, Sempra LNG began construction of Energía Costa Azul, which is expected to begin operations in 2008. The terminal and related pipeline are expected to cost approximately $1 billion and will be capable of processing 1 bcf of natural gas per day. Additional discussion of the terminal is provided in Note 2 of the notes to the Consolidated Financial Stateme nts.

In August 2005, Sempra LNG announced an agreement with Eni S.p.A. for 40 percent of the send-out capacity of the Cameron LNG terminal. Combined with other, preliminary non-binding agreements with multiple parties, this allowed the company to begin construction, with the commencement of commercial operations slated for 2008. In January 2006, Sempra LNG announced it has received approval from the FERC to begin the mandatory pre-filing process for the proposed $250 million expansion of the terminal's production capacity to 2.65 bcf of natural gas per day from 1.5 bcf per day. The final FERC decision is expected in early 2007.

During the first quarter of 2005, Sempra LNG filed for FERC authorization to construct and operate the Port Arthur LNG receiving terminal. The terminal will be capable of processing 1.5 bcf of natural gas per day and can be expanded to 3 bcf per day. Project approval and the start of construction is expected in 2007, with the start-up slated for 2010.

In June 2005, Sempra LNG terminated an agreement signed in December 2004 with the Alaskan Gas Line Port Authority to develop the "All Alaska Pipeline Project."

Future Construction Expenditures and Investments

The company expects to make capital expenditures and investments of $2.3 billion in 2006. Significant capital expenditures are expected to include $1.2 billion for California utility plant improvements and $600 million for the development of LNG regasification terminals. These expenditures and investments are expected to be financed by cash flows from operations, asset sales and security issuances.

Over the next five years, the company expects to make capital expenditures and investments of $6 billion at the California Utilities, and has identified $4 billion of capital expenditures at the other subsidiaries, including the development of the LNG facilities and pipelines. The former amount includes $500 million for the Palomar power plant which is being constructed by Sempra Generation and which will be purchased by SDG&E when completed in the first half of 2006. The construction costs were recorded by Sempra Generation as incurred and will not result in a significant amount of capital expenditures in 2006.

Construction, investment and financing programs are periodically reviewed and revised by the company in response to changes in regulation, economic conditions, competition, customer growth, inflation, customer rates, the cost of capital and environmental requirements, as discussed in Note 15 of the notes to Consolidated Financial Statements.

The company's level of construction expenditures and investments in the next few years may vary substantially, and will depend on the availability of financing, regulatory approvals and business opportunities providing desirable rates of return. The company intends to finance its capital expenditures in a manner that will maintain its strong investment-grade ratings and capital structure.

The amounts and timing of capital expenditures are subject to approvals by the CPUC, the FERC and other regulatory bodies.

The possible SDG&E involvement with completion of the Otay Mesa power plant is discussed in Note 13 of the notes to Consolidated Financial Statements.

CASH FLOWS FROM FINANCING ACTIVITIES

Net cash provided by (used in) financing activities totaled $1 billion, $(380) million and $89 million for 2005, 2004 and 2003, respectively.

The 2005 increase in cash provided by financing activities was due to a $1.1 billion decrease in payments on long-term debt, a $584 million increase in issuances of common stock in 2005 in connection with the Equity Units' $600 million purchase contract settlement and a $265 million net increase in short-term borrowings, offset by a $235 million decrease in issuances of long-term debt, the redemption of $200 million of mandatorily redeemable preferred securities, a $90 million increase in repurchases of common stock and a $73 million increase in dividends paid in 2005. The 2004 increase in cash used in financing activities was due to higher payments on long-term debt and lower issuances of common stock, offset by an increase in short-term debt.

Long-Term and Short-Term Debt

During 2005, the company's long-term debt increased $334 million to $4.9 billion. At December 31, 2005, the company's long-term debt had a weighted average life to maturity of 10.4 years and a weighted average interest rate of 5.34 percent. In 2005, the company issued $762 million in long-term debt.

In May 2005, SDG&E publicly offered and sold $250 million of 5.35% first mortgage bonds, maturing in 2035. In November 2005, SDG&E and SoCalGas each publicly offered and sold $250 million of 5.30% and 5.75%, respectively, first mortgage bonds, maturing in 2015 and 2035, respectively.

Payments on long-term debt in 2005 included $300 million of notes payable that matured in December 2005 and $66 million related to SDG&E's rate-reduction bonds. Also in 2005, Sempra Generation repaid $122 million debt assumed in the purchase of the remaining interest in El Dorado and Sempra Financial repaid $28 million of debt incurred to acquire limited partnership interests.

In May 2004, the company issued $600 million of senior unsecured notes, consisting of $300 million of 4.75-percent fixed-rate, five-year notes and $300 million of four-year, floating-rate notes. The proceeds of the issuance were used to repay $500 million of debt maturing July 1, 2004, and for general corporate purposes.

In June 2004, SDG&E issued $251 million of first mortgage bonds and applied the proceeds in July to refund an identical amount of first mortgage bonds and related tax-exempt industrial development bonds of a shorter maturity. The bonds secure the repayment of tax-exempt industrial development bonds of an identical amount, maturity and interest rate issued by the City of Chula Vista, the proceeds of which were loaned to SDG&E and which are repaid with payments on the first mortgage bonds. The bonds were initially issued as auction-rate securities, but SDG&E entered into floating-for-fixed interest-rate swap agreements that effectively changed the bonds' interest rates to fixed rates in September 2004. The swaps are set to expire in 2009.

In December 2004, SoCalGas issued $100 million of floating rate first mortgage bonds maturing in December 2009. The interest rate is based on the 3-month LIBOR rate plus 0.17%.

Payments on long-term debt in 2004 included $500 million of notes payable that matured in July 2004, $426 million of first mortgage bonds and $66 million of rate-reduction bonds. Also in 2004, Sempra Generation purchased the assets of Mesquite Trust, thereby extinguishing $630 million of debt outstanding, and Sempra Financial repaid $34 million of debt incurred to acquire limited partnership interests.

In 2003, the company issued $900 million in long-term debt, consisting of $400 million of senior unsecured notes and $500 million of first mortgage bonds issued by SoCalGas.

Payments on long-term debt in 2003 included $100 million of the borrowings under a line of credit and $66 million of rate-reduction bonds. In 2003, Sempra Financial repaid $36 million of debt incurred to acquire limited partnership interests. Repayments also included $325 million of SoCalGas' first mortgage bonds. In addition, $70 million of SoCalGas' $75 million medium-term notes were put back to the company.

Note 5 of the notes to Consolidated Financial Statements provides information concerning lines of credit and further discussion of debt activity.

Capital Stock Transactions

During 2005, 19.7 million shares of common stock were issued at $30.52 per share in settlement of the 2002 share purchase contracts included in the company's $600 million of Equity Units. Also during 2005, the company repurchased common stock for $95 million, including 2.3 million shares of common stock at a cost of $88 million in connection with the share repurchase program discussed in Note 12 of the notes to Consolidated Financial Statement.

In October 2003, the company completed a common stock offering of 16.5 million shares priced at $28 per common share, resulting in net proceeds of $448 million. The proceeds were used primarily to pay off short-term debt.

Dividends

Dividends paid on common stock were $268 million in 2005, $195 million in 2004 and $182 million in 2003. In February 2006, the company's board of directors approved an increase in the quarterly dividend from $0.29 per share to $0.30 per share.

The payment and amount of future dividends are within the discretion of the company's board of directors. The CPUC's regulation of the California Utilities' capital structure limits the amounts that are available for loans and dividends to the company from the California Utilities. At December 31, 2005, SoCalGas could have provided a total (combined loans and dividends) of $118 million to Sempra Energy and no amounts were available from SDG&E.

Capitalization

Total capitalization, including short-term debt and the current portion of long-term debt and excluding the rate-reduction bonds (which are non-recourse to the company), at December 31, 2005 was $12 billion. The debt-to-capitalization ratio was 48 percent at December 31, 2005. Significant changes affecting capitalization during 2005 included common stock issuances, long-term borrowings and repayments, short-term borrowings, income and dividends. Additional discussion related to the significant changes is provided in Notes 5 and 12 of the notes to Consolidated Financial Statements and "Results of Operations" above.

Commitments

The following is a summary of the company's principal contractual commitments at December 31, 2005. Additional information concerning commitments is provided above and in Notes 5, 8, 11 and 15 of the notes to Consolidated Financial Statements.

(Dollars in millions)		2006		2007 and 2008		2009 and 2010		Thereafter		Total
Short-term debt	$	1,062	$	--	$	--	$	--	$	1,062
Long-term debt		101		994		937		2,892		4,924
Interest on debt (1)		283		477		381		2,235		3,376
Due to unconsolidated affiliates		--		62		--		100		162
Preferred stock of subsidiaries subject to mandatory redemption		3		16		--		--		19
Operating leases		113		200		166		155		634
Litigation reserve		110		135		53		79		377
Purchased-power contracts		285		614		596		2,641		4,136
Natural gas contracts		2,083		718		190		196		3,187
Construction commitments		585		315		7		20		927
Twin Oaks coal supply (2)		28		55		53		258		394
SONGS decommissioning		14		11		--		314		339
Other asset retirement obligations		5		32		28		572		637
Pension and postretirement benefit obligations (3)		79		208		241		667		1,195
Environmental commitments		29		29		--		--		58
Other		5		10		16		16		47
Totals	$	4,785	$	3,876	$	2,668	$	10,145	$	21,474
(1) Based on forward rates in effect at December 31, 2005. (2) An agreement has been signed to sell Twin Oaks. (3) Amounts are after reduction for the Medicare Part D subsidy and only include expected payments to the plans for the next 10 years.

