We consolidate a VIE if we are the primary beneficiary of the VIE. Our determination of whether we are the primary beneficiary is based upon qualitative and quantitative analyses, which assess

SDG&E has agreements under which it purchases power generated by facilities for which it supplies all of the natural gas to fuel the power plant (i.e., tolling agreements). SDG&E's obligation to absorb natural gas costs may be a significant variable interest. In addition, SDG&E has the power to direct the dispatch of electricity generated by these facilities. Based upon our analysis, the ability to direct the dispatch of electricity may have the most significant impacts on the economic performance of the entity owning the generating facility because of the associated exposure to the cost of natural gas, which fuels the plants, and the value of electricity produced. To the extent that SDG&E (1) is obligated to purchase and provide fuel to operate the facility, (2) has the power to direct the dispatch, and (3) purchases all of the output from the facility for a substantial portion of the facility's useful life, SDG&E may be the primary beneficiary of the entity owning the generating facility. SDG&E determines if it is the primary beneficiary in these cases based on the operational characteristics of the facility, including its expected power generation output relative to its capacity to generate and the financial structure of the entity, among other factors. If we determine that SDG&E is the primary beneficiary, Sempra Energy and SDG&E consolidate the entity that owns the facility as a VIE, as we discuss below.

SDG&E has a 10-year agreement to purchase power generated at the Otay Mesa Energy Center (OMEC), a 605-MW generating facility. In addition to tolling, the agreement provides SDG&E with the option to purchase the power plant at the end of the contract term in 2019, or upon earlier termination of the purchased-power agreement, at a predetermined price subject to adjustments based on performance of the facility. If SDG&E does not exercise its option it may be required, under certain circumstances, to purchase the power plant at a predetermined price.

The facility owner, Otay Mesa Energy Center LLC (OMEC LLC), is a VIE (Otay Mesa VIE), of which SDG&E is the primary beneficiary. SDG&E has no OMEC LLC voting rights and does not operate OMEC. In addition to the risks absorbed under the tolling agreement, SDG&E absorbs separately through the put option a significant portion of the risk that the value of Otay Mesa VIE could decline. Otay Mesa VIE's equity of $91 million at September 30, 2011 and $113 million at December 31, 2010 is included on the Condensed Consolidated Balance Sheets in Other Noncontrolling Interests for Sempra Energy and in Noncontrolling Interest for SDG&E.

OMEC LLC has a loan outstanding of $357 million at September 30, 2011, the proceeds of which were used for the construction of OMEC. The loan is with third party lenders and is secured by OMEC's property, plant and equipment. SDG&E is not a party to the loan agreement and does not have any additional implicit or explicit financial responsibility to OMEC LLC. The loan fully matures in April 2019 and bears interest at rates varying with market rates. In addition, OMEC LLC has entered into interest rate swap agreements to moderate its exposure to interest rate changes. We provide additional information concerning the interest rate swaps in Note 7.

SDG&E's power procurement is subject to reliability requirements that may require SDG&E to enter into various power purchase arrangements which include variable interests. SDG&E evaluates the respective entities to determine if variable interest entities exist and, based on the qualitative and quantitative analyses described above, if SDG&E, and thereby Sempra Energy, is the primary beneficiary. SDG&E has determined that no contracts, other than the one relating to Otay Mesa VIE mentioned above, result in SDG&E being the primary beneficiary as of September 30, 2011. In addition to the tolling agreements described above, other variable interests involve various elements of fuel and power costs, including certain construction costs, tax credits, and other components of cash flow expected to be paid to or received by our counterparties. In most of these cases, the expectation of variability is not substantial, and SDG&E generally does not have the power to direct activities that most significantly impact the economic performance of the other VIEs. If our ongoing evaluation of these VIEs were to conclude that SDG&E becomes the primary beneficiary and consolidation by SDG&E becomes necessary, the effects are not expected to significantly affect the financial position, results of operations, or liquidity of SDG&E. SDG&E is not exposed to losses or gains as a result of these other VIEs, because all such variability would be recovered in rates.