The table excludes trading liabilities and commitments, which are primarily offset by trading assets; contracts between affiliates; intercompany debt; individual contracts that have annual cash requirements less than $1 million; and employment contracts.

Off Balance-sheet Arrangements

At December 31, 2005, the company was contingently liable for $131 million of accounts receivable from government agencies that it had sold, with recourse, to a financial institution.

As discussed in Note 3 in regards to American Electric Power and in Note 15 in regards to Chilquinta Energía Finance Co., LLC, an affiliate of the company's Peruvian and Chilean entities, the company has provided guarantees aggregating $100 million at December 31, 2005, to unrelated parties.

Credit Ratings

Credit ratings of the company and its principal subsidiaries remained unchanged at investment grade levels in 2005. As of January 31, 2006, credit ratings for Sempra Energy and its principal subsidiaries were still as follows:

	Standard & Poor's	Moody's Investor Services, Inc.	Fitch
SEMPRA ENERGY
Unsecured debt	BBB+	Baa1	A
SDG&E
Secured debt	A+	A1	AA
Unsecured debt	A-	A2	AA-
Preferred stock	BBB+	Baa1	A+
Commercial paper	A-1	P-1	F1+
SOCALGAS
Secured debt	A+	A1	AA
Unsecured debt	A-	A2	AA-
Preferred stock	BBB+	Baa1	A+
Commercial paper	A-1	P-1	F1+
PACIFIC ENTERPRISES
Preferred stock	BBB+	--	A
SEMPRA GLOBAL
Unsecured debt guaranteed by Sempra Energy	--	Baa1	--
Commercial paper guaranteed by Sempra Energy	A-2	P-2	F1

As of January 31, 2006, the company has a stable outlook rating from all three credit rating agencies.

FACTORS INFLUENCING FUTURE PERFORMANCE

The California Utilities' operations and Sempra Generation's long-term contracts generally provide relatively stable earnings and liquidity, while Sempra Pipelines & Storage and Sempra LNG provide opportunities for earnings growth and Sempra Commodities experiences significant volatility in earnings and liquidity requirements. Performance will also depend on the successful completion of construction programs, which are discussed in various places in this report. Notes 13 through 15 of the notes to Consolidated Financial Statements describe matters that could affect future performance.

Litigation

Note 15 of the notes to Consolidated Financial Statements describes litigation (primarily cases arising from the California energy crisis and Sempra Generation's contract with the DWR), the ultimate resolution of which could have a material adverse effect on future performance.

California Utilities

Notes 13 and 14 of the notes to Consolidated Financial Statements describe electric and natural gas restructuring and rates, and other pending proceedings and investigations.

Sempra Global

Electric-Generation Assets

As discussed in "Capital Resources and Liquidity" above, and in Notes 2 and 3 of the notes to Consolidated Financial Statements, the company is involved in the disposal and/or refinancing of a portion of its electric-generation capabilities, which will affect the company's future performance.

Investments

As discussed in "Cash Flows From Investing Activities," the company's investments will significantly impact the company's future performance.

Sempra LNG is in the process of constructing the Energía Costa Azul LNG receiving terminal in Baja California, Mexico and the Cameron LNG receiving terminal in Louisiana, and developing the Port Arthur LNG receiving terminal in Texas. Additional information regarding these activities is provided above under "Capital Resources and Liquidity" and in Note 2 of the notes to Consolidated Financial Statements.

In December 2005, Sempra Pipelines & Storage entered into definitive agreements with KMP to jointly pursue through Rockies Express development of a proposed natural gas pipeline, the Rockies Express Pipeline, which would link producing areas in the Rocky Mountain region to the upper Midwest and the Eastern United States and which will have capacity of up to 2 bcf per day. Additional information regarding Rockies Express is provided above under "Capital Resources and Liquidity."

In December 2005, Sempra Generation announced plans to sell or refinance its Texas-based power plants due to the increased market valuation of coal-fired power plants in Texas, including Twin Oaks and Coleto Creek. In January 2006, Sempra Generation announced an agreement for the sale of Twin Oaks. Additional information regarding these activities is provided above under "Capital Resources and Liquidity" and in Notes 2 and 3 of the notes to Consolidated Financial Statements.

In July 2004, the company announced that it had acquired the rights to develop Liberty, located in Calcasieu Parish, Louisiana. In May 2005, ProLiance Transportation and Storage, LLC acquired a 25-percent ownership in Liberty from the company. In September 2005, Sempra Commodities completed the $253 million sale of two natural gas storage facilities. Additional information regarding these activities is provided above under "Capital Resources and Liquidity" and in Note 2 of the notes to Consolidated Financial Statements.

The Argentine economic decline and government responses (including Argentina's unilateral, retroactive abrogation of utility agreements early in 2002) are continuing to adversely affect the company's investment in two Argentine utilities. Information regarding this situation is provided in Notes 3 and 15 of the notes to Consolidated Financial Statements.

Market Risk

Market risk is the risk of erosion of the company's cash flows, net income, asset values and equity due to adverse changes in prices for various commodities, and in interest and foreign-currency rates.

The company has adopted policies governing its market risk management and trading activities of all affiliates. Assisted by the company's Energy Risk Management Group (ERMG) and the California Utilities' Risk Management Department (CURMD), the company's Energy Risk Management Oversight Committee (ERMOC) and each of the California Utilities' Risk Management Committees, consisting of senior officers, establish policy for and oversee company-wide energy risk management activities and monitor the results of trading and other activities to ensure compliance with the company's stated energy risk management and trading policies. The ERMG and the CURMD receive daily information detailing positions regarding market positions that create credit, liquidity and market risk from the California Utilities and from all non-CPUC-regulated affiliates, respectively. Independently from the company's energy procurement department, the ERMG and the CURMD monitor energy price risk management and measure and report the market and credit risk associated with these positions.

Along with other tools, the company uses Value at Risk (VaR) to measure its exposure to market risk. VaR is an estimate of the potential loss on a position or portfolio of positions over a specified holding period, based on normal market conditions and within a given statistical confidence interval. The company has adopted the variance/covariance methodology in its calculation of VaR, and uses both the 95-percent and 99-percent confidence intervals. VaR is calculated independently by the ERMG for all non-CPUC-regulated affiliates and by the CURMD for the California Utilities. Historical and implied volatilities and correlations between instruments and positions are used in the calculation. The California Utilities use energy and natural gas derivatives to manage natural gas and energy price risk associated with servicing load requirements. The use of energy and natural gas derivatives is in compliance with risk management and trading activity plans that have been filed and approved by the CPUC. Any costs or gains/losses associated with the use of energy and natural gas derivatives, which use is in compliance with CPUC approved plans, are considered to be commodity costs that are passed on to customers on a substantially concurrent basis.

Following is a summary of Sempra Commodities' trading VaR profile (using a one-day holding period, at two confidence levels) in millions of dollars:

	95%			99%
December 31, 2005	$	16.5		$	23.3
2005 range	$	5.7	to $ 27.5	$	7.9	to $ 38.3
December 31, 2004	$	8.0		$	11.3
2004 range	$	2.8	to $ 18.7	$	3.9	to $ 26.1

The 2005 increase in VaR is primarily due to increased volumes and price of Sempra Commodities' transactions.

The company uses energy and natural gas derivatives to manage natural gas and energy price risk associated with servicing their utility load requirements. The use of derivative financial instruments is subject to certain limitations imposed by company policy and regulatory requirements.

Revenue recognition is discussed in Notes 1 and 10 and the additional market risk information regarding derivative instruments is discussed in Note 10 of the notes to Consolidated Financial Statements.

The following discussion of the company's primary market risk exposures as of December 31, 2005 includes a discussion of how these exposures are managed.

Commodity Price Risk

Market risk related to physical commodities is created by volatility in the prices and basis of certain commodities. The company's market risk is impacted by changes in volatility and liquidity in the markets in which these commodities or related financial instruments are traded. The company's various subsidiaries are exposed, in varying degrees, to price risk, primarily in the petroleum, metals, natural gas and electricity markets. The company's policy is to manage this risk within a framework that considers the unique markets, and operating and regulatory environments of each subsidiary.

Sempra Commodities

Sempra Commodities derives most of its revenue from its worldwide trading activities in natural gas, electricity, petroleum products, metals and other commodities. As a result, Sempra Commodities is exposed to price volatility in the related domestic and international markets. Sempra Commodities conducts these activities within a structured and disciplined risk management and control framework that is based on clearly communicated policies and procedures, position limits, active and ongoing management monitoring and oversight, clearly defined roles and responsibilities, and daily risk measurement and reporting.