Sempra Energy's other business units also enter into arrangements which could include variable interests. We evaluate these arrangements and applicable entities based upon the qualitative and quantitative analyses described above. Certain of these entities are service companies that are VIEs. As the primary beneficiary of these service companies, we consolidate them. In all other cases, we have determined that at this time the contracts are not variable interests in a VIE and therefore are not subject to the requirements of GAAP concerning the consolidation of VIEs.

Goodwill is the excess of the purchase price over the fair value of the identifiable net assets of acquired companies. Goodwill is not amortized but is tested annually on October 1 for impairment. Impairment of goodwill occurs when the carrying amount (book value) of goodwill exceeds its implied fair value. If the book value of goodwill is greater than the fair value on the test date, an impairment loss may be recorded.

Goodwill included on the Sempra Energy Condensed Consolidated Balance Sheets is recorded as follows:

GOODWILL
(Dollars in millions)
		Sempra
		Pipelines &		Parent
		Storage		and Other		Total
Balance as of December 31, 2010	$	81	$	6	$	87
Acquisition of Chilquinta Energía and Luz Del Sur		970		―		970
Foreign currency translation(1)		(44)		―		(44)
Balance at September 30, 2011	$	1,007	$	6	$	1,013
(1) We record the offset of this fluctuation to other comprehensive income.

We provide additional information concerning goodwill in Notes 1 and 3 of the Notes to Consolidated Financial Statements in the Annual Report.

NET PERIODIC BENEFIT COST -- SEMPRA ENERGY CONSOLIDATED
(Dollars in millions)
	Pension Benefits				Other Postretirement Benefits
	Three months ended September 30,				Three months ended September 30,
	2011		2010		2011		2010
Service cost	$	20	$	20	$	8	$	5
Interest cost		41		41		16		14
Expected return on assets		(36)		(36)		(12)		(12)
Amortization of:
Prior service cost		1		1		―		―
Actuarial loss		8		8		4		2
Settlement		1		―		―		―
Regulatory adjustment		31		5		2		1
Total net periodic benefit cost	$	66	$	39	$	18	$	10
	Nine months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Service cost	$	63	$	62	$	23	$	20
Interest cost		126		125		49		43
Expected return on assets		(109)		(108)		(36)		(35)
Amortization of:
Prior service cost (credit)		3		3		―		(1)
Actuarial loss		26		23		13		6
Settlement		11		―		―		―
Regulatory adjustment		6		(14)		6		5
Total net periodic benefit cost	$	126	$	91	$	55	$	38

NET PERIODIC BENEFIT COST -- SDG&E
(Dollars in millions)
	Pension Benefits				Other Postretirement Benefits
	Three months ended September 30,				Three months ended September 30,
	2011		2010		2011		2010
Service cost	$	6	$	7	$	1	$	2
Interest cost		12		12		2		2
Expected return on assets		(10)		(11)		(1)		(2)
Amortization of:
Prior service cost		―		―		1		1
Actuarial loss		2		3		―		―
Regulatory adjustment		15		3		1		―
Total net periodic benefit cost	$	25	$	14	$	4	$	3
	Nine months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Service cost	$	21	$	21	$	5	$	5
Interest cost		37		36		7		7
Expected return on assets		(35)		(32)		(5)		(5)
Amortization of:
Prior service cost		1		1		3		3
Actuarial loss		7		9		―		―
Settlement		1		―		―		―
Regulatory adjustment		13		(2)		2		1
Total net periodic benefit cost	$	45	$	33	$	12	$	11