California Utilities

The California Utilities' market risk exposure is limited due to CPUC-authorized rate recovery of the costs of commodity purchase, sale, intrastate transportation and storage activity. However, the California Utilities may, at times, be exposed to market risk as a result of SDG&E's natural gas PBR and electric procurement activities or SoCalGas' GCIM, which are discussed in Note 14 of the notes to Consolidated Financial Statements. If commodity prices were to rise too rapidly, it is likely that volumes would decline. This would increase the per-unit fixed costs, which could lead to further volume declines. The California Utilities manage their risk within the parameters of their market risk management framework. As of December 31, 2005, the total VaR of the California Utilities' natural gas and electric positions was not material and the procurement activities are in compliance with the procurement plans filed with and approved by the CPUC.

Interest Rate Risk

The company is exposed to fluctuations in interest rates primarily as a result of its short-term and long-term debt. The company historically has funded utility operations through long-term debt issues at fixed rates of interest recovered in utility rates. Some more-recent debt offerings have been issued with floating rates. Subject to regulatory constraints, interest-rate swaps may be used to adjust interest-rate exposures.

At December 31, 2005, the California Utilities had $2.4 billion of fixed-rate debt and $0.3 billion of variable-rate debt. Interest on fixed-rate utility debt is fully recovered in rates on a historical cost basis and interest on variable-rate debt is provided for in rates on a forecasted basis. At December 31, 2005, utility fixed-rate debt had a one-year VaR of $276 million and utility variable-rate debt had a one-year VaR of $7 million. Non-utility debt (fixed-rate and variable-rate) subject to VaR modeling totaled $2.3 billion at December 31, 2005, with a one-year VaR of $82 million.

At December 31, 2005, the notional amount of interest-rate swap transactions totaled $1.2 billion. Note 5 of the notes to Consolidated Financial Statements provides further information regarding interest-rate swap transactions.

In addition, the company is subject to the effect of interest-rate fluctuations on the assets of its pension plans, other postretirement plans and the nuclear decommissioning trust. However the effects of these fluctuations, as they relate to the California Utilities, are expected to be passed on to customers.

Credit Risk

Credit risk is the risk of loss that would be incurred as a result of nonperformance by counterparties of their contractual obligations. As with market risk, the company has adopted policies governing the management of credit risk. Credit risk management is performed by the ERMG and the California Utilities' credit department and overseen by the ERMOC and the California Utilities' respective RMC. Using rigorous models, the ERMG, CURMD and the company calculate current and potential credit risk to counterparties on a daily basis and monitor actual balances in comparison to approved limits. The company avoids concentration of counterparties whenever possible, and management believes its credit policies associated with counterparties significantly reduce overall credit risk. These policies include an evaluation of prospective counterparties' financial condition (including credit ratings), collateral requirements under certain circumstances, the use of standardized agreements that allow for the netting of positive and negative exposures associated with a single counterparty, and other security such as lock-box liens and downgrade triggers. At December 31, 2005, Sempra Commodities' 20 largest customers had balances totaling $910 million, of which $863 million corresponds to investment-grade customers, with individual customers varying from $28 million to $117 million. The company believes that adequate reserves have been provided for counterparty nonperformance.

As described in Note 15 of the notes to Consolidated Financial Statements, Sempra Generation has a contract with the DWR to supply up to 1,900 MW of power to the state of California over 10 years, beginning in 2001. This contract results in a significant potential nonperformance exposure with a single counterparty; however, this risk has been addressed and mitigated by the liquidated damages provision of the contract.

The developing LNG projects will result in significant reliance on the credit-worthiness of its major suppliers and customers of the projects.

The company monitors credit risk through a credit approval process and the assignment and monitoring of credit limits. These credit limits are established based on risk and return considerations under terms customarily available in the industry.

As noted above under "Interest Rate Risk," the company periodically enters into interest-rate swap agreements to moderate exposure to interest-rate changes and to lower the overall cost of borrowing. The company would be exposed to interest-rate fluctuations on the underlying debt should counterparties to the agreement not perform.

Foreign Currency Rate Risk

The company has investments in entities whose functional currency is not the U.S. dollar, exposing the company to foreign exchange movements, primarily in Latin American currencies. As a result of the devaluation of the Argentine peso that began at the end of 2001, Sempra Pipelines & Storage has reduced the carrying value of its Argentine investments downward by a cumulative total of $201 million as of December 31, 2005. These non-cash adjustments continue to occur based on fluctuations in the Argentine peso and have not affected net income, but have affected other comprehensive income (loss) and accumulated other comprehensive income (loss). Further discussion is provided in Note 3 of the notes to Consolidated Financial Statements.

The company's primary objective with respect to currency risk is to preserve the economic value of its overseas investments and to reduce net income volatility that would otherwise occur due to exchange-rate fluctuations.

Sempra Energy's net investment in its Latin American operating companies and the resulting cash flows are partially protected against normal exchange-rate fluctuations by rate-setting mechanisms that are intended to compensate for local inflation and currency exchange-rate fluctuations. In addition, the company offsets material cross-currency transactions and net income exposure through various means, including financial instruments and short-term investments.

Because the company does not hedge its net investment in foreign countries, it is susceptible to volatility in other comprehensive income caused by exchange rate fluctuations. The primary effect on other comprehensive income due to exchange rate variations has been the devaluation of the Argentine peso against the U.S. dollar, as discussed in Note 3 of the notes to Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES AND KEY NON-CASH PERFORMANCE INDICATORS

Certain accounting policies are viewed by management as critical because their application is the most relevant, judgmental and/or material to the company's financial position and results of operations, and/or because they require the use of material judgments and estimates.

The company's significant accounting policies are described in Note 1 of the notes to Consolidated Financial Statements. The most critical policies, all of which are mandatory under generally accepted accounting principles and the regulations of the Securities and Exchange Commission, are the following:

Statement of Financial Accounting Standards (SFAS) 5, "Accounting for Contingencies," establishes the amounts and timing of when the company provides for contingent losses. Details of the company's issues in this area are discussed in Note 15 of the notes to Consolidated Financial Statements.

SFAS 71, "Accounting for the Effects of Certain Types of Regulation," has a significant effect on the way the California Utilities record assets and liabilities, and the related revenues and expenses that would not be recorded absent the principles contained in SFAS 71.

SFAS 109, "Accounting for Income Taxes," governs the way the company provides for income taxes. Details of the company's issues in this area are discussed in Note 7 of the notes to Consolidated Financial Statements.

SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," and EITF Issue 02-3, "Issues Involved in Accounting for Derivative Contracts held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities," have a significant effect on the balance sheets of Sempra Commodities and the California Utilities but have no significant effect on the California Utilities' income statements because of the principles contained in SFAS 71. The effect on Sempra Commodities' income statement is discussed in Note 10 of the notes to Consolidated Financial Statements.

In connection with the application of these and other accounting policies, the company makes estimates and judgments about various matters. The most significant of these involve:

The calculation of fair or realizable values, including the investments in Argentina under the Bilateral Investment Treaty, and the fair values of long-lived assets. For example, in determining whether major facilities that are not currently profitable have carrying values that are in excess of their fair values and the extent of any excess, critical assumptions include the costs of natural gas, competing fuels (primarily propane) and electricity.

The probable costs to be incurred in the resolution of litigation.

The collectibility of receivables, regulatory assets, deferred tax assets and other assets.

The resolution of various income tax issues between the company and the various taxing authorities.

The costs to be incurred in fulfilling certain contracts that have been marked to market.

The various assumptions used in actuarial calculations for pension plans, other than as related to the California Utilities, where rate-making effects negate any effects of the assumptions on net income. For the remaining plans, the approximate annual effect on net income of a 1% change in the assumed discount rate or the assumed rate of return on plan assets would be $2.5 million or $1 million, respectively. Additional discussion of pension plan assumptions is included in Note 8 of the notes to Consolidated Financial Statements.

Differences between estimates and actual amounts have had significant impacts in the past and are likely to have significant impacts in the future.

As discussed elsewhere herein, the company uses exchange quotations or other third-party pricing to estimate fair values whenever possible. When no such data is available, it uses internally developed models and other techniques. The assumed collectibility of receivables considers the aging of the receivables, the credit-worthiness of customers and the enforceability of contracts, where applicable. The assumed collectibility of regulatory assets considers legal and regulatory decisions involving the specific items or similar items. The assumed collectibility of other assets considers the nature of the item, the enforceability of contracts where applicable, the credit-worthiness of the other parties and other factors. The anticipated resolution of income tax issues considers past resolutions of the same or similar issue, the status of any income tax examination in progress and positions taken by taxing authorities with other taxpayers with similar issues. Costs to fulfill contracts that are carried at fair value are based on prior experience. Actuarial assumptions are based on the advice of the company's independent actuaries. The likelihood of deferred tax recovery is based on analyses of the deferred tax assets and the company's expectation of future financial and/or taxable income, based on its strategic planning.

Choices among alternative accounting policies that are material to the company's financial statements and information concerning significant estimates have been discussed with the audit committee of the board of directors.

Key non-cash performance indicators for the company's subsidiaries include numbers of customers and quantities of natural gas and electricity sold for the California Utilities, and plant availability factors at Sempra Generation's generating plants. For competitive reasons, Sempra Generation does not disclose its plant availability factors. The California Utilities information is provided in "Overview" and "Results of Operations." Sempra Commodities does not use non-cash performance factors. Its key indicators are profit margins by product line and by geographic area. "Business Unit Results - Sempra Commodities" provides the information for Sempra Commodities. Other than its two small natural gas utilities in the eastern United States, Sempra Pipelines & Storage's only consolidated operations are in Mexico. The natural gas distribution utility that operates in three separate areas has increased the customer count to almost 100,000 and the sales volume to almost 55 million cubic feet per day in 2005 . The pipeline system had contracted capacity of 450 million cubic feet per day in 2005 and 2004.