NET PERIODIC BENEFIT COST -- SOCALGAS
(Dollars in millions)
	Pension Benefits				Other Postretirement Benefits
	Three months ended September 30,				Three months ended September 30,
	2011		2010		2011		2010
Service cost	$	10	$	11	$	7	$	3
Interest cost		24		25		12		11
Expected return on assets		(21)		(23)		(10)		(9)
Amortization of:
Prior service cost (credit)		1		1		(1)		(1)
Actuarial loss		4		2		4		2
Regulatory adjustment		16		2		1		1
Total net periodic benefit cost	$	34	$	18	$	13	$	7
	Nine months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Service cost	$	34	$	34	$	17	$	13
Interest cost		74		74		39		34
Expected return on assets		(64)		(68)		(30)		(29)
Amortization of:
Prior service cost (credit)		2		2		(3)		(3)
Actuarial loss		12		7		13		6
Settlement		1		―		―		―
Regulatory adjustment		(7)		(12)		4		4
Total net periodic benefit cost	$	52	$	37	$	40	$	25

The following table shows our year-to-date contributions to pension and other postretirement benefit plans and the amounts we expect to contribute in 2011:

	Sempra Energy
(Dollars in millions)	Consolidated		SDG&E		SoCalGas
Contributions through September 30, 2011:
Pension plans	$	136	$	42	$	56
Other postretirement benefit plans		56		12		42
Total expected contributions in 2011:
Pension plans	$	211	$	68	$	95
Other postretirement benefit plans		74		15		55

The following table provides the per share computations for our earnings for the three months and nine months ended September 30, 2011 and 2010. Basic earnings per common share (EPS) is calculated by dividing earnings attributable to common stock by the weighted-average number of common shares outstanding for the period. Diluted EPS includes the potential dilution of common stock equivalent shares that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

EARNINGS PER SHARE COMPUTATIONS
(Dollars in millions, except per share amounts; shares in thousands)
	Three months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Numerator:
Earnings/Income attributable to common shareholders	$	296	$	131	$	1,065	$	459

Denominator:
Weighted-average common shares outstanding for basic EPS		239,545		246,668		239,693		246,513
Dilutive effect of stock options, restricted stock awards and restricted stock units		2,335		3,143		2,262		3,260
Weighted-average common shares outstanding for diluted EPS		241,880		249,811		241,955		249,773

Earnings per share:
Basic	$	1.23	$	0.53	$	4.44	$	1.86
Diluted	$	1.22	$	0.53	$	4.40	$	1.84

The dilution from common stock options is based on the treasury stock method. Under this method, proceeds based on the exercise price plus unearned compensation and windfall tax benefits and minus tax shortfalls are assumed to be used to repurchase shares on the open market at the average market price for the period. The windfall tax benefits are tax deductions we would receive upon the assumed exercise of stock options in excess of the deferred income taxes we recorded related to the compensation expense on the stock options. Tax shortfalls occur when the assumed tax deductions are less than recorded deferred income taxes. The calculation excludes options for which the exercise price on common stock was greater than the average market price during the period (out-of-the-money options). We had 2,112,880 and 2,111,839 such antidilutive stock options outstanding during the three months and nine months ended September 30, 2011, respectively. We had 2,132,975 and 2,158,528 such stock options outstanding during the three months and nine months ended September 30, 2010, respectively.

We had no stock options outstanding during the three months ended September 30, 2011 and 900 stock options during the nine months ended September 30, 2011 that were antidilutive because of the unearned compensation and windfall tax benefits included in the assumed proceeds under the treasury stock method. We had 10,800 and 8,407 such antidilutive stock options during the three months and nine months ended September 30, 2010, respectively.

The dilution from unvested restricted stock awards (RSAs) and restricted stock units (RSUs) is also based on the treasury stock method. Assumed proceeds equal to the unearned compensation and windfall tax benefits and minus tax shortfalls related to the awards and units are assumed to be used to repurchase shares on the open market at the average market price for the period. The windfall tax benefits or tax shortfalls are the difference between tax deductions we would receive upon the assumed vesting of RSAs or RSUs and the deferred income taxes we recorded related to the compensation expense on such awards and units.