NEW ACCOUNTING STANDARDS

Relevant pronouncements that have recently become effective and have had a significant effect on the company's financial statements are SFAS 123R and 143, and FIN 47. They are described below.

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

SFAS 143, "Accounting for Asset Retirement Obligations" and FIN 47, "Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143": SFAS 143 requires entities to record the fair value of liabilities for legal obligations related to asset retirements in the period in which they are incurred. It also requires most energy utilities, including the California Utilities, to reclassify amounts recovered in rates for future removal costs not covered by a legal obligation from accumulated depreciation to a regulatory liability. Issued in March 2005, FIN 47 clarifies that the term conditional asset-retirement obligation as used in SFAS 143 refers to a legal obligation to perform an asset-retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. FIN 47 requires companies to recognize a liability for the fair value of a conditional asset-retirement obligation if the fair value of the obligation can be reasonably estimated. FIN 47 is effective for the company's 2005 annual report.

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

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

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

FIVE YEAR SUMMARY

(In millions, except per share amounts)				At December 31 or for the years then ended
				2005		2004			2003			2002		2001
Operating revenues
California utilities:
	Natural gas		$	5,253	$	4,537		$	4,005		$	3,255	$	4,365
	Electric			1,789		1,658			1,786			1,282		1,673
Sempra Global and parent				4,695		3,239			2,100			1,520		1,695
	Total operating revenues		$	11,737	$	9,434		$	7,891		$	6,057	$	7,733
Operating income			$	1,111	$	1,281		$	943		$	973	$	1,014
Income from continuing operations before
	extraordinary item and cumulative effect
	of changes in accounting principles		$	929	$	920		$	695		$	575	$	518
Net income			$	920	$	895		$	649		$	591	$	518
Income per common share from continuing
	operations before extraordinary item
	and cumulative effect of changes in
	accounting principles:
		Basic	$	3.78	$	4.03		$	3.29		$	2.80	$	2.54
		Diluted	$	3.69	$	3.93		$	3.24		$	2.79	$	2.52
Net income per common share:
		Basic	$	3.74	$	3.92		$	3.07		$	2.88	$	2.54
		Diluted	$	3.65	$	3.83		$	3.03		$	2.87	$	2.52
Dividends declared per common share			$	1.16	$	1.00		$	1.00		$	1.00	$	1.00
Return on common equity				16.7%		20.5%			19.3%			21.4%		19.5%
Effective income tax rate				5%		18%			7%			20%		32%
Price range of common shares			$	47.86-	$	37.93-		$	30.90-		$	26.25-	$	28.61-
				35.53		29.51			22.25			15.50		17.31
Weighted average rate base:
	SoCalGas		$	2,386	$	2,351		$	2,268		$	2,222	$	2,262
	SDG&E		$	2,902	$	2,755		$	2,619		$	2,452	$	2,334
AT DECEMBER 31
Current assets			$	13,318	$	8,776		$	7,866		$	7,010	$	4,692
Total assets			$	29,213	$	23,775		$	21,988		$	20,242	$	17,378
Current liabilities			$	12,157	$	9,082		$	8,569		$	7,554	$	5,629
Long-term debt (excludes current portion)			$	4,823	$	4,192		$	3,841		$	4,083	$	3,436
Trust preferred securities			$	--	$	200	*	$	200	*	$	200	$	200
Shareholders' equity			$	6,160	$	4,865		$	3,890		$	2,825	$	2,692
Common shares outstanding				257.2		234.2			226.6			204.9		204.5
Book value per share			$	23.95	$	20.77		$	17.17		$	13.79	$	13.16
* Amount was reclassified to Due to Unconsolidated Affiliates effective in 2003. The company redeemed the securities in February 2005.

Certain prior-year amounts have been reclassified to conform to the current year's presentation.

Note 1 of the notes to Consolidated Financial Statements discusses the 2003 changes in accounting principles. Note 4 discusses a discontinued operation. Note 15 discusses litigation and other contingencies.

An extraordinary gain of $16 million was recorded in 2002 related to Sempra Commodities' acquisition of two businesses for amounts less than the fair value of the businesses' net assets.

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

Management is responsible for the preparation of the company's consolidated financial statements and related information appearing in this report. Management believes that the consolidated financial statements fairly present the form and substance of transactions and that the financial statements reasonably present the company's financial position and results of operations in conformity with accounting principles generally accepted in the United States of America. Management also has included in the company's financial statements amounts that are based on estimates and judgments, which it believes are reasonable under the circumstances.

Deloitte & Touche LLP, an independent registered public accounting firm, audits the company's consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board and provides an objective, independent review of the fairness of reported operating results and financial position.

The board of directors of the company has an Audit Committee composed of five non-management directors. The committee meets periodically with financial management, the internal auditors and Deloitte & Touche LLP to review accounting, control, auditing and financial reporting matters.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Company management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of company management, including the principal executive officer and principal financial officer, the company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control -- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the company's evaluation under the framework in Internal Control -- Integrated Framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2005. Management's assessment of the effectiveness of internal control over financial reporting as of December 31, 2005 has been audited by Deloitte & Touche LLP, as stated in its report, which is included herein.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Sempra Energy:

We have audited management's assessment, included in the accompanying Management's Report on Internal Control over Financial Reporting, that Sempra Energy and subsidiaries (the "Company") maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control -- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made o nly in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control -- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control -- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2005 of the Company and our report dated February 21, 2006 expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company's adoption of three new accounting standards.

/S/ DELOITTE & TOUCHE LLP

San Diego, California
February 21, 2006

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Sempra Energy:

We have audited the accompanying consolidated balance sheets of Sempra Energy and subsidiaries (the "Company") as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Sempra Energy and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

As described in Note 1 to the financial statements, the Company adopted Financial Accounting Standards Board Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143, effective December 31, 2005, Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities -- an Interpretation of ARB No. 51, effective December 31, 2003, and the rescission of EITF Issue No. 98-10, Accounting for Contracts Involved in Energy Trading and Risk Management Activities, effective January 1, 2003.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control -- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2006 expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/S/ DELOITTE & TOUCHE LLP

San Diego, California
February 21, 2006

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

					Years ended December 31,
					2005			2004			2003
OPERATING REVENUES
California utilities					$	7,042		$	6,195		$	5,791
Sempra Global and parent						4,695			3,239			2,100
				Total operating revenues		11,737			9,434			7,891
OPERATING EXPENSES
California utilities:
		Cost of natural gas				3,232			2,593			2,071
		Cost of electric fuel and purchased power				624			576			541
Other cost of sales						2,715			1,741			1,204
Litigation expense						551			150			72
Other operating expenses						2,634			2,243			2,108
Depreciation and amortization						646			621			615
Franchise fees and other taxes						251			236			230
Gains on sale of assets, net						(112	)		(15	)		(15	)
Impairment losses						85			8			122
				Total operating expenses		10,626			8,153			6,948
Operating income						1,111			1,281			943
Other income, net (Note 1)						51			33			(40	)
Interest income						75			69			104
Interest expense						(311	)		(322	)		(308	)
Preferred dividends of subsidiaries						(10	)		(10	)		(10	)
Trust preferred distributions of subsidiary						--			--			(9	)
Income from continuing operations before income taxes and
			equity in earnings of certain unconsolidated subsidiaries			916			1,051			680
Income tax expense						42			193			47
Equity in income of certain unconsolidated subsidiaries
			(Note 3)			55			62			62
Income from continuing operations						929			920			695
Discontinued operations, net of tax (Note 4)						(9	)		(25	)		--
Income before cumulative effect of changes in accounting
	principles					920			895			695
Cumulative effect of changes in accounting principles, net of tax
	(Note 1)					--			--			(46	)
Net income					$	920		$	895		$	649
Basic earnings per share:
	Income from continuing operations				$	3.78		$	4.03		$	3.29
	Discontinued operations, net of tax					(0.04	)		(0.11	)		--
	Cumulative effect of changes in accounting principles, net of tax					--			--			(0.22	)
	Net income				$	3.74		$	3.92		$	3.07
	Weighted-average number of shares outstanding (thousands)					245,906			228,271			211,740
Diluted earnings per share:
	Income from continuing operations				$	3.69		$	3.93		$	3.24
	Discontinued operations, net of tax					(0.04	)		(0.10	)		--
	Cumulative effect of changes in accounting principles, net of tax					--			--			(0.21	)
	Net income				$	3.65		$	3.83		$	3.03
	Weighted-average number of shares outstanding (thousands)					252,088			233,852			214,482
Dividends declared per share of common stock					$	1.16		$	1.00		$	1.00

See notes to Consolidated Financial Statements.

SEMPRA ENERGY
CONSOLIDATED BALANCE SHEETS

			December 31, 2005			December 31, 2004
(Dollars in millions)
ASSETS
Current assets:
	Cash and cash equivalents		$	772		$	419
	Short-term investments			12			15
	Trade accounts receivable, net			998			950
	Other accounts and notes receivable, net			194			82
	Due from unconsolidated affiliates			3			4
	Deferred income taxes			132			15
	Interest receivable			29			80
	Trading-related receivables and deposits, net			3,370			2,606
	Derivative trading instruments			4,502			2,339
	Commodities owned			2,498			1,547
	Regulatory assets			255			255
	Inventories			212			172
	Other			291			222
	Current assets of continuing operations			13,268			8,706
	Current assets of discontinued operations			50			70
		Total current assets		13,318			8,776
Investments and other assets:
	Due from unconsolidated affiliates			21			42
	Regulatory assets arising from fixed-price contracts and other derivatives			398			500
	Other regulatory assets			713			751
	Nuclear decommissioning trusts			638			612
	Investments			1,104			1,164
	Sundry			920			844
		Total investments and other assets		3,794			3,913
Property, plant and equipment:
	Property, plant and equipment			17,564			16,203
	Less accumulated depreciation and amortization			(5,463	)		(5,117	)
		Property, plant and equipment, net		12,101			11,086
Total assets			$	29,213		$	23,775

See notes to Consolidated Financial Statements.

SEMPRA ENERGY
CONSOLIDATED BALANCE SHEETS

				December 31, 2005			December 31, 2004
(Dollars in millions)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Short-term debt			$	1,062		$	405
	Accounts payable - trade				1,272			1,020
	Accounts payable - other				140			106
	Income taxes payable				68			187
	Trading-related payables				4,127			3,182
	Derivative trading instruments				3,246			1,484
	Commodities sold with agreement to repurchase				634			513
	Dividends and interest payable				140			123
	Regulatory balancing accounts, net				192			509
	Fixed-price contracts and other derivatives				130			157
	Current portion of long-term debt				101			398
	Due to unconsolidated affiliates				--			205
	Other				1,035			776
	Current liabilities of continuing operations				12,147			9,065
	Current liabilities of discontinued operations				10			17
			Total current liabilities		12,157			9,082
Long-term debt					4,823			4,192
Deferred credits and other liabilities:
	Due to unconsolidated affiliate				162			162
	Customer advances for construction				110			97
	Postretirement benefits other than pensions				121			129
	Deferred income taxes				245			420
	Deferred investment tax credits				73			78
	Regulatory liabilities arising from removal obligations				2,313			2,692
	Asset retirement obligations				958			326
	Other regulatory liabilities				200			199
	Fixed-price contracts and other derivatives				400			500
	Deferred credits and other				1,312			854
			Total deferred credits and other liabilities		5,894			5,457
Preferred stock of subsidiaries					179			179
Commitments and contingencies (Note 15)
SHAREHOLDERS' EQUITY
Preferred stock (50 million shares authorized; none issued)					--			--
Common stock (750 million shares authorized;					2,958			2,301
		257 million and 234 million shares outstanding at
		December 31, 2005 and 2004, respectively)
Retained earnings					3,588			2,961
Deferred compensation relating to ESOP					(28	)		(32	)
Accumulated other comprehensive income (loss)					(358	)		(365	)
Total shareholders' equity					6,160			4,865
Total liabilities and shareholders' equity				$	29,213		$	23,775

See notes to Consolidated Financial Statements.

SEMPRA ENERGY
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in millions)

			Years ended December 31,
			2005			2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES
	Net income		$	920		$	895		$	649
	Adjustments to reconcile net income to net cash provided by operating activities
		Loss from discontinued operations, net of tax		9			25			--
		Depreciation and amortization		646			621			615
		Gains on sale of assets, net		(112	)		(15	)		(15	)
		Impairment losses		85			8			122
		Deferred income taxes and investment tax credits		(283	)		13			(118	)
		Non-cash rate reduction bond expense		68			75			68
		Equity in income of unconsolidated affiliates		(66	)		(36	)		(5	)
		Cumulative effect of changes in accounting principles, net of tax		--			--			46
		Other		(50	)		(6	)		27
	Net changes in other working capital components			(1,169	)		(395	)		(158	)
	Changes in other assets			27			(127	)		(18	)
	Changes in other liabilities			451			(27	)		(28	)
		Net cash provided by continuing operations		526			1,031			1,185
		Net cash used in discontinued operations		(5	)		(30	)		--
		Net cash provided by operating activities		521			1,001			1,185
CASH FLOWS FROM INVESTING ACTIVITIES
	Expenditures for property, plant and equipment			(1,404	)		(1,083	)		(1,049	)
	Proceeds from sale of assets			277			377			29
	Proceeds from disposal of discontinued operations			5			157			--
	Investments in and acquisitions of subsidiaries, net of cash acquired			(86	)		(74	)		(202	)
	Purchases of nuclear decommissioning and other trust assets			(299	)		(319	)		(330	)
	Proceeds from sales by nuclear decommissioning and other trusts			262			262			283
	Dividends received from unconsolidated affiliates			72			59			72
	Increase in loans to affiliates, net			--			--			(99	)
	Other			(12	)		10			4
		Net cash used in investing activities		(1,185	)		(611	)		(1,292	)
CASH FLOWS FROM FINANCING ACTIVITIES
	Common dividends paid			(268	)		(195	)		(182	)
	Issuances of common stock			694			110			505
	Repurchases of common stock			(95	)		(5	)		(7	)
	Issuances of long-term debt			762			997			900
	Payments on long-term debt			(532	)		(1,670	)		(601	)
	Redemption of mandatorily redeemable preferred securities			(200	)		--			--
	Increase (decrease) in short-term debt, net			662			397			(518	)
	Other			(6	)		(14	)		(8	)
		Net cash provided by (used in) financing activities		1,017			(380	)		89
Increase (decrease) in cash and cash equivalents				353			10			(18	)
Cash and cash equivalents, January 1				419			409			427
Cash and cash equivalents, December 31			$	772		$	419		$	409

See notes to Consolidated Financial Statements.

SEMPRA ENERGY
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in millions)

		Years ended December 31,
		2005			2004			2003
CHANGES IN OTHER WORKING CAPITAL COMPONENTS
(Excluding cash and cash equivalents, and debt due within one year)
Accounts and notes receivable		$	(92	)	$	(303	)	$	(191	)
Net trading assets			(1,062	)		(454	)		59
Income taxes, net			(86	)		(64	)		72
Inventories			(40	)		(26	)		(12	)
Regulatory balancing accounts			(321	)		79			(155	)
Regulatory assets and liabilities			(4	)		(23	)		(30	)
Other current assets			(38	)		(31	)		(9	)
Accounts payable			283			300			75
Other current liabilities			191			127			33
	Net changes in other working capital components	$	(1,169	)	$	(395	)	$	(158	)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest payments, net of amounts capitalized		$	295		$	318		$	296
Income tax payments, net of refunds		$	429		$	254		$	118

See notes to Consolidated Financial Statements.

SEMPRA ENERGY
STATEMENTS OF CONSOLIDATED CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 2005, 2004 and 2003

(Dollars in millions)		Comprehensive Income		Common Stock		Retained Earnings		Deferred Compensation Relating to ESOP		Accumulated Other Comprehensive Income (Loss)		Total Shareholders' Equity
Balance at December 31, 2002				$ 1,436		$ 1,861		$ (33	)	$ (439	)	$ 2,825
Net income		$ 649				649						649
Comprehensive income adjustments:
	Foreign currency translation gains (Note 1)	57								57		57
	Pension	(16	)							(16	)	(16	)
	SFAS 133	(3	)							(3	)	(3	)
Comprehensive income		$ 687
Common stock dividends declared						(212	)					(212	)
Equity units adjustment				6								6
Quasi-reorganization adjustment (Note 1)				19								19
Issuance of common stock				553								553
Tax benefit related to employee stock options				13								13
Repurchase of common stock				(6	)							(6	)
Common stock released from ESOP				7				(2	)			5
Balance at December 31, 2003				2,028		2,298		(35	)	(401	)	3,890
Net income		$ 895				895						895
Comprehensive income adjustments:
	Foreign currency translation gains (Note 1)	40								40		40
	Pension	28								28		28
	Available-for-sale securities	4								4		4
	SFAS 133	(36	)							(36	)	(36	)
Comprehensive income		$ 931
Common stock dividends declared						(232	)					(232	)
Quasi-reorganization adjustment (Note 1)				86								86
Issuance of common stock				172								172
Tax benefit related to employee stock options				16								16
Repurchase of common stock				(5	)							(5	)
Common stock released from ESOP				4				3				7
Balance at December 31, 2004				2,301		2,961		(32	)	(365	)	4,865
Net income		$ 920				920						920
Comprehensive income adjustments:
	Foreign currency translation gains (Note 1)	30								30		30
	Available-for-sale securities	(4	)							(4	)	(4	)
	SFAS 133	(19	)							(19	)	(19	)
Comprehensive income		$ 927
Common stock dividends declared						(293	)					(293	)
Issuance of common stock				720								720
Tax benefit related to employee stock options				26								26
Repurchase of common stock				(95	)							(95	)
Common stock released from ESOP				6				4				10
Balance at December 31, 2005				$ 2,958		$ 3,588		$ (28	)	$ (358	)	$ 6,160

See notes to Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES AND OTHER FINANCIAL DATA

Principles of Consolidation

The Consolidated Financial Statements include the accounts of Sempra Energy (the company); its majority-owned subsidiaries and in 2004 the variable-interest entities of which the company was the primary beneficiary. Investments in affiliated companies over which Sempra Energy has the ability to exercise significant influence, but not control, are accounted for using the equity method. Further discussion of investments in unconsolidated subsidiaries is provided in Note 3. All material intercompany accounts and transactions have been eliminated.