Each performance based RSU represents the right to receive between zero and 1.5 shares of Sempra Energy common stock based on Sempra Energy's four-year cumulative total shareholder return compared to the S&P 500 Utilities Index, as follows:

Four-Year Cumulative Total Shareholder Return Ranking versus S&P 500 Utilities Index(1)	Number of Sempra Energy Common Shares Received for Each Restricted Stock Unit(2)
75th Percentile or Above	1.5
50th Percentile	1
35th Percentile or Below	―
(1) If Sempra Energy ranks at or above the 50th percentile compared to the S&P 500 Index, participants will receive a minimum of 1.0 share for each restricted stock unit.
(2) Participants may also receive additional shares for dividend equivalents on shares subject to restricted stock units, which are reinvested to purchase additional shares that become subject to the same vesting conditions as the restricted stock units to which the dividends relate.

RSAs have a maximum potential of 100% vesting. We include our performance based RSAs and RSUs in potential dilutive shares at zero to 100 percent and zero to 150 percent, respectively, to the extent that they currently meet the performance requirements for vesting, subject to the application of the treasury stock method. Due to market fluctuations of both Sempra Energy stock and the comparative index, dilutive RSA and RSU shares may vary widely from period-to-period. We include our RSAs, which are service based, in potential dilutive shares at 100 percent.

RSUs and RSAs may be excluded from potential dilutive shares by the application of unearned compensation in the treasury stock method or because performance goals are currently not met. The maximum excluded RSUs and RSAs, assuming performance goals were met at maximum levels, were 3,473,578 and 3,630,253 for the three months and nine months ended September 30, 2011, respectively, and 2,072,646 and 1,950,281 for the three months and nine months ended September 30, 2010, respectively.

In September 2010, we entered into a share repurchase program under which we prepaid $500 million to repurchase shares of our common stock in a share forward transaction. The program was completed in March 2011 with a total of 9,574,435 shares repurchased at an average price of $52.22 per share. Our outstanding shares used to calculate earnings per share were reduced by the number of shares repurchased when they were delivered to us, and the $500 million purchase price was recorded as a reduction in shareholders' equity upon its prepayment. We received 5,670,006 shares during the quarter ended September 30, 2010; 2,407,994 shares on October 4, 2010 and 1,496,435 shares on March 22, 2011. We discuss the repurchase program further in Note 13 of the Notes to Consolidated Financial Statements in the Annual Report.

On June 30, 2011, PE redeemed all five series of its outstanding preferred stock for $81 million. Each series was redeemed for cash at redemption prices ranging from $100 to $101.50 per share, plus accrued dividends up to the redemption date of an aggregate of $1 million. The redeemed shares are no longer outstanding and represent only the right to receive the applicable redemption price, to the extent the shares have not yet been presented for payment. We provide more detail concerning PE's preferred stock in Note 12 of the Notes to Consolidated Financial Statements in the Annual Report.

We discuss our share-based compensation plans in Note 9 of the Notes to Consolidated Financial Statements in the Annual Report. We recorded share-based compensation expense, net of income taxes, of $7 million and $4 million for the three months ended September 30, 2011 and 2010, respectively, and $20 million and $17 million for the nine months ended September 30, 2011 and 2010, respectively. Pursuant to our share-based compensation plans, we granted 1,089,223 RSUs and 11,876 RSAs during the nine months ended September 30, 2011, primarily in January 2011.

Capitalized financing costs include capitalized interest costs and, at the Sempra Utilities, an allowance for funds used during construction (AFUDC) related to both debt and equity financing of construction projects. The following table shows capitalized financing costs for the three months and nine months ended September 30, 2011 and 2010.

CAPITALIZED FINANCING COSTS
(Dollars in millions)
	Three months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Sempra Energy Consolidated:
AFUDC related to debt	$	10	$	6	$	27	$	16
AFUDC related to equity		26		13		67		40
Other capitalized financing costs		6		9		20		27
Total Sempra Energy Consolidated	$	42	$	28	$	114	$	83
SDG&E:
AFUDC related to debt	$	8	$	5	$	22	$	12
AFUDC related to equity		21		11		54		30
Total SDG&E	$	29	$	16	$	76	$	42
SoCalGas:
AFUDC related to debt	$	2	$	1	$	5	$	4
AFUDC related to equity		5		2		13		10
Total SoCalGas	$	7	$	3	$	18	$	14

The following tables provide a reconciliation of net income to comprehensive income.