In connection with charges related to litigation, the significant instances of which are discussed in Note 15, Sempra Energy management determines the allocation of the charges among its business units based on the extent of their involvement with the subject of the litigation.

Quasi-Reorganization

In 1993, Pacific Enterprises (PE) effected a quasi-reorganization for financial reporting purposes as of December 31, 1992. Certain of the liabilities established in connection with the quasi-reorganization were favorably resolved in 2003 and 2004, resulting in adjustments to common equity in these years. The remaining liabilities will be resolved in future years and management believes the provisions established for these matters are adequate.

Use of Estimates in the Preparation of the Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period, and the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Although management believes the estimates and assumptions are reasonable, actual amounts can differ significantly from those estimates.

Basis of Presentation

Certain prior-year amounts have been reclassified to conform to the current year's presentation.

Regulatory Matters

Effects of Regulation

The accounting policies of the company's principal utility subsidiaries, San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company (SoCalGas) (collectively, the California Utilities), conform with GAAP for regulated enterprises and reflect the policies of the California Public Utilities Commission (CPUC) and the Federal Energy Regulatory Commission (FERC).

The California Utilities prepare their financial statements in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) 71, Accounting for the Effects of Certain Types of Regulation, under which 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 would be written off. In addition, SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, requires that a loss be recognized whenever a regulator excludes all or part of utility plant or regulatory assets from ratebase. Regulatory liabilities represent reductions in future rates for amounts due to customers. Information concerning regulatory assets and liabilities is provided below in "Revenues," "Regulatory Balancing Accounts" and "Regulatory Asset s and Liabilities."

Regulatory Balancing Accounts

The amounts included in regulatory balancing accounts at December 31, 2005, represent net payables (payables net of receivables) of $13 million and $179 million for SoCalGas and SDG&E, respectively. The corresponding amounts at December 31, 2004 were net payables of $178 million and $331 million, respectively.

Except for certain costs subject to balancing account treatment, fluctuations in most operating and maintenance accounts affect utility earnings. Balancing accounts provide a mechanism for charging utility customers the amount actually incurred for certain costs, primarily commodity costs. The CPUC has also approved balancing account treatment for variances between forecast and actual for SoCalGas' and SDG&E's volumes and commodity costs, eliminating the impact on earnings from any throughput and revenue variances from adopted forecast levels. Additional information on regulatory matters is included in Notes 13 and 14.

Regulatory Assets and Liabilities

In accordance with the accounting principles of SFAS 71, the company records regulatory assets and regulatory liabilities as discussed above.

Regulatory assets (liabilities) as of December 31 relate to the following matters:

(Dollars in millions)		2005			2004
SDG&E
Fixed-price contracts and other derivatives		$	473		$	500
Recapture of temporary rate reduction*		116			183
Deferred taxes recoverable in rates		294			278
Unamortized loss on retirement of debt, net		42			46
Employee benefit costs		174			160
Removal obligations**		(1,216		)	(1,246		)
Other		36			29
	Total	(81		)	(50		)
SoCalGas
Fixed-price contracts and other derivatives		49			148
Environmental remediation		39			42
Unamortized loss on retirement of debt, net		40			44
Removal obligations**		(1,097		)	(1,446		)
Deferred taxes refundable in rates		(200		)	(199		)
Employee benefit costs		97			65
Other		3			7
	Total	(1,069		)	(1,339		)
Total		$	(1,150	)	$	(1,389	)

* In connection with electric industry restructuring, which is described in Note 13, SDG&E temporarily reduced rates to its small-usage customers. That reduction is being recovered in rates through 2007.
** This is related to SFAS 143, Accounting for Asset Retirement Obligations, which is discussed below in "New Accounting Standards."

Net regulatory assets (liabilities) are recorded on the Consolidated Balance Sheets at December 31 as follows:

(Dollars in millions)		2005			2004
Current regulatory assets		$	255		$	255
Noncurrent regulatory assets		1,111			1,251
Current regulatory liabilities*		(3		)	(4		)
Noncurrent regulatory liabilities		(2,513		)	(2,891		)
	Total	$	(1,150	)	$	(1,389	)

* Included in Other Current Liabilities.

All of these assets either earn a return, generally at short-term rates, or the cash has not yet been expended and the assets are offset by liabilities that do not incur a carrying cost.

Cash and Cash Equivalents

Cash equivalents are highly liquid investments with maturities of three months or less at the date of purchase.

Non-cash Investing and Financing Activities

Property, Plant and Equipment increased by $45 million in 2005 as a result of changes in unpaid construction costs. (Comparable changes in 2004 and 2003 were not material.) Also in 2005, the company acquired subsidiary assets of $126 million and assumed related liabilities of $55 million, for a net cash payment of $71 million. In 2003 the company consolidated variable interest entities (as discussed further under "New Accounting Standards" below) with assets of $820 million and liabilities of $881 million.

Restricted cash

Restricted cash was $12 million and $15 million at December 31, 2005 and 2004, respectively. The amounts are included in current assets under the caption Short-term Investments and primarily serve as cash collateral for certain debt agreements.

Collection Allowances

The allowance for doubtful accounts was $12 million, $8 million and $19 million at December 31, 2005, 2004 and 2003, respectively. The company recorded provisions for doubtful accounts of $13 million, $12 million and $5 million in 2005, 2004 and 2003, respectively.

The allowance for realization of trading assets was $64 million, $56 million and $67 million at December 31, 2005, 2004 and 2003, respectively. The company recorded provisions (reduction thereof) for trading assets of $30 million, $3 million and $(4) million in 2005, 2004 and 2003, respectively.

Trading Instruments

Trading assets and trading liabilities (described further in Note 10) include option premiums paid and received, unrealized gains and losses from exchange-traded futures and options, over-the-counter (OTC) swaps, forwards, physical commodities and options. Trading instruments are recorded by Sempra Commodities on a trade-date basis and the majority of such derivative instruments are adjusted daily to current market value. Unrealized gains and losses on OTC transactions reflect amounts which would be received from or paid to a third party upon net settlement of the contracts. Unrealized gains and losses on OTC transactions are reported separately as assets and liabilities unless a legal right of setoff exists under an enforceable netting arrangement.

Futures and exchange-traded option transactions are recorded as contractual commitments on a trade-date basis and carried at current market value based on current closing exchange quotations. Derivative commodity swaps and forward transactions are accounted for as contractual commitments on a trade-date basis and carried at fair value derived from current dealer quotations and underlying commodity-exchange quotations. OTC options are carried at fair value based on the use of valuation models that utilize, among other things, current interest, commodity and volatility rates. For long-dated forward transactions, current market values are derived using internally developed valuation methodologies based on available market information. When there is an absence of observable market data at inception, the value of the transaction is its cost. Where market rates are not quoted, current interest, commodity and volatility rates are estimated by reference to current market levels. Given the nature, size and timing of transactions, estimated values may differ significantly from realized values. Changes in market values are reflected in net income. Although trading instruments may have scheduled maturities in excess of one year, the actual settlement of these transactions can occur sooner, resulting in the current classification of trading assets and liabilities on the Consolidated Balance Sheets.

Energy transportation and storage contracts are recorded at cost, and energy commodity inventory is recorded at the lower of cost or market. However, metals inventories continue to be recorded at fair value in accordance with Accounting Research Bulletin (ARB) No. 43, Restatement and Revision of Accounting Research Bulletins.

Inventories

At December 31, 2005, inventory shown on the Consolidated Balance Sheets, which does not include Commodities Owned (which is shown as a separate caption on the balance sheets), included natural gas of $140 million, and materials and supplies of $72 million. The corresponding balances at December 31, 2004 were $115 million and $57 million, respectively. Natural gas at the California Utilities ($140 million and $111 million at December 31, 2005 and 2004, respectively) is valued by the last-in first-out (LIFO) method. When the California Utilities' inventory is consumed, differences between the LIFO valuation and replacement cost are reflected in customer rates. Materials and supplies at the California Utilities are generally valued at the lower of average cost or market.

Income Taxes

Income tax expense includes current and deferred income taxes from operations during the year. In accordance with SFAS 109, Accounting for Income Taxes, the company records deferred income taxes for temporary differences between the book and tax bases of assets and liabilities. Investment tax credits from prior years are being amortized to income by the California Utilities over the estimated service lives of the properties. Other credits, mainly low-income housing and synthetic-fuel tax credits, are recognized in income as earned. The company follows certain provisions of SFAS 109 that permit regulated enterprises to recognize regulatory assets or liabilities to offset deferred tax liabilities and assets, respectively, if it is probable that such amounts will be recovered from, or returned to, customers. The company follows Accounting Principles Board Opinion (APBO) 23, Accounting for Income Taxes -- Special Areas, in recording deferred taxes for investments in foreign subsidiaries and the undistributed earnings of foreign subsidiaries.

Property, Plant and Equipment

Property, Plant and Equipment primarily represents the buildings, equipment and other facilities used by the California Utilities to provide natural gas and electric utility services, and by Sempra Generation.