COMPREHENSIVE INCOME
(Dollars in millions)
		Three months ended September 30,
		2011						2010
		Share-		Non-				Share-		Non-
		holders'		controlling		Total		holders'		controlling		Total
		Equity(1)		Interests		Equity		Equity(1)		Interests		Equity
Sempra Energy Consolidated:
	Net income (loss)(2)	$	297	$	29	$	326	$	133	$	(6)	$	127
	Foreign currency translation
	adjustments		(132)		(7)		(139)		53		―		53
	Financial instruments		(14)		(25)		(39)		(3)		1		(2)
	Available-for-sale securities		―		―		―		4		―		4
	Net actuarial gain		1		―		1		1		―		1
	Comprehensive income (loss)	$	152	$	(3)	$	149	$	188	$	(5)	$	183
SDG&E:
	Net income (loss)	$	115	$	21	$	136	$	108	$	(5)	$	103
	Financial instruments		―		(25)		(25)		―		1		1
	Net actuarial gain		1		―		1		―		―		―
	Comprehensive income (loss)	$	116	$	(4)	$	112	$	108	$	(4)	$	104
SoCalGas:
	Net income	$	81	$	―	$	81	$	78	$	―	$	78
	Financial instruments		1		―		1		1		―		1
	Comprehensive income	$	82	$	―	$	82	$	79	$	―	$	79
(1)	Shareholders' equity of Sempra Energy Consolidated, SDG&E or SoCalGas as indicated in left margin.
(2)	Before preferred dividends of subsidiaries.

COMPREHENSIVE INCOME
(Dollars in millions)
		Nine months ended September 30,
		2011						2010
		Share-		Non-				Share-		Non-
		holders'		controlling		Total		holders'		controlling		Total
		Equity(1)		Interests		Equity		Equity(1)		Interests		Equity
Sempra Energy Consolidated:
Net income (loss)(2)		$	1,071	$	21	$	1,092	$	466	$	(34)	$	432
Foreign currency translation
adjustments			(109)		(1)		(110)		32		―		32
Reclassification to net income of
foreign currency translation
adjustment related to equity
method investments(3)			(54)		―		(54)		―		―		―
Financial instruments			(18)		(34)		(52)		(12)		5		(7)
Available-for-sale securities			―		―		―		1		―		1
Net actuarial gain			8		―		8		4		―		4
Comprehensive income (loss)		$	898	$	(14)	$	884	$	491	$	(29)	$	462
SDG&E:
Net income (loss)		$	277	$	6	$	283	$	268	$	(34)	$	234
Financial instruments			―		(34)		(34)		―		5		5
Net actuarial gain			1		―		1		1		―		1
Comprehensive income (loss)		$	278	$	(28)	$	250	$	269	$	(29)	$	240
SoCalGas:
Net income		$	209	$	―	$	209	$	213	$	―	$	213
Financial instruments			2		―		2		2		―		2
Comprehensive income		$	211	$	―	$	211	$	215	$	―	$	215
(1)	Shareholders' equity of Sempra Energy Consolidated, SDG&E or SoCalGas as indicated in left margin.
(2)	Before preferred dividends of subsidiaries.
(3)	Related to the acquisition of Chilquinta Energía and Luz del Sur.

The amounts for comprehensive income in the tables above are net of income tax expense (benefit) as follows:

INCOME TAX EXPENSE (BENEFIT) ASSOCIATED WITH OTHER COMPREHENSIVE INCOME
(Dollars in millions)
		Three months ended September 30,
		2011						2010
		Share-		Non-				Share-		Non-
		holders'		controlling		Total		holders'		controlling		Total
		Equity(1)		Interests		Equity		Equity(1)		Interests		Equity
Sempra Energy Consolidated:
Financial instruments		$	(11)	$	―	$	(11)	$	(1)	$	―	$	(1)
Foreign currency translation adjustments			(1)		―		(1)		―		―		―
Net actuarial gain			1		―		1		1		―		1
SoCalGas:
Financial instruments		$	―	$	―	$	―	$	1	$	―	$	1

		Nine months ended September 30,
		2011						2010
		Share-		Non-				Share-		Non-
		holders'		controlling		Total		holders'		controlling		Total
		Equity(1)		Interests		Equity		Equity(1)		Interests		Equity
Sempra Energy Consolidated:
Financial instruments		$	(11)	$	―	$	(11)	$	(7)	$	―	$	(7)
Foreign currency translation adjustments			(1)		―		(1)		―		―		―
Available-for-sale securities			―		―		―		(1)		―		(1)
Net actuarial gain			5		―		5		3		―		3
SoCalGas:
Financial instruments		$	1	$	―	$	1	$	2	$	―	$	2
(1)	Shareholders' equity of Sempra Energy Consolidated or SoCalGas as indicated in left margin.

Income tax amounts associated with other comprehensive income during the three months and nine months ended September 30, 2011 and 2010 at SDG&E were negligible.

The following two tables provide a reconciliation of Sempra Energy's and SDG&E's shareholders' equity and noncontrolling interests for the nine months ended September 30, 2011 and 2010.

SHAREHOLDERS' EQUITY AND NONCONTROLLING INTERESTS
(Dollars in millions)
		Sempra
		Energy		Non-
		Shareholders'		controlling		Total
		Equity		Interests		Equity
Balance at December 31, 2010	$	9,027	$	211	$	9,238
Comprehensive income (loss)		898		(14)		884
Share-based compensation expense		36		―		36
Common stock dividends declared		(346)		―		(346)
Preferred dividends of subsidiaries		(6)		―		(6)
Issuance of common stock		22		―		22
Tax benefit related to share-based compensation		6		―		6
Repurchase of common stock		(18)		―		(18)
Common stock released from ESOP		15		―		15
Distributions to noncontrolling interests		―		(9)		(9)
Equity contributed by noncontrolling interest		―		6		6
Acquisition of South American entities		―		279		279
Purchase of noncontrolling interests in subsidiary		(4)		(39)		(43)
Redemption of preferred stock of subsidiary		―		(80)		(80)
Balance at September 30, 2011	$	9,630	$	354	$	9,984
Balance at December 31, 2009	$	9,007	$	244	$	9,251
Comprehensive income (loss)		491		(29)		462
Share-based compensation expense		31		―		31
Common stock dividends declared		(287)		―		(287)
Preferred dividends of subsidiaries		(7)		―		(7)
Issuance of common stock		53		―		53
Tax benefit related to share-based compensation		3		―		3
Repurchase of common stock		(502)		―		(502)
Common stock released from ESOP		13		―		13
Distributions to noncontrolling interest		―		(10)		(10)
Balance at September 30, 2010	$	8,802	$	205	$	9,007

SHAREHOLDER'S EQUITY AND NONCONTROLLING INTEREST
(Dollars in millions)
		SDG&E		Non-
		Shareholder's		controlling		Total
		Equity		Interest		Equity
Balance at December 31, 2010	$	3,108	$	113	$	3,221
Comprehensive income (loss)		278		(28)		250
Preferred stock dividends declared		(4)		―		(4)
Capital contribution		200		―		200
Equity contributed by noncontrolling interest		―		6		6
Balance at September 30, 2011	$	3,582	$	91	$	3,673
Balance at December 31, 2009	$	2,739	$	146	$	2,885
Comprehensive income (loss)		269		(29)		240
Preferred stock dividends declared		(4)		―		(4)
Distributions to noncontrolling interest		―		(10)		(10)
Balance at September 30, 2010	$	3,004	$	107	$	3,111

Sempra Pipelines & Storage has a U.S. dollar-denominated loan to Camuzzi Gas del Sur S.A., an affiliate of Sempra Pipelines & Storage's Argentine investments, which we discuss in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report. The loan has a $24 million balance outstanding at a variable interest rate (7.246 percent as of September 30, 2011). In June 2011, the maturity date of the loan was extended from June 2011 to June 30, 2012. The loan was fully reserved at December 31, 2010 and September 30, 2011.