The cost of plant includes labor, materials, contract services, and certain expenditures incurred during a major maintenance outage of a generating plant. Maintenance costs are expensed as incurred. In addition, the cost of utility plant includes an allowance for funds used during construction (AFUDC). The cost of non-utility plant includes capitalized interest. The cost of most retired depreciable utility plant minus salvage value is charged to accumulated depreciation.

Property, plant and equipment balances by major functional categories are as follows:

				Property, Plant and Equipment at December 31,				Depreciation rates for years ended December 31,
	(Dollars in billions)			2005		2004		2005		2004		2003
California Utilities:
	Natural gas operations			$	8.6	$	8.1	3.66	%	3.65	%	4.27	%
	Electric distribution				3.5		3.4	4.13	%	4.11	%	4.70	%
	Electric transmission				1.1		1.0	3.05	%	3.06	%	3.09	%
	Other electric				0.6		0.6	9.75	%	11.33	%	9.53	%
	Construction work in progress				0.8		0.5	NA		NA		NA
			Total		14.6		13.6
Sempra Global and Parent:
	Land and land rights				0.1		0.1
	Buildings and leasehold improvements				0.1		0.2
	Machinery and equipment
		Generating plant			1.4		1.2
		Pipelines			0.3		0.3
		Other			0.5		0.4
	Construction work in progress				0.5		0.3
	Other				0.1		0.1
					3.0		2.6	various		various		various
			Total	$	17.6	$	16.2

Accumulated depreciation and decommissioning of natural gas and electric utility plant in service were $3.4 billion and $1.6 billion, respectively, at December 31, 2005, and were $3.3 billion and $1.4 billion, respectively, at December 31, 2004. Depreciation expense is based on the straight-line method over the useful lives of the assets or, for the California Utilities, a shorter period prescribed by the CPUC. Accumulated depreciation for power plants at Sempra Generation was $111 million and $47 million at December 31, 2005 and 2004, respectively. Depreciation expense is computed using the straight-line method over the asset's estimated original composite useful life or the remaining term of the site leases, whichever is lower.

AFUDC, which represents the cost of debt and equity funds used to finance the construction of utility plant, is added to the cost of utility plant. Although it is not a current source of cash, AFUDC increases income and is recorded partly as an offset to interest charges and partly as a component of Other Income, Net in the Statements of Consolidated Income. AFUDC amounted to $19 million, $18 million and $29 million for 2005, 2004 and 2003, respectively. Total capitalized carrying costs, including AFUDC and the impact of Sempra Generation's construction projects, were $48 million, $27 million and $55 million for 2005, 2004 and 2003, respectively.

Goodwill and Intangible Assets

Goodwill represents 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 for impairment in accordance with SFAS 142, Goodwill and Other Intangible Assets.

There were no changes in the carrying amount of goodwill (included in Noncurrent Sundry Assets on the Consolidated Balance Sheets) since January 1, 2004. As of December 31, 2005, goodwill is recorded as follows:

(Dollars in millions)
Sempra Commodities	$	164
Sempra Generation		18
Other		6
	$	188

In addition, the unamortized goodwill related to unconsolidated subsidiaries (included in Investments on the Consolidated Balance Sheets), primarily those located in South America, was $291 million and $296 million at December 31, 2005 and 2004, respectively, before foreign-currency translation adjustments. Including foreign-currency translation adjustments, these amounts were $258 million and $238 million, respectively. Other intangible assets were not material at December 31, 2005 or 2004.

Long-Lived Assets

The company periodically evaluates whether events or circumstances have occurred that may affect the recoverability or the estimated useful lives of long-lived assets, the definition of which 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 be permanently impaired, the potential impairment is measured based on the difference between the carrying amount and the fair value of the assets based on quoted market prices or, if market prices are not available, on the estimated discounted cash flows. This calculation is performed at the lowest level for which separately identifiable cash flows exist. Further discussion of SFAS 144 is provided in "New Accounting Standards." During 2005 impairments included pre-tax write-downs of $66 million at Sempra Generation and $6 million at Sempra Pipelines & ; Storage for abandoned projects. Impairments in 2003 included a $77 million before-tax write-down of the carrying value of the assets of Frontier Energy, a small utility subsidiary of Sempra Pipelines & Storage, and a $24 million before-tax write-down of the carrying value of the assets at Atlantic Electric & Gas Limited (AEG). This is discussed further in "New Accounting Standards" below and in Note 4. The carrying value of unconsolidated subsidiaries is evaluated for impairment based on the requirements of APBO 18, The Equity Method of Accounting for Investments in Common Stock.

Nuclear Decommissioning Liability

At December 31, 2005 and 2004, SDG&E had asset retirement obligations of $339 million and $328 million, respectively, and related regulatory liabilities of $346 million and $333 million, respectively, related to nuclear decommissioning, in accordance with SFAS 143. Information about San Onofre Nuclear Generating Station (SONGS) decommissioning costs is included below in "New Accounting Standards."

Legal Fees

Legal fees that are associated with a past event for which a contingent liability has been recorded are accrued when it is probable that fees also will be incurred.

Comprehensive Income

Comprehensive income includes all changes, except those resulting from investments by owners and distributions to owners, in the equity of a business enterprise from transactions and other events, including foreign-currency translation adjustments, minimum pension liability adjustments and certain hedging activities. The components of other comprehensive income, which consists of all these changes other than net income as shown on the Statements of Consolidated Income, are shown in the Statements of Consolidated Changes in Shareholders' Equity.

The components of Accumulated Other Comprehensive Income (Loss), net of income taxes at December 31, 2005 (in millions of dollars) are as follows:

Foreign-currency translation loss	$	(264	)
Financial instruments, net of $30 income tax benefit		(58	)
Minimum pension liability adjustments, net of $25 income tax benefit		(36	)
Balance as of December 31, 2005	$	(358	)

Stock-Based Compensation

The company has stock-based employee compensation plans, which are described in Note 9. The company accounts for these plans under the recognition and measurement principles of APBO 25, Accounting for Stock Issued to Employees, and related Interpretations. Employee compensation cost is reflected in net income in all years for restricted stock awards, and in 2005, for the acceleration in vesting for certain options. The following table provides the pro forma effects of recognizing compensation expense in accordance with SFAS 123, Accounting for Stock-Based Compensation:

		Years ended December 31,
(Dollars in millions, except per share amounts)			2005			2004			2003
Net income as reported		$	920		$	895		$	649
Stock-based employee compensation expense reported in net income net of tax			37			24			13
Total stock-based employee compensation under fair-value method for all awards, net of tax			(43	)		(30	)		(20	)
Pro forma net income		$	914		$	889		$	642
Earnings per share:
	Basic - as reported	$	3.74		$	3.92		$	3.07
	Basic - pro forma	$	3.72		$	3.89		$	3.03
	Diluted - as reported	$	3.65		$	3.83		$	3.03
	Diluted - pro forma	$	3.63		$	3.80		$	2.99

Revenues

Revenues of the California Utilities are primarily derived from deliveries of electricity and natural gas to customers and changes in related regulatory balancing accounts. Revenues from electricity and natural gas sales and services are recorded under the accrual method and recognized upon delivery. The portion of SDG&E's electric commodity that was procured for its customers by the California Department of Water Resources (DWR) and delivered by SDG&E is not included in SDG&E's revenues or costs. Commodity costs associated with long-term contracts allocated to SDG&E from the DWR also are not included in the Statements of Consolidated Income, since the DWR retains legal and financial responsibility for these contracts. Note 13 includes a discussion of the electric industry restructuring. Natural gas storage contract revenues are accrued on a monthly basis and reflect reservation, storage and injection charges in accordance with negotiated agreements, which have terms of up to three years. Operating revenue includes amounts for services rendered but unbilled (approximately one-half month's deliveries) at the end of each year. Included in revenues for the California utilities are revenues of $1.8 billion, $1.7 billion and $1.8 billion for electric and $5.3 billion, $4.5 billion and $4.0 billion for natural gas for 2005, 2004 and 2003, respectively.

Additional information concerning utility revenue recognition is discussed above under "Regulatory Matters."

Sempra Commodities generates a substantial portion of its revenues from market making and trading activities, as a principal, in natural gas, electricity, petroleum, metals and other commodities, for which it quotes bid and ask prices to end users and other market makers. Principal transaction revenues are recognized on a trade-date basis, and include realized gains and losses, and the net change in the fair value of unrealized gains and losses. Sempra Commodities also earns trading profits as a dealer by structuring and executing transactions. Sempra Commodities utilizes derivative instruments to reduce its exposure to unfavorable changes in market prices, which are subject to significant and volatile fluctuation. These instruments include futures, forwards, swaps and options.

Options, which are either exchange-traded or directly negotiated between counterparties, provide the holder with the right to buy from or sell to the other party an agreed amount of a commodity at a specified price within a specified period or at a specified time. As a writer of options, Sempra Commodities generally receives an option premium and then manages the risk of an unfavorable change in the value of the underlying commodity by entering into offsetting transactions or by other means.

Forward and future transactions are contracts for delivery of commodities in which the counterparty agrees to make or take delivery at a specified price. Commodity swap transactions may involve the exchange of fixed and floating payment obligations without the exchange of the underlying commodity. Sempra Commodities' financial instruments represent contracts with counterparties whereby payments are linked to or derived from market indices or on terms predetermined by the contract.

Non-derivative contracts are being carried at cost and accounted for on an accrual basis and, therefore, the related profit or loss will be recognized as the contract is performed. Derivative instruments are discussed further in Note 10.

Sempra Generation's revenues are derived primarily from the sale of electric energy to governmental and wholesale power marketing entities and are recognized as the energy is delivered in accordance with the provisions of Emerging Issues Task Force (EITF) 91-6, Revenue Recognition of Long-term Power Supply Contracts, and EITF 96-17, Revenue Recognition Under Long-term Power Sales Contracts that Contain Both Fixed and Variable Terms. During 2005 and 2004, electric energy sales to the DWR accounted for a significant portion of Sempra Generation's revenues. A small portion of Sempra Generation's revenue is generated from energy-related products and services to commercial, industrial, government and institutional markets.

The consolidated foreign subsidiaries of Sempra Pipelines & Storage, all of which operate in Mexico, recognize revenue as deliveries are made similar to the California Utilities, except that SFAS 71 is not applicable due to the different regulatory environment.

Foreign Currency Translation

The assets and liabilities of the company's foreign operations are translated into U.S. dollars at current exchange rates, and revenues and expenses are translated at average exchange rates for the year. Resulting translation adjustments do not enter into the calculation of net income or retained earnings (unless the operation is being discontinued), but are reflected in Comprehensive Income and in Accumulated Other Comprehensive Income, a component of shareholders' equity, as described above. To reflect the fluctuation in the value of the Argentine peso, the functional currency of the company's Argentine operations, Sempra Pipelines & Storage adjusted its investment in its two Argentine natural gas utility holding companies downward by $3 million, downward by $1 million and upward by $26 million in 2005, 2004 and 2003, respectively. A similar adjustment has been made to its investment in Chile to reflect the fluctuation in the value of the Chilean peso, the functional currency of the company's Chilea n operations, upward by $32 million in 2005, $22 million in 2004 and $43 million in 2003. These non-cash adjustments did not affect net income, but did affect Comprehensive Income and Accumulated Other Comprehensive Income (Loss). Smaller adjustments have been made to other operations where the U.S. dollar is not the functional currency. Additional information concerning these investments is described in Note 3.

Currency transaction gains and losses in a currency other than the entity's functional currency are included in the calculation of consolidated net income. The company recorded $1 million of currency transaction gains in 2005 and $8 million of currency transaction losses in 2003.

Transactions with Affiliates

Loans to Unconsolidated Affiliates

In December 2001, Sempra Pipelines & Storage issued two U.S. dollar denominated loans totaling $35 million and $22 million to its affiliates Camuzzi Gas Pampeana S. A. and Camuzzi Gas del Sur S. A., respectively. These loans have variable interest rates (11.54% at December 31, 2005) and are due in October 2006 and June 2006, respectively. The balances outstanding under the notes were $21 million and $42 million at December 31, 2005 and 2004, respectively. These amounts are included in non-current assets under Due from Unconsolidated Affiliates, because company management does not expect to request payment in 2006.

Loans from Unconsolidated Affiliates

At both December 31, 2005 and 2004, Sempra Pipelines & Storage had long-term notes payable to affiliates which include $60 million at 6.47% due April 1, 2008 and $100 million at 6.62% due April 1, 2011. The loans are due to Chilquinta Energía Finance Co. LLC and are secured by Sempra Pipelines & Storage's investments in Chilquinta Energía S.A. and Luz del Sur S.A.A. (Luz del Sur), which are discussed in Note 3.

In February 2000, a wholly owned subsidiary trust of the company issued $200 million of preferred stock in the form of 8.90% Cumulative Quarterly Income Preferred Securities, Series A (QUIPS). The company redeemed the $200 million of mandatorily redeemable trust preferred securities in February 2005.

Revenues and Expenses with Unconsolidated Affiliates

During the first seven months of 2005 and in all of 2004, Sempra Generation recorded $38 million and $60 million, respectively, in sales to El Dorado, then an unconsolidated affiliate, and recorded $43 million and $71 million, respectively, of purchases from El Dorado for those same periods. Sempra Energy purchased the remaining 50% interest in El Dorado in July 2005 and consolidated El Dorado in its financial statements. Additionally, during 2005 and 2004, Sempra Commodities recorded $85 million and $28 million, respectively of purchases from Topaz Power Partners (Topaz), an unconsolidated affiliate. Sales to Topaz were $213 million and $74 million in 2005 and 2004, respectively.

Capitalized Interest

The company recorded $33 million, $12 million and $34 million of capitalized interest for 2005, 2004 and 2003, respectively, including the portion of AFUDC related to debt.

Other Income, Net

Other Income, Net consists of the following:

			Years ended December 31,
(Dollars in millions)		2005				2004			2003
Equity in income (losses) of unconsolidated subsidiaries (Note 3)		$		11		$	(26	)	$	(57	)
Regulatory interest, net				(6	)		3			(2	)
Allowance for equity funds used during construction				14			14			21
Gain on settlement of Cameron liability				--			13			--
Sundry, net				32			29			(2	)
	Total	$		51		$	33		$	(40	)

New Accounting Standards

SFAS 123 (revised 2004), "Share-Based Payment" (SFAS 123R): In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS 123R, a revision of SFAS 123, Accounting for Stock-Based Compensation (SFAS 123), which establishes the accounting for transactions in which an entity exchanges its equity instruments for goods or services received. This statement requires companies to measure and record the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The company expects to adopt the provisions of SFAS 123R using a modified prospective application. The modified prospective method requires companies to recognize compensation cost for unvested awards that are outstanding on the effective date based on the fair value that the company had originally estimated for purposes of preparing its SFAS 123 pro forma disclosures. For all new awards that are granted or modified after the effective date, a company would use SFAS 123R's measurement model. The effect of adopting SFAS 123R has not been determined; however, the pro forma effects of recognizing compensation expense in accordance with SFAS 123 are discussed above in Stock-Based Compensation. The effective date of this statement is January 1, 2006.

SFAS 143, "Accounting for Asset Retirement Obligations" and FASB Interpretation No. (FIN) 47, "Accounting for Conditional Asset Retirement Obligations, an interpretation of SFAS 143": Beginning in 2003, SFAS 143 requires entities to record the present value of liabilities for future costs expected to be incurred when assets are retired from service, if the retirement process is legally required. It requires recording of 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. The adoption of SFAS 143 on January 1, 2003 resulted in the recording of an addition to utility plant of $71 million, representing the company's share of SONGS' estimated future decommissioning costs (as discounted to the present value at the dates the units began operation), and accumulated depreciation of $41 million related to the increase to u tility plant, for a net increase of $30 million. On January 1, 2003, the company recorded additional asset retirement obligations of $20 million associated with the future retirement of a former power plant and three storage facilities.

In March 2005, the FASB issued FIN 47, "Accounting for Conditional Asset Retirement Obligations, an interpretation of SFAS 143." The interpretation clarifies that the term "conditional asset-retirement obligation" as used in SFAS 143, refers to a legal obligation to perform an asset-retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. FIN 47 requires companies to recognize a liability for the fair value of a conditional asset-retirement obligation if the fair value of the obligation can be reasonably estimated.

The adoption of FIN 47 on December 31, 2005 resulted in the recording of an addition to utility plant of $198 million and accumulated depreciation of $74 million related to the increase to utility plant, for a net increase of $124 million. In addition, the company recorded a corresponding retirement obligation liability of $619 million (which includes accretion of that discounted value to December 31, 2005) and a regulatory liability of $1.1 billion to reflect that the California Utilities have collected the funds from customers more quickly than FIN 47 would accrete the retirement liability and depreciate the asset.

The adoption of SFAS 143 required the reclassification of utilities' estimated removal costs collected in rates, which had historically been recorded in accumulated depreciation, to a regulatory liability. At December 31, 2005 and 2004, these costs were $200 million and $1.4 billion, respectively, for SoCalGas, and $724 million and $913 million, respectively, for SDG&E. The change in the balance is due to the implementation of FIN 47, which required the reclassification of disposal costs that previously have been included in the utilities' estimated cost of removal obligations to a regulatory liability and to Asset Retirement Obligations.

EX-31

EXHIBIT 31.2

CERTIFICATION

I, Mark A. Snell, certify that:

1. I have reviewed this Annual Report on Form 10-K of Sempra Energy;
2. Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report;
3. Based on my knowledge, the financial statements and other financial information included in this Annual Report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Annual Report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 15(f) and 15d-15(f)) for the registrant and have:

1. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared;
2. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
3. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Annual Report, based on such evaluation; and
4. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

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

1. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
2. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

February 22, 2006

/s/ Mark A. Snell

_________________________

Mark A. Snell

Chief Financial Officer

EX-32

Exhibit 32.1

Statement of Chief Executive Officer

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

1. the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission for the year ended December 31, 2005 (the "Annual Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
2. the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

February 22, 2006

/s/Donald E. Felsinger

______________________

Donald E. Felsinger

Chief Executive Officer

EX-32

Exhibit 32.2

Statement of Chief Financial Officer

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

1. the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission for the year ended December 31, 2005 (the "Annual Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
2. the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

February 22, 2006

/s/Mark A. Snell

______________________