Sempra Energy, SDG&E and SoCalGas provide certain services to each other and are charged an allocable share of the cost of such services. Amounts due to/from affiliates are as follows:

AMOUNTS DUE TO AND FROM AFFILIATES AT SDG&E AND SOCALGAS
(Dollars in millions)
		September 30,		December 31,
		2011		2010
SDG&E
Current:
Due from SoCalGas		$	10	$	11
Due from various affiliates			1		1
		$	11	$	12

Due to Sempra Energy		$	23	$	16

Income taxes due from Sempra Energy(1)		$	84	$	25

SoCalGas
Current:
Due from Sempra Energy		$	167	$	60
Due from various affiliates			1		3
		$	168	$	63

Due to SDG&E		$	10	$	11

Income taxes due from (to) Sempra Energy(1)		$	63	$	(3)
(1)	SDG&E and SoCalGas are included in the consolidated income tax return of Sempra Energy and are allocated income tax expense from Sempra Energy in an amount equal to that which would result from the companies' having always filed a separate return.

Several of our business units have engaged in transactions with RBS Sempra Commodities. As a result of the divestiture of substantially all of RBS Sempra Commodities' businesses, transactions between our business units and RBS Sempra Commodities were assigned over time to the buyers of the joint venture businesses. The assignments of the related contracts were substantially completed by May 1, 2011. Amounts in our Condensed Consolidated Financial Statements related to these transactions are as follows:

AMOUNTS RECORDED FOR TRANSACTIONS WITH RBS SEMPRA COMMODITIES
(Dollars in millions)

		Three months ended September 30,				Nine months ended September 30,
		2011(1)		2010		2011(1)		2010
Revenues:
SoCalGas		$	―	$	1	$	―	$	8
Sempra Generation(2)			―		10		4		19
Sempra LNG			―		60		40		199
Total revenues		$	―	$	71	$	44	$	226

Cost of natural gas:
SDG&E		$	―	$	1	$	―	$	2
SoCalGas			―		10		―		33
Sempra Generation			―		30		30		58
Sempra Pipelines & Storage			3		6		17		22
Sempra LNG			―		63		30		208
Total cost of natural gas		$	3	$	110	$	77	$	323
(1)	With the exception of Sempra Pipelines & Storage, whose contract with RBS Sempra Commodities expired in July 2011, amounts only include activities prior to May 1, 2011, the date by which substantially all the contracts with RBS Sempra Commodities were assigned to buyers of the joint venture businesses.
(2)	Includes amounts in 2010 for Sempra Rockies Marketing, previously reported in our former Sempra Commodities segment as we discuss in Note 11.

				December 31,
				2010
Fixed-price contracts and other derivatives - Net Asset (Liability):
Sempra Generation				$	17
Sempra LNG					(35)
Total				$	(18)

Due to unconsolidated affiliates:
Sempra Generation				$	11
Sempra LNG					13
Parent and other					11
Total				$	35

Due from unconsolidated affiliates:
SoCalGas				$	3
Sempra Generation					13
Sempra LNG					13
Parent and other					5
Total				$	34

Other Income (Expense), Net on the Condensed Consolidated Statements of Operations consists of the following:

OTHER INCOME (EXPENSE), NET
(Dollars in millions)
		Three months ended September 30,				Nine months ended September 30,
		2011		2010		2011		2010
Sempra Energy Consolidated:
Allowance for equity funds used during construction		$	26	$	13	$	67	$	40
Investment (losses) gains(1)			(6)		10		13		15
Losses on interest rate and foreign exchange instruments, net(2)			(26)		(17)		(14)		(40)
Regulatory interest, net			―		1		1		―
Sundry, net(3)			18		59		19		67
Total		$	12	$	66	$	86	$	82
SDG&E:
Allowance for equity funds used during construction		$	21	$	11	$	54	$	30
Losses on interest rate instruments(4)			―		(17)		―		(51)
Regulatory interest, net			―		―		1		―
Sundry, net			5		4		―		3
Total		$	26	$	(2)	$	55	$	(18)
SoCalGas:
Allowance for equity funds used during construction		$	5	$	2	$	13	$	10
Sundry, net			(2)		―		(4)		(2)
Total		$	3	$	2	$	9	$	8
(1)	Represents investment (losses) gains on dedicated assets in support of our executive retirement and deferred compensation plans. These amounts are partially offset by corresponding changes in compensation expense related to the plans.
(2)	Sempra Energy Consolidated includes Otay Mesa VIE and additional instruments.
(3)	Amounts in 2010 include proceeds from a legal settlement of $48 million.
(4)	Related to Otay Mesa VIE.

INCOME TAX EXPENSE (BENEFIT) AND EFFECTIVE INCOME TAX RATES
(Dollars in millions)
		Three months ended September 30,
		2011				2010
		Income Tax	Effective Income			Income Tax Expense	Effective Income
		Expense	Tax Rate			(Benefit)	Tax Rate
Sempra Energy Consolidated	$	68	18	%	$	(32)	(32)	%
SDG&E		63	32			56	35
SoCalGas		41	34			42	35
		Nine months ended September 30,
		2011				2010
		Income Tax	Effective Income			Income Tax	Effective Income
		Expense	Tax Rate			Expense	Tax Rate
Sempra Energy Consolidated	$	269	20	%	$	85	18	%
SDG&E		154	35			131	36
SoCalGas		106	34			132	38

In the three months ended September 30, 2011, we had net income tax expense compared to a net income tax benefit in 2010. The change in rates was primarily due to:

For the nine months ended September 30, 2011, the increase in the effective income tax rate was primarily due to:

As we discuss in Note 3, we recorded a $277 million gain in connection with our acquisition of AEI's interests in Chilquinta Energía in Chile and Luz del Sur in Peru. However, we recorded no corresponding income tax expense because, for the foreseeable future, our investments in Chile and Peru are considered permanent in nature (i.e., will not be held out for sale). In addition, we continue to expect to reinvest indefinitely all cumulative undistributed earnings, for the foreseeable future, for all non-U.S. subsidiaries, including our subsidiaries in Chile and Peru. Deferred income tax expense related to all, or a part, of the $277 million gain would need to be recorded if either, or both, of these investments were to be held out for sale. Deferred income tax expense would also need to be recorded if all, or part, of the cumulative undistributed earnings in either Chile or Peru, or both, were no longer considered to be reinvested indefinitely.

SDG&E's effective income tax rate decreased for the three months ended September 30, 2011 primarily due to:

SDG&E's effective income tax rate decreased for the nine months ended September 30, 2011 primarily due to:

Results for Sempra Energy Consolidated and SDG&E include Otay Mesa VIE, which is consolidated, and therefore, their effective income tax rates are impacted by the VIE's stand-alone effective income tax rate.

The decrease in SoCalGas' effective income tax rate for the three months ended September 30, 2011 was primarily due to higher exclusions from taxable income of the equity portion of AFUDC.

The decrease in SoCalGas' effective income tax rate for the nine months ended September 30, 2011 was primarily due to:

The CPUC requires what is referred to as flow-through rate-making treatment for the current income tax benefit or expense arising from certain property-related and other temporary differences between the treatment for financial reporting and income tax, which will reverse over time. Under the regulatory accounting treatment required for these flow-through temporary differences, deferred income taxes are not recorded to deferred income tax expense, but rather to a regulatory asset or liability. As a result, changes in the relative size of these items compared to pretax income, from period to period, can cause variations in the effective income tax rate. In the variance discussion above, the following items are subject to flow-through treatment: